Archive | March, 2012

Invest vs. Prepare: Two Necessary Goals

31 Mar

ImageFor people who understand a financial crisis is imminent, there are two categories of response: investing and preparing.

Generally, investing is a way to prioritize the way you save while preparing is prioritizing the way you spend money. Lines can blur between the two. But essentially, the question is this, when you go to buy deodorant, would it be better to buy 12 sticks and be prepared for a time when it may be either unavailable or too expensive, or would you rather by 1 stick and invest the money in a good company’s stock, precious metal, or some other form of savings. The preparations will get you through the hardest part of the crisis; the investments allow you to preserve purchasing power until the crisis ends.

Here’s why this matters.

Let’s say you decide that you know of one good investment that will guarantee profit in the future. You live day-to-day, buying goods only as the need arises. You take all your extra money and buy that stock or precious metal. As the crisis hits, you initially realize you have less and less money to buy investments. Eventually, you have no extra money. You can only get by on what you make. If things get worse after that, what do you do? You have to start selling assets.

So you go to your bank and withdraw cash. You go to your coin dealer and sell your metals. You log on to your online brokerage and sell some stock. See any problems with that? There are many.

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Peter Schiff Pigeonholed More than Ever

28 Mar

No one is a more outspoken and passionate critic of the actions of the Federal Reserve than Peter Schiff. Having accurately called the housing bubble of 07-08, Schiff has said repeatedly that the next bubble will be the bond market. The reasoning isn’t complicated, because the primary solution to the housing crisis was government and central banks confederating together to buy up toxic assets from the real estate bubble.

So what’s the problem when he mentions it on CNBC? Why are these people so reticent to engage in a discussion of the issues he brings up?

As you will notice in this video, Schiff clearly articulates the dilemma that the Federal Reserve has put itself into. On the one hand, it has lowered interest rates significantly in order to prop up the highly leveraged banking system of the United States against the massive losses it stands to take when/if just a few important components of its portfolio fails. On the other hand, the lowering of interest rates creates massive inflation which make it extremely difficult for every non-banking sector of the economy to create, manufacture, and distribute products for a profit.

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Shifting Standards

27 Mar

In the last 99 years, our country has undergone a massive change. If it had happened in 5 years, it probably wouldn’t have happened. We have essentially changed in the way we ascribe value. The ramifications of this change cannot be underestimated nor fully understood. But the change itself can be.

On December 23, 1913, the United States government put its own constitutional mandate to create money into the hands of the Federal Reserve, a private banking system led by an unelected group of people who generally worked in the banking profession. Nearly twenty years later, on April 5, 1933, President Franklin Roosevelt issued Executive 6102,  which outlawed the possession of coined gold.  A little over 32 years later, on July 23, 1965, the Coinage Act of 1965 discontinued the coining of silver dimes. On August 15, 1971, Nixon ended the convertibility of the dollar into gold for foreign central banks. Incidentally, the penny’s copper composition was changed from 95% to only 5% in 1982.

Today, the nickel stands alone as a coin which, except for a brief shift in WW2, has maintained its composition of 25% nickel and 75% copper since 1866. The student of history will not be surprised that recent legislation may soon change the nickel to be made from steel.

For the entire 20th century, the US systematically removed its currency from the constraints of metallic standard. Think about that.

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Contemplating the Future for Silver

24 Mar

Contemplating the Future for Silver

For those of you who have thought about silver, here is a chart I put together on a whim. I took a basic 10 year chart, because I prefer longer term estimates over short term analysis. I have no idea what the future looks like, but I just tried to extract a pattern from the past and replicate it.

The one thing I’m sure of is that there will be more volatility in the future than there was in the past.

Again, since I have no technical training, I have no personal recommendations for your own investment, except to keep a diverse portfolio. Any decisions you make should be made between you and your personal investment adviser.


The Effect of Unsustainable US Debt, Silver, and Repatriation

24 Mar

Brothjohnf does an excellent summary of the present market, what’s going wrong with our deficit spending, and how you can prepare to deal with it. His commentary is invaluable to us.

The Game

22 Mar

Do you remember in 2007, when people were criticizing Bush for letting oil (and thus gas) prices rise so high? By the end of his administration in 2008, our stock market had gone into tailspin and lost nearly half its value priced in dollars. Across the board, almost every kind of asset had taken sharp drops below their 200-day moving averages. Oil dropped significantly, and, with it, the price of gas dropped to about 1.80 nationally. The country had the gas price it wanted, but no one was happy with the way it happened.

Now, Obama is dealing with the same problem again. And instead of the left criticizing and the right defending, the roles are reversed. And we have Republican candidates joining in on the game, some promising to lower the price of gas if elected. This, however, is nothing more than kabuki theater either based on the ignorance of candidates about the economy, or intentionally lying about what they could do in order to a) simply get elected at any cost or b) distract from the real cause of high prices.

So, what is the real cause?

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David Morgan Summing Up Silver

21 Mar

Much is done on the analysis of the benefit of owning silver. But seldom do you see a good summary of the big picture. Major kudos to brotherjohnf  @ as well. Check it out if you haven’t.