Tuesday, May 12, 2009

Imaginary plastic diseased green shoots

While all this talk of green shoots has many people exuberant that the big bad recession is over and we are already heading for a recovery, I just don’t see it. In fact for me all this good news and group hugging fills with me with even more fear and apprehension as I wait for then other shoe, or rather boot to drop. People who are not even healed from the last financial beating they took are jumping on the don’t worry, be happy bandwagon as if all the things they’ve seen over the last two years was just a bad dream. Idiots!

I had a conversation yesterday with someone who originally thought I was rather nuts and overly pessimistic; he no longer things I’m overly pessimistic. He said to me “this can’t be over this easily, what do you think will be the next crisis that ends this rally?”

In reality I don’t think it will take a new crisis but the simple progression of what’s already going on to bring about the next downward leg. Credit is still contracting despite the giant stimulus plans of most major governments, while banks have been raising money and taking government bailouts they have been losing a great deal of that money and shrinking limits on credit cards and credit lines. As long as credit is held back these so called green shoots cannot grow and prosper, instead I see them withering in a prolonged credit drought. Of course the same withering could take place without spending the money so why bother?

Of course there are very sound reasons for personal credit access to be shrinking so don’t expect to see this change unless governments step in and mandate loaning. An article in the NYtimes which may or may not be hidden behind a subscriber wall reported

According to estimates by Oliver Wyman, a management consulting firm, card losses at the nation’s biggest banks could reach $141.5 billion by 2010 if the regulators’ loss rate was applied to their entire credit card business. It could top $186 billion for the entire credit card industry.


This $186B is more than $100 billion larger than the worse case scenario used in the recent bank stress tests, so how valid were those stress tests? Additionally the unemployment rate used in the Government calculations has already been achieved so additional job losses will nullify the assumptions made in their tests. These stress tests were bogus and have understate the problem they same way they've understated this crisis from the get go.

Just today, Advanta a small business credit card company (one that I had never actually heard of) announced it was shutting down all 1 million accounts to preserve capital after defaults hit 20%. Advana will attempt to pay off its investors at somewhere between 65-75 cents on the dollar and close shop. This collapse leaves 800,000 businesses that were paying their bills without credit as of June 10. Many of these companies will have a very hard time finding new credit in this market. Green sprouts my ass!

The commercial real-estate market has certainly not bottomed and I don’t see how it can until retail bounces back. The big question is how can retail bounce back with 25 million unemployed and growing in the U.S. and personal credit being cut back? That’s right, it can’t!

China has just announced its exports are off 22% , the U.S. trade deficit is up and their budget deficit for 2009 is admitted to be heading for 1.8 Trillion by year end. I’m banking it will be well over $2 Trillion.

So see! We don’t need a new crisis we just have to wait for the ones we already have to finish unwinding.

From the how bad can it get file:
How about tearing down nearly complete homes because they are would cost too much to complete and sell?

This absolutely freaking insane, they were actually wrecking better stuff than I can hope to own! Man I wish I was close enough I could have scavenged a $40 granite counter top or new house windows for $20 in order to fix up my little hovel. Another story about the same development mentioned a lady who got enough lumber to build a shed in trade for a 6 pack of Corona.

Of course sometimes tearing down cities makes sense like in Flint where they are considering a consolidation of the city by tearing down nearly vacant communities and allowing people to move to other areas where there are enough people to support communities and retail. This is actually a brilliant proposal but even more so if they converted some of these empty blocs to urban farming creating some local jobs, keeping more of their food money local. Empty land near existing commercial buildings or residential blocs could become parks with huge community sized geothermal heating plants under them. Flint could become a model for sustainability.



Gold and Silver

I’m quite pleased to see a little strength appear in the metals market albeit later in the season than I would have expected; most years we start to tank about now and wallow until the summer holidays are over. This year perhaps the mantra will be not sell in May and go away, but something more like don’t be mental, covert to metal. Hey I don’t claim to be a poet! Silver is outperforming gold right now but after the beating we took last year it needs to outperform just to stay in the game.

I still can’t find 5, 10, 20, 50 or even oz bars locally but the silver shortage seems to be getting somewhat better with silver Maples and Eagles appearing in stores again even if their premiums still seem ludicrously high. Many coin stores/banks are charging a $5-6 premium for Maples when First Majestic Silver can be caught some days (before they adjust their prices) selling bars and rounds at premiums as low as .50 Personally I’d prefer a much bigger pile of silver rounds rather than pay a premium ranging around 35% for Government coins and then get dinged for provincial taxes on top. Majestic also has the hard to find 5oz, 10oz and kilo sizes with a commitment to add a 50oz bar soon.

Last months reduction in Comex silver of about 10 million oz was a nice surprise but rather than a new trend to clean the stockpiles out it seems this was probably just the silver ETF taking delivery of some of the silver its fund was short. Are they balanced now? Let’s hope not, I’d like to see them draw off another 10-20 million ounces before years end. Bwahahahahah

10 comments:

Real Estate in Toronto said...

I can't but agree with you, people are being way too ignorant of the signs that still say this is not over. Assuming all is good for now and not worrying about the smaller but yet important problems that are still here is not right. I really wonder if all these small mistakes we're making right now will add up and cause it all to go down the drain again. I hope not.

Take care, Julie

roland said...

Regarding "First Majestic Silver" located in BC and getting "dinged for provincial taxes on top": Living in Ontario, I have been importing my PM exclusively from USA free of duty, PST, GST, etc. "They" (the gov't) try to collect all that; BUT if the claim is appealed, you pay nothing. And this is why, as per my appeal:
=====
All imported goods must be declared. The gold coin is classified under
7118.90.00.10, which is duty free.

Section 213 of Excise Tax Act (ETA) provides that no tax is payable on
imported goods included in Schedule VII, which includes "Precious Metal".

"Precious metal" is defined in subsection 123(1) of the ETA to mean a bar,
ingot, coin, or wafer that is composed of gold, silver, platinum that is
refined to a purity level of at least: (a) 99.5% in the case of gold, and
platinum, and

(b) 99.9% in the case of silver.

So, there is no duty or GST applicable to the importation of this coin If
you have any further questions, please contact Mr. Dwayne Moore of Excise
and GST/HST Rulings Directorate, CRA, at (613) 957-7841.

Thank you for contacting the Canada Border Services Agency.

Internet: www.cbsa-asfc.gc.ca
E-mail: cbsa-asfc@canada.gc.ca

Canada Border Services Agency
Ottawa, ON K1A 0L8

Government of Canada | Gouvernement du Canada
===============

hope this helps......

Lord of Wealth said...

the problem is not with bullion from Majestic which is also pst/gsp exempt but with silver/gold maples from local ontario venders which are GST exempt because they bullion but Ontario charge PST because they consider them collectables rather than currency.

As I understand it BC, alberta either have no pst or don't charge it on coin purchases.

Anonymous said...

No PST on bullion sales in Manitoba either

roland said...

Regarding PST in Ontario, the tax is reimbursed when you apply for exemption. The reason is that Canadian gold/silver maples are legal tender coins. Paying PST on these coins would be like paying PST when you purchase a $10 bill/note with two (2) $5 notes in the bank. That is also the reason why no duties/taxes are due when you purchase, for example, Walking Liberty (US 1/2 dollar; still legal tender in USA) even though they are only 90% silver. That is because tariff #: 7108.20.00.00 and 7118.90.00.99 regarding legal tender (currency) applies. Otherwise, you would have to also pay PST (taxes) for purchasing let's say Euro w/ Canadian dollars.

Anonymous said...

please tell us how to get the pst back for buying maples in ontario, what are the full rules , who do we apply for reimbursment to and how?

I know 1/2 a dozen people who will not buy maples in ontario because of the Pst, no one has ever told us we could get the tax back.

roland said...

anonymous, the procedure to get a refund in ontario is pretty straight forward, from what I remember a several years ago:
1) get maples from Scotia bank
2) get a receipt that !clearly! indicates what the face value of your coin is, i.e. legal tender silver coin face value $??
3) go to your local ministry of revenue outlet
4) complete something like Refund of Retail Sales tax form
5) get your money back (or appeal if you don't)

Remember, bullion is taxed, legal tender is not.

CHR said...

Finding silver locally can still be done .. sort of. Check out your local Kijiji service under 'Art & Collectibles'. If you are in Ontario, you will likely find all sorts of wingnuts ready, willing and able to sell you everything from Maples & round all the way up to 100oz bars. The problem is that they are asking ridiculous premiums for these items and that is pretty much tainting the market.

If I can see someone else offering to sell one ounce rounds for CDN$6 over the Canadian spot price then that makes any potential seller think that is the ~real~ market value for one of those rounds. So they list their goods with a similar premium and are somehow surprised that no one comes calling for their items.

Many of these sellers are simply waiting for a fish to pay these silly prices and are happy to not sell anything for weeks and months because when they do catch a fish, it pays so well that they ignore the lean days.

I have given up trying to buy locally, as a result of this poisoned pricing model and have gone instead to buying in bulk from the left coast.

CHR.

The Mad Scientist said...

Love your blog,
We both seem to blog about silver a lot.
I just went to ScotiaBank this morning and bought a 500 OZ bar for 1.50 over spot. SInce I paid in USD there was only an additional $18 charge (commissions and delivery charge)
He had 1,10,kilo,100,500 and 100oz bars.
Premiums were 3.00 2.50 2.50 2.50 1.50 and zero respectively. Sounds cheaper than what you saw elsewhere.
Just wanted to share//

Canadian silverbug said...

The premium on 100 oz bars was well under 1.00 when I started buying silver so the bank is gouging because they can, showing the market is still a little tighter then it used to be.

That they have that much variety in stock surprises me as does a 500 oz bar which is certainly a non standard size. They did'nt usually have kilos either, they must have found someone minting new bars rather than the 70 year old rough pour stuff I've mostly got.

What is the manufacture of the 500?

for smaller stuff Silver Majestic is still a better buy if you can deal with their amateurish service. My 3rd order with them went badly again having to follow up with emails when things should have moved smoothly. If you don't mind baby sitting your order they still seem a good deal but unless they get their act in gear they are going to drive off many less flexible customers.