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 Market Update 7-12
by Edgar J. Steele

September 7, 2007  

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My name is Edgar J. Steele.

With a little over an hour to go here on a key Friday morning, the dollar seems likely to close under 80.0 and gold to close above $700 per ounce.  If "they" allow this to happen, then they acknowledge the inevitability of no interest rate increases (and, perhaps, a decrease on the 18th) and their acceptance of the now-inevitable hyperinflation created by the incredible, ongoing and mushrooming bailout of their financial buddies.  We can expect to see the dollar ratchet down to oblivion eventually, of course, as we mere mortals pay to save their golden asses.

Gold still is outperforming silver strongly just lately.  I still don't know why silver got taken down so badly last month.  Silver is more volatile than gold, generally, but not this much.  They might be hitting it extra hard because of all the Internet talk about silver (wouldn't take much to do that). I think they are about to give up the 80.0 dollar, weakly defend 79.0, then fight tooth and nail for 78.0, which will benefit all PMs. When metals take off again, I expect silver to lead. I also expect the dollar , at best, to be 65.0 in a year.  Once 60 is breached, the end is in sight.

It seems clear now that they intend to levitate the stock market as long as possible (else, the derivative dominoes fall even faster than is taking place at the moment), in a foredoomed attempt to stave off worldwide Depression II.  That means mining stocks currently might not be as big a risk as when I thought the market might outright crash.  It may still do so, mind you, but it seems more likely to me now that it will "crash upward," with the value of the dollar declining much faster than any market increases.  There is more volatility in mining shares, of course, but that is why I would call their purchase a pure speculation.

The risk inherent to paper metal in the form of ETFs like SLV and GLD is about all I am willing to tolerate, here on the verge of WWIII - and then only for a minority position vis-a-vis physical, at that.  Best to dump even your ETFs, though, and go full physical at this point. I have come to the firm belief that PM ETFs are doing fractional-reserve share sales, such that the last few (many?) ETF shareholders out the door will be handed only Old Maid cards to carry home. 

You say your brokerage and banking accounts are insured?  Insurance companies are heavy holders of derivatives and will fail, too.  Insurance of financial accounts will mean nothing in the coming financial apocalypse, not even the FDIC, which holds assets totalling only about 1% of all active deposits out there ("assets, notice" - guess what they are, too).

There even are stories emerging of PM seller/custodians, who claim to specifically allocate and physically segregate your PM purchases via serial numbers, being unable to produce specifically-owned bars when pressed; instead providing substitutes.  That suggests fractional-reserve thinking concerning what is supposed to be the most secure way to possess metals outside of (in my case) the super-secure vault of a buddy in the next town who happens to be a deputy sheriff, too.  For those who don't know, unless you have specific segregation and identification of the precious metals you buy and pay a seller/custodian to hold - if that PM seller goes under, you become a mere general creditor (like a shareholder in a dry cleaning business versus someone with a suit held there when the doors close), likely collecting nothing when the dust clears while the suit owner gets his clothing back.

Remember your priorities:  Location safety, food and water security, physical protection (things that bark and go bang) and then, and only then, any of this financial hooha.

-ed

Copyright 2007, Edgar J. Steele

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