In Ted Butler's Archive

Ahead Of His Time

(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.)

On March 17, the Wall Street Journal carried an Op-Ed piece, co-authored by Richard Lefrak, the New York real estate developer and Gary Shilling, the economist, titled, “Immigrants Can Help Fix The Housing Bubble.” John Mauldin thought so much of the idea that he featured it in his weekly missive and called it “a very important proposal and one that deserves national attention and action.” I agree with Mr. Mauldin‘s assessment.

The proposal is to allow additional immigration for those who buy houses in the U.S., thus sopping up excess real estate inventory.

Regular readers might recall that this was exactly the same proposal advanced by my mentor and close friend, Israel Friedman, back in December 2007. I wrote the preface to Friedman’s article, calling it “A Beautiful Idea.” I am happy to see others confirm that Izzy’s idea was as good as I thought it was originally. Naturally, being somewhat protective of my friend, I would hope and expect that it be acknowledged that the idea came to him long before others saw it.

If there is something I have come to learn about my good friend, it is that he sees things well ahead of the curve. If you take the time to read or re-read “A Beautiful Idea,” you’ll see Izzy wrote two articles in that piece, one about housing and one about U.S. Silver Eagles. As good as his housing solution proposal was, his article on Silver Eagles had more of an impact. Remarkably, his Silver Eagle article has turned that program on its head.

Please consider that from the date that his article appeared, the U.S. Mint has been sold out of Silver Eagles every single month thereafter, even though they have increased production capacity from roughly one million coins per month to over 2.5 million. The Mint has had to ration Silver Eagles by a quota system and suspend all production of proof and uncirculated Silver Eagles, because of unprecedented demand. To my knowledge, this has never occurred in the 23-year history of the Silver Eagle program. There is no doubt in my mind that Friedman was the cause of the rush to Silver Eagles.

The purpose of this article is not just to compliment my friend, even though compliments are certainly well deserved. Quite frankly, I have come to expect that what Izzy says you can generally take to the bank. My main motive is to impress upon you what he feels strongly about now. Regular readers will not be surprised. As a coincidence, Izzy had prepared a short article before the Wall Street Journal Op-Ed piece had come to my attention, so I’ll let him speak for himself.

When Paper Can’t Control Prices

By Israel Friedman

(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)

A big wrongdoing is done daily by the institutions and individuals who are naked shorting stocks or futures contracts. Ordinarily, someone who sells what doesn’t belong to them gets in trouble with the law, but the naked sellers of securities do so without punishment. For instance, if you are shorting stocks, you get money up front from the sale. The only way these short sellers are forced to cover in stocks is when the company is taken over. In the futures market, it happens when the longs demand actual delivery. This scenario in futures can happen only when a shortage hits the market.

In silver, two US banks have a short position of 154 million ounces of silver. Based upon my calculation they are capping the price by holding the major part of the short side of COMEX futures. I ask – do these big shorts know their risks in shorting silver? We learned from the past that the banks know only how to calculate near term profits and bonuses. But they always miscalculate risk, like in mortgage derivatives. Don’t look at me as crazy when I tell you that I think the exposure of the shorts will be $250 billion, with the two US banks holding a risk of $75 billion.

How do I calculate this exposure? This calculation is based upon $500 price for silver, and I say that the price of silver will not be less than the price of gold. I hope gold will be much higher than $500, as the price of silver will reflect that.

Silver world stocks are in very strong hands, spread among 250,000 to 350,00 small investors holding approx 500 to 600 million oz, in coins and bullion, averaging 2000 to 3000 oz per investor. These investors, who are mostly in the US, know why they are holding silver. I think you and I will benefit from your holdings of silver and those who have shorted silver will pay big.

Mr. Butler is fighting weekly to end the manipulation but isn’t successful yet. The shortage in silver will teach those who harmed the silver mining industry by holding the price down and discouraging exploration that their actions will add fuel to the fire.

In a shortage situation, when silver prices will advance by $3 to $5 daily, the shorts will accuse us of influencing investors to buy silver and causing a shortage. They will call us hoarders and other names. It will be very ironic that the shorts will try to blame the longs for buying what was so cheap. Then, it will be our turn to laugh at them. Trading on the COMEX is a sure path for losses. You are much better to take the margin money and just buy Eagles. One day you will be rewarded tremendously.

The dream of the gold investor is to have a gold standard, but I tell you before we have a gold standard, we will have a silver standard. That will come when people all over the world recognize that based upon rarity and supply/demand, silver has more value than gold.

For subscription info please go to

Start typing and press Enter to search