Eric Sprott Interview - Pushing silver, 90% of net worth in precious metals

[rmitz]

Credit scores are not a measure of ones ability to repay the loan, but of the chance that the loan will be profitable to the lender. That's why people who are likely to pay the loan off in advance have lower scores instead of higher ones. There are real up front costs to the lender (like sales commissions) which must be charged against the total profit of the loan.

I have a very low credit score because I rarely take loans and when I do I have a history of stiffing lenders by paying off the loan before its full term.

The credit score is an attempt to screen out both potential deadbeats and potential early payers. In the upside down world of contemporary credit risk assessment, people with solid balance sheets like Ericopoly are deemed a poor risk to pay the full pound of flesh.

 

Obviously I don't have details on exact FICO scoring, but I can say I have a very high score and I pay my credit cards in full every month, and have paid off various loans early in the past.  This seems like a correlation argument to me; perhaps it was just that there were a bunch of "new" short loans on there.  Even though they were paid off, they had a short payment history, so they don't increase the credit score much.  The length a credit account is open *IS* taken into account...that's why old credit cards are more valuable than new ones.

 

But saying you're penalized for repayment...that's really twisting things a bit.

[Myth465]

Unfortunately, the government/Fed already is managing the whole economy through the twin levers of fiscal and monetary policy. The markets respond instantly to every manipulation in interest rates, tax cuts and government spending to favored sectors.

Favored sectors and companies are "bailed out", banks owe their "profitabilty" to government blessed accounting fraud, insolvent individuals and enterprises are kept afloat, continuing to destroy wealth.

The blessings are spread out unfairly, but the tab is distributed evenly to all who hold US dollars through dillution of purchasing power.

No wonder its tough to get ahead for those not so favoured...I'll settle for breaking even in real terms.

 

I agree with your analysis, but believe we simply must join the favored class. My goal is to make Politics a Heads I win, tails I win ordeal. I think Buffett is in this boat. He can advocate for whats right but at the end of the day it doesnt effect him.

[Myth465]

Thanks for that explanation -- I hadn't taken account the repayment risk to the lender.  Had I thought of that at the time I might have offered to pay them cash for their commission upfront.

 

I wonder if I were 64 years old and 1 yr from retirement -- would I qualify for the Fannie/Freddie program?  Likely I'd be dead long before the 30 yr maturity -- and almost certainly not able to work for much longer.  I wonder if common sense is applied, or whether for political reasons they don't want to age discriminate.  

 

We both know you know the answer to this question  :).

Common Sense aint so Common.

[oec2000]

Sprott's argument on silver sounds very much like the argument for natural gas.  NG is 6:1 BTU content to oil, was trading at 12:1, and many including Southeastern's Hawkins and Cately argued that it would trade back to 6:1.  It didn't.  Now it trades somewhere between 15 to 20:1.

It's just a mean reversion to a historical relative ratio.

 

Well, to be fair, the reason natural gas hasn't mean reverted is because, in the United States, we have a large increase of supply via shale gas.  Correct me if I'm wrong, but isn't natural gas much higher in other areas of the world where there's not an abundance of shale gas?

 

In silver, it doesn't seem like a similar story is likely to play out...

 

The oil/gas ratio is based on energy equivalency and would work well if demand and supply were completely elastic. Structural barriers, however, prevent switching from one commodity to another when the price differential goes out of whack. These barriers may fall in the long run of the differential remains pronounced for an extended period of time.

 

With gold and silver, I am not sure there is any fundamental equivalency that can be relied on to make the price ratio revert to that equivalency level. Seems like the gold/silver ratio is more emotional than it is fundamental. Perhaps, we could look to the ratio of costs of production as a guide.