Dow Jones reports AG Spitzer''s acknowledgement of request for silver probe

Bigger Isn't Always Better
By Theodore Butler
March 9, 2004

Recently Forbes magazine released its annual listing of
the world's richest individuals. For those who may have
missed it, let me give you the highlights.

The criteria for making the list is a minimum personal net
worth of a billion dollars. That's one thousand million
dollars of personal net worth.

Just a few years ago, the list contained many with net
worths in the hundred-million-dollar range. Being a
multimillionaire just isn't what it used to be, I suppose.
Anyway, there were 587 billionaires on the current list,
up 64 from the previous year.

Bill Gates of Microsoft topped the list again, edging out
investor Warren Buffett but by a much smaller margin
than in the past. Both men were listed as having net
worths of over $40 billion -- 40 thousand million dollars
-- with Buffett's net worth increasing by the astounding
amount of more than $12 billion in the past year alone.

Five heirs of Sam Walton (Wal-Mart) were in the top 10
with net worths of $20 billion each.

Newcomers to the list included the author of the Harry
Potter book series and the founders of Google, the Internet
search engine.

All told, the combined wealth of the list was $1.9 trillion,
or almost two million, million dollars. The average net
worth of a member of the Forbes' list was said to be $3.23
billion.

First, a word about Warren Buffett. I've written several
articles on Buffett and silver. I'm a big fan of Buffett and
consider him to be the world's investment genius of the
past 40 years. His record not only speaks for itself, as
evidenced by his being the wealthiest investor in the world,
but when you consider how difficult it is to consistently
and successfully manage massively increasing amounts
of capital, you should be left with a true sense of awe. There
is no one even close to Buffett. Period.

That he invested heavily in silver in 1998 put the stamp of
approval on the real supply/demand silver story. It answered
the frequent question: If silver is such a good investment,
why doesn't some big investor buy it?

You don't get bigger, or better, than Warren Buffett.

As I've also written in the past, I believe Buffett leased out
his silver and owns it only in paper form. His silver -- actually,
the silver of his company, Berkshire Hathaway -- is gone,
consumed in the black hole of the structural deficit.

I think this was done at the request of financial authorities at
the highest level. Knowing how critically tight the silver market
really was (the very reason he bought it in the first place) and
reeling from the publicity his purchase created, Buffett was
prompted to lease his silver and retreat from the silver spotlight.

One article I wrote four or five years ago congratulated Buffett
on his silver purchase, likening him to a baseball player hitting
100 home runs in a season. I called it a remarkable
accomplishment, never to be repeated.

Buffett is to be commended not only for analyzing the real silver
story but also for executing and actually making the purchase
without driving the price up many times -- a truly remarkable
investment achievement. It is so remarkable that Buffett could
never do it again, in my opinion. There's just not enough silver
left in the world. And neither could anyone else on the Forbes'
list of billionaires.

Let me explain.

We've all become accustomed to assuming that it takes money
to make money in investing. While that is certainly true, in most
cases we also tend to assume that big money always has its
privilege. I contend that this isn't true when it comes to silver.

I contend that the little guy is better off than anyone on the
Forbes' list to position himself in real silver. When it comes to
real silver, bigger isn't better.

Forget the people at the top of the Forbes' list. Let's just look
at the average net worth on that list, $3.23 billion. Someone
with that net worth couldn't put 10 percent of that amount into
real silver even if he wanted to. Even accounting for the recent
higher prices of silver, $323 million would equate to almost 50
million ounces of silver. It would be impossible for anyone to
purchase that amount of real silver anywhere near current silver
prices.

Further, I don't think even the people at the bottom of the list,
those in the quot;merequot; billion-dollar range, could put 10 percent of
their net worth into real silver (15 million ounces) without
sending the price skyward.

Remember, I'm talking about only 10 percent of the net worth
of the individuals on the Forbes' list, as there is, obviously, no
way that anyone on the list could possibly put his entire net
worth into real silver, as all the known silver bullion in the
world (150 million ounces) is worth only about $1 billion.

Stated differently, there are 587 individuals who could,
theoretically, each buy all the known silver in the world, if it
were available. Not companies or institutions, but individuals.
Not through borrowing or derivatives, but through the cash
from converting existing net worth. Not the one or two, or
the 10 most wealthy people in the world, but 587.

In fact, if you include all the institutions and companies and
allow for borrowing, I would imagine that there are many
thousands if not tens of thousands of entities that have the
buying power to purchase the entire known inventory of
world silver, were it available.

That's the catch, of course -- if it were available. Obviously,
the known world inventory of silver is decidedly unavailable,
because it is already owned by many thousands of other
entities. Like you.

I'd like to make a few points concerning the above.

One, the average investor and reader of my articles has a
decided advantage over the ultra-wealthy when it comes to
investing in real silver. At least you don't have to worry
about being able to put a significant percentage of your net
worth into silver without severely influencing the price.

It is truly a case of they can't but you can. And I know that
many of you have already done so, which will benefit your
families immensely.

Two, the discussion of the Forbes 587 billionaires being
unable to invest a significant percentage of their net worths
into real silver should demonstrate just how little silver is
left, compared to how much money is out there. Remember,
the amount of real silver remaining in the world is still
shrinking, thanks to the structural deficit. And the amount
of money is still growing. Just the increase in one man's
net worth last year would be enough to buy all the known
silver 12 times over.

While Buffett certainly knows the investment merits of silver, I
think that the vast majority of the billionaires and millionaires
and thousandaires have no clue as to the investment merits of
silver.

I also think that the distance between being silver clueless and
clued-in is very short.

People, particularly those with money to invest, are generally
not stupid. When and if they become aware of the real silver
story, just like you, they are likely to buy, or try to buy silver.
Just as you did.

My point is that sudden awareness is likely to send a very large
quantity of money after a very small quantity of real silver,
resulting in a price move toward the heavens. And this is all
quite separate from industrial supply/demand considerations,
which are so bullish that they should already make you sweat.

Lastly, I'd like to put this all together.

Here we have a commodity in a known deficit, with rapidly
declining remaining inventories, with wildly bullish
and price-inelastic production and consumption characteristics,
with thousands of people proclaiming that it has been
manipulated and beseeching the regulators to end this
manipulation, a commodity finally about to respond to the
law of supply and demand, and Forbes comes out with list of
people who each have too much money to buy it.

While I don't dwell on the price implications of investment
funds flowing into silver, it is one of a very small number of
commodities that, for thousands of years, people have held
as an investment. Therefore, it is reasonable to assume that
some people could rush to buy silver at some point,
considering all of the above.

Your head should be pounding with the question: How can
this investment asset be so darn cheap? How can this vital
commodity be priced so low that any one of many thousands
of entities could each gobble up the entire world's known
above-ground inventories?

After all, we can't make that statement about gold, where no
one person could lay out the cash to buy up all the
trillion-dollar-plus known gold inventory. And only a few
could even buy the just-announced renewal of the 500-tonne
central bank gold annual sales quota, as that's close to $6.5
billion a year.

What is it about silver that allows its price to be so cheap
that its entire known world inventory is within the potential
budget of many thousands of world entities?

There is one answer, and only one answer, to that question:
The obscene and uneconomic naked short position on the
COMEX. That's because only silver, of all the commodities
traded, has a short position greater than world inventories
and world production.

This is simply a case of bigger being badder. It is the naked
COMEX short position that continues to depress the price to
the ridiculous extreme that values its entire known inventory
down to absurd levels.

In fact, even after a major options expiration and delivery
reductions in total open interest, the current total gross short
position in COMEX silver (futures plus call options) remains
at 850 million ounces. The dealer community still has a net
short position of more than 450 million ounces.

There is no legitimate economic justification for such a short
position. There was certainly no legitimate justification when
the price was below $5, and there is no legitimate justification
$2 higher, with hundreds of millions of losses to the dealers.

Except for one -- avoiding the inferno.

It is my long-held contention that because the COMEX silver
short position is clearly too large, and therefore manipulative,
so that it cannot be unwound in normal market fashion. It either
stays mostly intact (with some liquidation at lower prices, as
the tech funds sell below certain price points, enabling the
dealers to cover partially) and the manipulation continues,
or the dealer short position is covered at higher prices, in
which case the manipulation is ended and the price
explodes.

You must remember that the dealers have never covered
shorts in silver to the upside. Never. They have always
waited and engineered the funds into selling eventually.
This is about the clearest proof of the manipulation.

There has never been free-market competition for the
dealers in buying back their shorts. The next time will be
the first time.

There will be a first time, and maybe soon, as tightness in
the physical market could force the dealers' short hand.

But considering the stakes for the dealers, you can't rule
out one more engineered move to the downside. It is a
disgrace that there is a government regulator, the
Commodity Futures Trading Commission, that looks the
other way, and a self-regulating exchange, the
NYMEX/COMEX, that permits this.

I wish I knew the short-term resolution. I don't. We could
explode momentarily, or suffer one more shakeout. You
have to play it as if it will explode, with a full core
position, because you may not get a second chance.

If we do get the shakeout first, it will be the mother of the
mother of all buying opportunities in silver, even better
than the opportunity I wrote about in October at $4.90
silver.

For now, holding real silver is the best solution. Besides,
there are many who can't put a significant percentage of
their net worth into real silver, precisely because silver is
too cheap and they would need to buy too much. Too bad
for them. But good for you.

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