-- Posted 17 August, 2006 | |

Silver Summit time already? 

Wow!  Is it really almost time for another Silver Summit?  How time flies when we are in a precious metals bull market!  I can't get there this year, but I hope to in 2007.  The Silver Summit needs an optimist to offset the cloud of gloom and doom that hangs heavy over Mogambo's head!

What do you do with this stuff, anyway?

While looking at eBay auctions for silver a while back, I saw one where a wife was being helpful by selling some of her husband's silver.  In that listing, she asked "What do you do with this stuff, anyway?"  Readers who by now expect a positive and easy to understand response from the Optimist will not yet be disappointed.  My reply is to accumulate as much physical silver as you can afford and safely store, and then to just keep it!  My optimistic view is that the person who has the most silver at the end wins the game!  Since some people prefer, however, to think not about what they can do for silver, but about what their silver can do for them, it is appropriate to consider ways to usefully "spend" some of the physical silver they have accumulated.

Not yet, already!

The Optimist views physical silver in your possession not as an investment, but more like an insurance policy against some of the really dreadful events or situations that we could see in the years ahead.  It is, unfortunately, easy to imagine the possibility that the U.S. dollar could degenerate in value so much and so quickly that it would no longer be an acceptable medium for purchasing the reduced quantity of items that may still be available for sale.  It is possible that other paper currencies, which are all just fiat I.O.U. Nothing pieces of paper, could also become unacceptable in trade for goods or services.  I saw something like this many years ago when a porter happily accepted a U.S. dollar as a tip (Yes, Virginia, there really was a time when the U.S. dollar was a desirable currency!), but he absolutely refused a ten million note from an adjacent nation, even though that note cost me $2 to purchase at the prevailing (but rapidly deteriorating) exchange rate.  As an optimist, I can hope for the possibility that the inevitable dollar currency crisis may not coincide with a total absence of goods or services available for purchase.  Although the obvious store shelves may be empty, there could be back rooms filled with items (Yes, Mogambo, including pizza and ammo!) for sale to people who have an acceptable means to pay for those items.  In the midst of a currency crisis, the list of acceptable means will probably not include plastic or paper currency regardless of what color the paper is or what numbers are printed on it.  Physical silver and gold (preferably in a form that is easily recognized to be authentic), however, will always be an acceptable currency for any transaction.

Swap silver for gold?

Surely, there must be something useful one can do with a massive amount of physical silver that is safely stored away as insurance for when we will really need it.  One can get a little bored while holding a life preserver on the deck of the Titanic waiting for the rendezvous with a large ice cube.  Some readers have asked me about swapping silver for gold after silver makes a spike higher in price.  Suppose, for example, that silver more than doubles in price to $30 per ounce while gold only increases by 50% to $1,000.  Would that be a good time to haul some physical silver back to the coin dealer, and swap it for gold?  The Optimist will admit that could work out OK, but other people will have to do it without my stamp of approval.  My view is that gold will go much higher in price over the years ahead, but silver is likely to continue to appreciate faster than gold.  The Optimist views his purchase of physical silver as a one way street, in which silver is only accumulated but never sold, until there is so much chaos that the economic traffic laws no longer control the flow of financial traffic.  Then will likely be a time when I will be very happy that I have whatever amount of physical silver I was able to safely store away.

But, what about all those juicy profits along the way?

OK.  Let's talk trading.  Everybody, including me, wants to sell the high tic in every major thrust higher, and then buy back lots more near the bottom of the blistering correction that will happen immediately after we take our profits at the top.  I am reminded of the first line from a classic song in Man of La Mancha, To dream the impossible dream.  When we look at a chart, it seems so easy that we could have sold the previous highs, and then bought back the following lows.  Anyone who can do that in real time, however, has more than my respect for his skills as a master trader.  He also has an infinite amount of profits, and he couldn't care less if I respect him or not.  Most of us who previously tried our luck at optimizing profits came to the conclusion that it is very difficult to do consistently, even if one has all of his investment capital available to deploy instantly.  Anyone who has lugged a 1 kg bar or a bag of silver coins to a safe place will recognize that "available to deploy instantly" is not a part of the description for safe storage of silver.  I made the decision some time ago that the physical silver I purchase is not for sale, at least until after the economy's foul smelling refuse encounters the inevitable rotating blade.  Rather than drag out my stash of silver when I want to take partial profits near the top of channel,  I keep a reasonable amount of funds in the paper world of investments.  That makes it easy to sell a little when the markets seem high, and to buy more later at lower (hopefully) prices.  There is no need to consider reducing the value of my physical silver insurance just to take a few paper profits.

Silver is only the second best investment

As indicated in silver is only second best, there are also other things to purchase with our abundance of profits from precious metals.  Personal security is near the top of the list, and this seems like a good time to allocate a significant amount of resources to enhance the personal security of one's self and family.  In a recent article titled You Can't Eat Gold, David Andrews highlights some interesting observations about preparing for the bad times ahead.  The Optimist's positive perspective is that with appropriate planning, we can keep our stash of silver safe for the bad times ahead and use other funds for essential preparations.

Here's a tip for you

Alert readers of the preceding paragraphs may have noticed that the Optimist does not recommend selling any physical silver.  Not now;  not later;  not ever!  Physical silver is like a fire insurance policy that should be saved for use when the economic structure is on fire.  There is, however, one exception.  The Optimist recommends that all of us make an effort to invest some silver.  Consider, for example, that you and family or friends may go out to dinner this weekend.  If the bill runs around $100 and the service is OK or better, then you will likely leave a tip of 20%.  Instead of leaving cash, the Optimist encourages you to leave the equivalent amount of silver instead.  Since silver is no longer legal tender, we can not pay our bills in silver, but we can leave gifts of silver anytime that we would have left gifts of cash instead.  Don't know what to get for a birthday gift for Uncle Joe or as a Holiday gift for Cousin Sally?  The Optimist is here to tell you that silver is beautiful, and silver bars or rounds or coins make a great gift for any occasion.  Note that giving gifts of silver does not deplete our stash of physical silver safely stored for the bad times.  We can just use the fiat cash we would have given, and purchase more silver for gifts with that cash, so there will be an unlimited supply of silver we can invest.  Before I answer your impatient question about why in the world would you want to do that, a word of caution is required.  Guys, this is NOT advice about gifts for your wife and/or girlfriends!  My experience is that many ladies do not share our enthusiasm for the great value and high investment potential of inexpensive silver.  For those special ladies in your life, you may find that in addition to flower power, dandy candy, and quicker liquor, gifts that are more ostentatious than silver coins or bars might result in better dividends over the near term.

This can't be about confiscation again, can it?!

There are many reasons to invest silver by giving it as tips or gifts instead of giving the equivalent amount of cash.  Silver is beautiful.  People will keep the silver gift long after they would have simply spent the cash.  Giving silver helps to educate people who may be young enough to have never experienced the comfort and security which a silver currency provides.  And yes, this is also about a grass roots effort to prevent confiscation.  In his younger days, the Optimist was sure that silver will be confiscated.  The primary reason is that defense and industry need silver, which will be in short supply, and Congress will respond to the wheels that squeak loudest.  The defense and industrial lobbyists who infest Capitol Hill are big wheels with very loud and squeaky voices.  Although the Optimist offered a Constitutional Amendment to prevent confiscation, even he realized that effort is little more than a run where the brave dare not go, to fight the unbeatable foe (more poetic beauty from Man of La Mancha).  Even if through some miracle, all of the precious metals investors could unite in support of a Constitutional Amendment to properly protect everyone's ownership of private property, the much higher percentage of the population with debts instead of assets would insure defeat.

We need to remember the old axiom that there is safety in numbers.  The Optimist hopes that by distributing silver back to the working people of America, and educating them about the concept of real money in the process, we can expand our list of supporters from just a few hundreds to hundreds of thousands.  People who receive the silver that we will give as gifts will recognize that it is beautiful, rare, and frequently old enough to be a family heirloom.  Those people, and the friends they share their new treasure with, will then become fellow owners of real silver.  Political attempts to initiate confiscation will then be faced with not just a small minority of us very vocal opponents, but also with the opposition of a perhaps less vocal but much larger cross section of the population.  If we still have a few years before the inevitable Robin Hoods in Congress push to take real wealth from the rich so they can then give the wealth to the companies represented by the lobbyists, then we can use that limited time to actively put silver back into the hands of many people by giving silver as gifts at every opportunity.

That cheapskate only left a 50 cent tip!!!

Confiscation is a more likely problem because millions of Americans know nothing more about silver than that it was sometimes used to make cheap jewelry and expensive tableware that tarnished over time.  Ask a person younger than 40 what a silver coin looks like.  Though his expression will continue to look dull and vacant, he will be thinking "Why do all the stupid people waste my time by asking me really dumb questions?"  Then he will pull out of his pocket a shiny new quarter with something about a state on it to show you a "silver" coin.  As long as he can keep his nearly new quarters, he will not understand the problem when politicians vote to confiscate real silver from unpatriotic hoarders like us.

Since many people do not know what real silver looks like, the Optimist recommends a little caution in giving silver as a gift.  Although one ounce bars or rounds should be obvious (the part where they say .999 fine silver is a big hint), the person receiving the gift may not fully understand.  There will also be times when you want to give more or less than one ounce.  An easy way (in the USA) to give smaller amounts of silver is 90% silver coins (halves, quarters, and dimes dated 1964 or earlier), but real silver coins closely resemble the cheap slugs that replaced them, so make sure you accompany the gift with an appropriate explanation.  You don't want a waitress to dream about bad things to do with your food the next time because you only left her two quarters as a tip for good service after a $20 meal!  It would be a good idea to also leave a short note with an explanation that silver is real money to save instead of spend.  Maybe someone will print business size cards like that and sell them on eBay.  Then we could just buy some cards and leave one with each gift of silver.

Walk the walk

Each of us talks to friends who are willing to listen, and reads the right kind of stuff, and invests as best we can.  That is the easy part.  Many of us can clearly see that the future will continue to deteriorate in a nation bloated with debt and filled with an unlimited supply of eventually worthless fiat currency.  It is essential to protect ourselves, but that is not enough.  We will feel much better if we also make an effort to share our vision with people who do not yet understand the past, present, and future story of silver.  I am positively optimistic that we can make a difference.  Giving silver to the people, so they too can begin to save real money, will help to make the future better for everyone.  Cheers!

* * * Notice * * *

This commentary presents only the viewpoints of the Optimist, and it is intended only for perspective and entertainment. Please do not interpret any portion of this work as investment advice. If any of the concepts discussed here appeal to you, then you must do the work to decide if and when and how you should invest. The Optimist does not ask for any profits you make, and he cannot be liable for any losses incurred as a result of your investment decisions. The Optimist wishes you the best of luck in whatever you decide to do or not to do.