We have recently added Pan American Silver (PAAS) and iPath S&P 500 VIX Short-Term Futures ETN (VXX) to our proprietary portfolio.
Pan American Silver is the second-largest primary silver producer in the world. As you can probably figure out from its name, the corporation has operations in many countries in the American continent. As matter of fact, it currently develops projects in Argentina, Mexico, Peru, Bolivia and in the USA. As of its financial fundamentals, the company has a strong balance sheet that allows it to finance its growing activities with very little debt.
Silver is a metal commonly obtained as a by-product in mining activities of other metals, such as gold, but PAAS explores it as a primary product, which allows the investors to gain a great exposure to the silver itself. At the price levels of the metal in the past couple of years, the company has operated very close to its break-even point and has registered net losses in the last fiscal years. As the prices of silver start to pick up – so far this year the prices have surged 22% – the company tends to register massive gains, as a consequence of its operational leverage. PAAS is therefore a leveraged bet on silver.
We have many reasons to believe that silver prices are just starting a long way upwards. As a precious metal just like gold, silver is likely to become the safe haven in moments of instability and, unlike gold, silver has many industrial applications, which makes it even scarcer over time.
VXX is an ETN ideally designed to track the CBOE’s VIX (Volatility Index), which measures the short-term volatility conveyed by the S&P 500 stock option prices. This ETN does so by setting up a portfolio of VIX futures that resembles the VIX composition. Although the correlation between the security and the index is not as close to 1 as one would desire, VXX allows the investor to get exposure to the market’s volatility. Moreover, historically, the VXX moves averaged near -3 times the S&P 500, which gives us the opportunity to gain from falling share prices.
The present scenario gives us a clear indication that a correction may be just around the corner, as corporate and government debt reaches all-time highs, political and military tensions spread over different locations, emerging and developed economies decelerate, China shows signs of a hard-landing, and so on. Having that in mind and considering the fact that the VXX has been trading at historical low prices, holding VXX turns out to be a great choice to hedge against a collapsing system. At least in the short term, as that is not a position we are willing to carry for a long time.