Something about taking possession of your gold..

And yet now it's not just one family's fortune being destroyed in minutes, but hundreds of thousands. And the robbers don't even get punished. Anybody who had Greek treasuries took a 50% haircut so I wouldn't say that treasuries will prevent this from happening. US debt is seen as safer, but that doesn't mean it's safe.

 

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The funny thing to me is that John Corzine, the man responsible for this, has not had to face any music whatsoever. It probably helps that he was an advisor to the Obama administration, and that he used to be CEO of Goldman Sachs. The new unelected dictator in Italy, Mario Monti is also a former Goldman employee. The toxic debt that's blown up the Greek economy was provided by GS, and accepted by then Central Bank of Greece head Lucas Papademos who is now the new unelected dictator in Greece. You've also got Hank Paulson, former US Treasury Secretary, who worked for GS since 1974 before that, who threatened that the DOW would drop by 2,000 points back in 2008 if the bailouts weren't passed, which lead to Congresspeople being threatened with martial law if they voted no. It just doesn't get any more blatant and I hope people are wising up to this.

 

A Comex warehouse receipt is a title of ownership with the serial numbers of the bars on it that is fully audited. If you put it in the eligible category instead of registered category [which you are thinking of], it cannot be used as collateral, delivery, or for trading in futures by any entity. Basically, it just sits there guarded and insured in your name. The MF Global situation cannot affect it.

 

Fair enough sir, but it would be the investment you chose that bankrupted you. Anyone putting every nickel into just one stock, or one risky country's bonds, or an idiot like Madoff could be ruined. I do not disagree. My only point was you do not today need to bear the physical security risk as in years past. This risk can be to your life savings as well as your life possibly.

I still contend "paper assets" in a well rounded, diversified portfolio is physically much safer than any physical assets, and for most people is the best investment options for most people that this planet has ever had. The main point of argument to me would be whether farmland and real estate consitutes "paper assets" or tangibale assets. If its tangible assets I would make that exception, since exposure to this market is also healthy. That is where I am, I have stocks, bonds, real estate, and some PM holdings. The only part I am worried about physical protection is the PM. If I had all of my holdings in PM I would be like that dog in the commercial, unable to sleep worrying about the safety of his bone. Sleeping at night not worrying about bank thieves or home robbers is worth a lot too. Market risk I am educated enough to handle. That last sentence is not a slam against people who do not like stocks, its simply a fact that the higher level of financial education is proven to give people higher risk tolerances.

Chris

 

How safe are "preferred stocks"?

 

It depends on the company issuing it. But for a single company, the preferred stock will be safer than the common but not as safe as the bond. In a way, it is the worst of both worlds because bonds are safer and the common has more upside.

 

Those are weird animals. They are a cross between bonds and stocks. They are (strictly speaking), USUALLY less safe than the company's bonds but slightly more safe than the stock. However, there are myriad ways to structure them, so that answer is not always true. This lack of uniformity is a major reason they are not issued as much as they used to be. Unless you know the specifics of them, I would be nervous about investing in them since you aren't positive what you got. Personally, I do not own any preferred shares, preferring to own straight common equity or bonds.

Chris

 

MF Global has been accused of illegally using these assets to cover their own trades. As a result, the bankruptcy trustee for MF Global has seized unencumbered assets including registered silver and gold related to this bankruptcy.

There are 1000s of customers who can't get access to these assets and/or their cash positions. The CME has not said that it will return these assets to the honest customers. It's should be very frightening to anyone with assets deposited with them.

 

I guess it just depends on the individual. Certainly holding things yourself has a greater risk of common thievery, but having assets held by someone else means you have absolutely no control over the safety, and are putting your trust into that entity to be competent and honest with your dealings. For me personally there is no trust so I feel much more comfortable holding things myself. It actually helps me sleep at night, not the opposite, but to each their own. If I didn't have lead to go with it then that would be a different story, and if all my wealth was off in cyberspace somewhere I would be worried personally.

One of the main benefits of precious metals is that there's no counter party risk, no faith required in the backing of an asset with intrinsic value, no trust required or dependency on agencies to remain in existence. It sort of defeats the purpose of this to have someone else hold it for you, although I suppose it would be prudent to have people you trust hold a bit for you so it's not all in a central location.

 

Yes indeed.

 

I agree sir, its up to the individual. We love our PM, value it, and talk about bests ways to safeguard it though. We are not average citizens in that regard, don't you think? Do you think an average 25 years old cocktail waitress is better off buying a silver round once a month and trying to physically secure it, or putting the money into a 401k every month? As much as I love silver especially, (I was buying silver long before this board was ever around, before the WWW actually), I simply would not want all of my life's savings in something that two armed men could take from me.

Yes, there is counterparty risk, but if you spread that out amongst many counterparties, ensuring they have insurance as well, I still believe that is multiples less risky than physical security of PM to the average man and woman on the street.

Just my opinion, and you may disagree.

Chris

 

Since you ask, yes I do think someone who buys silver each paycheck is better off than putting it in a 401K but that doesn't mean I'm right. JMO. I think silver is the best investment out there right now for the long term view. I would say of our lifetime, but there's always what happened with rhodium and BitCoins. You make a fair point, and I would agree that diversification among all possible avenues is the most risk averse way to go. I'm fine accepting a little risk vs. reward, but you are right that we're not average citizens and I wouldn't suggest anybody do what I do without doing their own research. Research is the reason I feel good about my decisions, and why I made them the way I did.

 

No, not for people who hold the warehouse receipt. Losses only occur for folks who leave it in the MF Global account. Once you take possession of the receipt, all relationship with the broker ends for that transaction.

 

When silver was below $10, I felt it had a tremendously high probability of going up. I still like it, but it is no longer the slam dunk in my opinion.

 

We don't know the mechanisms used by MF Global to take the gold & silver warehouse receipts. The fact that they did puts the entire credibility of the system in doubt.

 

The question I would ask is what's changed since then from a fundamental standpoint? Debt has increased. Money supply has increased. Silver supply has decreased. Silver demand has increased. About the only reason I can think of for it not being as good of a bet now as it was then (aside from the obviously higher price) is that a lot of the short positions have been unwound recently, but the overall picture if anything is more bullish now than it was then.

Ultimately my reason for liking silver so much aside from the supply/demand dynamics of the physical market is that the paper market dominates the price action, and there is a vested interest in keeping the price of metals down by those who use it as a means of supporting fiat currency, since they have an inverse relationship. If we were to go back to the gold standard the way it used to be, gold would need to triple to support the USD, and if we were to go back to the historic gold/silver ratio used silver would need to triple in relation to gold which amounts to a 9x fold increase if we were to go back to the way we used to do things. Sure we may never go back to that, but based on the comparison silver seems grossly undervalued, and my gut tells me when the paper market no longer dominates the price that the physical market will make a significant adjustment.

 

To play the devil's advocate here: most of silver consumption is for industrial usage and that industrial demand has risen thanks to china. But if global economy falters so will that demand and also as i mentioned before if Silver prices go higher i fear the amount of fake silver in the market will quadruple unlike Gold, Rhodium or Platinum, Silver can easily be faked with Lead/Copper alloys.

 

I also think counterfeiting is a real concern, even today, but I'm less concerned about silver's industrial demand. For one, it has risen more so due to monetary reasons than supply/demand dynamics. Otherwise it wouldn't be tracking gold so closely over the course of this bull market, since gold has very little industrial demand compared to silver. The other thing is that silver has no cheaper alternatives for the majority of its uses. An economic slowdown will certainly have an impact, but silver is still going to be used. It has over 10,000 industrial applications, next to only oil. The reason I bring up the supply/demand is that the amount of available silver is dwindling and currently at multi-century lows, and at some point it will come to a head unless things slow down. Economic slowdown could play a factor in that, but if at such time as supply does not meet demand that will blow the doors wide open.

 

The price. Nothing in the world has inelastic demand long term. Everything is price sensitive. Not to put words in Cloud's mouth, but if he believed like I did $4 silver was well below replacement cost, so long term production could not continue forever at that price. Mines were closing down due to low prices. Today, new silver mines are being explored, old ones reopening, and some promising new uses of silver are being curtailed due to pricing.

Not saying this has any predictive value as to future price movement, just laying out why I, (and I presume Cloud), thought it was cheap and almost a no brainer before, but its not a no brainer slam dunk today.

Just my opinion, and if I misspoke for you Cloud I apologize. Please correct me.

Chris

 

The original statement was that if a person holds a Comex warehouse receipt, it is one of the safest ways to hold metal. This has nothing to do with MF Global. They didn't sneak into people's houses to steal receipts. The people who lost were the ones who failed to take possession of the warehouse receipt and kept their holdings in their MF Global account.