QE3 Announced

This is bad news! But great news for silver!! buy buy buy!

 

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I would stay away from anything that says "proof" if you're buying silver and gold as an investment for the future and are just starting out. Proofs are minted with the seasoned collector in mind (although some may argue with me on that point). For starters I would get invested in silver simply because of its profit potential and current price of the metal right now.

The price of silver compared to gold is tremendous..

One ounce of gold right now is about $1,770
One ounce of silver right now is about $34.60

Ideally you'd want to own both. One thing you have to keep in mind is that generally, gold is hoarded and stored away but silver is an industrial metal being used everyday across the globe. I've also heard from sources like Mike Maloney (precious metal adviser to investor and businessman Robert Kiyosaki) that there's more gold on the planet right now than there is silver and should be much more profitable dollar for dollar than gold.

 

This was a good explanation. I was just going to ask why PMs weren't going to the moon with the news of this going on non-stop, every month with no end. If it is as you say, I suppose it will still have little affect on anything.

 

At some point these policies left unchanged must lead to hyperinflation. They have little choice in the absence of fiscal responsibility, but even so the debt has to continue to grow exponentially as it has for decades or else deflation will take precedence. Fiscal responsibility has little chance in a nation where anyone wanting to cut the welfare state will lose the popular majority vote.

Since pretty much all of the SWIFT system central banks are doing monetary injections it will probably take a lot longer to get to a hyperinflation than any other time in history, but it seems like a mathematical inevitability on a long enough timeline. Granted, I do not think QE will be the specific culprit. There is plenty of M2 expansion that is not labelled QE. ZIRP on its own is enough to lead to hyperinflation over time. NIRP is faster.

That's notwithstanding the $16 trillion gifted out under the table along with TARP that only came out in recent GAO audits. Who knows what other gifts are yet to be uncovered. QE to date is only $2.3 trillion so that's really not much at all in comparison to $16T, or the massive $1.7 quadrillion derivatives bubble. Exter's pyramid lays it out perfectly. Then there are the dollar swap lines to the ECB which are at a 4 year high.

So inflation is not QE dependent. QE is just a subset of the grander scheme. IMO the purpose of QE is to backstop the risk takers in the bond markets so that sovereigns can continue down the path of austerity and globalization. If they decide to raise interest rates then they can go ahead and opt for deflation instead of hyperinflation, but as you correctly stated that is the true specter and it just doesn't appear they are going to get hawkish anytime soon.

If the economy picks up and no longer needs injections I'm sure they will glady change their tune. That's a big if right now with China contracting below 8% growth (still quite a lot though, but slowing), and all the question marks in the Eurozone still. Spanish investment is leaving the nation at a fever pitch right now, and it's not looking like Greece is going to meet their terms.

The underlying problem is that you can't extinguish debt with debt based money. Only gold and silver can do that. The longer it takes for them to be remonetized the higher they will need to go to fulfill their role in this regard unless the powers that be opt for default instead, in which case the money will be no good if the nation cannot service its debt.

Until either of those situations happens then we will continue to have fractional paper denominated prices in the metals unless someone can't deliver on their paper silver or China comes out with their fabled 1:1 physical exchange. So I do not expect "to the moon" under the current circumstances which are of course subject to change. I am just thankful to be able to buy at these prices.

 

What are you expecting? 3 years ago after QE was started, Gold was in the $900s/ounce. Today it's almost $1800/ounce. This is 100% in just 3 years.

 

That is why I place the odds at 50/50 between deflation and inflation. There might [not will] be higher inflation in the short run, but eventually [maybe soon] the debt will have to be extinguished at least in part by default. They won't call it default, but that's what it will be.

 

The Federal Reserve has moved into uncharted territory so this guess is as good as any.

The problem the Fed faces is that its attempt to stimulate the economy by dropping interest rates to 0% has failed and in fact it's quite punishing to anyone with real cash, people not getting raises, people on fixed incomes, etc etc etc. It's causing all of them to cut back on spending which has quite the opposite effect of what they hoped for. QE unfortunately is nothing more than an attempt to create a situation that is equivalent to negative interest.

There is absolutely huge and unprecedented "base money monetary inflation" (my, that's a mouth full) but it remains to be seen what this will result to in the real world. What you guys have been discussing with hyperinflation is really "money supply monetary inflation" aka price inflation and while conventional thinking is the former will lead to latter, because of the effect that I mentioned above, the spending required to support it may never materialize. You can lead a mule to the watering hole, but he will only drink so much water no matter what you do to get him to drink more. He might even, unexpectedly, kick you hard a few times if you try.

 

I don't expect any recent action by the Fed to result in a significant increase in the inflation rate. It probably will increase the price of certain investments tied to interest rates, which is the intent. I agree that the zero interest rate policy has been a failure.

 

If you lead the mule to your favorite old watering hole, and it is dry, stop complaining and find another water hole.

If the interest rate from the FED is close to 0%, why wring ones hands over lower bankbook/CD yields, look at what industries benefit from the 0% Fed Rate. When QE1 started, I went into a REIT that was at that time yielding 16+ %, and have stayed in it up to today, and the yield is only 12.7 % That makes a nice "parking place" for funds.

You can mark the ex-dividend date on your calendar and make the decision to continue or leave. My cost for the REIT was lower than today, so the stock appreciation adds to it. If the interest rates goes up, I may have to leave it, but this is just one example that a person can sit around a dry hole, or find a different one. Moaning and groaning won't save your portfolio, education and utilizing all of the market's resources can in my opinion.

Jim

 

The problem I have with the zero interest rate policy isn't that it is impossible to earn some sort of return; it is that it is now necessary to expose yourself to much more risk than bank accounts, CDs and short term bonds possess. This might work for awhile, but there will be inevitable stumbles along the way that will really hurt many people. Also the ZIRP has an unintended consequence of lowering the return on capital for all investment classes since most everything keys off of the risk free rate of return. So capital in the US is earning a lower return than ever before, and therefore is more likely to flee, or disappear as investors eat their seed corn.

 

I don't disagree at all, but it is what we have to work with currently, and yes, I can wish for more, but there will be people who fail if they try to do things with their money outside of banks and such, and will eat their seed corn. I have seen only a few posts seeking out education on various areas of finance compared to the hundreds of posts buying/selling bullion with out any real reason or alternatives. You are a reader of various financial giants and probably many midgets also, and you have a stable understanding of processes and possibilities. That gives you a large advantage over the general investor, but it didn't just fall on your head, you had to study. In my risk/reward, if a bank was giving 6% on a 3 mo. CD, I would be there rather than the REIT, but that is a long ways off. Maybe I juggle too many tools, but it keeps me off of the streets

As an aside, The last 2 days have shown an interesting divergence of PM from the EUR/USD ratio which has a downward slant.

Jim

 

Jim,

What about the 75 year old widow (...or widower...or couple) that doesn't have your investment acumen and needs an income on her investments to live...there are a lot of them out there! The FED is STEALING their money; confiscating their wealth to maintain welfare state spending programs (aka "buying votes"). Quantitative Easing (QE) is just plan wrong and illegal (imo).

 

I don't want to live in a country of struggling people. I think I can take care of myself financially [who knows for sure], but it just shouldn't be this difficult. So I'll continue to complain.

 

I have no complaints about people complaining. I just try to take advantage of the positive things and I suspect you and I are somewhat different than the people who are really suffering. I was able to recently refinance 2 of my rentals from slightly under 7% to 4.25-4.5% under the HARP program. Two more in the process. Higher than for owner occupied under the program, but still great for income flow. Many are not aware of this possibility as a year ago, you couldn't refinance rental/investment property under the program.

 

Change the word "Program" to "Manipulation" and see how it reads...

 

Program, manipulation, whatever. It reads as very advantageous to my family financial situation. Are you saying that you wouldn't take it due to your philosophical outlook on it??

One has to take every legal step possible to make gains in the current situation.

 

No arguments there. As long as these "programs" are in place, everyone should take advantage (and not criticize others for doing the same).

I just think that artificial economic manipulation in the name of social or economic engineering is destroying this country.

 

I commend you for having the ability and gumption to take advantage of such things caused by this policy. The Fed's policies are causing a vast transfer of paper wealth from one segment of the society to another. It's good to be on the receiving side for sure.

The question for the takers is this. When the rubber band breaks because the above is simply unsustainable, where will you be? The question isn't answerable, so don't bother, because nobody knows how it will end. The advantage of holding physical bullion is you don't care because it's worth doesn't depend upon ink on paper trickery. (or electrons being shifted in electronic memory)

 

This is the goldbug blind spot. Gold has been a great investment for the past decade, and probably will be for awhile longer. But it won't protect you in the event that the goldbug predictions of paper money going to zero and social breakdown; and it won't protect you in the event that the economy recovers. It's just another investment that happens to be in a bull market, and should be viewed that way. This too shall pass.

 

You are quite correct about who this is punishing. Deflation would mean lower prices for consumers, more buying, more velocity in the economy, less people struggling and hoarding, and a stronger currency. Unfortunately deflation would cause the wheels to come off the fractional reserve global ponzi scheme, so they will continue this path as long as they are able. With the US finally implementing tariffs on China, both nations suing each other trying to fight for position at the WTO, with China announcing anyone may use their currency to buy and sell oil, and with Russia announcing that they will exclusively be doing so as the world's largest oil producer - the currency war and the trade war is on in full effect, and it does not look good for the US who rose to prominence with ingenuity and innovation only to skate along the last 40 years on the shoulders of others with the petro-dollar which is now coming to an end.

You've also highlighted an important distinction between monetary inflation and price inflation. I anticipate we will continue to see increasing monetary inflation but that prices will actually deflate as that new money is used to cover leveraged counter party risk chains that will require much more money to offset than they are worth. This is known as biflation in which case all assets become denominated by their true demand. Debt based assets will go down in value while tangible assets will continue to rise IMO.

If you mean that gold will not protect your wealth, I disagree. Gold is money, always has been, always will be, whether or not we use it as currency. Gold inevitably (though often delayed) rises in price to match currency expansion because of its nature, not because of anything we have control over. The bull market we are in is only 12 years old, but we went off the gold standard 41 years ago. The bull market is only a small glimpse into the big picture and its basis begins under circumstances where the price was already suppressed, silver even more so, both in order to support petro-dollar dominance. Once this paradigm inevitably shifts they will return to fair value, but not until China buys up as much as possible for discounted prices.