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Silver Market Carnage and Greenspan's Deflation
dcarr
Posts: 10,100 ✭✭✭✭✭
Wow, that has been quite a rout in the silver market these last few days.
I had about 2000 silver dollars (1921 Morgan & Peace type) and about 4000 face value in 90% silver halves (Walking Liberty, Franklin, & '64 Kennedy). When silver hit $7.75 (on the way up), I sold it. Got $8-$9 for the silver dollars and about 5.4 x face value for the halves. I used the proceeds to pay off some debt.
But now I'm happy to be able to buy 90% silver US coins at close to 4 times face value again. Truly a "buy with both hands" opportunity here, while the market is un-nerved and oversold due to panicked conditions.
I still think the Autumn of 2005 is when the metals complex will really take off. Things will remain in check during this election year. Next year, things will break loose.
I find it odd (ironic) that yesterday, Greenspan basically said "the threat of deflation has passed". And in the last two days we have seen one of the biggest deflationary events transpire. The US dollar went up, but just about everything else (stocks, bonds, commodities) went down significantly across the board. It was a reaction to the possibility of higher interest rates.
Would an increase in the prime rate from 1.00% to 1.25% be that big a deal ? In the broad scheme of things, no. However, it would mark the inflection point from declining interest rates to increasing interest rates. But to all those highly-leveraged speculators running around out here, it is a big deal, apparently. The panicked exit of these leveraged speculators is the major cause (and effect !) of the lower prices.
If anything, the news from the past few days is bullish for precious metals. But those leveraged speculators are overly-sensitive to interest rates.
The real key to the whole inflation/deflation situation is the US Federal budget deficit. Not the trade deficit, and not the employment picture. More specifically, the UNFUNDED budget deficit is the key. China and Japan have been "picking up the tab" when it comes to US budget deficits. What is left of the tab is picked up by the Federal Reserve (debt monetization).
The cumulative effect of this debt monetization, over a span of years, will be highly inflationary. And with the latest "20-year war on terror", underfunded Social Security, etc, etc, the future US budget deficit is not a pretty picture.
And higher interest rates will significantly impact the budget deficit. The government will have to start paying more just to fund the current debt. That will just put the government deeper into the hole. When all those 5 & 10 year Treasuries expire, the government will have to borrow money at higher rates to pay them off.
TAKE SPECIAL NOTE OF THIS:
A vicious inflationary cycle is building. China has become uncomfortable with their level of economic growth (inflation). So they will start exporting the inflation they took from us. Japan, by my estimation, will start to do the same towards the end of the year.
Rising interest rates will make the Federal budget deficit worse. And higher budget deficits will cause interest rates to increase !!!!
Most of the effects of the budget deficits already building in the pipeline since 2000 have been postponed - China and Japan have been soaking up those effects (inflation). At some point, the pent-up sludge in the pipeline will break free in a torrent and it will compound the messy economic situation developing in the US in 2005.
I had about 2000 silver dollars (1921 Morgan & Peace type) and about 4000 face value in 90% silver halves (Walking Liberty, Franklin, & '64 Kennedy). When silver hit $7.75 (on the way up), I sold it. Got $8-$9 for the silver dollars and about 5.4 x face value for the halves. I used the proceeds to pay off some debt.
But now I'm happy to be able to buy 90% silver US coins at close to 4 times face value again. Truly a "buy with both hands" opportunity here, while the market is un-nerved and oversold due to panicked conditions.
I still think the Autumn of 2005 is when the metals complex will really take off. Things will remain in check during this election year. Next year, things will break loose.
I find it odd (ironic) that yesterday, Greenspan basically said "the threat of deflation has passed". And in the last two days we have seen one of the biggest deflationary events transpire. The US dollar went up, but just about everything else (stocks, bonds, commodities) went down significantly across the board. It was a reaction to the possibility of higher interest rates.
Would an increase in the prime rate from 1.00% to 1.25% be that big a deal ? In the broad scheme of things, no. However, it would mark the inflection point from declining interest rates to increasing interest rates. But to all those highly-leveraged speculators running around out here, it is a big deal, apparently. The panicked exit of these leveraged speculators is the major cause (and effect !) of the lower prices.
If anything, the news from the past few days is bullish for precious metals. But those leveraged speculators are overly-sensitive to interest rates.
The real key to the whole inflation/deflation situation is the US Federal budget deficit. Not the trade deficit, and not the employment picture. More specifically, the UNFUNDED budget deficit is the key. China and Japan have been "picking up the tab" when it comes to US budget deficits. What is left of the tab is picked up by the Federal Reserve (debt monetization).
The cumulative effect of this debt monetization, over a span of years, will be highly inflationary. And with the latest "20-year war on terror", underfunded Social Security, etc, etc, the future US budget deficit is not a pretty picture.
And higher interest rates will significantly impact the budget deficit. The government will have to start paying more just to fund the current debt. That will just put the government deeper into the hole. When all those 5 & 10 year Treasuries expire, the government will have to borrow money at higher rates to pay them off.
TAKE SPECIAL NOTE OF THIS:
A vicious inflationary cycle is building. China has become uncomfortable with their level of economic growth (inflation). So they will start exporting the inflation they took from us. Japan, by my estimation, will start to do the same towards the end of the year.
Rising interest rates will make the Federal budget deficit worse. And higher budget deficits will cause interest rates to increase !!!!
Most of the effects of the budget deficits already building in the pipeline since 2000 have been postponed - China and Japan have been soaking up those effects (inflation). At some point, the pent-up sludge in the pipeline will break free in a torrent and it will compound the messy economic situation developing in the US in 2005.
0
Comments
<< <i>Truly a "buy with both hands" opportunity here >>
Uh, yeah, okay.
Russ, NCNE
As for the debt, the debt itself isn't the number to be interested in. What you want to know is the debt as a percentage of GDP. That ratio is up, but not a whole lot.
roadrunner
Well at 27+ posts per day he must get tired.
<< <i>The market has already factored in an interest rate increase from the Fed.
As for the debt, the debt itself isn't the number to be interested in. What you want to know is the debt as a percentage of GDP. That ratio is up, but not a whole lot. >>
No? Much depends on the actual value of the dollar does it not?
The debt will never be paid as the politicians will continue to steal/spend. The dollar is about to face it's biggest competitor as well ( The Yuan/RMB) They ( economists) whined over the competition the Euro would create before it was introduced.
That was small potatoes.
By the way, you owe approximately 24,000.00 on your portion of the "debt". Nothing to be interested in? Ok, sure.
Oh, I put the debt counter on my website in august, 2003. Each person here owed app 22,000.00 at that time. Each persons additional debt has been going up at a rate of over 300/month.
TP
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
the market is un-nerved and oversold due to panicked conditions.
In previous posts, much earlier in the price decline, $6.50 was said to be "normal." How is $6.14 an "oversold panic" that represents a buying opportunity? It doesn't sound that different than "normal" $6.50.
The 36 cent difference is obvious about 6% potential gain, but that assumes I bought at spot. Were people selling to buyers like me under spot, desperate to get out?
I'm slow, but I think I can get there eventually.
It's funny when people complain about the national debt being partially owned by foreigners. If anything, that gives us more control over them. If they screw us over, we can default on that portion of the debt and they are out of luck. They wouldn't go to war with us over it, or if they did, we'd beat the crap out of them. It would hurt our national "credit rating" in the short term; hostile nations would be reluctant to buy our instruments of debt. In the long term, though, even they'd forget. How many times has Mexico defaulted on loans and the IMF still loans them money...? How many countries have nationalized foreign-owned industries and those same foreign countries have immediately reinvested in other things withing the country?
I fail to see what the big deal is.
Long as you stay on the treadmill, everything will be fine.
Pay it no mind.
TP
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i>Long as you stay on the treadmill, everything will be fine. >>
But isn't that the point? Why do people give away valuable items in exchange for intrinsicly (sp?) worthless green paper?--because they have to, or the economy won't work. I'm CERTAINLY willing to believe the national debt has a bad effect on our economy (stock market prices, inflation/deflation, etc.) but I don't think it's nearly THAT big of a deal--certainly nothing that by itself will start a depression.
Let's remember, what causes a good economy are people's belief that the economy is good. A bad economy? Just the opposite. What people believe makes all the difference.
Perception plays a factor but that's about it.....a factor.
TP
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i>Oh ok, it's all an illusion then. >>
Some concepts are too simple to grasp; we live in a complicated world and are trained only to accept answers that are equally complex. Occham's razor rarely finds its way into the world anymore.
BTW not saying anything against you by any means TP. I know I'm constantly ambushed by the simplest answer to my problems; everyone is. I didn't mean to single you out in any way by my comments, I'm just bored because I spent all night writing a paper and I don't feel like going to bed yet
Me too except for other reasons.
See ya later.
Rgrds
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
I wish you all luck whatever your qualifications for sage advice may be.
No. I eat when I'm hungry, not when I perceive that I can reasonably afford it. I pay my bills when they're due, not when I perceive that "things are good". Etc.
But of course perceptions matter. They're just not everything.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Our eBay auctions - TRUE auctions: start at $0.01, no reserve, 30 day unconditional return privilege & free shipping!
April 13, 2004, 7:34 PM EDT
NEW YORK -- The national debt clock, a billboard-size sign that reminded Manhattan passers-by of how much the government is borrowing _ in trillions of dollars _ has been taken down.
A new clock will be erected a block north, the sign's owner said Tuesday.
The old digital clock is being stored in a warehouse because the building where it sat, at Sixth Avenue and 43rd Street, is being demolished, said Mortimer Matz, a spokesman for the Durst Organization, which owns the sign.
A new high-tech digital clock will be placed next month on the side of the building at 1133 Sixth Ave., at 44th Street, just east of Times Square.
The last time the clock went dark was in September 2000, when developer Douglas Durst pulled the plug after government debt levels started to fall because of budget surpluses. It was restarted two years later, when government deficits began to rise again.
The clock initially was put up in 1989 by Durst's late father, Seymour Durst, to bring attention to what he felt was a dangerous increase in government borrowing. ( NAH, DON'T WORRY ABOUT IT)
When the debt clock first was turned on, the deficit was a little less than $3 trillion. Durst's family pulled the plug in 2000 when falling deficits hit $5.5 trillion.
The clock read more than $7 trillion when it was taken down last month.
Copyright © 2004, The Associated Press
http://www.newsday.com/news/local/wire/ny-bc-ny--debtclock0413apr13,0,6790673.story?coll=ny-ap-regional-wire
TP
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Tom--I was just thinking, it would be awesome if they built a debt billboard on the Mall in Washington D.C. -- make some of those politicians think before wasting money! Maybe we could lower the national debt some and then lower taxes some too (note: not tax rebates, but actual lower income tax rates).
Oh wait, I just woke up a few minutes ago but I'm still dreaming...
Silver traded below $6.00 this morning. Anyone brave enough to comment SPECIFICALLY why $6.00 is a buy, or sell?
I admit I haven't invested yet, although I do have funds ready. All I care about is Risk/Reward, and if silver meets the grade I'm ready.
A customer came in this morning and asked me that very question. I just looked at him and the only thing that could come out of mouth was "uhhhhh......ummm". Then I asked him if he wanted a nice hot cup of coffee.
Our eBay auctions - TRUE auctions: start at $0.01, no reserve, 30 day unconditional return privilege & free shipping!
If rates rise because the economy takes off then increased tax revenues will help to offset the increase in the governments borrowing costs. An improving economy should help to lesson government deficits everything else being equal.
<< <i>Time has proven one thing to me about metals, they suck as long term investsments >>
No, the last 30 years tell us metals have sucked as long term investments. End the manipulation and you may see something different. Let me ask: if there is less of a commodity today than there was yesterday, but demand is the same, shouldn't the price go up? If it doesn't, don't you get suspicious?
Oh wait, I just woke up a few minutes ago but I'm still dreaming... >>
With regard to politicians stealing. Kind of like that age old question "why do cats do........?, answer: because they can".
There will never be lower taxes. Higher yes, but not lower.
Rgrds
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i>There will never be lower taxes. Higher yes, but not lower. >>
Very true =(
It's kind of like those bond issues they pass in my city:
"Pass this school tax bond, it will mean .25% higher sales tax for two years then the bond will expire and the tax will go down."
Two years later:
"Renew this school tax bond--we'll have better schools and it won't raise taxes!"
Once the bond passes, trying to rescind it is like spitting on a forest fire.
<< <i>But now I'm happy to be able to buy 90% silver US coins at close to 4 times face value again >>
Where can you get silver US coins for close to 4x face value?
Is this what coin dealers are paying right now?
thanks
mr Newt
ps. great forum
>>
Anyone brave enough to comment SPECIFICALLY why $6.00 is a buy, or sell?
At 6.00, it's close to a buy as starter position, adding in increments for dollar cost averaging.
Daily silver Stoch, MACD, and RSI are bottoming.
Weekly chart indicates still some lower to go. Hasn't turned yet.
200 dma has another 25 cents down to go.
Patience.
RR
Careful! I warned you before....... "Shouldn't" is a GREAT way to lose money, and keep on losing, until either the ego runs out or the well runs dry.
Thanks RR,
Well I don't know anything but from what I see, looks like patience is in order. $6.00 is such a nice pretty round number, that may stop the decline...... but the close didn't inspire any confidence and I wish the 200 MA was not so far below. For now I will wait on better Risk/Reward - that doesn't hurt a bit.
I've always found this to be true......."Better to be Out wishing you were In, than In wishing you were Out!"
<< <i>What is 200 MA? >>
200 day Moving Average
<< <i>
<< <i>But now I'm happy to be able to buy 90% silver US coins at close to 4 times face value again >>
Where can you get silver US coins for close to 4x face value?
Is this what coin dealers are paying right now?
>>
At the local coin shows I'm known as the guy who buys 90%. So when I set up at one of the shows,
the dealers who have some 90% but don't want it bring it over to me because they know I buy it.
I quote them a price that is usually about what I can ship it to other dealers for.
I guess that makes me a dealer.
One major dealer on the internet currently advertises the following prices:
Buy: 4.075x
Sell: 4.425x
MA = Moving Average of price
In RR's post he uses dma, which is daily moving average. There are two ways to calculate it - Simple and Exponential. They are similar, but not identical. In the stock market, investors define the area above the 200 MA as "Bull" and below as "Bear." I assume silver investors are similar in their thoughts, but don't know from personal experience. If silver declined to it's 200 MA and paused, I'd be more confident about acquiring some.
For an easy example, go to any charting site like bigcharts and plot the Nasdaq for 1 year timeframe. Add a 200 SMA and you see that the decline in March did not stop by "chance!"
I saw the lines of people outside coin shops, practically beating themselves up to buy K-Rands and Maple Leafs at $875 each. It was very funny in a sick sort of way. They were even leaving their $ with the shop owner and his employess, after being told that while there were no gold bullion coins available, that day, they'd lock in the current daily price when the coins arrived. Right.
in 1929, shoeshine boys and elevator operators were all excited, telling everyone within earshot about their latest stock tips. Blah, blah, blah.
By the time the likes of you and I find out about these sorts of things, the smart money has already left the building. Do yourself a favor and put your hard-earned money to work for you.
I'll probably get flamed, but I don't care. As someone with a background in business, accounting, and economics, who makes his living this way, all I can say is that the only post which really addresses the issue is Irish Mike's.
"Seu cabra da peste,
"Sou Mangueira......."
<< <i>I'll probably get flamed, but I don't care. As someone with a background in business, accounting, and economics, who makes his living this way, all I can say is that the only post which really addresses the issue is Irish Mike's. >>
Why would anyone flame you? However, I asked a question earlier in this thread that has still gone unanswered. As an economist, could you explain one thing? If there is less of a commodity today than there was yesterday, but demand is the same, shouldn't the price go up? If it doesn't, don't you get suspicious, thinking perhaps there is manipulation? If you see a huge short position in such a thinly capitalized market, and the price continues to fall although there is less and less silver, doesn't that make you wonder what, or who, is really driving the price?
He eminates powerful negative vibes
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<< <i>Let me ask: if there is less of a commodity today than there was yesterday, but demand is the same, shouldn't the price go up? >>
It's a sound principle. It just doesn't apply to silver. Never has, never will.
Russ, NCNE
<< <i>It's a sound principle. It just doesn't apply to silver. Never has, never will. >>
I need to dig out my old Economics book and find that part where it said that silver is immune to the laws of supply and demand. What page was that on...? Darn, can't find it anywhere...oh well...
Russ, NCNE
<< <i>increasing demand >>
Not increasing demand, demand that stays the same.
If 100 people want a share of Microsoft stock but only 50 shares exist, the price will set itself rather high. A year later, if 100 people still want Microsoft stock, but only 48 shares exist, the price will increase, correct?
<< <i>
<< <i>It's a sound principle. It just doesn't apply to silver. Never has, never will. >>
I need to dig out my old Economics book and find that part where it said that silver is immune to the laws of supply and demand. What page was that on...? Darn, can't find it anywhere...oh well... >>
You're real close!
Rgrds
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
roadrunner
<< <i><< increasing demand >>
Not increasing demand, demand that stays the same. >>
It doesn't even meet that criteria. The primary consumer of silver is industry. It ain't coins and it ain't jewelry - not by a long shot. There are plenty of substitutes for silver in industrial applications, so when it reaches a pricing level at which these substitutes make sense, demand drops. It is also a fallacy that supply is "shrinking". There's plenty, and it magically gets found whenever the profit incentive materializes through rising value.
It's a sucker bet. Always has been.
Russ, NCNE
<< <i>Here we go again. Another guy who speculates on precious metals trying to convince himself that his activities are good 'investments. ' I am so tired of this. All it does is encourage other ill-informed people to throw away their money as well.
I saw the lines of people outside coin shops, practically beating themselves up to buy K-Rands and Maple Leafs at $875 each. It was very funny in a sick sort of way. They were even leaving their $ with the shop owner and his employess, after being told that while there were no gold bullion coins available, that day, they'd lock in the current daily price when the coins arrived. Right.
in 1929, shoeshine boys and elevator operators were all excited, telling everyone within earshot about their latest stock tips. Blah, blah, blah.
By the time the likes of you and I find out about these sorts of things, the smart money has already left the building. Do yourself a favor and put your hard-earned money to work for you.
I'll probably get flamed, but I don't care. As someone with a background in business, accounting, and economics, who makes his living this way, all I can say is that the only post which really addresses the issue is Irish Mike's. >>
I am not trying to convince myself or anyone of anything. I speculated in precious metals and came out way ahead. And I plan to do it again. I'm not a buyer of silver at $8.50, but I am at less than $6. Your thinking is that of the mainstream Western ideology. Things are very different in other parts of the world. Parts of Asia, China, India, Russia, and the Middle East have a very different ideology. And all of those areas are gaining in economic significance while the economic influnce of the USA is starting to decline. What has worked here in the past will not necessarily work in the future.
I saw the lines at the coin shops in 1980. I was in those lines. You imply that those people in line were buying. THAT IS TOTALLY INCORRECT ! People were lining up to sell. For every buyer in line there were at least 10 sellers !
I heard the "shoe-shine boy" in 1999. He was talking about stocks. I hear him again. Now he's talking about the US Dollar and bonds. He has significant government backing, but his message is even more delusional than it was before.
<< <i>It is also a fallacy that supply is "shrinking". There's plenty, and it magically gets found whenever the profit incentive materializes through rising value. >>
Yeah, and the moon is made out of cheese. Yet another example of an assertion with no evidenciary backing.