June 2011 Finance in Focus

The United States has until Aug. 2 to raise the $14.3 trillion debt ceiling, according to Treasury Secretary Tim Geithner. Failing to act would invite “catastrophic” consequences, Geithner has said. Military service members would not be paid, retirement investments would drop in value, and people would face higher payments on mortgages and car loans, he said.

To be fair what would be the upside? Perhaps the Military goes home? If you have savings you actually earn a return by being in Cash! I’m sure the ending of some of the entitlement programs would likely be a good thing, others perhaps not. The point of spending too much is that at some point you have to make tough decisions and pay the debt down. The USA is at that point.

The USA is adding 3 billion dollars a day to its debt which is now larger than the entire economies of China, the United Kingdom and Australia combined.  The bottom line is that the USA has to stop borrowing money to pay for borrowed money. 

However, the truth is nobody really knows what would happen if the debt ceiling is not raised because the USA has never not raised the debt limit – seems the path they have took does not work so perhaps it is time to cut the credit card. . . There are consequences for everything and this seems to be the responsible thing to do so bring it on; seal the debt ceiling. But, it won’t happen: the debt ceiling will be raised and the debt will be kicked down the road.

It’s always amusing to remember that credit is derived from the Latin “credere,” to believe or Trust.

So what does this tell us?  That there is a monster rally in metals coming, so now is the time to start building your positions as DEBT drives gold and silver. The bigger the debts the higher the price the metals will eventually achieve. . .

Gold has been in a bull market for 10 years, and is basically a no-brainer. Buy gold bullion, buy good gold stocks, buy gold!

Our current view on silver is that it will spend a while settling at this current level, and could even fall to under $30 first. So be patient and slowly start building a position. Look at the 200 day moving average for a buy point.

A recent quote from Eric Sprott  16 May 2011;  “I have no fear of silver here. Yes it will be parabolic, but it’s going to be way more parabolic than what we have today… I believe that gold today is the de facto reserve currency. It’s outperformed everything for 11 years. Silver has always been a currency, people are now treating it as a currency, and it’s a very, very small market. There is no way that with roughly $50 billion of silver inventory around that we can make it a currency, so I see the price going much higher.” And on the ridiculous recent trading volume in silver: “One of the things we should look at is the trading of silver in the paper markets, I mean the Comex and the SLV. Last week it averaged 1.2 billion ounces per day. There is only 700 million ounces mined in a year. There is only 33 million ounces of physical silver that is available for delivery by the commercial shorters. If something like 3% of the people that were trading silver in one day demanded physical delivery, there would be no silver on the Comex…. The key market is the physical market. I don’t think this raid is going to work.”

Great Fact:

Most Americans don’t realize how much the U.S. dollar has been devalued over the years. An item that cost $20.00 in 1970 would cost you $115.93 today. An item that cost $20.00 in 1913 would cost you $454.36 today.

 Houses: they may very well fall further  . . we think so. 

As always we invite you to call us and discuss your concerns  – 03 5724 5100