Financial Sense Blog

True story: Harold & Maude are a forty-something couple with two teenaged kids. Both are educated, both work in IT, both are fairly sophisticated, financially speaking.

Silver has stolen the spotlight among investors in recent days after surging nearly $50/oz. Lost in all the commotion, however, are the wildly disparate rumors accompanying silver’s rally. In this article we’ll discover why financial news gossip can be dangerous.

In The Four Reformers, by Robert Louis Stevenson, a meeting takes place under a bramble bush where four conspirators talk about remaking the world. The first says, "We must abolish property." The second says, "We must abolish marriage." The third says, "We must abolish God." The fourth wants to abolish work, and falls silent. The first then admonishes his comrades to a practical expedient; namely, reduce all men to "a common level."

As a result of active "demonetization" efforts by the IMF and its member central banks, gold and silver have experienced the type of volatility that has given conservative investors reasons not to perceive the metals as dependable cash alternatives. Instead gold and silver have become known as the asset class to hold as a hedge against inflation.

One of the ways I like to disengage my fellow managing staff at PFS Group from their emotional connection to an investment is to run multiple unmarked charts in a meeting to determine whether they’d buy or sell a stock based on the chart of the investment. I remove stock name, price, and dates. There’s no emotional connection. It really isn’t surprising some of the responses I get.

I was looking at some IRS numbers on who pays taxes to the federal government. This data is from 2008. That was a bad year to look at incomes/taxes. There was a big drop in income due to the recession and market crash. But it’s still useful to look at. If we’re going to raise any significant amount of new revenue it will have to come from the top 5% of earners. Note that in 2008 the top 5% was anyone who made over $159k. That number has crept up in the last few years. For 2012 the top 5% will be any household income that is in excess of ~$170k. Depending on where you live and how big your family is that is really not so much these days. But it is greater than the rest of the 95%, so that is where the new taxes will have to fall.

A meme is now circulating that gold is in a bubble and that it's time for the wise investor to sell. To me, that’s a ridiculous notion. Certainly a premature one.

In raw numbers, in February of this year, households received $2.3 trillion in income support from unemployment benefits, Social Security, disability insurance, Medicare, Medicaid, veterans' benefits, education assistance and other cash transfers of government funds to individuals. The same month, households paid $2.2 trillion in income, payroll, and other taxes. The difference was nearly $100 billion, or around 1% of personal income.

The increasing number of Commentators who claim that Fed Money Printing (e.g. QE) and Credit Policies are The Main Cause of recent Rampant Food and Energy Price Inflation are correct.

While we don't often cover silver, it is worth noticing that it is about 6% below its all-time highs of 48 (closing basis) and moving up quickly. Technicians will assume that there is probably strong long-term overhead resistance at 48, and, considering that silver is in the vertical phase of a parabolic advance, there could be serious problems when the resistance is reached. Perhaps that is true, but I think there are other considerations.