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James Davidson''s review of ''The Coming Collapse of the Dollar''
By Theodore Butler
InvestmentRarities.com
Tuesday, April 25, 2005
Investment Rarities President Jim Cook recently informed me that he
was mailing his letter to many new readers. Readers who were not
familiar with what I had already written. He estimated that perhaps
20,000 people could be considered new. He asked me to write an
article with these new readers in mind. I quickly realized that it
would require me to shift my focus from the day to day, where I
normally dwell, to a much broader perspective. I welcome these
shifts in perspective as it forces you to reevaluate your basic
premise.
At first, I considered the title "Silver for Dummies," after the
popular book series, but the last thing I wanted to do was to insult
people. Besides, that series is intended to educate the masses about
many topics, and as far as I'm concerned, only a very small
percentage of the public will ever invest in silver, no matter what.
Please think about that; whereas 50 to 75 to almost 100 percent of
those that invest will invest in stocks, real estate, or interest-
bearing instruments, far less than 1 percent will ever buy real
silver. Cook reaches tens of thousands of readers monthly, making
him the leading provider of silver information, yet this is
miniscule compared to the 50+ million investors in the United States
alone. My point is simple -- if you're looking for an undiscovered
investment item, silver fits the bill. By the time there really is
a "Silver for Dummies" available, silver will no longer be
undiscovered or cheap.
Because silver is an item known since the dawn of civilization, most
people naturally hold strong preconceived opinions about it. For
instance, just about everyone is aware of, and has some opinion of,
the dramatic price jump, and decline, from the 1980s Hunt Brothers'
episode. But very few have taken the time to study silver closely.
It's easier and quicker to rely on superficial opinions.
Unfortunately, that's not usually the path to investment success.
While I always try to get people to buy real silver for the long
term, I would be happy just to get you to look at it closely. Take
some time and do some homework. I'm willing to bet that, if you take
the time to study the real facts about silver, you will buy it. I've
yet to run across anyone who has made a bona fide effort to learn
about silver and who hasn't bought it. Those who do their homework
and do buy silver for the right reasons always seem to buy more as
time goes by.
So why should someone new to silver consider it as an investment? Or
more precisely, why do I think that silver is the best investment of
all? In terms of silver, I don't really care about inflation or
deflation, interest rates, the stock market, politics, monetary
developments, or the direction of the dollar. I monitor these
things, but they have remarkably little input in my long-term
thinking about silver.
I see no chance that silver will ever be restored as money, in any
form, as I understand the definition of the word. There's simply not
enough silver available anymore for such a purpose. Besides, any
attempt to make silver a medium of exchange would fail because it
would be hoarded and not spent.
I am a commodity analyst. That is my background. I look at silver in
commodity terms, namely, does its current price accurately reflect
current supply and demand. Is the price under, over or fairly valued
compared to current and future supply and demand? This is the
essence of all investment analysis.
An objective study of the law of supply and demand would indicate
that the price of silver is vastly undervalued. That's what makes
silver a great investment at current prices. The world consumes,
industrially, more silver than it produces, and must draw down
inventories to balance. This can't last indefinitely, but as long as
this deficit consumption pattern exists, any price would have to be
considered undervalued. This is not unique to silver; this is the
cornerstone of the law of supply and demand, which, in turn, is the
cornerstone of our free-market economy.
Price is the regulator of supply and demand of all things in the
free market. Too low a price, and we consume more and produce less.
Too high a price, and we produce more and consume less. Basic stuff.
You must look at supply and demand first and price second, when
contemplating a purchase. If production exceeds consumption, the
price is most likely too high. If consumption exceeds production,
the price is undoubtedly too low. In fact, in the commodity world,
it is very rare to see consumption exceeding production, except for
relatively short time periods. After all, a commodity deficit can
only exist as long as there are available inventories to be consumed.
What's unique to silver is that it has been in a deficit consumption
pattern for more than 60 years, with very low prices over most of
that time. That would be impossible for any commodity, except that
it has actually occurred in silver. But the very reason it has
occurred in silver is the reason I think silver is the best
investment. A deficit consumption pattern in any commodity is the
most bullish circumstance possible. It just can't get more bullish
in any commodity than for consumption to exceed production. That
condition can't last.
The problem is, by the time it is obvious that a commodity's
consumption is greater than its production, it is usually reflected
in the price being quite high, and the deficit about to be corrected
by that very high price. But if you can recognize a commodity
deficit before it is reflected in the price, then boy-oh-boy you
better run, not walk, to buy that commodity. And I don't care what
the commodity is; a consumption deficit guarantees prices will go
high enough to end the deficit.
What makes silver's deficit consumption pattern so special is how
the deficit was satisfied for more than half a century. Or, in other
words, where did all the silver come from, at such low prices, to
satisfy the production shortfall for all those years? After all, the
immutable law of supply and demand dictates that inventory can be
bid away from owners only with higher, not lower, prices. It was
this question that prompted me to study silver closely, starting 20
years ago. If you're someone new to silver, let me condense my
findings and save you 20 years of time.
Most of the silver inventories consumed over the past 60 years came
from government holdings. The cumulative amount is staggering. It
totals from 6 to 10 billion ounces. This means that 100 to 150
million ounces of silver came to market every year for 60 years,
above and beyond what was mined and recycled. This exerted a
tremendous influence on the supply/demand fundamentals.
Because governments are not-for-profit organizations, the silver was
dumped in a decidedly non-free-market fashion. No regard was given
to the price. Whether disposed in common coinage, donated through
give-away auctions arranged by the Silver Users Association, or more
recently through central banks leasing, the common thread to the
government silver disposals was that the price was not a factor for
the sellers. But the big government dumping of silver is now over.
The billions of ounces of government silver are gone. The U.S.
Government's inventory of 5 billion ounces 60 years ago is zero.
That's what makes silver the best investment of all. Silver won't be
coming from government ever again.
Not only am I giving you the explanation of where the silver
inventory came from and why it won't be coming anymore, you are
being given the explanation before the price has responded to the
deficit consumption pattern, as it must. That should be all you need
to know and run to buy silver, but there is much more.
Because of the silver deficit consumption pattern over the past 60
years and the dumping and destruction of many billions of ounces of
inventory, tremendous imbalances and aberrations have been created.
Most of these aberrations are unknown to world investors, and are
not reflected in the price. That's what creates the opportunity.
Aberrations like 5,000 years of cumulative silver production being
consumed in the past 60 years. Aberrations like less silver now in
existence than gold. Yes, above-ground silver is rarer than gold.
How many people do you think know that?
On top of the long-term deficit consumption pattern and the loss of
more than 95 percent of known world inventories we have in place,
like a thermonuclear device, the largest short position the world
has ever witnessed. Silver has a short position many times larger
than the known silver in the world that could be delivered to cover
this monumental short position. By itself, that short position is
reason enough to run to buy silver. Combined with the structural
deficit and the depleted inventories, it has created an investment
situation never before witnessed. Do you think that's reflected in
the price? No, not even close.
One more goody. U.S. geological survey data indicates that below-
ground silver, yet to be mined, is less (in terms of years of
supply) than any other industrial or precious metal. When silver
explodes in price there will be explanations offered at every turn.
There will be authoritative I told-you-so's from any number of
people who never told you so. I'm not interested in I told-you-so's.
I'm interested in ending the silver manipulation, making a buck, and
seeing you make a buck. In that order. The trick is to recognize a
lifetime opportunity before it's too late. If you hurry to buy
silver now, you won't be too late.
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http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
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http://www.resourceinvestor.com
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
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Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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