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Silver To S&P 500 Ratio: Why It Signals A Historic Low · Felix Nikolas Prehn's Podcast

0:00
Silver has just gone from the boring thing your grandmother had in her cutlery drawer to being the most fought over industrial commodity on the planet.
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And almost no regular investor has a clue. Literally not one of a hundred, not even one thousand. So, while everyone's staring at tech stocks or arguing about the Fed or the wars or what the president is up to, a quiet rule change was pushed through in the background that changes how silver and stocks interact forever. And Wall Street is not exactly rushing to put it on the evening news. They'd rather you didn't notice. So, if you own stocks, if you own an index fund, if you have a 401k, or even if you are a gold or silver investor, this matters to you because what I'm about to show you is a setup that has only appeared a handful of times in the last 50 years. And every single time, the move that followed was brutal for people who weren't paying attention and life-changing for those who were. So, by the end of this video, you're going to understand the rule change. You're going to understand the chart that Wall Street hopes you never see and you're going to have a simple three signal framework you can use from today forward to decide what to do with your money. No more guessing, no more gambling, just a rule book. My name is Felix Pin. I'm an ex investor and banker. I'm also the founder of the Goat Academy where my mentors, my Wall Street mentors have taught over 20,000 students these last six years. I'm also the co-founder of Trade Vision. And that back there, most importantly, is Winston, who's of course our in-house metals analyst, who's uh snoozing through this. He's had fun this morning, it seems. He has a slightly bloody ear, which means he had a lot of fun because somebody bit him, which is actually a good thing. He quite likes that sort of thing. Um, now people are going to say that I'm being cruel to him. Definitely not. He's got some lovely friends, but they go a bit wild sometimes. And Winston's mission, and my mission is very simple. take what Wall Street has learned for the last 50 or 100 years, strip out the jargon, strip out the ego, and hand it over to normal people in a way that anyone can understand. So why should you stick around in this video?
2:18
Because this silver story is not really about silver. It's about how rules, regulation, and one single country quietly shifted the floor under the entire market while nobody was looking.
2:33
And I can tell you from my experience, quiet rule changes are exactly where the real money gets made or well lost. So I want to start with a picture, not a price, a ratio. Because prices neither here nor there. Prices move because of all sorts of stuff. inflation, the dollar, and some guy on TV said something in a loud voice. Ratios don't lie. A ratio tells you one thing compared to another thing cleanly without all the noise. And the ratio I want to show you is silver divided by the S&P 500. And I put the chart just into our uh into our metals minute tool here, which you can get access to down below. It's like $6 a week in capital anytime. If you enjoy it, you enjoy it. If you don't, uh, let me know. And it shows you this chart here on the right. It shows you how expensive silver is compared to the American stock market. If silver is expensive compared to the stocks, the number is high like it was here in the 1980s, right? If silver is cheap compared to the stocks, the number is low well where it is right now. It's kind of simple. It's the whole equation. And I'm not going to hold you hostage. I'm showing you the screen here right at the beginning of the video. But if you want to understand it, stick around because in the last 50 years, this ratio has done something wild a handful of times. It's shot up. It's gone vertical. And every single time it did that, people who owned silver made truly life-changing money. Now, I'm not a registered financial adviser. I don't give financial advice. I'm just, you know, Winston's son. But I'm going to share with you the rules and then the framework from a Wall Street perspective, from a banking perspective of how to view this and then you can come to your own conclusion whether you want to do something about it. Right? So the biggest spike we ever had happened in the 1980s and that was literally 30 times higher than right now. 30 times.
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Right? Another the silver blowoff when everything went crazy and silver traded at roughly 30 times higher levels to where it is right now compared to the stock market. Right? So if silver went back to where it was then not in dollars but compared to the stock market it would be a very very different world for our silver stacks. And then it happened again more recently and there have been a few you know in between and so on. uh 2011, right? Silver ripped back up relative to the S&Ps. Silver was trading at approximately two and a half times where it's sitting right now. That's a 250% move compared to where it is right now.
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That was only 15 years ago. So, not, you know, ancient history from, you know, the tulip wars or whatever. And in between those two big moments, there were smaller ones like in the late 90s, 2001 and in around 2015 where silver got incredibly cheap, incredibly cheap compared to stocks. And here's the part you're going to want to tattoo on your forearm. Every one of those extreme lows was followed by a huge multi-year rally in silver. Every single one. The chart basically screams at you when the ratio bottoms out like it is right now. Silbot potentially rips really really hard and we're literally sitting at one of the lowest readings in half a century. So silot compared to stocks is almost as cheap as it's ever been in the modern era. Not an opinion, not a guess, right?
6:07
It's simply data black and white. And you can track this every single day if you wish. In in Metals Minute, we show you a ton of other stuff as well. for the what's happening in Comx and that's an interesting story by the way. Comx found a million a million ounces of silver last week. That is Brinks, one of the storage companies. You might have seen their their their armored vans driving around and they they they just found a million ounces. This is a a happy coincidence, isn't it? As we were running out of silver, but that's not for this video to discuss. Now, if this chart here surprises you, let me know in the comments. write chart in the comments and it'll be useful to see but you don't know the full story. The part that almost no retail investor knows about is that while you're worrying about you know inflation or you know whatever is going on in the news stop watching the news by the way it's the happiest thing you could ever do for your life. We've had rule changes and the rule change number one and this is the one this is the bigly one that Wall Street probably really really doesn't want you to know about. It's called It's called And it's boring, I warn you. It's Basil 3.
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Basel 3, which is a tiny Swiss town I used to uh I used to take a train to to go skiing when I was little. And um there is one piece of this new regulation which I know sounds about as dull as it gets and it's called this.
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I'm going to write it out for you so you can see it. net stable funding ratio. Okay, I've obviously lost 90% of the viewers right now, but the the dedicated ones um are still here, and I promise I won't bore you with it. I'll make this as simple as possible. For decades, big banks could hold what's called unallocated silver. Another term that's worth understanding. Unallocated just means we say we have the silver, but we don't actually have a specific bar with your name on it sitting in a vault. It was paper silver. It was a promise. It was an IOU. And banks used this IOU system to run enormous trading books where for every ounce of real silver, there were many, many, many paper ounces floating around. It's another thing we track inside of our community here. Um here it is paper leverage 7.6. So for every ounce of silver there are almost eight IUs around silver which is kind of mad and apparently used to be a lot worse. It used to be dozens and dozens but under the new rules holding this unallocated silver suddenly costs banks money. Real money. So, for every $100 of unallocated silver, they need to hold $85 of money. Write that down. For $100 of unallocated silver, banks need $85 effectively in cash or some sort of cash equivalent. And it's called the 85% rule. You now know something almost nobody knows. And that's very expensive.
9:21
them. It's pain for them. It turns out what used to be a profit center, it turns what used to be a profit center almost overnight into a loss making thing, a cost center. So what are banks doing? Well, quietly in the background, they're being pushed out of the paper market into real physical silver, which they call allocated silver. You could just call it silver, right? Unallocated silver is fugazi made up paper nonsense.
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Hard silver is called allocated silver.
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And some bigname institutions have already walked away from the silver clearing thing entirely. And again, that's not a rumor. It's public record.
10:05
So the plumbing in the silver market is being re I was going to say rewired, but retubed if that was a word. And why does it matter for you? Because when paper promises get replaced by actual physical silver, the demand for the real stuff goes up or down. Up or down. Put in the comments. Up. Exactly. More demand. And the ability to push the price down the way you know some people say Comx does occasionally. No fingers pointed there.
10:36
Um their ability diminishes. So the floor under silver just got higher but very quietly. No press conference, no headline, right? Didn't ask for your permission either. And that's important.
10:50
So that's rule number one. And then we have rule number two. Rule rule change number two. And it's even more direct.
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It's the perfect companion to the first one. As of the beginning of this year, China, as your president says, replaced its 25year-old silver export system with a very, very tight licensing machine. So in plain English, silver doesn't leave China the way it used to. Only a handful of approved firms can export. And China isn't just a consumer of silver. Chinese refiners, write this down. If you if you want to have a one piece of data from this video, write this down. Chinese refiners handle an estimated 60 to 70% of the world's refined silver exports.
11:36
So when China closes the door, the rest of the world feels it. Every solar factory, every electronics plant, every juror outside of China suddenly has to compete with their domestic industry.
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The US government has officially designated silver as a critical mineral.
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Now, I know what a lot of you are thinking. Felix, this is great information. Winston's very cute. Um, he is very cute, in he's the sweetest. But how do I actually use this information?
12:05
How do I not get run over this by this?
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But this is because it's happened before. So, let me ask you something.
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Does it feel like these prices go up and down randomly to you? Put put random in the in the comments down below. And does it feel like the market is just sort of chaos and whoever shouts the loudest gets, you know, the credit? Well, what if I told you there is actually a rule book to not a guess, but a set of patterns, signals, and setups that only Wall Street typically understands. And I found out that rule book existed when I was working in an investment bank. And I spent years learning from my Wall Street mentors who did it for much much longer than me. And they taught me how they actually read these patterns in real time. So my question to you is, do you want to learn the pattern? If you want to learn the pattern, write pattern in the comments. And then the good news for you is that I'm going to run a free live training where I show you exactly how I read, how Wall Street reads setups like this step by step so you can see the rule book for yourself instead of guessing. Be no fluff, just patterns.
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You want to learn that, you want to grab yourself a free spot. This is actually a free training. Go to felixfriends.org/training.
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The link is in the description. I put it in the first comment as well. and get yourself a seat. And I will teach you these patterns. And by the way, these patterns don't just work for silver.
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They work for gold. They work for mining companies. They work for stocks. They work for tech stocks. They work for AI.
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They work for the bond. Actually, they work for pretty much everything out there. Why? Because we Wall Street's run by fairly simple people. They don't tell you that, but it's true. You know, us bankers, not the brightest in the world.
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Uh and and and we follow a simple rule book. That's how banks make money. again and again and again. I'm not promising you that you're going to make a fortune by Friday when you learn it, but I'll promise to be transparent with you with the actual rules. So, you want to learn Wall Street secrets, the actual pattern recognition, the actual rules, join me at felix.org/train.
14:11
But first, let me show you something that once you see it, you can't unsee it. In a single month in March, China imported 836 tons of silver, which is just not, you know, it doesn't really mean anything to you. And now if I told you that they imported 78% more than the month before and 170% more than on average over the last 10 years or if I just showed you this chart courtesy of Bloomberg and this red line are their silver imports for the year. So why does that happen?
14:50
First, Chinese retail investors got priced out like gold. Like we've seen this in most countries, right? They started buying silver bars, sort of the affordable gold. Silver became every man's safe haven and then and you know there are a lot of people buying silver there. So they're stacking it. And then second, the Chinese solar industry frontloaded their production ahead of a tax change. And there's a number I want you to remember for the rest of your investing life. The solar industry eats 20% of the world's annual silver supply.
15:24
So one in five ounces of silver mined on earth goes into solar panels. Most of that happens in China and it doesn't just go into silver. It goes into electric vehicles which use roughly double the amount of silver as a gas guzzling car. Goes into data centers, right? The whole AI hardware, 5G cell towers, medical devices, every modern device where electricity has to move around in a fast and reliable way, silver is in it. If you're surprised by that and what this chart is showing you on the screen here, write priced in the comments down below. Now, let me show you the other side of the story, the American side. There's a place called the Comx. Think of it like, and we track exactly what COMX is up to here, every single day in our ComX inventory. And think of it as the big official exchange in the US where silver futures, the paper stuff gets traded. It has vaults.
16:23
Those vaults are supposed to be full of real silver to back up all the paper trading. And the whole point is basically it's a commodity exchange. The paper is supposed to be linked to the physical and those vaults are draining. We had 114 million ounces of silver a year ago and then we dropped to 76 million and then magically they found some silver in the last few days. Now, are they going to run out?
16:52
not so quickly because they do have a lot more silver that's called eligible and that could be converted to registers and I did a video on that a few weeks ago people got really pissed off about it because they want to believe the story that silver is going to run out.
17:06
Yeah, it's not running out, but it's getting tighter. And the tighter it gets, by the logic of demand and supply.
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And I'm an economist, uh, prices should go up when there is less supply and more demand, right? And the big industrial buyers, the solar guys, the EVs, the data center guys, they're pulling real metal out of the system faster than it can be replaced. got wealthy investors, sovereign buyers locking in physical silver and putting it into their own private vaults that probably won't come back out of those vaults for decades, right? Because they don't need to sell.
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So the point of measuring KSM makes stress, which is extreme by our measurements, is that there is nowhere near as much silver in there as people think, and it's the kind of setup that potentially produces, very violent price lifts, right? So you have the story now you have the angles you have the rule change you have what's going on in China you have what's going on in the comx so let me give you a framework that will be relevant for you not just today but my goal is forever after because my goal is to educate you not give you today's news because that'll be useful for about a day maybe a little bit longer than round right so Winston's a big believer in education and you win yes I think I call it our three signal silver and stocks framework and they're the three signals that I watch before I get more aggressive with particularly with silver. It's the kind of pattern recognition that we teach in our academy. You don't need a Bloomberg terminal. You don't need, you know, a friend who works in banking or something. You just need to know exactly where they look, what the numbers should mean. So let me give them to you and obviously you can track the data in our in our metals minute app here. So the first is the signal number one. Oh my god. The first is signal number one. How insightful.
19:09
It's the ratio silver to the S&P 500. I showed you that chart earlier today.
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Here it is in its uh glory. And it's the big one. It's the compass. It's your north star. When the ratio is very stretched to historic lows, when silver is very very cheap compared to stocks, riskreward of adding some silver exposure moves more in your favor. When the ratio is crazily stress stretched like it was in 2011 or insanely like in the 80s, well, you're a little bit late to the party, right? You don't need to be a genius to work this out. You just need to ask one question. Where is the ratio right now compared to where it is in the last 50 years? And I give you the data right here.
19:55
Moves are not guaranteed, right?
19:56
Nothing's ever guaranteed in markets, but historically over 50 years, we got some pretty good data. Now, the second is the supply demand balance. Every single year there's an organization called the Silver Institute and they publish a report called the World Silver Survey and it tells you in plain numbers whether the world used more silver than it produced. And the world's been in a silver deficit for six years in a row.
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Six years in a row, man. Six years. I can count to six. So the world's burning through more silver than it dug up or recycled for the last six years. So we're eating into stockpiles that were built up over decades. It's like running down the food in your fridge every week without ever going grocery shopping. You could be very concerned about that. It was very precious about you ate yesterday. a whole bag. I order from IH herb this thing called um rishi mushrooms all the pet scatters very good for you actually bit for you too probably and uh he the cats got into it bit through it because they like it dropped it on the floor and then he finished it off very naughty but it's quite sweet how they work together now you want to be watching the deficit number every year like a hawk um we'll keep you up to date with that as as as as much as is possible from the data again inside metals minute show you you know what what's going on there in terms of deficit has a newsletter attached to it too and if this deficit stays as wide as it looks like it it's going to stay then well you got less supply than you have demand that's kind of all you need to know right now signal number three is the rule book and this is really what signal number three is the rule book and that's really what changes everything and it's like what nobody understands because when you say to Basil 3 or Basel 3 as the Swissies say, people fall asleep. But the biggest moves in financial history always trace back to someone somewhere changing a rule. A rule change when a a rule change is when a regulator, a central bank or a government rewires the system. The Basel 3 pushing banks out of paper silver into physical silver is a rule change. Now, when is that going to get implemented in the US? In the next year or two. The US is really late to this one, so it's coming, which is interesting, right? I think in the UK, it's next year. Some countries have already implemented it.
22:20
Another rule change is the US labeling silver a critical mineral. That's a rule change. Now, before I wrap up, and I hope you'll join me on on Saturday for the live training, I I need to do a bit of a grown-up party here because if I don't, I'm not being honest and transparent with you, right? And honesty is the whole reason I started this channel. We're never sponsored. you know, you'll never see uh you know, get this thing from this free broker. We never interview CEOs because, you know, a lot of stuff's paid for and they gets pitched to me every single day. I'm not interested and I'm very fortunate. I don't have to do that. I don't judge people who do, but I just want to be independent for you guys. So, I tell you, yes, I'm a silver investor.
22:57
Absolutely. So, I have some interest there. But more importantly, silver is volatile. It is more volatile than gold.
23:04
It is more volatile than a broad stock index. It can move 10% in a week or in a day for no obvious reasons because comx does something. And after the huge spikes we had in the 80s in 2011, silver also had brutal crashes. And they're the same forces that make silver exciting on the way up, but they can also make it very very painful on the way down. So if you cannot sleep through a 20% draw down, this is not the asset for you to go heavy on. This is not the bet the farm asset. This is a understand what you own, size it properly and hold it with a plan as part of a broader framework. Right? Get yourself some advice. I don't give advice. I just give you foundations in education. So the framework I just get gave you. So the framework I just gave you is not a promise of returns. Nothing is a promise of returns. The framework is simply a way to stop gambling instead thinking to replace gut feelings with a checklist and rules borrowed from the lobbies on Wall Street. And please, please never take a single video on the internet as the foundation of your financial plans, right? Including this one. Do your own homework. Talk to a professional.
24:18
Understand your personal situation, your own time horizon, your risk tolerance, where you are in life, your income streams, all that stuff. So the job of an educator is to hand you the tools.
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The job of making the decisions, it is always yours. But what I learned from my Wall Street mentors, guys who worked in banking for decades, including several market makers, metal market makers. The head of our academy is a former London Metal Exchange market maker. He's a good friend of mine. The regular investors almost never lose money because they picked the wrong thing. They lose money because they didn't understand the rule book underneath it. They got blindsided by a quiet change they never saw coming.
25:01
They So picking stocks or golds, it's like the tip of the iceberg. The rule book is the iceberg underneath it and you don't see it. And what we're building is a place where regular people with regular jobs can walk in, ask where real questions one-on-one and get an honest, educated answer from someone who's actually done this at the highest levels in the big hedge funds in the big investment banks. So that's what we do in goat academy. So come and join us for a free live training and I will teach you the rules and the patterns how to put this all together in about probably about an hour and a half. It's free.
25:47
Grab yourself a seat. Make sure you show up on time. The room can the the Zoom rooms can get full. We'll have a couple of thousand people on the felix friends.org/training is the link down below. And if you got some value out of this, share it with someone else. you might get some value out of this because that's what this is all about. Sharing the wisdom, sharing the knowledge. Thank you. I thank you for watching. Did you know there is an invisible system that controls nearly every trade on the planet? And I don't mean supply and demand. I don't mean the Federal Reserve. I don't even mean the