-- Posted 22 October, 2009 | | Discuss This Article - Comments:
(Confiscation, bankruptcy, & theft risks!)
Silver Stock Report
by Jason Hommel, October 22nd, 2009
A summary of the main risks:
1. Custodian theft risk
2. Custodian bankruptcy risk
3. IRA rule change risk
4. Confiscation by government risk
5. Third party common theft risk
6. Lack of IRA benefits risk
7. ETF custodian risk
8. ETF sponsor risk
9. Confiscation by government risk
1. Custodian theft risk - All IRA money must be held by a broker, who is the custodian of the IRA account. If you keep up with the news you occasionally hear of brokers who clean out client accounts, and disappear. The largest of such thefts are in the Billions.
2. Custodian bankruptcy risk - The company that is the IRA custodian may go bankrupt. In theory, IRA accounts are safe from such bankruptcy, but only if the custodian was playing by the rules. Companies go bankrupt also, and drain their own employee 401k accounts, too.
3. IRA rule change confiscation risk - The Federal Government, early last year, was contemplating forcing investors to put IRA money into government bonds, "for the safety of the investor" of course.
4. Confiscation by government risk - At present prices, a government confiscation order of silver or gold seems unlikely, due to the relative size of the markets. IE, the $1-2 billion silver investment market is too small to signify anything to the budget of the USA government.
Furthermore, it's unlikely given that the government continues to mint and sell Silver Eagles and Gold Eagles, which can be held in an IRA. Gold Eagle sales are also under $1 billion in the USA.
However, defaults, meaning, the failure to deliver metal, and the massive rise in precious metals prices that follow, happen when they run out of metal, not at certain prices. If the past is any indication, they will run out of metal, while metals prices are still relatively low, and then the price will take off.
I think a confiscation order will be made for several reasons, and will have several effects. It will first be used to let JP Morgan off the hook for their massive precious metal delivery requirements, and it will let them "cover and pay out" all such precious metals over the counter contracts in paper cash, while paper cash prices are low.
Second, a confiscatino order can be used to confiscate the precious metals in all private, non-bank, warehouses where there are storage programs that honestly have the metal. The banking establishment hates competition, and may wipe it out by executive order.
Third, after obtaining precious metal by theft of those institutions who honestly held it for third parties, they can continue their price manipulations for a second season.
5. 3rd party theft risk - Pooling money or metal together into one place always increases the risk of theft by regular and common robbers & thieves. When asked why they robbed banks, the famous robbers said, "Because that's where the money is."
Which one of the following is more safely held and harder to steal? Is 10 million oz. of gold in one place safer, or 10 million oz. of gold held by 10 million armed individuals safer?
6. Lack of IRA benefits risk - The whole point of putting money into an IRA is to let it increase in value, tax free. There are no capital gains taxes when you sell in an IRA, but there taxes are when you "cash out", at which point, the IRA money is counted as real income. If income taxes ever increase to 80-90%, as they did during the Great Depression, then nearly all of your "tax free gains" will go right back to the government, and you will not significantly benefit from the capital gains in your IRA accounts. (ROTH IRAs are an exception.)
The whole point of bullion is that it is private. Once it is in your hands, no government has any ability to track it. After all, you could sell your bullion at any time once you buy it, and there are very few reporting requirements on silver or gold sales. There is a cash transaction report (CTR) required if you sell 10 bags of 90% silver, which would be $10,000 in "cash", and there is a reporting requirement if you sell 25 Gold Eagles at one time. And that's about it. So, for the majority of people, for the majority of bullion sales, they can sell their precious metals at any time, with no reporting requirement, and thus, it is entirely up to them to volunteer the information about their capital gains that they may have "earned".
7. ETF custodian risk - Many people put IRA money directly into the ETF's for convenience, so I will now talk about ETF risks. The ETF custodian is the one who vaults the precious metal. Ok, if you do choose an ETF, please choose CEF, the Central Fund of Canada. They are the only one who I think actually has a good chance that they actually have the metal. But even CEF is not safe, as they are in Canada, and the Canadian government has no gold or silver. Thus, in the event of a Canadian currency crisis, Canada is likely to confiscate the metal in CEF or any other Canadian storage program or bank. Canadian banks, in general, are not more sound than those in the US, they are less sound, in my well researched opinion. Many Canadain banks issue silver certifictes, yet there were many reports of people last year who could not obtain silver at any price from their banks in 2008 during the retail silver shortages.
The SLV and GLD ETF's in my opinion, are total frauds. The custodian of SLV is JP Morgan, who is the largest silver short at the COMEX, and who has the largest position in over the counter derivatives at over $80 trillion. That's a tremendous conflict of interest, and a clear warning sign. In my opinion, the silver in the SLV is already "long gone", or they only have a tiny fraction of the silver on hand. What's worse is that they can now deliver SLV shares to futures contract holders, and they can deliver futures contracts to back up SLV shares. Ponzi behind Ponzi, fraud backing fraud. The GLD custodian is HSBC, a similar bullion bank with similar positions and problems.
8. ETF sponsor risk - The ETF's are also at risk if their sponsor goes bankrupt. It could disrupt trading, or the viability of the whole thing. Or, it could be used as an excuse by the custodians to default on delivery of silver, trying to place the blame on the structure or sponsor of the ETF, instead of their own fraud. In fact, the custodians could force the bankruptcy of the sponsor, as an excuse to fail to deliver, or as an excuse to confiscate what little bullion the fund may actually have, and then deliver futures instead.
9. ETF short selling risk - Also, there is the short selling risk, as the EFTs can be sold, naked short, which circumvent the entire point of each share being backed by metal. Shares sold short are not backed by metal deliveries, and can be used to manipulate prices lower. In my opinion, investors who put money into the ETFs are helping to manipulate precious metals prices lower. Demand for physical metals is diverted by these paper alternatives.
9. Confiscation by government risk - Yes, I'm listing this twice, actually, three ways. IRA money is at risk of confiscation by government, simply by being in an IRA. IRA moneies can be forced to be invested in bonds, or they can be taxed at extremely high rates upon withdrawl. But the third government confiscation risk is if the government confiscates the ETFs, as a means to let the custodians who are practicing fraud off the hook, as a method of "bailout".
Confiscation will never include the government sending thugs to all 100 million USA homes to do room to room, and vault to vault searches. It never has, and never will, not in America, not as long as the people still have guns and working vaults. Government confiscation thugs would get to the 10th house, be blown away, and promptly end the searches. If lazy pot smokers have been able to hide pot from the government for all these years, and the "war on drugs" been a total failure, isn't that any guide at how much more impossible it would be to take silver or gold from the militant, ready, anxious, wise silver and gold investors, many of whom are veterans? The government would and could only confiscate the silver in known storage locations, such as the ETF's or other popular precious metals storage programs that actually have the bullion.
If you are comfortable with all these risks, please pay attention to the news on a regular basis so you might be able to take appropriate action at the appropriate time.
I used to have money in an IRA. I no longer do. I did not have to pay the 10% penalty upon withdrawl, because it was in inherited IRA. I cashed out my IRA because I have been paying close attention to the news.
Remember, governments steal. It's what they do.
That's the entire point of owning gold and silver. They are the hardest assets to find, and the hardest to steal.
The government is already confiscating money through taxation, and inflation through bank bailouts. The bailouts also indicate that the assets those banks hold have been stolen long ago. To trust them with your IRA accounts, or ETFs, is just begging for trouble.
So, what to do? Take it home. Get a home security vault. Vaults work. It's why they make them. They make many sizes, ranging from a small cash box, to a large gun vault the size of a refrigerator. Bolt the vault down from the inside to wall studs, or to concrete in your garage floor. Maybe disguise the vault with a cabinet. Have multiple vaults if you can afford it, or need it. Get a security system, burgler alarm, & dogs if necessary. Gates or bars outside your home or driveway are another option. it's very simple, and reliable, and people have been doing that for hundreds of years with great success.
If you are afraid to put one in your own home, consider moving to a better neighborhood. Consider putting a vault in your parents' or childrens' home for diversification. You don't have to give them the combo, if they are nice about it.
Home theft risk is very very small by comparison. Common home theives getting into a secure vault is very, very rare. It's so rare, they love to put it on the news if it happens, as a way to condition you to trusting the banks.
I strongly advise you to get real gold and silver, at anywhere near today's prices, while you still can.
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-- Posted 22 October, 2009 | | Discuss This Article - Comments: