THEODORE BUTLER INTERVIEW

Early December 2008

Cook: One or two newsletters have recently written that there is plenty of silver around. What do you have to say about that?

Butler: There always seems to be someone saying that. But, when you look for data or hard evidence supporting such claims, none are forthcoming.

Cook: The facts don’t support it?

Butler: No, not at all.

Cook: Well, what facts support that there is a shortage?

Butler: On the retail side, supply is very tight, delays are common and premiums are high. That’s the definition of a shortage. And this is the first time we have ever seen these retail conditions in silver. It’s kind of funny.

Cook: What’s funny?

Butler: Well, I remember everyone predicting a few years back that if silver ever got to $10, there would be a big discount in retail silver items like there was in 1980.

Cook: Why do you think it has turned out to be so different this time?

Butler: There’s a lot less silver now than there was in 1980.

Cook: What about the wholesale side of the market? Any shortages there?

Butler: I think so, but it’s harder to tell. The retail side is very transparent because there are thousands of investors and dealers. So you can see clearly what is happening. Not so on the wholesale side. There’s only a handful of big dealers and relatively few big producers and consumers. The wholesale side is non-transparent.

Cook: So, you can’t see if a wholesale shortage exists?

Butler: It makes it harder to see the real situation. You can’t call up the big dealers or consumers and ask them if things are tight. They’re not going to tell you.

Cook: Then, how can you say there’s a shortage?

Butler: The retail market is tight as a drum for the first time in history, and because we don’t see overtly visible signs of shortage in the wholesale market, everyone assumes there’s plenty of silver available. That’s illogical.

Cook: Do you have any factual evidence of tightness in wholesale?

Butler: Sure. Metal flowing into the ETFs and the Central Fund of Canada still seem slow as molasses. COMEX warehouse stocks seem tighter and shrinking. And more and more retail investors are turning to 1000-oz. bars, since they offer the smallest premiums.

Cook: Despite these facts, the price came down. Are you taking any heat?

Butler: If you’re talking about hate mail and the sort, very little, which is somewhat surprising. Especially considering how far prices came down.

Cook: Why do you think people aren’t angry with you?

Butler: I think I have done a decent job at explaining why we came down so hard. This has been an educational process for us all, and with growing knowledge comes the comfort in holding silver for the long run.

Cook: So, you’re still as bullish as ever?

Butler: Absolutely. I know some might say I’m always bullish and, to a certain extent, that is true. It’s because for a long time we have had such a long way to go in price. These sharply lower prices should make one more bullish, as long as the fundamentals haven’t turned bearish.

Cook: And you don’t think conditions have turned negative?

Butler: Far from it. In addition to the new low and attractive price, conditions in silver have actually gotten much more positive.

Cook: What conditions?

Butler: Less silver available for purchase, less potential new mine supply that’s offsetting any decline in industrial demand, and the potential for major new investment demand in our bailout crazy and money-printing world.

Cook: What about the 300 million ounces in the various ETFs? Isn’t that available supply?

Butler: Just because we can now see the silver that was transferred into the ETF doesn’t mean it’s available.

Cook: Isn’t it available at a price?

Butler: Perhaps, but at what price? Do your clients indicate that they will sell at current prices?

Cook: Not at all.

Butler: There’s your answer – very little, or none, at current prices, maybe some at much higher prices.

Cook: Do you still like silver better than gold in today’s financial environment?

Butler: More than ever. This recent widening in the gold/silver ratio is looney tunes. People should take advantage of it. That’s not because I think gold won’t go a lot higher, because I think it will. It’s just that silver is going to shock people when it gets rolling to the upside.

Cook: A number of gold bugs can’t say anything good about silver. How do you explain that?

Butler: Gold is an emotional subject. It’s hard for many people to be objective about it. You either believe in it or not.

Cook: What does that mean?

Butler: I think there’s a primal desire among many to hold an asset outside the dictates of government. I understand and agree with that desire. Gold is the most popular asset that satisfies that desire and belief.

Cook: So, you think there may be a fanatical belief in gold?

Butler: I didn’t say that. It’s just that gold is less about its specific supply and demand, and more about external factors. All I tried to do is make the case why silver may be a better alternative to gold.

Cook: What’s your take on the current financial predicament? You’ve never talked much about a bad economy. Aren’t today’s economic problems a powerful argument for owning silver?

Butler: For sure. We’re in uncharted waters. We’re seeing financial developments none of us have ever experienced. In times like these, you naturally look for something safe and solid that can be relied on. With the new low price, silver has low-risk and high-profit potential written all over it.

Cook: Do you still think there's more gold around than silver?

Butler: It’s surprising you would even ask me that. I wrote that in the very first article for you 8 years ago and countless times since then.. Have you ever seen any credible evidence in that time that wasn’t true?

Cook: Hey, nobody else has ever suggested it. You’re talking about above-ground silver?

Butler: I’m talking about material in real world terms - investable bullion and bullion equivalent

Cook: If that’s true, how can the price differential between gold and silver be so great?

Butler: It’s a world pricing miscalculation, brought about by a long-term manipulation and the human tendency to assume that the current price is always correct.

Cook: It sounds like a it could be a great opportunity. Is it really that good?

Butler: I’ve certainly tried to make the case that it is. You have to focus on the amazing fact that silver is rarer than gold and more useful.

Cook: Is it possible the government is suppressing the price of silver?

Butler: Unfortunately, yes it is possible. I don’t think it was planned from the get-go, it kind of evolved.

Cook: If they are holding it down, could they continue for a long time?

Butler: No, that’s the beautiful thing. You know, that’s the question I’m asked most often - if silver is manipulated, as I claim, why can’t it go on for another 10 or 20 years?

Cook: Why can’t it?

Butler: People are becoming aware of it, and it’s hard to maintain a fraud and that is increasingly coming into the open. Plus the perpetrators aren’t stupid and I believe they see the end in sight, and will terminate their illegal short selling.

Cook: That’s it?

Butler: A bigger reason is that silver is a physical item, and even though the laws of supply and demand have been suppressed for decades, those laws haven’t been repealed. In the end, the artificial low price must increase demand and decrease supply to the point that the shortage of physical overwhelms the paper short selling. It’s inevitable.

Cook: When will that be?

Butler: I think very soon.

Cook: Based on what?

Butler: What, are you kidding me? That’s what the retail shortage is telling us. The low price has obviously created more demand than supply and that’s why we have big premiums and delays on many products.

Cook: But not in 1000-oz. bars yet. Isn’t that the key?

Butler: The operative word is yet. It’s natural that the shortages show up in certain forms of retail silver first, before it spreads to the wholesale form. Besides, I’ve heard you complain at times that even the 1000-oz. bars were getting sticky to get.

Cook: We have managed to get them. Let’s get to some tough questions. The big short position you've always written about has eased. I thought you predicted a major short squeeze someday that would send the price to the moon?

Butler: Yes, I did. And I still think it will, even though that short position has been greatly reduced.

Cook: Sounds like you’re talking out of both sides of your mouth.

Butler: Hear me out. I have always maintained, and still do, that the biggest pricing factor in silver was the large short position. It was why we were priced at very depressed levels and that its resolution would determine price action.

Cook: What kind of price action?

Butler: If we get a physical shortage and the shorts have to cover in a panic to the upside the price would explode beyond description. But I also always said that these shorts were treacherous and that they would try to rig sharp sell-offs to get leveraged longs to liquidate and sell, so that the big shorts could buy back and cover their short positions.

Cook: You certainly didn’t expect this kind of slaughter, did you?

Butler: The sell-off they rigged over the past few months was way beyond anything I could have imagined.

Cook: They had a massive economic liquidation going for them. Why don't you ever mention this de-leveraging? The only person that doesn’t think this financial crisis is the primary reason for silver's drop is you.

Butler: That’s just how they want you to think, namely, that silver only sold off because everything else sold off. But, consider this – the silver sell-off was all about paper silver being sold. There was no evidence of physical metal being sold net. Yes, sometimes I think I’m the only one who sees it.

Cook: What exactly did you see?

Butler: The speculators and hedge funds were heavily long and the bankers were heavily short for many months before the sell-off in many different commodities. These banks are smart enough to know they had to have some cover story to explain why prices sold off simultaneously. So, they waited until they had a good cover story and yanked the rug out from all the long side traders.

Cook: How do they do that?

Butler: They hold the accounts for all the speculators and hedge funds, as their brokers. In that position, the bankers know exactly everyone’s positions and financial condition. The bankers who are the big shorts know where the speculators will have to sell and when they can’t handle margin calls. The bankers are the ones who issue the margin calls. It’s a racket.

Cook: So, you are saying that the bankers rigged the sell-off in everything?

Butler: Exactly. I’m not saying there weren’t other broad economic factors involved, but the bankers just used those factors as a smokescreen. And there’s another thing that bothers me.

Cook: What’s that?

Butler: Why we allow these banks to speculate in the first place. If they stuck to taking deposits and making loans instead of gambling and manipulating, the world would be a lot better off.

Cook: Another thing that bugs me is that you don't think the stronger dollar has anything to do with silver's price decline. Why is that?

Butler: I intentionally disregard currency swings because they are peripheral to core supply/demand analysis in silver. Besides, there must be 10,000 people writing about the dollar on a daily basis, so ask them. I’m not a currency analyst.

Cook: So, where are we right now with these big shorts?

Butler: I think they have liquidated as much as they could possibly liquidate, and the remaining short position, while greatly reduced for the big concentrated shorts is still large enough to add great fuel to any price rally brought about by the inevitable shortage.

Cook: What if none of these big banks wants to go short again?

Butler: Katie, bar the door. That’s the key. They have always been the seller of last resort to cap the price. If they relinquish that role, the price will fly. Heck, in wholesale shortage, it may not matter if they do go short more, but not going short more is a certain formula for sharply higher price.

Cook: Seems to me the industrial users are going to try and keep the price down?

Butler: They may wish that the prices would stay low, but there is not much they can do about it. They don’t have silver to sell and they don’t sell short, so they are a non-factor as far as the downside is concerned. Where they matter to the price equation is to the upside. I’m convinced they will panic and try to build inventory as prices explode and the shortage becomes apparent.

Cook: Everybody assumes a recession will reduce industrial demand. Could you guess by how much?

Butler: It doesn’t make a difference. The worse the fall-off in industrial demand, the better it will be for the price eventually. The more silver industrial demand falls, the more copper, zinc and lead demand will fall, leading to massive mine shutdowns. What will make the difference in silver is investor demand in a world with few good investment options.

Cook: Somebody wrote that investment demand for silver was a minor factor and would not offset the decline in industrial demand. How do you see it?

Butler: Who wrote that? Silver investment demand is clearly the driving force for the price and it has been exploding the past few years. This year, more investment silver has been bought than anytime in history. I see no reason why that won’t continue.

Cook: A lot of people were lured into buying silver on margin and they got killed. Now I see these companies advertising gold. I'm sure they will wipe out a new contingent of investors. What do you say about companies like this?

Butler: You’re talking about two somewhat different things. First, you are correct that many leveraged investors got wiped out on this recent big sell-off in silver, including many hedge funds on both the COMEX and OTC market. That was precisely the reason we sold off, to force these margined holders to sell, so the shorts could buy back. Even though my background comes from the futures side, most people should avoid margin of all types.

Cook: You only recommend holding physical silver, right?

Butler: Yes. That’s the only way you can ride out these engineered sell-offs and stick around for the long term.

Cook: What about these companies advertising gold on TV.

Butler: Most of them appear to be running a scam of some sort. I’ll tell you what really gets my goat

Cook: What’s that?

Butler: I keep running across shady operators on the Internet that are out to cheat people with leveraged deals or phony storage programs, that actually use my research to lure investors in. Let me state clearly that no one has ever been given permission to use my material to promote the sale of silver, save your company. I read on one site recently that claimed they talked with me frequently and I said that their clients should do this and do that. That’s a flat-out lie, as I’ve never talked to them. Avoid doing business with anyone who tries to suggest they work with me. For sure they are liars and most likely thieves.

Cook: For some time you've been complaining about the Commodities Futures Trading Commission not doing their job to regulate the big silver futures dealers. How severe is the concentration in the silver market that you claim is illegal?

Butler: While it varies with big rises and declines in the price, the concentrated short position in silver has remained head and shoulders above any other commodity in real world terms, such as world production.

Cook: Some people have suggested these big shorts have the silver. You disagree?

Butler: I doubt very much that they have the silver, and certainly, no one ever offers proof. But it even goes beyond that.

Cook: In what way?

Butler: Even in the very unlikely event that the big shorts have the silver that doesn’t change the fact that they are manipulating the market. While I think they are naked, the case for manipulation lies in the fact that they are so concentrated.

Cook: Because of a letter writing campaign started by you the Commodities Futures Trading Commission has launched an investigation into the silver futures market. Have they talked to you?

Butler: No

Cook: What kind of investigation is that? They haven't bothered to talk to the world’s foremost silver expert who is the chief accuser?

Butler: You’ll have to ask them that. I think it stinks.

Cook: My faith in government disappeared years ago. What's going to happen?

Butler: I understand how you feel, as many feel the same. But as far as silver, it doesn’t make much of a difference what the government does at this point. When the shortage hits in earnest, nothing will stop the price from exploding.

Cook: Do you think the price of silver is going to explode in their face and cause all kinds of problems.?

Butler: Well, it’s going to explode, and I suppose it will cause problems for the regulators, but I don’t know what you mean by "all kinds of problems."

Cook: I mean a delivery default.

Butler: The price will go up big and the world will adjust to it. Those who own it will make great profits. Those that don’t, won’t. The shorts will get hurt badly. And everyone will say they knew it was coming, especially those who never saw it coming.

Cook: Your friend and mentor, Izzy has written some powerful prose on silver and forecast prices north of $100.00. Do you agree?

Butler: I agree with a hundred for sure. He has some other numbers I am less sure of, but I’ve learned not to doubt the old son of a gun.

Cook: You've consistently written a lot of creative new stuff on silver. In fact, you're the premier thinker on the subject. A lot of writers use your material and fail to mention you. What are your feelings about that?

Butler: I think it’s a very poor reflection on them. In any other field it would not be tolerated.

Cook: Don't you think it’s gotten to a point where it's pure plagiarizing?

Butler: It’s beyond that - it’s pure theft.

Cook: I'm paying you to write this breakthrough information on silver. Don't you think we should insist that writers who use it should mention you as the source?

Butler: Sure. The amazing thing is that by doing the right thing and mentioning the source of an idea makes the writer more credible. Many readers know when something is being plagiarized.

Cook: Let's talk some more about why you think silver is going to go up. You've mentioned the large number of base metal mines that have closed. What about the new mines they've stopped constructing and all those that were planned that are cancelled?

Butler: Right on. Not only are the low prices shutting down current production, a much bigger impact is being felt on development projects. We are losing and delaying future production. This is a problem that higher prices won’t be able to cure for a long time, thus leading to even higher prices.

Cook: These metals prices are ridiculously low. Can any mining company break even today?

Butler: Very few at current prices. There are always lower cost operations that will survive, but we have never witnessed such a dramatic across the board negative impact on miners and refiners.

Cook: Because of this, don't the prices have to rise and soon?

Butler: Well prices do have to rise, but how soon varies with each metal‘s supply and demand characteristics. I think it’s likely that silver will rise more quickly than the base metals, given its investment appeal and the fact that it’s principally a byproduct of base metal mining.

Cook: I've been in this business thirty five years and you're the best precious metals analyst that’s come along. However, we have a lot of people that bought silver over $20.00. What do you say to them?

Butler: Let’s go straight to the worst case possible - people who bought for the very first time right at the top. The vast majority of silver investors didn’t buy then and have a much lower cost basis. For the roughly 100 months your company has been underwriting my research, silver was over $20 for only one month. I know all silver investors have been pained by the drop from $20, but there’s a very special pain for those who first came into the market then.

Cook: So what do you say to them?

Butler: I would tell them to look at the facts and the reasons behind the decline and the prospects going forward. Certainly, if they bought from your company, they bought it in the right form, real silver, in the right manner, for cash, not on margin. That means they still hold their silver, they weren’t forced to sell. Plenty of forms of silver, like mining shares, fared far worse. People on margin, forget about it, they were destroyed.

Cook: What should the folks who bought over $20 do now?

Butler: At a minimum, those that bought at $20 should hold on. As conditions dictate we should cross that number easily. Silver was always meant to be a long term holding. But if they really want to do themselves a favor, buy more at these prices. Those that bought at $20 will be able to sell at a big profit someday, but the profit will be much bigger for silver bought at lower prices.

Cook: At this perilous financial time we're giving the strongest possible advice. We're dealing with people's life's earnings and savings. In light of this important responsibility do you change your advice about silver in any way?

Butler: I fully realize the perilous times we are in, and how serious a responsibility it is to deal with one’s earnings and savings. The only change in my advice is, at current prices, silver looks better than ever. The price smash has taken so much risk out of owning silver that I can’t see how anyone could get hurt by buying it here. Risk is now ultra-low and profit potential is higher than it has ever been.

Cook: We advocate 10% to 20% of a person's net worth in silver. Does that sound reasonable?

Butler: It sounds reasonable, but I’m not a personal financial analyst. As a silver analyst, I would say buy as much as you think you can afford and be sure to buy it in the right form and for cash. It’s one of the very few assets anyone can buy that can’t go bankrupt or worthless overnight. If someone is comfortable with buying more than 10% or 20%, I don’t see anything wrong with that.

Cook: Thanks for a great interview. Could you sum up the case for silver in one paragraph?

Butler: The case for silver is compelling. Recent developments have intensified an already spectacular long-term supply and demand situation, to an extreme I didn’t expect. We have a vital commodity with a critically low world inventory. It has varied industrial applications and a unique dual role as an investment asset. Its price is artificially depressed by a decades-long and increasingly obvious price manipulation. All these long-term conditions are under the radar of the world’s investment community, meaning more buying should come in as awareness spreads..

Throw in an obvious retail shortage for the first time in history with growing wholesale delays and tightness. We’ve seen the largest one-year rush into silver, driven by world financial conditions that’s highly suggestive of a flight into assets that are safe. Top that off with a new low price. I couldn’t make up this many bullish factors if I tried.