-- Posted 22 November, 2005 | | Source: SilverSeek.com
When I was a kid, I used to love to watch “The A-Team” on TV. This quartet of lovable fugitives, upon finding themselves in weekly hot water, would always manage to fight their way out using the most creative – and unlikely – of means. But my favorite part of the show was its consistent finale: that point at which Hannibal Smith would chomp down on a cigar while overlooking whatever mayhem the team had just caused and say, “I love it when a plan comes together.”
Plans come together, yet sometimes trends come together and arguments come together in the same way, even arguments from opposing camps that one might never expect to agree. Such is the case with the newly-proposed silver ETF (Exchange Traded Fund), an investment vehicle that would allow investors to buy title to physical silver locked safely away.
For years, Silver Bugs (like James Blanchard – see below) have been arguing that the price of silver must rise if for no other reason than that a constant supply deficit would eventually cause silver to become scarce. The world would not run out of silver - the price would simply be forced high enough that it would again be profitable for the world’s primary silver miners to go back to work - though they expected a period of adjustment (read: obscene profits) in the meantime.
Their assumed adversary has been the Silver Users Association, the lobbying group that represents the interests of companies that make, sell and distribute products and services in which silver is an essential component. It almost goes without saying that SUA’s interests lie primarily in ensuring that silver is both cheap and abundant.
The Silver Bugs have often made the case that the modern silver market, in pricing silver far below its true value, could eventually explode, crippling those companies that need silver (e.g. the SUA’s members) at the same time it made millions in profits for those who own silver in the safe or in the ground. And if they have not found an ally in the SUA, they have at least found an opponent who agrees that they may be right.
Concerning the proposed silver ETF, the SUA has this to say:
The Silver Users Association opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver be held in allocated accounts, thus removing large amounts of silver from the market. By doing so, the ETF will cause a shortage of silver in the marketplace. If this happens, it will ultimately be the economy that suffers due to the negative impact taking large amounts of silver out of the market will have on industry.
In short, the removal of silver from the marketplace will cause a shortage of silver. For those of you who remember your supply/demand graphs from econ class, a shortage of silver will cause higher – much higher – prices. The ETF expects this very thing to happen. The SUA vehemently and understandably opposes it.
But in doing so, the SUA unexpectedly agrees that the silver bugs will be ultimately correct, because it’s not only the ETF that removes silver from the market. The consumption of silver in excess of production must produce the same effect for the same reason, and we have that today. We’ve had it for more than a decade running. In other words, a shortage of physical silver is coming, whether the ETF hurries the process or not.
It may or may not be “a plan coming together” as Hannibal Smith would have so likely enjoyed, but when two opposing forces come together in a market and agree that shortages are on the horizon, it’s time for investors to find a good cigar.
Bookman’s Picks:
Being the owner of a bookstore, I’m blessed to have a continuous stream of old economics and investment books crossing my desk. The fact that they are old and out of date gives them two advantages over new ones: they are inexpensive (some sell online for literally a penny plus shipping) and the reader can understand which analyses have withstood the test of time. Each month I’ll bring a pair of reviews of books that seek to answer the same questions investors are asking today.
“Silver Bonanza,” By James U. Blanchard, 1993 (updated 1995)
The late James Blanchard was possibly the man who is most responsible for the fact that Americans today may legally own gold. A founder of the National Committee to Legalize Gold and the New Orleans Investment Conference, Mr. Blanchard died in 1999, but not before penning the one book every silver investor should read and memorize, Silver Bonanza. Silver Bonanza lays out an investment case for silver that forms the basis of most modern analyses of silver, from use in medicine to supply and demand fundamentals. With silver crossing the $8 threshold this week, investors would be wise to understand why it could go far higher.
“Blood in the Streets,” by James Dale Davidson and Sir William Rees-Mogg, 1987.
Davidson, founder of the National Taxpayer’s Union, and Rees-Mogg, former editor of the Times of London, co-authored a triad of books that illustrated the same theme: that changes in technology create mega-political trends that determine how and in what ways governments and companies can project power. Following Nathan Rothchild’s famous maxim, “The time to buy is when blood is running in the streets,” their first joint effort explains how these mega-political trends affect everything from when it’s best to buy real estate or metals to why and in what places terrorism will trouble the world.
Both together explain why markets will not be ultimately denied, yet shepherd the investor to a safe balance of risk and profit. They are absolutely essential for the investor who wants to make – and more importantly keep – a ton of money in these trying times.
Bill Hoyt
November 22, 2005
Opinions contained herein are purely those of the author, but he invites you to share them if you wish. Visit his web log, El Borak’s Myopia, for daily commentary and responses to reader email.
-- Posted 22 November, 2005 | |
