Important PM Article about the Cliff..
tneig
Posts: 1,505 ✭✭✭
This is off the Apmex site, by Micheal Haynes. It describes their view of 5 possible outcomes of the physical cliff which def affects PMs and us..
Link to the article....
----------I attempted to add the article here as the link is likely short lived, but it missinterpreted a word as offensive and blocked the post.
Link to the article....
----------I attempted to add the article here as the link is likely short lived, but it missinterpreted a word as offensive and blocked the post.
COA
0
Comments
My Adolph A. Weinman signature
<< <i>Not that it matters hugely, but the term of the lame-duck Congress expires January 3, not the Presidential Inauguration Day (January 20) as the article stated. The new Congress is scheduled to first meet on January 5. >>
You are correct, and it does matter because it shortens the time available to do something.
1. Over the cliff we go. From a Precious Metals perspective, the massive reduction in federal spending and the slowdown in the U.S. economy may create an even more uncertain future for the U.S. Often, increased uncertainty moves capital to more certain asset classes, and Gold has many times been the recipient of capital in uncertain moments. Fearing a recession, the dollar could fall meaning that Gold priced in dollars could rise. Presuming Gold holds value, Gold could be a safe haven relative to other investments like stocks and bonds. On the other hand, some may envision the forced reduction of Federal spending a long term benefit for addressing the U.S. debt and over time, the dollar could recover with a lower Federal debt level creating a stronger America and stronger markets for stocks and bonds.
2. Punt. Deferring the decisions, or obtaining an extension, in essence, on the fiscal cliff would push the cliff out into 2013, perhaps to June 30. Investment markets may view this as an extension to the uncertainty, thereby extending the nervous market conditions into June. Nervous and uncertain markets have often in the past moved capital into asset classes that are more certain, and Gold has often been the beneficiary of the move of capital. Regardless of the winners of the election, the Congress is likely to be very closely split, and compromise may be difficult especially considering that the increase of the debt ceiling will be required in early 2013 and will simply add to the pressure on Congress for resolution. However, many may view that the mood of Congress to work together may improve dramatically in the post-election environment after the U.S. voters make their collective views known, and accordingly, a useful and effective solution may come with the delay in the decision date. Any successful resolution of the debt, taxes and spending issues would be helpful for stocks and bonds.
3. Meet in the middle. To affect this outcome, the lame duck Congress would have to agree on a compromise, following what will most likely be a very tense election. It is unlikely that the federal spending issue would be resolved by this outcome but it is possible that the tax issues could be resolved with compromise. From a Precious Metals viewpoint, a tax compromise would most likely have no significant effect on the uncertainty in the economy over the debt and federal spending matters, which are the primary drivers of the uncertainty in the markets. On the other hand, although a tax resolution would lower the concern about a recession in the immediate horizon, most Precious Metals investors have a longer term view than one year. If there is no such compromise, there would again be no change in the long term view. Accordingly, whether or not there is a tax resolution compromise, there most likely would not be any significant effect on Precious Metals markets in the long term.
4. Grand bargain. A lame duck Congress is unlikely to reach a huge and complex agreement suggested by this possibility, regardless of the election of a particular presidential candidate. Nevertheless, if a grand bargain could be fashioned in the 4-6 weeks following the election and before the end of December, the investment markets would most likely gain confidence in the U.S. economy, and depending on the scale of the grand bargain and to the extent the grand bargain addressed the significant Federal debt and spending issues, the Precious Metals markets may be softer from a dollar perspective, even though on a global scale Gold may be a desirable hedge in other currencies. By contrast, if the grand bargain is in name only and there is no significant substance to any deal, the Precious Metals markets would most likely recognize the true nature of the arrangement and return to a continuing state of economic uncertainty and most likely a continuation of the current support for Precious Metals.
5. New deal. Although one could speculate on this particular outcome, it is difficult to project Precious Metals market reaction without some of the details. For example, if there was an agreement to the Simpson-Bowles commission report and such a “new deal” was to pass during the lame duck Congressional session, then Precious Metals markets may be softer from a dollar perspective, just as in the “grand bargain” case, even though on a global scale Gold may be a desirable hedge in other currencies. However, it is challenging to predict a Precious Metals market response to an unknown “new deal” circumstance.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
joy.
Knowledge is the enemy of fear
<< <i>The whole term "fiscal cliff" is fear mongering at its finest. >>
Fiscal irresponsibility by one's leaders to the tune of $16T+ of debt is something that should be feared, don't you think?
Most sane household providers would fear the point of their personal debt exceeding their ability to pay it since it has been known to result in financial ruin for the entire family.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
6. Default on the debt . Refuse to pay it, or even worse trade strategic policy and/or military concessions for it.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>The whole term "fiscal cliff" is fear mongering at its finest. >>
Fiscal irresponsibility by one's leaders to the tune of $16T+ of debt is something that should be feared, don't you think?
Most sane household providers would fear the point of their personal debt exceeding their ability to pay it since it has been known to result in financial ruin for the entire family. >>
Most sane households would reduce spending while finding ways to increase income. Is America full of sane or insane households.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>The whole term "fiscal cliff" is fear mongering at its finest. >>
Fiscal irresponsibility by one's leaders to the tune of $16T+ of debt is something that should be feared, don't you think?
Most sane household providers would fear the point of their personal debt exceeding their ability to pay it since it has been known to result in financial ruin for the entire family. >>
Most sane households would reduce spending while finding ways to increase income. Is America full of sane or insane households. >>
the "fiscal cliff" term is not being used to describe the financial stability of households. It's obvious, at least to me, where the insanity lies.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Instead of "fiscal cliff" they should have used "economic abyss" or "Grand Canyon of default" or maybe "just buy silver and you'll be ok". Everybody can relate to that.
Knowledge is the enemy of fear
<< <i>Then why did you cite an example of a household to prove your point?
Instead of "fiscal cliff" they should have used "economic abyss" or "Grand Canyon of default" or maybe "just buy silver and you'll be ok". Everybody can relate to that. >>
because I was comparing a household who has to suffer the consequences of its fiscal decisions to a government that doesn't.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>Then why did you cite an example of a household to prove your point?
Instead of "fiscal cliff" they should have used "economic abyss" or "Grand Canyon of default" or maybe "just buy silver and you'll be ok". Everybody can relate to that. >>
because I was comparing a household who has to suffer the consequences of its fiscal decisions to a government that doesn't. >>
History has shown that governments always suffer the consequences. Always. Governments are not more powerful than its people.
Knowledge is the enemy of fear
However, the United States certainly is at a tipping point. Especially when it doesn't look like much of the borrowing is being used productively to increase GDP over the long haul. Luckily, interest rates are about as low as they can get, and the US dollar still has a fairly strong amount of reserve currency status. But neither of those insulating factors will last forever. The storm is coming.
FWIW A few I've spoken too outside of this board still feel that there will be a day of reckoning, yet they are actively IN the markets, 'flash' trading, and hedging with physical. All have some insane (as profitable) long term holdings of some stocks that have appreciated ~8-10 tiimes since late '08 AND know that they are trading in a smoke and mirror market now.
I don't post too much 'cuz there seems to be good topics and also a balance.
When I get close to 5k posts my give-a-way will obviously be posted here.
<< <i>History has shown that governments always suffer the consequences. Always. Governments are not more powerful than its people. >>
But the power to print and take from others makes them much better can kickers. There ability to delay the consequences makes it much easier for them to be fiscally irresponsible. These makers of bad decisions know they will not be around to be held accountable for them. Took Rome a couple of centuries to step over the edge of the cliff - but they did get there. Compare that to the houshold breadwinner (and bill payer) who does not have the luxury of escaping reckless fiscal decisions - his family quickly pays the price with their standard of living.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey