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THOUGHTS
FOR THE SUMMER DOLDRUMS: I've been pretty much offline for nearly a month attending my son's wedding in Sardinia, followed by a couple of weeks touring the Romantic Road in Germany. Add another week of recovering from jet lag, and I've just now collected enough thoughts to post another article. Did a little trading, but for the most part left my holdings intact. Anyway, I want to talk about two investment themes, one philosophical, one practical. Truth Do you remember when apartheid ended in South Africa and the government conducted a "Truth and Reconciliation" program to do just that? Well, I want to first talk about Truth and Lies in the world today. There's been a lot of talk by FSO and other commentators about how earnings reports are bogus, inflation and other statistics doctored or delayed (forget "hedonic", they're just plain not true), and a host of information put out by the financial and investment industries either false, or at best half true. In this light, every week I checked the "commitment of traders" (COTS) on precious metals. The week before I left for Italy, I noted a shift in the commercial holdings which tended to indicate a positive week for gold and silver lay ahead. That next Monday, I based some trades on the information, trades which didn't work out, and subsequently found out the COTS were wrong. Another statistic was now questionable, and I sold all my trading positions in disgust before leaving. Then, in rural Italy, I experienced how a people could live a very different way. They each have their own gardens and vineyards (and cantinas!), and make their own wine, olives, fruit and vegetables. They know the guy who raises the pigs and cows, and though you can't buy bottled milk in the stores, Uncle Antonio would bring over fresh milk every morning, which would get boiled for cereal and coffee. They eat whatever's in season, and everybody helps everybody else. There's no hotels or restaurants in the town, but all the North Americans were billeted in their homes. No one went hungry, and what a party. Bellisimo. Anyway, after we left, I started thinking about how they lived and what struck me was how they live their lives as a series of little truths (lots of rain this year, big grape crop, but the flavor will be a little muted). In contrast, North America doesn't appear to any more. As a society, we eat crap, we watch crap on TV, and we produce crap in the workplace. And just as importantly, we think crap. Too many of us are willing to accept lies as truth if it means we don't have to make difficult decisions.
I remember as a youngster watching the speeches of American statesmen. Presidents with minds that could think, make difficult decisions, resonate with the populace, and most importantly, demonstrate a moral compass which unerringly pointed them in the right directions. As a Canadian, I found much to admire in the American system, its principles and sincere adherence to democratic forms, its desire to address the difficult issues of race, religion, and income disparity, and most importantly, its honesty. Today? No, I don't think Harry Truman could get elected today. Roosevelt's dictum on fear has been turned on its head. Fear is the end product of politics today, and as one of the US founders said, "He who sacrifices liberty for safety shall have neither." Will the US ever get back on track morally and economically? Will we ever get back to creating things people will be proud to make and own? "After the Crash" is on my mind to a certain extent. How is society going to put itself back together again after the truth of debt crushes us individually and collectively? Can we rebuild an economy so a sufficient percentage can live a "decent life"? I sure hope so. But we're going to have to stop papering over the truth and start facing it. One day, we're going to need a Truth and Reconciliation financial program to properly address what the bankers and financiers have done to the country. It won't be pretty, and a lot of people will be pretty well destitute. It may turn out that the treasury has been looted by the money changers (for not the first time in history, and probably not the last). Will we all have to start growing our own fruits and vegetables? Maybe, but that's not such a bad fate. It's healthier, and you can make grapes into wine. Silver I've been interested in silver for about 4 years now. During the tech crash, I started looking for an undervalued asset class. Silver was it. Two years ago, I wrote an article for an online tip sheet outlining my thoughts. From there to now, a lot has happened. We're well over 50% higher on the spot price (nice return!), and it's worth reviewing where we stand. First, an extract from the 2002 article. I recently ran into a woman I used to work with. She knew I had left work in 1999 after making enough during the Tech boom to retire and trade full time. We began talking about investments and I mentioned that I was now doing fairly well with gold and silver. She floored me when she then said, "Will the silver certificate I bought in 1980 come back?". I had to resist gasping or saying something inappropriate. Here was a perfect example of the poor investing habits of the general public. They only become involved in the last speculative blow off stages of a bull market, are reluctant to take losses, and are always behind rather than ahead of the game. For 20 years she had done nothing, but in her mind it was an investment and investments always come back (got any Tech stocks?). She may eventually be right. Her story is also a warning to not automatically assume that silver will be regarded as money again (e.g. Pound Sterling). History, as they say, doesn't repeat, it rhymes. Let's try to keep an open mind and see where we might be going. In the article, I referred to the Silver Institute's analysis, the silver deficit, the difference between gold and silver as investment classes, speculation on Chinese dumping, etcetera, etcetera. All well worn stuff to the experienced silver investor. If anybody's interested, I can send them a copy of the report. The point is that, as today, nobody knew the real amount of silver out there. If the physical is there to meet industrial demand, that's that. I also speculated on the possibility of a financial crisis causing a demand for silver as money again. In 2000, the Catholic church called on the rich nations to forgive third world debt, though they didn't actually cough up any cash themselves. I checked into this a little deeper and found out it is a remnant from Biblical times of the practice of forgiving all debts every 50 years. Wow! What a great way of washing all the bad fiscal practices out the system. Every loan will be backed by something real because it comes due one day, and money will be worth what it's worth. Under this scheme, silver and gold don't compete with the official currencies, they complement them, unless the rulers do something stupid. I'm willing to bet that credit collapses were known in ancient times and this was a little safety valve to prevent irrational exuberance. We may be approaching a washout of Biblical proportions. In much of the world's history, people didn't trust printed currency for good reason, they wanted real stuff, like gold and silver. If silver is being artificially suppressed today by design or just plain inertia, the snap back may be quick and vicious. This would happen if the physical silver market (i.e. the real stuff) runs out for one reason or another, leaving the paper market (i.e. options, futures, options on futures, etc.) stuck with unfulfillable obligations. Since silver is a small market, some group of speculators could attempt to squeeze it. The Hunt brothers pulled off their squeeze when there was a lot more known inventory than there is today. Later (see how far we've come in 2 years!), I'm assuming a gradual return to more traditional attitudes towards silver, but who knows? In future years we may be saying "As late as September 2002, silver traded under $4.50 an ounce." On the other hand, my friend may never make her money back on that $40 per ounce silver certificate. Ok, so what can add for investment purposes here in August 2004? Simple. Take a look at this. I look at a lot of charts trying to analyze whether something is a potential good buy or not. Would I buy silver based on the following chart?
Absolutely! The thing's a screaming buy. Finally, I want to thank everyone who e-mailed me their comments and questions on the "Trading Today's Markets" article I posted shortly before going away. It was a pleasure for me to receive such a volume and quality of messages. Have a good night, everyone.
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INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
It wasn't
always like that. My wife inherited a mixer from her family made by the
Hamilton Beach company in 1942. It was originally a wedding present,
used for 60 years, and runs as smooth as silk today. If I had made it, I
would have been proud to tell people I was an employee of the Hamilton
Beach company. It is a fine example of American Industrial Quality, long
before the manufacturing industry gave way to the finance economy. The
family that made that mixer would have saved enough to put a down
payment on a house, and through hard work built something for
themselves. In short, it was a sustainable lifestyle built on creating
real value.
