Friday, 21 October 2011

A bad rerun of the '70's?...............from Rico

Some of us are old enough to remember Jimmuh Carter's near-destruction of America. I won't get into that here, but will only mention that Barry is outdoing him by a mile!

It is worth bearing in mind that (a) you should never underestimate the stupidity of a bureaucrat or politician, and (b) while history does not repeat exactly, it rhymes really-really well.

The BIG problem, and the one tap-danced around by everyone in the chattering class is DEBT. This problem has NOT been 'solved' and at this stage I do not think it CAN be solved. Consumers, corrupticrats, and bureaurats ALL confuse access to 'credit' as being access to wealth. It is not. Credit=Debt, and access to credit is only access to debt.

So, what's this all mean? Let's step back from the modern art masterpiece we have had our noses pressed against and look at the big picture. This is what I see: a set-up or re-run if you will of the 1970's. A bad one, for most of us. More precisely, Gold & Silver are setting up to not exactly repeat, but rhyme with the 1970's. Here are three reasons I think so:

- The '70's: Gold rose 2300% in the nine years from 1971 to 1980. Sure it is "up" 500% since 2000, but as the song lyrics go "you ain't seen nuthin' yet."
In 1972 it rose 49.7%, in 1973 +73.5%, 1974 +60.1%, and 1979 +140%.

- COT [*1]: The LARGE Commercial "shorts" are violently cutting their positions, absolutely slashing them in Gold & Silver. The 'futures market' data is reading it's most bullish since 2003. (Eight years ago Silver was $4.40/oz., it's over $30 at present). The big boys see what's ahead and are trying to shake the leaves from the tree (flush the weak hands and the retail investors) so they can scoop up more Gold & Silver while covering their 'shorts' at a lower cost.

- PHYSICAL: If you want to get 'physical' precious metals instead of 'paper' you'll have to pay a premium. The paper ETF's GLD and SLV hold no physical, and their trading at 'discounts' should be a clue to investors that they don't have much or any physical to back the paper they have sold. In contrast, Eric Sprott's ETV's (Silver) PSLV and (Gold) PHYS trade for premiums of 20.81% to NAV [*2] for Silver PSLV, and 3.15% to NAV for PHYS (close 19 Oct 11) because they are fully backed by physical inventory. If you can find some physical to hold yourself the premiums get even higher, but it might be a good time to think of yourself as your own Central Bank while the Bureaurats in Europe and at the FED talk themselvs to death while doing nothing tangible to solve the problem.

*1 - Commitment of Traders [COT]
*2 - Net Asset Value [NAV]

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