What do you think will happen to Silver in the next few years??

I agree that it is important to establish what the facts are. One of the biggest problems investors have is distinguishing between fact and opinion, because the publisher will rarely do that for us. In the case of silver, it is easy to establish what the Comex inventories are and what the short position is. It is less certain whether there might be other large silver stockpiles out there because in many cases it is a state secret as with China. It might turn out that the silver shorts are naked and in great trouble. Or maybe not. Everyone is free to interpret information any way they want. That's what makes a market. I haven't seen any data to make me as certain as you are, but I still like silver because of the supply/demand picture.

 

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My only intention here is to present the best analysis I have. You are free to ignore it. What you fail to understand is (1) I wasn't speaking to you or anyone in particular, and (2) this isn't a debate over opinions. For me, investing is a process of establishing as many facts as possible to determine the probability of gain or loss on any investment. But at the same time, I try to uncover bits of information that could invalidate the common wisdom [e.g., silver shortages and naked shorts]. If you are uncomfortable with this, you are free to invest any way you wish. It isn't my objective to change anybody's mind; but to present additional information that might benefit someone.

 

Howdy,

Nice discussion.

Will we have a financial meltdown with a collapse of the dollar and all that misery? I see the probability as being very low - say 10%. Much more likely we'll muddle along in a quasi-depression for another 10-15 years - probability 60%. The chance the Fed will get it right and jump-start the economy while not causing serious inflation or a collapse of the dollar - 30%.

That said, the consequences to friends and family during a financial collapse are sufficiently gruesome that it's only prudent to take some precautionary measures. Having gold and silver, particularly some 90% circ U.S.; having a garden; staying engaged in your community; diversifying your wealth; keeping your skills current; eliminating any debt; having an emergency fund; et al. [you guys know the drill].

The official debt is now $14T and even if they get thru the political process of raising the ceiling, this is not the problem. It's the Unfunded Liabilities of between $75-105 TRILLION FREAKIN DOLLARS - social security, medicare/aid, various trust funds, debt service, etc. The problem with these obligations is that you can't come up with a combination of benefit reductions and tax increases that will cover it. That leaves the gov't with no option but to monetize it. Er, this means printing up shiny new money to pay for it (e.g. these days it's more of an electronic process but net/net it's the same thing). I've read that their estimating they'll have to halve the value of the dollar over the next 10 years to be able to attack this problem by normal means. This should come as no surprise at the dollar has decrease in value by 96% since 1913 the year the Fed was formed.

I remember as a kid going to the store to buy a loaf of bread with a quarter. Well, I could take that same quarter from 1960 and sell it for melt value . . . and go buy a loaf of bread. [actually I'd have about 6.25 and that would enable me to buy a real loaf of organic whole wheat bread that has the same nutritive value I was getting in 1960]

I still like silver because of simple supply/demand features. Fixed, if not declining supply and rising demand. feh. Easy money.

As for the statistics - they've changed the formulae numerous times over the years. Some interesting things - rent is 20% of the CPI and they use Rental Rates. 50% of the market basket is subject to Hedonic Adjustments. Neat trick a hedonic adjustment -- if it's new and improved, they can charge more and it doesn't count. Ok, I can see that. However, I feel this is only valid if the consumer is still able to buy the old Unimproved version. I replace my 2000 Montana with a 2005 that cost me $5K more for stuff I've never used. I've got wireless headsets for a DVD player I've never used. Part of the package, it were.

If you really want to see the real stats, surf over to www.shadowstats.com John Williams recalculates everything by the formulae used during the Reagan admin. Inflation is 7-9% but unemployment is about 22%. Oh, and if inflation changes, it cascades thru to the GNP that now stays negative since the dot.com bloody meltdown.

And that's the issue, boys and girls. You've an Economy of Yes and one of No. In the Economy of Yes, you and spouse both have jobs with benefits. You have a retirement, an IRA, a 401K, some savings and investments. The mortgage is 30 fixed and either paid off or nearly so. Kids are in college. "nice cabernet, don't you think?"

Ah, but in the Economy of No, things are different. You lost your job at the vacuum cleaner plant back in '02 when they shipped it overseas. You weren't there long enough for a pension, but had some in a 401. You worked a few years in construction until the real estate bubble burst and you've been looking ever since. Wifey works at Walmart for $10 but no benefits. You had to spend your 401 and savings to keep up the mortgage payments but now you're behind and they've started foreclosure. Son's a druggie and daughter's preggers. "Hey, you gotta another of those beers?"

Alas, there are way too many in the latter group. How many baby boomers will never be able to retire? Will work until they die? And what's salt in the wound, is there are so many in the former group that aren't even aware of the latter. You see the Kudlows and Cramers on CNBC cheering on the stock market gains. Well, sh*t, you give me $600 Billion and I'll throw you a great party too'. [jim rogers].

As for trusting the gov't in washington. You really must be kidding. I spent 20 months in 'nam being disabused of the notion that my patriotism was to washington. Instead it lies with the people. 90% of politicians are crooks when they take office and 90% of the rest are corrupted within their first term.

[rono steps down offa soap box]

peace,

rono

 

Rono, first of all thank you for your service. Second I like how you break it down! One thing I would add to your $14T of debt section, I agree with the danger of the unfunded liability point and I will be shocked if the new congress is actually able to change any of that but I do commend those who are giving it a go. Oh, the thing I would add, if interest on the 10 year rises 1% our interest payments to foreign gov'ts will increase by about $100B annually. Just the interest, that does not include principle. Planned budget deficits are about $1.25T in fiscal 2011 and $1T plus for the out years as well. A few billion here a few billion there, it starts to add up! Bottom line with our current debt level we are highly impacted by inflationary pressure in the bond market. Your second paragraph is also golden, some practical common sense advice from a guy who's probably seen it all. That's why I'm long silver and gold; plan for the worst, hope for the best!

Regards,

Bluesboy65

 

Nice speech, Rono. Hits all of the bases. I would only suggest that by applying the old rule of "if something can't happen, it won't," the ultimate solution to the unfunded liabilities is to not pay them. Increase the eligibility age by 10 years and means test the rest and the problem disappears through the magic of the actuarial tables. The political will doesn't exist to do it now, but never say never.

 

Howdy,

Nopers, can't ever say never. I just like to look at things as with a risk/reward matrix. I pay $1 for a lotto ticket and my risk is fixed at $1 while my reward is potentially huge. eh, not a bad bet. Having that 2nd beer in the bar has some reward but consider the risk of getting pulled over.

I don't think things are going to collapse and the dollar become worthless - or that we go hyper with inflation. I think they'll do their absolute damnedess to keep is as tame as possible and debase the currency as much as they can without destroying it. Will they succeed? Doubt it but I don't think they'll fail either. They'll just keep kicking the can down the road and will stagnate for another ten year or so.

BTW, here's a link to an interview with Ted Butler on the JPM Silver short lawsuit http://www.investmentrarities.com/ted_butler_comentary11-24-10.shtml

Interesting read.

peace,

rono

 

Good evening Cloud,

Since we seem to be discussing the National Debt here (I guess it's somewhat related to the price of silver), I would like your opinion on something that I've been thinking about...it has to do with our trade imbalances and offshore industries.

As you may have gathered from our previous discussions, I'm a bit of a fan of the "Fair Tax" (no idea how to implement it...but a fan).

An important aspect of our trade imbalance (especially with China) is the reflection of corporate taxes in the price of our goods. If those taxes were eliminated and replace with a Fair Tax on the consumption of ALL goods, the price for US goods would remain about the same, but imported goods would then be taxed appropriately...bringing our prices more inline with those of our trading partners.

Additionally, companies that have moved operations overseas to avoid our corporate tax structure may find it advantageous to return, thus bringing back (much needed) manufacturing jobs to the US.

Thoughts?

 

Income tax is based on net profit - Depending on industry but rule of thumb net profit is usually around 6 to 14 percent of gross revenue. Manufacturing in most cases is a high volume business with low profit margins 5 to 9 percent for around a 7 1/2% average or so. 30% combined Federal and State income tax equals about 2 1/4% percent tax on total revenue. Being that most countries do employ some type of taxation on foreign manufacturers the suggested tax savings is materially less. This 1% to 1 1/2% tax savings certainly isn't enough money to pay for shipping our raw materials all the way across the Pacific to Asia and then shipped back across the Pacific to our country as a finished good. The Corporate Tax argument is more of a strawman IMO.

 

I agree, and would go farther. The whole idea behind tariffs is to equalize taxes and wages with trading partners so that companies compete on innovation, quality, etc. The standard of living is closely related to investment capital per employee, and the US is losing both investment capital and employees to places where corporations pay neither taxes nor a living wage [by US standards].

 

When you add the cost of complying with a wide variety of regulations, fees, restrictions, environmental costs, etc..., there are significant cost savings to moving overseas not even counting wages and benefits and corporate income taxes..

 

There is where a lot, if not most silver buyers make their mistake. There is no relationship between the two, unlike gold.

 

When you think about it, the accumulation of debt for consumption has the initial effect of causing a certain amount of inflation. But the long term effect is deflationary since eventually the debt either has to be serviced, repaid or defaulted. But then you have to add the policy reaction of the Fed which may decide to monetize the debt -- or not. So the ultimate outcome is far from certain. Right now the Fed is trying a partial monetization. Maybe it will be highly inflationary if it is too large -- or deflationary if it is too small -- or maybe it will surprise everyone and work, but probably not. This is new ground being broken. A lot of people have strong opinions, but only time will tell who is correct -- or who is lucky. Somehow all of this will affect silver and gold -- maybe the same way, and maybe not. Maybe up and maybe down. I think that anybody who really thinks they know how all of this will end just doesn't understand how uncertain the situation is. And just so nobody reads anything into this, this comment is not directed at anyone. It's just that fatima's comment reminded me of this because there is a strong possibility that silver and gold will react differently.

 

Cloud – you’ll get no argument from me on the cost of regulatory compliance in doing business in the US. What was suggested in a post above is eliminating the Corporate Tax and implementing a consumption tax in its place. A consumption tax is just another name for sales/value added/flat tax. Although such a tax may be fairer; I just don’t see the move having much impact on the problem of the US losing jobs overseas. When debating this issue what we are really talking about, for the most part, is manufacturing jobs. What I suggested in my post above is eliminating the corporate tax would only give US manufacturing a 1% to 2% business advantage over foreign imports. What most people do not realize is US manufacturing already has a significant business advantage over foreign producers. We are rich in natural resources and raw materials and we are the largest consumer market in the world. Yet it is more profitable for business to incur the cost of shipping our raw materials overseas and shipping our raw materials back into this country in the form of finished goods. It is certainly more than a 1% or 2% payoff behind the decision of risking your manufacturing assets and dealing with the corruption associated with doing business in these emerging countries. IMO overhauling the corporate tax structure just isn’t enough to solve the problem and certainly not enough incentive to bring any lost jobs back to this country. Such a move without addressing the other underlying issues could actually prove to be counterproductive. Especially during a period of time when our government is running a trillion dollar deficit.

If you want to know the truth, I believe our country will continue to lose jobs no matter what steps we take to make the US business environment more attractive. But we can reduce the bleeding. I am willing to accept some losses. I believe the citizens and workers of these emerging countries will continue to demand an increase in their standard of living. They will continually demand higher wages. They will continually demand better woking conditions. They will get tired of the pollution. They will become wary of the destruction of their environment and exploitation of their natural resources. They will continually strive and push for a life comparable to ours. And in the process continually run up the cost of doing business in their own countries. I don't see this process struggling along 200 years like it did in the US.

 

My primary concern is that there is a trend toward easing the tax burden on corporations and increasing it on individuals. At the same time, US workers are put in direct wage competition with nations that pay a fraction of what US workers earn. Somehow, this is expected to make life better for the citizens of our nation. In practice, our standard of living is stagnating while corporate earnings are at an all time high when measured as a percentage of GDP. It's starting to look like a modern version of feudalism.

This is why I like the tariff idea. It completely changes the economic business case by making it cheaper to manufacture in the US than overseas. It might increase prices somewhat, but disproportionately increases personal income -- the old rule of thumb is that one dollar of manufacturing produces as much personal income as two dollars of trade. The counter is always that other countries will also use tariffs, but this ingores the fact that (1) many already do, and successfully; and (2) since we already import far more than we export, it is still a net gain. Tariffs are also more "voluntary" than other taxes. If you don't want to pay it, there is always the alternative of buying the domestic alternative.

Anyway, the argument against tariffs is deeply engrained in the US by our education and political system so it will never happen. But this ignores economic history which pretty clearly shows that nations that use tariffs have higher historical growth rates than nations that rely on other forms of taxation that collect about the same amount of income.

 

fatima, I both agree and disagree with the yakpoo statement you quoted but I think you may disagree for anther reason. I would like to hear you expand on your thought.

 

For me the recent small correction to $27 is the first indicator of which I am looking for. I fully expect another dip to the $22 to 23 range and when this happens it will be a buy signal for me and maybe all the Silver bullion folks out here that are watching. The next step in the progression will be the decline of the Euro as 5 Euro Countries right now are in very deep $$$trouble. Hold on to your hats and save a little cash up for when the event begins to unfold. The initial steps have been taken and reaction is the dip's before the spikes.

Good luck and good hunting.

 

Silver is undervalued. I am happy every time a little dip happens because I can buy more. Silver is going to parabolic soon because one only three things are 100% sure in this life: 1) Death 2) Taxes and 3) Ben "Bubbles" Bernanke will keep the printing presses at the Federal Reserve as "Federal" as Federal Express at warp speed spitting out the "Owe"bama bucks. We are living in the end days of the US Dollar being the reserve currency. I am going to keep buying Silver no matter how high or low it goes. There are going to be silver shortages in the future (the facts are online). I would to buy a few coins each month to be prepared for hyperinflation.

 

I already fled the USSA. I now live in Germany. Life is much better here.

 

Trust the Federal Reserve as "Federal" as Federal Express, trust BendoverBernanke (the same guy that told us the housing market was just fine, housing prices had never gone down and that the problem was isolated only to sub-prime)? I don't trust the Fed or the crazy officials that think that inflating my savings away is going to somehow make people feel richer. The only thing that is going to happen is a cataclysmic event like Zimbabwe or Weimar Republic style Hyperinflation. Bernanke has not gotten anything right. The next thing to pop is either the Euro or the US Treasury Bond Market, the whole stock market and situation with the dollar is like a balloon waiting to hit a pin. The pin could be further collapse in housing, rising interest rates as opposed to falling interest rates, default on the debt, not defaulting on the debt and choosing printing (which they are doing), overstretched American consumers not able to keep going further into debt, or people like me who decide they are going John Galt style and quit there job, pull all of their money out of dollars, flee the country and buy gold silver, foreign stocks and foreign currency, and commodities. Peter Schiff and Ron Paul helped me to wake up.

 

Oh yes, buy guns, ammo, silver, gold and if you can land.