Crash JP Morgan – Buy Silver!

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This started around the 11th of November. Film-maker, broadcaster and former broker and options trader Max Keiser is gonna take the credit for this. The idea was spawned with ZeroHedge‘s Mike Krieger. A forum administrator from unhypnotize.com, named Feedbot, may also have had some influence in the whole affair as is claimed on this forum post.

I got into physical silver in December 2009. The spot was £10.50/oz and the cheapest place I could get it was the Channel Islands’ Sarnia Silver. Being under £17.50/oz meant there was no VAT. Including delivery it worked out at £14.50/oz. At the time of writing, silver has for the second time broken £18/oz… spot. That’s pretty much 75% interest. Prices on Ebay “buy it now” are £24 to £26. Compare that to what your bank offers you on your savings account. I’m still buying. I believe holding legal fiat tender is to voluntarily and unknowingly accept being robbed. On average, inflation is a constant positive. All paper/digital money is on a non stop free fall to it’s physical value. Nada.

So far my investment is working out for me. I was only looking to preserve my wealth, but if I sell all tomorrow, I am making a very tangibly real and very large profit (75% minus the sum total of the inflation in my living expenses… equals roughly 70%. That’s a lot in real terms).

I was following Max Keiser, Peter Schiff and the Alex Jones lot, as well as sinking my mind into the Austrian Economics swamp. I had been tripping off the Creature From Jekyll Island and the Money Masters for a few years and the inflating money supply vs tangible assets was good theory to my mind. Then came the empiricism. The history of the price of Gold and Silver. Here are the charts.

2 year silver price history

As this chart shows, the spot price has tripled in 2 years. We observe a steady rise since the outbreak of the 2008 crisis. In September rumors that Bernanke was planning QE2 emerged. These rumors were confirmed in November, and it is since then that we have seen a particularly sharp acceleration in the rise of the spot price of silver.

This 35 year chart reveals more. We can see the rise of silver from the announcement of QE1 in November 2008.

35 year silver price history

Only this time silver hasn’t just crashed. The silver bull market 2003-2008 occurred with industrial demand rising in tandem with stock market expansion. When the housing bubble burst in 2008, the industrial demand dropped (the Silver Institute Demand and Supply figures). And now industrial demand is looking to rise back to normal levels (Financial Times). Coupled with investors looking for safe plays (World Market Media), and the ratio of individual investors vs industrial demand, coins and investment applications of silver are breaking out and silver is looking good.

QE1 and QE2 are products of a fiat money supply – with no tangible backing (other than  paperwork).

200 year silver price history

If we look at the 200 year history of the price of silver we see exactly what happens when you detach commodities from currency (post-1971). Big time Keynesianism. Governments are free to inflate the money supply on a whim, causing perpetual price hikes. Now take a good long hard look at the increase in money supply trend over the past 100 years, and particularly since 1971 (check out the effect of QE1 here as well).

Silver being the poor man’s gold, I got in. Keiser also convinced me that shares in Goldman Sachs were right when Warren Buffet bought in for $3billion at $115 a share. A year later the stock had doubled. Sadly I was in no position to get involved, even when I knew I should when the share had dropped to $47 shortly after Warren’s investment (CNBC).

Since 1992, the gold to silver ratio has been dropping. Until the times of the gold rush, 12 ounces of silver got you an ounce of gold. Since then, this ratio has been as high as 96 (gold-eagle.com). Strange thing is that silver is actually scarcer than gold (Silver Seek). This could suggest that silver is under-valued compared with gold and make a better investment.

There’s also a lot of talk about silver mines not being able to satisfy demand (Resource Investor). Then there’s the question of how much metal we have access to in the west relative to countries like China and India. These guys have been heavy buyers of bullion from western reserves. Who can forget Brown’s Bottom when the Gordon sold off british reserves at decade low prices. China plans to expand it’s reserves to 10000 tonnes over the next 10 years and this would surpass the US’s current holdings of 8133 tonnes.

We’re building quite a good case for investing in silver here. But we haven’t even started yet.

The story of Andrew Maguire is gaining the notoriety of the Great Train Robbery. To summarize, a whistleblower has revealed JP Morgan (and HSBC) have been manipulating the metals market, driving the price down. The mainstream media gauped at the controversy and canceled interviews. The story of the hit-and-run on Andrew and his wife in London (New York Post) and the announcing of the CFTC hearing in the WSJ made it online but the coverage was discontinued. Fools follow rules when the set commands ya. However, the buzz on the underground is electric. Wikipedia has a rather brief article on it. You can find many more links related to the story here. The details are entertaining but a little spooky. The bottom line? Gold is leveraged 100 nominal ounces to every 1 physical ounce. You can get some decent current info on the CFTC investigation here.

The Telegraph reported on the goings on in early November. A recent law suit alleges that in August 2008, JP Morgan and HSBC were shorting their silver futures and options contracts on a large scale while controlling “over 85pc of the commercial net short positions in Comex silver futures contracts and 25pc of all open interest short positions“.

Further looking into this story reveals the existence of certain “Asian traders” with an “an insatiable appetite for physical silver“, and the claim that that these guys mean business (King World News). Considering the accuracy of Andrew Maguire’s claims so far, many are taking this to account.

The campaign itself, thanks to Max’s charismatic and strategic position, is getting mainstream media attention. Max Keiser has promoted the campaign on his host platforms Russia Toaday and Press TV. He also got an article into the Guardian newspaper recently.

And finally, central banks are now net buyers of precious metal.

So where to buy? Don’t go to a pawn broker. My personal experience is that a lot of them only sell jewelry and are holding on to the coins. I first bought from Sarnia Silver and this was the cheapest place I could find it at the time, but that was before we were seeing today’s prices. Now you can buy from them for just under a third above spot. My current preferred vendor is Gainesville Coins in Florida USA. The delivery was about £40, but that works out well if you’re buying 20 ounces or more compared with the UK. I think it worked out about 20% above spot for me at the time (including delivery). When buying from the US make sure to get the numismatics. Unlike ordinary rounds, these are qualified as legal tender and are thus void of any import taxes.

Other popular vendors for the UK are Baird and Co (GoldLine), BullionByPost (free delivery), ATS Bullion, DigBreamer and you can get a full list of coin dealers from the British Numismatic Trade Association.

Another option for those perhaps on smaller budgets is junk silver. British coins between 1920 and 1936 are 50% silver and can be bought on Ebay at very close to spot prices. Coins from 1911 to 1919 are 92.5% silver.

I’ve also been advised that street markets, particularly in Europe, are the cheapest way to get hold of silver coins, but you need to know your stuff when trading in this riskier environment.

And when to sell?

Never. Some will say silver is meant to be hoarded. It should only be sold in an emergency situation. And if you just want to play it safe, this is sound advice.

There are those who will tell you that precious metals are already in a bubble, which means now is a good time to get out and reap the profits. If I sold now, I would indeed be cashing in a nice profit. But I do not believe we are in a bubble. The correlation of fiat money to physical silver and the controversy over price manipulation. In fact, with money supplies inflating as they are right now, the time to sell is when the defacto legal tenders are dead and and new currencies have emerged. And even then it may not be necessary to sell. Thousands of years of human history are tantamount to the fact that precious metals are a preservation of wealth capable of surviving all economic disasters.

However there is a degree of subjectivity to the issue. Personally, I am holding silver with the idea of re-investing a portion thereof into entrepreneurship and property at some point in the next few years.

I went into a local pawn shop here in north London 6 months ago and was quoted £400 for my gold Kruggerand. At the time spot was over £800. Since my knowledge has improved, I recently went into a different pawn broker’s and after a lengthy conversation about the market, was quoted £800, spot was at £850. You can sell your Kruggerand on Ebay any day at above spot rates.

1980 saw the price of silver rise from $5 to $50/oz as the Hunt Brothers cornered the market. A combination of Federal intervention (oh golly gee we sure do love the state!) and industry insiders naked shorting bought the price crashing back down (interesting post here). Of course that was 30 years of inflation ago, and this ramifies the idea that silver could attain the heights of $250-500. This time round though, we’re not looking at just one entity interested in cornering the market, federal intervention in tandem with industry insiders may be a little more difficult this time round, especially with the fiat money supplies being as inflated as they are now.

So if the Austrians and the Conspiracy Theorists turn out to be right, we are looking at a complete currency collapse in the near future, and the emergence of alternative currencies, possibly even a global currency. If a global currency appears, it is likely to be backed by “a basket of currencies” possibly including the Euro such as the IMF/UN’s SDRs. This would mean it would just as vulnerable as any fiat currency today. There is the likelyhood also, of new currencies being backed by a certain amount of precious metals. The effect of this would be to stabilize the markets. It’s a question of how much leverage and also when will the gold-backing be removed. It’s happened before. But I think this may be looking a bit too far ahead. The time to sell is just before a phase of economic stability. However state-interventionism is incremental so, for the long term, economic chaos will abund. It is the value of precious metal in a total free-market that one should ultimately aim to keep in site.

If silver does go berserk as expected, how will the state react? Needless to say, bailout and regulation. Keiser and Krieger estimate the liability to JPM would be $1.5tn. And if the Fed points the gun at US tax payers for bailout money, how’s that for the end of the dollar. When that time comes we may be looking at a return to tangible backing and the time to sell our metal.

I’m in silver so of course I’m going to support this campaign. As to the “moral victory” in destroying JPM is it possible and is it moral? Well as has been suggested already in this article, Max Keiser’s contribution to the rise in silver is yet to be accounted for. But silver is booming as an investor safe haven and there’s gonna be a lot of fiat cash fleeing the stock markets looking for somewhere to go anyway. The legal fiction that is JPM is in serious trouble regardless. Those in it’s commanding heights will still be around and no real justice will be served. Pushing the silver market could result in some serious toilet paper generation from the fed. Is this moral? Of course not. But it would be progressive. The end of the state is coming, if you are ready, why not encourage it’s demise. Don’t be a victim of the in house drive-by, the Cluetrain conversation is buzzing.

The discussion hives on the web are lively and there is a feeling of movement as these hubs have emerged and grown in popularity. YouTube is now hosting hundreds if not thousands of videos pushing the campaign. And it is there you may encounter the notably on-point channels of StellaConcepts, Drutter and GuildF40.

Silver porn anyone?

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