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As predicted, the price of silver has continued to rocket.   The story is being chronicled in near real-time by ZeroHedge, Max Keiser and Turd Ferguson.   Silver is up a whopping 22% in the last 30 days. A massive short squeeze appears to be under way and picking up a head of steam into the March delivery month with record futures contracts setting up to stand for delivery in volumes that may well far exceed available supply. This is symptomatic of a larger issue — the synchronized collapse of fiat currency regimes around the world.

Why is the **** hitting the fan?
Massive amounts of printed currency is heading for the exits. Although the house of cards started collapsing in earnest with the failure of Lehman Brothers in September 2008, I believe the real problem traces it roots all the way back to Nixon’s decision to take the US Dollar off the gold standard in 1971. With no gold standard to put a collar on fomenting of more debt-based currency, the US government proceeded to run up the credit card — initially with petrodollars and treasury debt, and now with blatant debt monetization by the Federal Reserve.

I fully expect the situation on Main Street will not improve.  Not helping the situation on Main Street, the synchronized collapse of decades of dictatorial rule in the Middle East provides more air cover for currency debasement. The price of oil shot up a ridiculous $7-8 today. The **** is definitely hitting the fan folks. All of a sudden, my February 14 forecast of $200 oil is not sounding quite so crazy.

Hedge Now
One of the most popular hedges against currency collapse is physical commodities, notably silver which crossed $34 per ounce earlier today and has more than doubled over the past year.

Without question, the case for physical silver is strong. By all means, feel free to own some. However, for serious amounts of money, it has significant  challenges as an asset class. In particular, here are a few considerations before going big-time on delivery of any physical commodity. I will use silver as a case study:

Taking Delivery is a weighty issue
A single futures contract is a whopping 5,000 ounces, or 312 pounds. In other words, that stuff is heavy. Mathematically, a $1 million investment is going to mean taking delivery on ~2,000 pounds of cargo.  Good luck transporting it securely over any sort of distance!

Taking delivery means storing it securely
Physical delivery is not without risk. Earlier this month, a Canadian resident reported having $750,000 in physical silver stolen from his home in a violent robbery.  His life savings in silver bars is apparently missing and untraceable.

Taking Delivery means accepting Confiscation Risk
In 1933, the US Federal Government imposed mandatory redemption of precious metals.   This is spelled out in Executive Order 6102 which could be invoked in one or more variants in order to stop the dollar from completely collapsing.

Domain Leasing as Inflation Hedge
Epik’s domain portfolio has grown steadily over the past year and is now more than 17,000 Development-grade domains.  For a number of reasons discussed at length elsewhere, I consider domains to be an excellent hedge against a number of economic scenarios. For investors looking for a versatile hedge, one area we are experimenting with is the notion of a domain lease with a fixed-price purchase option. This program will be available for any Epik-powered domains, including domains owned by network partners. We’ll be announcing details of this Domain Leasing program next month as part of continued commitment to developing domain names as a thriving Alternative Investment category for individual and institutional investors.


Comments (5)

  • Ed Keay-Smith

    February 22, 2011, 4:29 am

    Hi Rob,

    Some great points, 2008 was only the beginning of the GFC and the worst is coming like a head on train down a tunnel.

    I do know of several US investors that are worried about storing any precious metals they have invested in and also the chance of the US government taking claim of any precious metals owned by US citizens. See – http://www.shtfplan.com/precious-metals/insider-report-us-government-will-confiscate-gold-when-it-touches-2000_02182011

    I am very fortunate to have one of the biggest and best precious metal mints in the world in my own back yard at the Perth Mint.
    They have a service that lets you buy your gold, silver etc and they store it for you. You can read about the service here -
    http://www.perthmint.com.au/investment.aspx

    The next few years are going to be very very interesting ones indeed!

    Cheers

    Ed

    Reply
  • WQ

    February 22, 2011, 7:03 am

    You don’t own it unless you hold it.

    When the world comes crashing down don’t have your assets in someone else’s hands hoping you can trust them enough to give it back.

    Reply
  • Jim

    February 22, 2011, 1:39 pm

    Judging by your article above you will not be accepting fiat currencies as payment, can we send goats and sheep in exchange for domains?

    Just kidding, JPM must be feeing the squeeze though, they are reportedly short on silver. But while the argument against fiat currencies is valid what do you propose as an alternative for a world of 7bn people to transact in.

    ** RWM ** LOL. If I thought Barter was a scalable model in an increasingly online economy, we would probably not have come up with the idea of EpikBucks in the first place. In all seriousness, “Scrip currencies” are springing up all over the world. I would welcome (1) a massive network of scrip currencies being used within industries and local economies, and (2) a global currency — hopefully one that is backed by tangible assets and cannot be debased without democratic process. By no means am I writing off the dollar as global reserve currency — it is the best available option among the available set of fiat currencies. The notion of a hedge is simply a way to offset the increasing risk that currency debasement is approaching a terminal stage. I sure as heck hope that the USD turns the corner but also think policy-makers are making policy choices that can rapidly destroy wealth that is unhedged.

    Reply
  • Jeff Edelman

    February 25, 2011, 3:15 pm

    I just saw an article that references the predictions of Citibank’s head economist. The title of the article talks about the US dropping to the 3rd largest economy by 2050, perhaps suggesting that the article is a downer and that it would focus on problems in the USA. But his prediction is that worldwide economic growth will average 4.6% yearly from now until 2030 and then 3.8% from 2030 to 2050. It is for this reason that for all our problems, I am incredibly bullish about the future. In the postwar boom years, a relatively small percentage of the world population participated. Now, we are entering a new phase where the most populous countries are growing rapidly. In The USA, we are so worried about the middle class shrinking. But the biggest story in the world is how the poor and near-poor are joining the middle class by the hundreds of millions. And all of this is good for people involved in domains. http://www.cnbc.com/id/41775174

    ** RWM ** By nature, I am a pretty optimistic person — pretty typical of the entrepreneur personality. I am also long-time student of economics, having studied economics as an undergrad at Cornell, and trading financial assets starting at age 12. I think CNBC (mainstream media) and Citibank (TBTF Banking) have a vested interested in serving up the Kool-Aid. Of course I hope these folks are right, but the data is suggesting otherwise.

    A propos the topic of impact of oil on GDP, there is another (more analytical) piece on that topic. Clearly there is an impact and anyone who thinks otherwise should ease up on the Kool-Aid. More here: http://www.zerohedge.com/article/interactive-chart-oil-price-global-gdp-correlation

    I don’t think there is any question that there will be oil. Just as there will never be a problem finding precious metals or gems. They will be available but at a price that excludes 80-90% of humanity in terms of their collective ability to consume in quantity. One could debate whether this is a bad thing for the long haul. What is undebatable is that it would be highly disruptive to certain lifestyle patterns.

    As for GDP as a metric, remember always that the math of GDP is C + I + G + X – M. Imports (M) are a negative drag on GDP. Government spending is a positive to GDP, even if it is entirely funded via fomented debt fiat as is presently the case. As mentioned in one of my earlier posts, the metric to watch is the Dow-Gold ratio. It has been as low as 1 and could well get there again.

    Reply
  • Gazzip

    March 4, 2011, 2:03 am

    “You don’t own it unless you hold it.”

    Exactly, JPMorgan apparently doesn’t own nowhere near as much Silver as it say’s it does , that’s why Max Keisers has been telling everyone for months to buy a small piece of it..aka, crash jp morgan.

    Tip of the day: Buy Food forget Silver ;)

    The S*** is about to hit the fan and some are preparing for it as we speak.

    FEMA orders $1 Billion in dehydrated food

    “…a 10-day supply of meals – for 14 million people. That’s 420 million meals. Typically, FEMA maintains a stockpile of about 6 million meals. Why the sudden need to increase the stockpile by 420 million more?”

    examiner.com/finance-examiner-in-national/terror-threats-rising-as-fema-orders-1-billion-dehydrated-food

    Reply

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