The Best Stock in the World
Theodore ButlerWhen it comes to investing, there are only a few broad asset classes from which to choose. While there are many thousands of individual choices within each category, the actual asset classes are few in number, and include stocks, bonds (and interest-bearing deposits), real estate and all others (tangibles, commodities and collectibles).
Over the years, I have tried to make the case for investing in silver, by comparing it to other commodities, gold and even raw land. I believe those comparisons (all of which favor silver) are as valid as ever. Today, I will try to convince you about the merits of silver by comparing it with common stocks. I will attempt to demonstrate why silver will be a better long-term investment than virtually all common stocks.
I believe, given the verifiable facts about silver’s supply, demand and future prospects, that it’s a better choice than any single stock. I won’t be so presumptuous to assume that there won’t be a stock that will match or better silver. However, you can’t pick one of them today with any certainty. Please envision mentally an ounce of silver as one share of common stock. One ounce equals one share. I believe if you perceive an investment in real silver as you would any well-researched common stock, you will greatly improve your chances of success with silver. And to insure we are comparing apples to apples, I am assuming a full cash investment in either, no margin or leverage whatsoever.
The ownership of common stock has been one of the great creators of long-term wealth known to modern man. Such ownership is an important cornerstone of prudent financial planning for the vast majority of mainstream investors. With very few exceptions, common stocks belong in any balanced investment portfolio. The reason why common stocks are considered an important component of just about every investment portfolio is that they promise higher returns than no-risk investments, such as insured interest-bearing deposits. Of course, the promise of higher returns with common stock ownership comes with commensurate higher risk. Therefore, the accepted prudent approach is to balance one’s portfolio with a mixture of low-risk, low return investments and higher-risk, higher return common stock investments.
One of the general requirements for long-term common stock investment is a broad sense of optimism for the future, at least for the prospects of the stock you may be investing in. It’s hard to invest for the long term if you think the world is ending. That scenario is one reason why folks invest in precious metals, namely as a hedge against things going very wrong. But that has never been a big motivation behind my interest in silver. My main attraction has always been silver’s growing, vital role as a strategic industrial commodity in an expanding world economy. It’s always been a bonus that silver may get flight-to-quality buying in the event of rough economic times.
Silver, by just about any relative objective measurement, is cheaper than almost any other industrial commodity and has far greater potential to the upside. It is relatively easy to envision the price of silver increasing ten to twenty-fold in the long term, on its merits. It’s hard for me to imagine a ten to twenty fold increase in oil or copper or nickel. Like a common stock, anyone can buy and hold silver. The average investor could not hold real copper, oil or nickel.
Common stock ownership represents a bet, not only on an individual company’s prospects, but also on broad global economic developments. Same with silver. The true success stories in stock ownership invariably revolve around long-term holding periods, and not quick in-and-out trading. So it will be with silver. You shouldn’t buy a common stock unless you anticipate dramatic long-term gains and are prepared to weather the inevitable short-term price fluctuations. Ditto with silver.
The most important investment rule is to not lose money. Let’s compare the risk profile of silver versus common stocks. The biggest risk with any common stock is that something could go wrong and cause the price of the stock to decline drastically, or even become worthless. Companies can go bankrupt for a variety of reasons. Silver can’t go bankrupt or become worthless. You don’t have to worry about an accounting surprise or bad business development.
Common stock ownership carries a higher risk than deposit accounts. Therefore, diversification of holdings is a core principle in prudent stock portfolio theory. Because silver can’t possibly become worthless, diversification into things other than silver is much less of an issue. The likelihood of continued world demand for natural resources far into the future offers a compelling specific case for investing in silver. It is also a great proxy for the natural resource sector in general. In other words, if you envision continued strong world demand for commodities of all types, silver is a great way to play them all. It is impossible for there to be broad demand for industrial commodities without there being strong demand for silver. Diversifying into silver makes sense, diversifying out does not.
Silver has a lower risk profile than a common stock. It easily satisfies the most important investment rule to not lose big. What about potential relative reward? Here, the comparison overwhelmingly favors silver. While some stocks will prove to be outstanding investments in the years to come, the trick is to identify them before hand. That’s a tall order for the average investor. There is no way I would risk my reputation by speaking with such certainty about a stock the way I speak about silver.
In order to think in a long-term mindset, imagine that you will suddenly be out of touch for the next five or ten years. You have one choice where to put your money while you are gone. If your goal is to return wealthy, silver should be that choice. One reason is dilution. It is very hard, and perhaps impossible, for additional shares (of silver as a stock) to be issued and your ownership diluted. That’s because additional silver shares can only be created by digging them out of the ground. The total mined must be in excess of what is being consumed by industry. That hasn’t happened in more than 60 years. In fact, the total amount of silver shares issued and outstanding has been reduced by more than 90% over that time.
The total amount of silver bullion in world inventories (the equivalent of the total amount of shares any stock has outstanding) has shrunk dramatically because of the structural deficit over the past half-century. It’s the same as a company buying back 90% of all its outstanding shares. This automatically increases the value of the remaining shares (silver ounces). In addition, because the metal silver can’t have a management and board of directors, there is no possibility of a sudden unilateral decision to issue more shares or grant options. The only way to increase the amount of silver in existence is over time and at great expense, not with the stroke of a pen.
Only an infinitesimal percentage of the world’s investors recognize that the amount of silver in existence has been so drastically reduced. Once that understanding kicks in, it will be reflected in the price. Imagine the price impact on a stock if it was discovered that there were 90% less shares in existence than previously thought. The key to silver’s future profit potential as a common stock is based not just on the fact that its shares have been greatly reduced in quantity and increasing that quantity is difficult at best, but also the impact of future demand for those few shares remaining. That means that new investment flows must compete over the shares that do exist. This competition will drive the price sharply higher.
What I am trying to convey is the thought that silver available for purchase can only come from other existing owners of silver, and not from newly issued stock. While this can be said about many items, it is unusual in silver. In addition to the small, unrecognized amount of silver in existence, the current low price makes the value of all the silver in existence shockingly low. If silver were a company, it would be a prime target for a hostile takeover. However, the owners of real silver will never be sold out too cheap by a company management, because none exists in silver. No matter how high the price, no one can force you to sell.
Naturally, I can’t compare silver to a company that is an ongoing business. They are two different things. One is an inert material, while the other is a business operation. But there are remarkable similarities in how outside investors participate in owning a percentage of each.
When I compare silver to a common stock and suggest you buy and hold silver the same way you would buy and hold a stock on a long-term basis, I am talking, for the most part, about buying and holding real silver in your possession. US Mint-issued American Silver Eagles are one favorite form of mine. When you own the actual physical silver, you are far less likely to sell it for a short-term profit. When silver becomes a possession, you have to find a safe place to keep it. You own it, but it also owns you. Oddly enough, it’s a bother to sell it, ship it and part with it. You hang on to it and that’s what gives you the best chance for big gain.
If you are fortunate enough to be able to buy quantities greater than you can practically store yourself, you must employ professional storage. Make sure you get the specific weights and serial numbers on all 1000 oz bars. Never let the dealer you buy from hold the silver for you. Make sure an institution stores the silver in your name and not the name of the dealer you bought from.
The perfect common stock would include low risk, with a guarantee the stock could not go bankrupt or become worthless. It would also include a guarantee that new shares not be issued easily. It would preclude management mistakes and internal financial surprises. There would be no management succession problems or surprises in foreign countries. It would thrive in a growing world economy. It would be immune from financial and currency upheavals. It would be undiscovered by the great majority of investors. Its value would be misunderstood and under- appreciated. It would be a stock that wasn’t a fly-by-night, and had a long history. Most of all, it would be cheap, with the potential to multiply many times in value. It would be capable of favorably impacting your financial condition. You can dream of such a perfect stock, or you can just buy silver.
COMMITMENT OF TRADERS REPORT (COT)
The latest COT in silver showed little deterioration, with the market structure remaining in its best position in years, in stark contrast to gold. I get the feeling that the dealers intend to use an old trick, an engineered gold sell-off, to trigger a sympathetic sell-off in silver.
The buying by the big 4 in the latest reporting period caps a four week buying binge by the big concentrated shorts in which a record near 13,000 short contracts have been bought back. This has reduced the concentrated net short position by almost 25% since the COT report of August 14, to the lowest level of the year. At just under 40,000 contracts, or the equivalent of 200 million ounces, the COMEX silver net short position still towers over the concentrated short position of any other commodity, in terms of real world production. Still, the reduction is remarkable in its suddenness and extent.
I can’t help but view this hard COT data in terms of the recent attention I have placed on ScotiaMocatta. Clearly, there has been unusual short covering in the big 4 concentrated category. Something has motivated this short covering. It has been unique to silver and not gold. It runs contrary to the behavior of the big short(s) for almost a year. While I can’t state for sure that ScotiaMocatta has been responsible for this short covering, that conclusion is certainly consistent with my private and public campaign concerning them.
Assuming that my speculation is correct, and ScotiaMocatta is the big short and has decided to change its behavior, what does this mean for the future price of silver? For the long term, this would have to be considered bullish, because if the silver short side has lost a prime participant, the long-term silver manipulation will be undermined. In the short term, however, silver may face intentional volatility, as the big shorts look to buy back more contracts at prices that are advantageous to them, and decidedly disadvantageous to margin sellers under stress. This is manipulation in its purest form.
And let me be clear – either you view the silver market as manipulated or not, there’s no wishy-washy in between. It’s like being pregnant, you are or you are not. How any objective observer does not reach the conclusion that silver is a manipulated market is beyond me.
Since I am convinced that that the silver market is manipulated, I am also convinced that the manipulation is a criminal undertaking. I can’t make it any simpler than that.
STICKER SHOCK AND SOCIALISM
James R. CookMy wife and I bought a new oven a few years ago. It was a lemon. Recently, we had a repairman come for the third time to fix it. The warranty had expired. He left us a bill for $640.00. Ouch! I took my dog to the vet for shots and heart worm pills. They charged me $240.00. I remember the day when a repairman never charged more than $25.00 and a trip to the vet was a few dollars. Nowadays shopping at the grocery store leaves you shaking your head over the price increases.
Given the falling dollar, big deficits, artificially low interest rates and new money created to bail out the credit and mortgage mess, this kind of price inflation can only get worse. In fact, it’s an absolute requirement for money and credit to keep expanding or an economic contraction will unfold. That’s something the government and monetary authorities fear above all else. The excessive debt and credit in our system would lead to a collapse. It’s inflate or face some very unpleasant music. Eventually, we’ll have to pay the price, but, for now, it’s more inflating.
Government statistics indicate an inflation rate of 2% to 3%. However, the rate of inflation can’t be judged accurately by a few items the government arbitrarily chooses to measure. When Wall Street analysts on TV claim that inflation is low and under control, it makes you wonder if they ever go shopping. The Federal Reserve makes a big noise about controlling inflation. The late economist, Murray Rothbard, had this to say about that ruse. "The drum-fire of propaganda that the Fed is manning the ramparts against the menace of inflation brought about by others is nothing less than a deceptive shell game. The culprit solely responsible for inflation, the Federal Reserve, is continually engaged in raising a hue-and-cry about ‘inflation,’ for which virtually everyone else in society seems to be responsible. What we are seeing is the old ploy by the robber who starts shouting ‘Stop, thief!’ and runs down the street pointing ahead at others."
You must prepare yourself for $10 a gallon gas, $10 for a loaf of bread, and $10 for a dozen eggs. Retirees are going to get crushed. If you have income, don’t let it go. Put a portion of your money into hard assets. Operate judiciously, with low risk. Regard all paper assets with suspicion. It’s possible that our money is losing 10% of its purchasing power every year. Remember that inflation is a hidden tax engineered by the government. The left wing economist, John Maynard Keynes, wrote, "By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens."
There’s more bad news. There is a pernicious philosophy loose in our land. It loathes free enterprise, capitalism, free trade and free markets. It aims to punish success by crushing business and entrepreneurs with high taxes. Its goal is to spread the liberal agenda of big government, welfarism, multiculturalism and socialism. It has no qualms about taking your money, reducing your freedom and increasing its power and control. Through the government’s welfare subsidies it turns our people into slaves of the state.
Inflation is the handmaiden of this wretched philosophy. According to the late and great Henry Hazlitt, "Inflation makes the extension of socialism possible by providing the financial chaos in which it flourishes. The fact is that socialism and inflation are cause and effect, they feed on each other!"
Fifty years ago the freedom philosopher, Leonard Read wrote, "the extent to which the government in this country has assumed the responsibility for the security, welfare and prosperity of our people is a measure of the extent to which socialism has developed here in this land of ours." Every new government subsidy, tax, regulation, bailout and benefit nudges us further down the road to socialism and national bankruptcy.
History shows us that socialism doesn’t work. Brought to its inevitable conclusion, it leads to hell on earth. It’s made to order for tyrants. It spreads poverty instead of plenty. It undermines the market system and private property. It ignores its failures with demands for more of the same. It refuses to see the blessings of capitalism and free markets. It is rooted in envy, force, expropriation and control. It is the blueprint for national ruin.
This is the source of the inflation you and your money are up against. You may think my nightmare vision is premature or exaggerated. The bread you once bought for a quarter is now $3.40 a loaf. This is the statistic to remember if you question whether socialism and inflation are winning. The so-called middle road between capitalism and socialism is a slippery slope that only leads to bigger government. This trend threatens your prosperity. Financial survival depends on your awareness of what’s happening. Social survival depends on how many people you convince.
DISCOURAGED WITH SILVER
Here’s an e-mail from Ted Butler:
Kevin, it is understandable to become discouraged concerning short term price action. But it is important to understand that rarely does short term price action tell us the real story. The key is the long term and a reliance upon facts and common sense. My answer to explain the short term is the manipulation. That's not just an easy answer for everything, but a position that has developed over intense study for more than a quarter century. I sincerely believe that we are extremely close to silver breaking free to the upside, but it is entirely possible that we may get one more jarring jolt to the downside in reaction to a steep sell-off in gold. If that comes to fruition, it should be the last engineered sell-off in silver for a long time.
Good luck to you.
Ted Butler
KURT RICHEBACHER, RIP
Anyone who has read our newsletter for a long time will recall my frequent mention of Dr. Kurt Richebacher. This able, free market economist passed away in early September at his home in Cannes, France.
For years I talked with Kurt by telephone at least once a week. We became friends. On several occasions he visited our office. I was initially attracted to him because he was the only economist who delivered the kind of dire warnings that would motivate people to take protective measures. He didn’t advocate gold, but he made an argument that was good for hard assets. He didn’t see the same kind of dangers that I saw from inflation. He warned more about contraction and economic collapse. About the current mortgage crisis he said, "The recklessness of both borrowers and lenders has vastly exceeded our imagination."
About two months ago I called him. He told me he had lost his eyesight. He was terribly upset. Later he advised it was permanent. I could think of nothing worse for someone who studied economic statistics. A few weeks later I heard of his passing. I will miss his personal lectures on the dire state of economic affairs in the U.S. Although his gloomy predictions have yet to unfold in their full fury, that does not mean that our economic sins will never catch up with us. Kurt’s dismay over low savings, loose money, government deficits, overconsumption, weak production, the trade deficit, huge credit derivatives, speculation and excess leverage in financial markets was well founded. He is gone now, but his warnings are as potent as ever.
Free Market Silver
Theodore Butler(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
No one alive has ever witnessed a free market in silver. Let me repeat that - no one alive has any practical experience with silver in a free market. Now that I think of it, no one dead had any experience with silver in a free market either. How could they? Silver has never been free. Not now, not ever. Please allow me to explain, and in doing so, hopefully convince you to buy as much silver as you can possibly afford.
A variety of forces have converged over hundreds and thousands of years that prevented silver from being freely traded. The most dominant force was silver’s historical role as money. For many centuries, silver functioned as money and governments regularly assigned rigid prices. Government-controlled prices are the antithesis of a free market. Those who lived through the hundreds and thousands of years that these controls prevailed never knew a free market in silver.
More recently, say over the past 100 years or so, government policies, particularly in the U.S., precluded silver from free market status. In the beginning of the last century, the U.S. Government was acquiring hundreds of millions, and even billions, of ounces of silver due to the Sherman Act. This act was a result of political influence from the western states, where silver was mined. If the government didn’t acquire silver at predetermined fixed prices, the price would have been much lower. Thus no free market.
Later, over the past 60 years, due to influence from the Silver Users Association and coinage programs, the silver acquired by the government, measured in the billions of ounces, was systematically released to the market, again at fixed prices. Thus, still no free market.
Now, after more than 100 years, the U.S. Government is finished acquiring and disposing of billions of ounces of silver at fixed prices. But silver has continued to be fixed, or manipulated in price, by leasing and the concentrated short selling on the COMEX. Once again, this means no free market price for silver. Therefore, no one reading these words has ever experienced a free market in silver.
Silver has been, and is still, manipulated. I’ve invested a lot of time and energy in trying to end the manipulation in silver, but that is not my purpose here. My purpose here is to show you how the manipulation is your greatest ally for investing in silver. Silver is artificially depressed. However, all manipulations must end. You cannot distort the law of supply and demand forever. When manipulations end, there is always a violent move in the opposite direction of the manipulation. Since silver has been manipulated downward for more than half a century, we know it will explode upward once the manipulation is ended. The trick is timing. If a manipulation is still likely to last for years, or even decades, that would prove to be too long a wait for most investors.
How long must we wait for the silver manipulation to end and for prices to explode? I’ll give you my opinion, but you have to decide for yourself. I think that the silver manipulation is going to end very soon.
The short-selling scam on the COMEX appears to be on its last legs. I base this on how obvious the concentrated short selling has become, and the inability of any regulator to adequately defend it. Without continued physical silver to dump on the market, and the paper short sellers on the defensive, the silver manipulation is on its last legs, in my opinion.
When the silver manipulation ends, as it must, we will suddenly and violently begin the era of free market silver. This is an era that will last forever, from whatever day it begins. For the first time in history, silver will be freely priced. Please try to visualize this. I know I am making an outrageous statement. I am telling you that for the first time in thousands of years, silver will suddenly be freely priced. There will be no force that can contain it.
Precisely because there are no longer billions, or hundreds of millions, or even tens of millions of ounces of silver on the hands of governments available to be dumped on the market, for the very first time in world history, the manipulation must end soon. There are hundreds of millions of ounces of silver in the world, of course, but these ounces are not available for dumping on the market. These remaining ounces are now held by investors looking for much higher prices to sell, not for dumping at current prices.
Precisely because the COMEX short selling scam has reached such obviously manipulative levels, it will end soon. Manipulations can’t thrive under the light of day. With no big available supplies to be dumped on the market, and with the paper short sellers under the spotlight, it is hard not to conclude that the manipulation will soon end and the price of silver will launch towards the heavens. Then the bargain basement, low-risk buy levels will be gone, quite literally forever.
When the manipulation ends, as it surely must, attention will be turned to how high the price might climb. This is what we all have no experience with. Maybe it is to $50 or $100. Maybe, as my silver mentor Izzy believes, it will exceed the price of gold. As crazy as that sounds, we are talking about a profound change in silver, from a manipulation existing for hundreds of years to an era where silver can never be manipulated again. After all, we are very clearly running out of silver.
The perfect time to buy silver is the day before the manipulation ends. If it were possible to know when that day might be, I would tell you. But it is impossible to know exactly when. What is possible to know is that day is coming, and coming soon. What is possible to know is that it will be better to be fully invested long before that day arrives, and not one day after.
If I am even close to being correct in my assessment of silver, you are being presented with something that is actually beyond a lifetime opportunity. This is an opportunity that has been many hundreds of years developing. That we are alive and in position to actually take financial advantage of this great change is almost beyond comprehension. The transition from a manipulated market to a free market is the most dramatic change possible. To catch that transition properly positioned can create a lifetime of wealth. The one sure way to guarantee you are properly positioned is with real silver. The vast majority of the world’s investors will miss this opportunity because they are unaware of the great dynamics in force. If you learn the real facts, and act while there is time to act, you will see the future and reap the rewards.
Silver Money
James CookWhen the price of silver began to rise in the early 1960s, people began to hang on to the coinage because it was 90% silver. The government tried to combat this hoarding by minting much larger quantities of silver coins. Instead of the usual 300 million new dimes in a year, they struck two and a quarter billion dimes in 1964. Instead of a hundred million quarters, they struck well over a billion. Instead of the 25 million half dollars they struck in 1960, they minted over 425 million Kennedy Halves in 1964. It didn’t work. The silver coins were grabbed up and began to disappear from circulation. The country was running out of coinage.
In 1965, the U.S. Mint dropped silver from the coinage and came out with a copper-nickel substitute. Subsequently, silver coinage totally disappeared from circulation. Over the years, a lot of these coins went into the melting pot and supplied industry with silver. Nobody knows how many are left. When demand is high, they take on a premium over their silver value. It’s possible that this premium can grow with higher prices.
Silver coin bags are one of the best ways to own silver. With the Silver Users Association confirming that silver is much scarcer than most people thought, silver coin bags may come under buying pressure and there may be far fewer than anyone thinks. Certainly the supply is not endless and you should buy them while they are still available at today’s price. You get 10,000 dimes, 4,000 quarters, or 2,000 half dollars in a bag that weighs 56 pounds and contains 715 ounces of silver. You can also buy uncirculated bags that contain 725 ounces of silver. We ship them by registered mail in half-bag lots in boxes that weigh a manageable 28 pounds. We mark them "machine parts" to maintain privacy.
Call us now at 1-800-328-1860 and buy some bags of silver coins. We don’t think you can go wrong owning these bags of silver.
Sincerely,
James R. Cook
President
