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Friday, February 25, 2011

Silver and Gold

A question to those of you still on the fence over buying precious metals:

With what's going on in the world, do you think silver and gold will be higher or lower?  Not today or tomorrow's prices, as they can hop all over the place when some isolated even occurs.  I'm talking about looking 6 months, a year, two years, five years into the future.

Consider:

>JP Morgan is being sued for illegally "shorting" the silver market.  Basically, their actions have artificially retarded the market price of silver.  We're talking RICO lawsuits.

>Quantitative easing.  We're in the middle of the second round of our government telling us - and then acting upon a promise - to devalue our dollar.  When you create more of something - such as dollars - you make those already in existence worth less.  Now, the current plan is to produce $100 billion a month of Monopoly money between January and June of this year.  They promise, cross-their-heart-hope-to-die that this will be the last time they do this.

Let's see if this is true when no one other than the Federal Reserve bank is buying our Treasury debt...

>Civil unrest around the world, primarily in the Oil Barrel - the Middle East.   My gasoline now costs $3.69 a gallon.  If I drive across town, I can get it for $0.15 cheaper at $3.54.  If Saudi Arabia gets dragged into this mess, The Sky's The Limit on what it will cost us per gallon.

Oh, BTW, there's a planned "Day of Rage" on March 11th in the Sand Kingdom.  Mark your calendars, boys and girls, this is going to get very interesting.

>Food prices increasing at an alarming rate.  In my eyes, this is the only one that has a chance of at least partially correcting itself in the near-term.  While you can eventually plant more crops, the aforementioned gasoline prices will necessarily increase transportation costs.

So, where do you think the prices of PMs will go?  How will that compare to what you're being paid on your savings account?

Serious as a heart attack, if you have any extra cash, get some precious metals, preferably silver.
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Prices continue to increase.  If you have some time, take a look at this article at Coin Update News.  It's discussing an upcoming crunch for the physical delivery of silver.  All of these folks that play, "the paper silver market" - using futures contracts - are suddenly demanding delivery of the physical silver.

Oh, my oh my.  Don't sound good.  If the stories of the Futures Market being over-sold by a factor of 100 are ANYWHERE close to being true (phantom contracts to buy or sell silver that doesn't exist), you're going to see a phenomenal spike in the price of silver as the market (COMEX) must scramble to deliver shiny metal.

A doozie of a quote -
Already we are seeing several physical silver wholesalers using a two-tier silver spot price system. If you want to sell to them, they are using spot prices derived from COMEX and other markets. On the other side, if you wish to purchase physical metals from them, they are quoting a selling spot price that is 5-10 cents higher than their buying spot price.
We're doing that in our PM store.  We absolutely cannot keep silver in our cases.  Yesterday, literally every piece of our bullion silver was sold.  Not one piece left.  I drove around the Bay Area hitting up wholesalers and other dealers to fill orders.

For the past two weeks, we've been selling our silver for a considerable premium over the price you can get it online.  Why would people pay this premium?  Immediate delivery and anonymity.

It's not Panic Buying, but I'd call it Seriously Focused Buying...
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Back in August of last year, I wrote the following ("Mr. Orwell?  Paging Mr. Orwell...") -
Also, the price multiple between gold and silver has been narrowing. Just a week ago, the multiple was 68:1 (68 ounces of silver cost the same as 1 ounce of gold). As of today, that ratio has dropped to under 65:1..
What might that ratio be today? 42:1
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Speaking of JP Morgan Chase, they sure seem to be attracting a bunch of high-profile lawsuits.  In addition to the silver shorting suit, they're being sued by Allstate Insurance over bad mortgage loans, by a trustee who is suing them over losses from the Bernie Madoff scandal,  and by the SEC over some shady muni bond sales.

Sucks to be them.  I'm guessing it will be a coin toss whether it is JP Morgan Chase or Bank of America that is the first Too Big To Fail, that fails...

Accept The Challenge

Wow, what an interesting couple of weeks.

After your basic preps are covered, please get some PMs.  Personally, I've actually been diverting some of my PM-buying money to more preps.  Large quantities of sugar and salt.  Canned meats as well (and canning more meats, too).

We're seeing so many people now coming into our shop with stuff they'd have never considered selling just a few months ago.  Because we genuinely believe the market will continue to advance, we've bumped up our typical pay-outs percentages.

Happily, people are shopping prices.  They're going to our competitors to see what is being paid, and end up selling to us.  We get the "warm and fuzzies" for helping folks out, but it's also a very calculated business decision.  When things turn around, these folks will remember us as being fair, plus they're telling their friends right now that we will treat them honestly.

The whole, "Doing well while doing good" deal.

None of us has any way of knowing exactly what is going to happen with our country, prices, inflation or the price of PMs.  All we can do is look at the signs in front of us, consult our version of a Crystal Ball and hope we make the right decisions.

I'm sticking with my belief that preps and PMs are nothing more than insurance policies.  I hope I never need to cash them in, but if TSHTF, I can at least make things a bit more bearable.

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Copyright 2011 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates. www.BisonRMA.com

7 comments:

Anonymous said...

I filled up my gas tank on my truck on 02/25/2011 the price was 3.26 per gallon for regular. This morning I went to that same station to fill up my ladies car and the price was 3.72 per gallon for regular. I talked to the young man at the counter and he was there yesterday so I commented on the price increase. He said that they got their fuel tanker in during the middle of the night and he had to call his boss because the load was at a different amount then expected. His boss has bought a load of fuel at last weeks price. If he wanted the load he would have to pay the extra difference. Seems like were all going to get screwed.

suek said...

Wish we could stockpile gasoline...!

Chief Instructor said...

Anon, wow, seems illegal to me. A great example of what could be expected if real scarcity hits. You pay whatever the supplier wants.

Sue, yeah, I have about 20 gallons at my home, but its for emergencies only. Bugout gas!

suek said...

A couple of interesting articles:

http://market-ticker.org/akcs-www?post=181162

http://market-ticker.org/akcs-www?post=181067

Some of his stuff is very straightforward, some is very financial market technical. I started reading his blog regularly during the first major round of real estate foreclosure dumps, trying to understand what what going on. I still don't really understand all of it - too many financial instruments and trading methods that I don't understand - but the gist of what I _do_ read indicates to me that the underlying problem is that we have laws on the books, and the laws are not being enforced - whether due to ignorance, lack of due diligence or corruption, I'm not sure.

By the way, it appears that the primary cause of the Wisconsin mess is that the unions have their own health insurance company, and it makes major bucks through holding the school districts hostage, and then buys the politicians it needs to pass favorable bills. Also, the police unions are stating that they'll disregard orders to move protesters out of the capitol buildings. So...if the police refuse to enforce the laws unless it suits them - where are we??

Here's a good article on that topic:

http://www.laborunionreport.com/portal/2011/02/beyond-the-lefts-talking-points-wi-protests-are-about-union-power-money/

Not seeing good news anywhere these days.

suek said...

Yet another...

http://directorblue.blogspot.com/2011/02/dr-marc-faber-on-world-economy-i-think.html

Chief Instructor said...

Sue, I'm missing something from the article on "how to kill small biz". I don't see the double taxation angle. If I'm a corp and pay salaries, those are an expense, and I'm not taxed on them. When I get them as an individual as salary, THEN I'm taxed. I didn't see anything about taxing corps on gross income (before expenses).

The Ireland article is interesting. They were doing great, attracting tons of high-tech companies to Ireland because of their low corp tax rates. I have no idea what went sideways with them. They seemed to crater very quickly.

Great article explaining why public sector collective bargaining is horrible. I sent the link to a number of folks who don't get it.

And with the Faber article, he's singing to the choir. You simply cannot print up this much money without consequences. I don't give a damn what the government tells me about inflation rates or unemployment or green damned shoots. Our paper money is teetering on the edge of worthlessness.

suek said...

On the "how to kill..."

The double taxation angle...

You're a small corp...subchapter S type. You have a net profit of $100K. At this point, if you're a sole owner, the 100K is yours, and you'll pay whatever % is normal. Assuming the 35% bracket (for ease), your total tax is $35K. If they put through the corp tax, (35%) on the 100K, leaves you $65K, which is ordinary income and you'll pay whatever % you normally pay(assume 35% again). Tax is now $35K + $22,750 (35% of $65K) for a total of $57,750 tax.

So...present tax is theoretically $35K, proposed method of tax raises that to $57,750. Personally, I think that's significant.