Sensational Silver
August 2000

"Within our lifetime, silver may very well become more valuable than gold, as it was in ancient egypt."

Jerome Smith

Truly great profit opportunities are rare. Most people never see them or take advantage of them. The secret to capitalizing on these "once in a lifetime opportunities," is to buy into them before the knowledge of their profit potential becomes widespread. As more and more people become aware of an opportunity, the price appreciates and the potential for a big percentage gain lessens. The key is to get in on the ground floor. Such opportunities (as silver is today) often appear to be dead in the water. That dissuades most people. They won’t act until they see a price rise. Then they dither some more. Soon it’s too late. To make the most of a powerful opportunity to profit, you must act beforehand with independence and a certain amount of courage.

I am going to lay out the strongest cases for silver that you may ever see for any asset. I’m talking about a possible percentage gain of from 1000% to 2000% for the reflective metal. You may argue that such gains are available in technology and internet stock. There are some differences. One is that nobody gets in your face so forcefully and beats the drum for a stock as I am now doing with silver. You can’t say the opportunity was not presented to you. Secondly, many huge gains in stocks aren’t realized because much of the stock purchased at low prices is lettered or restricted from sale. Thirdly, there is still tremendous risk in high-tech equities. Many companies fail and others have seen their stock price collapse. If you bought these stocks late last year, you probably got hurt. Furthermore, many stocks eventually lose all their value. A major difference with silver right now is that there is limited downside risk. At $5.00 an ounce, silver fundamentals argue against any significant drop. In that sense it is a much stronger holding than a share priced at $5.00. The value of silver can never vanish or become worthless as can many types of stock speculations.

DREAM FORMATION

One of the most bullish chart patterns for a stock or commodity is known as a basing pattern, or flat base breakout. On this chart the price movement crawls along in a straight line for months or years. It is said to be building a base. Then it breaks out to the upside. Investment lore says "the longer the base, the bigger the move." The chart for silver shows a flat base for the past twelve years with only a small interruption or two. Some of the most powerful price moves have come off a flat base. Silver has built such a base and prices can catapult upward in a price breakout at any time.

 

RUBBER BAND

One of the things silver guru Jerome Smith taught me years ago was how any kind of intervention in a free market would eventually boomerang. (Smith was the author of "Silver Profits in the Seventies," a powerful and accurate analysis of silver that was said to have heavily influenced the Hunt Brothers). At the time, silver and gold were coming off a period of government price controls. This had artificially depressed the price. According to Smith a powerful upward surge was inevitable after this price suppression was relaxed. He claimed that prices would explode upwards after the controls were lifted and as usual, he was right.

A similar situation exists today with silver short sales that artificially suppress the price. In a nutshell, a tremendous volume of silver has been borrowed and then sold. The people who loaned the silver (central banks) expect to be repaid and most would not have sold it at $5.00 an ounce. In effect, the mining companies and others who borrowed the silver and then sold it have kept the price depressed. This silver wouldn’t have been sold at those prices by the owners. It’s wacky and it’s not normal to free markets. Commodity laws prohibit short sales from mining companies for more than one year’s production. That’s because nobody can look into the future for years ahead. Yet mining companies such as Barrick and others have borrowed silver and sold it in amounts up to five years of future production. It must be paid back eventually so it represents a huge short overhanging the market for years to come with the likely outcome of a painful short squeeze.

Silver expert, Theodore Butler, argues that silver would be $15 to $20 an ounce without these free-market irregularities. After all, who would sell silver at giveaway prices (under the cost of production) when it’s in known short supply, and demand is far greater than supply? Nobody sells something for which there is a shortage until they are enticed to do so by higher prices. Yet that’s what’s been happening. This represents more fuel on a potential bonfire. Ted Butler insists there will be an explosion that forces up the price of silver until these market distortions are cleared. Then the price of silver will have to come to rest at levels that reflect true supply and demand factors. According to him, it’s not out of the question for silver to rise to $50 or $100 an ounce.

Figure it out yourself. You have booming industrial demand for silver (soon to be a billion ounces a year). The available supply from scrap recovery and mining is 25% less than required. Above ground supplies are tapped out and used up. There is an ongoing short of stupendous levels that’s so precarious it’s considered by some to be an act of financial hari-kari. Silver has an incredible number of industrial uses and most can’t be substituted. Mining production can’t be easily expanded because most silver comes as a byproduct of other types of mining. Silver production fell last year. Taken in total it’s an amazingly bullish story that only needs to gain wide currency before buying pressure puts the squeeze on. Ted Butler prophecies that the frantic run up will go down in history as one of the powerful price explosions ever to occur.

 

1970’s REVISITED

Today silver is a forgotten monetary metal that (along with gold) is so out of favor that many so-called experts predict these metals are unnecessary and will never be popular again. It’s important to look at an earlier period when precious metals were long forgotten. Gold was confiscated in 1934 and ownership made illegal. The price of gold was fixed at $35.00 per ounce while silver was stuck at 50¢. By 1960 these once-important metals were all but forgotten. However, in 1968 silver went over $2.00 an ounce and gold to $42. What caused the reborn interest in precious metals? The resumption of inflation.

In the 1970’s the higher that inflation rose, the higher went the prices of precious metals. Just recently price inflation has shown signs of life again. You can be sure if the current inflation levels worsen, the prices of silver and gold will rise again and public interest will be rekindled. In addition, the precipitously high dollar threatens to falter and give silver another boost. A falling dollar pumps energy into the metals because a drop in the currency makes imports more expensive which is an inflationary blast we can’t stand.

Although silver has played a lesser role to gold as a monetary metal, it’s still an important alternative to the dollar. In the inflationary seventies it clearly emerged as a competitor to currencies and was purchased as a monetary hedge. It’s still an important monetary alternative and wealth preserver in India and other countries. When the inevitable decline of the dollar unfolds and inflation worsens, silver will be a hot commodity for worried hedgers and profit oriented speculators.

SILVER HEDGE

Few if any Americans see the possibility of a severe economic downturn. But despite their faith in dollar assets and avid belief in stock investing, we are way beyond the point where an ordinary recession is possible. A hard landing appears to be inevitable and the onset of an inflationary depression isn’t out of the question. Unfortunately, the longer the current credit-driven boom lasts, the worse the consequences.

We are living through the greatest money and credit excesses in history. For every dollar of economic growth there’s four and a half dollars of credit growth. For every dollar of savings growth in the first six months of this year chalk up ten dollars of credit growth. Consumer debt continues to hit records, corporate debt, margin debt, derivatives and financial leveraging are booming. In fact, for every dollar spent on goods and services there’s three and a half times that in stock market transactions. These credit and speculative trends show little sign of abating even with higher interest rates.

A financial crisis or depression will send people into silver (and gold) in a big way. A recession won't do it. But a crash in stocks and the dollar will renew buying interest as never before. You don’t need these events to have silver go through the roof. Nevertheless, they’re probably going to be in the mix. It’s just another important factor that will likely impact the price of silver.

Here’s what others are thinking about the boom and bust I so often warn about:

"Sooner or later this mania for financial assets is going to meltdown into the mother of all bear markets."

Leo Hood

"The question is whether the Fed will apply the breaks before the boom self-destructs."

Gerard Jackson

 

"Unprecedented credit creation…. record increase in the amount of debt…. gross misrepresentation of inflation…. [mean] major systemic risk to the US financial system."

Greg Pickup

 

"As this mania eventually wears its ‘addicted’ participants down to tree stumps, and the house drains every last penny from every unsuspecting price target believer who is in the midst of throwing life savings into anything that moves, that is when we will realize the true social consequences the tech mania has wrought on those who followed irresponsible advice."

William A. Fleckenstein

 

"The typical public investor is not concerned with current valuations or any serious study of economic or financial market history. They are concerned with short term action and gains. The worse the bubble inflates, the worse the ultimate reconciliation will be."

Brian Petri

 

"There is ballooning trade deficits, problematic real estate inflation, and mounting consumer and business debt levels…. The historic stock market bubble remains intact, replete with speculation, underlying leverage and a continued gross misallocation of resources. At the same time, the credit market is a bastion of speculative excess, saturated by endemic overleveraging. The derivative markets (interest rate, stock market, credit, energy, and gold – to name the major potential ‘hot sports’) are an accident waiting to happen, and the highly leveraged financial sector grows only more acutely vulnerable to overvalued asset prices, interest rates, and credit problems generally."

Doug Noland

 

"This will be an economic catastrophe on a scale never before seen in history."

The late John Exter

 

"The U.S. economy of the 1990’s easily ranks as the worst bubble economy in history. America’s financial boom of the last few years has been built on nothing but leverage upon leverage."

Dr. Kurt Richebacher

HOW TO HEDGE

Let’s say you have $1,000,000 in the market. If you believe there’s one chance in ten that a financial crash will develop, you need to hedge with 10% of your million in silver. That means you buy $100,000 in silver. Then the stock market collapses ultimately losing 80% of its value. You have $200,000 left in the market. Silver reacts favorably to the crash. More people buy it. Superimpose the economic crisis on a major silver shortage and monumental short squeeze. Silver rises to $40 an ounce. You break even.

Of course, nothing is quite that simple but you get the picture. I think we’re outlining a way for you to make a lot of money. I’m pushing hard because I’ve been through two great bonanzas in silver (1974 and 1980) and I know what it feels like. I haven’t advocated silver for fifteen years but now I sense the facts are more favorable than ever before. I want you to get in before the price starts to rise. I’m publishing my silver report on the Internet. I’m using e-marketing, direct mail, newsletter inserts, publicity and advertising to circulate my silver report and spread the word. If you haven’t read my report, call us at once and we will mail you a copy. Or check it out at www.gloomdoom.com. If you have already read it, then buy yourself some silver now.

 

mr. SMITH

Jerome Smith was partially responsible for the two most astonishing moves in silver ever seen. At the time, it was absolutely incredible to behold. In 1974 silver soared to an unbelievable $6.40 only to be followed six years later by an astonishing run to $50.00. If he were alive today he would quite emphatically tell us that this next move will be the big one. He’d be making his fearless predictions with both guns blazing. Jerome was one of the smartest guys I’ve ever known. He knew economics like few others. He saw the government as a negative factor. Most of all, he knew precious metals better than anyone and he made forecasts that were uncanny in their accuracy.

For a moment let’s visit the master. Years ago when silver was $1.00 an ounce Jerome Smith wrote these fateful words: "Truly outstanding investment opportunities occur only occasionally. In general, the better they are, the rarer they are. Such opportunities are normally long term in their maturation, and by careful study can be foreseen long before they come to the attention of most investors.

"When such opportunities do appear on the horizon they are often due to one or more of the following categories of primary causes:

1. Major technological advances creating new products and new demands for particular raw materials, or the lowering of the cost of production for existing products.
2. Market demand that is insensitive (or ‘inelastic’) to changes in price.
3. Market supply that is insensitive to changes in price.
4. Imposition or removal of political intervention in the market.

"The very highest profit potential occurs whenever there is a convergence of two or more of these primary causes. Such as is with silver today."

Today all these factors are converging and more:

1. Technology absolutely requires silver. China, India and Indonesia have huge populations buying TVs and electronic devices that use silver.

 

2. Market demand will be there no matter what the price. General Electric and others use tiny amounts of silver in their products. They can’t do without it and a price rise in silver can easily be passed on to consumers.

 

3. The supply can’t be expanded dramatically from mining, e.g. you can’t expand zinc mining to get a small additional amount of silver. The availability of scrap (silverware, jewelry, old coins) has been greatly diminished by prior price run ups and extensive melting of silver coins right up to the present.

 

4. We’ve shown how leasing and short selling have acted as an unnatural intervention in a free market that held down the price.

 

5. This is new. Jerome Smith would salivate; a huge (possibly a billion ounces or more) short position overhanging the market that establishes the strong possibility of a short squeeze of epic proportions.

 

6. A population that’s very aware of previous silver price run ups and the mythology surrounding the Hunt brothers.

 

7. The exhaustion of the billions of ounces in the above ground supply that were held by governments and others when Jerome Smith was alive.

 

8. Falling silver production from mining.

 

9. The world’s most successful investor, Warren Buffett, took down a large position of physical silver. (This is important because it tends to verify our arguments. Nobody takes such a big position without extensive research.)

 

10. Numerous other things are different and more bullish for silver than in 1970. Low savings, massive credit expansion, a consumption boom, malinvestment, debtor nation status, monumental balance of trade deficits, mega-trillion derivative positions, record margin debt, corporate leveraging, stock buybacks, financial engineering and speculative excess. In other words, the possibility of a crash is greater than ever and only a few options will protect you in that scenario. Silver would be one of the best.

 

All of these primary causes for a rare profit opportunity are converging and will soon be at work in the silver market. As Jerome Smith argued in 1982, silver is a cheap precious metal on its way to becoming a scarce and expensive strategic precious metal. I can’t imagine anyone making a stronger case for any other asset. I urge you to climb aboard the silver express, likely to be pulling out of the station quite soon. Call us today and start building your position in silver.

Call now 1-800-328-1860.

Sincerely,

James R. Cook

President

*Prices subject to market fluctuations.

P.S. We have a free book for you. In my special Report on Silver, we were selling silver expert, Ted Butler’s high-powered "Silver Expose, The Bizarre and Incredibly Bullish Story of Silver in the Modern Era," for $69. This thick and meaty compendium of Butler’s essays and high profit conclusions is a must read. We’ve decided to give this $69 book away for free. Don’t miss it. Call us now for your free copy.

P.S.S. Don’t forget to buy a copy of my novel, Full Faith and Credit, A Novel About Financial Collapse. In this story a lone speculator maneuvers through a panic and stock market crash to pile up a great fortune. As depression and crisis unfold he becomes the focus of national attention. Meanwhile, the President of the United States meets with the Chairman of the Federal Reserve and the Treasury Secretary who are fiercely at odds on how to save the crumbling finances of the government and the nation. Don’t miss this spellbinding tale of fame and fortune set against the backdrop of a nation’s failing economy. On sale at book stores now.

<-- BACK TO GLOOM AND DOOM REPORTS