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Louisiana Sales Tax Holiday for Hurricane Preparedness--May 24 & 25
Residents of the US state of Louisiana can purchase needed items
free of sales tax as they prepare for the 2008 hurricane season.
The inaugural 2008 Hurricane Preparedness Sales Tax Holiday takes place on
Saturday, May 24 and Sunday, May 25. The holiday is an annual, statewide event
created by the Louisiana Legislature to assist families with the important
job of protecting their lives and property in the event of a serious storm.
During the two-day holiday, tax-free purchases are allowed for the first $1,500
of the sales price on each of the following items:
•
Self-powered light sources, such as flashlights and candles;
•
Portable self-powered radios, two-way radios, and weather-band radios;
•
Tarpaulins or other flexible waterproof sheeting;
•
Ground anchor systems or tie-down kits;
•
Gas or diesel fuel tanks;
•
Batteries – AAA, AA, C, D, 6-volt, or 9-volt (automobile batteries and
boat batteries are not eligible);
•
Cellular phone batteries and chargers;
•
Non-electric food storage coolers;
•
Portable generators;
•
Storm shutter devices – Materials and products manufactured, rated, and
marketed specifically for the purposes of preventing window damage from storms
(La. R.S. 47:305.58).
The 2008 Hurricane Preparedness Sales Tax holiday begins at 12:01 a.m. on Saturday,
May 24, and ends at 11:59 p.m. on Sunday, May 25.
The sales tax holiday does not extend to hurricane-preparedness items or supplies
purchased at any airport, public lodging establishment or hotel, convenience
store, or entertainment complex.
For more information, visit the State
of Louisiana web site.
« Odds 'n Sods: |Main| Note from JWR: »
Spotlight Falls on Silver's "Poor Fundamentals" by Jason Hommel
An article by Pratima Desai that was circulated by the Reuters news service,
included this:
LONDON, April 28 (Reuters) - Investment money flooding into silver has overwhelmed
poor fundamentals and helped it to outperform gold, but the tide could be turning
for precious metals and the probability of large losses is rising.
THE REAL TRUTH IS:
Silver has outstanding fundamentals, and silver's downside is minimal, and,
in fact, it probably just bottomed, as I will show.
Silver's price falls in percentage terms are likely to dwarf those seen in
gold, which some fund managers say has stronger supply/demand fundamentals.
Again, the opposite is true, silver's supply/demand fundamentals are much better
than for gold, as all the smart money knows, and as I will show.
"History shows that when you get a substantial correction in precious metals,
silver falls more than gold ... It's a more volatile market and smaller in
value terms," said Stephen Briggs, analyst at Societe Generale.
That's true, silver is more volatile, and in a bull market for silver, which
we are in, silver will clearly outperform gold, as it has outperformed gold,
as the silver to gold ratio is narrowing, from 80:1 to 50:1, and we have a
long way to go to get to the historic 15:1 ratio, or we will likely exceed
it, with silver moving even higher.
One big reason behind surging prices has been the tumbling dollar, making commodities
priced in dollars cheaper for holders of other currencies. The weak dollar
also prompts producers to raise prices to protect profit margins.
Silver producers do not have the luxury of raising prices. No commodity producer
does. All commodities in the world are either sold at the spot price, or under
long term contracts that have already been agreed upon, which, in this bull
market, are usually at lower prices than today.
Last week the dollar fell to record lows against the Euro, to beyond $1.60,
an event which has caused many to question whether further losses can be sustained
and whether it has bottomed.
While the excess creation of paper money is one of the best factors for higher
silver prices, the dollar's relation to the yen and Euro has almost nothing
to do with it's relation to silver and gold prices. All paper money, the yen,
Euro, and the dollar, are all falling against silver and gold, generally, since
2001 and that trend will continue.
"The dollar is not going to keep on depreciating forever," Briggs said.
He expects gold prices to average around $900 an ounce next year from $1,025
this year and silver to average $15.50 compared with $19.20.
Well, actually, the dollar could keep on depreciating forever, as all paper
currencies in all of human history have eventually done just that. It's silver
and gold that cannot depreciate forever. Furthermore, these spokesmen from
the large banks and brokers are always revising upwards their estimates of
silver's future prices, and it's always behind where silver ends up going;
I've seen this pattern for the last eight years now. Since when have the large
banks or brokers called silver right? When did they advise you to ever get
into this market to make several hundred percent since 2001? They never did.
And now they want you to sell? They always want you to sell.
Financial uncertainty, which has underpinned precious metals since last August
is to some extent becoming less important to investors seeking the higher returns
stocks and bonds offer.
Stocks and bonds offering higher returns? Since when? Only if you go back 30
years, but not the last 8. The Dow/Gold ratio topped out in 2001 at about 56
and has narrowed down to about 14 now that gold has hit about $900.
With a weakened case for holding precious metals, prices have started to slip.
Spot gold is now around $893 an ounce compared with a record high of $1,030.80
on March 17 and silver at $17 from a 27-year high of $21.24.
Weakened case for holding precious metals? What weakened case? They made no
case. They didn't even get the facts right. The current dip in silver is probably
the bottom, and now is probably the best time to buy!
Goldman Sachs recently said it expects to see gold prices at $835 an ounce
in 12 months and silver at around $15.50.
Here's another investment bank revising their estimates upwards again, but
making bearish calls. Hilarious. Pathetic. Bullish!
RECYCLING
From the end of last year to March 17, silver prices surged by more than 40
percent, while gold was up more than 20 percent. Silver's heftier gains were
built on investor flows.
Absolutely. Investment demand for silver surged from 5% of annual mine supply
to maybe about 8-10% of annual mine supply, we'll see soon.
Barclays iShares silver trust, the biggest silver exchange traded fund listed
in the United States, now holds more than 5,770 tonnes of silver, a rise of
about 10 percent since the end of last year.
Gold holdings by New York-listed StreetTracks Gold Shares, the world's biggest
gold Exchange Traded Fund (ETF), stand at 591 tonnes, down about 5 percent
since end-December.
I agree with those stats, but look at what they mean. With gold trading at
about 50 times the price of silver, and the gold ETF holding more than 1/10th
of the tonnes of the silver ETF, it means that about 5 times as many investment
dollars went into the gold ETF.
"Silver is probably going to fall more than gold in percentage terms," said
Wolfgang Wrzesniok-Rossbach, head of sales at German metals trading group Heraeus.
"From an industrial and jewelry point of view, there has clearly been
a decline in demand. There has been a lot of additional material coming to the
market
in the form of scrap."
This "German metals trading group Heraeus" is not said to be either
long or short. They could very well have short positions, and just inventing
things. They appear to be a silver user, at first glance here: http://en.wikipedia.org/wiki/Heraeus
More than 20,000 tonnes of silver were produced globally last year compared
with around 2,500 tonnes of gold.
I agree with those stats. What is not said is that 160% of gold mine supply
is purchased by investors each year or about 4,000 tonnes of gold. In stark
contrast, about .07% of silver mine supply is purchased by investors each year,
about 1,555 tonnes, or about 50 million ounces.
The surplus in the physical silver market is expected by some analysts to rise
to around 2,500 tonnes from a surplus of around 900 tonnes in 2007. The physical
gold market could see a surplus this year of 600 tonnes from 500 tonnes last
year.
There is no such thing as a "surplus" of precious metal. This is
an accounting term, used to designate demand by investors.
"Fundamentals come into play when prices are coming down," said John Reade,
analyst at UBS. "Silver doesn't have gold's fundamentals."
Exactly. Silver does not have gold's fundamentals, silver's are much better.
With industry consuming more silver than is mined each year, any slight increase
in investor demand for silver will continue to drive silver's prices upwards,
and make a mockery of all of wall street and all they do and all they have
to offer. This is why they must band together, to write lying foolishness against
silver as they do. This can only be an indication of them feeling pain in the
silver market, not being able to coax out any supply from investors after having
bombed the price in the last few weeks. The silver shortage is continuing with
many coin shops still very low on silver supplies, as investor selling by the
public, which was a large part of recycling supply, has changed since gold
hit $1,000/oz., and now must be putting the squeeze on all of wall street,
who are probably carrying a collective short position in silver.
ONE SOURCE OF DEMAND
Silver is often a byproduct of other metals such as lead, zinc and copper,
where miners are trying to ramp up production with some success.
Funny theory. True, about 70% of silver production is as a by-product of the
base metals. I just read that Chile, who produces 40% of the world's copper,
is ramping down copper production due to a power crisis. And several more trusted
analysts in our industry have finally turned bullish on copper recently.
That means more silver on the market and together with scrap recycling, supplies
are set to jump this year, while overall demand, including that from ETFs is
expected to fall.
Why would they project demand from silver ETFs to fall? That would be quite
a change. It's rather hard to predict such changes; it's usually more likely
that things will stay the same, with ever increased demand from the silver
ETFs.
"Silver is very dependent on one source of demand -- ETFs.
That's not true. Silver prices will go up even without new investor demand,
due to the overwhelming fundamentals that there is so little investment demand
at all.
You can't get excited about silver in the same way as gold. Silver doesn't
really have the same cachet," Briggs said.
Now that's true. Silver has absolutely no cachet. As I wrote above: 160% of
gold mine supply is purchased by investors each year or about 4,000 tonnes
of gold. In stark contrast, about .07% of silver mine supply is purchased by
investors
each year, about 1555 tonnes, or about 50 million ounces. So, how much money
is spent on gold vs. silver each year?
Silver: 50 million oz. x $17/oz. = $850 million.
Gold: 4,000 tonnes x 32,151oz/tonne = 128.6 million oz. x $900/oz. = $115,743
million, or $115 billion.
Thus, 136 times as much money is spent on gold, than silver, by investors each
year. Silver has absolutely no cachet, true, so true. And yet, the fundamentals
are so much better, precisely due to that lower investor demand. When investors
get educated about silver, they buy hand over fist, and create shortages at
major coin shops around the world.
"Demand from the photographic sector has been falling fast ... It's no longer
an important source of demand." For gold, the picture is somewhat different.
Mine production is expected to hold steady this year, but analysts expect output
in South Africa, a major producer, to fall over coming years because the ore
that remains is deep and expensive to access.
Wow. What a totally biased statement, telling half truths that are totally
irrelevant to silver vs. gold. These guys must either know nothing, or be intentionally
trying to hammer silver prices. Silver's declining photography demand is being
offset by rising industrial demand and the tiny increase in the tiny investor
demand.
Fabrication demand -- jewelry and coins -- is expected to continue unabated
as rising incomes in emerging market countries such as China and India allow
people to choose gold over silver.
More hatchet jobs against silver are expected, while they continue to say that
silver prices will be expected to fall, while silver prices actually rise.
The reason that the establishment will not tell you to buy silver is because
they don't have any. The investment demand is so tiny, they hardly have any
silver at all, and have never been able to enter the market in any size. How
can wall street establishments, who receive bail outs by the Fed, to the tune
of $20 billion dollars at a time, buy any silver when the silver market is
swamped by less than $1 billion of investor demand annually?
Be fruitful, multiply and you will see through the lies. Buy silver.
They lie. - Jason Hommel www.silverstockreport.com
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Letter Re: Turning Your Trinkets Into Storage Food
Dear Mr. Rawles,
As I was divesting of the useless flotsam one sees as a hindrance to true preparedness,
I was inspired to list my trinkets on eBay. (Now, for all those who have a
hatred for eBay [because of their anti-gun policies] , this is a separate issue.)
I also have a PayPal account. That is another stumbling block to some. But
for those of us who are still making the transition to becoming prepared citizens
(from their
former
place
in the
herd of sheeple), this may be a very viable opportunity.
Please hear me out!
So, you sell your trash on EBay and get a [positive] PayPal “cash balance”.
Fees notwithstanding, this “cash balance” spends like “cyber
cash” with vendors who accept PayPal, if “cash” is such a
thing in cyber space, but again, that is not my point here. It is
a means to an end. Nothing more.
And we should all agree that there is no point in using credit to
stock up. So my solution is turn trash into cash and then cash into stash!
Fir example Honeyville
Grain accepts PayPal and sells brown
rice, wheat, flour, and the food grade buckets and Oxygen absorbers
to store it all--nearly anything you could want. And here is the kicker: they
charge a flat fee of $ 4.95, regardless of the size of your
order!
I know it is not as simple as a trip down to your local COSTCO,
but we have seen how that works lately. The prices may not
be dirt cheap, but for a person who is home bound, in a difficult geographical
area (high
rise
dweller), or at
a distance to supplies, you can sell useless white elephant trash on eBay,
print postage right off your computer, the mailman comes and gets it, you earn
a “cash balance” in your PayPal account, you order your food, and
it comes to your door. "Easy peasy."
I do hope that the ambivalence some feel toward eBay and Paypal will not stand
in the way of your sharing what may well be a very useful tool for someone
who needs creative solutions for preparedness in this fast changing situation.
Most kindly, and Semper Fidelis - Laura C. in Virginia
P.S.: My friend the former Marine calls me “Caroline Ingalls, Olivia
Walton, and Sarah Conner all rolled into one!”
JWR Replies: Keep in mind that Honeyville's prices (pr pound)
tend to be higher, since they "build in" the shipping costs to their prices.
Also note that several SurvivalBlog advertisers accept payment via PayPal
for non-gun related merchandise.
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Letter Re: Sources for Inexpensive FAL Clone Rifles
Sir,
Do you know a place to get a cheap yet reliable FAL rifle? I am looking for
one on a budget preferably under $400 or so. I would greatly appreciate help
and i
like
your blog. Thanks, -- Derek
JWR Replies: Unfortunately, because the supply of parts sets
has dried up, the price of US Code Section 922(r)-compliant FAL clones is starting
to rise. The heyday of
FAL clone building
was a couple of years ago, when parts sets were cheap and plentiful. The prices
then bottomed at about $500. Those days are gone!
Here is some background on pricing: US-made FAL receivers sell for $300 to
$450. (That is just for a stripped receiver with sem-auto ejector block.) FAL Parts kits are starting to get scarce (because of the recent Federal
ban on parts sets that include
barrels), so those kits sell for $220 to $450, depending on maker and
condition. (The days of $95 parts kits are long gone.) A set of 922(r)
compliance US-made "HTS" (hammer, trigger, and sear) parts is $55.
Assembly and headspacing by a gunsmith is $75+. And with refinishing included, assembly
is more
often $185+. The very lowest price that I have seen FAL clones sell for is about
$600 (used,
at a
gun show),
and
$800+
is
more typical. (Add at least $100 for an "inch pattern" (L1A1)
variant.) Some of the nicer DSA-made FAL clones now sell for $2,400. For more details, see the
FALFiles.com forums. There, in particular see the Marketplace
Forum and their Gunsmithing
& Build-It-Yourself Forum. For additional background information,
also see my
FAQ on FAL and L1A1 rifles.
With the decline of the dollar versus the Euro, I only expect FAL prices
to rise. In the upcoming recession, you might stumble into a bargain,
as cash-strapped owners sell guns in order to pay their bills. But don't count
on that. Buy
a FAL clone soon! I anticipate they will be at least $1,000 within a year.
« Odds 'n Sods: |Main| Two Letters Re: Food Shortages at COSTCO and Sam's Club Stores »
The Value of Coupon Clipping in Stocking Up
Our family has always maintained a substantial pantry in addition to our "deep
storage" items. One way we keep our pantry stocked is by taking advantage
of grocery store sales and using coupons. This does take a bit of time on my
part, but definitely pays off in the long run.
I utilize www.coupons.com, www.smartsource.com, www.couponbug.com (these sites
allow you to print each coupon two times. We have two computers so that = 4
times each) as my mainstays. But recently I have become a reader of MoneySavingMom.com.
She posts deals that I would have normally not found on my own.
One of my most recent "stock ups" have been on Muir Glen organic [canned]
tomatoes. They
offer $1 off coupons.
You have to register. Once you register, click on the Muir Glen link. You are
taken to a .pdf coupon for $1 off Muir Glen products along with $1 off Cascadian
Farms products. There is no limit to the number of coupons you can print. I
use these coupons to stock up on tomatoes and frozen vegetables. At my local
Wal Mart the tomatoes cost 16 cents after the coupon and the vegetables cost
40 cents per one-pound bag after the coupon. I usually pick up a case or two
on each shopping trip. If I used all 100+ coupons I have, I would probably
be
limited.
I don't want to bring attention to myself.
These make great fillers along with our storage items. Hope this helps you
and your readers. - MPS in Nevada
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The Precepts of My Survivalist Philosophy
In the past week I've had three newcomers to SurvivalBlog.com write and ask
me to summarize my world view. One of them asked: "I could spend days
looking through [the] archives of your [many months of] blog posts. But there
are hundreds
of them. Can you tell me where you stand, in just a page? What distinguishes
the "Rawlesian" philosophy from other [schools of] survivalist thought?"
I'll likely add a few items to this list as time goes on, but here is a general
summary of my precepts:
Modern Society is Increasingly Complex, Interdependent, and Fragile. With
each passing year, technology progresses and chains of interdependency lengthen.
In the past 30 years, chains of retail supply have grown longer and longer.
The food on your supermarket shelf does not come from local farmers. It often
comes from hundreds or even thousands of miles away. This has created an alarming
vulnerability to disruption. Simultaneously, global population is still increasing
in a near geometrical progression. At some point that must end, most likely
with a sudden and sharp drop in population. The lynchpin is the grid. Without
functioning power grids, modern industrial societies will collapse within weeks.
Civilization is Just a Thin Veneer. In the absence of law
an order, men quickly revert to savagery. As was illustrated by the rioting
and looting that accompanied disasters in the past three decades, the transition
from tranquility to absolute barbarism can occur overnight. People expect tomorrow
to be just like today, and they act accordingly. But then comes a unpredictable
disaster that catches the vast majority unprepared. The average American family
has four days worth of food on hand. When that food is gone, we'll soon see
the thin veneer stripped away.
People Run in Herds and Packs, but Both Follow Natural Lines of
Drift. Most
people are sheep ("sheeple").
A few are wolves that prey on others. But just a few of us are more like sheepdogs--we
think independently, and instead of
predation,
we are
geared toward protecting and helping others. People naturally follow natural lines
of drift--the path of least resistance. When the Schumer hits
the fan, 99% of urbanites will try to leave the cities on freeways. The highways
and freeways will soon resemble parking lots. This means that you need to be
prepared to both get
out of town ahead of the rush and to use lightly-traveled back roads.
Plan,
study and practice.
Lightly Populated Areas are Safer than High Density Areas. With
a few exceptions, less population means fewer problems. WTSHTF, there will
be a mass exodus from the cities. Think of it as an army that is spreading
out across a battlefield: The wider that
they
are
spread,
the less effective that they are. The inverse
square law hasn't been repealed.
Show Restraint, But Always Have Recourse to Lethal Force. My
father often told me, "It
is better to have a gun and not need it, than need a gun, and not have it." I
urge readers to use less than lethal means when safe and practicable, but at
times there is not a satisfactory substitute for well-aimed lead going down
range at high velocity.
There is Strength in Numbers. Rugged individualism is all
well and good, but it takes ore than one man to defend a retreat. Effective
retreat defense necessitates having at least two families to provide 24/7 perimeter
security. But of course every individual added means having another mouth to
feed. Absent having an unlimited budget and an infinite larder, this necessitates
striking a balance when deciding the size of a retreat group.
There are Moral Absolutes. The foundational morality
of the civilized world is best summarized in the Ten
Commandments. Moral relativism and secular humanism are slippery slopes.
The terminal moraine at the base of these slopes is a rubble pile consisting
of either despotism and pillage, or anarchy and the depths of depravity. I
believe
that
it takes both faith and friends to survive perilous times. For more background
on that, see my Prayer
page.
Racism Ignores Reason. People should be judged as individuals.
Anyone that make blanket statements about other races is ignorant that there
are both good and bad individuals in all groups. I have accepted The
Great Commission with sincerity."Go forth into all nations" means
exactly that:
all nations. OBTW, I feel grateful that SurvivalBlog is now read
in more than 100 countries. I have been given a bully pulpit,
and I intend to use it for good and edifying purposes.
Skills Beat Gadgets and Practicality Beats Style. The modern
world is full of pundits, poseurs, and Mall
Ninjas. Preparedness is not just about
accumulating a pile of stuff. You need practical skills, and those
only come with study, training, and practice.
Any
armchair
survivalist
can
buy a set
of stylish camouflage fatigues and an M4gery Carbine
encrusted with umpteen accessories. Style points should not be mistaken
for genuine skills and
practicality.
Plentiful Water and Good Soil are Crucial. Modern mechanized
farming, electrically pumped irrigation, chemical fertilizers, and pesticides
can make deserts bloom. But when the grid goes down, deserts and marginal farmland
will revert to their natural states. In my estimation, the most viable places
to survive in the midst of a long term societal collapse will be those with
reliable summer rains
and rich
topsoil.
Tangibles Trump Conceptuals. Modern fiat currencies are generally
accepted, but have essentially no backing. Because they are largely a byproduct
of interest bearing debt, modern currencies are destined to inflation. In
the long run, inflation dooms fiat
currencies to collapse. The majority of
your assets should be invested in
productive farm land and other tangibles such as useful hand tools. Only after
you have your key logistics squared away, anything extra should
be invested in silver and gold.
Governments Tend to Expand their Power to the Point that They Do Harm. In
SurvivalBlog, I often warn of the insidious tyranny of the Nanny
State. If
the state where you live becomes oppressive, then don't hesitate to relocate.
Vote with your feet!
There is Value in Redundancy. A common saying of my
readers is: "Two
is one, and one is none." You must be prepared
to provide for your family in a protracted period of societal disruption. That
means storing up all of the essential "beans, bullets, and Band-Aids" in quantity.
If commerce is disrupted by a disaster, at least in the short term you will
only have your own logistics to fall back on. The more that you have stored,
the
more
that
you
will have
available for barter and charity.
A Deep Larder is Essential. Food storage is one of the key
preparations that I recommend. Even if you have a fantastic self-sufficient
garden and pasture ground, you must always have food storage that you can fall
back on in the event that your crops fail due to drought, disease, or infestation.
Tools Without Training Are Almost Useless. Owning a gun doesn't
make someone a "shooter" any more than owning a surfboard makes someone a surfer.
With proper training and practice, you will be miles ahead of the average citizen.
Get advanced medical
training. Get the best firearms
training that you can afford. Learn about amateur radio from your local
affiliated ARRL club.
Practice raising a vegetable garden each summer. Some skills are only perfected
over
a period
of years.
Old Technologies are Appropriate Technologies. In
the event of a societal collapse, 19th Century (or earlier) technologies such
as a the blacksmith's forge, the treadle sewing machine, and the horse-drawn
plow
will be
far easier
to re-construct than modern technologies.
Charity is a Moral Imperative. As a Christian, I feel morally
obligated to assist others that are less fortunate. Following the Old Testament
laws of Tzedakah (charity
and tithing), I believe that my responsibility begins with my immediate family
and expands in successive rings to supporting
my immediate
neighborhood
and
church, to my
community, and beyond, as resources allow. In short, my philosophy is to "give
until it hurts" in times of disaster.
Buy Life Assurance, not Life Insurance. Self-sufficiency
and self-reliance are many-faceted. You need to systematically provide for
Water, Food, Shelter, Fuel, First Aid,
Commo,
and, if need be, the tools to enforce Rule
308.
Live at Your Retreat Year-Round. If your financial and family
circumstances allow it, I strongly recommend that you relocate
to a safe area and live there year-round. This has several advantages,
most notably that will prevent burglary of your retreat logistics and
allow you to regularly
tend to gardens, orchards, and livestock. It will also remove the stress of
timing a "Get Out of Dodge" trip at the11th hour.
If circumstances dictate that you can't live at your retreat year round, then
at least have
a caretaker and stock the vast majority of your logistics in advance, since
you may only have one trip there before roads are impassable.
Exploit Force Multipliers. Night vision gear, intrusion
detection sensors, and radio communications equipment are key force
multipliers. Because
these use high technology they cannot be depended upon in a long term collapse,
but in the short term, they can provide a big advantage. Some low technologies
like barbed wire and defensive road cables also provide advantages and can
last for several decades.
Invest Your Sweat Equity. Even if some of
you have a millionaire's budget, you need to learn how to do things for yourself,
and
be willing to get your hands dirty. In a societal collapse, the division of
labor will be reduced tremendously. Odds are that the only "skilled craftsmen" available
to build a shed, mend a fence, shuck corn, repair an engine, or pitch manure
will be you.and
your family. A byproduct of sweat equity is muscle tone and proper body weight.
Hiring someone to deliver three cords of firewood is a far cry from
felling, cutting, hauling, splitting, and stacking it yourself.
Choose Your Friends Wisely. Associate yourself with skilled
doers, not "talkers." Seek out people that share your
outlook and morality. Living in close confines with other families is sure
to cause friction but that will be minimized if you share a common religion
and norms of behavior.You can't learn every skill yourself. Assemble a team
that
includes members with medical knowledge, tactical skills, electronics experience,
and traditional practical skills.
There is No Substitute for Mass. Mass stops bullets. Mass
stops gamma radiation. Mass stops (or at least slows down ) bad guys from entering
a home and depriving its residents of life and property. Sandbags are cheap,
so buy plenty of them. When planning your retreat house, think: medieval
castle.
(See the SurvivalBlog Archives for the many articles and letters on Retreat
Architecture.)
Always Have a Plan B and a Plan C. Regardless of your pet
scenario and your personal grand plan of survival, you need to be flexible
and adaptable. Situations and circumstances change. Always keep a G.O.O.D. kit
handy, even if you are fortunate enough to live at your retreat year-round.
Be Frugal. I grew up in a family that still remembered both
our pioneer history and the more recent lessons of the Great Depression. One
of our family mottos is: "Use
it up, wear it out, make do, or do without."
Some Things are Worth Fighting For. I encourage my readers
to avoid trouble, most importantly via relocation to safe areas where trouble
is unlikely to come to visit. But there may come an unavoidable day that you
have
to
make a stand to defend your own family or your neighbors. Further, if you value
your liberty, then be prepared to fight for it, both for yourself and for
the sake
of
your progeny.
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Letter Re: Getting Physical with Silver Futures Contracts
Jim,
Congratulations on the continuing success of your blog site.
I think your readers would like some information regarding physical delivery
of silver from futures contracts. I've never done this, or even known anyone
who has, but it seems rational nowadays. One question I have is what type of
mark or assay comes with, say, a 1,000 ounce delivery.
I also think many readers are interested in questions of how to plan "getting
tangible" with their retirement accounts, by which I mean no paper. I
know I have to think about this quite seriously. Felicitations, - Patrick (an
American Ex-Pat
in Asia)
JWR Replies: There are of course humorous apocryphal stories
about a futures trader finding 100 "live lean hogs" left on his doorstep.
But be advised that most
futures
and options markets are entirely "cash
settled",
so you can't take physical delivery even if you want to. Ask your broker
if your particular market allows the alternative of physical delivery. Odds
are that
it doesn't.
As for "getting physical" with retirement accounts, if you don't
want to take the tax and withdrawal penalty of cashing out, I strongly recommend
rolling over IRA and 401(k) accounts
into Gold American Eagle vault storage
IRA accounts available through Swiss
America Trading Corp. I have had one of
these accounts since
the early 1990s, starting when I first worked in the corporate world. At the
time, my co-workers thought that I was crazy. But I had the last laugh, in
the long run. In
the Spring of 2000, when I worked as a technical writer for Oracle Corporation,
I was buying one ounce Gold Eagles for my Gold IRA
at around $290
per ounce. Meanwhile, many of my co-workers were enthusiastically buying Oracle
stock at around $40 per share (split adjusted) through the employee
stock purchase plan (ESPP). Oracle
now sells for around $19.50 per share. But their loss is even worse when
you consider inflation.
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Letter Re: Horse Breeding Now, and in the Future
Jim,
I wanted your opinion on something. I raise Quarter horses, mostly show prospects
and have done this for a lifetime. I own the stallion, I do the breeding of
my own mares and ship [straws of frozen] semen all over the country for others.
I also train outside horses for a living. As you well know the horse economy
like everything else
is going down the tubes. I have been down sizing for the past three years as
the Holy Spirit has prompted [my string] going [down] from 60 to 30. I did
not breed any of my mares back this year and my focus is continuing to downsize.
I know the job these horses were bred for is no longer going to be available.
They will be needing a new job. My question to you is, do you think there would
be a market through SurvivalBlog for any of my stock? I breed for good minds,
great bones and of course movement (which I understand would not matter to
a survivalist) disposition and beauty. These are hearty horses, I believe they
could make great work horses, pack horses or just about anything you asked
them to be. I think the catch for the horses I would have available would be
the fact that some are untrained 2 and 3 year olds. I'm madly working on breaking
this last big group, but I can only ride so many a day.
It is just a passing idea. This
is my web site if you want to take a peek at what I have. Thanks for your
time and honesty. God Bless, - Merry
JWR Replies: In the short term, it might be a good idea to
reduce your breeding stock, but in the long term, your brood mares may make
you wealthy. I'm sure that some SurvivalBlog readers will be contacting you,
particularly looking for mares.
One of the biggest concerns for horse owners, at present, is the high price
of feed. The global grain shortage has pushed up feed prices tremendously.
Because grain prices will remain high, I expect hay prices to stay high, in
sympathy. (Markets are all about supply and demand.) It didn't help that last
spring and summer were dry in the western US, and most hay growers only got
one marketable cutting. This pushed hay prices up to insane prices. This prompted
many cattlemen and horse breeders to thin their herds.
In the long term, however, high fuel prices and spot shortages will likely
cause a resurgent interest in working horses. This is most likely in regions
with lush pasture and plentiful hay. In the arid west, where hay is a product
of circular irrigation, working horses probably won't make quite so strong
a comeback.
In a post-Peak
Oil collapse, horse breeding stock--for both draft horses and saddle
horses--would be like gold.
My advice: If you don't have extensive pastures and own your own hay ground
and hence buy a lot of hay each year, then thin your string of brood mares
down to just your very best couple of dozen, for the next few years. However, maintain
your ranch infrastructure, so that you can "ramp up" to
larger production, if need be. Do not sell off any pasture ground, hay ground,
stock panels, or haying equipment! Also, hang on to every saddle and piece
of tack that you own. In fact, if you have the chance to buy more tack (as
the horse market continues to crash), and you have a secure storage space that
will keep it safe from mold and mice, then invest in more tack.
Doing so will take advantage of the fire sale prices on tack that we will no
doubt see for the next few years. To
amplify on our previous exchange of e-mail: You
can breed horses, but you can't breed tack. In a few years, all those
new horse buyers will be screaming for saddles and tack! Buy low and sell high.
One ironic situation we may see in the next decade: All over rural America,
there are antique horse-drawn hay mowers that are now rusting away as yard
ornaments. I predict that many of them will be oiled up and pressed into service.
Hopefully, they won't be too far gone.
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Letter Re: Silver Coins Holding Their Own Against Inflation
Sir;
First, this interesting bit from an article from the Chicago Tribune: Food
Price Inflation Changes How We Shop.
Here are some quotes from the article: "Steadily rising food costs aren't
just causing grocery shoppers to do a double-take at the checkout line -- they're
also changing
the very ways we feed our families.
The worst case of food inflation in nearly 20 years has more Americans giving
up restaurant meals to eat at home. We're buying fewer luxury food items, eating
more leftovers and buying more store brands instead of name-brand items..."
"Record-high energy, corn and wheat prices in the past year have led to
sticker shock in the grocery aisles. At $1.32, the average price of a loaf of
bread
has increased 32 percent since January 2005. In the last year alone, the average
price of carton of eggs has increased almost 50 percent."
.
Now a quick trip to Coinflation.com where
we see that at the current price of silver ($17.38 per ounce, as of today)
a pre-1965 [mint date] 90% silver dime has a melt
value of $1.26.
So it looks like silver is holding it's own against inflation.
The price of a loaf of bread is still close to 10¢, if you're
using "real" money,
that is...
I hope this is of interest, Jim. By the way, I received your novel "Patriots:
Surviving the Coming Collapse" for
my birthday last month. It was great. Thanks, - Jonas
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Economic Climate Change: The Long Winter May Begin This Summer
I've had several consulting clients contact me in recent weeks, all with notes
of fear in their voices. They realize that something is horribly wrong with
the economy, but they cannot properly isolate and articulate the problem. I
haven't been able to calm them, however, because to an extent I share their
anxiety.
In
my estimation,
the "something wrong" that we sense is nothing short of a monumental
shift in the
economic
climate.
America is clearly headed for a recession. Most economic recessions are simply
a product of the business cycle. These recessions are relatively mild and they
often last
just
12
to 24 months.
The
economic
engine just readjusts and everything soon gets back to normal. But this
nascent recession in 2008 is something radically different, and it won't be
short-lived.
The current slow down was triggered
by a collapse in the global credit market. For decades, the global credit market
grew and grew, in an enormous debt spiral. Our neighbors to the south saw
trouble coming decades ago, because their economies were at the time more debt-dependent
than our own. As far back as the mid-1980s, their newspapers featured political
cartoons that portrayed an enormous, insatiable monster that was invariably
captioned "La Dueda"--"The Debt". Our
cousins in Latin America saw it coming first, but the dark side of the debt
nemesis will soon
be clear to everyone.
Because modern banking in the western world
is based on interest charges that create continuously
compounding debt, credit cannot continue
to
grow
indefinitely. At some point the excesses of malinvestment become so great
that the entire system collapses. This is what we are now witnessing: a banking
panic that is spreading uncontrollably as wave after wave of ugly
debt gets
destroyed
by margin calls and subsequent business failures.
Some economists are fixated on reading charted histories--and unrealistically
expect that by doing so that the can reliably predict future market moves.
(They can't do that any more than I could predict the
bends in the road ahead by keeping a chart of the preceding left and right
turns
of
my
car's steering wheel. My apologies for any offense to my friend The
Chartist Gnome, but you
are fooling yourself.) Although they are working from a flawed premise at
the micro level, the chartists do
have
some
things
right
on the macro
level:
There are major
economic "seasons" and even climate changes. The most vocal chartists
like Robert
Prechter hold to what is called the
Elliot
Wave Theory.
And
the big
bad
nasty
in this school of thought is a Kondratieff
Winter. This "K-Winter" is an economic depression phase that
the world has not fully experienced since the 1930s. An economic winter does
not end
until
after the
foundations
of industry
and consumer demand are rebuilt. This can be a painful process, often culminating
with war on a grand scale. (It was no coincidence that the Second World
of the early 1940s was an outgrowth of the Great Depression of the 1930s.)
The US Federal Reserve and the other central banks are furiously pumping liquidity
to the best of their ability, but in the long run they will not be successful.
At best, dumping billions in cash on the economy will delay a depression by
perhaps a year or two. But inevitably, a K-Winter depression will come.
And the longer that it is delayed,
then the worse the depression will be. Further inflating the debt bubble will
only make matters worse. I think that veteran market analyst Jim
Rogers had it right, in a recent interview.
Take a few minutes to watch that video. Jim Rogers sees the big picture. I
wouldn't be surprised to hear that he has gone off somewhere to hunker in a
bunker.
"Big Picture" Implications
As I've mentioned before, hedge funds are
presently most at risk in the unfolding liquidity crisis, because
they use lots of leverage in lending funds that they themselves have borrowed.
They borrow short and lend
lon, effectively use debt
compounded upon debt. Many,
many hedge
funds
will
be bankrupted
before
the end of 2008.
Even more alarming is the scale of global derivatives
trading, particularly for credit default swaps (CDS). Derivatives
are a relatively new phenomenon, so derivatives contract holders have
not yet experienced a major recession
or
a depression.
Thus,
it
is difficult
to predict
what will
happen
in a genuine K-Winter phase. In a perfect world, derivatives
are a nicely balanced mechanism, where there are parties and counterparties,
and
every
derivatives
contract equation balances out to have a neat "zero" at its
conclusion. But we don't live in a perfect world: Companies go bankrupt.
Contracts
get breached.
Counterparties disappear and disappoint. We have not ever experienced
a derivatives full scale "blow up", but I predict that when
it happens, it will be spectacular.
The scale
of
derivatives trading is monumental, and the vast majority of the population
is blissfully
ignorant
of both its scale and the implications of a derivatives crisis. There
are presently about $500 trillion of derivatives contracts in play. That
is many times the size of the gross product of the global economy,
but the average man on
he street
has no idea what is going on. It won't be until after the giant
derivatives casino implodes that the Generally Dumb Public (GDP) awakens
and asks, "What
the heck happened?" Since the credit market began to collapse last
summer, the number of new derivatives
contracts has dropped precipitously. But whether the aggregate derivative
market is $400 trillion versus $500 trillion, when a crisis occurs
there will
undoubtedly
be some very
deep drama.
The next decade will likely be characterized by successive waves of inflation
and deflation, and perhaps some
of both simultaneously, at different levels. Countless corporations, and
perhaps a few currencies or even whole governments will go under as this tumult
plays out. The current low interest rates will soon be replaced by double-digit
rates, much like we saw in the late1970s. The dollar will lose value in foreign
exchange, and may collapse completely. The Mother of All Bailouts (MOAB)
will result in mass
inflation.
The bull markets in silver and gold will surge ahead, propelled by economic
and currency instability.
(Investors
will
be
desperate
to find
a safe
haven,
when
currencies and equities are falling apart.)
Risk Mitigation
Be ready to "winter over" the coming K Winter depression. That will require:
1.) Prayer.
2.) Friends that you can count on (a "retreat group"). 3.) A deep
larder, and 4.) An effective
means of self defense with proper
training. (For each of those four factors, see the
hundreds of archived articles and letters at SurvivalBlog.com for details.)
Since large-scale layoffs
seem
likely, it would also be wise to have a
second income from
a recession-proof
home-based
business.
In the event of a "worst case" (grid
down) economic collapse,
it would be prudent to have a
self-sufficient retreat in a rural area that is well-removed from major
population centers. Get the majority of your funds out of
anything that is dollar-denominated, and into tangibles, as soon as possible.
The very
best tangible that you can buy is a
stout house on a piece
of productive farm land. It will not only preserve your wealth, but
living there may very well save your life.
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The Hedges Get Trimmed
Just as I warned the readers of SurvivalBlog many months ago, hedge funds
are vulnerable to
rapid swings
in
interest
rates.
(My first warning was even before
the pair of Bear Stearns hedge funds collapsed in the summer of 2007.) As
the global liquidity crisis has expanded, other hedge funds
have started to collapse en masse.
Here is an article is from England that is
indicative of what is happening globally. (This is a global collapse, because
again,
as I warned, the current liquidity crisis is global in scale.) Hedge
fund legends hit by financial crisis.
And here is an article from the American perspective: Debt Reckoning: U.S.
Receives a Margin Call
With leverage ratios that average 26-to-1, hedge funds are very vulnerable to
margin calls.
Check out this
video clip on the hit to the finance houses, and this
one on the plight of
the hedge
funds.
The
Insider told me he expects that the majority of
publicly-traded US hedge funds may be
out
of
business
by
the end of 2008. Seventy down, 6,850 to go.
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News from Wall Street and Capitol Hill--The Mother Of All Bailouts Begins to Grow
Last week, the mainstream media described the latest expansion
of the Mother of All Bailouts (MOAB),
but they politely refrained from calling this what it
is: socialism, plain and simple. The grand plan, as it stands now, is
to bail out not just consumer banks, but also investment banks, with taxpayer
dollars.
They are effectively making our life savings and our future earnings surety for
a
bunch of idiotic contrapreneurs'
loans on everything from flat top duplexes
to McMansions.
These
were
houses
that the contrapreneurs
bought,
that they could never
really afford unless the market continued to rise at an artificial rate.
They bought these houses with the intention of "flipping" them,
but then the
market topped out, and the "easy money" party ended.
At
least
those hated fascist dictators like Mussolini
had
the
common
sense
to
nationalize
viable,
productive
companies.
But now Ben Bernanke
is
busy
nationalizing a
slew of corporations with negative net worth. This is absolute lunacy!
Here
are
four
examples
of
the
mainstream's
view:
From The Washington Post: Fed
Leaders Ponder an Expanded Mission.
From The New York Times: Treasury
Dept. Seeks New U.S. Power to Keep Markets Stable
From Reuters: Treasury
regulatory overhaul plan "timely": Fed
And finally (with an ever-so-slightly more conservative view), this from Fox
News: Bush
Administration Proposes Sweeping Overhaul of Financial Regulation.
All of these calls for regulation, new government agencies, and greater scrutiny
might outwardly sound well-reasoned, but they ignore some inescapable underlying
problems: We have
a fiat currency
that is based
on debt, we have a banking system with fictional fractional reserves,
we have a derivatives
market that is a $500 trillion casino, and
we have a national treasury that is backed by wishful thinking--certainly not
by anything tangible.
The other key point that seems to have escaped the mainstream media is that
this new regulatory power is being handed to the Federal Reserve, which is
a private
banking cartel,
not a government agency. They are no more "Federal" than
the Federal Express parcel courier company. So this isn't just socialism.
This is nothing short of corporate-controlled
socialism--where a handful of banking corporations are given access to the
Federal tax coffers
to bail
out
other
institutions
and
then, even further, they are given sweeping regulatory powers. This
power grab is deemed "necessary" by circumstances that the Federal Reserve itself created!
Somewhere, somehow,
somebody stands to make a lot of money in this process. Cui bono?
I'll wager that it won't be the American taxpayers that benefit.
As economist
Mish Shedlock observes, this is like putting the
Fox in Charge of the Henhouse. Mish summed up the current mess succinctly:
"The biggest, most reckless credit experiment in history has started to implode.
It's far too late to stop a complete systemic collapse now. Granting new powers
to the agency most responsible for the mess simply does not make any sense."
Secrecy is another concern. In a recent e-mail, SurvivalBlog reader
KAF commented: "We should be greatly concerned about the fact that the
Federal Reserve has provided public release anonymity to the institutions who are taking
'30 day' never ending loans. We'll now never know if the institutions we
deal with are truly solvent and credible, This new"confidentiality" allows
the Fed. to manipulate reserves on a routine basis. We'll never know if this
country's Federal Reserve is or is not heading for bankruptcy
unless we use the tests of consumer spending and commodity pricing as indicators." She
hit the nail on the head. At the same time that the press is howling for "greater
transparency" in banking, and writing exposes of "predatory lending
practices",
the Powers That Be are drawing the veil of secrecy over lending institutions.
They'd rather treat us like mushrooms--keeping us in the dark and feeding us
barn waste--than risk a panic by letting the public know the real depth of the
liquidity
crisis and its collateral effects.
Instead of government platitudes, do you want some figures to chew
on? Look at this
Federal Reserve web page. The negative numbers at the bottom of the "Non-loaned
Reserves" column speak volumes. Without the newly-created Federal Reserve "emergency
lending
mechanisms",
many
banks would be absolutely bankrupt. As you can see, the bankers are swimming
in red ink. There is now a huge risk of bank runs, but this threat is being
ignored by the mainstream media. Mark my words: There are bank runs
coming.
The fact is that the global lending system is essentially broken. Artificially
lowering interest rates won't fix it, when bankers are afraid to lend.
As I've previously noted, the bankers are afraid to lend because so much re-packaging
and reshuffling
of
debt has gone on in the past seven years that nobody knows who owes
what to whom,
and precisely what assets are underlying these exotic debt "packages." Meanwhile,
the bankers have learned that the big insurance firms like Fitch, Moody's
and
S&P were in on the swindle. We now know that they colluded with their mortgage
firm buddies to inflate assets and
deflate
risks in
a
masterpiece
of legerdemain that would make Enron's accountants proud.
The bottom line is the the entire world economy is is in deep, deep trouble.
Without financing, the Big Machine is grinding to a halt. The
next few years will probably see the economy plunge into a deep recession,
if not a full blown
depression. The current headlines are just a foreshadowing of the
real crisis to come. The MOAB will grow and grow, eventually bailing out far
more than just
banks. There will be brokerage houses, insurance firms, S&Ls,
credit unions,
Fannie
Mae, and Freddie
Mac, and possibly even muni bonds
and pension funds are all lined up, ready to reach into our wallets.
Once the government starts down the slippery slope of bailout-socialism schemes,
they will perforce spread to more and more institutions. And, as I've
previously noted, the public
coffers will be insufficient to
cover
the
inestimable
costs of the MOAB. So this mean that Uncle Sam will monetize the difference.
They'll just create the needed "dollars" out of thin air. This will
be outrageously inflationary, at all levels.
All of this is not going unnoticed by European and Asian bankers. They can
see that the dollar is set for mass inflation, so they are dumping dollars
as fast as they can. It is no wonder that the US
Dollar Index has plummeted.
When I last checked, it took $1.58 to buy one Euro! The foreign bankers aren't
stupid. Upcoming auctions of US Treasury paper will languish with very few
takers. I predict that in less than a year, the Treasury yields will have to
be pumped
up substantially to attract enough bidders to get the needed financing to cover the budget deficit.
We could see double digit rates--a
la the
late 1970s--in the not too distant future.
All of these macro-level implications might seem fairly abstract, so let me
put them in real world terms and take the risk of extrapolating on some trends
that I've observed: There will be
a recession, and it will be deep, and long-lasting. A recession will mean
that there will be some big corporate layoffs. Be
ready. There
will be bank runs and banking "holidays". Be ready. There
will be huge flows of "bailout" funds that will effectively nationalize
many industries. Be ready. There will probably be
a stock market collapse. Be
ready. There will be a further collapse in residential real estate
that will make the recent declines seem small, by comparison. Be
ready. Credit delinquencies and foreclosures (on car loans, home loans,
credit card bills, etc.) will dramatically increase. Be ready. There
will be a collapse of the commercial real estate market.
Be ready. Even though the credit available for IPOs and
private mergers and acquisitions has dried
up, there
will
be news
of
some
large and
seemingly
inexplicable acquisitions in the near future, all sanctioned by and
in some cases, underwritten by, and even funded by,
the Federal government. Be
ready. There will be shortages of key
commodities including fuel and food. Be
ready. Strapped for cash, America's highway, rail, water, sewer, telecommunications,
and power infrastructures will degenerate. Be ready. There
will be mass inflation of the US Dollar that will devalue any dollar denominated investments. Be
ready.
And now, to further extrapolate, (with a lower level of confidence): All of
the aforementioned economic dislocation and surging inflation might trigger
mass protests, riots, looting, and arson in the cities. Be ready. There
may then be massive out-migration from the cities. Be ready. Wars
have been known to follow close on the heels of depressions and financial
crises, so there may be
a war, possibly big enough to require another draft. Be ready.
As I've written many times before, the real lynchpin to worry about is the
power grid. If the grid goes down, then all bets are off. Be vigilant,
be well-stocked with a deep larder, and be self-sufficient. Store
extra for charity. If you can afford to, establish a survival
retreat in a lightly-populated
region, and if possible, live there year-round.
« Odds 'n Sods: |Main| Note from JWR: »
The Nationalization of Wall Street, by John Ing
Federal Reserve Chairman Ben Bernanke once said: “By increasing the number
of U.S. dollars in circulation, or even by credibly threatening to do so, the
U.S. government can also reduce the value of a dollar in terms of goods and
services, which is equivalent to raising the prices in dollars of those goods
and services. We conclude that, under a paper money system, a determined government
can always generate higher spending and hence positive inflation.”
The Fed slashed short-term interest rates six times in six months to 2.25 per
cent from 5.25 per cent despite the U.S. Department of Labor reporting that
consumer prices had jumped 4.3 per cent at an annual rate in January -- the
biggest rise in two years. As a result, the Fed's benchmark overnight lending
rate is about half the rate of inflation and real interest rates are now negative.
The last time interest rates were negative, housing exploded; the housing bubble
grew larger stoked by Wall Street's alchemy of mortgage backed securities that
are at the heart of the unfolding crisis.
Bernanke, a student of the Great Depression, believes that policymakers and
politicians then were too slow in countering the downturn, letting the resulting
panic sink the economy. Bernanke is right about the foot-dragging almost eight
decades ago. But by slashing interest rates and lending hundreds of billions
to Wall Street today, he risks creating yet another bubble. Already, Bernanke
has orchestrated the biggest bailout since the Great Depression in the wake
of the collapse of the mortgage industry. Even oil, gold and other commodities
retreated rapidly from record highs as traders flattened positions in a desperate
deleveraging process. The greatest fear is the fear of the unknown. The current
financial crisis is due to the lack of confidence and trust because of uncertainty
about the extent and breadth of the potential financial losses.
Counterparty Defaults
The credit market simply lacks credit. The subprime woes have spilled over
into dislocations in the overall credit markets – from municipal debt,
to corporate debt, to derivatives. Fears of a default by a counterparty is
threatening the global financial system and is believed to be one of the reasons
behind JP Morgan Chase’s bid for Bear Stearns. Banks are hoarding and
have stopped lending since their thin capital base (and solvency) is at risk
while their customers such as hedge funds, private equity and Corporate America
are forced to deleverage and dump the assets – like those owned by Bear
Stearns – in a no bid market. Lower rates will not unblock this logjam.
Unfortunately, lower interest rates are not the answer in warding off this
financial market crisis. The source of America’s problems is not interest
rates. The problem is simply too much debt and too much leverage. A great unwinding
is the answer.
Despite the dramatic drop in rates, there are still no signs of a pick-up in
the credit markets. Trust has evaporated. Banks are desperately trying to dump
billions of leveraged securities in an illiquid market. To date Wall Street
has taken only $200 billion of writedowns but has only raised about $100 billion,
leaving a shortfall. The Fed has extended loans to the investment banks, taking
on some of their illiquid paper as collateral. After failing to offload these
to a naive public, the game of "slicing and dicing" risk and dispersing
this risk is over. Now, that risk has come back to haunt them. And any sale
becomes a new benchmark for these dubious assets, leading to more price cuts
and, of course, further fire sales and bigger losses. The markets have yet
to reprice risk.
The Tip of the Iceberg
In the credit binge, the risk-rating agencies became more like principals rather
than advisors and helped spread the poor quality of debt by rating risk highly.
Today, AAA ratings mean nothing. With the closing of America's capital market,
the big Wall Street icons such as Citicorp, Merrill Lynch and Morgan Stanley
were forced to rebuild their balance sheets with the help of foreign buyers
such as foreign sovereign wealth funds from Singapore to Kuwait. America's
growing reliance on foreigners for funding its deficits has become its Achilles
heel. Already there is a controversy over the growth of sovereign wealth funds
(SWF), which manage between $2.5 trillion and $3 trillion, and to date more
than $100 billion has bailed out Wall Street's biggest investment banks. But
the United States can't accept this money without conditions. In the past,
the Asian or Middle Eastern buyers bought trophy buildings, recycling their
excess dollars back into the United States. As of last summer, foreigners owned
$ 6 trillion or 66 per cent of the entire $9 trillion U.S. federal debt load.
In order to keep their currencies competitive, the Asian central banks and
the petro powers of the Middle East ploughed their reserves into U.S. treasuries.
This is great while it lasts, but as Asia booms and Wall Street declines, the
big buyers of treasuries are growing disenchanted with some of their earlier
purchases. No one likes to lose money and the Fed must somehow maintain the
trust of foreigners. China's near-Bear experience and the promise of more taxpayer-assisted
bailouts will certainly cause foreigners to think twice about investing in
the United States. Wall Street's problems seem to be chronic and the Chinese
are looking at huge losses in their foray into Wall Street. It will get worse.
We believe there will be less Asian money available to finance America’s
trade deficits, which requires over $2 billion a day of outside funds.
Wall Street's Margin Call
The party is over on Wall Street. Carlyle Capital Corp., the publicly traded
investment fund affiliated with the powerful Carlyle Group, defaulted on $22
billion of mortgage securities on a flimsy capital base of less than $1 billion.
That is 22 times leverage, exceeding the leverage of bankrupt Long Term Capital
Management LLC. And venerable Bear Stearns was sold for about one third per
cent of its value the previous week. With almost $100 billion of liabilities
against book value of less than $12 billion, the investment bank was forced
to close its doors at liquidation value. Bear Stearns was the key prime financer/broker
for America's biggest hedge funds and its demise threatens a domino-like counterparty
chain reaction that could spread throughout Wall Street.
Bear’s key role in the web of financial players and counterparty risk
emerged as a major reason for the Fed’s bailout. Ironically, it was last
summer’s collapse of two Bear hedge funds that sparked the upheaval in
the markets. Bear simply was hoist upon its own petard. Most troubling is that
all investment banks are similarly highly leveraged. Bear Stearns borrowed
$30 for every $1 of capital. Yet Morgan Stanley has leverage of 32 to 1, Merrill
Lynch 28:1, Lehman Bros. 32:1 and Goldman Sachs 26:1. Worse still, not even
the Sheriff of Wall Street is around to witness the unraveling.
That Wall Street cannot fund itself has forced its major players to borrow
massive amounts of money from the Federal Reserve. The Fed has even taken to
accepting dubious assets as collateral to alleviate the financial stress in
the markets, which in essence makes the Fed "the garbage collector of
last resort." The Fed created a growing $200 billion lifeline available
to lend treasuries in exchange for unmarketable triple-A mortgage-backed securities.
Bear Stearns was the first recipient of this largesse and already the Fed is
on the hook for more than $30 billion of Bear's obligations that JP Morgan
does not want. This is not a crisis in liquidity but one of solvency.
In our view, the Fed’s solution is simply the beginning of the de
facto nationalization of Wall Street. What’s particularly worrisome is that
the Fed has started on the slippery slope of taking on the credit risk and
liabilities of Wall Street, similar to the Bank of England’s bailout
of Northern Rock, which ended in the nationalization of that sorry institution.
The Bank of England’s nationalization of Britain’s largest mortgage
company cost taxpayers more than $200 billion. The sobering message, however,
is that it’s far from over. Inevitably, politicians and regulators are
pressured to prevent more problems, but there is no point in closing the barn
door after the horse has left.
With the shadow of the Thirties looming, the Fed's orchestration of events
since August, from the decision to give Wall Street access to the discount
window, to the acceptance of Wall Street's inventory as collateral, to the
cronyism of the Plunge Protection Team (PPT)
to the $30 billion backstop of unwanted securities to the Bear Stearns' rescue,
to the relaxation of rules
governing quasi-government bodies such as money losing Fannie Mae and Freddie
Mac, all points to a role beyond that of a lender of last resort. In absorbing
the liabilities of Wall Street, the Fed is simply piling on debt on more debt.
No nation, even the United States, can borrow forever without facing up to
economic consequences. And no one is too big to fail.
Just Who Will Bail Out The Fed?
The U.S. dollar is among the sickest currencies in the world, giving up 50
per cent of its value since 2002 because the United States is deep in the financial
hole. The gap between spending and revenue grows ever wider. Today, foreigners
are not so eager to help. The problem is that America is a debtor country and
dependent on foreigners to finance its chronic deficits requiring an inflow
of $800 billion from foreign investors each year to finance the country's deficits.
Not surprisingly, America's creditors are losing confidence in the country's
solvency. Americans spend too much and save too little. America's trade deficit
is at seven percent of GDP and the budgetary deficit - excluding supplement
spending for the war - is estimated at $400 billion. The Congressional Budget
Office (CBO) estimated the costs of the wars in Iraq and Afghanistan so far
at $600 billion and Congress is to approve another $275 billion. The CBO estimates
the war might eventually cost between $1 trillion and $2 trillion by 2017.
Meantime, consumer spending accounts for more than 70 per cent of the U.S.
economy, but household debt is now at 140 per cent of consumers of after-tax
income. Debt on debt is not good.
There is no question that the bursting of the housing bubble and the cost of
the inevitable breakdown of the financial system has created huge dangers for
the global financial system. The vortex already has dragged down institutions
in the United Kingdom, Switzerland and New York. The United States is on a
path similar to Japan’s deflation in 1990s. While the savings and loan
bailout cost U.S. taxpayers “only” $200 billion, this time the
potential cost of the biggest bailout in history is estimated at more than
$1.2 trillion or enough to wipe out half of the global banking sector’s
capital. We believe that fears that U.S. taxpayers face even bigger bailouts
to save Wall Street will further undermine confidence in the dollar, boosting
gold’s allure. Gold is a good thing to have as a barometer of investor
anxiety.
Previous crises such as the stock market meltdown in October 1987, the S&L crisis in the early the 90s and the Asian contagion in 1997 or the bursting
of the tech bubble in 2000 had a common denominator – too much money
chasing too few markets. Warren Buffett warned that derivatives today are the
new ticking time bomb. Derivatives exploded to a whopping $516 trillion by
2007, according to the Bank of International Settlements. Yet it is not the
size of the market that concerns us. It is the growing risk of counterparty
failure since the capital position of the global banking system supporting
the $500 trillion plus of derivatives is estimated at only $2 trillion, insufficient
to handle even one per cent of potential losses.
Stagflation Now?
In January, U.S. farm prices had an annualized 7.4 percent increase, the biggest
yearly gain in more than 26 years. Beset by credit woes, the U.S. economy appears
to be entering a period of low growth and high inflation, just like the stagflation
of the 1970s. Rising food and energy prices are sopping up what is left of
consumers' discretionary income. The bad news is that central banks appear
to be providing the very fuel that will stoke inflation even further. The Fed's
dramatic lowering of interest rates has not helped domestic demand. Instead,
it has simply sped up the flood of capital away from the United States. There
is tight productive capacity from potash to steel to coal while the only surplus
seems to be in cars and condos. Of concern is that the rise in commodity prices
is not cyclical but structural, with huge supply shortages.
Inflation is the monetary flavour of the week and the month. Inflation is rising,
pushed upwards by high oil, food and commodity prices. Short-term government
yields are at lows only because of the Fed's panic to prop up Wall Street
and long rates are actually rising. More important, inflation is on the rise
in France, Japan and Saudi Arabia. Meantime, in China it is at the highest
level in a decade.
The Fed is worried more about the risk of a financial meltdown than rising
inflation. This time, central banks have not only flooded the system with money
but also loosened financial regulations for highly leveraged mortgage giants
Freddie Mac and Fannie Mae. Prices, of course, are rising because there is
too much money being created. The root cause of inflation is money creation.
Sadly, for the central banks and the financial markets, inflation is the obvious
solution to U.S. indebtedness, allowing money to depreciate even faster. For
creditors, this is not a solution.
The potent combination of a slowdown, the cost of Wall Street's bailouts and
skyrocketing commodities has investors justifiably worried about a repeat of
1970s stagflation. In the 1970s, two oil embargos doubled the price of oil
to $50 a barrel. The oil shocks were accompanied by a surge in 'soft' commodities
after the anchovy fishery off the coast of Peru almost disappeared. The need
to replace the anchovies caused the Japanese to switch to soybeans, which caused
a spike in prices. Indeed, the jump in commodities crippled the global economy.
Costs went up and wages were raised to compensate for increased prices in a
classic case of cost-push inflation. In 1980, the U.S. inflation rate reached
13 per cent and wage and price controls were imposed when inflation hit 4 percent,
the identical level today. Gold rose from $35 an ounce to more than $850. Interest
rates soared to double digits when the government realized that it had to fight
inflation, Fed Chairman Paul Volcker arrived on the scene, eventually snuffing
out inflation by sending interest rates to the sky, which ended in a decade
of stagflation.
Today, we have similar ingredients in place, now only monetary policy is much
easier. The parallels are most ominous. Recently, M2 money supply increased
a whopping $35 billion a week as the Fed provided both expansive monetary and
fiscal stimulus. With inflation picking up, investors should know that the
current monetary inflation is not just an increase in the monetary base. It
is the leverage impact of this monetary inflation, which creates bubbles. As
in the 1970s, food prices have now risen by more than 75 percent from the lows
of 2000. Meantime, China's growth and poor weather has intensified demand,
cutting into supplies at the same time. Ironically, the spike in the oil price
has encouraged the conversion of grain to bio-fuels, helping to trigger a dramatic
increase in food prices. This is controversial because Americans are actually
subsidizing crops for fuel instead of for food; making it seem more important
to drive an SUV in the United States than it is to eat.
Moreover, the news could be even worse than we think because the government's
inflation statistics are skewed. For example, the 'core" inflation rate excludes
energy and food prices because of a desire to 'even out' spikes. Thus, we
are told inflation rose only 2.7 per cent on an annualized basis in February.
The elimination of food and energy has relegated inflation to the back pages,
making historic rate comparisons meaningless. The bottom line, however, is
that energy and food prices are increasing and the core rate is on the move.
The CPI rate is actually 4.3 per cent, the same level that spurred wage and
price controls on Aug. 15, 1971.
When The Swamp Drains, The Ugly Frogs Are Exposed
For us, there is a sense of déjà vu because the
Bernanke reflation is similar to Alan Greenspan keeping interest rates too
low for too long causing
the housing bubble and, ultimately, the credit bubble. Now both have burst
and we have Bernanke pumping yet again. To avoid a systemic banking crisis,
the Fed has opened the monetary flood gates. Investors are concerned about
credit conditions. If Wall Street firms continue to lose money at current rates,
they will find themselves below capital requirements in less than six months.
Bernanke and Wall Street appear to think that the solution is to reduce interest
rates. And yet by relaxing borrowing requirements, they are in fact leveraging
the system even more.
America's solution is to devalue its currency further and monetize this mountain
of debt by inflating its way out of the problems, just as it did in the 1970s.
And the emphasis on more bailouts has prompted investors to seek refuge in
'hard assets' such as gold and oil as a hedge against future inflation and
currency depreciation. That is why gold hit $1,000 an ounce.
The U.S. dollar has fallen to a new low against the euro while gold recorded
new highs. Further rate cuts by the Fed have the effect 'pushing on a string'
and to date has not ended the downward spiral in housing. The Fed has cut rates
by 300 basis points but long-term yields have actually gone up, not down, further
reflecting investors' concern that inflation is the next big problem. Mortgage
rates have actually gone up. After the subprime mess came the CDO mess.
Then the investment banks fell and now the hedge funds are falling. All are
subject
to capital constraints, and in the deleveraging process, Wall Street's inadequacies
are surfacing just as a draining swamp exposes its ugliest frogs.
The Bottom Line?
We believe the piling on of more debt to rescue the financial system and the
U.S. economy is unlikely to work in the face of a surge in inflation. Nor will
driving interest rates to the floor work since it will debase the dollar further.
Americans have become too dependent on foreigners, who have become increasingly
uncomfortable with their enormous dollar holdings.
Reflation has created a new commodity bubble. The other driver is the emergence
of China and India, coupled with supply constraints caused by sustained underinvestment.
The aging infrastructure of the commodities producers has not kept pace with
the new demand. Thus, there is a need for the market to return to balance.
Unfortunately, greater money supply will neither cause a fall in demand nor
significant increases in supply, so prices are expected to remain at elevated
levels for some time to come. In mining, for example, it will take at least
five years before any new discoveries come on stream. In addition, power shortages
in South Africa have led the mining industry to both curtail expansion and
current production. Consequently, there will continue to be waves of consolidation
as the bigger mining companies look to economies of scale. Gold is a good commodity
to own.
What Do We Need?
Needed is the recapitalization and restructuring of Wall Street, which is bloated
from a decade of financial innovation. Needed is the repricing of risk. Needed
is a new way for the rating agencies to rate risk, in that they cannot be principals
but truly arms-length advisors. Needed is a restoration of faith in the U.S.
dollar, which requires a fundamental change of policy in the current and next
U.S. administrations. Needed is a boost in the U.S. savings rate, which now
sits at zero. Needed is a reduction in the twin U.S. deficits. Needed is more
candour from officials and policymakers. Needed is a deleveraging process.
Needed is for the Fed to allow the investment banks to take their losses, support
those in need of liquidity, but not assume those losses. While prices will
undoubtedly go lower, investors are really looking at a repricing of risk.
The markdowns are needed as a discipline. Needed is a change in the accounting
rules to reflect mark-to-market losses and the impact on the investment banks'
capital. Needed is a reversal of the accounting rules that allowed the banks
to leverage up and instead put an emphasis on capital building rather than
leverage. Needed are the changes in the impact of securitization that converted
illiquid debt into new instruments. Needed is a change in accounting rules
for off-balance sheet vehicles.
The United States must also address its continuing problem of too much consumption
and its reliance on debt. America’s credit woes come at a time when the
rest of world is no longer willing to finance its current account deficits.
After a quarter century of wealth creation, Americans have no choice but to
work harder, tighten their belts, retire later and save more.
The economic downturn has paved the way for a new sheriff in town. Among the
Democrats, one of them is an inspiring orator but both offer no solutions other
than hope. Both want a government to spend more, abrogate trade agreements,
bail out its institutions and use more government intervention. For a time,
Americans enjoyed a free ride on the stock market and housing market. Now they
need a leader to solve the country’s problems in new ways, not old ones.
And Finally, Needed is a Role For Gold
Gold cannot be created like fiat currencies or be printed like dollars. At
one time, the pound sterling was the world’s reserve currency. It, too,
failed. The monetary order is changing again and the dollar as a reserve currency
is losing value and influence. In our view, a basket based on gold’s
value will go a long way to restore needed liquidity in the markets. Gold is
simply the new old currency. Gold hit $1,000 an ounce because the world has
been losing confidence in the dollars issued by the Fed.
Gold reached new highs amid tight supply/demand fundamentals, U.S. dollar weakness,
investment buying and, equally important, the lack of faith in dollar assets.
Gold has doubled in euro and yen terms since 2005. Investor demand is at a
record, led by China, which has consumed more gold than India and United States
combined. Meantime, supplies have been constrained as South Africa, the second
largest producer, has curtailed its production due to a lack of power. China
holds only about 600 tons or less than one per cent of its total reserves in
gold. With reserves of $1.7 trillion, China will inevitably diversify part
of those holdings into gold.
But most important, gold is a global currency that will become the “go
to” asset class as the foundation for the global currency system falters
due to the protracted credit crisis. Gold will go higher as long as America’s
solution to its debt crisis is to pile more debt upon debt, further debasing
the dollar. America will, in effect, default on its obligations, either through
currency debasement or inflation. Gold has no counterparty risk and no risk
of default. This bull market has just begun. We see gold more than doubling
to $2,500 an ounce. Gold is the ultimate “currency” and the inevitable
store of value and medium of exchange. When George W. Bush was sworn in as
president, gold was at $265 an ounce. This month, gold traded at $1,030 an
ounce. In essence, the U.S. dollar has been devalued by more than 100 per cent
in almost eight years of his presidency. Will the next president do any better?
JWR Adds: For the second half of this article, including
John Ing's specific investing recommendations, see
Gold-Eagle.com
« Odds 'n Sods: |Main| Letter Re: Deep Family Roots Versus "Ideal Location" When Considering Relocation »
Two Letters Re: Some Offshore Retreat Considerations, by P. Traveler
James,
I see a lot of letters concerning 're-locating' out of
the U.S. What are these people thinking? If there is one country
that still has a modicum of privacy, freedom, and the ability to 'disappear'
into
the wilderness, then
it is here
in the U.S. Where in the world can you own the variety and quantity of
firearms than here? [Where else can you] stockpile food, go off the grid
et cetera?
The legal system is still intact
here
as well, so
you can win in court under most circumstances. I just cant
figure Americans willing to give up this uniquely free country for some Third
World gamble in
some distant land completely removed from family, friends, heritage and
culture. It boggles the mind. - Jason in N. Idaho
Jim,
I read with interest the article "Some Offshore Retreat Considerations", by
P. Traveler. There was much of value in the article. I hope I can add some
information for your readers. My circumstances are that I work and live in
a South East
Asian
country for an International NGO.
My background is prior military (paratrooper), Police and Prison service, followed
by working as an NGO security officer in
Bosnia and Sudan before taking my current post. I have a degree in Risk, Crisis
and Disaster Management.
I am also married to a local woman which impacts my survival planning. In
Asia you don't just marry a wife. You marry the entire extended
family which
brings some strengths and weaknesses.
Personally I am in the Jerry Pournelle school of survivalism: Prepared for,
but trying to prevent TEOTWAWKI. See [Pournelle's] Foreword to the first edition
of "Tappan
on Survival" which says, in part:
"'[Mel Tappan] saw civilization as hopelessly doomed. Collapse was inevitable,
and the only prudent thing to do was to be prepared for it. I didn't agree
then, and I don't now. I think civilization can be saved. Can be. But I won't
guarantee
it. Be Prepared is a pretty good motto for anybody,
scouts or anyone else. And of course there are times when I think Mel was right."
As Pournelle says, being prepared is a good and necessary thing. I would not
call myself a retreater. That implies running away.
Quoting
from Pournelle again:
"There's only one problem: I don't want to move. I like living in cities. The
word 'civilized' originally meant those who can–and do–live in
cities, and I happen to care a lot for my civilization. When challenged, I
can make a reasoned defense of city life, but I shouldn't have to. I like it
here. I don't intend to let the barbarians chase me out, and there's an end
to the discussion!"
I have been following survivalism since I read the book 'Starman's Son' by
Andre Norton. I did the usual bush survival stuff. I read Larry Dean Olson,
Mel Tappan, Dr. Bruce Clayton, Soldier of Fortune [magazine] and American
Survival Guide
[magazine]. I always had my bugout bag and stores so I could go about my duties
in law enforcement without having to worry about the home front. I note that
since
the 1980's the world has been collapsing so plan for things to go right as
well as for things to go wrong. I am alarmed by people (especially on the Peak
Oil sites) who tell young people not to go to college because the world is
doomed anyway. If I had followed that advice I would be unemployed instead
of working in interesting countries around the world. Just study something
that is useful in both a collapse situation and in good times.
In Asia the survival unit is the extended family. I am particularly fortunate
that the family I have married into is reasonably well educated but still has
[native] survival skills. My wife's parents survived a period of auto-genocide
despite the fact that my father in law had served on the opposing side during
the war.
It was family connections that kept him alive. My wife and her older brothers
and sisters still know how to live off the land and farm. The younger ones
are more of a concern and would have a more difficult time adjusting to a survival
situation. They tend to be more interested in mobile phones and karaoke. Having
said that, the bulk of the family accepts my arguments for survival precautions
and things like food storage. The younger ones think I am a strange foreigner
but the parents get it because they have lived survival. In a crisis the young
ones still do what their parents tell them!
If you have family (or marry into one) it is almost certainly a bonus.
A few tips you might want to consider.
* In developing countries the medical care is not great. Consider doing a Wilderness
EMT [W-EMT] First Responder course before you depart. The training will not be
available
locally.
* Get skills. They cannot take skills away. People have survived extreme situations
with next to nothing.
* Asia is a great place to learn martial arts! [Although there are equally effective
trainers in the US, Canada, Australasia and Europe. Still it is kind of fun training
in Asia for someone who grew up watching 'Kung Fu' on TV.]
* Get mentally prepared. I would share with your readers the view that religious
belief is important. Unlike most of your readers I am a Buddhist, as is my wife.
But I follow the warrior
view of Buddhism--not aging hippy pacifism which I believe
to be immoral (and not really Buddhist).
* Study how the indigenous people survived and how any guerrilla groups operated
in the country. If coming to Asia there are some jungle survival schools. (Web
search engines
are your friend!)
* If coming to Asia read some books about how non-Asians functioned behind the
lines [during World War II] against the Japanese such as the Coast Watchers and
the OSS/SOE.
'The
Jungle
is Neutral' By F. Spencer Chapman is a good book to start with.
* The book "The Sovereign Individual" by William Rees-Mogg and Basil Davidson
has
some
strategies for protecting your wealth when overseas.
* Enjoy life. Take precautions, learn defensive skills, medical skills,and so
forth.
But try not to get a bunker mentality.
* Learn about urban permaculture and food production.
* When researching a country you might want to look at some books about Country
Risk such as the 'The J Curve' and spend some time
looking around the Carlton University site 'Country
Indicators for Foreign Policy'
* Finally, while aimed at NGO security personnel, there are some good resources
for people living in developing countries at this
web site.
Regards, - Felix D.
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Letter Re: Advice on Gold and Silver Coins as a US Dollar Inflation Hedge
Jim,
You recommended that I use Swiss America for some gold purchases, which I did.
What
would you recommend for bartering purposes exactly, as far as gold and precious
metals are concerned? I'm confused by all the "collectors" coins and
such which are more expensive. Do you have any specific types of coins that you
think would be ideal for trading? I purchased some collector 1 ounce coins for
their
easy-liquidation (and no tax paper trail on gains) as a hedge against inflation,
but I'm looking to get some good barter gold for long-term post-SHTF security
(especially now that gold is correcting a little)! Thanks, - Rob A.
JWR Replies: First, I must re-iterate: Get your food storage,
water filtration, non-hybrid gardening seed, defensive firearms, and other
key logistics squared away before you consider investing
any extra funds in precious metals.
As I've written before in both
my novel ("Patriots")
and in this blog, I consider gold coins too compact a store of wealth to
be practical for barter in a post-collapse economy. Circulated pre-1965 mint
date US dimes and quarters are both more widely
recognized and a more realistic unit of value for day-to-day
barter. The current silver-to-gold value ratio is around 54 to 1 (It presently
takes 54 ounces of silver to buy one ounce of gold). So there are very
few barter transactions
for which even 1/10th-ounce gold coins would be appropriate.
So I recommend that you budget first for one full $1,000 face value bag of
pre-'65 "junk" silver
coins for each family member. After you have that in hand, then you might
consider buying some 1/2 ounce or 1 ounce gold coins
as a long
term inflation hedge.
While your silver coins will be useful for barter, the gold
coins would be your long term store of wealth, designed to parlay back into
tangibles (or perhaps a new specie-backed redeemable currency) on the
far side of an economic crisis. As I've written before, I think that
the risk of another
Federal gold confiscation--like that in the 1930s--is low,
so there is no need to buy numismatic
coins. Instead, buy low dealer premium Krugerrands, American Eagles, or Canadian
Maples Leafs.
« Odds 'n Sods: |Main| Letter Re: Which .22 Ammo to Store--High Velocity or Subsonic? »
Letter Re: Forever Postage Stamps as an Inflation Hedge
Jim,
I read the piece about the Forever stamps. Not a bad idea if you mail
things. But why pay face value? Stamp collectors often purchase large quantities
of stamps looking for a one or two particular stamp. Usually they sell off
the remaining stamps at less
than face value. Also, many stamp collectors invested in full sheets of Stamps
issued in the 1950s and 1960s, thinking full sheets would appreciate in
value (They didn't.) These sheets and other bulk postage can often be found
selling
at 50% to 90% of face value on eBay.
So, if your readers need a boatload of stamps, and send regular mail often,
this may save them some money. Also, I think this is obvious, but remember
to factor in shipping as part of total cost. - Bill
« Odds 'n Sods: |Main| Four Letters Re: Use of Force in Retreat Security--Planning for Rules of Engagement »
Letter Re: A Machine That Sorts Pennies by Composition
Mr. Rawles,
With a 70 pound weight limit, [USPS] Flat Rate [Priority Mail] boxes can be
a fantastic deal, especially for small heavy items, as you mentioned. Up
until
this month,
the two sizes available were
11" x 8.5" x 5.5" and
13.625" x 11.875" x 3.375". They cost $8.95 to send anywhere
in the U.S.A. Now there is a third alternative, a larger 12” x 12” x
5-1/2” box that costs $12.95 to send (or $10.95 to an APO/FPO address).
This is a real bargain.
I recently shipped a large quantity of these from Arizona to Alaska. Most
of them contained quite heavy items, such as reloading lead, hand tools, and
rocks.
These boxes would have cost up to $50.00 each at regular parcel post rates.
The automatic handling equipment evidently knocks the boxes around. Heavy
boxes get beat up a lot more than light boxes. If you ship a heavy box, it
should
be taped securely as you mentioned. It's a good idea to tape all edges, and
to wrap strapping tape around it in at least two directions.[JWR Adds: Be
sure to cover any strapping tape with a couple of layers of opaque tape or
Priority
Mail tape, since strapping tape is discouraged by the USPS, for fear that it
might gum up their automated parcel handling equipment.] You can ask the clerk
to mark it "heavy" and
sometimes they'll run it through their
strapping machine.
Incidentally, you can buy postage for Flat Rate Boxes online and just estimate
the weight since you aren't paying by weight anyway. Then you can have the
carrier pick it up
at your house. - K.L. - Alaska
« Odds 'n Sods: |Main| Letter Re: "Ark" Storage Food Buckets as Sam's Club (and formerly at COSTCO) »
Letter Re: A Machine That Sorts Pennies by Composition
Sir:
Referring to your comment about sorting pennies in your
post about nickels: "At present, sorting pennies simply isn't worth
your time. Although I suppose that
if someone
were
to invent an automated density-measuring penny sorting machine, he could make
a fortune. As background: The pre-1983 pennies presently have a base metal
value of about $0.0226 each.) Starting in 1983, the mint switched to 97.5%
zinc pennies that are just flashed with copper. Those presently have a base
metal value of about $0.0071 each."
A penny sorting machine has been
developed by a member of the Gold Is Money information community. He
goes by the name Ryedale. This machine automatically
sorts the pennies into two piles according to composition. [It sorts
out the earlier pre-1982 [95%] copper pennies from the newer copper-flashed
zinc pennies.] It is exceedingly accurate and
the cost isn’t
too bad. It can process 3000 pennies in 10 minutes.
There is also another machine out there than can do hundreds of thousands of
pennies at a time (from giant hoppers) in a very short span of time, but it
is a commercial machine and costs about $10,000 apiece. Contact another member
of Gold Is Money (member name SLV) if interested in learning more. -
Ramsey
JWR Replies: Unfortunately, it is presently illegal to melt
pennies for scrap. But I suspect that now that it has been more than 25 years
since they were last minted, the restriction on melting copper pennies might
be lifted.
Even with pre-1982 pennies now
worth nearly 2.4 cents,
it is still not very economical to launch a business sorting and re-selling
pennies. Just to pay
for the cost
of
a coin sorting machine, you would have to sort out and sell more than 1,800
rolls of all copper pennies. Once the value of the dollar drops to the pont
that
pennies
are worth more than four times their face value, then this might become
a profitable venture for someone with a good strong back and plenty
of secure storage space. Keep in mind that just one $50 bag of copper pennies
(5,000 pieces)
weighs just a hair over 34 pounds. A $50 bag of the newer debased zinc pennies
weighs just over 30 pounds. Ideally, someone could take advantage of the
US Mail's
"Flat
Rate Box" available for
Priority
Mail.
These
have no
weight limit! So it is conceivable that someone could use sturdy
canvas bags inside these boxes
