Thursday, September 06, 2007

I told-you-so-ism? soon, very soon.

I’ve been holding off for awhile on whether I should begin to post the “I told you so!” articles. This is not the classic I told you so yet, but it certainly is a “why the hell have you not realized something is happening” post.

The U.S. dollar has not plunged yet like I expected, precious metals have not hit my projections for the year. Still a myriad of other signals are turning my way. Am I happy? No not really, what I’m feeling is anticipation and fear. I’m anticipating a major blow up very soon and this level of anxiousness has left me so fixated on keeping up with the news I’ve been remiss in posting. In fact I’m so amazed at the level of articles and growing panic building in some commentators that I can’t understand why the majority of people out there have still not gotten a whiff of the stench that is the world economic system. Why do I fear? I fear I have not squeezed hard enough and have not put aside enough metals or commodities stocks. I fear I’ve banked too much on the inflationary death of fiat argument and not the deflation cash is king argument. No one can know how this will pan out for sure but at least I’ve tried to do the right thing and inform others. I do know the “all is fine, let’s borrow more and worry later” mentality was wrong, which puts me ahead of the vast majority. Everyone chant, “I’m not the dumbest, I’m not the dumbest”

So what’s been happening? Well we’ve got the credit crunch and yes while the Central Banks of the world have been pumping lots of liquidity to the Banking industry there is still no guarantee that this money will be loaned to the holders of commercial paper. Banks seem reluctant to supply the amount of money needed and each month untold billions will need refinancing. A lot of this paper is not subprime mortgages but packaged credit card, car and other small loans which so far have not seen the default spikes like the mortgage market. In the near future you could see car dealerships, furniture stores, credit cards deals of no payments for 6 or 12 months fall apart for lack of credit, you might even see an inability to get substantial non asset backed credit hit the market. This will kill an economy based on not saving but buying forward against future earnings, retailers and car companies do not have the cash to personally hold all the loans they make and if the market won’t buy up this paper than no sales and a total collapse of the consumer economy. I expect within 2-3 months to have my unsecured credit line pulled, not because my credit is bad but rather credit is too tight to freely dole out to the likes of me. This is the time to put aside some cash, real cash, in safety boxes or home safes. U.S. readers especially saw the run last week at Country Wide and should take this as a warning, if you’ve got savings take 1 or 2 months worth out of the bank and grasp it close to your chest.

If you think there is no credit crunch why do you think Bell Canada is trading $2 below its agreed purchase price in recent weeks? It’s simple, enough people believe that 40 billion dollars in financing is not achievable and the sale will fail. There is a 2 dollar discount build into the stocks price today to offset this risk of buying Bell at this price.

The U.S. housing industry is continuing it’s plunge and 45-50 billion dollars of ARM resets will take place every month for most of the next 2 years. We’ve only seen the tip of this iceberg; unsold houses in the U.S. have reached 3.85 million units. I suspect 5 million is easily attainable and a deflationary spiral could endanger 20 million homes. The end is truly nigh.

There are all sorts of proposed bailouts of homeowners and lenders but I suspect they will help only the institutional players and make virtual debt slaves of the others.

You will note on the side bar the total U.S. debt. As I understood it 8.9 Trillion was the government legal debt cap and while probably not entirely accurate we should see a panicked congress recalled to up the limit within days as it will surpass 9 Trillion in hours of this post. The next cap will probably top out at 10 Trillion and will not hold even as long as the next election.

As for our lovely shinny metals the last 4 trading days have been up 3 for 4 and have gained about 26 dollars on gold and nearly .50 on silver. Silver is still under performing but last week with ratios about 57:1 I made a small purchase.

I also went bottom fishing last week and picked up a couple of junior minors, since my readership is so low and I don’t think any amount of manipulation could actually make be rich I think I will begin to discuss some of the companies I’m holding in future posts. Hell send me your favourites and we can discuss them. Paper assets are still in danger but I sure like a physically backed mine better than a financial backed by lies, junk bonds and fiat dollars. I also jumped back in on energy a number of weeks ago and even with today’s nat gas prices I would encourage everyone to consider these as an addition to metals.

Some day I have no doubt 2000 oz of silver could buy me a farm, until then I intent to accumulate.