STRAIGHT TALK ON MANIPULATION

By Theodore Butler

Late Jun 2009

(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

This article comes as a result of recent conversations with my friend and mentor Izzy Friedman. Our discussions on silver go back decades, to the mid-1980’s. Some may marvel at how two grown men can debate such an apparent narrow issue on almost a daily basis for 25 years. What could we possibly find new to talk about? The truth is that not only do we find new things, the debate oftentimes becomes quite heated. Why this intense continued interest in this metal?

Silver is an interesting topic in itself. Like all world commodities, it’s impossible to study and keep current on all the issues impacting silver without being aware of what is going on in the world. It forces you to be knowledgeable on a host of current events, including economics. It forces you to study history and contemplate the future. It helps make you well rounded. Such thought processes are more satisfying than keeping up on the latest celebrity gossip.

Most important is the financial angle to silver. This is the primary interest of those that read my articles. Silver is an asset that can make people a lot of money, perhaps even provide financial salvation to many. It requires that you buy it in the right form for the long term. Without the chance to score big financially, most people would not be that interested in silver. This big pending silver gain is tied to the hip with my main motivation for the past 25 years - ending the manipulation in silver. Fortunately, we are approaching the flip-side of this manipulation. That’s when the silver price stops behaving as it has for 25 years. This will be the glorious time for the price of silver.

I know that many readers have trouble fully grasping the manipulation issue. Admittedly, it is complex. I know that some believe that such a long-term manipulation is not possible. The CFTC has denied the silver manipulation for so long, that they have no graceful way to change their position, no matter how compelling the evidence. This manipulation is the most important market issue possible. That is evident by the attention that the regulators exhibit when dealing with it. However, it’s never about simple and direct answers, in a timely manner. It’s always a stall and never a fair and open debate. But the evidence of wrongdoing, in the form of a continued super concentration on the short side, has grown so compelling that another whitewash is likely to be as well received as the Iranian election. That’s why the silver manipulation appears to be on its last legs.

Once this manipulation ends we will be able to measure the full extent of the damage. The long-term price suppression is the prime component behind the depletion of silver over the past quarter century. The dangerous predicament that a few short sellers have placed our country and the world in is related to the minimal remaining inventories. We have no buffer to smooth out the coming shortage, except at extremely high prices. The artificial low prices caused by the short sellers are responsible for the depleted inventories. There is no water for the fire trucks to put out the fire caused by a silver shortage. The short sellers have seen to that.

Investors in silver, of course, won’t consider the wildly escalating prices as damage, nor should they. There will be great fortunes to be made in silver, but that still doesn’t excuse the dangerous predicament a few greedy short sellers and lax regulators have created. More people are becoming aware of the real story in silver and are doing what comes natural, namely, getting their share while there is still time. There are certainly no big government stocks of silver remaining in the world. We won’t wake up to any announcement that the IMF or any other official source will be selling silver, like was just announced in gold. How can they, when they don’t own any silver?

In addition to the crime of market manipulation and the pain to producers and their employees that these short sellers have caused, they are guilty of treason. That’s a very strong word, but I think it applies not only to the short sellers, but also to their protectors. That’s because they are placing our country in jeopardy in the manufacture of defense items. The US is dependent on imports for 70% of our silver consumption just like petroleum. We all know the danger in crude oil. That’s why we maintain a strategic petroleum reserve. We have no strategic silver stockpile, just empty vaults, thanks to the big short sellers. The coming world-wide silver shortage places us in jeopardy, not just for defense, but for all types of the manufactured goods produced here and the jobs that go with them. How a US regulator, the CFTC, can stall while this condition festers is beyond me.

Because of the manipulation, silver is a better long-term buy than at any time in the past 25 years. I see us reaching a more extreme shortage scenario with price peaks that are, quite frankly, so astonishing I don’t care to pinpoint them here. On the one hand we should be outraged about the continued illegality of the ongoing price scam, while on the other hand elated over the extreme price escalation that will undoubtedly occur because of it. There will be nothing moderate about the outcome.

One last thing. As I write this, it appears that the “normal” resolution of the lopsided market structure in COMEX gold and silver is unfolding. In other words, the big shorts are ripping the rug out from under the tech fund leveraged longs. When this rug-pulling is completed, it is my strong conviction that this will be, once again, an absolutely perfect time to buy silver and put it away. And if the CFTC ever gets around to enforcing the law, it will be the last time such an opportunity exists.

MORE TURBULENCE
By James R. Cook

When the writer and economist Kurt Richebacher died two years ago, I lost an irreplaceable friend. Kurt was a German who had been chief economist at the Dresdner Bank. He was living in the South of France when he died. On several occasions he had come to Minnesota and stayed at my home. Our friendship developed twenty years ago when I called him about an article he had written on the U.S. economy.

Kurt was the only economist of the Austrian School who wrote regularly about the economic follies of the U.S. and applied Austrian thinking to contemporary issues. Here’s an example written five years ago. “An impending U.S. downturn is poised to hit a deceptively frail financial and economic foundation. The consumer sector is tapped out with a monstrous debt load and negative savings. The business sector is running a huge cash flow deficit while in the midst of an unsustainable borrowing binge and aggressive expansion of dubious enterprises. In the financial sector, overleveraging and reckless speculation exist as never before. The combined excesses of all three sectors underlie the unprecedented U.S. stock market and economic bubble. In short, the entire system is an accident waiting to happen."

In 2005 he wrote, “Given the preposterous leverage underlying all U.S. asset markets, the Fed is running an immense risk of bursting the asset and credit bubbles with a bang. The second major risk we see is that an unexpected sharp slowing of the U.S. economy will shake the prevailing complacency, with dire consequences for the economy and its financial system.”

It’s a shame he did not live to see the accuracy of these warnings. There isn’t an economist living today that begins to approach his analytical skills. They give Nobel prizes to some character writing about carbon footprints or a whiz kid at the New York Times who thinks the cure for poison is to drink more poison. The world will never know about Kurt, yet he was a genius and none of the other economists, writers, politicians and talking heads could see what he saw. That’s why you can’t be persuaded by their endless opinions. You must think for yourself.

I’d love to be able to ring up Kurt today and get his opinion on what’s going to happen now. If I had to guess, I believe he would say the credit excesses have not been fully liquidated. He would anticipate a further downturn. He would be shocked by the Federal Reserve’s unprecedented attempts to reliquify the system. He would see grave danger in excessive credit growth. He would not be anticipating a strong recovery because of the erosion of the manufacturing and production base. He would warn against speculation and be fearful that the Fed’s attempts at quantitative easing would generate another asset bubble. He would be fairly certain that the American consumer was finished for a long time to come. In effect, he would say that America has shot itself in the foot.

Kurt Richebacher would be at odds with most everything the government is doing to revive the economy. The fact that he so accurately predicted the severity of the current downturn suggests that Austrian economics can’t be denied. It offers a road map to the future. That means the greatest Austrian economist, Ludwig von Mises (1881-1973) should be heeded when he warned about a crack-up boom and hyperinflation. It also means we should harken to the words of Nobel Prize winner Friedrich Hayek (1899-1992), in his book “The Road to Serfdom.” We are definitely on that road. I believe that if all three of these economic thinkers were alive today, they would be deeply pessimistic about our future.

TED BUTLER’S TEN MOST
BULLISH PRONOUNCEMENTS

(These comments were written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
1. “Nothing in the world has the potential to multiply your net worth like silver.”
2. “I believe silver is the most undervalued commodity on earth today, and perhaps ever. The coming silver price explosion has been 60 years in the making.”
3. “The fundamentals of silver are so bullish and so compelling that I couldn’t make them up if I tried.”
4. “We’re talking about the possibility of such phenomenal gains that holding patiently should not be a concern. The explosion to the upside can come at any time, so waiting to buy silver is definitely not advised.”
5. “Here we have a vital material, known to all men for all time, literally disappearing before our eyes, both above and below ground. It is a material upon which modern life and rising standards of living are dependent. It is beyond indispensable, it is a miracle metal.”
6. “You can’t keep the price of anything artificially depressed or elevated for decades and not expect violent counter moves when the artificial restraint or prop is suddenly removed.”
7. “Silver is used in thousands of industrial applications. In fact, aside from petroleum, silver is used in more applications than any other commodity.”
8. “Silver is the epitome of a valuable natural resource. It’s absolutely necessary for a growing world economy and for increased standards of living. Silver’s got it all; worldwide appeal, strong demand and short supply.”
9. “I believe you have a wonderful opportunity to profit from a coming buying panic in silver. That buying panic will occur whether you buy or not. But you can only maximize your profit if you are positioned before that buying panic occurs.”
10. “The net effect of the cumulative short positions in silver amount to a hydrogen bomb, on top of an atomic bomb, on top of a neutron bomb.”

ECONOMIC OPINIONS

“Irrespective of near-term currency market gyrations and central bank intervention, the dollar ultimately is headed much lower against the major currencies…. Risks never have been higher for the onset of a U.S. hyperinflation within a one-year period.” John Williams, Newsletter Editor

“It is now clear that President Obama’s initial ‘stimulus’ was one of the most counterproductive policy initiatives ever perpetrated, both economically and politically. That stimulus pushed the U.S. budget deficit definitively above 9% to 10% of GDP, at which there is no firm assurance of financing it. Thus, it’s likely that Obama will spend most of his presidency fighting to restrain an excessive budget deficit, while suffering the adverse economic effects of higher interest rates and ‘crowding out’ that it brings.” Martin Hutchinson, Analyst

“The sky is the limit with deficit spending, now approaching two trillion plus dollars over each of the next two years alone and that’s not counting healthcare reform. There are only two ways to pay for it: (1) By printing more money, which debases the currency causing inflation, and (2) By hiking taxes, which kills investment, businesses and jobs, destroys what is left of the housing market and results in a Depression.” Aubie Baltin, Newsletter Editor

“Basically, there’s a major problem with the dollar. I believe it is absolutely fated to fall dramatically against everything, but more against real assets than against other currencies. When I look at the other currencies, they don’t look very good either, particularly the Euro and the Japanese yen." John Embry – Asset Manager

“There is something that is not understood about budget deficits. We are always told that this is bad because it is borrowing from the future and that our children will be responsible for our debts….. Our children do not get poorer in the future. We get poorer, here and now. But we get poorer by having our dollars worth less.” Howard Katz, Newsletter Editor

“The biggest Ponzi Scheme in history is the U.S. dollar.” James West, Newsletter Editor

“Most investors and pundits are celebrating the green shoots of economic stabilization and the belief that there will be a ‘V’ shaped recovery in GDP growth. I believe, however, that what we are experiencing is just an artificially derived respite and that we have only entered the eye of our debt induced hurricane.” Michael Pento, Economist

“Though the dollar’s slide has been stayed by pronouncements of confidence from Russia, Japan, China, and others, there will come a time when the pain is too great and the outcome too certain. Private investors who haven’t already left the collapsing dollar ballroom may be crushed when the big players stampede for the door.” John Browne, Senior Market Strategist

“With the U.S. consumer – the engine of the world’s economy now dead – where is the global demand coming from to get the global economy moving again? I just don’t see it.” Jay Taylor, Newsletter Editor

“China’s economy is 25% the size of the U.S. How can this possibly absorb all the excess production from the rest of the world? Demand from all around the world is down around 50%. This is a sucker trap.” Bert Dohmen, Newsletter Editor

“The credit collapse in August 2007 is continuing despite the best efforts of governments and central banks to provide more credit to the markets. Such efforts are futile because banks and investors are increasingly reticent to loan when the odds of being repaid decrease as economic activity slows.” Darryl Robert Schoon, Newsletter Editor

“Empire America is on the verge of collapse. Its social, economic and political systems, outdated and ill-equipped, can not cope with the current crisis. While the Empire’s decline has been long in the making, the acceleration of policies leading to that decline are reaching the point of no return, not only for America, but for the World.” Gerald Celente, Newsletter Editor

“The Bernanke Fed is trying desperately to bring back inflation, and devaluing the dollar is the surest and quickest way to inflate.” Richard Russell, Dow Theory Letter

“There is a full scale flight of capital OUT of the United States and the US dollar. The calls of support for the dollar from central banks around the world are nothing more than attempts to contain the panic sweeping the world. NO ONE wants to yell FIRE as the building is burning. Spending, deficits and borrowing are spiraling out of control.” Ty Andros, Market Strategist

SILVER AND GOLD
By James R. Cook

Back in 1980 I made a lot of money in the gold and silver business. However, it didn’t take me long to dissipate it. I purchased the manufacturing and distributing rights to a plastic storage box for video tapes and audio tapes for $3,000,000. The seller was a European corporation with an address in Liechtenstein. I paid $250,000 down with the balance spread over several years. Key to the deal was expensive tooling that supposedly had been perfected by the seller.

Once I got delivery of the tool it became clear it was faulty. I sank a hundred thousand into the tool to no avail. I made another payment, but the project looked like a bust. I kept trying to improve the faulty tool, but eventually stopped my payments.

The seller sued for payment. I countered that the tooling never worked. Before we got to trial the judge granted them a summary judgment based on the fact that I had not given proper notice of the flawed tooling. Suddenly, everything I had was in jeopardy. Almost immediately Sheriff’s deputies were at my bank to tie up my accounts. They sued my wife and I personally. Process servers banged on our doors. They hired a private detective who quizzed my acquaintances. I was forced into hours of testimony as attorneys grilled me on the whereabouts of my assets and poured over my personal records demanding explanations of my private transactions. To say that I was frantic would be an understatement.

Eventually, I staved off disaster and, after a few months, the harassment ended. Ultimately, the company that sued me went bankrupt and I settled the whole mess for $25,000. In every adversity lies the seed of an equivalent benefit. I was forced to think about assets and wealth in an entirely different way. I had always concentrated on how to make money and now I gave equal attention on how to keep it.

One aspect of keeping your money is owning some assets with a low profile. After what I went through, I’m convinced it’s doubly important to have certain assets that aren’t easily found. It’s easy for your enemies to spot real estate, stocks, bonds and savings accounts. It’s much harder to uncover tangibles, such as jewelry, art, stamps or diamonds. This is especially true about gold and silver kept at home in a safe. Bars and coins are small, portable and surprisingly liquid. Over time the record of their purchase fades away and they become an anonymous holding.

SILVER PRODUCTS

More and more I’ve come to believe that my company is in the business of helping people to keep their assets intact for retirement. Once the income from your occupation ends, you must have enough assets to maintain the life style you expect. Nothing is worse than running out of money. Currency debasement is a hidden tax. The government takes half your earnings in taxes, then socks it to you through inflation. You get this inflation when government prints money to cover its excessive spending. It may not come immediately, but inevitably it does come.

I’m convinced that you can go a long way to insure your financial future by placing 10% of your net worth into silver. Short-term price fluctuations are not that important with silver. Over the long term it should reflect all the positives that Ted Butler has introduced. If everything else loses 90%, silver could be the offset to all those bad investment outcomes. Silver can never fail or become worthless.

There’s never been a more dangerous period in our financial history. If you are going to go back into the stock market and start buying on tips or trust the asset manager who lost you half your money you underestimate the risks ahead. You

have a rotting currency, a socialistic mindset running the country, a failing economy and a debt crisis at every level. It your nimble enough to gamble in stocks, futures and exotic financial instruments okay, but not until you have 10% of your net worth in actual, physical silver (no paper). Never let it go and, if we are right, you should be better off in your retirement than you would otherwise have been.

A good way to own silver is with 100-ounce bars of .999 pure silver. These bars are struck by various mints. We have good sources and our bars are attractive and problem free. These bars stack well and fit into corners of your safe or secure place. You can stack them to the ceiling. Call us now at 1-800-328-1860 and order these 100-ounce bars.

Sincerely,

James R. Cook

President

P.S. Investment Rarities is now on Twitter. Follow us at IRIMetals.

P.S.S. Our storage facility in New York, HSBC Bank, will no longer be storing silver, except for large institutional accounts. Consequently, we will now be offering our customers storage at the Brinks Depository in Springfield Gardens, New York. This is a COMEX-approved facility with the same safeguards.