BEST OF JIM COOK

March 14, 2006

HARD QUESTIONS

In April 2001, when silver was at $4.36 per ounce, I interviewed Ted Butler. Here’s a few excerpts from that interview:

Cook: The silver price has been pretty flat for a dozen years. The last thing any silver buyer wants is to wait another dozen years. When is something going to happen?

Butler: The question of when is the question most often asked me. Let me be clear - I don’t know. And the reason I don’t know is because the answer is unknowable by me or anyone else. I’m not a spiritualist or a mystic. I’m a commodity analyst. As long as the current supply/demand deficit continues, it’s just a matter of time until we get a lift-off in prices. I don’t see how that can take years. To me, it’s days, weeks or months. Let me confess something. Everytime I write an article, or do an interview, I feel it could be a wasted effort, because the price will have exploded before the article or interview makes it into print. No kidding - that’s how I always feel. But, I don’t want folks buying on my feelings. I want them to buy real physical silver, for the long haul, because they have thought it through. If my work has aided them in that thought process and action, then that’s great.

Cook: The big trading funds have successfully depressed the price with their short sales. This is big money at work speculating against silver. What can possibly break the hold they have on silver?

Butler: The short answer is the law of supply and demand. These short sales that these funds have made are pure paper sales. There is no real silver backing these short sales. While the short sales do depress the price temporarily, the law of supply and demand adjusts to the new lower price, by increasing demand and reducing supply, over what would have otherwise occurred. The cure for low prices is always low prices. Besides, these paper short sales are incomplete transactions. They must be bought back at some point. I say that point should be explosive.

Cook: I tried to lift ten 100-ounce bars the other day. It’s almost 70 pounds. I can’t imagine that each day industry uses twenty thousand times this much silver. That’s an improbably high amount of silver. Are you sure this is right?

Butler: It’s heavy because you get too much for your money at these prices. Don’t worry, it won’t seem so heavy when it’s worth ten times as much. And not only does the world consume over 2 million ounces every single day of the year, between 300 to 400 thousand ounces are coming from inventories, primarily central bank leasing, every single day also. We are literally destroying and extinguishing hundreds of thousands of ounces of the tiny remaining world inventories on a daily basis because of the deficit. You don't have to be Albert Einstein to figure out that that can’t go on forever. That’s what makes silver such a great buy and value.

Cook: If the price rises, they could quit using silver couldn’t they?

Butler: Very few users will voluntarily quit using silver in a price rise. That’s because silver use is price inelastic. That is, there are few substitutes and the cost of silver is tiny in the finished product compared to total cost of the finished product. You really should be phrasing the question differently.

Cook: How so?

Butler: You should be asking what will happen to industrial silver users when silver is rationed.

Cook: Rationed?

Butler: Yeah, that’s inevitable. It is not possible to have a long-term current production-consumption deficit that doesn’t end in rationing. That’s basic economics. The only question is whether we do it by price, as should be in a free market, or some non-free market rationing scheme.

Cook: Can you give me your final thoughts?