Monday, February 25, 2008

Canadian silver bug - February files

So what's going on in the world you should know about?

Housing

I stopped even talking about this for some time because each week it is simply more of the same but there have been a couple of important landmarks this week that shows that any talk of bottoms, or recovery is still quite a ways off.

It was reported this week that there were more Californian foreclosures in January than sales, Imagine 19821 foreclosures vs 19145 home and condo sales. This a first and a definite omen that the end of the housing bust is not near.

In fact California has areas like Wayne County and Stockton where 4.9% and 4.8% of all homes are in some stage of foreclosure, closely behind is Las Vegas and its burbs at 4.2% and Detroit which has been ravaged by decades of industrial erosion is also hosting high foreclosures. Apparently Nebraska has bucked the trend, who'd have thought owning a home in Nebraska would be considered good?

It you really want to see something whacky do a price search on houses in Detroit, empty lots or tear downs for $15,000, still functional fixer uppers for $25k and for 250k you could get a house that would go for $750k to 1million in places like Toronto.

I’m surprised no one has bought, gutted and rebuilt and entire city block into a discount gated community for Canadian retires. It may not be Miami but with these land prices someone could certainly be comfortable making 2/3 of their current home equity liquid and moving into one of the depressed U.S. great lake Cities. Also if houses are that cheap why the hell did the U.S. Gov build trailer cities around New Orleans when they could have just given people empty houses in depressed regions, most would not have wanted it but it would have worth a try, no?

Empty houses have caused massive problems in dying cities like Detroit for decades but the spreading foreclosure poison is bringing squatters, crack dens, funky smelling mosquito infested pools and arson to neighborhoods all over the U.S. You know people are desperate when attempting to outwit the fire inspectors and insurance people begins to look attractive even when gaol is the price of failure.

While I don’t have any data to prove it, in the Toronto area it’s seems that houses are not moving as fast and the crazy bidding wars are over in most neighborhoods. The Oil Patch cities may still be hot but lack of affordability and industrial slow downs are having an effect in the east. We should expect a housing slump but without no-doc loans, Arms, etc a recession should not give us anything like the U.S. foreclosure rate.

Inflation/starvation

Inflation is here and high regardless whether the Government reports it accurately or not. Blame it on peak oil, insane food to fuel programs, growing populations, Asian demand for meat and a western lifestyle, climate change, drought, or all of the above but food supplies are not going to keep up with growing demand, for most us it will mean higher prices. For the poor in western countries poor nutritio and dropping standards of living, for the worlds poor; Starvation.

Watch this video



The CEO of Potash Corporation believes if we do not have record crop yields in the next couple of years we will have famine.

Inflation is not just in food; energy is the basic input for the vast majority of industrial endeavors which explains why prices for this years iron ore production have been negotiated 65% higher starting in April. We are heading into an era where every basic commodity will much more expensive from a combination of scarcity in the case of things like oil, gas, uranium, nickel, rare earths, and grain; rising extraction costs due to energy prices or shortages, stricter environmental protection, qualified labour shortages and political reasons such as nationalization, export tariffs, and hording.

While some Asians may join the middle class the world wide standards of living have probably peaked and this is just with high energy prices, wait till shortages appear that can impact resource extraction and food production.


Shaky Banks and credit companies

Non-borrowed reserves represent the money banks are required by law to keep liquid in cash to meet withdraws and such, reports this month show that this category of assets is in the negative by billions. Now there has been a lot of argument and counter argument on this topic whether this is just an erroneous measure due to the way the Feds new short term credit is accounted for, or that it's a real sign that the banking industry is on average insolvent. I can’t answer this either way but my concern is if this number is based on the industry average then some companies are at the median, some are better off some worse. The fact that the average is even close to showing insolvency is probably a good indicator that some banks are well below the median and are only keeping their heads above water by taking advantage of the Feds new credit facility.

With this in mind have you taken a couple months of living expenses out of the bank in cash yet? If not do it!
Depositor insurance won’t pay out overnight and you might have need of cash should your bank suffer a run.

I have also seen articles claiming that banks are canceling credit cards(in large numbers) on people with suspect credit ratings. Likewise even some up to date mortgages issued by the myriad of loan companies that have closed are being called for immediate payment. Surely there is enough problems without dumping on people who are making their payments.

GMAC which was not content financing cars took a $2.33 billion loss in 2007 largely from it’s involvement in home mortgages, Fools, take a good deal and screw it up by being greedy.


Silver and Gold.

It’s a damn good being a metals bug these days, with Silver around $18 and Gold bouncing in the $930-945 range a lot of my beliefs about inflation, fiat money and over all market confidence are being validated. There will have to be a significant correction in silver and gold eventually but I really don’t know if it will be from these levels down, or later in the year when it reaches my $25/$1200 goals.

When it comes to physical metals I don’t think this is the time for timing trades; make a decision buy and hold and don't let the metals out of your hands. If you must trade in and out use the ETFs, they are for trading, bars, coins, rounds are for acquiring and holding!

The South African power situation looks to be making trouble as gold, platinum ferrocrome are all going to suffer production cuts and price instability due to the lack of reliable electrical power.

South African mining could be in deep long term trouble. Many of these mines are very deep and require constant reliable power to maintain air flow and keep them pumped dry, any major blackouts could put lives in danger and could conceivably flood out lower level increasing costs and lengthen the time required to restart production. Even pit mines will face disruptions with machines and men idle and debts not being serviced.

You can’t build a new power plant quickly and this problem could plague the industry for up to a decade causing disruptions that will only make the commodity super cycle that much more erratic.



Equities

While still not responding adequately to the new higher metals prices the bottoms do seem to be behind us with some stocks starting to make small moves up. I though a new all time high in Gold would have been enough to bring in big investors but it looks like $1000+ is the bare minimum to wake up Wall Street.
The upside is I’ll probably have my tax refund back before things start to pick up and I might even get another year of accumulation before mania hits.

6 comments:

Anonymous said...

I live in Toronto. Where is the cheapest place to buy physical silver and gold in Toronto? Where do you get yours?

Canadian silver bug said...

The foreign exchange places down town have silver and gold as do the coin stores but both are overpriced. Your best bet for personal service, security, selection, price is the the Currency exchange counter main floor of the Scotia bank tower, Bay st and Adelaide. It's a bitch to get bullion during lunch go opening till 12:00 or 1:30 till close.

silver in 1,5,10,20,1kilo,50 and 100 oz. Silver maple leafs
gold in I believe 1,2,5,10 and big.
also they have gold maples 1/20, 1/10th, 1/4, 1/2, 1 oz
scotia bars in 1, 1/2, 1/4 oz and 5, 8 grams.

then they have various world gold coins including U.S. eagles, British Sovereings(my faves) Mexian 50 pesos, Krugerrands, etc.

I think I like is 2, 2.5, and 5 peso mexio gold but the Bank does not carry these.

Hope this is usefull

Anonymous said...

I called a travel agency that sold silver. They wanted more than $22 freakin' dollars for an ounce of silver! A 22% markup!

Are you telling me you go to the Scotia bank tower to buy silver?

Have you ever tried ordering from the States?

Canadian silver bug said...

Due to handling fees, production cost, marketing etc the smaller the bar the higher the price scotias premiums are as follows

10 cents per oz on 1000 oz bars
30 cents per oz on 100 oz bars
90 cents per oz on 10, 20, and 50 oz bars
2.10 per oz on smaller units. (I believe)
For example a 1000 oz bar at $.10 per ounce would be $10,100 + $5.00 transaction fee for a total of $10,105
The same amount of silver would cost $10,305 in 100 oz bars
$10,905 in 10 oz bars, and even more in smaller bars --you get the idea.

So at $18 you can expect a 1 oz bar to be about 20.10 + the difference between the bid and ask which could be another 20 or 30 cents, so the cheapest you will find 1 oz bars is 20.50 if you buy 100 maples at once. If you buy less it could be about 21, The price is better on larger bars as a 100 oz bar at Border Gold in BC was 1887.43 or 18.87 per ounce and about 20.30/oz for 10 oz bars.

No, I have not bought from the states, If I was going to buy many 1oz bars I'd probably get them from Northwest Territorial Mint. I've tried to get a friend to order some this way so we could split the cost/shipping and get the best price, they sell both their own bars/rounds and pan american, both of which are nice looking recognized bars.

IN Canada I'd order rounds from J&Ms bullion and coins in BC, maple leaf as well since BC has no sales tax on bullion coins. Ontario does

For larger bars the hassle and shipping costs etc are not worth the effort, just go to Scotia.

$22 was too much for 1oz bars, and would have just been rude for 10s and larger, knowing what size they are selling in is the key to know if your getting fair value

You will pay a premium over the market price, but look at it this way, it's real, not paper and with inflation/curency devaluation you'll probably regain the premium in 1 year.

http://www.bullioncoinsandbars.com/products-silver-bars.htm
Look at this link before you go shopping so you have an idea of the days prices.

Recession Stock Trading said...

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Now we will see some information related to the current recession in US which might be very useful.

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That got me to thinking of what businesses make sense during a recession. Certainly health care does. Baby boomers are going to need every kind of health care imaginable. For all I know, economic bad times makes
people sick too.

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Chad said...

I have a few 10 oz silver bars at $20/oz Cdn....min 50 bars, next day delivery.

Thanks
cpretz@gmail.com