The Sua Took My Silver Away

The SUA thinks that when demand swamps supply, and when the price of this scarce, expensive commodity soars in response, that employment in the silver industry will fall? As the Mogambo says: Hahahaha!

We read an interesting tidbit on the site: "A U.S. silver industry nonprofit group opposes the creation of an exchange-traded fund backed by the precious metal amid concerns such an investment product could make silver too expensive or illiquid in the world market."

Now, in case this is the first you have heard of an Exchange-Trade Fund (ETF), Reuters helpfully elucidates thusly: "Commodity ETFs are designed to track the price of a specific product or basket of goods, and in the case of silver, one likely would be backed by physically stored metal." In short, some guys start a fund, buy up a lot of silver, and if you want to own silver, you can buy it by buying shares of the fund like an ordinary stock. Easy!

I thought that my eyes were deceiving me, or I had had a stroke or something, because my Sensitive Mogambo Senses (SMS) were tingling like when I hear that something is in danger of going higher in price, or what the SUA calls "too expensive or illiquid", because like most greedy people who want to effortlessly make large amounts of money without actually working, I would like to "Get in on some of that action" (known in the investing biz as GIOSOTA), every time I hear about something getting "too expensive or illiquid."

Silver Users Association: Huh?

So, I am sitting here with this glazed look in my eyes as the article goes on to report, "The Silver Users Association is especially concerned that a new ETF might threaten jobs in the silver industry, as it would require large amounts of metal to be held in vaults and out of reach of the marketplace, a spokesman said on Wednesday." I raised my hand and said, "Excuse me, but I am The Mogambo, cub reporter for the Interplanetary Daily News Gazette, and my question is: ‘Huh?’ "

To make sure I got the point, they then trotted out a guy named Paul Miller, representing, so he said, the SUA. Well, he looked me right in the eye, and for a long while we just stared at each other, neither of us blinking. Then, just as I was about to fall to my knees and cry "Uncle!" he abruptly caved in and said, "The concern we have is about jobs. That concerns our members greatly." For some reason, this tickled the hell out of me, as it seemed like such an odd thing to say. I figured, "Yeah! Their own! Hahahaha!"

Composing myself and trying to show a little dignity for a change, I say, "Let me get this straight: Silver in an ETF would take silver out of the marketplace and put it in vaults someplace dark and spooky, probably full of vampires and communists or something, whereas the vaults and warehouses that already contain the silver are bright and shiny, and do not have any vampires or communists. Is that it? And so, the price would go up higher, but still within its historical range, probably somewhere between $30 and $500 per ounce, which is a lot more accurate as to the true value of silver in the Big Freaking Scheme Of Things (BFSOT) than its current low, low, low inflation-adjusted price, especially considering the big supply-demand disparity and complete elimination of global stockpiles. So, am I hearing you right, you jerks?"

I, with an increasing fury, continue with a sneering tone of contempt in my voice, "But the SUA thinks that when demand swamps supply, and when the price of this scarce, expensive commodity soars in response, that employment in the silver industry will fall? Hahahaha!"

I can see their faces contorted in fear as my incessant bellowing reaches a thundering crescendo. "Hell, the miners will be putting on double shifts to mine more silver when the price gets that high! The beleaguered debtor out here will pawn the family silver and get a little breathing room so that he can do a little spending! Silver will be speeding around and around the economy! In short, there will be jobs, jobs and more jobs, all over the damned place as a result of the silver ETF, you big stupid morons!" In a blind rage, I leap to ascend to the stage with the idea to grab that SUA guy and slap the hell of him until he stops spouting such gibberish. But they see me coming and take it on the lam out the back door, leaving me alone on the stage. Now I am even madder!

Rising to the theatrical occasion, I drop to one knee, raise my arm towards the heavens, and with a voice revealing a breaking heart, cry, "But are there are any limitations as to how much silver a citizen, a simple person like you or me, can buy? No! Is it written that the noble citizen must contain his lust for silver? No! Is there a law that dictates the legal size of my silver holdings? No!" Rising to my feet, I continue breathlessly, "It is therefore perfectly legal for people, individually or collectively, to go out and buy all the silver they want, including the piddly 130 million ounces of silver that this new ETF is supposed to be proposing buying."

Silver Users Association: That’s How You Invest in Commodities!

That’s how you invest in commodities, you SUA idiots! You buy the commodity, in this case silver, and you store it somewhere, hoping for a higher price in the future, or if the price drops, making plans to legally harass The Mogambo and his stupid idea to buy silver, because it is all his fault. Either way, you gotta buy it and put it in a safe place, and that is why it is called "storing"! And you don’t bring the commodity out and sell it until the price gets so high that the profit is irresistible. When will that happen? It will happen after a period of time where all you do, all day long, is keep multiplying in your stupid little calculator, over and over, how much silver trades for right now in the open market by the number of ounces you have stored down in the basement and that vulnerable safety deposit box at the bank (which you never trusted in the first place, and which is the same snotty little bank that has some sort of "policy" against letting people booby-trap a safe deposit box, even though I am the one paying to rent the damned thing! And don’t bother bringing up all those Second Amendment issues, as I have been down that road with them many, many times to no avail).

But getting away from this SUA thing for a moment, if you want another reason to sell your own grandmother to get money to buy silver, and lots of it, then listen to what David Bond, associate editor at Free Market News, says. China, he says, has admitted that they have literally run out of silver, and now they need to buy it! A country so big that it has almost five times as many people as ours needs to buy silver, because we, a country that has five times fewer people in it, have used all the silver to get to where we are! I mean, the potential demand for silver staggers the imagination!

So, if you want my Stupid Mogambo Opinion (SMO) about whether silver is astonishingly cheap in light of these two developments, namely the announcement by China that they were in the market as buyers, and the SUA announcing that a stinking ETF would make silver so scarce that it would drive up the price to crippling levels, then I will take this opportunity to show off. Without a safety net or even checking the facts, I fearlessly announce that I am staking out my claim to financial immortality by loudly proclaiming, in that piercing, girly screech I call a voice, that silver, at less than eight bucks an ounce, is so freaking cheap that it is also the fabled Mogambo Investment Tip Of The Century (MITOTC), which reads, in its entirety, "Buy silver now! And lots of it!"


The Mogambo Guru
for The Daily Reckoning

October 24, 2005

Mogambo Sez: Things are getting spookier and spookier, and the weird gyrations of the markets, the result of rampant market manipulations by (I assume) the Plunge Protection Team, don’t make it any easier to sleep. If there was ever a moment that cried out for the safety of gold, then this, my little Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter, an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning and other fine publications.

According to Hometrack, property prices in London have been going down for the last two years. We now wonder when the decline will come for the United States.

That property will go down, we have no doubt. As for when, where, and how…we have plenty of ideas.

But no reasonable man cares how much his house is worth. He uses it to hang his hat, not to pay for his retirement. Besides, the average U.S. housing prices, compared to the rest of the world, do not seem extravagant. If you own a home in the rural mid-west, for example, and if you are happy with it, we would not sell it because of a coming correction in the property market. Forget about it. A house is not meant to be an investment; it is a consumer item. Enjoy it. Pay off the mortgage and sleep well in it, no matter what is happening to neighborhood property prices.

In some markets, however, such as Miami, Washington, Las Vegas and San Diego, the coming corrections may be so severe that you will wish you had sold. In Houston in the 1980s, and New York in the 1990s, prices fell 50% and more. It would not surprise us to see similar reversals for today’s hottest markets.

Miami and Las Vegas have gone Mondo Condo…where thousands of units are being pre-sold in advance of construction. It is likely that not all those sales will actually be completed. Many of the buyers are not people looking for a place to live, but speculators hoping to make easy money by reselling once they are completed. Already there are signs of cooling off in the U.S. market. So what? But the speculator is not a reasonable man. He is driven wild by greed hoping to get something for nothing…and then, when he actually gets what he deserves, he becomes a desperado and a cad. If the condo doesn’t rise in value, he dumps it like yesterday’s girlfriend; she costs money and he has no further interest in her.

When the empty condos begin coming up for sale, the whole property could be in trouble.

When will this happen? We would guess the hour approacheth and soon will be.

"The King of Real Estate," we learn in the weekend news from CNN, has decided to get out while the getting is good. Tom Barrack runs the largest real estate fund in the world – Colony Capital – with $245 billion in assets. The fund is up 21% per year for the last 15 years, 17% after fees. Barrack’s modus operandi is to buy classy properties at distressed prices, fix them up a bit, and then resell when the cycle has turned. Get it, dear reader? Mr. Barrack is not in the business of providing "sophisticated" financial products. His ploy is the old familiar one: Buy low/Sell high.

For example, he bought Tokyo’s Fukuoka Dome – roughly equivalent to Houston’s Enron Field (now called MinuteMaid park) – for a price he considered less than the value of the titanium in its retractable roof. He also bought the 3000-room Hilton Hotel in Las Vegas for $280 million, which is barely one tenth what it cost Steve Winn to build.

There’s a time to build, and a time to buy, we conclude. The time to build is when you have a lot of money that you want to get rid of. The time to buy is when the builder has gone bust. That is Barrack’s technique.

Builders have been running wild in many U.S. markets. Now is the time to sell, says Barrack. We’ll get a chance to buy later…at much lower prices.

More news from our currency counselor…


Chuck Butler, reporting from the EverBank trading desk in St. Louis:

"Yes, behind door number two was (drum roll please) Big Al Greenspan! Even though his legacy is being questioned here at home, he’s still a big shot with the Asian people."


Bill Bonner, back in Paris with more opinions, ideas, and arriere-penseés…

*** Darn! We have had our eye on the gold market…hoping to see the price fall back under our buying threshold of $450. The price rises in $25 steps, we notice. It spent most of 2005 around $425. The year before, it was around $375. In 2003, the price stood around $350. Each time it take another step up, we move our buying target up another $25 and hope the price drops takes a step back before going higher (And kick ourselves for not having bought more at last year’s target price!). Gold seemed to be getting ahead of itself recently, at prices near $470. So, we guessed that it would drop soon, but so far, the yellow metal has been reluctant to go down very much. Friday, the price rose $5.90. December contracts are still around $469. We still have our fingers crossed.

*** Our resident India expert, Sala Kannan, has this to share with us…

"Yesterday, I visited a friend who is going home to India on vacation next week. She was busy making appointments with a doctor, dentist and optometrist in Madurai, her south Indian hometown. Then she wrote a list of antibiotics, pain and fever relievers to buy in India. She carefully tucked the list into her handbag.

"’Why?’ I asked.

"Her answer was simple: ‘They’re cheap. They’re good.’

"Cheap and good they are. Take Advil, for example. It costs about $4.29 for 20 capsules of Advil. The active pharmaceutical ingredient in Advil is ibuprofen. You can buy the same ibuprofen through a generic brand and pay $3.49 for 100 capsules. And 65% of all active pharmaceutical ingredients used in American generic drugs come from India.

"In fact, 22% of all the world’s generic ibuprofen comes from a single southern Indian manufacturer called Shasun Ltd. That’s a fifth of all the world’s generic ibuprofen coming from a single Indian source!

"The Indian generic makers’ motto is simple – in order to make money, don’t be the first to make a drug, be the second. In fact, the ‘copycat drug making’ business is so established in India, generic drug maker Cipla Ltd. at one point had a generic version of almost every drug that Pfizer ever made!

"Another Indian company makes the generic version of Viagara. And it costs a mere 2 cents per pill to make.

The Daily Reckoning