Friday, November 7, 2008

Market Cap

A snapshot of stock market values and capital infusions:

So, almost 25% of this group's market cap is the govenment's bucks...........


Jack Napier. said...

hey, i heard peter schiff say that once the dollar is debased, we could see silver at $100/oz. perhaps $200/oz. or -more- after the disastrous Obama presidency...what are your thoughts on the metals market?

Anonymous said...

That's a sexy chart.

MK said...

The USD is definitley in trouble. With a national debt of over $10 trillion and what I estimate to be a $750 billion - $1 trillion federal budget deficit for fiscal 2009, the printing presses will be running 24 hours a day. Not to mention the municipal financial difficulties of states like California, New York, Colorado..... So from that perspective, precious metals should be in your portfolio. There are those who will point to the drop in crude oil prices and a slow down in comsumer activity as reasons not to buy inflation hedges. However, always remember that "inflation is always and everywhere a monetary phenomenon." The USD is a fiat based currency, therefore the only worth it has is its own scarcity value. An increased supply of USD can exist while prices fall if the money lenders choose not to be active.

As far as silver, it is now trading at its lowest ratio to gold since 2003. Since silver has more industrial uses than gold, the economic slow down has put pressure on the price. My best guess is that gold will retest recent highs in 2009 and proceed to the $1,100 range. If silver settles in to a more normalized ratio of 1/65, it should trade at around $17.00: unless there is a total collapse of the current fractional reserve banking system, I could not envision silver above $25.00

Keep an eye on:

JPM the larget player in gold derviatives (OCC quarterly report)

Hedge funds have been major sellers of gold due to redemptions and margin calls

krist said...

mk, thanks for your words on the metals market. am i foolish to have bought about $1,600 of silver eagles from the mint (before they ceased all orders)?

i feel now that i should've bought $1,600 worth of gold. however, i think gold might sink a little bit more before exploding back to 2008 highs of, as you say, $1,100+/oz.

do you feel the bailout was done essentially to stop this "total breakdown" of the fractional reserve system - at least for the biggest players (morgan, etc)?

MK said...

As far as buying silver coins, I think that you made a good decision. You have purchased great insurance for a terrible currency. You should see silver recover a bit, relative to gold, as the markets get a sense of just how much the world economies slow.

The bail out question is straight-forward, yes. The political / legislative framework is seemingly designed to save financial institutions at the expense of the taxpayer. All of the rescues are financed by U.S. debt issuance (even the Federal Reserve orchestrated actions via the SFP) and the FDIC is a joke. No consumer would buy a policy from such an undercapitalized insurance company. But since the backstop is the U.S. Treasury (that is the TAXPAYER because they always borrow), the FDIC gets away with charging banks low premiums and conducting insufficient oversight. Usually, the result of a bankruptcy or restructuring is that equityholders are wiped out and debtholders wind up the new owners. In many of these cases, the debtholders still own debt and the goverenment (taxpayers) are stuck with owning these awful companies. Lucky us.