In Jim Cook's Archive


The movie The Big Short chronicles the bust of the mortgage bubble. Billions were made by a small handful of speculators who were smart enough to see the handwriting on the wall and find ways to sell short mortgage derivatives. If you haven’t seen it, you should. It’s highly entertaining and instructive for your own investment strategy.

I saw enormous parallels between what happened in the mortgage crisis and the current silver market. The fund manager John Hussman wrote this about the movie, “What I thought the film particularly got right was just how excruciating the wait was before the crisis unfolded, even for those who expected it.” At least for me, nothing has been more excruciating than waiting out the silver market for the last few years. Time has rolled on through one disappointing month after another. What’s so frustrating is that I believe silver is the greatest asset on earth. In my company we think silver is the best thing for our clients to own because they will make more money with it than anything else. My personal investments in silver are predicated on the conviction that silver is a lead pipe cinch to make me more money than I need.

The movie reinvigorates my belief that a payday is just around the corner. The persistence and patience of the main characters, who were way out on a limb, paid off in a huge way. It happened with a suddenness and swiftness that decimated their opponents and made them billions almost overnight. This is exactly what silver genius Theodore Butler expects will happen in the silver market. Although his excruciating wait has been longer than any of us, he remains adamant that silver offers the greatest profit opportunity on earth.

Very few people see silver as a fortune maker just as it was only a tiny few who saw the opportunity in collapsing mortgage derivatives. Those who own significant quantities of silver are the essence of contrary opinion investing just as were the protagonists in The Big Short. Everyone laughed at them and yet they suffered and hung on at great risk to their finances until victory arrived.

A careful analysis of the mortgage market in 2006 uncovered serious flaws. Mortgage brokers called them liars’ loans. The fundamentals were so bad they couldn’t be hidden forever. The short sellers relied on facts and reliable information. This is not unlike the silver story which possesses numerous verifiable facts that spell out an exceedingly bullish story. If mortgage derivatives were the big short, silver is the big long.

The most compelling reason to own silver has to be the vast hoard of silver accumulated by JPMorgan. This major bank became the dominant force in the silver market in 2008 when it took over the failing investment bank Bear Stearns. Silver analyst Theodore Butler theorizes that Bear Stearns had margin calls of at least $2 billion on its silver and gold short position. About that time, Mr. Butler noticed a tremendous increase in the silver short position by one or more major banks. A government regulator explained that was because the major investment bank (Bear) had their short position taken over by a commercial bank (JPMorgan) and that was subject to reporting.

From that time on JPMorgan has been a powerhouse in silver and gold futures trading. Mr. Butler theorizes that JPMorgan got a good scare in 2011 when silver went to $46. They were out a lot of money on their big short position which caused them to see the true scarcity of silver. Consequently, they did everything in their power to drive down paper silver and began to accumulate physical silver. They are still at it today having taken delivery on 26 million ounces this year alone.

JPMorgan’s warehouse holds 70 million of silver in their name. They moved 100 million ounces of their clients’ silver from their London warehouse to Brinks, probably to make room for an equivalent amount of their own silver. Mr. Butler believes that they are the party periodically removing silver from the exchange traded silver funds. He also believes they are the big buyer of Silver Eagles. Somebody big is taking down millions of ounces of U.S. Silver Eagles coins. It certainly hasn’t been coin dealers and he is almost certain it’s JPMorgan adding to their silver hoard. He claims they now own 400 million ounces of physical silver and are still buying. They stand to make a fortune on a silver spike.

Further bullish factors for silver include a multimillion-ounce weekly turnover of physical silver on the COMEX. This is another reason Mr. Butler expects a shortage in silver. The supply of above ground silver is far thinner than is generally believed. Shortages in silver coins and bars are a recurring problem. It may be that silver will not be available in the future.
Silver is a miraculous metal required by scores of industries. Nothing on earth compares to silver in its many industrial applications that make modern civilization possible. It possesses chemical properties that make it both unique and valuable. Next to oil it’s the most important mineral on earth.

None of this takes into account silver’s role as a monetary metal that people turn to in a financial crisis. As economies worsen and the worldwide flood of paper money expands further an increase in investment buying of silver seems inevitable. This heightened demand for silver is the wild card that will sink the short sellers, create a shortage and drive the price into the stratosphere. Today’s low price will be looked back at with disbelief.  Now is the time to accumulate silver before they make a movie about what happened in the silver market starring the few people who were smart enough to be long a quantity of physical silver.

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