Could I get somone with an education to decipher this response?

Got it. Thank you for the explanation.
Guy

 

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Very true sir. I knew people who correctly predicted and acted upon both the dot com burst and the housing burst. The person who predicted the dot com burst lost a lot of money because he used leverage and had the timing down wrong. The person who predicted the housing burst made money even though he also had the timing wrong. The person who predicted the housing market burst sold his house, but it kept going up. However, a year later the bubble burst and it is now worth half of what he sold it for. The difference? The second amn did not leverage sales of multiple houses for 6 months, he physically sold the asset he had and used no leverage.

Using leverage to maximize returns on a predicted economic change is about the most dangerous game I can think of, not only are you betting you are right, you are also betting your timing is perfect. Get it right and you hit a grand slam, get it wrong, either the thought OR the timing, and you are picking up bats the rest of your life.

Chris

 

A lot of folks assume that since there is already too much debt to ever be repaid, the most likely solution/outcome will be to inflate it away at some point by increasing the money supply. The byproduct of this is a dollar with much lower purchasing power. This is a good supposition. But there is an alternative outcome which is to default on the debt. An outright default is unlikely, but the Fed and Treasury are far more astute than people give them credit for, and they might find a way to implement a sort of "shadow" default. This could be done, for example, by declaring void all of the Treasury securities held in the Social Security trust fund. Or by some sort of retirement of debt held by foreign central banks in exchange for -- "something." Or by nullifying Treasury securities held in pension funds in return for solvency guarantees. Or by reinstituting Treasury Notes as an alternative currency to repay interest on the debt. I'm not smart enough to figure out exactly how a default would be implemented, but I think it is probably just as likely as an inflation rate high enough to make the debt easy to repay.

But be advised that this is a strictly minority viewpoint and will no doubt attract rebuttals.

 

Got it. Thanks.

 

Two other options Cloud is a haircut or inherently converting accrued interest into more debt.

"Haircut" is my favorite little phrase being bandied about because of Greece. How the news media allows a 50% immediate writeoff of Greek debt as a "haircut" is beyond me. Sounds more like legs being cut off to me.

 

I don't know if anybody would have the nerve to try the haircut ploy again. But as you point out, there are many ways to accomplish this if you think about it. The Treasury could also confiscate and retire the bonds and replace them with some sort of annuity. Stephen Colbert suggested retiring the debt held by China by giving them Idaho.

 

I disagree with his ideas, they seem sound but long term not viable.
However he's playing a leveraged portfolio at max he pays 10%, more likely close to 3% on every trade he does. So he's short term, and very quick. Leveraging is tricky but money can be made, my uncle who everyone though was a complete dimwit since he never finished high school, became a cocaine dealer and served 6 years in san quentin, is one of these leveraged stock players. He makes crap tons of money on his trades... why? because he pays nothing for them practically and only repays his debt upon selling them. only when the market is down, does his leveraged plays get called upon, thats why they say never put all your eggs in one basket, you need to be able to liquidate all assets to cover your loss, to keep your credit to keep playing the game.
Regardless his analysis of trades is spectacular, his theories in general are bogus.
Regardless stocks can be fun but as with all things, don't indulge, always play it safe, and think long term and viability over profits, in addition consider solubility, how quickly can you liquidate such assets in needs of emergency?
With metals very quickly, with stocks or other risky crap shoot investments, sometimes not so quickly. Or as in case of this recession, how can you liquidate a house that you can't afford to pay for, for 50% of what you purchased it for? lol
I am sure you get the picture, your still small so avoid his baiting, don't play his stock market leverage game, stick to what you know. That is precious metals and physical precious metals, play the game you know and you'll be fine, the key is knowledge in your area, you know physical metals well, and are attempting to open a store, stick with your plans, its a wise move and I personally believe your coin store will succeed.

 

the stock market is a mess ! I'm staying away from the financial teeter totter. everyday it's a different story.

 

I read this guy's response and he makes a very good point about Europe. It is the wild card and nobody can predict how it will end up. IMO, events over this past weekend are status quo changing and may very well mark the end of the Euro and the EU. It's devolved down to the same sort of arguments we had here in the USA about going to war with Iraq that involved "freedom fries" and pouring French wine in the sewers. The results will be the same. Not good. I can imagine this currency trader is "ill" because it's a status quo changing event and those who make money without providing anything useful to society are the ones with a lot of skin in the game.

I disagree with the fellow on his statement the Federal Reserve can suck trillions of dollars in or out of the economy. While they have the right to do this, these kinds of currency shifts have direct devastating effects on the stock market and oil prices. The $ holds its status as the world's reserve currency because its backed by oil. That is anyone with $s can freely trade it for barrels of oil and the Fed can't screw this up without causing huge problems. Lest we forget, what blew the house bubble house of cards down was the fact that spot oil prices hit $150/barrel in late 2007/early 2008 and that was all she wrote. Their hands are tied and especially now since real interest rates are 0%.

I agree that his viewpoint is bogus, but I would take his advice and stay out of it. It's a rigged game that almost nobody can win except those for who the rules have been designed to protect. Ask the people who had an account at MF Global.

 

Your friend has a can of BS. Run don't walk. I can assure you worst case you break even.

 

Wait. Did you just say PMs are more liquid than stocks?

I can dump my stocks with a few mouse clicks, at the prevailing market price. To dump PMs, you're looking at a trip to the SDB, then hauling them around town trying to find a dealer who's willing to buy even if the price trajectory is down, probably at a substantial discount to spot.

 

My simple mind sees it as a flawed investment strategy as a hedge against the collapse of the dollar. Why? Because all the plays are a dollar based investment for the purpose of acquiring more dollars. If dollars become worhless then it doesn’t matter how many you have their total value still amounts to nothing. You see worthless equals zero and we all know zero times any number always equals zero. I learned that back in the 2nd grade.

 

Going from memory, which may not be current, for large transactions involving gold held in Comex, I believe it takes two days to clear. Stocks take three days.

 

How large are we talking here? I don't see three-day delays on my stock transactions, but I'm not slinging six- or eight-figure amounts, either.

 

But just to play devil's advocate, I believe most here would not be holding Comex receipts, but physical PM. Jeff's comments I agree with, especially the part if the market is falling how discounts off market increase substantially. I know I sound like a broken record to some, but many here have never experienced a down PM market, and are unaware how your losses get magnified by the dealers unwilling to pay the same mulitiples as they do today. In an up market a dealer may pay you 90% or above spot for PM, in a down market the offer may be 50% of spot. This is well documented and I experienced it as well, so its not just hearsay, personal anecdote, or wild story. "The herd" moves both ways, right now PM is popular so dealers are willing to pay strong prices. When PM is not popular, and dealers cannot move their inventory, their pay price drops sharply. Everyone who ones physical PM should simply be aware of this.

Chris

 

Where is it documented?

 

As small as 1 share and up to 10,000 shares, it now take 3 days to clear. You, as a customer of a brokerage, probably "see" the money hit your account immediately but in fact it's being loaned to you by your broker (probably at a given interest charge, I'm sure). When I first started trading back in the early '80's it took 5 days to clear and it didn't actually show up in your account until it actually showed up in your account and the only way you could fold that money into a trade before the 5 days were up was to have a margin account.

 

I view his plan as a possibility to get rich. There is an algorithm somewhere in his logic that could open the door to wonder land. On the other hand it seems as though things could go terribly wrong. Where is the actual security in a paper market? How many people jumped out of the 5th story window because they didn't "make the click" prior to 2008? As I recall I can remember an old vet telling me about how they used to wipe their butt with French currency during WW2 (Because it was the softest). In a time of uncertainty and volatility what kind of security do you want to have? If his plan is a grand slam offering returns of 100X investment, wouldn't people just diversify with the bulk going into PM's, and the rest going into leverage? Just brainstorming here.

 

Back in 1980 when silver ran up to above $50 an oz the most you could have sold your physical silver to dealers was in the high $30's - low $40's. Dealers were totally unwilling to offer anything close to spot and wisely so because within less than a week of hitting that high the market imploded and silver quickly came back the high $30's and paused awhile before running back down to the $2-$3 level. So he's absolutely right than back in the crazy Hunt Brothers stimulated silver market, the only silver trading at $50 was paper silver, physical silver did not.

 

Also after the market dropped and continued dropping, the pay price of dealers was much lower that today as a percent of spot. There were loads of newspaper articles in NN and CW of everyone lamenting this, dealers defending themselves, yada yada. I would say between 82 and 87 almost every month someone would complain about it in these magazines, and if someone looked at offered buy prices they would see what the ratio was versus spot, but the dealers said they cannot afford to pay more since no one was buying, as they all expected it to continue down. I didn't keep any of these magazines or newspapers, I only keep old issues of items like The Celator, ONS, ANS and other publications that have lasting value.

Also, on spot with your comment DW, when silver almost hit $50 this spring, was anyone able to sell for close to that? I called around to 5 local dealers, and 4 national ones, and at $49 plus silver the best offer I received was 29x face. My point was in a declining market, but you point is excellent as well DW, and they both deal with dealer expectations of the market severely limiting a physical PM owner's potential profit.