TED BUTLER COMMENTARY
December 3, 2007
A Beautiful Idea
Today, I am publishing two articles by my good friend and mentor, Israel Friedman, Long-time readers are probably aware that I consider Izzy the most intelligent man I know. For newer readers unaware of his background, Izzy immigrated to this country some thirty-odd years ago, became a citizen and raised a family here. I’ve been blessed by his friendship for most of that time.
Like many who become citizens by choice, rather than by birth, Izzy loves and appreciates America fervently. For all its faults, I know he believes that this is the best country in the world. I certainly know no one more patriotic than him.
One common trait we share is our joint habit of trying to get to the point and coming up with constructive solutions to problems, rather than just complain about things. Because of his unique background as a first-generation immigrant and patriot, as well as his great intelligence, Izzy has come up with what I believe is the best constructive solution for alleviating the housing and mortgage crisis now impacting the US. It’s a beautiful idea that clicks on like a light bulb in your brain. I am honored to have him present it here.
Please be assured that there is no ulterior personal motive on his part for this suggestion, as the only real estate he owns is the house he has lived in for more than 25 years, on which there is no mortgage. The first article is strictly for the benefit of this country. The second article is about trying to make you and your family some money.
My Solution to the Housing and Mortgage Crisis
By Israel Friedman
We, the country, are in big trouble with this crisis, as real estate, mortgages, banks and financial firms are threatened. Our big institutions created this problem with poor foresight and lax lending standards. While it seems that everyday new solutions are being proposed, there is much skepticism and flaws behind the various solutions offered. I have a simple solution that has not been proposed up until now.
At the heart of the problem is too much unsold inventory putting downward pressure on housing prices. We have an inventory of millions of unsold homes, and the only real solution is to have this inventory bought. But by whom? My proposition is that the US Government issue one million additional green cards annually to wealthy future immigrants, who are willing to buy a residence in the US for $300,000 or more for cash (no loans or no mortgages). And they would have to have another $200,000 for 2 years for living expenses.
Any house bought by those being issued green cards could not be sold or borrowed against until citizenship was granted (usually about five years), although a sale would be permitted if a more expensive house were purchased as a primary residence.
These new immigrants would have to go through the normal immigration process and only with that government approval would be issued green cards. No Terrorists or criminals.
I know that some will say it’s not a fair proposition because it favors the wealthy, but sometimes you must do things that benefit the country as a whole, and everyone can see we are in a crisis. Remember, this does not involve taxpayer money. Besides the normal immigration policies would still apply, so less wealthy people can still immigrate to the US. I am just proposing additional green cards for the wealthy that buy houses they will live in.
This is intended as a temporary solution only, until housing prices steady out, as there are many millions of wealthy people in the world who would love to take advantage of this offer. If it was not restricted and temporary, and too many took advantage of it, we might see such a re-heating of real estate prices that we would be back in the bubble again. We don’t want to see that again. Of course, the green cards would have to spread out over the country so that all the new buyers would not go to only a few areas.
I want to be clear that this does not personally benefit me. I hope this idea is adopted in the spirit I offer it, namely for the common good of our great country. I’m not looking for payment for anyone to use this idea, just that if anyone uses it to be sure to say where the idea came from.
A special thank you to Mr. Cook and Mr. Butler for allowing me to be heard.
WHY SILVER? WHY SILVER EAGLES?
(Israel Friedman is a friend and mentor to Theodore Butler. Mr. Friedman has owned and studied silver for 30 years. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct. Silver can go up and silver can go down.)
It’s hard to write about silver in the same newsletter where Ted Butler writes. Mr. Butler fights for the good of the silver investor and he fights against manipulation, plus he makes a very convincing case for why to own silver. I know based upon the statistics, Mr. Butler is right about the manipulation of the silver market. Mark my words; some day they will be studying Mr. Butler’s articles in the universities and business schools.
Speaking about manipulation, I’m surprised that the CFTC and COMEX directors don’t intervene and stop this manipulation. It’s so obvious, looking at the actions of the 4 or less traders in gold and silver, that this group is managing the price. No good will come from this, and I hope they will not close down the COMEX in the future. If Mr. Butler’s arguments are correct and the directors of COMEX don’t do anything, as public company directors, they will be responsible.
I’m very surprised that the CFTC and the COMEX doesn’t release the names of the big shorts. I remember when the Hunt Brothers and then Warren Buffett bought silver, their names were in the newspapers daily. Please make the shorts names public, and we will ask the right questions. It’s the fair thing to do.
I’m going to tell you why silver is the best investment available today. The first question you have to ask yourself is why silver should be good for the future. Here’s what determines that;
- Is silver a necessary metal?
- Are world stocks of silver lower than 5 years ago?
- Are world stocks of silver likely to be lower in 5 years?
- Is there a chance, at some point, to have a shortage in silver?
If the answers will be yes on those 4 questions, the probabilities are that owning silver will enrich you in the future.
Based upon this formula, the answers for gold are "no" for all the 4 questions, so in the future, we could see devastation for gold prices. And if gold prices hold, or move higher, the comparisons will even be better for silver. Take into consideration this point – silver is a rare and strategic metal and industry cannot do without silver. Today we are left with a minimal supply and this can produce a worldwide shortage of silver.
Money cannot solve a shortage of material, only material can. When the industrial users come into the market for real material, the shorts will be destroyed. At that time we will have a bigger scandal than the subprime mortgage crisis of today. In my opinion, we need a shortage to put silver in a free market. When this occurs the real value will come and no one can predict what the price will be.
Mr. Butler has a modest view on future prices, and my opinion is more extreme. I can see very high prices. If I tell you the price you will need a seatbelt, not to fall from your chair. With this kind of opinion on future silver prices, what is the best single form for buying and holding real silver? Looking at my crystal ball, considering that a silver shortage is likely, and that silver prices will then reach or exceed the price of gold; I think silver Eagles are the best way to own silver. Why?
I can see silver prices so high, that the risk of imitation or phony silver coming to market will be great. Great price increases always bring out frauds and crooks. People will want to be sure they are buying the real thing. Coins are more difficult to counterfeit than paper instruments. At current silver prices, there has been no big incentive to counterfeit silver Eagles or other forms of silver. Because the US Mint produces silver Eagles, an added level of protection against counterfeiting is present. The US Government does not sit still on counterfeiting.
Because Silver Eagles are sold at a premium to the price of silver from the Mint to wholesalers, few if any of the 160 million regular silver Eagles minted and sold since 1986 have been, or will ever be melted for their silver content. The same with millions of more expensive Proof Eagles and commemorative silver coins issued by the Mint. Silver Eagles that are sold by investors are bought by other coin investors. Therefore, the silver used in Eagle production is taken off the market, in my opinion, forever.
But the premium on Silver Eagles will explode someday, because the Mint will stop making them in the future. When the silver shortage comes, and prices start to escalate wildly, the US Government will not wish to aggravate the shortage by continuing to take silver off the market. By then, the users will be screaming for relief from high silver prices and the mint will see this.
According to Mr. Butler, before the gold and silver Eagle program began in 1986, it was decided that, in order not to hurt domestic miners, only metal purchased from domestic miners would be used in the Eagle program, so government owned metal wasn’t dumped on the market.
But the Silver Users Association, fearing higher silver prices because of demand for Silver Eagles, lobbied behind the scene to change things to their advantage. They couldn’t kill the program completely, but the silver users were still successful. Gold was left unchanged in that domestic production was to be used, but silver was changed so that only silver from the Strategic Defense Stockpile was to be used for Eagles, until it ran out, which it did in 2001. Since then, the US Mint has had to buy more than 50 million ounces of silver to produce silver Eagles.
It will not take much convincing by the silver users to get the US Mint to cease production of Silver Eagles, when the silver shortage hits. So a premium could develop, if and when that happens. The same kind of premium that develops when an artist dies and it becomes known there will be no more new works of art from him. Now some may say, what kind of numismatic premium could develop on a modern bullion coin with a total amount in existence of more than 160 million? I say, a very big premium. The Silver Eagle is no ordinary coin. It is the world’s leading silver bullion coin. The US Government guarantees its purity and weight. It is recognized everywhere. In the years to come, people from all over, including India and China, will want to buy them. It is, in my opinion, the most beautiful coin in the world.
At any point in time, very few old Silver Eagles are available for sale in any large quantities. That’s because Silver Eagles are widely held by many small investors and coin collectors. Many are given as gifts and hold sentimental value. Grandparents, like me, set them aside for their grandchildren. Silver Eagles are not a trading vehicle, they are mostly held for the long term. The market relies on the fact that new coins from the Mint will always be available for sale, in order to satisfy new demand. But always isn’t forever.
When the shortage comes and silver explodes, the price will be so high that most people won’t be able to afford even a 100 ounce bar. Then, there will be much more demand for silver in one-ounce denominations, just like there is for gold today. That extra demand will put a bigger premium on the smaller pieces compared to bigger bars. The best small piece is the Silver Eagle and it will have the biggest premium of any other one-ounce choice. Also, it will be easier to sell in one-ounce pieces when prices are sky-high.
I think the premium on Silver Eagles will go to such crazy levels, that out of respect for Mr. Butler, I will not say a number, because he thinks it will sound too extreme. Instead, I will be very conservative and just say that in the future, when the silver shortage comes, the premium on Silver Eagles to the price of silver will be much greater than the total cost of an Eagle today. If that comes true, it’s like buying silver at today’s price for free.
To those who are inclined to own silver, buy Silver Eagles. To the gold investors, please change some gold into Silver Eagles. If anyone is lucky enough to buy, say, 1000 Silver Eagles or more, in 15 years it will be worth a sum that will shock you. Don’t think for one minute that I have a financial interest in selling Eagles. I don’t work for the Mint or for commissions. I write for love of silver and my friend Ted Butler.