Posted on 06/28/2013 12:16:30 PM PDT by SatinDoll
Greece and, for that matter, the rest of Europe are showing cracks again this morning.
The Dollar is screaming higher (how's that "dollar collapse" thesis working out?)
Gold is around $1,200; up fractionally on the day, but in general not in good shape -- and making a mockery of the "Gold to $5,000" callers.
Interest rates are again going up, while The Fed is trying to claim that they really didn't say that they were going to taper. But that's a lie, because they have to stop the QE. This isn't about wanting to exit, it's about being forced to exit.
The government cannot continue to expand permanently at a rate that exceeds actual economic expansion, or it eventually "swallows" the entire economy -- and long before then collapse comes. See Greece, which is just the latest example of many over the years.)
Many people do not understand how all of this ties together, so let me try to explain as there has been much hay made about the fact that the rapid plunge in one asset class (stocks) didn't appear to be flowing elsewhere during the collapse.
That's because what was being "invested" wasn't actually capital -- it was printed credit, and The Fed wasn't the one doing the printing either!
Let's take just one example -- Treasury debt margin requirements. Anyone who trades knows all about margin and most people understand it (more or less) on stock. You must have 50% of the equity cost on initial margin in capital with most brokers and 30% for maintenance. This means you can lever up approximately 2:1 initially and 3:1 on an ongoing basis.
But for Treasuries this is much higher -- as much as 25:1 for debt under 2 years of maturity, and often as much as 10:1 for debt of 10 years of maturity!
Never mind some brokers who will lend you 4:1 or 5:1 margin for equities at (today) very low interest rates, leading people to do things like put up $200,000, buy $1 million in high-dividend stocks (yielding, say, 5%), pay 2% interest on the money and allegedly "pocket" 3% on the margined amount, thereby "earning" about 12% (before taxes) on their capital.
That sounds damn good, doesn't it?
What happens when the market goes down 20%?
You get a margin call, that's what. Your "3%" evaporates in the first minutes of the plunge and your entire $200,000 goes up in smoke, being transferred from your ownership to the broker's.
But more importantly, from the market's perspective, the $1 million that was out there representing buying interest doesn't rotate somewhere else, it disappears because it never really existed; it was conjured out of thin air.
Note well -- the actual impact on the market is five times the economic loss you took.
If that's not enough to sober you up then you've been hitting something much stronger than the traditional bottle.
This is what creates bubbles -- "boom and bust." It is why One Dollar of Capital is so damned important, and why violating it is an open, public and notorious fraud. It is the central point in Leverage, (look to the right if you haven't read it) and yet we continue to dance around the real issue rather than dealing with it head-on -- as if we deal with this head-on then the over-bloated "price" in the asset markets will rapidly converge toward value, and that convergence will be downward -- hard and fast.
And if consideration of that fact does not provide you with enough understanding of what is coming, why it's coming, why it's inevitable with margin debt at all-time record highs and the positive feedback mechanism that will play out as rates go up -- a move that appears to have already exceeded The Fed's ability to stop it, you ought not be in the market at all.
Trying to create wealth out of debt is NOT Capitalism, as no capital is involved.
This is going to shatter the public employee pensions when it hits. This means that citizens will be 'on the line', taxes WILL BE levied, to pay the pension money owed retired public employees.
Not just public employee pensions will be hit, so also will private pensions and deferred retirement accounts such as 401k’s, IRA’s, etc., etc.
When excessive debt continues to grow, and when that growth outstrips real (honest) economic growth over a sustained and prolonged period of time, debt collapse becomes inevitable. Central banks can pump sunshine and print liquidity out of nothing for a while, but unless the fundamental underlying trends and behaviors change (which has not happened), debt collapse and implosion of paper assets is unavoidable. The system becomes dynamically unstable - like an avalanche waiting to happen - and sooner or later something triggers the implosion.
Smart money will move to serious collateral and survive. As for all else - including those who know these things but think they are smart enough to continue cashing in with the belief that they can time their exit to avoid the avalanche - they will at some point have a serious reckoning to face. Matter of time.
I just want to know where a person is supposed to hold their short term liquid assets since cash, treasuries, gold and precious metals, stocks and bonds are all considered bad or risky according to many of the advisors out there?
Gold shall not be mocked.
All news leads to calls to buy and the market jumps up.
What I know for certain is that things that cannot go on forever don’t.
Economic collapse Ping.
Ok.
Do you have any debts? House, car, whatever?
Deal with those first. This will secure ‘real assets’ out there.
Do you have 6 months living expenses? You need to be liquid.
Do you own any gold?
If the answers to all of these questions is yes, then you should park the rest into treasuries.
I have 6 months of expenses, and 1 year of house payments in Treasuries and savings accounts in various banks. This is not enough to pay off the house, I wish it was.
Preppers’ PING!!
Cash whatever you can without taking penalties, put these towards paying off the house. Right now the USD is high, but eliminating your debt is top priority.
That’s the advice I’d give right now. Sell what is high (dollars), for what is going to rise quickly (debt + interest). You’ll have a solid asset under your feet.
When is it all going to hit the fan?
I’ve heard by mid 2015.
But the head douchebags in Treasury don't care. As long as the music doesn't stop they keep printing and QE'ing and Congress keeps spending and the party keeps on keepin' on.
But eventually the DJ will want his payment.
What if your invested in stocks and have no debts?
2nd
For me the real question is, will it be inflation or deflation? (I’m betting the farm on inflation myself)
Didn’t home mortgage rates just rise? You’ll probably be proven correct.
I have a lot of gold in jewelry I have collected over more years than most of you are old.
I have a very large piece of sterling silver that was an accident. Some years ago, on Ebay, I was going to buy a silver “plated” tray to put my tea service on. I knew the tray had come from England many years ago and the seller bought it in a group of trays she bought in the states in an estate sale. I don't remember the cost but it wasn't more than $40 which would be about right for a silver plated tray.
When I got the tray, I was astounded. It was English and there was the prominent English Sterling Silver symbol on the back. It was obvious it was sterling. I contacted the seller to see what she wanted to do about this for I had paid practically nothing for this tray. She wrote me that it was okay with her to leave it the way it was, since I had paid her more than she paid for it in this group of trays.
How many silver coins would it take to make a sterling silver large tray? The last time my son was here, I showed him where the tray is and explained to him the history of this tray so he would know it is sterling. I think it must have been made in the early 1900s.
If a person had this tray, but had no food, the tray would be worthless except to a person who was wealthy enough to appreciate this tray and she/he had food. It's not likely such a “buyer” could be found in a long term breakdown. In fact, silver coins would be worthless to a person who had no food. I've got more diamonds than the regular bear, but they would be worthless, too, if I had no food.
Where is my real wealth? In my water and food and solar power and batteries and cooling and heating capability, and cooking options and defense options. And, if I manage to develop successful container veggie/fruit growing, that is another wealth. I added more to my medical supplies so I could treat other people. That is another wealth.
Remember one of the last prepper threads said 53 percent of all Americans do not have a 3 day supply of nonperishable food and water in their homes. Those people are poor even if they live in an expensive house and have fancy sport cars. They are likely to die and people who have nothing but water and food will be rich and live.
So, what does the stock market and other markets really mean if the holder of such has no water and food and a way to stay cool and warm? Wealth is relative.
Don’t have enough to pay off the house would still have about 60% of current balance left, and am still in the penalty phase for paying early. Have 10 more years at 3% interest and then it’s paid for. This would not improve my cash flow and would zero out my emergency funds too.
Would have to refinance at a higher rate, and would have nothing left for emergencies if I did that. House payment would be about the same, if refinanced.
If we should somehow or other get enough money to pay off the house totally, we would. Then we’d figure out how to pay RE Taxes when inflation hits.
Good, 'cause I couldn't resist going out and buying a little silver today. :)
Ok. I’d buy gold then with what you’ve got. Penalty periods suck. :(
If you can get it so that what you owe is less than the equity in the house, you’re in good shape. With interest rates skyrocketing you’re not going to be able to sell.
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