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WEEKLY COMMENTARY

December 26, 2001

By James R. Cook

Truly outstanding profit opportunities occur only rarely. They generally come about when two or more bullish factors converge. The better they are, the more infrequent they are. The highest potential for profit exists when a number of primary causes come together as is the case with silver today. At least eight major bullish factors have converged to set the stage for a possible percentage gain of extraordinary magnitude. There has never been anything like it with any other commodity or asset in history.

Most Americans don’t realize how truly important silver is to industry and how strong the demand is. Nor do they know that the U.S. government, which had almost 6 billion ounces of silver in 1940 will run out of silver this year. Even the national defense stockpile is gone. The current shortage of silver is greater than the known world supply. No way will there be enough silver to go around at today’s low prices.

SENSATIONAL SILVER

Over 90% of all the silver that’s been mined in the past 5,000 years has been used up by industry and is gone forever. Actually we are to the point where silver is scarcer than gold. That’s right! There’s ten times more gold in the known world supply than silver. That’s because silver is consumed more heavily by industry.

Each and every year the silver supply falls 150 million ounces short, or about 20% of industrial demand. All the known and recorded silver in commodity warehouses and elsewhere only comes to 150 million ounces. Industry requires almost 900 million ounces each year. Something has to give. Mining and recycling falls way short of providing the necessary silver.

ENDLESS USES FOR SILVER

New uses for silver keep expanding. Silver is the best conductor of electricity. It’s an absolute necessity in high tech. Every computer, server, monitor, cell phone and switch must have silver. Lasers, satellites, high-tech weaponry and robotics, all require silver. Digital technology and telecommunications absolutely need silver. Around the house there’s silver in every TV, washing machine, wall switch and refrigerator. Silver is the best reflector of light and the photographic demand for silver grows each year despite digital imaging.

SILVER IS SPECIAL

Silver has properties that make it unique and irreplaceable for industry. Nothing else combines strength with a softness that allows it to be formed and stretched. Nothing conducts electricity as well or is malleable, fatigue resistant, wettable and corrosion resistant. Nothing else has such high tensile strength, is wear resistant, has such a long functional life or is as light sensitive. It endures temperature extremes, conducts heat, reflects light, provides catalytic action, is bactericidal and reduces friction. It alloys and has chemical stability. From this you can see that silver can’t be substituted. It has too many unique properties.

Silver expert, Theodore Butler states, "In my opinion, there will never be a more bullish coming together of factors for any asset than there is for silver today. It is quite literally bullish beyond our ability to fully comprehend. Nothing this good will ever stare you in the face again. Look at the facts. If you understand fully what I am saying about silver, you are going to own it."

Newsletter author, Brien Lundin asks, "What’s the only investment Warren Buffet, George Soros and Bill Gates agree on? The answer is silver."

CAPITAL PRESERVATION

Gold and silver play identical roles when conventional investments go sour. They act as a storehouse of value. Whenever currencies fail and economies contract, people turn to gold and silver. Whenever bankruptcies and defaults sweep through a nation or a credit collapse shakes the financial foundations, people rush into precious metals. Gold and silver protect against loose money and credit. Silver acted as a perfect hedge against the inflation of the 1970s.

Silver promises to act as a bulwark against inflation, a falling dollar and depression. That’s a primary reason to buy silver. It’s one of the best means of preserving capital. Any pending price rise because of short supply and industrial demand is a bonus. Silver will let you keep what you have in the face of today’s unfolding economic problems. Ten to twenty percent of your net worth in silver will keep you hedged, keep the rest of your wealth insured and keep you partially outside the paper and credit woes of a highly leveraged financial system.

REMEMBER THIS ABOUT SILVER

Over a billion silver oxide batteries of all sizes power everything from tools and portable TV cameras to watches, cameras and small electronic devices. Silver zinc batteries power spacecraft, satellites, missiles, rockets and torpedoes.

Silver-coated bearings provide super performance and safety for all jet engines. Silver is used for brazing that joins materials together. This gives it wide use in air conditioning, refrigeration, power distribution equipment, automobiles and aerospace. It’s used in faucets and refrigerators. It provides strong bonds for high-power radar tubes, silicon chips in computers and circuit boards in all types of electronic devices.

As a catalyst, silver enhances the efficiency of chemical reactions. It’s an essential catalyst for producing formaldehyde and ethylene oxide used in making plastics. Silver catalysts are important in producing adhesives, resins, plywood, particle board, paint, finishes, paper, textiles, packaging material, insulating materials, auto parts and even dinnerware, buttons and toys.

Silver conducts electricity better than anything else and has widespread use in conductors, switches, contracts and fuses. Silver is the metal of choice for ordinary household wall switches because it does not corrode and cause fire. Today switch manufacturers play it safe by using high-performance silver for ordinary household switch and circuit breaker contacts. In the home, wall switches, timing devices, thermostats, sump pumps, and virtually all electrical appliances use silver contacts. A typical washing machine requires 16 silver contacts to control its electric motor, pump and gear clutch. A fully-equipped automobile may have over 40 silver-tipped switches to start the engine, activate power steering, brakes, windows, mirrors, locks and other electrical accessories.

Industrial and health uses make up almost half of the demand for silver. Another 30% goes into silver jewelry, especially in India where new prosperity means strong demand.

RECENT ECONOMIC NEWS HAS BEEN

THE WORST IN MEMORY

Industrial production, capital investment and corporate profits are collapsing. Despite the gloomy statistics, Wall Street optimists are engaged in massive denial. Stocks are still high. The S & P stands at over 30 times earnings, a level heretofore found at market peaks. Wishful thinking has replaced financial reality.

Corporate losses stagger the imagination. Billions are written off weekly. Earnings are vanishing. Layoffs are exploding. Low savings and high debt levels have killed off crucial investments in capital goods and replaced them with too much consumption. The boom we experienced was the result of hype, leverage and credit extremes.

This downturn appears worse than any in living memory. A huge trade deficit, declining profits, corporate downsizing and restructuring, statistical juggling, massive interest obligations, foreign indebtedness, weak balance sheets, overleveraging, inflated asset values, diminishing cash flows, retrenching consumers, soaring depreciation charges, rising defaults and delinquencies, loss of the wealth effect, misguided profit strategies, falling income growth and the replenishing of cash reserves make this business cycle downturn radically different from any other post-war recession.