Consider the possibility the recent volatility in commodity prices could be a sign of falling liquidity. With the Fed voicing its intention of reversing its easing policy and beginning to tighten it is logical that sooner or later signs of less liquidity would begin to surface. The area of commodity futures is more often based on speculation than anything concrete. It is also highly leveraged.
If I’m correct and the huge drop in many commodity prices is related to liquidity beginning to dry up this could be the canary in the coalmine. This could also signal other markets will soon become less stable or downright wild. It is very possible, “we ain’t seen nothing yet.” I have observed that up until now other markets appear relatively solid but much of that could be supply-demand related. Liquidity issues bring a whole new aspect into the mix.
Those looking for a future where deflation occurs will try to latch on to commodity price weakness as proof demand destruction has already put an end to inflation. The truth is some asset prices will fall and others will continue higher. A rebound in commodity prices will not mean liquidity has suddenly returned to the market it will only mean the current washout in prices has run its course. A temporary fall in prices is not necessarily an indication inflation is dead but more proof an investor can lose money even when they are right, it also highlights how leverage can increase an investor’s risk.
Sadly, banks have a way of failing us when we need them most and that is a big part of why liquidity is generally the first casualty in a financial crisis. A huge part of the problem is rooted in the economic tool known as leverage. The same massive gains leverage brings, also showers us with huge losses that rapidly paralyze both individuals and financial institutions. When volatility hits the markets any person or group with less than stellar credit is likely to find they are unable to borrow new money.
Liquidity has a way of deteriorating and evaporating slowly, then suddenly. Then liquidity falls even those with good credit may be forced to watch as existing credit lines are cut. The bottom-line is banks do not like to loan money to those that need it but prefer to line the pockets of those who dwell in their inner circle. Many of the credit lines that existed prior to 2008 have gone the way of the dinosaurs with banks claiming new government regulations are to blame for the way they do business today.
Much of the risk investors carry is hidden away in that pesky small print that exists in all the paperwork we sign when dealing with these institutions. This is especially clear not only in commodities and stocks but in the commercial real estate market. As markets continue to bump around with no clear trend do not be surprised if those using margin money get sucked into overleveraging their position and pay a dear price for doing so. To be clear, when liquidity vanishes, those that are leveraged are the first to feel the pain. Be careful out there, and remember capital preservation is job one!
Article by Bruce Wilds cross-posted from his blog.
At Last, a Company With Integrity in the Gold IRA Industry
For several years, I’ve been vetting out precious metals companies in search of the best. I believe in gold and silver but it’s hard to find integrity in the Gold IRA industry. The vast majority operate with shady tactics and gigantic spreads that take advantage of Americans who simply want to protect their life’s savings.
I’ve found a handful that I like and I’ve worked with some of them. By no means would I “unrecommend” them because, again, I vetted them out and found them to be above the fold. Unfortunately, it isn’t hard to be better than the rest when the rest are so darn awful.
After years of searching, I finally found a company that truly operates with integrity. Augusta Precious Metals has three important attributes that set them far above the competition:
- Non-Commissioned Sales Team: I cannot stress how important and unique this is. With just about every other company in the Gold IRA industry, the sales teams make commission from every account they open. This means they steer their clients toward the gold and silver products with the highest commission. With Augusta Precious Metals, the team is solely focused on putting the best gold and silver for their clients into their IRA. They get paid to serve the best interests of the Gold IRA client, NOT their own commission pay.
- Incredibly Low Fees: Most Americans would be shocked if they knew the spread other Gold IRA companies charge. Augusta charges just 5% versus up to 45% elsewhere.
- No Pressure, No Gimmicks: There’s an understanding among most in the Gold IRA industry that fear and pressure is the way to go. Augusta Precious Metals takes a sober approach when working with clients because they hold integrity in the highest possible regard. This is why they don’t offer gimmicks like “free” or “bonus” silver. It’s also why they do not apply pressure tactics to get quick sales. Their educational and transparent approach to doing business is exceedingly rare in the Gold IRA industry.
