I don't pretend to know anything about how credit default swaps work, what a 50% haircut does (where did the debt go), or why bond rates above 7% is crap (US is 2% is'nt that crap?) It seems the entire Eurozone looks pretty explosive ATM and could fall up it's collective bottom, if it does explode the entire globe will experience a brown-out So my questions are: If Italy is "too big to bail" (3rd or 4th biggest economy in Europe) and their economy does fail, what happens? My observations about the last GFC was that PM's got hammered along with the rest (Real Estate, Share market etc) Could Pm's fall to another buy opportunity, and if so will there be available physical to buy? If Fiat currency values diminish, logic says you have less buying power, so why wait for the brown-out? Very confused and probably way off track, help please. Alfie
There is always available physical to buy but the premium does tend to go up but not enough to offset the drop. The last drop in September (I believe), I bought a bunch of silver but did pay higher premiums compared to before the drop.
CDS is like insurance, if Italy defaults the buyer of the CDS receives compensation and the insurer has the pay and receives the bad debt to recouperate some of their money. Most CDS are issued by big banks and the like so if Italy dies a lot of the big banks will need to foot the bill. It gets written down, so it's kinda like defaulting. Imagine your mortgage was 6% and suddenly the banks said you had to pay 15%. That's effectively what's happening here, although with much larger numbers. Super debt deleverage cycle aka GFC Mark II. They will default on their obligations and the credit market will dry up and velocity of money will drop which leads to a slower market overall. For both questions, yes there could very well be. Because your fiat value could very well drop by 30% whereas Silver price will drop 50%, you would still be ahead in that hypothetical example. Fiat value could drop because AUD and CAD are proxies for investment in China so you will see a mass selloff of these two currencies when and if Italy defaults which means they could very well be buying only 60 cents US. Your purchasing power will be reduced so it's best to still hold some physical anyway as well as some USD. A common train of thought is that there will be a short period of deflation (GFC style) before the printing press runs hot and we get strong inflation, this is where holding USD is beneficial. This is why keeping some dry powder (cash!) is a good idea, so you can buy devalued assets during deflationary period.
I was just going to post a message on this too ... and ask questions about what peoples thoughts are but for the facts here they are - 50% hair cut means, you owe bank $100,000. If you enter various chapters of bankruptcy default, you get a haircut on your debt. So if you owe say $100,000 of unsecured loans to the bank and you get 50% haircut it means that you owe only $50,000 to the bank now. However this isn't a free pass. It means you get a bad record on your credit rating which means getting credit again (for atleast 5 years or so) will be hard for you. So yeh you save $50K but you cant get anymore *cheap credit* This is the haircut. Its a reduction of debt with conditions in place (ie in greeks case austerity measures which you can read up on) - Credit default swaps are like an insurance policy BUT they arn't. The doozy is that they are supposed to work like your home insurance. Your house catches on fire , you go to insurance company and say hey i wanna claim. You get your money you rebuild your house ALL good. Insurance policies however are REGULATED meaning that there are certain rules around their conditions. CDS's however are OTC which means over the counter. This means that no one really enforces what it says. Its an agreement yeh but there is just lest stringent policy on it then with a home insurance you may take out with AIG or GIO or whatever. In a CDS, the activation is that a DEFAULT is declared and this is the funny part, cause even though there was a 50% hair cut a default WAS NOT DECLARED :lol: So the underwriters (probably big american banks) dont pay out the insurance policy & the german and french banks who bought them as a hedge (against greece actually defaulting and not able to pay back the money) are still in the sh!t. Imagine your house burnt down, you call insurance company, tell them hey i want to claim now and they say ... umm na, your house is fine, it aint burnt down ... so your getting no money (even though you been paying insurance premiums for a number of years)... Im sure Obama was there to help with that decision cause it means it transfers the burden to america directly (if american banks are the underwriters) - If italy is to big to bail one of two things (and this was the question i was going to pose as well). 1. ECB cranks up the printing press like the US and prints the hell out of the EURO . SO italy sells their bonds to ECB and ECB fires up the press flooding the world with nice euro bills 2. ECB dont fire it up (after tasting its after effects in germany - of which the ECB is actually modeled) and in that case i have NO F@RKIN idea what can happen ... thats anyones guess But my take is GFC2 , trap door to hell opens for a few days until someone does something ... - If ECB do not bail out and we get a repeat of 08 because markets get stressed then 100% metals will tank. My assumption is that this blood bath will not be tolerated and after seeing the water in peoples eyes the ECB will eventually fire up the presses. My guess & this is mine BTW is that first a TANK then a PRINT but i could be way of. Thats where my money is, not much of it till there is more news but at the moment its there. Difference with ECB and the FED is that ECB have experience with hyper inflation so they know FIRST hand what it feels like and it wasnt pretty so thats why my money is on no PRINTING then PRINTING .. however this could be so bad that they are forced to - Will metals get hit if there is this 08 scenario .. history says YES ... biut history could be wrong, you need to decide if this is "not like before" OR if its just history repeating its self. My moneys on a repeat Italy wont even get any help cause all the monies put together wont be able to backstop their 2Trill in debts only the ECB can do that, French German and other power countries cant pool that much funds together. Just as, if your brother took out a loan for 100K and he cant pay it back and your savings only has 100K .. yeh you could give it to him but what becomes of you !? You are actually not off at all, they are all the right questions, cause if your goal is to work out if PM's is right or not then those are the questions. You need to take a side and this is the question, WILL ECB print or will italy be left for the dogs ?
when it tanks, the initial reaction will be asset devaluation across the board, usd and us t bond will be the star performer here. What happens afterwards is the unpredictable one. Most people predict hyperinflation, but I really am not sure, who hyperinflates and where. Some predict ongoing deflation as debt gets deleveraged, this is plausible but government intervention can slow down this outcome. If hyperinflation, then holding a hard asset (even a toaster) will get you ahead of fiat. If deflation, then cash is king. Now, no one is absolutely sure which way it will go. So I guess, just do your homework and don't park all your money in 1 asset class, be it PM or property.
Governments tend to avoid deflation more then inflation, so I think we may have a period of deflation, but they will get the presses running red hot to get out of it. In a deflation money completely freezes up, no one wants to spend because they have the best investment class and things get cheaper by the day, this forces prices lower and lower, to the point of destroying businesses and increasing unemployment. Anyone in debt (which is just about everyone these days) is completely screwed, the debts become unsustainable, because in a deflation wages drop. So with a global debt crisis, deflation will be the final coffin in the nail.
Didnt the ECB just buy all the Italian bonds that were on sale overnight?? which then lowered the rate to below 7%, and everybody breathed a huge sigh of relief and i notice the main stream media are now saying its a storm in a teacup and everything is ok ( fox and bloomberg). Which in my mind is absolutely rediculous, they even had some nuff-nuff saying that owing 120% of GDP is fine. Maybe i need to put a tin foil hat on cause the way these clowns run an economy leaves me mystified.
Gov's prefer the slow death cause its more sinister, sly and less noticeable. Deflation causes people to rock up to parliament house with pitch forks and fire torches whilst inflation causes people to complain over time until eventually (over a much longer period ) poeple scratch their heads and wonder how the hell the bubble o'bill icecream that used to be 20c has now become $1.20. If italy does get wiped though, thats 2.3 Trillion dollars wiped of the face of the earth. If no country can help italy and ECB don't fire up the presses and italy is forced to default thats 2.3 trillion worth of cash gone in an instant. Im sure that will be extremely deflationary. Hell if a big company collapses it causes that, let alone a whole country that has (what is it) 8th largest economy ! Im sure they will fire up the presses but only after we get the major drop ... were cash is king ...
A fellow stacker suggested trading CFDs if you're in it for the short term. Or if you don't want to pay the 4% interest spread you can just open a FCA (Foreign currency account) at HSBC/Citibank and buy/sell USD that way because their spreads are lower than the Big 4 banks and taking out cash.
Actually Italy is the favourite to leave the Eurozone first at the bookies, but you do not see Fox and Bloomberg lining up at the bookies, because money talks and bullshit walks. The ECB have to use private banks to buy Italian bonds, and those banks make billions in options, futures, and other leveraged instruments front running the ECB. This is one way to transfer taxpayers' money to the banks. The way this system works so openly corrupt and disgusting that can not last more than a few more years and must be close to the total collapse. If you want to know more about Trading Opportunities with BTP Futures http://www.advantagefutures.com/pdfs/Joe_Troccolo_BTP.pdf
How about some great reposting from the mass media http://finance.ninemsn.com.au/newsmarket/aap/8372766/gold-falls-on-italian-turmoil-debt-crisis
Would not make a lot of sense for holding the physical currency, just do what fishball said with the hsbc/citibank acc. Basically electronic account with foreign currency, much faster to liquidate and better exchange rate. Physical currency exchange rate is horrible in Australia.
most of you are in agreement that there will be a big drop before the printing presses start up. So how come you aren't seeling your silver and buying back in at cheaper prices later on? even with the extra premium you should still be way ahead with the big drop you all seem to anticipate
Na not really. Its more like, if you want to take advantage of the situation, not for any long term prosperity or anything, if thats what your after then its probably still gold and silver (more so gold). Paper money is just as bad/good as electronic money LOL. So if you want to take advantage of the situation and your view is that USD will rise against some other currency then buy that pair. If you feel that ECB will fire up the presses then it means Euro should fall against the USD , given that everyone needs to pay back debt in USD, then there will be a demand for USD. So given that ECB will print more of their Fiat and in this kind of situation USD goes up then its doubly the reason why Euro might fall against the USD, so you can pick that pair ... but there are a million and 1 other reasons to do what against what It all depends on your play, however physical money or not makes no difference. Well i have sold of some fat of mine with that as the intent ... and im sure some others may have too, i know a few. Though core stack is kept cause all the analysis in the world could still be wrong and thats what might save your @$$ Will there be problems buying back from bullion bourse or from my local dealers ... i dont think so , its a matter of opinion so just gotta wait and see when the time comes ... its all a gamble anyway
If I decide Italy is going under - What should I do with Aussie dollars? What should I do with my silver stack? Do I buy US dollars with the above?
Best case is to have a little of everything (etf, aud, usd, gold, silver, RE) if you have the cash to spare. If not, just keep it in cash in high yield account and do nothing with your cash. If you are struggling or have very little breathing room, then cash is the best thing you can hold.
