Is this investment stradegy insane?

well, "collapse" has different meanings for everyone. The type of collapse that gets the most attention is the fianncial market implosion and **** hit the fan collapse.

In my opinion, we will not see an all out collapse. There will be economic & financial market shocks, but the governments & central banks will continue to prop the financial system up with more and more money as they've always done. Even huge shocks such as default of sovereign debt or hyperinflation is traumatic, but not the end of the world. Has happened many times in even the past 10-20 years. Therefore, i think the dollar will continue to spiral downwards in value, as it has for the past 80 years or so, but we will not wake up one day and find out that they are completely worthless. The dollar has lost probably 99% of it's value since we went off the gold standard, which by most people's definition could constitute a "collapse". But we (and the dollar) are still here. Maybe it'll take only 10 years this time to lose 99% of what hte dollar is worth today. The system will still survive and we will adjust and still be here.

 

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I do wonder myself. Here is a short clip of the hysteria of black friday. How would these individuals act if entitlements were slashed, and they had to fight over food? My sister lives on a farm in rural Kentucky, and I am actually thinking about relocating. I live right outside of D.C. and this place is crazy as is.

[video=youtube;yPqL8gJS4RI]http://www.youtube.com/watch?v=yPqL8gJS4RI&feature=related[/video]

 

Dude! That's the 'turkey argument!'

"The farmer will continue to feed me all I can eat, because that's what he's always done."

But seriously - I hope you're right, and I think you probably will be. Either way, like I said - it sure doesn't hurt to have a few Krugerrands stashed away just in case...

 

If I had to fight those women for food... they would WIN! I'd say they're prepping in their own way. Whatever it takes, I guess.

 

My opinion is, if it all fails, the best thing to have is knowledge of how to grow your own food and live off the grid. Plus a gun with plenty of ammunition for hunting and shooting people trying to steal your food is going to be worth more than any metal.

That's my 2 cents!

PS. I live in Texas, I think it's a requirement to own a gun and I know how to grow my own food. If it all fails, I plan to use my coin collection as weapons by throwing them at people's heads when I run out of bullets because they'll be worthless when it comes to trading.

 

No it doesn't hurt, and I'm pretty reasonably well prepared.

I hope I'm right also, as if I'm proved wrong, a lot more people are going to be suffering.

As far as riots & protests causing change, I think it takes A LOT of hardship for people to protest on a massive scale to the point that civilians and military turncoats attempt to overthrow the government. Look at all the 3rd world countries where the masses are surviving on $1k/year and not protesting. And look at the economic conditions in the countries such as egypt where they did revolt. I think americans are slowly getting adjusted to a lower standard of living through the goverment stealing wages from taxes, higher inflation, higher unemployment, higher reliance on govt handouts, etc. Before we know it, the majority will be on govt handouts and unemployed. These type of entitlements are insidious because they sate the masses needs just enough that they can get by on a mediocre existence and don't revolt.

 

I politely disagree sir. The recipients of entitlements are still in the wealthiest 5% of the world, and would be SOL if/when we can no longer afford them. Most 3rd world Countries are run by warlords, and have had hundreds to thousands of years to adjust. If you think things were wild in Greece, or on a lighter scale ocupy Wall-Street, imagine the day when they cut welfare.

 

For what it's worth, $700T in derivatives are:

1) Not entirely tied to Euro debt (they're about 17% Euro debt).
2) Derivatives.

If the entire European zone become insolvent overnight, you wouldn't see $700T of margin calls. You'd see something more akin to 1-3% of that being the actual insolvency. So, $7T-$21T, of which, 17% would be insolvent. Derivatives trading is almost entirely levered, so there's not actually $700T at risk anywhere. The actual risk amount is $1T-$3.5T. Even in a total meltdown, there's value in the debt. Yes, portfolios may be "wiped out" but that is because of leverage, not the tools themselves.

People complain about Wall Street derivatives, but no one complains during the bubble, only in the aftermath. The concept of global meltdown of financial instruments, coupled with an underlying environment of "catch-up" inflation, leaves us with a situation where PMs are ripe for bubble growth.

Assuming the bubble follows expected trends, we'll see silver top at $87 (2011 dollars) or $125 (assuming a 50% capitulation of global inflation), but that top will trigger a deflationary period that might plummet into a depression era. The end result (long-term of 10+ years) will be silver bottoming around $17-$22 an ounce, while a loaf of bread will likely cost $8. Silver _should_ normalize to $38 in the long run (20+ years), but inflation will adjust that number downward by 25-40%.

To the question of how my long/short approach is different, it's simple: I'm shorting against the box. I'm only shorting gold that I can cover, if I have to. I'm not taking out naked shorts.

 

NorthKorea, while I won't argue with your silver projections based on today's data, I would just add that those are based on a market where the price is driven by paper contracts much more so than physical supply and demand. If we do end up with a severe deflation the financial institutions won't be able to take the hit as their leveraged assets decline in value and hit the balance sheets at an according order of mangitude. Any forecasting based on the paper price is no longer relevant without the futures market as we have it today, and the physical supply and demand picture would take precedence over any preexisting trends. Even ignoring the OTC derivatives which aren't on the books they are quite leveraged in the standard fractional reserve manner, and own a lot of outstanding debt with counter party risk as well. Derivatives may be the 500 lb gorilla in the room, but a chimpanzee can knock a house of cards down just as easily.

 

Inflexion, I think I'm going to find a new "hobby." This one feels too much like going to work... and doesn't pay nearly as well.

 

Sorry, I hope you don't feel like I'm picking on you, wasn't my intent. This does feel like work sometimes, that's when I know it's time to take a break =) I hope you won't give up the hobby though.

 

Not at all. My career is metals analysis and trending. The fact that it comes up so often on this forum makes it feel like work.