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Paper Bad - Metal Good
by Edgar J. Steele

January 28, 2006

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"There is a large class of people who believe that paper can be, and ought to be, made into money without any promise or hope of redemption; that a note should be printed: 'This is a dollar,' and be made a legal tender.  I regard this as a mild form of lunacy, and have no disposition to debate with men who indulge in such delusions, which have prevailed to some extent, at different times, in all countries, but whose life has been brief, and which have shared the fate of other popular delusions.  The Supreme Court only maintained the constitutionality of the legal tender promise to pay a dollar by a divided court, and on the ground that it was issued in the nature of a forced loan, to be redeemed upon the payment of a real dollar; that is, so many grains of silver or gold.  I therefore dismiss such wild theories, and speak only to those who are willing to assume, as an axiom, that gold and silver or coined money, have been proven by all human experience to be the best possible standards of value, and that paper money is simply a promise to pay such coined money, and should be made and kept equal to coined money, by being convertible on demand."
  --- Secretary of Treasury John Sherman, 1877.  (Thirty-seven years later, President Woodrow Wilson sold his soul to international banking by helping to establish the Federal Reserve System.  Since that day in 1913, the purchasing power of the American dollar has been eroded from 100 cents to precisely 2 of those 1913 cents.  The missing 98 cents went into the pockets of those same international bankers, mostly foreigners, all of whom still own and run the US Federal Reserve System.)

Today's missive began as a rant and hit piece on George W. Bush and, particularly, his latest Supreme Court appointee, Judge Alito.  As I outlined my list of talking points, it began to rival the laundry list contained within "It Wasn't Arabs."  Besides, every time I begin to write about Bush lately, I become nearly apoplectic.  Today was no exception, so I took a break before having to call 911 for a defibrillator. 

Perhaps I should take a Valium before I finish the Bush rant that I started today.  In fact, some wags have suggested that I be medicated nonstop.  Sigh.  Perhaps they are correct.  Please increase my thorazine drip, nurse, as I am beginning to see things all too clearly.

During the break, I began writing what was to be merely a footnote today in response to an email received from a list member, following up on the investment advice contained within "Peak Silver" and "Whirly Ben, the Globo and the Great American Gold Grab"  That footnote quickly evolved into this column-length piece, well beyond even my preferred rant length. 

Lots of other people are doing a pretty good job of cutting up the Alito appointment this week, but I reserve the right yet to do so, myself.  Here's a preview:  Even though this guy looks innocuous enough - especially if you listen to mainstream media's talking heads - he represents the kiss of death for America because his will be the fifth and terminally deciding voice on the Supreme Court bench to support an expansive interpretation of Presidential power.  It is that very expansiveness that the criminal, misbegotten scumbags now in charge of America have undertaken through their stooge, whose name I cannot now bring myself to type into this space without getting spittle all over my keyboard.

Here's today's "footnote," just as it was before I wrote the preface above:

Normally, I append list member emails and my responses to larger pieces, including the occasional bit of financial advice, but things are moving so fast in the metals markets this month that I want to address one email, in particular, that I received this past week and which I believe has both general and immediate relevance for a great many of you.

Marcus writes:  "I first heard your talk, "Peak Silver," in November, and I'm happy I bought silver in response.  I'm putting a minimum of 10% of my take-home pay in it now, and plan to continue for the foreseeable future.  My parents and mother-in law are holding cash right now.  I sent them a copy of "Peak Silver" and "Whirly Ben...."  Sadly, they're not buying, but they've been warned.  I'm writing to request you consider doing a talk on future strategy.  The coming crisis will eventually resolve, and silver will eventually top out and settle back at a stable base price, be it $15 or $500 an ounce.  People were wise in 1980 when they sold their silver for $40 an ounce.  I guess the fear of an uncertain future and double digit inflation and interest rates had driven the price of silver that high.  Boy, are those things poised to happen again, only more so!  Silver started its decline about the time inflation and interest rates began theirs.  It was down to $4 a few years after that 1980 peak.. Should the turn in inflation and interest rates be our cue to sell silver again?  If so, what should we buy to preserve or further our gains?" 

Incidentally, as Marcus now well knows, his email began with a compliment, which is all that I excised from what he wrote.  I usually do that, as some of you have noted, simply because my ego, though like that of any other lawyer (big as all outdoors), does have its limits.  Like anybody, I love the compliments, but I think it unseemly to reproduce more than a small percentage of them in this space.

Before I respond, a caveat is in order:  I am not writing an investment advice letter here.  Nor, am I a paid professional related in any way to the field (at least, not anymore).  Like Thomas Paine in another time, I am trying to awaken people to the dangers our current rulers represent to us.  My investment comments are like bread crumbs:  designed to lead others to my web site in the hope that they will stick around, wake up and, hopefully, spread the word.  Occasionally, one of my pure investment pieces, like "Peak Silver," will get picked up and passed around the Internet financial community, as well, which generates a host of new faces out there.  But, even my purely financial essays always possess a healthy dose of politically-incorrect reality.

This point bears repeating:  I give out occasional free investment advice (which finally is on the money again after fifteen years due to the fact that the illegal government cartels are losing control of the markets) for one purpose only - to lure others in for my politically-incorrect lectures...kind of like a soup kitchen.  Come for the soup, but you've gotta stay for the sermon.  That's why you almost always will find it embedded in my pieces, just like this one is - in order to make those who come just for the soup nose around until they find it.  (Note:  Since writing that sentence a little earlier today, I have finished this piece and removed virtually everything except the financial aspects, so this one actually becomes an almost-pure financial discussion.  I leave this observation, however, as it generally is true and, truth be told, is, itself, designed to persuade the newcomer into coming back and reading other of my essays.)

Fact is, though, my free investment advice is returning 10 times what many who pay several thousand dollars per year to the hotshot professional investment letter writers now are realizing (in fact, many of those guys now define success as losing less money than others).  Why?  Because what I tell you is based entirely upon my politically-incorrect outlook, tempered by my professional financial, accounting and legal background and training.  That's my strength and their weakness:  they are hobbled by at least the partial blinding imposed by America's media oligarchy.  The drum beat that I hear is considerably different from that heard by most others.

A good example is my belief that gold will be confiscated just prior to the upcoming radical devaluation of the dollar.  In fact, only recently have I gained much company in my belief in the dollar's coming collapse.  Only one other fellow in the alternate press, Larry Patterson, agrees with me about gold confiscation.  Well, we will see, won't we?  Meanwhile, those who have copied my move from gold into silver, like Marcus, have seen gains well beyond what gold, itself, would have brought them.  I call that no-loss paranoia.

I do have some modest personal investments and what I mention as we go along is precisely what I do, myself.  It hasn't seemed particularly relevant until the past couple of years, during which I perceived a "quickening," an acceleration of financial events that I honestly believe is about to swell into a genuine tsunami.  So, don't sue me if you lose your shirt doing what I do (of course, I will have lost my shirt, too, so maybe it won't matter).

Now, to answer Marcus' question directly.  My short-, medium- and long-term strategies all are the same:  accumulate and hold metals and quality, selected, non-junior mining stocks.  Remember:  Paper bad, metal good - as I said to a fellow customer in a coin shop recently who wondered aloud what might be a good investment.

Only if silver goes into a bubble will I consider shifting.  What will a silver bubble look like?  Probably a silver spot price per ounce shooting up to or above $100 or so, in the context of a dollar adjusted from America's future dog dollars to the dollar's purchasing power today (which, of course, represents only 2 cents in 1913 dollars).  Then I will shift into whatever seems not to be in a bubble.  By then, it may be stocks or real estate or platinum or diamonds or backhoes....count on there being something solid into which to shift, however. 

Right now, silver simply is correcting to where it would have been without the inflation-neutralizing (and illegal) market manipulation these past 15 years ($10 to $15).  Then will come silver's increase owing to its scarcity relative to other precious metals.  Then will come silver's increase owing to its value as a vehicle for escaping economic chaos.  Then comes the bubble.  How high could it go?  How high is the Moon?

Once again, by popular demand:  I have used Steve Baldwin, of the Spokane Coin Exchange (509-747-8332), to convert my modest gold bullion investment into silver and numismatic coins.  I just did this - during the past three months.  Since then, the 10-oz silver bars he put me into have appreciated 18% beyond their cost plus his modest commission.  The numismatic, PCGS-certified MS64 and MS65 "common date" St. Gaudens gold coins (which will not be confiscated for the reasons given in "WhirlyBen") he selected for me have gone up 17% and 24%, respectively - again, over and above their cost plus the very reasonable commission he charged.  Had I simply held onto my gold Eagles, I would have seen "only" a 13% appreciation during the past three months. 

The importance of PCGS-certified "common date" St. Gaudens gold coins derives from the fact that they represent as stable a commodity among numismatic coins as you likely are to find outside of Morgan silver dollars.  There are lots of them, their price essentially is fixed and moves with the spot price of gold in a fairly predictable fashion, they are readily salable and, being PCGS certified, they are the ultimate known quantity to market participants.

Meanwhile, silver continues to pull ahead of gold as a rapid-return investment, just as I predicted in "Peak Silver" nearly four months ago (not to mention in my book, "Defensive Racism," over 18 months ago, when it was first published - 24 months, actually, dating from when I wrote the chapter on economics, money and investing entitled "Money's End Game: Depression II."  Here is a direct quote from that chapter:  "Gold has some industrial uses, but very little by comparison with silver, which currently is massively undervalued when compared to the price of gold, versus the historical relationship which has existed between the two.  In fact, above-ground stocks of silver, which generally is mined as a byproduct of mining for other ores, principally copper, have been depleted to the point of nonexistence recently.  Silver, in particular, seems poised for a serious breakout once the rigging stops, as stop it inevitably must."  When I wrote those words, the spot price of gold was under $400 (vs. $558 per oz. today) and the spot price of silver had just broken out from under $5 (vs. $9.57 per oz. today).  That's an appreciation of 40% for gold and a mind-boggling 92% for silver!

Because of the assiduously fair manner in which Mr. Baldwin has treated me, all without suspecting I might someday recommend him to anybody else, I now recommend him to you.  Just so you know, he has agreed to pay a small portion of his commission to me for recommending him to you, but he has guaranteed me that he will not pass that on to you.  Please let me know if you suspect that he does simply pass it on - or if you are in any way displeased with his service - and I will immediately alert this list to stop using him.

Speaking of silver, I just have to tell you something very odd.  When I released my "Peak Silver" article back in October, a piece in which I once again noted the above-ground scarcity of silver relative to gold that I already had mentioned in my book nearly two years earlier, one of those high-priced investment newsletter writers I mentioned, a fellow by the name of Ted Butler, lodged a claim with www.goldseek.com, one of the Internet precious metals web sites that had put "Peak Silver" up, that I had plagiarized him.  They pulled my piece, then a month later reinstated it after Butler, still raving like a buffoon, admitted that the alleged plagiarism concerned only my assertion that silver was scarcer above ground than gold, something well known to virtually anybody connected to the industry or who bothers to look at government and industrial reports and, as I noted, something that I had written into my book two full years earlier

I explained the meaning of plagiarism all around, after asking "Ted who?"  Everybody but Butler had a good giggle at his expense.  Butler then wrote an essay in which he accused virtually everybody in the financial newsletter industry of plagiarizing his "silver is scarce" concept, if you can believe it.  (Of course it is scarce - that's why it is called a precious metal, you dope.)  Gee, do you suppose that Butler himself actually plagiarized the concept from my book?  Just joking, as one cannot trademark, patent or copyright concepts and ideas.  Nor can certain patentable processes be protected if they already are in the public domain or obvious, for that matter.  Plagiarism, for those who are interested, occurs when the literal expression (the actual words, at length) of someone's writing is used without attribution.

I suspect that Butler simply was annoyed that I had thought to label silver's current situation as "Peak Silver," and analogize it to the controversy surrounding the theory of Peak Oil, which got me some attention in several quarters for the originality of that line of thinking, whereas Butler seems to think he owns the field on silver commentary.  The hubris of the man simply is amazing.  To think, some people actually pay him money for his advice, although I admit it is far better than what you hear on CNBC these days.

A more volatile way in which to invest in silver is via mining stocks.  My favorite silver stock is also my favorite gold stock and one of only two in which I currently am invested:  Gold Corp (GG).  Here's why I like Gold Corp so much (aside from the fact that it has tripled in value since I first noticed, invested and started recommending it, yet still it shows signs of just beginning to warm up):  1.  GG produces substantial silver and copper in addition to gold, all of which are on the march, big time;  2. GG has no African properties, which I believe all will be nationalized before much longer (or South American, for that matter, some of which did just get nationalized, causing their stockholders to go bust);  3.  GG has no debt (none...nada...zero);  4.  GG has not sold one single ounce of future production, unlike so many mining companies, who will be delivering their gold for $300, pursuant to hedging contracts written years ago, for many years to come;  5.  GG actually is holding back a percentage of its production from the marketplace and earning a profit on its appreciation in this skyrocketing market;  6.  GG is paying regular cash dividends to its shareholders.

A funny thing about mining stocks is that they have been lagging behind the movement in metals prices, themselves, far more than traditionally seen.  I attribute that to the influence of CNBC and the rest of the conventional media investment "advice" fed to the public these days.  Gold Corp seems to be one of the few exceptions to the rule that most still are mired in price levels from a year or two ago.  These are senior mining stocks about which I am talking, by the way.  Stay away from the juniors altogether.  Even in a rising market, a great many of them will sink beneath the surface, taking your investment with them.

Gold Corp bobbed along under $5 for years, until 2002, when it broke out and marched to over $15 per share by the end of 2003.   It traded between $10 and $15 until the middle of last year, when it again broke out and marched relentlessly upward.  Today, GG sits just under $26.  During the two years that the spot price of gold climbed 40% (above), GG climbed 100%.  During the past five years, gold has climbed 107%, from $270 per oz. to $558, during which time GG has gone up 460%, from $5 to $26.  That ratio of 4 times the move in spot price seems pretty good in predicting the movement of GG's stock price.  Incidentally, this is a good illustration of combining fundamental stock analysis (the list of positive attributes from the paragraph above) with technical analysis (retracing movement of the stock price versus a related index; the price of gold, itself, in this case).

I see nothing to keep GG from going to $50, $100 or, even, to the Moon, Alice...right along with the price of gold.  If $2,000 gold no longer sounds bizarre to most people (and it doesn't, not like it used to - note that my book presents a lengthy analysis which predicts gold at and above that level), then neither should a related per-share price of $268 for Gold Corp.  And those figures are before the inflation contained within America's coming dog dollars.

Palladium also deserves another mention, I suppose.  In last October's piece entitled "Into the Dust," I first mentioned something I already had been circulating to a very small list of very close friends for a while:  "I also like the potential right now for palladium, for which two of the better stocks seem to be North American Palladium (PAL) and Stillwater Corp (SWC)."  PAL is about twice as volatile as is SWC, which is why I like it best, I suppose.  The spot price of palladium, which had been bumping around under $200 per oz. all year long, finally had broken out late in 2005 and shown signs of moving at last.  Palladium was at $209 the day I mentioned it to this list.  The very next day, it took off like a skyrocket and bounced off the $300 resistance level just forty days later.  I already had bought a few shares of PAL and was amazed to see them more than double in that forty days.  I'd like to take credit for palladium's move, but it was just pure, dumb luck that I called it publicly the day before it ignited...if you believe in luck, that is.

Here is an excellent, if somewhat dated (March 2005) strictly technical on-line analysis of the historical prices of palladium, in general, and PAL, specifically:  http://www.bestonlinetrades.com/2005/03/12/palladium-stock-pal-warming-up/ .  Palladium is an industrial metal, a member of the platinum group, and typically has lagged not far behind platinum, which today is above $1,000 per oz. (vs. palladium's price today of $273).  PAL closed today just under $10 per share.  Based strictly upon technical analysis, PAL should be about one dollar higher and approaching its 2004 high of $12 to $13, the last time that palladium's spot price was dancing around $300.  I confess that I have not done any fundamental analysis of PAL, but have contented myself pretty much with just its technical aspects - enough to invest in it myself, of course.  I got into PAL last August at $4.60 per share.  For now, the 112% appreciation I have seen in my modest investment has been enough for me.  Nevertheless, I am holding on, as I think this one is going to the Moon, too.

If you find my investment advice to be of value to you, do not be at all hesitant to step right up and press the "donate" button below.  If you had bought my book when it first came out and followed its advice, you would have doubled your money in the intervening 18 months.  Why, if you simply had bought PAL when I mentioned it in October, you would have seen your money double in just three months' time.

New America, an idea whose time has come.


-ed

Copyright 2006, Edgar J. Steele

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