Hi guys, im new to the forum but not to stacking, been a lurker for a while but haven't really posted. Something has been bugging me for a while and especially recently since the semi dip that we had early this year where silver went from 31 -> 28ish. So here's whats been bugging me, All you see on Youtube on forums and on many blogs is inflation, inflation and inflation, however why doesn't anyone really talk about deflation. The dip that we had recently from 31->28 for silver would not be considered such a big dip if you consider the deflationary period that we might have in the very near future (deflationary prior to the massive inflationary period). Now this is how i think it would play out, please comment on what you think cause it would really effect how we buy our Metals and how to get the biggest bang for our buck. Also below is what i have understood from my research so if there is anything that i have misunderstood please let me know cause i think this discussion would be beneficial to all us stackers So here goes, Everyone talks about how the US government will print money to pay of its debt but the most important thing to realize is that prior to US going bongkers on the printing press the Chinese and the other major bond holders will get angry and a bond revolt could occur. At this point its a stand of between the US and the Bond holders ie (hedge funds, chinese, russia + any other fat cat rich person who owns bonds) cause essentially these guys have power and by selling more bonds the US government is diminishing these very powerful group of peoples savings. At this point if a bond revolt happens and the Bond market tanks it could cause the interest rates to spike up massively. One thing to note is, interest rates are not controlled directly by the Fed , they are controlled by the bond market and the selling of bonds. Interest rates change (usually rise) to make these bonds more attractive to other potential buyers and if there is a massive sell of or a threat to do so the US gov could be FORCED to let interest rates rise. What the Fed does to keep interest rates down is they do not press the button on their big computer that drives rates down but they print money on the printing press so that they can buy of the bonds that are being sold by the previous owners. Now since they buy their own bonds they can buy them and put the rates down to almost zero (cause there is no point paying themselves interest cause they actually are the issuer). Now last time, from my understanding the fed was printing to purchase the 30 year bonds but now the shorter term bonds are also being sold. The government can not print enough money to buy all the bonds that they have sold over the last 30 years cause that would be an immediate hyper-inflation (that would be trillions and trillions and trillions worth) so they purchase the bonds that are being sold off the fastest to ensure that their interest rates on those bonds stay low and hence their domestic economy continues to have low interest rates. Now if the Fat Cat bond holders crack the sh!ts and threaten the Fed by saying, "Hey if they keep buying your own bonds it will devalue our savings" There could be a massive threat to dump all bonds. If this situation ever arises the Fed could be forced to layoff its printing press for a certain period of time till they sort out this issue. In this scenario deflation, massive deflation will set in, interest rates will rise and this will be transfered directly to the domestic american economy In turn this would cause wide spread defaults as right now on even very low interest rates people are defaulting. If rates where allowed to raise normally all asset classes, PM's, housing everything would deflate, businesses would burn and there would be massive riots. However the cause of this is deflation NOT inflation. The way i see this playing out is the US gov could not take this lying down, so after seeing citizens kill each other, businesses burn etc etc they will fire up the printing press and buy back those bonds that have been sold out and cause inflation stop gapping the massive deflation and propping everything back up. Now you say, how does this effect us ? Well, in the deflationary period there could be a crash of all asset classes, if this scenario does play out my thinking is, this period could be the best time to buy. I mean EVERYTHING would be cheap, even shares, PM's, all asset classes. The main question right now is, can anyone see that we wont have a deflationary period but will go straight into inflation ? What are the for and against this scenario. Remember we cant forget about the very powerful people that control the bond market and actually who have the US by the balls. Whats peoples take on this ? During this period cash would be king and if we have cash we can purchase many things in many different asset classes for very very very cheap ! However this is were i think in many cases the human emotion can fail as per the below possible emotions. - People will think that they made the wrong decision with PM's cause all asset classes loose extreme value (even PM's) so they may cut their losses even though inflation is just around the corner - PM's will be (could be) Cheap but would you have the guts to backup the truck when you see all asset classes crash and news of doom and gloom everywhere - In 08 shares where so FREAKING cheap after the GFC but cause of no confidence in the market no one bought shares even after share prices got cut massively eg macq bank from $90/$80 dollars to $15 See i don't think it will be a smooth ride, there will be times when we need to have conviction even when it looks really bad, I think EVENTUALLY us PM'ers will be alright at the end but will it be a smooth ride ?! I don't think so... What are your thoughts on this ?
PM's and silver in particular is never a smooth rise. It would be considered a "high" risk investment along with shares, not a "low" risk return like cash for example. But as is the case, the higher the risk the higher the prospects of greater returns. But I think its important to remember, as opposed to shares for example, your silver can never be valued at $0. Unless you have a managed fund or a diversified share portfolio, a single share can be worth zero if it goes belly-up. Silver will never be worth zero.
Usually whatever everyone is talking about (ie inflation!inflation!) the opposite occurs. Right before GFC everything was said to be the best it has been with decades to go. So im keeping an open mind... regardless of the situation (inflationary/deflational environment) i will always be increasing my stack because i am long in PM's (esp. gold).. building the family treasure chest to leave to my kids unless unforeseen situation results in me having to sell. Another member on here has had this deflation belief for a while, which shouldnt be totally written off even though inflation is talked about the most. Thanks for your post, informative to me.. dont know too much about bonds and their connection with other financial factors. Looking forward to other Stackers comments re the chance/consequences of deflation.
I have bought and plan to hold onto the metals 5-10 years long term. The family and friends have also recognised the investment as long term and I have explained the risks to them that there may be a drop if deflation kicks in. At the moment, it seems that helicopter Ben is losing the fight against deflation and that the US wants to raise the debt ceiling again. If deflation kicks in, it doesn't necessarily mean PMs will be ultra cheap. The ones that bought on credit will need to cover for their debt, the over leveraged paper traders will also need to cover. I believe this time round, things will be much much different. There would be more information and videos popping up on Youtube to explain the situation and why we are in it. I think prices will hold as people will be educated on the differences between sound money (PMs) and fiat. Considering that Silver is a steal under $30, if it ever dips under 20, alot of people with real cash or debt free will back the truck. Think about all those with Superannuation already having it parked in cash. Theres alot of people on the sidelines waiting for some investment to come along. These are people that have not come across PMs yet, as a means of investment because its against the norm. In my opinion, I will continue to stack while I can. Just be debt free or have very manageable debt and see how it goes. Hopefully silver supply will continue to tighten massively which helps to maintain physical prices. Slam
Yeh, i was the same also initially but someone highlighted the importance of the bond market to me and i did some research. In actual fact the Bond market is what drives the economy's interest rate, the fed manipulates it based on the bond market so i think its quite important. It could signal the best times to buy. Cause see, if your long metals (which is a good thing ) it would be in your interest to save money now, wait for deflation to set in THEN backup your mining trucks and load that mother full of silver (as opposed to buying now). Thats why i think knowing if deflation will be a likely outcome is a very important thing to know to get the most out of our PM investments. Anyway, Some good responses, so lets say you do believe that there is a potential deflation, do you get that nagging feeling that potentially your over paying right now or that you could park money somewhere else other then PM's OR that during a deflationary period possibly "sound stocks" would be a better option ? I mean im going to continue to stack cause im in it for the Long, but possibly there is a better way to navigate the ups and downs other then the view of PM'ing it all the way ?! Anyone else thinking of diversifying during a deflationary period if one does come around. Around that time if you got cash EVERYTHING will be cheap specially if your holding AUD's so i assume you could buy a CRAP load of silver and anything else for that matter, stocks in "Apple" , "Google" i guess things that we know we cant live without. Just thinking of GFC (if only i bought banking stocks when they tanked to $15 dollars LOL)
Interesting thoughts. My take is that should there be a run on US debt the money is going to be looking for somewhere to go and commodities are the most likely (only?) alternative. Gonzalo Lira has written some good pieces on this scenario. In fact, the run-up in commodities over the last year or so is ample evidence of this happening already. This is a vote of no confidence both in US debt and fiat currencies. Rising interest rates will unleash global financial destruction in our debt saturated (Western) world. Another point worthy of note is that the current prices of PM's do not represent classical "price discovery" but are the result of long-term, systematic price suppression by the global central banking cartel. If one conceptually pegs the proper price of silver at, say, $70/oz it's much easier to be sanguine about the current price gyrations. I'm kinda "all-in" silver but do have my own business as well which I believe will actually come into its own as crises develop (I'm in petrochemical recycling). Finally, whatever the "price" of PM's is when expressed in fiat terms, the real question should be, "what is the purchasing power of my PM's now compared to some previous time?" I believe the answer to this question will be "a lot more". Cheers, Mark.
I read somewhere that deflation happens when the currency is backed by gold and hyper-inflation happens when you have a FIAT currency. From what i can tell... the big boys don't want things to devalue so they will print more and hyper inflate. But i am new to this and i am still trying to get my head around it.
Very very good point. Many people with SMSFs currently have a substantial holding in cash, waiting for a buying opportunity. I got this from a financial advisor the other day (one of the independent ones). Keep your powder dry.
Yep, thats why, since our whole western world is mainly financed by over leveraging and massive amounts of credit (just look at your friends mortgages for example as a very small example). When this unwinds and peoples salaries are not factoring in the potential for massive interest rate rises there will be mass, forced liquidation in which cases people with cash can snap up those assets at very very cheap prices. Whether this includes the price of commodities and more specific PM's i don't know. But as fun as stacking is, whats more fun then adding a nice 1 kilo PAMP bar to your stack with the amount you have allocated a month to PM's, is adding a 1 kilo PAMP bar along with some kooks on the side for the same amount of money There are many classes of big boys, you have the guys sitting in Washington such as our friend Bernenke, Obama, Paulson and Greenspan and you have the Fat Cats that no one knows of that finance the white house people (IE the bond holders) such as China, Russia, Middle east, Hedge Funds and rich billionaires who have also purchased American bonds. The Former class of big boys have an agenda that is in direct conflict with the latter class of big boys. So as much as Washington and administration want to inflate the crap out of the dollar to get out of this issue the guys funding washington dont want them to do it cause it will dimish their savings too. So its a war, my take is deflation first (for us means back up trucks) as people default and things become cheap then inflation next (as the wide spread havoc on the streets presents no option for Government
Hi guys ! my first post.. been reading this site for ages.. pmstacker's question got me hooked. here are the possible deflation scenario for a GFC2. if anybody knows something to refute these guys please share : Bob Hoye - His 'peak momemtum forecaster' is signalling a massive selloff in the next 3-6 wks. Gold / silver ratio has turned up signalling future credit market problems. [this week on howestreet radio] Pretcher - He believes the Fed will be stopped before they can do what Bernake wrote in his essay about stop deflation overnight. (eg teaparty or the current administration gets voted out) [financialsense 'best of' interviews of 2010] ElliotWave - All commod topped in 08, we are seeing a counter trend rally. [financialsense 12-11-2010_01 Puplava with Steve H] HS Dent - All out deflation, all the debt borrowed into existence from last few decades cannot be repaid (same as Pretcher). When Chris Waltzek pinned him down in a interview 'can't the Fed just monetize the debt' ? Dents response was 'they would if they could'. [goldseek dec 10 2010] Personally i think this time will be different. ie Gold / Silver wont get smashed. Reason being its now public debt called into question, not private debt. GFC1 was PRIVATE debt defaulting and it made sense to flock in bonds. But the Fed changed the traditional 'safe haven' status of bonds by transferring private debt risk to public debt. Basically diluted bond holders savings and looks to continue with QE3, 4, 5. But when PUBLIC debt defaults where would you seek safety ? Gold. Thats why Jim Sinclair hardly talks bout Silver (since its atm silver still more industrial than monetary). Old timers like M Armstrong & Sinclair know from history when public debt is questioned it is Gold that people flock to just as people flocked to govt bonds when private debt was defaulting in GFC1. Anyway love to hear what you guys think ! I'm more bullish on silver than gold btw
This is a very very good point, the reason why cash was good in the depression was that it was backed by gold. The paper dollars can be traded to gold. Therefore holding cash or gold had purchasing power. Back then people were not as educated as the are now, they did not have a wealth of information easily accessible compared to today. What is happening now is that we are in uncharted waters, we have never had such an expansion of the money supply. If we head into a massive deflationary spiral, cash is only good if there is still faith in the currency (this is questionable). I believe this faith will evaporate really quickly, once a lot of educational videos are released. I have been thinking about a massive deflationary spiral scenario for the last 3 months. I still believe holding PMs is the way to go now, in a deflation spiral and also in an inflationary scenario. There is no guarantee that PMs are easily purchasable when deflation occurs, considering how small the physical market is relative to the amount of money out there. I have been thinking about this and the expansion of the money supply for a while. Here are some of my thoughts: - The expansion of the money supply doesn't just happen automatically. There is normally an exchange of a service, asset, goods to represent that currency. So in real terms things are just changing hands. This is why things we buy are inflationary, in addition over time goods, services and products will have been produced. At the same time things will also have been consumed. So its the worlds natural resources that have been consumed. Given that most large assets most likely have been purchased on credit, deflation affects these people most. The contraction in the money supply means a slow down in the economy as people spend less. People will struggle paying back its debts and may need to default. In such scenario the banks will auction off the assets or write off its bad loans on the books. However this is only one side of the equation. The other side is that the people who sold their products, goods and assets still have access to the money (unless they have spent it). So in such above simplistic scenario the amount of money floating around will be the same, even in a depression. The only time the money supply contracts is if the good money is used to pay off debts. Effectively cancelling out the original debt creation transaction. This is when the debt created money supply contracts. Those that are in trouble already with debt, I would rather they default then pay it down. At least the money supply is still out there floating around. I believe this is what may happen, when the masses default. Theres no shame in it, also in the future it may not matter as much if 30% of the population defaulted prior due to GFC/GFC II. When defaults (bankruptcy) occur the banks are the ones left with the problem and the toxic assets. I was reading on WP a few days ago where someone was asking for advice/help trying to pay off an 11grand credit card debt. They are struggling on an $850 per week wage ($300 rent). So still $550 a week, they are living pay to pay. I find this amusing and how hopeless society has become. These are the people that spend their dollars on useless junk, these are the people that cant control their spending. These are the people that have made it bad and worse for those that save and are responsible. If credit won't available readily, goods will be more stable in price and we won't have inflation problems and looking for the best investment to ensure your money keeps up with inflation. I believe a lot of people in Australia are living pay to pay. Its only getting worse. Just look at people asking for finance on 5k, 10k cars. Seriously if you cant be disciplined to save 5grand or 10grand. What hope do you have in saving for a deposit on a house. Anyway, a bit of ranting =D, my point is you really have to judge whether you believe you can buy more in a deflationary spiral or just stack now and don't worry about it? Slam
My thoughts. Deflation. Silver is speculative and will fair alot worse than gold in uncertain times. If gold falls in deflation so will everything else.Gold will get you less dollars, but will get the same,or more,amount of stuff. The Australian dollar will fall wrt to usd in uncertain times. If gold falls with respect to(wrt) USD,golds fall in Aud will be less. Maybe gold will be at the same value in AUD? Gold is insurance in uncertain times.Its the best bet.You can lose,sure,but its the best bet.
http://southcarolina1670.wordpress.com/2011/01/06/utah-to-look-at-accepting-gold-for-payment/ A very interesting development and one that may snowball. Utah is not the only state investigating gold as a local currency. I think there are a lot of people aware of the potential for massive fiat inflation and it's not only survivalists who are aware of the weimar potentials there. This, I think, also points to the pieces moving into place for a potential USSR style collapse or contraction of the US empire at some time in the future. See also http://www.sltrib.com/sltrib/home/50949183-76/gold-state-utah-coins.html.csp?page=1#
This is exactly the issue i have been facing for nearly 13 months. Prechter and his style of guys see deflation coming ( i respect their view and track record) then you have the likes of peter schiff the KWN guys and several others see inflation from here on ( i respect their view and track record too) I have been tossing both options around in my head for a long time and to be brutally honest i dont have a clue, as both possibilities have very good arguments for them. The only result i have come too is that i will have a position in PM's but also have a decent cash position available if we do get the deflation prechter is talking about i can put it to use. No easy answer on this issue i think, just be prepared to react when it does what it does.
This is the exact reason, I keep on top of all economic news worldwide daily. I believe decisions will need to be made early. If I sense and believe things will get bad. The next day I will be out stacking 5 x 25kg bags of rice and other survival things. Don't get me wrong, I hope nothing happens. But those that are narrow minded to think and see outside the square are the ones that will suffer. I think be prepared and be ready, keep up the reading and learning. Continual daily assessment is needed. The debt ceiling issues will be of focus this week and next. Slam
One tactic that I have run numerous theoretical test scenarios on is the strategy of "good-debt" interest to inflation arbitrage. I believe that all of the benefits reaped by owning real assets that withstand inflationary effects (such as gold) are only half of the battle. Unless 100% sheltered, the dollar value ascension of the real asset (possibly hyperbolic) although ~seemingly~ keeping up to/matching inflation is a illusion, as that price appreciation in terms of fiat value will be cut by capital gains taxation for an end result of a net purchasing power loss. In fact, the greater the rate of inflation, the less of any gains will be kept in real value. I'll ignore interest, etc, to demonstrate the main point. Today, $30 buys a bottle of wine. You have 1ozt Ag which also buys a bottle of wine. Tommorrow, $100 buys the same bottle of wine and because silver keeps pace with inflation, 1ozt Ag buys the bottle of wine as well. However, tomorrow, 1ozt Ag sold for cash to buy the wine triggers a capital gain of $70, taxed by say %50 or -$35, leaving you with only enough to buy $65 worth of that $100 bottle of wine. Your real asset did it's job of keeping up with inflation, but the tax implications wrecked the one-to-one pacing. So instead... Today, $30 bottle of wine again. You have 1ozt Ag as before. You borrow $30 @ 5% and buy a ~second~ 1ozt Ag. Tommorrow, after inflation, the wine is $100. 1ozt is $100. Sell 2ozt for $200, capital gain of 140, taxed 70, leaving you with $130. Buy $100 bottle of wine. Pay off the now devalued $30 loan. Crazy? It appears to me that in the case of silver as a hedge against inflation, any holdings outside of a tax shelter need to be further levered by debt in order to break even in terms of purchasing power. The horrifying part of this is that if the eventual situation instead turns out to be extended DE-flation, one is totally screwed, since the very debt lever employed will double the damage going the wrong way....ala now the bottle of wine is worth $10, you have 2ozt of Ag with a real value of $20, BUT a debt of $30 with 5% interest still eating at you. ....sigh....
Ok, you lost me - how did you get from $30 to $100 in cash? Your $30 doesn't automatically turn into $100 overnight - at least silver has a chance of keeping up with inflation in your scenario - the cash is guaranteed to lose value. It's only going to buy you 30% of a bottle of wine after all.
Above, there is only Ag and wine -- no "cash" except for value representation and for the purposes of capturing the capital gain on the release of the silver. At time=tomorrow, or when the $30 bottle inflates to $100, a $30 ozt has also inflated to $100 of fiat to keep pace/real value. 'Tomorrow' is just a representation of some time in the future -- could be 5 years, could be whenever. To start: 1bottle=1ozt=$30fiat after inflation/"tomorrow": 1bottle=1ozt=$100fiat I'm not the best writer - bear with me if I am describing things poorly.
