This is Why NO $50 Silver

jeffB, well put. But I doubt passant will admit it.:thumb:

 

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NorthKorea, I don't have a problem with your model for PM or commodity exposure. I disagree with a few points, but I was throwing out an outward boundary for PM exposure, a worst case scenario limit as it were. I was not advocating what everyone should do. Many people here talk about huge positions in silver, and I was trying to show the methodology to show their MAX exposure, basically 10% of all assets they have should at max be tied to commodities. Most of your points regarding balancing I agreed with for normal investors.

It was just a matter of phrasing, I was trying to explain to PM bugs the absolute limit of what they should take on for a long term position, you were trying to craft an average portfolio position. Its also timeframes, I assumed through retirement so assumed returns of retirement portfolios through normal distribution channels and liquidation of residence and movement to another living arrangement, or a reverse mortgage. If someone says they will live in a house until they die, of course take the real estate out.

 

But you are completely missing the point that 1920 dollars have nothing to do with 2011 dollars except the name. A 1920 dollar has 91 years to grow until it is the same as a 2011 dollar. Even with the runup of PM's lately, there is not a lot of difference between a 1920 dollar invested in a treasury bond and a dollar worth of gold bought in 1920.

Seriously, you cannot understand that just because it is a "dollar" the TIME is the important part?

 

Politically, there are 4 choices available to get rid of the debt/deficit. Regardless of which party is in power, they only have the following options:

1. Default on the debt
2. Raise taxes
3. Cut spending/entitlements
4. Erode purchasing power of the dollar (i.e. print more dollars) and pay as little interest as possible on existing debt which puts the government in the position of picking the pockets of its citizens who have cash savings and/or living on fixed incomes.

Choice 1 will anger large bond holders (China and company), damage U.S. credit rating and is unlikely to occur.

More likely to happen is a combo of choices 2-4. It is likely to take decades to resolve.

In light of this, the holding of at least some PM's as an hedge against eroding purchasing power of fiat currency seems to be wise for as far as the eye can see.

 

I think the graph on this site pretty clearly illustrates that this is a bipartisan problem, although you could make the argument that prior to the current administration it was a bit more one sided.

http://zfacts.com/p/1170.html

I believe you are correct in your assessment of what will be done going forward, however I don't think the current GDP to debt ratio is sustainable for as long as it will take for that to work. I'm glad to see spending cut talks in the trillions instead of the billions, but that doesn't seem very likely to me. Interest creates more debt which then has interest tacked upon it as well which compound things. It's a vicious cycle that only becomes more difficult to manage the longer we wait to tackle it. Cutting spending doesn't do much good when the debt spends on its own. We need to pay it off or we're just spinning our wheels, but anyone who suggests the taxation necessary to do so would most likely lose a sizeable portion of their votes.

 

I think #4 will also "anger large bond holders (China and company)" and is becoming a less viable option. We have a political dialog going on #2 and #3 which should be interesting to see unfold.

On the tax front, all the discussion is on raising taxes. I'm not against raising taxes as long as it doesn't stunt growth. Raising taxes on the Rich sounds great until you hear that a family making $250,000/year is "Rich".

When you consider they pay over half their income in taxes (federal, state, local, property, sales, excise, SS, Medicaid, Medicare, etc), there's not a lot left over for college tuition and retirement savings...let alone a new car or vacation. Sure those folks are comfortable (as they have a right to be), but not what I would call "Rich".

It's the ultra rich people and corporations that can afford the lobbyists and accountants to really "game" the system. Those are the folks that need to be looked at. Those, and the millions of illegal aliens, criminals, and folks working under the table (tax cheats).

The additive effect of federal income tax accounts for a 23% increase in the price of US goods. That 23% is imbedded in our prices overseas and not in the prices of imports. If we REPLACE the current income tax with a 23% national sales tax, it would be "revenue neutral" while bring the price of US goods in line with our foreign competitors. It would bring jobs back to the US and widen the tax base to ensure the ultra rich among us pay their fair share.

The reason it won't be seriously considered is because it prevents politicians from using the tax code to promote social change. They say they want to create jobs and lower the deficit...but not at the expense of losing the ability to manipulate the tax code. The tax code was meant to fund government, not promote social change...but that's how it's evolved.

It's a shame.

EDIT: I apologize for drifting into a political comment (again). To get back on topic, I "hope" we'll stop printing money and let interest rates rise. That should slow growth and surpress PM prices...it'll be good for the economy in the long run (imo).

 

Correct to a point. However devaluation of currency coupled with inflated energy prices drives the cost of production upward. Also for consideration are changes in mining safety methods and regulations in countries where silver is produced. At some point there will likely be a balance reached where silver will not increase in value from. But I don't know that $50 is it. Could it be $60, 70 or 100 even ? The number of variables is too complex to state that $50 Silver will not be reached. I say this only because I would have thought $40 was too high a few months ago. I see the mistake I made in my thinking then and certainly don't want to repeat that error.

gary

 

The marginal cost of production increases with inflation. As inflation increases dramatically, it does so unevenly across the economy, causing gluts and shortages, making it even more expensive than inflation to perform complex operations like mining. Mining is also limited by governments grasping for any targets of wealth confiscation, as seen recently worldwide with increased royalties. And it is further frustrated by environmentalist concerns and scapegoating. Therefore, any premiums given to precious metals above current production costs are warranted.

The benefits HAVE NOT shown up in real economic growth because real economic growth has been negative for decades! In 1964 money, gasoline cost less and wages were many times higher. That's because the Federal Reserve steals the benefits of productivity through monetary growth.

Well for the past few decades, it's been very hard to find any investment denominated in precious metals, but that doesn't exclude the theoretical or practical capability of doing so. You merely invest your precious metals in an endeavor with the contractual terms of being paid back in precious metals. It's no different from fiat, except that the money you're receiving after some period of time can be expected to have appreciated instead of depreciated.

Over time, precious metals do not fluctuate greatly. You can of course cite recent events which resulted from severe manipulation, but taken over the long haul, precious metals are extremely stable.

I don't know how you can fail to understand that silver CANNOT BE PRINTED. Anything higher than iron (Fe) on the Periodic Table can only be created in a SUPERNOVA. Therefore, silver is inherently protected from inflation. Period. You cannot argue this point. There are no facts that can possibly refute this. Yes, silver can fluctuate in a relatively tight range based on supply and demand (particularly if manipulated by central banks), but it cannot be created out of thin air which is the definition of inflation.

 

1. Will not happen. Bond yields would immediately scream higher, dollar would crash and the US would be tapped out.
2. Taxes could not be raised high enough to pay for $14T in debt, Bond interest payments and unfunded liabilities. These exceed GDP. Increased taxes would damage any hope of recovery as well.
3. This will not happen in sufficient quantity; clearly insufficient political will to accomplish anything meaningful.
4. This will be the chosen option. Short term solution that will quicken the day of reckoning.

There are no pain free options but the pain gets worse the further we go down this road. I'm not even considering selling my silver. The status quo crowd will soon be very aware of their folly.

Bluesboy65

 

About a month ago, I started a thread, "What do you think will happen to Silver in the next few Years"

All I am going to say now is that I told you so! I agree with BB that option #4 is the only way out...Many of you will not believe it but our Gov was set in motion many years ago to end the reign of America. Now it is all but over, the last remaining thing is the continued devaluation of our currency.
Repubs and Demo's are at each other throats, we are trillions in debt and that is growing by the hour, crisis in the Middle East, War, Terrorist Plots, Unemployment, Inflation, Union protest's, State in financial disarray, the list goes on an on. Denial is such an ugly fate for such a proud and hard working people.
It is time to take our country back, close our borders, roll up our sleeves and do what we did once before. Is it too late? Perhaps, we as Americans have gotten too liberal, too soft and too fat!

 

Once again:

There was inflation even when the dollar was backed by silver. Period.

The value of silver, in terms of any other measure or commodity, can and does fluctuate. The statement that only "severe manipulation" can change its value begs the question: what do you consider "severe manipulation"?

 

I am going back to my earlier post. I don't see anything that tells me the $50 level will be the cap, because who knows what a dollar will buy in the next few weeks. I am seeing price jumps on low priced items that are only a few cents, BUT translate to 25-30% price increases. Milk at Wal Mart went from $2.29 a gallon to $2.89 for example. 26% on that alone. I am seeing it on nearly every item. Either the price is going up quickly, or the size is being reduced or a combination of both.

This at the bottom level only translates to hyper inflation in my mind. So a 25% decrease in the value of the USD puts $40 silver at $50. Add other factors as an increase in demand to protect assets from the hyper inflation and we could easily see prices go into the $60-70 range. If mines and smelters see a 30% increase in cost of production, they would also demand a higher price to protect their profit margin.

Frankly, I sold silver at $32, thinking it was about capped. Then I sold at $35, thinking I would recoup my inventory at a lower price. I sold at $37, thinking this was it ! Now I am buying ! Every dip that hits, I am getting a little. I am right at even on recent transactions. and my $7.50 Silver is looking really good. But how high can this go ? Or how low can currency fall ? I want PMs on hand for the potential collapse I fear is on the horizon. IMHO

 

Interest rates and quantitative easing will be the driving factors. If the current policy doesn't change then there's no telling how far it can go. I have no issue potentially losing money on a sure thing as opposed to banking on fiat currency which has never stood the test of time. As a species we tend to have short memories. I wouldn't be surprised if we see $100 silver a year from now if the dollar can even last that long, but then I also wouldn't be surprised if the money changers were baiting us along either. It almost seems like too sure of a bet to be true, but as I am in this for preservation and not profit that wouldn't bother me as much as a lot of folks.

 

20 years, 15 years, 10 years, 5 years ago - how much milk would an ounce of silver acquire then compared to now. Do the same for cotton, corn, oil, gold, lumber, steel, copper, nickel, land, housing, labor, etc. When valuing in terms of silver right now wins in almost every instance. The purchasing power of silver has increased significantly in a very short period of time. Demand has increased at a rate much greater than real consumption. Production of bullion coins, silver rounds and ingots stored in warehouses backing paper in my opinion is not real consumption. Will silver reach the $50.00 mark? Except for the Hunt Bros. blip silver’s general purchasing power seems to be the greatest I’ve experienced in my adult lifetime. I don’t know what price levels it will reach - I’m just of the opinion that its general purchasing power has just about reached its peak.

 

Yes, exactly.

I feel the same way. I've been predicting precisely what is going on now for 10 years, and even as events play out as expected, people are trying to tell me that this is an irrational bubble. If you don't understand the reason behind silver and gold increasing exponentially, perhaps you should educate yourself instead of calling it a bubble. What's ironic is that nobody ever recognizes an actual bubble -- like that which is occurring in Treasuries -- but everyone wants to claim precious metals are in a bubble despite the fundamentals driving them.

Any time the government fixes the price of silver and maintains it through open market operations, that is "severe manipulation". This occurred back during the gold standard in order to keep the exchange rate fixed and throughout the period from about 1980 until today (though their ability to control the price has obviously waned). You should also recognize that our paper currency has been on and off gold and silver standards of varying strength over the past century. During the period of "inflation" you maintain, the government was actively selling silver at a loss in order to attempt to maintain a fixed exchange rate with their increasingly fiat currency, which is why they ran out of silver in 1964.

Yes, silver is insurance first and foremost. As inflation increasingly creeps and then rushes in, I intend to collect my insurance payout. In the meantime, the premiums still aren't too bad.

I'm of the same opinion. My core position is purely insurance against hyperinflation. I trade around the margins for profit where I can get it. But if in the end, somehow we miraculously avoid hyperinflation, I will be quite happy to have had insurance anyway and also still have a functioning economy. We all stand to gain a lot in hyperinflation, relatively speaking, if we have strong precious metals positions, but ultimately nobody wins from hyperinflation. We just do better than average, and the average will do horribly. That's why I'm actively involved in the Tea Party and trying to urge Congress to fix our insane deficits and spending and to audit and then abolish the Federal Reserve. I just doubt we'll be successful with that, and so plan B is preparation.

To take the guessing out of it a little bit is why I developed my silver value calculator... if you can give an honest assessment of where inflation might go in the future, you can determine a fair value today. You don't have to base your opinion on alternating fear and greed, but can take a logical approach.

 

Passant, read over what you said. You say things like "premiums above the cost of production are warranted," "real economic growth has been negative for decades, wages were many times higher in 1964, "for the past few decades, it's been very hard to find any investment denominated in precious metals" [check out futures or CEF], "precious metals do not fluctuate greatly,"I don't know how you can fail to understand that silver cannot be printed."

When you come to a forum such as CoinTalk and make the assumption that anybody here finds this sort of stuff informative or helpful, you are greatly mistaken. Everyone knows that you get this stuff from the variety of gold-bug bloggers who are very popular on the internet but have little or no economic training or experience in the financial world, and it is probably a lot of fun to believe that you know something that everyone else has missed, but it does not pass the reality test.

 

To take the guessing out of it, you create a multivariate Monte Carlo simulation with multiple undefined terms? I have training in dealing with these, but I do not think this really helps take any kind of guessing out of it. To me, silver tied to emotions and return chasers at the moment, and I just don't buy any kind of quantification overcoming the emotions of investors.

Chris

 

According to the default numbers you have plugged into your silver calculator - you compute the current net value of silver should be $134.86. So you believe that 1 ounce of silver right now should be able to buy 1-1/3 barrels of crude oil or 78 lbs. of cotton or 32 Lbs. of copper or 18 bushels of wheat or 9% of an ounce of gold or etc ?

 

Actually I've received excellent feedback on the information I've provided. And no, I haven't rehashed anything. I've been researching, investing, and commenting on this market for over a decade, and my understanding of it is quite sharp. My portfolio suggests othewise in the reality test dept. You and your ilk have been perpetual bears and pessimists, completely misunderstanding the fundamentals of this market, and making the wrong trades as a result. You are free to ignore the truth, but I'm happy to provide useful guidance for all who want it.

 

Silver should be $134.86 right now if you want to be able to buy oil, cotton, copper, wheat, gold, etc., IN THE FUTURE, considering an approximately 6-7% inflation rate, with a small risk of much higher or lower. $134.86 is what silver is worth in order to hedge inflation. Once you surpass $134.86, then silver is overvalued according to these inflation expectations. Under $134.86, and silver is undervalued and therefore a good deal. The reason you can't just buy oil, cotton, wheat, etc., is because these things can spoil or have high storage costs. Silver is the store of value you use in order to assure the ability to buy such things in the future. Therefore, it is always a forward-looking instrument.