$500 SILVER & Hyperinflation

Leverage skews reality. No question about it.

However, taking out a loan is one thing. Buying on margin is another. Just because you put 10% down on your home doesn't mean you own it. You still have to pay the rest of the mortgage with interest unlike the futures market which will give you 100% ownership for 10% payment for example. This may be splitting hairs since technically the home is considered sold, it still influences the market as though you bought the whole thing, etc.

So sure, you can take a home off the market by using leverage, but another difference is that you can't buy part of a house (in the vast majority of cases). With commodities the "each" measurement is much smaller. No need to buy 10,000 ears of corn when you can buy 1 without tieing up the other 9,999 of them. So I can see the need for leverage with housing since everybody needs a house. With commodities it's more of a nice to have.

Here is the big difference though. Anybody who buys a house can buy on leverage. So it's a fair playing field. With silver, only people buying on the futures market can buy on leverage. If I want to go buy it through any other method I don't get to use the leverage. So the playing field is not fair.

Additionally, the price discovery mechanism for housing is based strictly on actual houses, not contracts that represent houses without an actual house existing to back the contract. A mortgage backed security may be a paper contract but there is a house tied to it unlike silver contracts of which only 2% have the metal backing. So the amount of leverage is much less with housing.

 

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When you buy on margin, it is in fact taking out a loan. Maybe without the paperwork, but you need to pay it back and you pay interest on it. The underlying asset is used as collateral. If the value of that asset falls too much, you may need to sell off of the asset or come up with more money. That is a margin call. If you don't come up with the cash or do net sell some or all of the asset off, your broker will do it for you, without your permission, since, just like a house, he has that right since you do not own the asset. At least not all of it.

Now futures are a bit different, they are using leverage also, but it is not margin, they are more like options, but in no case do you pay 10% and get 100% ownership. You have only purchased an agreement.

Now there are a lot of folks who do agree with you and the think the huge amounts of leverage available lead to the housing bubble since many folks were buying more house then they can afford. I disagree, I firmly believe it was the easy credit available to folks without a decent credit rating. But hey it was a secured loan, what could go wrong?


Now, if your view is correct and it was the leverage, there is no doubt this lead to increased valuations. So I have to ask, why would leverage skew the housing market upwards and in your opinion, since you believe silver is undervalued, skew that market downwards

 

$500 Silver? Perhaps ... in 2018/20.

But we're much more likely to see Silver under $25 in March/April 2013, as I wrote here: http://www.cointalk.com/t219228/#post1597339

From another thread, wonder what happened to the OP's stash, losing at least -15% value over the past 3 months: http://www.cointalk.com/t217748-5/#post1576953

As I helpfully recommended, ZSL is UP +28% and DZSL is UP +40% ... while Silver lost ~-14%. Since then, hedging your bullion stash with inverse paper (leveraged, by necessity w/ those particular ETPs) was proven a great call. "Free Money" lol for the last 3 months.

I think more here are begining to see it clearly. A better bullion buying opportunity awaits. But not yet... keep your powder dry for now.
Slowing QE, the imminent sequester, and no shortage of exogenous uglies to derail the so-called "recovery" might dramatically tank reflated USD-backed asset classes, the giddy US stock mkt and Paper PMs included. (For POG, I happen to think multiple closes below $1500 would augur the next deflationary wave down, but NOT the end of the PM Bull.)

For Silver bullionists, when will a Buyer's Low appear: anyone's best guess date/target? Maybe POS @ <$19., between ~3/26 and ~4/23 ???

 

While I do believe silver is undervalued, I cannot say that I believe that because of the leverage. I believe that because of fundamentals. It does seem more likely to be undervalued due to diluted supply which is due to contracts existing without the silver backing which is a separate phenomenon than buying on leverage. The only conclusion I can make about leverage is that it muddies the waters to the point where true value is no longer easily discernable.

Whether leverage is skewing housing upward or downward I do not know, but I would infer that since it allows more people to buy homes than would otherwise be able to that it drives the price higher than it should be since there is more demand than there would otherwise be.

 

I don't believe that leverage was the root cause with the real estate bubble. Causally related, maybe. IMO it was deregulation of the banking sector, including the repealing of the Glass-Steagle Act. If you give someone an inch they will take a mile. That's why we are a socialist nation now even though anybody who understands that government produces no money and only takes from tax payers knows that it's a road that leads into a ditch. The sector needs to regulate itself, not rely on its customers to do the right thing when they don't know anything about the sector. There is so little regulation today it's not even funny.

 

Hey, for all of the talk about naive investors believing silver will "go to the moon," I laughed this morning when I thought the other side could be referred to as the "fiat paper bulls." I mean, the idea of a fiat paper bull is pretty funny, because it sounds nonsensical on the face of it. Believing gold and silver prices will be suppressed further is tantamount to being bullish on fiat paper, it seems to me. Like I said, I am no prophet, and if we are to accept modern physics, including the idea of parallel universes, which are formed through the splitting of subatomic particles in different directions every nanosecond, then all possible outcomes -- from silver being further suppressed for centuries to silver becoming remonitized -- are possible. At this very moment, we are all destined to be both very rich and very poor. So, in a sense, we are all correct.