Monday, October 11, 2010

Uh Oh ...

Normally I agree with Dave Ramsey, at least at a personal economic level. It is good not to be in debt. And I even agree with him on another idea he spoke of today, but not for the same reason. I do not recommend to my friends to buy gold. My reason is that one does not make all that many $1000 (now $1300) purchases. Gold isn't an investment. It is a parking place. As is silver, which I do own and recommend. $20 increments. Dave Ramsey is worried about a gold "bubble", the price being unreasonably high and going down later. In what? Dollars? Unlike shrimp, lettuce, and even corn, silver and gold stay the same. An ounce of silver is worth an ounce of silver. No more. No less.The ounce of silver that I got for a dollar in 1964 is still worth ... an ounce of silver. The Federal Reserve Note I left in an old coat pocket and found recently now buys about 4% of what it would in 1964. That is the point. Dave Ramsey made a point about the Petroleum bubble last Summer when sweet crude went to $145 a barrel and gasoline was "$5 a gallon", and how that was a bubble too. But he missed the point: it wasn't petroleum nor gold that is the bubble. The dollar is the bubble, and a heavy one at that. When gasoline was $4.50 a gallon here, my ounce of silver bought four gallons of gasoline just like it did in 1964 when gasoline was 25¢ a gallon.

Right now, Mr. Ramsey, gold is at a record high, and silver is as high as it has been since the Hunt Brothers tried to corner the market many years ago. But, this is merely a symptom. The following is a commodity news clip from Friday October 9, 2010 from Brock Associates, a commodities broker to his clients:

Corn, soybean and wheat futures at the Chicago Board of Trade will all have expanded daily price limits on Monday as a result of Friday's sharp gains.
The daily price limit on corn futures will be expanded to 45 cents per bushel from the normal level of 30 cents.¹
Price limits will also expand on Monday for CBOT soymeal, soyoil and oats futures. For soymeal, the price limit widens to $30 a ton, from $20.

Straightforward working information that CNN, CBS, ABC, NBC and MSNBC, and even FOX didn't find important enough to mention even though it is a suspension of rules designed to control runaway panic selling and buying. Couple that with this information from today's Economic Policy Journal:

Corn prices have hit a two-year high in early morning trading, jumping more than 8 per cent.
CBOT December corn surged by an expanded daily limit of 45 cents, or 8.5 per cent, to $5.73¼ per bushel, the highest since September 2008. In the last two trading sessions, corn is up more than 15%.

Now, remember that little decal on your gas pump last time you bought gas - "may contain 10% ethanol". Ethanol, alcohol made from corn by Archer Daniels Midland in Clinton Iowa. They are competing with you for the food you eat and the feed that feeds the food that you eat.

Last Call For Alcohol

No, Dave, you don't have to trade in commodities for the price of commodities to reach down and bite you².
Dave, usually I try to live my live in rules you would approve. I have little to no debt (depending on when you ask me. After a trip or after the next month). But I do have some holdings in silver of which you would not approve. They are not an investment. They are an insurance. Just like term insurance on my life, my silver is an insurance against financial calamity. And just like the life insurance, the health insurance, and more obviously, the fire insurance, I hope never to take advantage of it. I don't track its value from day-to-day looking for my opportunity to sell and make a profit. What would I put my safety net in? Dollars? A 401k?
You often advise your listeners to put their savings in a 401k. Do you suppose that the surge in the price of commodities on Friday and Monday might possibly be connected with a recess hearing at the U. S. Senate on Thursday that revived a long dormant plan to nationalize 401k and other tax sheltered savings plans.

Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more "fairly" distribute taxpayer-funded pensions to everyone.
Sen. Tom Harkin (D-Iowa), Chairman of the Health, Education, Labor and Pensions (HELP) Committee heard from hand-picked witnesses advocating the infamous "Guaranteed Retirement Account" (GRA) authored by Theresa Guilarducci.
In a nutshell, under the GRA system government would seize private 401(k) accounts, setting up an additional 5% mandatory payroll tax to dole out a "fair" pension to everyone using that confiscated money coupled with the mandated contributions.³

Which 2000 page lame-duck omnibus bill will this be hidden in? Between theft like this and the regulations-and-debt coming out of Washington, is there any wonder that people are afraid of the future of the dollar?

¹ What this means is that there are no sellers willing to sell at the mandated price high limit. So far, people can not be forced to sell at a loss. Stay tuned.
² Gold here may diverge from the other commodities as it is a hedge against currency variation only, i.e. it does not get traded like all the other commodities primarily as a regulator of supply against future commercial demand - even silver is an industrial metal and traded that way as its primary purpose. Speculation and arbitrage are parasitic riders on the primary purpose of commodity trading; even if, sometimes the tail wags the dog.

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