Falling Prices/Margins? I'll Bite

I haven't received my last order yet. So I have to wait a little longer before I try to get a few more ounces around here.

 

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"
Gold and silver futures fell to 12-week lows as the dollar’s rally to a 13-month high damped demand for the precious metal as an alternative investment.

The greenback jumped to the highest since July 2013 against a basket of 10 currencies. Gold dropped 1.6 percent last week as the dollar climbed 0.8 percent.

The metal has declined this quarter on concern that the Federal Reserve is closer to raising U.S. interest rates. Policy makers meet Sept. 16-17."

http://www.bloomberg.com/news/2014-...-as-dollar-rally-damps-demand.html?cmpid=yhoo


Note the red section, and notice how it conflicts with what seem to be stackers comments that higher interest rates would boost PM.

 

Raise interest rates? Hey, that would be a great joke for the fed to play on wallstreet-you know, actually do it. They won't be expecting it. But first back the truck up and stack puts. Then raise interest rates two weeks before lucky October starts. Then they could claim it wasn't their fault
because they were possessed by Slender Man or the ghost of Jessee Livermore.

 

There's a lot of cause and effect that goes into that belief. PMs will slide into short term oblivion if the fed can raise rates and the economy doesn't tank. There are still some very big questions that have to be answered before we can go back to a savers rate environment.

What will happen to the housing market and affordability if rates rise?
What will become of GDP if the conversion from full time to part time work isn't reversed and the consumer pinch continues? (Proof? Walmart sales numbers?)
What will happen to the jobs market when the employer mandates kick in when 2015 hits? Watch the open enrollment periods in November for employer coverage. That will be very telling.

They may be able to pull it off, but part time America is being left in the dust.

 

My assumption would be we have some version of a repeat of 2003-2007, where mortgage lending rates were kept artificially below the federal funds rate dictated rate. In theory, mortgages are semi-secured loans, so the banks offering them could be justified in lower rate offerings to customers borrowing money to acquire properties at significant discounts to market value.

 

You know what's funny about housing? If congress would stay out of the home affordability market, homes would probably be more affordable. The last go around, the banks were allowed to write all kinds of junk mortgages in the name of getting anyone into a house. It drove UP prices so high, it didn't matter how great rates were. Homes were a lot more affordable at lower prices and higher rates in 2000 than they were after rates went down and prices shot through the roof.

 

There is no shortage of silver if indeed any of the online dealers were short of product which I have never seen. Which ones had shortages? There is delay in filling orders occasionally because they didn't anticipate a demand for a certain coin and didn't order enough. Silver Eagles have gotten overwhelmed at the start of the last two years because everyone couldn't wait to get the new one. But that is not a shortage of silver, it is a shortage of silver blank producers being able to fill so much demand on short notice.

 

That's half true. Much of the "Home Affordability" legislation in Congress is a result of the Realtors lobby groups plowing a lot of money into the concept of home ownership. If mortgage lenders didn't create the ratchet ARMs (negative interest rate in some cases pre-ratchet), people wouldn't have tried to buy "more home" than they could afford. The housing market collapse from 2006-2009 was a direct result of 3-/5-/7-year ARMs issued in 2001-2005 ratcheting up. The current housing bubble is essentially reactionary to 2006-2009, since politicians obviously aren't economists; self-preservation dictates that they do what their constituents demand, regardless of overall impact on the economy.

It's like I've told my friends and family: If you want to buy a house, find a financing vehicle not attached to the home itself. In that way, you can have 50% or more to place as a down-payment during a higher rate period, buy the house at a discount, then refinance when rates come down. This cycle is self-perpetuating, since banks/lenders insist on paying brokers for loan origination. In essence, mortgages are collateral-backed, fully-callable loans. When rates go up, no one who isn't planning on defaulting on their mortgage anyway will refinance. When rates go down, everyone who has a mortgage broker refinances.

Basically, this is the bank's dilemma:

The federal government essentially requires banks to lend to home-owners and/or prospective home-owners, through odd subsidies and tax-modifications. The banks, end up taking on the following risk proposition:

Offer high-interest loans to highly qualified buyers during a buyers' housing market. This is a boon for banks, as they are more than willing to hold the property, in event of default.

Offer low-interest loans to poorly qualified buyers during a sellers' housing market. This is a bane for banks, but the "cost of doing business," so to speak.

Normally, that risk would be viewed as balanced, but it's really not, since you end up with a compounded dilemma:

Sellers have an incentive to sell during low-rate environments, since they'll get the highest prices. Banks end up lending far more dollars during low-rate periods than high-rate ones. Cash can be acquired at a discount, since the general population operates under a debt-spending mentality. Prices continue to get driven up... until they don't.

Once prices top out, banks have two choices: drop rates or stop lending. Since the majority of bank revenues are generated through loans, they can't really stop lending. They continue to throw money at marginally worse and worse opportunity, just to avoid going out of business.

Since these banks lent a lot of money during the low rate environment, once rates go up, their cost to carry also goes up. This is exacerbated by increased default rates and the additional inventory of over-priced homes in a shrinking market.

Anyway, eventually, the market bottoms out again, and those with the most cash on hand or access to low-cost cash start to buy up under-priced assets. During this period, you often see bank closures or consolidations, as write-downs lead to bank failures. Efficiently run banks purchase the assets of default banks, keeping the good paper (loans that are likely recoverable), default security-backed paper, and fully-leveraged non-collateral paper. Most other assets are liquidated and sold off to attorneys who specialize in asset recovery.

After a few years of high rates, people start to complain, the government steps in, and we begin the beautiful cycle anew.

 

That's what I'm saying. Not that there isn't silver, just that the bullion retailers won't have the current stock on hand to handle a surge. Apmex has run out numerous times in the last year and a half on smash down days. You could always find some silver on their site, but the low premium bullion grade stuff was cleaned out pretty quick. They'd rectify it within a few days.

SD Bullion has been outta secondary market rounds for a few days now. Granted, those are probably driven by customer sold silver.

 

It is interesting to see that people seem to think differently about banks and bullion dealers, when they are both basically doing the same thing. It is just that one takes advantage of those who think the worse is coming while the other takes advantage of those who think the best is coming. But lets get away from banks , housing, etc. for this thread. No problem with inflation/deflation discussions unless the word politics/politicians, etc is mentioned. No Politics. Thanks

 

I wonder if we are at a bottom, or if we'll go lower still. Right now it's holding at $18.50.

 

Sunday night when asia starts trading will be what I'm watching. Some of the best fireworks have happened on sundays when Japan starts trading.

 

I think you got your wish. Silver is gyrating wildly from $18.50 to $18.80. It can't make up it's mind to go up or down.

 

Ok, couldn't hold back any longer. Bought some more this morning when it tickled $18.30

 

Wait until the dollar becomes the Weimar Deutsche mark. Then you will treasure gold and silver as you will scarcely be able to buy bread with a wheelbarrow full of greenbacks.

 

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What a difference 3 years makes. If even 1/4th of these were ever true/still true, the price of gold and silver would be much much higher. It isn't , and these articles as a group are not valid. Check these recent articles or even Kitco. Asians ( for good or bad) want USD , BABA, etc. The world has changed from 2008.

http://www.wikinvest.com/wikinvest/...ency:U.S._Dollar_(USD)&comments=0&format=html

 

oh for god's sake. stop it.