Peregrinations of a Silver Bug; Where's the beef?
David Bond
October 1, 2003When we migrated southward to the United States, my dad had the good sense to convert his life's savings into Canadian silver coin - that tough year for Canada after LBJ hurled the USA into the abyss of base-metal coinage. The poor Canadians continued, for another year, to back their dollars with freshly minted silver dimes, quarters, halves and wholes. Coins that went "Ding!" on the counter.
Couldn't make them fast enough, of course, because the Yankees were more than eager to trade their new LBJ paper for the real McCoy. Canadian silver didn't stand a chance and in 1968 its party ended with the same cupro-nickel corruption of Canadian coins that LBJ had foisted upon Americans.
Bad money always, always, always chases good money from circulation.
Dad had enough sense to sense this, and when we departed Canada for the U.S. we carried with us a $5,000 bag of Canadian silver coin in the trunk of the '47 Chevy we towed. Canadian silver coins were being accepted at par with the U.S. dollar at the same time Canadian currency was discounted on the order of 35 percent.
As an enterprising teen, I quickly noticed that there were still quite a few U.S. one-dollar Silver Certificates in circulation, and that most people paid no mind to the difference between them and the increasingly pervasive Federal Reserve Notes. So I began collecting Silver Certificates.
"This Certifies That There Is On Deposit in the Treasury of the United States of America ONE DOLLAR in SILVER Payable To The Bearer On Demand."
That's what the Silver Certificates, mostly in 1957, 1957A and 1957B series said.
There was no asterisk or minutely-written caveat referencing an expiration date or conditions under which the Treasury of the United States of America reserved its right to renege.
Well, here I was, fresh from Canada, living now in the shining city on the hill: America. The word, the full faith and credit of the United States of America was as good as gold the world over. Sound as a dollar. Right? I took the lying thieves who'd hijacked the Treasury Department at their word.
Every Saturday morning, I'd hitch a bus-ride to downtown Spokane, Washington with a fistful of 20 one-dollar Federal Reserve Notes. I'd find an un-busy cashier at the Crescent or Bon Marche department stores and ask if they'd mind going through their cash-register tray to fish out any Silver Certificates in the one-dollar slot, and exchange them for my Federal Reserve bank-notes.
This was not a difficult chore. In an era before metal detectors at the airport and a surplus of bored cops busting people for no particular reason, Americans were a trusting lot. Half the time, the clerk merely handed me his or her stack of ones from the till, let me shake out the blue-sealed Silver Certificates, and swap them for my Fed-notes, which of course promise nothing.
Over the course of the ensuing school year - my first year in the United States of America - I'd managed to cull about 100 Silver Certificates from Spokane circulation. More were out there, but we had a lame winter, and income from snow-shoveling the neighborhood's driveways dwindled to a trickle.
Then, in what I still regard as the single most serious betrayal of my last five decades, the bastards broke their word. No longer would the United States of America redeem my Silver Certificates. They were just paper dollars with minor numismatic value.
So much for the full faith and credit of the United States of America. The full faith and credit of the United States of America is, as a transplanted Canadian or Brit might say, bollocks! It's not worth the paper (numismatic value notwithstanding) it's printed on.
I laid this failed trust at the feet of Lyndon Johnson and the Democrats, and cheered robustly when in my senior year of high school Republican Richard Nixon came along. Honesty and integrity would be restored. Forgive my sophomoric naïveté: Nixon performed the final debauch of U.S. currency by "floating" it, removing from the dollar any scintilla of connexion to Fort Knox, any vestige of credibility. (Nixon also gave us the Environmental Protection Agency, which has been wielded ever since by New World Order types as a vicious club against the domestic mining industry).
Turns out, the last American president to attempt to restore integrity to the United States dollar was John Kennedy, who made an end-run around the Fed with his United States Note.
Pardon the pun, but "note" the differences:
In 1963 Kennedy issued approximately $4 billion worth of United States Notes which - unlike Feds - were debt- and interest-free. They weren't Silver Certificates, but they did imply a pledge by the U.S. government, not a private bank. A few months later Kennedy was thanked for his efforts in Dallas, and his United States Note quietly and quickly vanished from circulation.
Seems the rest of the world is catching on to the revelation, delivered by LBJ and Nixon to this stunned and naive teenage kid, that the word of the United States and its Federal Reserve banks is indeed bollocks. Hence the Euro, the Dinar, and the newfound interest in silver and gold. As more and more oil-exporting nations buck IMF and the World Bank edicts that petroleum purchases be settled in Federal Reserve Notes, the further the dollar - relative to silver - will fall.
I was both a player and a spectator in the 1977-'81 silver boom. The newspaper I edited in Wallace was just a block down the street from the Pennaluna & Co. brokerage office, where long-somnambulant penny mining stocks were suddenly trading at 10 times last year's price. Hard-rock miners from Hecla, Asarco (now Coeur), Sterling's Sunshine division and Bunker Hill would filter in off the graveyard shift at 6 a.m. to check the board and swap stories about vein discoveries and ore grades from their silver stopes a mile underground.
Back then, Hecla was the only naked play in silver: the rest of the companies were partially or fully "hedged" at prices far below the $48 peak. And the only reason Hecla wasn't "hedged" was because its bankers forbade them - fallout from Hecla's flirtation with bankruptcy in a failed copper venture.
(Could someone out there in 321-land explain to me why the cautionary term "hedge" is applied to short-selling, while "speculation" - a more pejorative word - describes going long? A bet in either direction is still a bet, after all, isn't it?)
At any rate, vast sums were made by "speculators" in the '77-'81 bull market, in physicals, in the majors, and on the penny boards. And just as quickly, the gains receded, thanks to intervention by the government in the commodity markets.
The Hunt brothers were no altruists, but they did get screwed by the Comex's invocation of a liquidation-only trading rule for silver and I will go to my grave believing that what triggered that intervention was Bunker Hunt's threat to start issuing his own silver-backed currency.
This boom will be different for many fundamental reasons.
In 1979, home mortgage loans were going for 20 percent APR. Inflation was so amok that you'd see two or three successively higher price stickers on a week-old can of soup in the grocery store. The Savings and Loan industry, lent long and borrowed short, was quivering on collapse.
Equal parts Eighties quick-buck greed and Chicken Little psychoses drove the metals skyward back then. Reagan knew he had to break inflation, but with the help of the Fed he broke it on the backs of the commodities, and silver was collaterally damaged - FUBAR.
There's a different breed of cat in play this time around, if the unscientific pulse I took at last weekend's Silver Summit here in Idaho is any indicator. The New Millennium's silver bug isn't looking for a quick in-and-out buck. He or she is looking for value. The new silver bug is cautious, level-headed, even-handed and sensibly skeptical. As we learned at the Silver Summit, the new player in silver wants to get up-close and personal with the individuals whose stock he is buying, and lay hands on the property or prospect he is buying into. He will make his own decisions, not follow the mob.
The New Millennium's silver bug seeks not only value but tangibility. There will be no room for blue-sky in this bull market. Not much demand, that we could see, for paper mines in Outer Slobbovia trading at a kazillion times earnings. Thanks to the dot-com debacle, we're all a little greyer and wiser, and before a single simolean slides out of our wallets, we want to know, "Where's the beef?"
Here is where the surviving mines of the world's richest silver district in northern Idaho's Silver Valley - the Bunker Hill, the Coeur/Galena, the Sunshine and the Lucky Friday - suddenly find themselves in the catbird's seat. And this is the ultimate of ironies. Because 30 years of post-Nixon environmentalist and Fed-shorted depravity drove the hard-rock mining industry nearly - but not entirely - from American shores, the handful of American silver miners still operating or maintaining properties find themselves holding assets of incalculable value and tangibility. Try taking anything off the streets - be it guns or silver mines or crack cocaine - and the ones you miss will rise exponentially in value. The anti-mining Greenies did the American silver mine investor a bigger favor than a bull market ever could: they created scarcity. There will be no new primary silver mines in America in the foreseeable future. The ones we've got left are incredibly undervalued.
As to silver's underlying value, only time and a disinterested market will tell. Silver-investor.com's David Morgan and I were chatting 'Silver Summit 2003-post-mortem' yesterday about the future. The first thing that needs to be intrinsically understood is that nobody knows what the "real" worth of silver is, because silver has not been trading in a free market. Do you mean silver's value in terms of Federal Reserve Notes? Or the Euro?
Silver may break loose of the Fed's straitjacket, but then what do we do? Do we value silver in terms of Federal Reserve Notes, or do we value Federal Reserve Notes in terms of silver? The pair broke their time-honored earthly connexion nearly four decades ago to our nation's imminent peril.
We agree on this: - that a 1979-style quick-buck run-up in silver is probably six or eight years out, but that in the meantime we will see steady, measured growth in a value-driven commodity and reborn industry. What I do know is that history tells us that fiat-based currency such as issued by the Fed rarely survives more than 30 years without hyperinflation or stagflation. The U.S. dollar is running on pure luck and serendipity now, and is worth no more than the world's opinion of the "full faith and credit of the United States" - which, if world reaction to Bush's failed foray into Mideast politics is any gauge, ain't worth much.
For a serious silver play, Morgan is recommending certain majors, minors and speculatives and the funny thing is, I can hit most of their properties with a well-thrown rock from my front porch right here in Wallace, Idaho.
Bulls, hell. I'm seeing elephants.
David Bond
October 1, 2003David Bond covers gold and silver mining equities for a number of national and international publishers, including Platts Metals Week, a division of McGraw-Hill. He lives in Wallace, Idaho, heart of the planet's richest silver fields, the Coeur d'Alene Mining District. He is former editor of the Wallace Miner, and holds regional and national firsts in investigative journalism from the Atlantic City Press Club (National Headliner) and from the Society of Professional Journalists (SDX/SPJ) and has edited or written for newspapers on both coasts, Canada and Alaska.
