Thursday, November 20, 2008

How Bad Will the Coming Economic Collapse Get?

Unfortunately, we cannot rely on the TV or even the Government to give us the real deal on what is happening in the economy.

I subscribe to feeds from economic gurus in the US and elsewhere with no interest in "Happy Talk" on the economy becuase their customers (including me) are paying them for the real scoop. Here is a blurb from one of their reports:

The Collapse of the
Global Cargo Trade

The Baltic Dry Index sounds like a weather report, but what it really does is track the price of shipping bulk cargo — such as coal, iron ore, cotton and grain. And recently, the Baltic Dry Index has fallen through the floor.
In real dollar terms, at the peak of the market, a 170,000-tonne Capesize bulk carrier cost $234,000 to rent. Recently, it was $5,600 — that's a crash of over 90%.
Why is this happening?
Two reasons ...

The falling demand for products like cars. Auto sales are falling in the U.S., Germany, France, Japan and more. The pace of car sales growth is also slowing down in China.

International shipping works on "letter of credit." These financial guarantees are issued to buyers of bulk cargo by their banks. This system has greased the wheels of global trade for the last 400 years. With the collapse of the credit market — and banks now sitting on their hands, refusing to lend — the wheels of global shipping are grinding to a halt.

How bad is this?

Peter Kerr-Dineen, chairman of Howe Robinson shipbrokers, didn't mince words when he described the crisis to the British press:
"This is a nuclear bomb in the freight market and in world trade. Liquidity has to return because if there is insufficient money to provide standard finance, world trade will be sharply cut back and economic growth will implode."

Sounds serious to me!

Wednesday, November 19, 2008

Why Silver?

The Economic Crisis Signals That Now is the Time to Buy Gold and Silver!

A Must Read Special Report by Personal Financial Consultant Bill Young

The astronomical costs of the Wall St. Bailout can only be met by massive borrowing and unlimited printing of more money by the Federal Reserve Bank.
At this moment, the total costs of “saving” the economy, including the bailout of Fannie and Freddie, AIG and the latest $850 Billion Wall St package, (Senate version) is over $1.29 Trillion and counting!

There are literally Trillions more in damaged assets that may have to be rescued by the Federal Government. Fannie Mae and Freddie Mack, the failed mortgage giants rescued by the Feds have another $1.5 Trillion dollars in shaky mortgages that may need bailing out.

There will be more, starting with the FDIC, the Federal Deposit Insurance Corporation, whose job it is to insure depositors bank accounts. It was rumored the FDIC already needed an infusion of $150 Billion more just to be able to back stop the total of insured bank deposits up to $100,000.
They have now raised the insured ceiling from $100,000 per depositor to $250,000. Does this mean they will now need an extra $225 Billion to insure the higher limits?

The only way debts of this magnitude have been handled throughout history is by starting a war against the creditor or to devalue the currency.

Although some may savor the vision of a Main St vs Wall St Civil War, the more likely choice is a massive devaluation of the currency.

Devaluation can be accomplished by Executive Order as President Roosevelt did in 1934. He devalued the dollar by lowering its value against gold, raising the price of gold from 20 dollars per ounce to 35 dollars per ounce.

The “modern,” stealth way of devaluing the money is simply to print more of it! Already, some measures of money supply, including M-3, the ultimate source of devaluation of a currency and inflation in the economy; show money growing at an annual rate of more than 14%.
And in the last two weeks, M3 has exploded! It is now running at an annualized growth rate of over 200%, something usually seen during war time or in 3rd world country economies!

A realistic illustration of dollar devaluation is the cost of a Hot Dog at Nathan’s of Coney Island.
In the 1950’s, their flagship Hot Dog cost .10 each. Now they cost $4!
In other words, today’s $4 now buys you .10 worth of value, in 1950 dollars.
More recently, in 1971, you could buy an ounce of silver for $1. Now it takes about $12 to buy an ounce of raw silver. So, it takes $12 today to buy what you could have bought for $1 in 1971.
This is normally looked at as price inflation, but you can easily see that it is also devaluation of the dollar.
Don’t expect to find this information in any official government report. Most of the statistics coming out of Washington these days are lies, including whether we are in a recession, we are; the Official Unemployment Rate and , the Official rate of Inflation which does not count the cost of food or fuel!
In fact, the government stopped reporting M3 money growth a few years ago! They do not want you to know the shocking truth of how quickly your money is becoming worthless.
M3 is now maintained privately, by think tanks or non-profit institutions.

That kind of monetary growth can be wildly inflationary.
How do you protect the value of your savings, your money and even position yourself to profit from the collapse of the dollar?
The best way is to buy hard assets whose value inflates as the economy inflates, as the value of the dollar deflates, especially gold and silver.
See what Robert Kiyosaki the author of Rich Dad, Poor Dad has to say about this in the video, below.

Although many people recommend gold, silver has some intriguing facts working for it. Right now, in the short run, there is an historic imbalance between the price of gold and silver. Historically, it took 15 oz silver to buy 1 ounce of gold, but the price of gold has gone up so quickly, silver has fallen behind. It now takes 50 oz of silver to buy 1 ounce of gold! Silver will rise rapidly in price to restore the historical price relationship to gold. The other factor is a permanent and important consideration. Silver is both hoarded and consumed!

Silver is used in the production of products too numerous to report here. It even has medicinal qualities, such as being anti bacterial that creats demand for silver in a growing number of medicinal products. Electronic devices are also big users of silver. This means that more has to be mined every year to supply this demand. Right now, there is a 10 year supply of silver in the world, period.
More will be mined, of course, but as demand increases because of the explosive growth of the Chinese and Indian economies, the upward price pressures will increase over time, althought there will be ups and downs as supply and demand ebb and flow.

One of the gold dealers I mentioned earlier, Mr. Heller, says he thinks silver has even more upside potential than gold. He’s not alone. And the investor rush into silver has just been astonishing , including Warren Buffet, (yes, The Warren Buffet), he has bought up 1/5 (20%) of the world’s supply of silver! Think he knows something that we don’t?

“The shortage of physical silver is also severe. Silver coins used to trade very near the spot price of silver. But no longer. Now, a silver coin can carry a premium of $1 to $3 per ounce.” Weiss Research

Another factor is that the lower price of silver means that it is accessible to more people. More regular, middle class people can afford to buy silver at $12/ounce than can buy gold at $900, ounce.

Watch what Robert Kiyosaki has to say about Silver and Gold:

Whichever you decide, most experts advise you to put approximately 20% of your portfolio in either gold or silver.

Update! The Financial Crisis is Now Morphing Into a Global Recession And Perhaps Deflation!

The global financial panic has caused a “Flight to Quality.”
Spooked by the collapse of every investment bank on Wall st. as well as the 2 largest bank failures in US history, everyone is dumping their stocks, even the supposedly, “Sophisticated Investors” in hedge funds.

As a result, mutual funds and hedge funds have had to sell everything, even gold and gold stocks to answer margin calls or to handle the redemption requests from investors who’s requests to get out have been stalled by the “small print” in fund prospectuses.

Watch the last quarter of this year. November 14, is the cut off date for investors wanting to get their money out of hedge funds. This forced, firesale selling will devastate the stock market. I predict the Dow will dip under 6,000 in the resulting carnage!

It is estimated that over 300 hedge funds will be forced to close as a result of these withdrawals.

The “Real” economy, where goods and services are bought and sold, is now unraveling under the double blows of tightened credit and falling demand.

“We’re entering a really fierce global recession,” Mr. Rogoff, a Harvard Professor said. “A significant financial crisis has been allowed to morph into a full-fledged global panic. It’s a very dangerous situation. The danger is that instead of having a few bad years, we’ll have another lost decade, like Japan.”

Consumer demand is off, not surprisingly, as home prices plummet and now stocks too and because of that, prices are falling. The name for that unusual phenomenon is Deflation, a very nasty word to economists.

It portends a downward spiral of weak demand forcing prices down, which leads to business slowdowns and layoffs which lead to even lower demand, causing even more deflation and so on. To put it simply, Defaults lead to Deflation, Deflation leads to Defaults!

This can be a tough situation to combat. The answer to deflation is inflation, but the Fed has used up most of its Atomic firepower; lower interest rates. Its benchmark, Feds Funds rate, is now down to 1%, from a high of 5.25% just last year ago.

The poster child for deflation, besides our own Great Depression, is Japan’s “Lost Decade” when deflation ravaged their country for 10 years! Their stock market lost 60%, their real estate market, 70%! Even reducing their interest rate to zero for several years did not help, there simply was no need for credit, since so many the businesses were shut down.

Fed Chairman, Ben Bernanke is a student of the Great Depression as well as Japan’s Lost Decade. His prescription will be to flood the market with dollars until the vehicle begins to move again, unleashing wild inflation.

Although, the interest rate spigot will soon be tapped out, he can still issue US Treasury Bonds, the sale of which will generate a Tsunami of Dollars!

The Canary in the Mine!

Just as miners used a caged canary down in the mines to warn of impending danger, you should keep an eye on the yields of the US Treasury Bonds!

“Signs of strain in the US Treasury market are already there, despite the current low yields. (Cost of “default insurance” on Treasuries has increased by 2500% in a year!)The culprit is the huge and rising government debt. Add up all the guarantees and the bailout loans and you have the US private debt to GDP ratio at levels never seen before – close to 300%, according to Steve Keen, the Australian economist – the question is surely whether the whole debt pyramid can avoid crashing down via a violent and uncontrollable chain of defaults, dragging the government bond market down with it!”

How can investors take cover if concerns over government solvency spread? There are tactics that can help, such as hedges and bond futures, but if push came to shove:
A US debt default (on Treasury Bonds) would have cataclysmic consequences for the financial economy, bankrupting the entire system.

"So the ultimate safe haven is in the precious metals, which would rapidly regain monetary status in such a scenario.” Paul Amery, European Editor of IndexUniverse

Update, 11-18-08

Today we turn our attention to commodities including gold and silver, which have been badly battered by the global financial crisis, deleveraging and a worsening economic outlook, with commodity indices having lost 50% of their value since the July peak!

After a brief rally in autumn, gold now trades between $700-750, about 28% below the March peak. Slowing inflation (growing deflation)and the U.S. dollar’s uptrend sapped support for gold as a store of value despite the possible inflationary consequences of massive fiscal expansion and monetary policy easing to counteract the economic and financial effects of the global credit crisis. Though gold tends to be less sensitive to a global economic slowdown than industrial metals or energy commodities, deflation is a clear and present danger for gold prices. Even physical demand for gold – mostly for decorative use – looks likely to weaken alongside consumer confidence.

The coming global recession, a strong dollar and forced fund liquidations in the medium-term will keep gold and silver prices under pressure until late 2009.
RGB Monitor, 11-19-08

“Silver has been particularly hard hit by the drastic drop in demand in the last few months because of its use in so many industrial processes, which have been in sharp decline, falling about 40% from July to October, 2008”

“I agree that the U.S. government can't create trillions of dollars out of thin air without making all the existing dollars worth less. That is the definition of inflation. I think the safest place to protect your cash is in precious metals…” Matt Badiali, The Commodity Investor

Bottom line, gold and silver prices are being beaten down by the worldwide slump in demand occasioned by the growing recession. But since the cure for deflation is inflation, the Decline in the value of the dollar, I am recommending the purchase of gold and silver aggressively to take advantage of the lull before the storm!

The Declining Dollar

The purchasing power of the U.S. dollar has steadily declined over time and is expected to continue to do so. Precious metals can often provide a “hedge against inflation” capability. For example, between 1971 and 1981, the U.S. dollar lost more than half its value, while silver prices rose nearly five times.

Options for investing in silver:

Exchange - Traded Funds (ETFs)


For investors who seek exposure to the physical silver market, but have no desire to possess the metal or pay direct insurance, assay, and storage costs, ETFs offer an alternative. They have major exchange listings and trade like equities. Investors can buy shares in a trust that owns the silver bullion.


Because the ETFs are created to reflect the price of the silver, the market price can be as unpredictable as the price of silver on any given trading day.

Silver Bullion Bars of Approved Refiners


Usually the least expensive...Convertible into cash...Internationally negotiable...Price is widely quoted.


Must be stored securely...Possible need for assay at time of sale...Yields no interest.

Silver Mining Stocks


Offers capital appreciation opportunities...Dependent on the company's management and operating strength...May yield a dividend.

May require greater investment than small physical bullion purchases...Requires knowledge of equity market.

Silver Mutual Funds


Many mutual funds offer investment programs in silver and precious metals...Diversified holdings among dozens of companies.


May require greater investment than small physical bullion purchases...Requires knowledge of equity market.

Silver Bullion Coins


Relatively inexpensive, some less than US$10.00...Small and easy to store...Instant convertibility into cash...Easy to transport...Internationally negotiable...Prices quoted widely.


Must be stored securely...Yields no interest...Premium over bullion bar prices. They will cost more and sell for more than bars.

Silver Medallions


Prices can range from least expensive to most expensive...Small and easy to store...Easy to transport.


Similar to coins, but not always easily convertible to cash unless they bear the mark of a reputable refiner.

Silver Certificates or Storage Accounts


High liquidity...But at competitive prices...No storage risk...No sales tax...Prices widely quoted...Invest by dollar amount.


Several days' delay in delivery of silver...Silver not in physical possession of owner.

Silver Accumulation Plans


Invest as little as $100...Discounted commission rates...Highly liquid...No sales tax...Offers dollar cost averaging...No storage fees.


Silver not in physical possession of owner.

Silver Futures Contracts


Speculative appeal...Leverage reduces capital tie-up...Liquidity...Contracts widely quoted...No storage risk.


Many trading limitations...High risk factors...Unlimited loss potential...Requires market expertise.

Silver Options


Speculative appeal...Leverage reduces capital tie-up...No storage risk...clearly defined risk.


Trading limitations...Highest risk...Less negotiable and less liquid...Investor must be willing to sustain the loss of their entire investment in a commodity option...High degree of knowledge required.

So you see, silver coins are the easiest and least complicated ways to invest in silver. The least expensive silver coins you can buy are bullion coins. These have no monetary or collectible value, so you are only paying for the silver content with no additional premiums.

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