by Michael Pennington 

Buying on the Come

Several issues I would like to address this week. The first is that I have heard of many investors buying from sources who do not have the product in inventory, but are promising delivery at some future date. I hope to convince you all that this is not in your best interest. I know of horror stories where the purchaser has waited 4-6 months and are not able to obtain a refund without paying a significant termination fee. When you buy “on the promise of future delivery” you are actually selling the metal short. The large dealers end up hedging to protect their price by selling a future’s contract short to protect his sales price  in the event of a price decline. This position actually drives the price of the metal lower in the short term. And if you have to wait 30-60-90 days for silver from any seller, it means they are selling what they do not have, and hope to get it from someone else that does not have it today either!  That means they are short, (they owe you silver) that they do not have!And if there is a “regular” 60 day delay, where they have you pay for it all up front, instead of a tiny 5% deposit down payment, then they are “floating” on your money, like you gave them an operating loan! The honest dealers will only sell you what they already own. DO NOT FALL INTO THIS TRAP!

The Market Shortage

While today’s metal shortage is real, it should not last long. Markets tend to be corrective and this manipulation lower will also correct soon. The market is very tight for physical metal. Johnson Mathey is the largest producer of 100 oz silver bars and they reported today they are 300,000 ozs behind filling orders.As for Silver Eagles, one authorized distributor has speculated that Mint may not produce any more 2008-dated coins and will commence production of 2009-dated Silver Eagles.  If so, no new Silver Eagles will be available for delivery until January 2009.
Still, another distributor is confident the Mint will produce more 2008-dated Silver Eagles in the next few weeks.How is this manipulation/intervention going to end? Since prices between the physical and paper metals have disconnected indicates to me they are failing as we speak. The only way this will end is in default. We are seeing that happen now as deliveries of physical are being delayed. There is so much more paper metal than physical metal it will have to drive prices of physical higher. The laws of supply and demand can only be broken for a short time.  The reality is that silver is scarce.  Buy it if you can find it!
 
HOW LONG WILL THE DOLLAR RISE?

The media is now busy promoting the idea that the dollar will continue to rise against other world currencies. This is normal propaganda but before we just accept this at face value, we need to question how the following facts will affect this claim:1.    The U.S. deficit continues to grow at epidemic proportions;2.    The FED has now implied they will bailout European banks as well as their own; the ECB is not permitted by law to bailout any of their own financials, so to avoid possible collapse, the FED has stated they will help their foreign counterparts;3.   If Washington really intended to stabilize the Dollar or, more ambitiously, to push it up against the other currencies, there would only be a couple of ways to accomplish this: raising significantly the Fed’s interest rates, and lowering drastically the pace of money printing. But if the government decided to implement this type of policy, the US economy would stop dead a few weeks. We would see the real estate market fall to zero by lack of affordable credit as a result of soaring interests on Adjustable Rate Mortgage loans, consumption would become negative (i.e. shrinks back each month), corporate failures would multiply exponentially, Wall Street would collapse under the burden of innumerable debts.4.   Household debt is now 131% of disposable income, compared with 93% at the top the dotcom bubble, 79% in the property boom of the late-1980s, and 62% at the end of the 1970s.Such a series of events, sure to happen if Washington implements a voluntary policy of dollar-rescue, is probably unacceptable to the US authorities. Therefore, apart from talking – and further self-discrediting – they cannot do anything. The method used in the past decades is no longer available: no one will accept to buy large amounts of Dollars in order to rescue the US currency if some voluntary policy as described is not implemented by Washington. As they will not do it, the rest of the world will draw its own conclusions and continue to diversify out of the U.S. Dollar.