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Started By
Message
re: Physical silver
Posted on 3/20/14 at 10:42 pm to LSURussian
Posted on 3/20/14 at 10:42 pm to LSURussian
Well. They can sell assets or raise interest rates. Neither are going to be as effective since the private sector delevered, and the Fed actually owns much less assets than most might think.
I'll post more tomorrow, but basically I think the Fed. Is finding out it's not as simple as it used to be. One of the reasons they will likely do FARP. Short term liquidity trap in some ways.
I'll post more tomorrow, but basically I think the Fed. Is finding out it's not as simple as it used to be. One of the reasons they will likely do FARP. Short term liquidity trap in some ways.
1
Posted on 3/21/14 at 12:06 pm to Iowa Golfer
quote:Selling assets (bonds) raises interest rates. That's why they would sell the bonds. It puts more sellers into the market and for the market to adjust to more sellers, bond prices would have to be decreased, which means rates increase.
They can sell assets or raise interest rates. Neither are going to be as effective since the private sector delevered, and the Fed actually owns much less assets than most might think.
But that's not the only option to sopping up liquidity the Fed has.
It can simply allow bonds it holds in its portfolio to mature without replacing them.
Or, the Fed can do what it has already been doing for several months now to test the market and that is increasing its reverse repurchase agreements position. That temporarily removes liquidity without measurably affecting short term interest rates.
Using reverse repos the Fed also allows banks to start modeling and projecting their required reserves positions after years of having excess reserves.
Posted on 3/21/14 at 12:22 pm to LSURussian
Posted on 3/21/14 at 12:25 pm to Iowa Golfer
I can only read the first page of the article you linked without signing up so I can only go by what's on its first page.
It has nothing that contradicts what I wrote above.
It has nothing that contradicts what I wrote above.
Posted on 3/21/14 at 1:59 pm to LSURussian
Except, unless I misunderstand, you think it won't be complicated to unwind. I think it will, and so do a lot of other people smarter than me.
Time will tell. Actually, I think a case can be made that time has already told.
The Fed had a chance to stop buying as many MBS when demand was down with no impact to their net buys. They didn't do this. And refused to answer any questions about it.
Why was that? If the were going to start, why the delay? Especially since demand for mortgages was down and buying less mbs wouldn't have had one bit of impact. Obviously they acted like this with no thought, because it's a pretty simple task that faces them. No balancing act needed by them at all.
As I told the other banker on here, I sit on the board of a community bank. The FOMC asks us all the time for input. They do this by region.
We just disagree here. I don't think what they face is simple.
Time will tell. Actually, I think a case can be made that time has already told.
The Fed had a chance to stop buying as many MBS when demand was down with no impact to their net buys. They didn't do this. And refused to answer any questions about it.
Why was that? If the were going to start, why the delay? Especially since demand for mortgages was down and buying less mbs wouldn't have had one bit of impact. Obviously they acted like this with no thought, because it's a pretty simple task that faces them. No balancing act needed by them at all.
As I told the other banker on here, I sit on the board of a community bank. The FOMC asks us all the time for input. They do this by region.
We just disagree here. I don't think what they face is simple.
This post was edited on 3/21/14 at 2:01 pm
Posted on 3/21/14 at 4:33 pm to Iowa Golfer
quote:It won't be complicated. It's already started. What calamity has struck because it's already started?
you think it won't be complicated to unwind. I think it will, and so do a lot of other people smarter than me.
quote:I don't think you understand how much importance the Fed places on its credibility. If it announces to the market it is going to buy $X amount of MBS and then buys $(X-Y) amount, it loses credibility. THAT would concern the market. Who would know when the Fed would not keep its commitment the next time on any issue?
If the were going to start, why the delay?
The Fed has announced it will continue to decrease the bond purchases by $10 billion each time they meet and that is exactly what the Fed has been doing.
quote:Okay. We disagree.
I don't think what they face is simple.
Posted on 3/23/14 at 8:55 am to Lsut81
quote:It better hurry up. 14 year chart below. A sound investment for my great, great, great, great grandchildren.
specially the price gets to $200 like some predict,
Posted on 3/23/14 at 11:18 am to tigerpawl
Please post chart of overall stock market from 2000-2014 for perspective and context.
Posted on 3/24/14 at 11:22 am to LSURussian
quote:
I can only read the first page of the article you linked without signing up so I can only go by what's on its first page.
I have a seeking alpha membership. I get a lot of good info from that site, and their alerts on stocks I already own and or watching are prompt and informational.
It's a good site...
Posted on 3/24/14 at 8:36 pm to Clyde Tipton
Here is the entire article in case the two bankers on here are interested. I have some minor disagreements, but I find it pretty well thought out.
The Great Unwind - How Is It All Going To End?
Oct. 21, 2013 10:03 PM ET | 128 comments |
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
While one of the victims of the budget fiasco has been the tapering of QE, it is no secret that sooner or later the Fed (and some other central banks) will slow, then stop, and then perhaps even unwind some of the asset purchases they have embarked on under the heading of QE.
Monetary policy
Central banks normally try to soften the business cycle by spurring or limiting credit creation. They do this by controlling the price and quantity of bank reserves, which makes the availability and price for funding bank lending cheaper or more expensive. Banks keep reserves to cover withdrawals and loans.
Banks have two sources for reserves, the Fed and other banks. They borrow reserves from other banks via the money market and the price they pay is the Federal Funds rate. The Fed normally has, by setting the discount rate and by purchasing or selling short-term assets, a firm grip on the Federal Funds rate.
If the economy threatens to overheat, the Fed tightens policy by raising the discount rate and/or selling short-term assets in the money market, which raises the Fed Funds rate. When the economy is in a slump, it does the opposite, in order to stimulate bank lending, and hence interest sensitive spending.
Liquidity trap
Since the present economic predicament isn't your garden variety business cycle downturn, but a crisis caused by private sector deleveraging (paying off debt) as a result of the financial and housing crisis, this route to stimulate demand has reached the end of the road, otherwise known as a liquidity trap.
But in order to get short-term interest rates low to stimulate lending, the Fed has flooded the banking system to such an extent that short-term interest rates are essentially zero. These excess reserves are just sitting in banks' balances at the Fed, earning 0.25% interest, instead of funding new bank lending.
The Great Unwind - How Is It All Going To End?
Oct. 21, 2013 10:03 PM ET | 128 comments |
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
While one of the victims of the budget fiasco has been the tapering of QE, it is no secret that sooner or later the Fed (and some other central banks) will slow, then stop, and then perhaps even unwind some of the asset purchases they have embarked on under the heading of QE.
Monetary policy
Central banks normally try to soften the business cycle by spurring or limiting credit creation. They do this by controlling the price and quantity of bank reserves, which makes the availability and price for funding bank lending cheaper or more expensive. Banks keep reserves to cover withdrawals and loans.
Banks have two sources for reserves, the Fed and other banks. They borrow reserves from other banks via the money market and the price they pay is the Federal Funds rate. The Fed normally has, by setting the discount rate and by purchasing or selling short-term assets, a firm grip on the Federal Funds rate.
If the economy threatens to overheat, the Fed tightens policy by raising the discount rate and/or selling short-term assets in the money market, which raises the Fed Funds rate. When the economy is in a slump, it does the opposite, in order to stimulate bank lending, and hence interest sensitive spending.
Liquidity trap
Since the present economic predicament isn't your garden variety business cycle downturn, but a crisis caused by private sector deleveraging (paying off debt) as a result of the financial and housing crisis, this route to stimulate demand has reached the end of the road, otherwise known as a liquidity trap.
But in order to get short-term interest rates low to stimulate lending, the Fed has flooded the banking system to such an extent that short-term interest rates are essentially zero. These excess reserves are just sitting in banks' balances at the Fed, earning 0.25% interest, instead of funding new bank lending.
Posted on 3/24/14 at 8:36 pm to Iowa Golfer
So "normal" monetary policy doesn't really work; all those bank reserves aren't funding new bank lending. Why? Well, it's a bit of a collective action problem. Households are repairing their balance sheets, so they're inclined to pay off debt, rather than take on new debt.
As a result, they cut back spending, which greatly worsened the economic crisis post 2008. Firms are not very inclined to take on much new borrowing either, as they're sitting on stacks of cash and excess production capacity, the latter the result of households cutting back spending.
What is QE?
QE (quantitative easing) is basically a policy option that central banks use when their normal tools (rudimentarily described above) have reached a limit. Instead of buying short-term assets to get the Federal Funds rate down, the Fed buys long-term assets (government bonds, mortgage backed securities, etc.) to influence the long-term interest rate. The mechanics aren't that different.
Is QE effective?
If normal monetary policy isn't effective because of a deleveraging private sector, why would QE be any different? Indeed, most of the evidence (see here, here, here, here and especially here) show a rather limited impact of QE on long-term interest rates, although there are those, like Peter Schiff, who argue that QE is the only thing that keeps the economy (and the markets) from collapsing.
The predictions of Schiff and others haven't yet materialized, but people like Schiff argue that this is only postponement and the markets and the economy will inevitably collapse, and therefore that the Fed is basically a prisoner of its own policy.
As a result, they cut back spending, which greatly worsened the economic crisis post 2008. Firms are not very inclined to take on much new borrowing either, as they're sitting on stacks of cash and excess production capacity, the latter the result of households cutting back spending.
What is QE?
QE (quantitative easing) is basically a policy option that central banks use when their normal tools (rudimentarily described above) have reached a limit. Instead of buying short-term assets to get the Federal Funds rate down, the Fed buys long-term assets (government bonds, mortgage backed securities, etc.) to influence the long-term interest rate. The mechanics aren't that different.
Is QE effective?
If normal monetary policy isn't effective because of a deleveraging private sector, why would QE be any different? Indeed, most of the evidence (see here, here, here, here and especially here) show a rather limited impact of QE on long-term interest rates, although there are those, like Peter Schiff, who argue that QE is the only thing that keeps the economy (and the markets) from collapsing.
The predictions of Schiff and others haven't yet materialized, but people like Schiff argue that this is only postponement and the markets and the economy will inevitably collapse, and therefore that the Fed is basically a prisoner of its own policy.
Posted on 3/24/14 at 8:36 pm to Iowa Golfer
However, it is true that talk of tapering might have been an important reason for rising bond yields. However, bond yields could also have risen in response to an improving outlook for the economy. In fact, it's extremely hard to distinguish these two, as they are heavily correlated. An improving economy is reason for the Fed to decrease asset purchases.
Helicopter money
We have another gripe with QE. It either ends up as excess bank reserves or seeps through into the financial markets. Neither way is it likely to be very effective in providing the economy with escape velocity. Why use such ineffective and cumbersome policy instruments when there is an alternative?
It would have been much better to insert it directly into the veins of the economy, by directly financing public investments.
As long as there are plenty of unemployed resources and excess capacity, the risk of such direct monetary financing are rather remote and we wouldn't have "stuffed" the banking system with excess reserves to the hilt, something which, sooner or later, has to be unwound.
How to unwind?
When balance sheets are repaired and more normal conditions return, borrowing and spending will go up, bank lending will pick up and some of these excess reserves will be turned into loans, and have traction in the economy.
This is also a backdrop against which the Fed can start unwinding when certain capacity and unemployment metrics are hit and the output gap (the difference between actual and potential output) diminishes.
However, that doesn't guarantee unwinding will be problem free, but to discuss this, you have to realize that unwinding QE is simply tightening monetary policy. This has timing risk, the Fed can start too early, snuffing the recovery out before it has reached escape velocity, or start too late, when the economy is already too close to full capacity.
QE, because of the massive amount of assets on the Fed's balance sheet and, more importantly, the massive amounts of excess reserves in the banking system, will bring additional problems. How can the Fed deal with this? Well, the normal tools of monetary policy:
Raise interest rates
Sell assets on the balance sheet of the Fed
However, raising interest rates will not be very effective as the banking system is flushed with excess reserves. If the Fed becomes more expensive as a source for reserves, banks borrow from one another. As long as there is a large amount of these excess reserves, the Fed is fairly powerless to raise short-term interest rates, a sort of liquidity trap in reverse.
Selling assets (a literal unwind) would be the obvious solution to this, but the numbers are substantial. Selling assets would normally decrease bank reserves and rise rates.
This would slow economic growth and thereby reduce inflationary pressures, but for those that fear that the numbers are too big for the Fed to manage to navigate between keeping growth in tact whilst not letting inflation accelerate out of control, we have a surprise.
A surprising perspective
Here is Bill Mitchell:
Collectively, it turns out, official US government holdings (the Fed and other state bodies) have in percentage terms decreased since the 2008 crisis while private holdings, inclusive of foreign holdings, have gone up.
The Fed holdings as a percentage of outstanding US government debt is visible in the table below:
(click to enlarge)
Philip Pilkington from Kingston University concluded:
it looks like there are plenty of buyers both at home and abroad for US government debt and this is unlikely to change much even if the tapering program is initiated. Why? Because many investors aren't investing in the real economy right now and this goes a long way to explaining our present output and unemployment problems.
So it's fair to say not everybody is alarmed at the perspective of unwinding QE and we basically agree. There are two further issues to consider:
There is no urgent reason for the Fed to get rid of the assets on its balance sheet. They can even let much of these assets mature.
If credit creation, and thereby inflation threatens to accelerate out of control, there are other ways of throwing sand in the process.
One (called FARP) way is already in trial mode, and it's a little technical so we refer you to a useful source. But there is another, obvious way, a relatively outdated and rather blunt monetary policy instrument, setting reserve requirements.
In most countries, banks are usually left to set their own reserve levels, but setting reserve requirements as a policy tool does still happen in some countries (like China, or France before it joined the euro).
However, this instrument becomes surprisingly effective if the danger is that bank lending and inflation will accelerate beyond what policy makers would deem sustainable levels and are unable to sell assets in large amounts and or fast enough to mop up the excess reserves without causing interest rates to spiral upwards.
The Fed could simply oblige banks to keep bank reserves as reserves. It's crude, but it will do, as the above hypothetical situation is exactly the kind in which fine-tuning at the margins ("garden variety" monetary policy) is clearly inadequate.
Reserve requirements can be gradually returned to normal levels with the passing of time. So the people nervous about an acceleration of inflation as a result of the great unwind can sleep a little easier, we think. The Fed has the tools to deal with that.
Unwinding itself is contractionary monetary policy, and if that should run into problems, the Fed can directly intervene to put a break on any excessive credit creation.
Announcing the end of QE could in fact be something positive, as it is a sign that the Fed believes the economy is back on track. There is another possibility though, which is much darker. One in which the Fed will be near unable to quit QE because the economy doesn't recover anywhere near enough, but this we will deal with in a follow-up post.
Helicopter money
We have another gripe with QE. It either ends up as excess bank reserves or seeps through into the financial markets. Neither way is it likely to be very effective in providing the economy with escape velocity. Why use such ineffective and cumbersome policy instruments when there is an alternative?
It would have been much better to insert it directly into the veins of the economy, by directly financing public investments.
As long as there are plenty of unemployed resources and excess capacity, the risk of such direct monetary financing are rather remote and we wouldn't have "stuffed" the banking system with excess reserves to the hilt, something which, sooner or later, has to be unwound.
How to unwind?
When balance sheets are repaired and more normal conditions return, borrowing and spending will go up, bank lending will pick up and some of these excess reserves will be turned into loans, and have traction in the economy.
This is also a backdrop against which the Fed can start unwinding when certain capacity and unemployment metrics are hit and the output gap (the difference between actual and potential output) diminishes.
However, that doesn't guarantee unwinding will be problem free, but to discuss this, you have to realize that unwinding QE is simply tightening monetary policy. This has timing risk, the Fed can start too early, snuffing the recovery out before it has reached escape velocity, or start too late, when the economy is already too close to full capacity.
QE, because of the massive amount of assets on the Fed's balance sheet and, more importantly, the massive amounts of excess reserves in the banking system, will bring additional problems. How can the Fed deal with this? Well, the normal tools of monetary policy:
Raise interest rates
Sell assets on the balance sheet of the Fed
However, raising interest rates will not be very effective as the banking system is flushed with excess reserves. If the Fed becomes more expensive as a source for reserves, banks borrow from one another. As long as there is a large amount of these excess reserves, the Fed is fairly powerless to raise short-term interest rates, a sort of liquidity trap in reverse.
Selling assets (a literal unwind) would be the obvious solution to this, but the numbers are substantial. Selling assets would normally decrease bank reserves and rise rates.
This would slow economic growth and thereby reduce inflationary pressures, but for those that fear that the numbers are too big for the Fed to manage to navigate between keeping growth in tact whilst not letting inflation accelerate out of control, we have a surprise.
A surprising perspective
Here is Bill Mitchell:
Collectively, it turns out, official US government holdings (the Fed and other state bodies) have in percentage terms decreased since the 2008 crisis while private holdings, inclusive of foreign holdings, have gone up.
The Fed holdings as a percentage of outstanding US government debt is visible in the table below:
(click to enlarge)
Philip Pilkington from Kingston University concluded:
it looks like there are plenty of buyers both at home and abroad for US government debt and this is unlikely to change much even if the tapering program is initiated. Why? Because many investors aren't investing in the real economy right now and this goes a long way to explaining our present output and unemployment problems.
So it's fair to say not everybody is alarmed at the perspective of unwinding QE and we basically agree. There are two further issues to consider:
There is no urgent reason for the Fed to get rid of the assets on its balance sheet. They can even let much of these assets mature.
If credit creation, and thereby inflation threatens to accelerate out of control, there are other ways of throwing sand in the process.
One (called FARP) way is already in trial mode, and it's a little technical so we refer you to a useful source. But there is another, obvious way, a relatively outdated and rather blunt monetary policy instrument, setting reserve requirements.
In most countries, banks are usually left to set their own reserve levels, but setting reserve requirements as a policy tool does still happen in some countries (like China, or France before it joined the euro).
However, this instrument becomes surprisingly effective if the danger is that bank lending and inflation will accelerate beyond what policy makers would deem sustainable levels and are unable to sell assets in large amounts and or fast enough to mop up the excess reserves without causing interest rates to spiral upwards.
The Fed could simply oblige banks to keep bank reserves as reserves. It's crude, but it will do, as the above hypothetical situation is exactly the kind in which fine-tuning at the margins ("garden variety" monetary policy) is clearly inadequate.
Reserve requirements can be gradually returned to normal levels with the passing of time. So the people nervous about an acceleration of inflation as a result of the great unwind can sleep a little easier, we think. The Fed has the tools to deal with that.
Unwinding itself is contractionary monetary policy, and if that should run into problems, the Fed can directly intervene to put a break on any excessive credit creation.
Announcing the end of QE could in fact be something positive, as it is a sign that the Fed believes the economy is back on track. There is another possibility though, which is much darker. One in which the Fed will be near unable to quit QE because the economy doesn't recover anywhere near enough, but this we will deal with in a follow-up post.
Posted on 4/17/14 at 12:32 pm to TigerTatorTots
The silver deal is back on Ebay.
This time its Silvertowne bars, 10 1 oz. bars for $217.49.
That's about $2 over cost with free shipping.
This time its Silvertowne bars, 10 1 oz. bars for $217.49.
That's about $2 over cost with free shipping.
Posted on 4/17/14 at 10:19 pm to Clyde Tipton
I don't believe this is a good deal for physical silver. I don't know where you live, but you should be able to drive to a dealer and pick up physical silver right now for no more than $1 over spot. Possibly even less.
Posted on 4/17/14 at 11:40 pm to Iowa Golfer
It's a freaking commodity, like gasoline or lumber. Do not pay much of a premium .
Posted on 4/23/14 at 9:47 am to soccerfüt
Try some of the bullion markets, jmbullion, apmex, etc. their prices are usually better than e-bay. Or try to find a local dealer if possible. I do not have a local dealer and use jmbullion as it is cheaper than driving to a dealer, they also have free shipping, usually around 1$ over spot on 10 oz. or better. Not trying to pimp for any option but this is how I buy silver.
Posted on 4/23/14 at 11:02 am to cave canem
I just bought 3 rolls of 2014 silver American Eagles for the first time this year on www.sdbullion.com. The shipping was $7.77 for my 3 rolls of 20 coins each. Spot price is $2.39 per coin, no matter the amount.
SD Bullion
shite, this manipulation can't last forever.
SD Bullion
shite, this manipulation can't last forever.
Posted on 4/23/14 at 11:12 am to TigerTatorTots
quote:Outside of very large positions, what are the benefits of buying physical silver rather than SLV?
What are the benefits to buying silver eagles instead of generic .999 silver rounds?
Posted on 4/23/14 at 12:18 pm to NC_Tigah
NC I am no expert and one may chime in but here is my simple answer. Physical silver you own and posses, when buying a stock or offsite stored metals you are hoping a company either makes a profit or actually posseses and will make good on your request for your metals or even exist in the future. As most people buy metals as a hedge or worst case senerio having it in your possesion is preferable. This is not even getting into the nutjobs who think they will need it to use for currency in the immediate future for whatever reason eg financial colapse, meteor strike whatever. Also the irs does not track the purchase of metals or "notice" most transactions under their trigger numbers for reporting. This is to say you can buy and sell all day, make whatever profit you like, and as long as you keep the transactions under 9,999 you are on the honor system for reporting. Stock trades are all reported and a statement sent for tax purposes. There are still people out there who have a bad taste in their mouth about the gold confinscation of 1933 and think it could happen again soon to bail out the fed. again. Might not be only gold the next time. This was way longer than I intended but are the most popular differences and reasons for having your metal purchases be physical
Posted on 4/23/14 at 1:58 pm to cave canem
Silver Eagles wouldn't need assay to sell is the reasoning.
SLV is defined as a commodity pool. So as much as some argue they own physical silver, they own warehouse receipts on physical silver mostly. And swaps. I think they actually own some physical silver. I won't bore you with my reasoning. Just go ahead and get on I shares web-site and click the link for their silver bars. It will take you to JP Morgan Chase's silver held in trust. That's about all one would need to know right there.
SLV is defined as a commodity pool. So as much as some argue they own physical silver, they own warehouse receipts on physical silver mostly. And swaps. I think they actually own some physical silver. I won't bore you with my reasoning. Just go ahead and get on I shares web-site and click the link for their silver bars. It will take you to JP Morgan Chase's silver held in trust. That's about all one would need to know right there.
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