Denny Wright's  Instablog

Denny Wright
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I believe that United States energy independence is a myth. While it is clear that shale oil and gas production has rapidly expanded, so has the cost of production. I am a contrarian in search of beaten down stocks and sectors. In particular, I am extremely interested in the energy and precious... More
  • Play Oil With Silver 0 comments
    Mar 15, 2013 1:34 PM | about stocks: PSLV, PHYS

    As the trumpets of US energy independence herald a future of manufacturing growth and a stronger USD, the best play may be silver. The reason is cost. First, the rising cost of oil provides a steady and reliable brake on the US and world economy. In a recent interview with Charlie Rose, Jeremy Grantham stated that the days of $30 oil that fueled the economy since WW II are a part of history that will never be repeated. Whether you believe that the cost of shale oil production is $70 or $90 is irrelevant because either price guarantees that GDP growth over 4% is impossible. But the Fed is intent on pursuing its mandate of reducing unemployment so it will continue to follow QE for as long at the eye can see. Without a viable transportation alternative in sight, the chance of being bailed out by technology is minimal. But while the downside of oil is limited by QE, production costs, and the supply of cheap oil, the upside is constrained by the damage $100 WTI does to the economy. Somewhere around that price, demand wanes and the price drops. With this background, gold and silver should be considered as the Fed prints to promote long term growth despite the headwind of constricted energy supply. If one believes that growth can occur without rising energy costs, or that the supply and price of shale oil can indeed live up to its billing, silver and gold are not viable options. However, if you are a bit skeptical of US energy independence, Sprott inc., offers physical silver (NYSEARCA:PSLV) and gold (NYSEARCA:PHYS) investments that give the option of taking physical delivery. Also, the junior miner sector has been beaten down to the point where many stocks trade like options. The stocks can go to zero or could go parabolic if silver and gold rebound sharply.

    Disclosure: I am long PSLV.

    Stocks: PSLV, PHYS
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