How far will gold and silver fall?

Son, a bank can't pay back the Federal Reserve with numbers from fractional reserve banking. This is why the Fed distinguishes between types of currencies based on source and location LOL.

 

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That is the core of the problem that worries folks. But the banks record loan loss reserves netted out of their loan balances to account for this. Nobody can say with certainty whether they are too low, too high or just right. But if someone walks away from their house, the bank eventually recovers part [and perhaps all] of their loan balance when the house is sold, so the loan losses are not 100% of the balance.

 

They absolutely can, and have. I think what you are doing is assuming that no loan will ever again be repaid in the history of the world, and that just isn't true except in internet-land economics.

 

Where did you get the information that the Fed loan was not on their Balance Sheet? GAAP will require it, and their statements are audited of course.

 

Let's look at it another way that may be more understandable. BAC had $94billion in positive cash flow from operations over the past 12 months. That is cash coming in net of cash going out that can be used for any corporate purpose desired, including the repayment of loans from the Fed.

 

I read about the action. It is to try to improve shareholder return. The foreign operations are bought and sold routinely. I think they are trying to shrink to get to a more profitable size relative to business strength.

Its always funny how laying off 3500 employees brings 1000 time the press attention of hiring 3500 employees. Everyone should always remember the press loves bad news, good news is boring.

I stand by prediction every cent from BoA will be paid back at a profit. You are investing your money in your belief in gold, I am investing in the belief in a rebound in the economy in a few years. We both will live with our decisions come retirement time.

Chris

 

I currently do not own any bank stock, but I'm looking at the group. I don't want to leave fatima with the idea that there is no risk, but the report of the death of banks has been greatly exaggerated. It is impossible to have a capitalist system without a banking sector to support it.

 

Care to explain?

If the money supply stays the same and the supply of items declines, what do you think will happen to prices? In other words, if the price of a loaf of bread goes from 1 denari to 2 denari, that's inflation (and I think anyone else reading this gets that pretty clearly because they know what inflation means and you're using a circular definition).

Inflation is defined as the process by which they buying power of money is reduced over time. I agree with you that printing large amounts of currency while the economy stays the same size (or even grows at a slower rate than the money supply grows) can cause inflation. But, that's only one way that inflation occurs.

In the modern era, we have a lot of things going on that are deflationary by nature. Technology and applied knowledge are deflationary in nature - just look at the cost of a 33 mhz computer from 1995 to 2010 (my first PC had less computing power than the average cell phone does today). Likewise, the average acre of corn yields about 300% what it did a century ago (or more). For the same inputs (labor, capital, land), we're able to produce larger outputs. This is defined as efficiency. As efficiency grows, price of output tends to decline (but not always: there are depletable resources like oil that illustrate that pretty clearly).

Let's look at another example. You live on an island with 5 people. There's no trade with the outside world, but your community uses a stash of 1,000 gold coins to transact daily business. Your neighbor Bob raises corn and other crops, your neighbor Tim is the barber/dentist/doctor, your neighbor Sue brews whiskey, your neighbor Janet raises pigs and provides entertainment, and you do all the odd jobs that the others can't. One day, you're digging in your yard and find another 1,000 gold coins (doubling the money supply). What will be the result on prices on the island?

This is essentially what happened in boomtowns in the American West during the Gold Rush and in Spain in the 2 centuries after the conquest of the New World. The money supply increased faster than the supply of goods in the economy. Presto, whamo, inflation occurred (even with a non-fiat currency).

 

That's a pretty big assumption there. If a cattleman fails to pay off the loan, why would the banker still get paid? Plenty of banks failed in the late nineteenth century after making bad investments (railroad bonds were involved in a lot of those bad loans). Unless the cattleman had secured his loan with collateral, the bank would have to eat the loss on its balance books as a bad loan.

The bank wouldn't lend the cattle driver $10,000 if it didn't think that there was a good chance he would pay it back plus interest. And, the interest rate isn't automatic profit for the bank. Interest rates are assigned based on risk - if you charge 10 people 10% interest on equal sized loans, how many of them have to default before you just break even? (hint: don't forget the principal) So, interest rates are determined based on risk.

In the cattle drive example, you would have to convince a banker to lend money to you at 6% interest. Someone who had worked for years as a cowboy and had successfully run dozens of cattle drives might be able to do that (especially if they offered up their ranch as collateral). Someone who was fresh off the boat from Europe and had never gotten closer to a living cow than eating a burger probably wouldn't get the loan (or would get it on much steeper terms).

You're still missing the point. The profit that the cattle driver makes and that the bank makes represent the creation of value. Without the bank to lend the money and without the cattleman to move the cows, there would have been less beef/tallow/leather where it was needed. Getting it there allowed businesses in Chicago/New York to leverage their efficiencies and produce more goods with less inputs. Thus, the currency that was created reflected the creation of value.

 

I wonder how much of BofA's loan went toward their recent lawsuit. By my estimates it was about half. Their stock trend looks horrendous and is not far from the $5 mark where shorts will no longer be allowed which indicates to me the writing is on the wall. Sure they have made acquisitions that have a large potential for capital, but those came with toxic assets from both Countrywide and Merrill Lynch so it may very well do more harm than help. They already got bailed out once aside from the loan off the books that just came out. Obviously it is not a profitable enterprise. Will they get our tax dollars, or will JPM swoop in and buy them up? Who knows. In any case, I do not have more money in the bank than I need to pay my auto-withdrawls.

 

Just to clear the air, the recent settlement was for 8 billion, and there are a couple of others in the neighborhood of 20 billion. As a percentage of owners all of those are about a quarter of the equity, and just a tiny fraction of assets. Yes, it will hurt future performance, but I believe that is factored into the stock price. I was buying Citi at a dollar a share, where you say the "writing is on the wall". Well it wasn't and it rebounded from that price.

I just thought your post was sounding like you were sure that BoA was going bankrupt because something as silly as a share price. Even at $5 a share its total equity is in the tens of billions. Trying to say something is predictable because of share price is silly, they could tomorrow do a 10-1 reverse split and take the share price from $5 to $50 like Citi did. Share price is a small investors siren song, luring them to incorrect conclusions constantly. Look at total equity value, shares outstanding times price per share, and you will see how massively BoA is still valued over most other firms.

Chris

 

You may think it silly that the stock which represents the value of a company is a reflection of how well it's doing, but I don't. Although to be clear I am not referring as much to the current price as I am the downtrend. The price being as low as it is is just a reflection of that trend, not the basis for my logic. I didn't even realize there were newer lawsuits, I was referring to the one for over $50 billion earlier this summer. The reason I say the writing is on the wall is because BofA is getting hit with billions and billions of lawsuits, yet when JPM or Goldman get hit it's never anywhere close to a billion, at most was the 138 million for JPM. It is apparent that TPTB are not shielding BofA like their golden boys.

 

The number is meaningless without knowing what they owe on what. It's certainly not flowing to shareholders as they are being routed as we speak.

 

You have hit the nail on the head Lucyray. There is absolutely no way to judge risk now because the Federal Reserve is interferring with the free market by money printing and hence certain businesses, i.e TBTF banks, General Motors, etc. do not have to deal with failure. With the banks, it is a double whammy because they can continue with risky and maybe criminal behavior without having to account for the destruction that it causes. Nobody truely knows the extent of this because nobody knows what people are going to individually do with their debt. It's clear that as long as the problem is kicked down the road by money printing, then the free market can't deal with it. This is one of the basic core economics problems in this country. (and for that matter the western economic world)

Real investors don't know where to invest in the economy because free market rules have been eliminate. Hence no real jobs get created and the problem gets worse. If QE3 is announced, it's real a defacto announcement the financial system has failed and now being held up by smoke, mirrors, and stealing wealth from anyone with $ savings. Unfortunately since the real world also depends upon the confetti money it gets taken down with it. This is why people are buying gold. They are buying gold because gold isn't subject to this sort of irresponsible behavior.

BTW, in case anyone continues to doubt the importance of gold as a hedge against this. The German ministor of labor today announced to Der Speigel that any futher bailouts of the PIIGS countries should require them to send their gold to Germany. (No Paper)

 

Re-read what I posted. I said total inflation. Inflation is pretty much meaningless on individual items. The point being that if you are now spending 2 denari on an item where you were spending 1, then something else has to drop in price because the buyers are no longer there. On your question about the 1000 coins being found, eventually the price of everything on the island in aggregate will go up 100%. That is inflation. Prices don't go down as one might think.

 

To a value investor, it may be a signal to buy. To a technician, it may be a signal to short. To folks who don't know anything about investing, price = value. I don't know what will happen in the future, but BofA is a cash rich company with a positive cash flow and a sinking stock price. There are opportunities there for people wise enough to look for them. But as is always the case with investing, there is no penalty for inaction, and there are always chicken littles.

 

Do you have a list of these routine foriegn sales by BofA.

 

62$ and silver about 2 dollars in the last 12 hours. !! Free-falling

 

Gold margin hikes went into effect today. Silver is just doing what it does best, like the hyper little dog that follows the big bulldog and gets ahead of itself.

 

haha thats a good analogy. very funny guy do you have any references where i can read about the "margine hikes". I would love to learn what they are and how they get into play.