SILVER SAGE
By James Cook
Mid December 2009

“The fundamentals of silver are so bullish and compelling that I couldn’t make them up if I tried.” Theodore Butler

Exactly thirty years ago Bunker Hunt and his brother Herbert were piling into silver futures.  Their steady buying drove the price up 25 times to $50 an ounce. It all happened in a few months and then silver crashed.  Have you ever wondered what provoked the Hunts to begin accumulating silver to that extent?  My opinion is that they read the same book I did.  That book caused me to start Midwest Silver in 1972, which I changed to Investment Rarities in 1973.

I first read this book entitled, “Silver Profits in the Seventies,” in 1972.  It was written by the late Jerome Smith, a bright guy who later ran afoul of the IRS and left the country.  The book was a powerfully bullish argument for owning silver.  I’ve heard that this book caused the Hunts to move into silver.  Ultimately, the government gave them a spanking for trying to corner the silver market and they lost a fortune.

After reading the book, I began to call wealthy individuals on the phone to set up an appointment to tell them about silver.  I’d make the visit, pitch them on the future of precious metals and leave a copy of, “Silver Profits in the Seventies.”  A few agreed to buy bags of silver coins.  The bags had a face value of a $1,000 and I sold them initially for $1,200.  The risk was $200 a bag.  I’d deliver the bags personally.    Once I had a flat tire with five bags of coins in my car.  Needless to say I was worried opening the trunk alongside the freeway. 

Jerome Smith’s forecast didn’t work out after 1980.  Silver didn’t do much for 20 years.  The low price made it cheap for industry to consume silver.  A lot of silver got used up.  Investment demand hardly existed.  Back then Ted Butler began to puzzle why the price stayed so low in the face of strong demand by industry and a diminished supply.  Since his background was in commodity trading he eventually uncovered the truth.  The big New York brokers, banks and insurance companies were shorting inordinate amounts of silver.  This became a glaring truth to Ted Butler when he studied information put out by the Commodity Futures Trading Commission.  Compared to any other commodity silver was totally out of kilter on the short side.

This was but one of the many revelations and discoveries by Mr. Butler.  He warned the giant gold mining company, Barrick, in writing that their gold hedge was fool-hardy and would prove disastrous.  Recently they suffered horrible dilution in order to raise the billions necessary to close out this money-draining hedge.  Butler also predicted the price increase of silver.   He scoffed at those who claimed silver would not rise.  He also named the large companies that were on the short side.  He rallied support for a silver investigation.  He forecast a great increase in the investment demand for silver.  He argued that exchange traded funds would have a profound impact on silver, calling them a death-star.  He and his friend and mentor, Izzy put the Silver Eagle on the map and predicted a shortage that soon came.

Ted Butler issued warnings about silver held at banks and brokerages.  He claimed many of these companies were charging storage fees on silver that didn’t exist.  Eventually Morgan Stanley confessed in court that this was true and claimed that everybody did it.  Butler’s amazing record spurred increased interest in silver.  Astute investors could see he was on the money.  A wave of copycats used his material to forecast silver gains.  He became widely plagiarized.  Nevertheless, he remains the original thinker who pioneered our modern knowledge of the silver market.   He is the reason we are likely to see even greater interest in silver.

The crowning glory for Mr. Butler will be if his current predictions come true.  Taken together they are the greatest assemblage of bullish factors to ever impact a commodity.  Please think about the potential price gains if and when they come to fruition.

1. The end of the concentrated short position in the futures market. (No more shorting by the biggest short and the necessity to close out or cover the existing short position).
2. New regulations that limit the extent of any future short selling.
3. Continued expansion of the various silver ETF’s.
4. Increasing industrial demand for silver from existing users.
5. Numerous new applications for silver.
6. A silver shortage that appears to have already started.
7. An industrial user silver buying panic as the shortage becomes known.
8. Skyrocketing investor demand as the silver price rises.
9. Economic factors such as a falling dollar, deficit spending and inflation worries.
10. The return of the historic 16 to 1 ratio of silver to gold and quite possibly a much further reduction of the ratio.
11.  The draw down and the depletion of billions of ounces of above ground silver reserves.

It is no wonder that Mr. Butler argues that the coming price event in silver will be written about for all time.  In effect he is saying the price will rise so high that fortunes will be made.  The prices he projects are truly staggering.  However, before anyone scoffs at his prediction they need to examine his record. His accuracy and the caution and care with which he dispenses it are truly impressive.  His grasp of the subject is without peer.  This is somebody to listen to.

Forty years ago Jerome Smith was writing about silver and was recognized as an expert on the subject.  Although he was in vogue for a while he eventually faded away.  He had it figured wrong.  Ted Butler solved the riddles that perplexed Smith.  Then he built a powerful case for silver that transcended anything anybody had written previously.  His expertise and knowledge towers over any other silver commentator.  He will be the star of the coming silver story if it works out anywhere close to the way he’s so certain about.

SILVER FOR A LIFETIME
By James Cook

The following paragraph by asset manager Egon von Greyerz applies not just to gold but also to silver. “The problem with paper money is that governments can create unlimited amounts.  This is what they have done throughout history and especially in the last 100 years and which has led to the total destruction of most currencies.  Most people don’t even understand their government makes their money worthless.  Money printing gives them the illusion of being richer whilst all they have are pieces of paper with more zeros on them.  But there is one currency that governments can’t print, which is gold.  Gold has been real money for almost 5,000 years and it is the only currency that has survived throughout history.  Gold can’t be printed and no government controls it.  Therefore gold will, over time, always reveal governments’ fraudulent actions in creating money out of thin air.  And this is what we are experiencing currently.  Gold is not going up.  Instead gold is doing what it has always done, namely maintaining its value and purchasing power.”

For centuries silver also performed as money.  Those days are gone forever.  Gold and silver have parted company.  There’s enough gold in the world to serve as money but not enough silver.

While plenty of gold exists in vaults around the world, most of the silver that was ever mined has been used up by industry and is gone for good.  That’s one of the things that makes silver so interesting.  Investors are buying it for the same reasons they buy gold but unlike gold, industrial users are buying huge quantities of silver to make their products.  It’s indispensable to numerous companies worldwide.

Ted Butler put it this way. “Here we have a vital material known to all men for all time, literally disappearing before our eyes, both above and below ground.  It is a material upon which modern life and rising standards of living are dependent.  It is beyond indispensable, it is a miracle metal.”

Here’s my personal philosophy.  As it stands now, I don’t intend to ever sell my silver.  I’m going to keep it for the balance of my life.  However, if the price went insane I could change my mind.  If the gains are gradual I expect to keep it as if it were a savings account.  The things I’ve made money on in my life are the things I bought and held.

BRING IT ON
James Cook

Believe me when I tell you that some really rich, really smart guys own a lot of silver.  They stay in touch with me and they believe what Ted Butler has to say.  That gives me comfort because I have personally made a big bet on silver with the expectation of making a large gain.  I think it can be done with silver and so do some very clever investors.

Ted Butler thinks we are getting close to the time that silver explodes.  If you buy silver now you may not have long to wait.  However, we still see it as a long term commitment that could appreciate for years.

There’s always the possibility we could be wrong about silver.  Everybody tends to believe in the things that they want to have happen.  The acid test of intelligence is if the things you believe in are true.  I’m comfortable believing they are true about silver.  However, I don’t put all my eggs in one basket.  That’s why we say to 10% to 20% of your net worth into silver.  That’s enough to see a gain that exceeds the value of all your other assets, if Mr. Butler is right.

It’s possible you can make more money than you can currently imagine. However, you must follow some simple rules.

1. Own actual physical metal.
2. Don’t store silver out of the country.
3. Avoid pool accounts.
4. Don’t buy on margin.
5. Only store silver in your name (not the dealer’s name) with the serial numbers of the bars on the storage receipt.
6. Be extremely cautious and careful who you deal with.
7. Don’t send money to dealers who may fail (The failure rate in the coin business is 90% every decade).
8. In past decades the cheapest source was the first to fail.  Many buyers lost their money dealing with those firms.
9. Don’t let a sales person talk you into switching your silver for something else.
10. Hold silver for the long term.
11. Don’t buy ETFs or other types of funds that are easy to trade.  Don’t trade in and out.
12. Don’t take profits too soon.  That’s the problem with any kind of paper silver.  It’s too easy to sell. Physical metal gets held much longer than paper.

Call us today to buy one-ounce silver coins, one hundred-ounce bars and pre-1965 bags of 90% U.S. silver coins.  Call 1-800-328-1860

Sincerely,

James R. Cook

President

P.S. We had a little space left in this letter so I’ve plugged in a portion of an article by Samuel Etris, a consultant and researcher for The Silver Institute. It’s further proof of the exploding demand for silver. This one new application alone can consume enough silver to move the market. The silver story has become so phenomenally bullish the fireworks seem inevitable.

SILVER IS THE KEY TO TODAY’S HAND-HELD ELECTRONICS
Millions of owners of mobile phones, iPhones, picture-phones, and a host of other hand-held electronics have silver to thank for the high performance of their devices.

An innovative and economical mass production technology for building these devices relies on a production method known as “surface mounting” which allows components to be fastened both mechanically and electronically to printed circuit boards. Components such as condensers, resistors, and diodes are placed in indentations on circuit boards and a wave of molten silver alloy solder flows across its surface to create an instantaneous permanent bond between the two. The technology permits upwards of 200 contacts for components and connections on a small board, increasing the range of features possible in the device while keeping it extremely small. . . . .

Developed about 20 years ago, the technology had used a lead-based solder with only a small amount of silver to assure the strength and adherence of the connections. Now, however, the use of lead is forbidden by the European Market Directive on Reduction of Hazardous Substances, and several US states currently are considering similar regulations. The Directive prohibits the use of lead and cadmium from electrical and electronic equipment, which has long used these metals for soldering electronic components. . . . . .

Lead-free solder means a 30 percent increase in the use of silver over the former lead-containing solders for the billions of connections made daily by the electronics industry. According to The Silver Institute’s World Silver Survey, 61.4 million ounces of silver were used for electrical and electronics fabrication in the US in 2008, with world use at 201.7 million ounces. Substituting this new solder will greatly increase the proportion of silver used in the coming years.

Investment Rarities Incorporated has prepared this material for your private use. Although the information in this publication has been obtained from sources which Investment Rarities Incorporated believes to be reliable, we do not guarantee its accuracy and such information may be incomplete or condensed. All opinions expressed in this publication are those of Investment Rarities Incorporated and are subject to change without notice. Predictions or projections can be wrong and financial advice can prove to be unprofitable. Gold and silver can go up or down in value. Gold, Silver and coins are not necessarily a medium appropriate for every individual. All rights reserved. Copyright 2009 Investment Rarities Incorporated.