Silver: We NEED it!

The answer to many questions often depends upon perspective, whether the questions are; should I buy silver, is the S&P500 expensive, is huge and unpayable debt a problem, is another World War a bad idea, will eating potato chips and candy bars actually damage my health…and are Republicrats as useless and corrupt as they appear?

Many people have suggested that silver prices are hopeless and silver will never go up.  This is an overly emotional perspective caused by 4.5 years of declining silver prices and negative sentiment.  Consistent with this “hopeless” assessment are:

• If silver prices ever get back to $20, or $30 or $40, I’ll sell and never put money into silver again.
• I bought silver at $30 and now it is near $14 and I have lost money and feel stupid, especially as the S&P has gone up nicely in that time.
• Silver bulls have been saying buy, buy, buy since whenever -- and they have been wrong, wrong,  wrong.
• I’m mad as hell and I can’t take it anymore. I’m selling out, taking my losses, and buying stocks. 

Examining the above issues from a different perspective might produce the following responses:

1. If silver ever gets back to $30 I’ll sell. Why?  What were your original objectives?  Did you buy for short term profit or long term insurance against the massive debt increases and currency devaluations that our politicians and bankers have created and will continue to promote?  If you bought for long term insurance your question should revolve around buying more, not selling your insurance.
2. You bought at $30 and it is now $14. Warren Buffet might suggest that if it was a good investment at $30, it is a much better investment at $14 and if you think it is a good value, you should buy more, not sell.
3. Silver bulls and bears, stock bulls, real estate sales people, and politicians all talk their book. At times they are right, other times wrong.  Silver goes up and down, stocks go up and down, and real estate goes up and down.  But debt always INCREASES and unbacked fiat currencies always DECREASE in value.
4. You are mad as hell and ready to sell out and take your losses. Fine!  Do what you want to do.

SO WHAT?

Markets are frustrating unless you possess insider information, unlimited free currency backing, or can change the rules to suit your needs.  The casino is partially rigged and favors the political and financial elite.  You can successfully trade paper COMEX silver contracts, ETFs, stocks and bonds, but you are “swimming upstream” against sophisticated “algos,” computers, and professionals.

Those paper contracts, stocks, ETFs and bonds hide risk related to the value of the currency and confidence in the paper.  Example:  Who wants to be a billionaire in Zimbabwe dollars?  Who wants to own a million shares of Enron stock?  Who wants to own a 30 year bond from a bankrupt country that can’t pay its debts this quarter and may not exist in 30 years?

Enron stock may drop to zero, nobody wants Zimbabwe dollars and Confederate money will never rise again, but we NEED silver since it will always be valuable and is necessary for modern life.  In addition we NEED silver because it hedges against currency devaluation, uncontrolled spending, massive debt, and loss of confidence in the currency, politicians, and economy.

From this perspective we don’t understand why people would sell their silver insurance at these prices given that:

1. Politicians will spend and borrow to excess and eventually drive the value of their unbacked paper currencies down to nearly zero. History confirms this.  The only questions are when and how rapidly.  We NEED protection from devaluation.
2. Debt (official debt, not including off balance sheet liabilities and unfunded liabilities such as Social Security and Medicare) has increased in the US from about $398 billion in 1971 to over $18,600 billion in late 2015. That debt can never be repaid in current dollars, which strongly suggests that the dollar must be devalued and consumer prices for the goods and services we NEED must rise.  Silver prices will rise because we NEED silver products, supply is growing slowly and industrial and investor demand are growing more rapidly.
3. COMEX paper silver prices have dropped for over four years, but we don’t NEED paper silver. When prices for physical silver align with physical supply and demand, and not paper prices, the price of silver will make more sense.
4. War and military actions are increasingly common, costly and becoming worse. Example:  A single helmet for an F-35 pilot was recently described in the media as costing $400,000.   The forever war on terror will get more expensive and create immensely more debt.  The military NEEDS silver for equipment and bombs, and we NEED silver to protect from the inevitable currency devaluation.
5. The powers-that-be may deem another World War necessary in order to justify massive bond monetization, deficit spending, economic stimulus, and to distract the masses from economic recession. Those expensive wars will devalue currencies and increase consumer prices for the goods, services, and silver we NEED.

WHEN?

 The COMEX paper price of silver will rise when the major players are positioned to profit from a rising price.  That probably will be soon, but asking when will it rise is the wrong question. 

If you are buying silver to protect from fiscal and monetary insanity, then “when” matters very little.  Fiscal and monetary insanity are not improving anytime soon and a thousand years of history suggest that all unbacked paper fiat currencies eventually descend to their intrinsic value (zero), debt always increases, wars will persist and become more expensive, and prices for the goods and services we NEED will continue to rise.

From this perspective, we NEED silver for economic survival.  We don’t NEED paper silver contracts, paper stocks, paper currencies, and paper promises.

We NEED silver, or …  you can place your trust in Hope and Change.

From John Hussman:

“Cutting immediately to the chase, we continue to believe that the U.S. equity market is in a late-stage top formation of the third speculative bubble in 15 years. On the basis of measures best correlated with actual subsequent S&P 500 total returns across history, equity valuations remain obscene. We fully expect a loss in the S&P 500 in the range of 40-55% over the completion of this cycle; an outcome that would be wholly run-of-the-mill given present market conditions, and would not even bring reliable measures of valuation materially below their longer-term historical norms.”

From Egon von Greyerz:

“But just like the paper money printing will fail so will the creation of paper gold. It makes absolutely no sense that unlimited supply of paper gold should have any value.  I don’t believe that we are far from  the point when the paper gold holders will realize that the intrinsic value of their paper  is ZERO. 

The geopolitical situation in the world is also looking very grim. Sadly the war industry is likely to prosper greatly in coming years. 

And investors in the bubble assets of stocks, bonds and property will see a wealth destruction that they could never have imagined whilst holders of physical gold and silver (held outside the banking system) will maintain their purchasing power and preserve wealth.”

From David Stockman:

“…the gates of hell have been opened by Washington’s senseless destruction of regimes in Libya, Syria, Iraq, Yemen, Somalia, Afghanistan and elsewhere that refused to do its bidding. Yet not one of these backwaters of tyranny and economic and military insignificance posed any threat whatsoever to the safety and security of American citizens in Lincoln NE or Manchester NH.”   [Expect more military spending and debt to fight the denizens who have escaped from the gates of hell…]

Paper Dies, Silver Thrives!

 ********

Gary Christenson

The Deviant Investor