Silver in the Aftermath of Fragility

July 11, 2014

Despite the persistence of the recovery meme, financial markets are more fragile to risk than ever before. On top of this, witness the slow creep of policy disguised as regulation. It comes for the low hanging fruits. The final labors of society. What lies ahead is a paper blood bath.

They are coming for your pensions and retirement accounts.

The French led IMF, with Christine Lagarde at the helm, has presented a concept report that debt cuts for over-indebted states are uncompromising. They present the concept that are to be performed more effectively in the future by defaulting on retirement accounts held in life insurance, mutual funds and other types of pension schemes, or arbitrarily extending debt perpetually so you cannot redeem.

And we thought the evolution of Obama's "MyIRA" was a bad omen. Just add the IMF's plan to the "Cyprus" template.

Remember that the real power in financial markets (which, of course, are by definition the same as the members of the central banks) have also bought, paid for, and fully captured regulators and politicians.

In addition, institutions across the board have not acknowledged the ills of mispricing risk from each of the previous cycles. Obviously, no one very high up the responsibility chain has paid for the damage. In fact, much of the failure was simply socialized in a rare overt demonstration of the power of finance over government.

Investors seem to have forgotten once again how this will end.

Instead, new all time highs in equities are bought. And bonds are still considered to be safe havens.

Many believe that there is this magical wealth sitting out on the sidelines, ready to be deployed at a moment's notice - or in a down-turn.

Few are likely to realize apparent wealth by selling, and those that do will essentially be redistributing it from the investors who buy.

Of course, redistributing fiat.

Take a look at the state of the equity market today.

Low volatility in S&P 500 indicates enormous complacency about potential risk.

The ratio of market capitalization to GDP is beyond every point in history except for the final quarter of 1999 and the first two quarters of 2000.

While millions of investors appear to have the same expectation that they will be able to sell before everyone else, the question of who sell to will probably remain unanswered until it is too late.

For physical precious metals investors, selling is always on our minds. And while given that we cannot change our psychological makeup, it is healthiest to consider holding in order to make it though the insanity of a rigged market.

And why it's safer to consider holding above all else.

The decision to hang on as we cross highs will be much more difficult. The pain of loss is much greater than the fear of missing the move up.

The worry we experience once the price really begins moving back toward equilibrium will make the wall of worry we've been on seem like a walk in the park By that time it will be clear to all that currency is not wealth.  This great trickle of confusion will end once and for all; or at least until the next generations have sufficiently forgotten all over again.

Most investors today view wealth as 1s and 0s, quotes on a screen or ink marks on a paper with a time stamp. Representations that will soon be gone with the wind. In the aftermath, nothing will be left. The opportunity to diversify, to prepare, will have long ago passed.


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The melting point for silver is 961.93 °C - 1235.08 °K