Thursday, September 8, 2011

Buy Silver because Silver Is Beautiful

Buy Silver because Silver Is Beautiful

Buying more SVM today. Look at the numbers here. http://www.fool.com/investi…

Posted: 08 Sep 2011 08:16 AM PDT

Buying more SVM today. Look at the numbers here.

http://www.fool.com/investing/general/2011/09/07/is-silvercorp-metals-the-perfect-stock.aspx


Is Silvercorp Metals the Perfect Stock?
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A Thought Experiment, or Why You Should Buy Silver Today

Posted: 08 Sep 2011 07:02 AM PDT

A thought experiment: 

Suppose I have $10K in debt.  Suppose also that I purchased 200 Silver American Eagles at today’s spot price of around $50/oz.  Today, 200 Silver American Eagles will pay off that debt of 10K.  As more dollars are put into the banks/economy, the dollar denominated value of silver rises.  The Fed is buying approximately $100 billion dollars of TBonds per month, effectively loaning this money to the Treasury to fund the budget deficit, now around $125 billion per month.  This printing represents a dollar devaluation, as more of it (the dollar represents a note of debt owed to the Fed) enters circulation and chases limited hard goods. The value of silver is not increasing–the metal just sits there.  More debt repayment instruments are entering the system, making each less valuable.  While there are supply/demand issues involved with silver price determination, let’s table those for purposes of this discussion.

If silver goes to $100/oz., my debt can be paid in only 100 silver eagles. My cost for those eagles was only $50/oz, though, so I paid $5000 to pay off a $10000 debt if silver does indeed rise to that level.  Suppose silver goes to $200/oz.  It will then take only 50 silver eagles to pay off my debt.  My cost basis to pay off 10K, then, is only 50X50=$2500!  Wonderful if that indeed happens! I think it will, in part because of the following. Much more evidence can be gathered, of course, but I’m limited today and will only speak to what I’ve learned in the past few weeks.

See here for information about silver supply shortages and potential silver delivery issues:

http://www.zerohedge.com/article/how-comex-lost-20-its-registered-silver-one-week-or-where-theres-smoke-run-theres-probably-r

Note that silver mining stocks are going nowhere fast in today’s market (although SVM is looking GOOD today). Supply will decrease as dollars are going into paper silver ETFs like SLV and PSLV, and not investment in the miners. Many states are working toward use of silver and gold as forms of money. Supply will decrease with passage of such laws. Supply for industrial and medical uses is increasing every year. Going long silver is going long technology. Investment demand is higher than ever before, with huge dealers (APMEX) asking customers to sell their silver back so that APMEX has inventory. 2011 silver eagles are not being minted. Paper notes for silver will soon meet fraudulent accounting standards with no supply of the physical. Could go on….I’ll leave it there for now.

The Fed for some reason believes that the US Dollar _as paper_ has intrinsic value. Talk of the “strong dollar”. The dollar/US economy is incredibly weak. 68,000 jobs at McDonald’s with 932,000 applicants turned away, little manufacturing base, few family/mortgage supporting jobs being created, continued increase in war spending, raising of government debt ceiling and no end to government spending (and former Treasury secretary Paul O’Neill calling those against raising the debt ceiling “our version of Al-Qaeda terrorists”–I guess they all need to go to Gitmo, right Paul?), 25% unemployed or underemployed, peak oil (5-10 year supply with no movement to convert country/world to new energy standard), education cuts around the country, Japanese Yen carry trade collapsing (and Fukushima radiation increases, meaning supply chain disruptions, decline of Japanese economy), no mark to market in bank books meaning housing crisis has yet to unwind, etc. etc. etc (insert your favorite complaint/worry here). Dollar to weaken, hard assets to strengthen.

Walmart CEO on Inflation: http://www.zerohedge.com/article/wal-mart-ceo-shoppers-are-running-out-money-there-no-sign-recovery

McDonald’s Hiring 62000, Turns away 938,000 applicants: http://www.zerohedge.com/article/mcdonalds-hires-62000-turns-away-over-938000-applicants-minimum-wage-part-time-jobs

I can profit knowing that inflation is here and by knowing that the goal of the Fed is dollar devaluation. Here’s my plan for paying off debt for pennies on the dollar:

1) Pay only the minimum on any credit card/loan debt you currently have (make sure you are focused on paying off the highest interest debt first).  Any additional funds you would normally send for the loan, put immediately into physical silver or gold (NOT funds/stocks).  As the dollar falls in value, silver and gold will “rise” in dollar denominated terms.  Buy on a fixed schedule (every week, every two weeks, etc.) so that your “cost” average does not fluctuate wildly. Think of it as a currency exchange–you are not “buying” anything. You are exchanging a note of debt for real money, a real asset that will increase in value over time as supply decreases.

2) Wait a few short months, at the long end, maybe a year.  Continue your regular purchasing program. China will be dumping Treasuries, searching for hard goods, as will Japan.  No one will any longer want these Fed created debt paper instruments, and as the purchasing power of each weakens, the pace of the dumping of the dollars will increase.  More and more dollars will chase fewer and fewer real assets. Silver, gold, and other commodities will be bid for at increasingly higher prices. Low supply meet increasingly high demand. The Fed will continue to purchase bonds and thus print money. They have to. There will be few other bids for them at current interest rates. Who wants a 0.5% return over 2 years when inflation is 8-10%? The Fed has to raise interest rates. Except they can’t. Mr. Bernanke said this week that they will not in the near future. If they were to raise rates, paying off the interest on the national debt consumes a greater and greater part of the GDP. I don’t think there is any way for this level of debt to unwind in an orderly fashion. More dollars will be printed, so the bids on all assets will increase.

3) Sit down first in the game of musical chairs. Mix metaphors. Grab a lifejacket as the Titanic begins to sink. Commodities will be the chair or lifejacket respectively. Start your purchasing program today. After you see silver/gold at a price point that reduces your debt load to pennies on the dollar (remember $100 silver effectively cuts my debt load in half), go to a coin dealer and sell for dollars, then send dollar payment for your loan. Or just hold longer and trade for land/food/whatever you want when the dollar trends toward zero. There will be little PM availability at that point, at least dollar denominated PMs.

While a debt jubilee should be declared immediately, there is no way it will happen. I think an attempt to declare WW3 will occur before the current system will let that happen. So let’s move on to another system. No reason to panic. Easy–trade hard assets for hard assets until the debt unwinds for a while. Buy Local as much as possible. Grow a victory garden for your family. Walk/bike around town to reduce carbon emissions and conserve oil resources. Meet your neighbors. Go for a much needed walk to meditate, pray and clear your head. Exercise daily. Eat well. Focus on teaching your children strong moral values, whatever those might be for you. I’m feeling really optimistic now while thinking about this–excited for the future. I sense the flowering of an Age of Enlightenment. More on this later. I know there will be questions about a deflationary period for the economy, so I’ll have to think about where I see commodities going in that case.

Peace and light to all on this beautiful day gifted to us by the Creator.
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