PM Rally

[pennypicker]

Wow, I must admit this forum as a whole has a substantially higher level of intelligence than a particular sportscard forum I am also a member of.

[Bham]

I'm impressed mflugher. Very much so actually. I believe most people can take bits and pieces from this and apply to their own personal situation (health, kids, family business, age, real net worth and so forth). Everyone's plan will be different to account for these things, but the concept of financial agility is solid. I caution those that are a little older (I'm in my early fifties) to consider their ability to function, both physically and mentally as you get older. Teach your children about the importance of family early in their lives, and for God's sake, make sure they know if they put you in a nursing home they might as well put you under, at least that's my take.

What you wrote will make me take another inventory of my life and re-evaluate my exit strategy to smooth all the bumps is see in our future. Thank you.

Cheers!

Bham

[shinnosuke]

I like your analysis, mflugher, but this: Lets say something cataclysmic happened tripped me up.

If something bad happens, I doubt the LOC from the bank will still be around, PM values will be drastically different (whether sky-high or returning to their historical, but sensical, values) and there very well could be blood in the streets. So I'm not sure it would be so business as usual, at least for the first few years.

Not trying to throw rocks, just adding to the recipe of how to prepare.

Thanks,
Doug

[Jonflyfish]

A lot of nice discussion about whether one ought to have personal debt or not.
My thoughts were about what happens during the next asset selloff and how that affects PMs...

On another note, the market is clearly telling us to mind our risk.

Cheers!

[NiBullionCu]

Debt free is nice, however having an open LOC ready to draw when it makes sense

I second the notion that you can't count on the LOC (line of credit), that is out of your control. I had a measly 10K line of credit at a local bank I used sparingly. Guess what happened, when things went south in 2008 the bank canceled the LOC (I didn't even owe anything against it at the time.)

So don't count on a LOC being there if there is another meltdown.

[mflugher]

I like your analysis, mflugher, but this: Lets say something cataclysmic happened tripped me up.

If something bad happens, I doubt the LOC from the bank will still be around, PM values will be drastically different (whether sky-high or returning to their historical, but sensical, values) and there very well could be blood in the streets. So I'm not sure it would be so business as usual, at least for the first few years.

Not trying to throw rocks, just adding to the recipe of how to prepare.

Thanks,
Doug

First of all your are making an assumption that TSHTF overnight, you wake up and your $100 bill now only buys a slice of bread instead of 2 tanks of gas. The real world doesn't really work that way, you will have time to see whats up, be it months in a really bad scenario to years in a more sane one (we may be in this scenario now).

Second of all I see a flaw in your logic that you should already know by now. PM values are pretty stable, its the dollar that is moving, on purpose, most govt's and central banks consider 2-3% inflation a good thing, in 1792 a $1 coin contained about 24.1 grams of silver, today that same 24.1 grams of silver is worth about $24.1, thats a 24.1x increase. However inflation in general has gone up a hundredfold in the same period. $100 worth of steak today was the equivalent of $1 in steak in 1792. Most of this inflation happened since the Fed came into power, but some of it did happen before, a silver/gold standard does not necessarily prevent all inflation. So in actuality, inflation has gone up 25x assuming a stable silver value, but in actuality the price of silver is 4x lower than it was in 1792. Lets do the same thought experiment with gold... 1792 gold 10 dollar is 16g pure gold (effectilvely 1/2 ozt), therefore 1 dollar is 1.6g gold, and gold is worth approx $20/oz in 1792 dollars, taking the same inflation numbers gold should be $2000/oz today, gold is actually at $1658 at this very moment, that's only an aberration of 20.6% downwards for gold. Gold has tracked inflation a lot more closely than silver, or gold has broken out of a lot more manipulation than silver if you believe in that stuff, to me the jury is still out. So to me at least silver is a better investment. Additionally In today's world I would argue silver is significantly more useful than gold in industrial and in some jewelry uses (mostly because of it's price). Gold is about where its supposed to be, silver is undervalued in today's dollars. Of course this assumes the 16-1 g/s ratio stands, which it hasn't for many years... Even if the true ratio should be 30 to 1 Silver is still undervalued 2x, and gold is still only undervalued about 20%.


As Barry says; if the real end of the world type scenario is near, guess my time is up. However, lets look at 4 possible scenarios.

1. Most people here would say this is the most likely; Dollar goes down, PMs go up, inflation, possibly hyperinflation.
a. Your gold/silver bullion is now worth more than it was, it is still liquid, you can pay off your house now with just a percentage of your initial investment/payoff amount (be it a 50% discount in a sane world, or a 1000% discount in an insane hyperinflation world (of course there will likely be blood in the streets etc, you do have a few guns right? I'm not talking arsenal, I'm talking 1 or 2 handguns, 2 rifles (.22 and medium caliber), and a shotgun, with a few K rounds for each, if you can't defend yourself or kill that animal for food with that, you are in deeper trouble than any militia member can handle, your problems won't likely be solved by more guns. You can only hold 1 at a time, 2 handguns maybe... ])
b. Do you need to move to avoid this inflation problem? would a move to Canada, Mexico, Belize, or god forbid Europe be wise? Take your 60k of inflated dollars and ditch the country, use the 60k to maintain your credit back home or just leave the house behind and start a new life under less insane monetary policy. Having a paid off house can be a shackle too.
c. Zimbabwe took 6 years to destroy their currency completely, I believe the Weimar republic took closer to 5 years, You aren't going to wake up one day to $100Trillion bank notes, its a process that will take time, first you will see the $1000 bill, then the $10,000 bill in the meantime, you can jump into gold/Art/Wine/silver/diamonds/numismatic coins at any time during the downtrend if you can see it coming. I find it hard to believe that people on this forum won't be able to see it happening around them when it is actually happening, many of you think it is happening now, at this point I don't believe it has actually started, we have some time, and its possible the bankers can keep it going another for as much as another 10 to 20 years in a worst case scenario.

2. Deflation/Massive Deflation, your house is now worth $50k, your gold is now only worth $25k, take the $60k, and use these now more powerful dollars to buy more of something and ride it out till things recover... Or even better had you used some of those $60k to purchase some income producing equipment or business, you have now earned more dollars which will now be worth more. Had you paid off the house you would now have a free and clear house worth $50k, no gold, no business, and probably no job at this point... Taxes, utilities, medical care etc would eat you up... Any deflation short of a short term currency collapse type deflation is not likely, a Long term massive deflation that we don't recover from in short order is unlikely in my opinion. However if you are financially agile during this short term deflationary period you just might buy a piece of nice art, or a nice piece of land or an extra house to rent out, or a pile of gold/silver at low low prices, ride it out and in a year or 2 you suddenly have multiplied your net worth...

3. Status quo, the mild inflation/deflation would fit here too. You still need to run a life, you can't be tied down to a doom and gloom opinion that the end is nigh, prepare yourself to react, don't prepare for a specific event, I can nearly guarantee it won't happen exactly the way you envision today, and your plans will be wasted. Think about what could happen know what you want to do in those situations and prepare for preparation. Should you have maybe 3 months of food stocked up? possibly a year? yes absolutely. What if we get a big inflation/deflation problem in the future, what if you lose your job, having a pantry to eat out of while you find a new one is a nice backup plan. Don't buy 30 years worth of supplies today, you will most likely never eat/use them before you die, they will probably end up at a garage sale when your company makes you move across state. Own some seeds, don't start a farm. Own some guns, don't start an arsenal. Have some bleach/pool shock, don't open a water treatment plant. Keep a months worth of water on hand. Mild prep is better than extreme, those dollars and energies can be used for a lot of good in the meantime.

Perhaps instead of spending 100k paying off the house you should buy a stump grinder, or a snow plow, they cost about $10k new, and cheaper used. Advertise to your neighbors, 10 snowy days with 10 driveways each can put $2k+ cash in your pocket, more if you do commercial buildings, 1 stump a night for 2 weeks can net you $2k too, you can buy gold with that, or you can buy food with that... Boss fires you, no sweat grind more stumps, up your advertising, extend your hours, it may be sooner that you decide to fire your boss instead of the other way around... I fired myself at the beginning of the summer I like to whitewater raft, I put in 5 days a week on the river, spend 2 days at home putting the fires out and counting the money, am I rich? no, but its a nice life, you can have it too. Just open your mind and do something intelligent with your money, again if you are here and you read a lot you can probably pull it off.

4. We are all wrong, fiat money is the greatest thing ever, the bankers/govt finally find that magical formula of QE, Price setting and market manipulation and we all live in a socialist utopia... Use the paper money to wipe your ass, melt the gold and silver to make a shrine to the mighty Obama for finally being the guy to figure this all out, and live out your life in comfort and ease knowing you never have to work a day again because your fellow man will pick up your slack... Oh give the encumbered house back to the bank, Obama will give you a new one I think by the tone of this one you know how likely I think this one is...




I guess cataclysmic I had envisioned in this scenario would be more local or personal, Hurricane destroys your neighborhood, Katrina style, terrorist choose your back yard for the first nuke, short or long term Loss of employment, limb or life by you. In this case you or your well educated family will be able to continue in your stead (you are educating your family on what to do if you aren't around right? Even if nothing happens to you its good to have people to cover for you while you take a well deserved year long vacation/retirement to Cancun.) You might have to evacuate, you might have to move to a new location for work, whatever happens In this case your LOC and your bullion are still there so you can "keep your powder dry" to attack whatever opportunities or necessities might arise.


Mind both your risk and your opportunity costs in all you do...

speaking of opportunity costs, I have now lost about 4 hours of my life educating you and not pursuing other opportunities, I'm on a hiatus for at least another day now so I can get real work done...

[mflugher]

A lot of nice discussion about whether one ought to have personal debt or not.
My thoughts were about what happens during the next asset selloff and how that affects PMs...

On another note, the market is clearly telling us to mind our risk.

Cheers!

Even though my opinion is significantly less valuable than Jon's on this matter I agree to mind your risk at this point... I am half in at this point... We are likely to see another downturn before it really breaks out...

Also Probably should move this debt vs pm discussion to another topic, I feel bad for derailing Jonny...

[mflugher]

Debt free is nice, however having an open LOC ready to draw when it makes sense

I second the notion that you can't count on the LOC (line of credit), that is out of your control. I had a measly 10K line of credit at a local bank I used sparingly. Guess what happened, when things went south in 2008 the bank canceled the LOC (I didn't even owe anything against it at the time.)

So don't count on a LOC being there if there is another meltdown.

1. if your LOC dries up, your ability to remortgage your house has definitely dried up, Read your contract (note) and do your own due diligence... My bank has no call/freeze option on my LOC, they are contractually obligated to let me use it unless I declare bankruptcy, or my credit goes below a certain threshold. I deal with a local bank though, larger national banks usually are smart/mean enough to put that call/freeze option in...

2. If you see something happening, get your LOC into cash before they get a chance, preferably stored at another bank, or in real cash. You can't tell me you didn't have a chance to pull that money that first week after they were talking about a bailout right? Everyone, even banks, take time to react, be more agile and beat em to the punch. Perhaps use the cash to say Short financials? or to buy oil services in November 2008, that's what I did (not with a LOC, I didn't have one at that time, but with the cash I had held back in my roth IRA). Also keep in mind, you still have your bullion at this point, hopefully a few tons of copper pennies to cash in if needed, some fiat cash on hand as well as some fiat cash in the bank, so you aren't fully relying on the LOC if you happen to mistime this move...

The point I'm trying to get across it the All or nothing approach is not where you need to be, All bullion with debt and no cash or No bullion without debt and no cash are both bad choices.

I personally have:

1. Cash in bank to cover normal operating expenses, both personal and business accounts.
2. Credit card (for out of the ordinary expenses, and also to accrue points/rewards) pay it off often, preferably monthly, this will help your credit rating...
3. a couple signature lines of credit banks have been nice enough to give me (no collateral) these are all paid off, but they are "dry powder"
4. a Home LOC which is mostly paid off, will I dip into it during the expensive run up to tax season... Of course, but my other options are available should it not be for some reason. This is a variable rate... If I didn't almost have the cash to pay it off I wouldn't have gotten it, if you owe $170k on your $200k home, and make only $50k a year, now is not the time to refi into a heloc. I owed closer to 45k on my $80k house, and I had the 30k in the bank waiting to be used, had I paid down my conventional mortgage that 30k would be Illiquid and I wouldn't have it when I might need it in the future, now I owe 10k, have 50k in available credit when the time is right, and aren't paying all that interest. Heloc has a lower interest rate than a fixed rate product in general, but if you don't have the agility to pay it down and interest goes up you might be in trouble.
5. Bullion/coins/numismatics (but not much, so no point trying to rob me )
6. Business ventures that pay my regular expenses, plus some extra to accumulate other forms of weath/income streams.
7. Real paper cash to cover a months expenses on hand.
8. Unknown amount of nickels/copper pennies, and even a reasonably large number of mixed and zincs I haven't had time to sort or cash in yet.
9. Food storage, I figure I can live not less than 3 months with myself and my brother on my pantry, I don't have fancy buckets of freeze dried horse manure from the expensive companies you hear on Glenn beck, I have 2 cases of cans of pasta sauce, a case of pasta, 50 lb. bags of rice beans, a few cases of assorted canned vegetables that I use regularly, Frozen meat from hunting and also from buying sales when I see them. This is what I normally eat anyway, why not have some extra, my grocery runs are for fresh veggies/fruits and Bread mostly, and when I see a deal I grab onto it with $50 or $25 or whatever I feel is appropriate. Dip into #7 a little when you see a good deal, you are going to eat that steak for $2.99 someday aren't you? I eat a lot of rice, 50 lbs might last me 2 years with a lot given away to whomever, I could buy @ $2.99/lb weekly, or I can buy a 50 lb sack at the Asian food store for about $20, and get higher quality product at a much lower price.
10. Dry good stored, I found a great deal on dish washing detergent, 40 loads for a buck, I now have about a 10 year supply of dishwasher detergent for $50. Similar deal with toilet paper, I probably won't need toilet paper for another 5 years, $125 tax deductible (bought it for the business), Laundry detergent, shampoo, whatever the list goes on. Think of the freedom of not having to buy that $5 bag of toilet paper every week at the grocery store, that $5 weekly of financial agility to invest in other categories/ventures.
11. My crazy penny/nickel hoard, worst case I can always cash it in at face in the future, its an augment to #7 with the potential for an upside...
12. I'm sure I have other stuff I can't think of off the top of my head

Now I know doing all this at once is damn near impossible, especially for someone who has to feed a family, so set aside some amount, $50 a week? $20 a week? $5? There has to be somewhere you can trim $5 from your weekly budget, coffee out? Movies? Dinner out?, Start with cash storage, perhaps 50% nickels/pennies, 50% paper cash, once you build some up, Do food storage one month, Dry goods storage another, bullion the next. Feel free to dip into your cash reserve a little to build up your food reserve, or other reserves, move it around when the price is right, hoard cash when the price is wrong. Get yourself to the point you know if All hell broke loose, you and your wife both lost your job and wrecked your cars simultaneously, you will be able to survive a 6 month span. Then you can start doing riskier deals and actually making some money on the side hopefully, but you have a safety net and financial agility/security to do what you need then.

Oh and one other thing, Look out for depreciating crap in your life. Timeshares, New cars every 2 years, House 3x as big as you need it (you will raise smarter, better behaved kids with a smaller house, you can keep an eye on them, also Lower house payment and lower utilities to boot), Eating out unnecessarily, Motorcycles, boats, Jet skis, Some expensive hobby (fly fishing/skiing), lotto tickets, and now I'll kick the sacred cow... College??? What are the benefits of completing your education in business administration? English studies?, Social sciences? Philosophy? Do you have an exit strategy for college? I won't hire you, because I know I can and have hired 10 more like you for a buck over minimum wage, and apparently you can't even do a proper cost benefit analysis of your own education, why in gods name would I trust you to administer my business??? So many of the "skills" they "teach" in college are so much better learned and quicker learned in the field...

Don't martyr yourself as a saver, but at least consciously think about the consequences of spending that money before you do. What could I do with that money instead. Once you have a years comfort level built up, then consider playing in Jamaica, buying that new car, or that Jet ski, Big game Hunting/Fishing in the hills of Montana... These are the debts you should be afraid of guys, not reasonable debt levels collateralized by an income producing asset... Again what are the opportunity costs of not collateralizing that asset?

Also Renting your home is not a bad an option... If you do a Cost benefit analysis of home ownership, the taxes, insurance, bank mortgage interest, repairs and maintenance, value of your time spent doing all these things adds up, If your home isn't working for you financially (LOC used for productive investments) then it in itself is a Liability, not an asset, especially now that we can't just assume a 5% annual appreciation like some of us did in the past (me included)

[Oakair]

mflugher...good post...

My parents had a small house, but I still ended up in college by what is essentially their decision with a philosophy major and a loan at an absurd rate because my parents divorced, my dad filed bankruptcy and killed his credit, and only my grandparents could cosign a loan for the amount i needed despite the fact i had a 12,000 a year job as a high schooler...

My primary objective is to pay off my loan as soon as possible once I graduate this coming summer...Only problem is...I will have to acquire certification or something which aids in landing a decent job and keep a stable 15,000$ a year minimum job while I go to a program which qualifies me to defer my loans (hopefully a masters in eduction accomplishes this)...On a side note, who knew philosophy was so...respected...its a lot of damn work compared to most majors outside of the hard sciences and even with those included, just a lot less directly applicable...

My financial situation is a horrid mess, and Im only 21...What a great start Im off too...Lets hope the silver Im slowly accumulating outpaces the interest on that damn loan!

[68Camaro]

Good stuff, but... the thread got a bit highjacked by it - suggest you all start a new financial philosophy thread.

[barrytrot]

On a side note, who knew philosophy was so...respected...its a lot of damn work compared to most majors outside of the hard sciences and even with those included, just a lot less directly applicable...

Of course, you were literally studding "how to think"

They have to make that hard!

[fb101]

Hmmm........
When Does mind your risk turn into run like he..?

[mflugher]

Hmmm........
When Does mind your risk turn into run like he..?

lol when you should have minded your risk yesterday...

I'm probably going all out tomorrow, to take some profits and buy in again at 28 - 29. it will all depend on what London does during the Wee hours... Of course when I say all out I'm only talking about paper, all 3 oz of my physical is properly secured...

[fb101]

I was minding my risk; decided to hang on thinking that the weak holders were bailing 3 days ahead and couldn't drive the price down. So I sat with my finger on the trigger of my SLV options still in the black.
I think it paid off..............
Gotta thank JFF for the original tipoff...........
and kick myself in the butt hard for not jumping on more when I was tempted to in the drop last Friday.
no guts no glory.

[Country]

Love it!! Been buying all summer...

If we get a rip like we did when SILVER went from $17 to $31, and then later $25 to $49, it would be truly nice. The first uplift was an 82% rise. The second blowoff uplift was a 96% rise. Total uplift from $17 to $49 was a 188% rise.

Let's say it does it again. First new uplift would take us from $26 SILVER to $47 in quick order; the is the fast one which could occur in the next couple months. A second subsequent uplift in 2013 could start from perhaps $40 taking us from there to $80!! Quite possible I think.... Are you ready?

I think SILVER might make the first move starting right now... First resistence at $31.50 appears to be ready to give way, next stop after that would be $37.50. Developments at the September 12 FED meeting could determine how fast...

[rockme54]

I hope so, then I can sell some and wait for it to hit bottom in January, well, maybe.....

[fb101]

Not to be a stick in the mud, but bouncing off of 37.50 down to about 34 would be nice.
That would be good for moving expiration dates and strikes into position for the next leg up.
Thanks Country - I expect a gap open on tuesday and we'll be trying for 37.50 before the 12th.
(The great pumpkin just told me so)

[deacon]

Great rally today. Too bad I was on the wrong side of the trade.
It was the houses money, so I'm not too annoyed.

[rsk1963]

I think SILVER might make the first move starting right now... First resistence at $31.50 appears to be ready to give way, next stop after that would be $37.50. Developments at the September 12 FED meeting could determine how fast...

if ben/fed/ecb do something... all aboard we're off.

otherwise slight uptick / side way movements for a minute.

today was friggen awesome.

[Country]

$32.03

[pennypicker]

$32.03

I'd prefer the price to remain suppressed until we buyers can make our buys on tuesday--then let it ride.

[db23]

$32.03

I'd prefer the price to remain suppressed until we buyers can make our buys on tuesday--then let it ride.

Why do you need to wait until Tuesday?

[Country]

Since $31.50 resistence has been broken, next stop $33.50-$34.00. This could happen very quickly.

[CtrlAltBernanke]

http://www.brotherjohnf.com/wp-content/ ... 090212.jpg

[pennypicker]

$32.03

I'd prefer the price to remain suppressed until we buyers can make our buys on tuesday--then let it ride.

Why do you need to wait until Tuesday?

I am only a buyer of physical silver and both local coin shops are closed today because of the holiday so I will have to wait until tomorrow.