A time to wonder where all the cash is hiding, now that some companies decide its safe to spend some of that cash, we have found our way back to 2007 highs, Could it be that the street is right and gold is finished? Is Silver really done? Then I look around, I see the fraud, the manipulations, the naked shorting, the collusions, and laugh. If it's done, I can't imagine why.
One of the interesting things about the "timing" of this particular piece is that as we look around, Gold has been getting smacked, Silver is being squashed and money is moving from the "safety" of the metals to the risks of the equity market. Not only am I not surprised, I expected this. As the Fed engineers a rising market, as they continue to feed the Primary dealer banks with some 85 billion a month, as they bleed off some of that money into the stock markets... people were going to eventually pay attention to it all. We're beginning to see the beginning of it all.
You have to go back a few weeks but I wrote about the "velocity of money" and how everyone's been sitting on their cash for the past 5 years. I continually hear about how there's no rampant inflation and how they Fed has engineered such a fantastic "save". Well that's simply not the case. Corporations are sitting on more cash than at any time since WWII. "People" have been pulling in, trimming costs and trying to stay away from credit for years. Investors have been loading up on Bonds and metals. All of that sequestered cash, meant that money wasn't "turning over quickly". The "velocity of money" was as low as it’s been since the early 1950's.
Price rises, which are the result of too much money chasing too little goods, has been subdued simply because not too much cash was chasing goods. People and Corporations were buying what they needed and only some of what they wanted. That is beginning to change. When it does, and judging by the recent M&A activity such as DELL going private and Buffet taking out Heinz Corp and now Office Max and Office Depot merging, we're beginning to see companies decide they're "safe" to spend their cash. I have a hunch they'll be proven wrong.
It's bad enough that the public has an incredible habit of buying at the top. They do it all the time, I saw it in late 99 and into 2000 during the tech bubble, and we saw it in the housing market as people stood in front yards and bid up 100K dollar homes to 425K dollars. Then we saw it in 2007 as the markets made "all new, historic highs". Well how did all that pan out? The folks that bought tech in December of 99 were beaten senseless as the NASDAQ fell from 5000 to 2000. People that bought 100K houses for 450 grand in 2006 are now in foreclosure or so upside down, they'd be better off walking. Folks that bought stocks in late 2007 because Jim Cramer was screaming that the market was going to go "up up UP!" were once again blindsided when the DOW fell from 14K to 6600.
Now we're back to those 2007 highs. We've got unemployment problems. We've got more folks getting disability each month than jobs. We've got more people on food stamps than ever in US history. We've got millions of homes "hiding" in foreclosures that the banks refused to push out into the market. We've got Obama care coming and there's a ton of headlines each week suggesting that employers are going to cut hours from their workforces, cut full time from 40 hours to 29.5 or others that will simply pay the fine instead of insuring their people. Is it possible that once again the public is going to jump on the bandwagon just before the wagon loses its wheels and crashes? Probably. Judging by the amount of insider selling we saw recently, the folks running the big companies want to take their profits and run. Yet the public is just warming up to "get in".
In one way it is very sad because they will get crushed again. But on another hand it works out well for us because 1) we'll short this market and make a fortune again and 2) as the metals pull back, as folks go from safety to risk assets.. we'll get to buy more metal for less money. So the timing of talking about metal backed IRA's is pretty good.
Now.. I know it's painful for those who bought Gold at 1850 or silver at 45. I get it. I have lived through some horrendous pullbacks in the metals since I started buying in 2001. But one has to consider the longer term when you're talking about metal. Are we in these for a trade? NO. Are we in these to make a few bucks and buy the kid a car? No. We're in these because our Central banks are on a printing binge never before seen. Europe's on a printing binge, Japan is cranking up their presses. Think about it for a minute folks, if all you had to do to create economic Nirvana was run printing presses, don't you think they'd have done it 300 years ago? 200? 100? 60? Yes they would have. But they didn't because history shows it never works. It won't work this time either, although it can forestall the inevitable for longer than you'd like some times. So while I can sit here and sound smug because I bought a ton of the stuff back when it was 800, and now it's 1600... I understand the frustrations of folks that bought at 1800 or 1750 and it's 1600. I've been there, done that.
Yet I have to continually ask myself.. is this run really over? Could it be that the street is right and gold is finished? Is Silver really done? Then I look around, I see the fraud, the manipulations, the naked shorting, the collusions, and laugh. If it's done, I can't imagine why. They haven't stopped the printing, they haven't stopped the bear raids, they haven't stopped the ILLEGAL naked shorting, they haven't stopped the ILLEGAL position limit excesses. They haven't created jobs, they haven't expanded cheap energy, they haven't stopped giving big business like Facebook and GE free "tax holidays" while beating up our semi wealthy. Again, just last week Wal-Mart said February had the worst sales start they'd ever seen. This is a reason for the market to challenge the all time highs?
If things are so good... why are interest rates at 60 year lows? Why does Bernanke pin the overnight rate at virtually zero? If things are so good, why is he doling out 85 billion a month? If things are so good why are more folks in poverty and on food stamps than ever before? Why are wages stagnant?
Maybe I'm wrong. Maybe there's been some cosmic shift I don't know about and somehow this all works out just fine. You all have to figure that out for yourselves and make that judgment. But I have to continue with what makes sense to me, and what makes sense is that this entire house of cards still comes to another "lousy end". Just like 2000, just like 2007. With that in mind, I'll continue on about the IRA thing.
One of the first questions I got after penning that article concerning opening a “metal” IRA was "Bob, would you rather have gold or silver in your account?" That's a tremendously good question and has a couple different angles to it. I'm not dodging the question, stick with me here. If the world finally comes to some agreement that it has no choice but to come up with a new global reserve and that reserve has to be backed by some amount of gold, the price that gold attains will be in direct conjunction with the percentage of gold necessary for the reserve dollar. In other words if a new global currency was to replace the dollar and the G20 countries agreed it needed a 15% backing with gold, then the price of gold would probably get to the 2800+ dollar level. If it as a 20% peg, maybe 4500. Etc etc. So, lets suppose you opened an IRA and funded it with 20K dollars. For that 20 grand you decided to have gold coin, and thus you got 12.5 gold coins placed in a depository with your name on it. Then, two years from now gold is required to back a new global reserve currency and it spikes to 3000 dollars. You've done very well.
Now on the other hand, we have silver. Silver has ALWAYS been gold's "little brother". It never had the respect that gold had. Ever. I remember my years in the jewelry business and often the richer clients we has would frown on silver as being the "poor mans jewelry". But silver is a completely different creature than gold. While gold only has two primary uses....One as a "money" and two as a form of adornment (jewelry) silver has THOUSANDS of uses. Gold is never really "used up". If you buy jewelry and later you don't want it or like it, you can take it to a smelter and he'll melt it down for money. Silver for the most part gets used up and tossed in the trash. So while most of the gold ever found on earth, except for that lost to shipwreck etc, is still hanging out somewhere, most of the silver mined in the past 100 years is gone. It's been used in computers and cell phones and electronic gee gaws of every manner. It's on old solar panels and lost in space on out of date satellites. The supply of silver continues to dwindle as we "use it up".
If you take your 20 grand and instead of buying gold you buy silver, you could place approximately 660 silver ounces in your depository. Now, what happens if I'm right and at "some" point silver makes it to 70 dollars to the ounce? What happens if that is a lousy call and silver makes it to 100? Let's stick with 70. If you have 660 ounces at 30 and silver goes to 70, you're increase is 26,200 dollars. You're 20 grand has become 46,200. In our first example, using gold... if Gold goes to 3000 the ounce you'd make 16,800 on your 12 ounces.
A double on silver will give you more bang for the buck simply because you can buy some much more of it than you can gold. So, which one is better? Neither really. I actually think gold is safer as it isn't quite as abused by Central banks as silver is, but I see the supply demand numbers and know that we're going to run out of cheap silver in the relatively near future. So I'm in the silver camp right now.
If you aren’t willing to hold physical silver and gold, and you find yourself in a position where you’re going to have an IRA, going with an outfit that can set you up with a physical metal IRA is probably your next best bet. Now it’s true that if you are in a standard company sponsored 401K plan you are NOT going to be able to hold physical metal in that account. For that instance you only have a few choices. One is to utilize what ever fund is tied to metal in your fund family. The other is more controversial.
Back in 2007, we took our largest 401K plan, and liquidated it. We paid the penalty and the taxes and bought physical gold. It was a wise decision. Although we had been buying gold since 2001 at the 290 level, we bought a “lot” of it in early 2008 at the 800 level. So seeing it at 1575, we can act a bit more smug about it than is polite. Yet it is a choice you could make. You “could” liquidate a standard plan and go into silver.
Another twist is you can “borrow” against your 401K and invest the borrowed amount into physical metal. I know several people that have done that and it has worked for them very well. Is that right for you? I’m not a registered advisor or broker, I can’t say what is right for you. But if all I had was a 401K with 80 grand in it, I’d probably consider doing something aggressive.
The bottom line is still the same. Until the worlds printing presses grind to a halt, gold and silver will be the ONLY defense you have. They can manipulate them, but they can’t destroy them. In the history of the earth, gold and silver have never been worth zero. In just the past 70 years, 30 currencies have gone to zero. I know what I’ll trust. You might consider it.