The Morgan Report Blog

Lithium ABC’s

As a general rule, the most successful man in life is the man who has the best information

The Puna plateau sits at an elevation of 4,000m, stretches for 1800 km along the Central Andes and attains a width of 350–400 km. The Puna covers a portion of Argentina, Chile and Bolivia and hosts an estimated 70 – 80% of global lithium brine reserves.

The evaporate mineral deposits on the plateau – which may contain potash, lithium and boron – are formed by intense evaporation under hot, dry and windy conditions in an endorheic basin – endorheic basins are closed drainage basins that retain water and allow no outflow – precipitation and inflow water from the surrounding mountains only leaves the system by evaporation and seepage. The surface of such a basin is typically occupied by a salt lake or salt pan. Most of these salt lakes – called salars – contain brines which are capable of providing more than one potentially economic product.

Read rest of article here

Silver Thursday plus 30

Silver Thursday Plus 30

By David Morgan

March 23, 2010

Unless you are a real silver bug or a much studied gold bug, the concept of Silver Thursday will have little meaning for you. Silver Thursday took place on March 27, 1980, and this-coming Saturday marks the thirtieth anniversary of that event. 

Generally, the take on Silver Thursday is explained by Wikipedia as follows:

The Hunt brothers had invested heavily in futures contracts through the brokerage firm Bache Halsey Stuart Shields, now Prudential-Bache Securities. When the price of silver dropped below their minimum margin requirement, they were issued a margin call for $100 million. The Hunts were unable to meet the margin call, and facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many Government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse.[2]

To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the brothers which allowed them to pay Bache which, in turn, survived the ordeal. The U.S. Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache.

This is the generally accepted version and basically correct, but the story is much more involved. Most of what will be penned below is from the book Silver Bulls, by Paul Sarnoff. Mr. Sarnoff’s account cannot be verified as to every detail, and my quick synopsis will hardly do this historic silver event justice. Those who are truly interested in the “long” version (pun intended) will have to find a copy of the book.

If we go back a bit, we can find some interesting points leading up to this event. On January 7, 1980, the Comex board held a meeting and adopted “Silver Rule 7,” which specified any account with more than 100 contracts a reportable account. No individual could carry more than 2,000 contracts, or more than 500 for any one delivery month. “Bona fide” hedgers were, as usual, exempted from Silver Rule 7! 

As Paul Sarnoff expresses on pages 81 and 82 of Silver Bulls, there was clear evidence that some of the larger longs were apparently buying January and February up to the monthly position limit—thus creating the possibility of a squeeze on the shorts. After noting this, one of the board members suggested that both these months be limited to 50 contracts per account, and thus, on January 9, 1980, Silver Rule 7 was amended to reflect this change.

According to Sarnoff, the Hunts and their corporate allies controlled about 192 million ounces of silver.

The Hunts were aware of the rules being manipulated and there was a way out; it was to “simply switch their futures into physicals, hock the physicals abroad at interest rates, which were of course tax deductions, and shift their forward buying, if any, to the London Metal Exchange” (page 95).

As if enough wasn’t taking place, one of the main firms that the Hunts were doing business with needed some help to stave off a takeover bid and thus did Bache a favor by purchasing Bache stock.

The Hunts had purchased a substantial position in Bache Halsey Stuart Shields, over 5%, and were therefore insiders. This prevented them from selling a substantial amount of this stock when the margin call was issued. In other words there was no way the Hunts could use their Bache stock to finance part of the call. 

When things started to unravel on March 27, Nelson Bunker Hunt was in Europe, announcing the idea of a silver-backed bond. The proposal was to issue a bond in various denominations and distribute it through large European banks to investors. 

As the news spread of the silver bond proposal, the Bache $100 million margin call, and the rumor that the Hunts might not be able to meet the margin call, a Comex member started selling silver, and panic hit the silver pits. The reaction was rapid—the Dow Jones Industrial Average began tumbling, and trading was halted in Bache stock.

Bache, Merrill Lynch, and the New York Stock Exchange sent a message to the CFTC, asking the Commission to halt trading in silver to quell the panic. This request was denied and silver dropped about $4.00 from the previous day to stop at $10.80.

Paul Volcker was brought in and “arrangements” were made to solve the problems that were rippling through the financial markets. Later, the $1.1 billion “bailout” loan caused then Senator Proxmire to hold a hearing of the Senate Banking Committee, due to a great deal of resentment about the loan being issued.

So for some time, the Hunts accumulated their frequent flyer miles between Dallas and D.C.  As Sarnoff notes, “It is ironical that the investigations focused only on the actions of the silver longs rather than the silver shorts. Only in Senator Proxmire’s hearings did inkling emerge of the role the shorts had played in the rise and fall of the silver price. At that hearing it became evident that the congestion in silver happened to be not just on the long side, but even more on the short side.”

Finally, he writes:

“Whether or not such frank journalism will lead federal agencies to investigate the accounts and the activities of the short-sellers in silver, who were members of the boards of directors of the involved silver exchanges, is a moot subject.”

So, it seems we “silver bulls” have seen the investigation into probably the most notable story about silver, played from the long side only. As we approach the upcoming hearing with the CFTC on March 25 to discuss position limits in gold and silver, we can keep hopes high, but let’s also keep them realistic. Even though there are two sides to every story, it seems the long version gets more attention from the big players.

A unique silver saver program is available here. This certainly won’t match the Hunt’s by little by little in could have some postive consequences in the silver market.

David Morgan

Founder: Silver-Investor.com

Mr. Morgan has followed the silver market for more than thirty years.  Much of his Web site, Silver-Investor.com, is devoted to education about the precious metals. It is both a membership site and does post and tweet articles to the public. To receive full access to The Morgan Report, click the hyperlink.

 

 

 

 

 

28 Day Sector Rotation, Commodity & Index Update

Earlier this week I noticed a pattern in the market throughout an entire trading session that has inspired me to write a short piece on sector rotation.

On Tuesday March 16th, my quote screen was flashing green as sectors reached new intraday highs or 52 week highs. The interesting part was that every sector that was…  http://www.silver-investor.com/pdf/28DaySectorRotationCommodity&IndexUpdate.pdf

David Morgan: In the Grips of a Currency Crisis

However the evolving global currency crisis ultimately manifests itself, either total deflation and a debt-liquidating depression or a hyperinflationary blow-off, David Morgan of The Morgan Report says “There’s none better than gold—and silver is probably just as good—if you’re worried about a crisis hedge.” In the interim, David tells us in this exclusive Gold Report interview, the time might be right to build cash and watch the markets. He likes the old adage: when in doubt, stay out. But he also likes finding opportunities in undervalued and overlooked resource equities for speculative investments.


The Gold Report:
Your investment strategy has long involved finding undervalued or overlooked opportunities. What metals does that umbrella cover these days?

David Morgan: The byline of The Morgan Report is “Money, Metals and Mining” and I approach the market in that fashion and in that order. Mining—that’s where you get the greatest leverage. And metals—are the best asset class, particularly the precious metals, during these uncertain times. From the metals-only perspective, I’m a top-down analyst. We determine supply-demand fundamentals, what would cause a price to be higher or lower or stagnant. With the precious metals, we look at some timing cues as well. And then we look for resource opportunities, not just in the precious metals or base metals, but throughout the sector, and we do a fair amount of work in the REE, the rare earth elements side. But overall we look for undervalued situations.

TGR: What looks undervalued these days?

DM: Nickel is probably one that’s pretty undervalued, although it looks to be breaking out now. If you study the London Metals Exchange (LME), you’ll find pretty good inventory buildup in some of the base metals at this time—high enough to cause some concern on a short- or intermediate-term basis. Unlike wheat, corn, oats, cocoa or sugar, metals don’t deteriorate. From an economic point of view, if you can buy any of the metals under or near the cost of production and store them, you’ll make money in the long run. You might have to wait longer than you think because markets “can be irrational longer than you can stay solvent.” But all that aside, I do see opportunities. If you want me to pick one, I’ll pick nickel.

TGR: All the metals or nickel?

DM: All the metals should go higher relative to the U.S. dollar, but I think 2010 will be very back-and-forth. Stress levels are high on both sides—the inflationary pressures for governments trying to print their way out of this mess and the deflationary side of the equation because so many countries are on the edge of default.

TGR: What key economic factors are you watching to decide which side of the fence you’ll go to?

DM: The velocity of money. Enough money has been printed to have a hyperinflation in milliseconds, so obviously it’s not a function of the size of the money supply. It’s a function of the velocity of money or how quickly some of it—we don’t know how much—starts moving out of a currency. We’ve already seen it, with India moving into 200 tons of gold, for example. That’s very small relative to the amount of debt out there, but still it’s a very strong signal to the markets about the fact that India values gold over U.S. dollars at this time, and believe me, they are not the only nation that thinks this way.

We could come to a situation of the straw that breaks the camel’s back, some subtle tipping point that the market may not recognize initially. When the Creditanstalt bank went bankrupt, nobody said, “Oh, my goodness, that’s going to take us down and cause a global depression—yet most of us who study such things can point to that as a contributing factor to the Great Depression in the ’30s.

You have to think of it in broader terms than inflation or deflation: are we in the grips of a currency crisis? That’s when you don’t trust the underlying currency. Judging from what we see in the mainstream press, it’s pretty evident that other nations are questioning their trust of the U.S. dollar.

In economic situations such as this, history shows that there’s a price to be paid by everyone. It’s an issue of productive capacity. True wealth isn’t money. Real money is a store of value component. To produce wealth, you have to produce something of value to the marketplace. The productive capacity of the United States has been in decline since 1974. The productive capacity of China has increased substantially from that timeframe to the present day. Today the problem is that the means of exchange is not trusted (longer term) on part of the producer—China in this example. That portends some very serious issues ahead.

TGR: Going back to the undervalued or overlooked resources, in this environment where we don’t know whether to expect inflation or deflation, what sorts of investment opportunities are presenting themselves?

DM: As far as I’m concerned, there’s none better than gold if you’re worried about a crisis hedge however it unravels eventually, either total deflation—a debt-liquidating depression or a hyperinflationary blow-off. Silver has done best in periods of high inflation.

People really get hung up on the inflation-deflation debate, but let’s face it, in both cases there are so many similarities. High unemployment, declining productive capacity, distrust of government, more government interference, general malaise throughout the economy—a great deal of uncertainty.

I would ask anyone who’s worried about this debate to put a silver coin or a gold coin in their right hand and their currency of choice in the left hand and ask themselves, which one has retained purchasing power over time? If you’re going to have savings, do you want the kind that has stood the test of time for thousands of years? Or the type of savings that has always failed throughout recorded history? If you’re not sure, divide it in half. Keep 50% of your savings in your currency of choice and the other 50% in the precious metals.

TGR: If people have cash ready to invest in equities or precious metals, would you say put all of your cash into precious metals now, and then liquidate as you want to invest in various equities? Or keep cash on hand just for equity opportunities?

DM: You can buy the precious metals themselves at almost any time. That’s a different asset class than the mining equities. The mining equities generally follow the stock market to a certain point. Then comes a point—which we haven’t reached yet—when the mining equities start to take on a life of their own. In other words, you’ll see gold and silver mining equities generally going opposite the general stock market. At this time I think mining equities will follow the stock market down. A week or so ago I posted an article on my website about Harry Dent seeing the stock market debacle starting at the end of February. I would not be real quick to jump into the mining equities right now. But if you’re not invested in the physical metal itself, I would definitely buy some. I prefer a dollar-cost-averaging approach to accumulating the precious metals.

And as far as selling the metal to buy equities goes, I would never do that. I’d do the opposite. If I have a big gain on a mining equity—say I made a three, four, five, 10-bagger—I usually turn that in precious metals. I’d rather turn paper into gold than gold into paper.

TGR: You were talking about currency of choice and in this case, gold. A lot of gold investors expect that at some point silver will stop trading as an industrial metal and start trading as a precious metal. A lot of people use the gold-silver ratio as an indicator of how rapidly silver can move up. Do you believe in that ratio and what it portends for silver?

DM: There is a lot made of the silver-gold ratio. Silver probably will reach what I call the classic, or the monetary ratio, which is 16:1. It could even get down to the natural ratio, which at this time is about 10:1, but I don’t see it getting to any better ratio than that. Of course, this implies that silver is undervalued relative to gold.

When will silver take on this monetary aspect alone? That’s part of what I’m writing for the March issue of The Morgan Report. It’s basically looking at the silver market over the next 10 years. We have a 10-year bull market behind us and in my view we have several more years to go.

What happens is at the end of these great bull markets is you get into the euphoric or manic stage and this happens in almost all markets. You’ve seen it in the technology sector, when people were buying dot-com stocks that had no business plan and no equity, just an idea.

TGR: It was the new economy.

DM: Yes. So that will take place. I think we’ll see the biggest run up of all time in gold and silver, especially the equities, a euphoric state of panic buying driven by fear and greed. I’ll probably face a lynch mob me when I say “sell,” because no one will want to trade physical metal for paper currency and I don’t blame them. Anticipating this, I’ve already planned some techniques to use to preserve our physical metal and still allow us to sell to a strong market, but those are days ahead.

When the panic hits, gold probably will go up to $2,000 and beyond—the average person will wake up thinking, “Oh, I’ve got to get gold equities; I listened to my friends and I thought they were idiots and now I see the light.” Many will turn to silver because it’ll still affordable relative to gold.

Significant money will move in to the metals. And because silver is cheaper than gold, a lot of it will go silver, which will cause the ratio to spike relative to gold. You’ll see the ratio drop from 60:1 to 50:1 to 40:1 to 35:1 to 20:1, maybe to 16:1 or 10:1 because there’ll be more money, relatively speaking, moving into silver than in the past. And since silver is such a small market, any small increase in buying power will send the price far higher.

TGR: The way you explain this, these ratios are really only short term.

DM: It depends on where you start the line. One of my earliest lectures, which I still do from time to time, is about the gold-silver ratio. If you go from the 12th century, it’s a 12:1 ratio, which was exactly the natural ratio at that time. In other words, 12 ounces of silver in the ground for every ounce of gold, and that’s basically how it was mined up to about the 17th century.

So the market figured out that 12:1 ratio, and it held up for centuries. We got to the monetary ratio when England was having a problem similar to what the world economy is having today, and during the turmoil of a currency crisis Sir Isaac Newton told the Bank of England to go on a gold standard and they did. He said the correct silver to gold ratio in the new monetary regime was 15.5:1—where the market was at that point. This ratio, roughly 16:1, remained static for hundreds of years.

So does it matter? Yes and no. Once silver was demonetized and deemed an industrial metal, there was no longer a tie to silver as money per se and so it was revalued. The important point is if silver is undervalued or not and if you think it is then obviously it represents opportunity.

TGR: The interesting thing when you bring up the histories of ratios is that silver gets consumed and gold doesn’t. It’s back to the silver as an industrial metal. Silver is also the by-product of mining for other base metals. You’re projecting the economies are not growing over the short term. If silver is a by-product of base metals, should silver production decrease and would that have an impact on silver prices?

DM: Yes, it should decrease and it could affect prices short term. The industrial demand on silver was roughly 35% of the total market in 2000. In 2010, industrial demand now is 54% of the market. The industrial demand for silver is not only the largest demand, but it’s the fastest-growing. But that’s really not totally true because since 2006 you’ve had a huge increase of commercial buying of silver because its investment demand has increased extremely quickly. Since the advent of the SLV, the silver ETF, and other silver ETFs, there’s been a huge amount of money, relatively speaking, moving into the silver market as investment!

So you’ve got the industrial side. Regardless of mining activity being up or down, industrial demand is always off-taking silver and a lot of that off-take never comes back into the market. Recycling is significant, but it’s not total. In some cases, it gets used and it’s gone.

So that is an underlying eating away at the above-ground stockpile. When you throw an increased investment demand on top of that, especially in a small market, you can see an explosive situation approaching. Everybody wants to know when it will take place. I’ve said that the earliest it would take off in that manner is probably 2012 and I may be wrong. Markets do what markets do, but such explosive moves go in phases and we’re still somewhat in the skeptical phase.

For example, some of the people who bought gold above $1,000 are skeptical right now. They’re not sure it’s going to go to $1,200 ever again. I believe it will go far higher, but the longer it wallows between $1,200 and $1,000, the more likely these people are to listen to their friends, neighbors and brokers and say, “Gee, you know, gold isn’t a good investment. I’ve held it for a year and it’s gone nowhere. Put me back in the Dow or something.” Even worse, if we do break the $1,000 level, which I doubt but it could happen, they’ll be very unsure and probably will sell back into the market, causing it to depress in price further for a short time.

TGR: How do you see nickel, which you brought up early on, play out in scenarios you’ve been talking about?

DM: I believe all commodities are in longer-term trend upward. If you dig into the archives, I made a good call in the early 2000s on the Financial Sense Newshour with Jim Puplava. I said the new era is here. We’re going from an era of having things we want to an era of having things that we need. Of course, we need food and shelter and raw materials. Those needs will continue. So do we need nickel in the future? You bet. It’s used primarily in stainless steel. If you’re going to build any food processing plant—and there are always more mouths to feed—you’ll use a great deal of stainless steel. And that’s not the only application.

You can play nickel, other metals or any commodity or stock short term if you wish, but I like to take the major trend and stick with it because that’s where you could make substantial money. Certainly some traders can do extremely well. But really successful traders are very rare and most people don’t have nearly enough discipline, because you have to be willing to take loss after loss after loss after loss. Even if they are small losses, psychologically that’s very difficult. Most people are not suited for it. They can’t handle the stress that comes with a trading strategy.

TGR: Some people suggest the equities because there’s substantially more leverage, thus more upside than with the metals themselves. What’s your feeling about equities at this time and are there any equities you’re looking at that represent good opportunity?

DM: We put out something in the rare earth elements (REE) area recently and it’s a speculation, so it falls in the class of fun money or money you can afford to lose. It’s a very hot sector right now. I believe it’s fairly safe to invest in, as safe as you can be in a speculation. But overall, right now I think it’s a good time to build cash. The next couple of months bear watching. I like the old adage: when in doubt, stay out. There’s nothing wrong with staying out of this market right now and if the market tells us something we have techniques for getting in quickly.

TGR: But when you buy, you like the undervalued stocks.

DM: We always like to buy bargains. I like to invest for value. If I find something worth $10 and can buy it on sale for $5, that’s when I’m more interested in making the purchase. I have people who bought Silver Standard Resources Inc. (NASDAQ:SSRI) at under $1 and now it’s at $17. They’re probably not happy if they didn’t sell some at $40, although some have. But how can you be unhappy about a 17-bagger over 10 years? On the other hand, if you just came into this sector and bought it at $20 or so a few weeks ago, you’re going to be unhappy now that it’s sitting at $17.

My timing is more of an intermediate-term basis. I cannot day trade; it just doesn’t interest me. But longer term, yes, timing can definitely help you, but you have to really know what you’re doing and no one can get it right all the time. So for the average investor a dollar-cost-averaging approach makes the most sense. Technical analysis is a very useful tool, but you can’t rely on it 100% and I’ll give you a quick example. There is no charting service or no human being that can make a 100% accurate case because you can’t chart, for example, where a 9/11 event is going to take place.

My approach is to hold about 75% of the total precious metals stocks through thick and thin. And the other 25% can be traded in and out of the market.

TGR: You suggested that you like to find $10 stocks that are on sale for $5. Do you have any companies that fit those criteria now that you’re watching?

DM: Not at this time, at least not at that big a discount, but I just returned from Phoenix where I gave a lecture on the mining cycle. If you look at Minefinders Corporation (TSX:MFL, NYSE.A:MFN) and you look at the mining cycle, we bought that stock at around $1 and sold it at $13 right at the top. That’s a classic. It’s a good value at this point in time and I believe as things progress, it’s undervalued now. Based on my lecture people will have a pretty good idea where this company could go over the next several years. Buying MAG Silver Corp. (TSX:MAG; NYSE:MVG) is discounted by the market right now, but that one could be discounted more.

TGR: What makes these two companies undervalued at this time?

DM: It’s their internal rate of return. It’s the growth rate of their assets, which are precious metals. People get hung up on the dollar price of the metals. As an example, if you started off in 2000 with 10 ounces of gold and you ended up in 2010 with 50 ounces of gold, by definition you’re wealthier because you own more gold. The price variation is very significant to most people, but in the big scheme of things, it is not that important because gold is wealth and you have more of it. In other words your real wealth has increased regardless on a temporary paper price.

It’s the same with a mining company. If it has more wealth in the ground or is producing more wealth above ground, that’s what you need to focus on. Markets are very psychological and emotional, so what you want to focus upon is the increase of book value per share and you want to see how the company’s growing internally. If the market price doesn’t reflect the increase in book value on an annual basis—that would be an undervalued situation.

Let me say that I don’t want anyone to jump in to either of these companies just because I think they’re undervalued. I believe they are, but it doesn’t mean that they can’t be more undervalued. Still, if you like those, you can take a beginning position. If you want to own a lot of one of those companies (as an example) and don’t do technical work or subscribe to a newsletter or whatever, just take a long-term view and dollar-cost-average your purchases. If you have a disciplined rational approach and know it’s undervalued now and you buy it, you want it to go lower because you know you’re buying value. Instead of being upset about your loss when it goes lower, you say, “Fantastic! I’m not buying that $10 stock for $5. Now I’m able to buy it for $4.” And then next month comes along and you can get it for $3. You are ecstatic because you know what you’re doing. The problem is some people use this technique in stocks that have no real value, that is a huge mistake and too common by the way.

TGR: Good words to the wise. Are there any other undervalued situations that you can share with us?

DM: Again, I want to keep my integrity and value to my members but longer term, Great Panther Silver Limited (TSX:GPR) is a very strong company with a good return rate. First Majestic Silver Corp. (TSX:FR; OTCQX:FRMSF) is a big growth story. SilverCrest Mines Inc. (TSX.V:SVL) is very near production. Fortuna Silver Mines Inc. (TSX.V:FVI) is another company with good assets in the ground and probably not a very well-known story because they’re not very promotional.

So Fortuna, Great Panther, First Majestic, SilverCrest, MAG, Minefinders, and then one that I’ve come back to. I was first on the Silvermex Resources Ltd. (TSX.V:SMR) story. Silvermex is good. We got in probably at the initiation of the company and then the credit crisis hit and we basically were stopped out of the stock. They’re moving toward production. It’s probably a higher risk than, say, some of these other companies that are producing metal or will be shortly. I wouldn’t consider it particularly undervalued at this point, because we haven’t had a long enough history on the company as an up-and-coming producer. And again, all these are speculations in my view, although almost all of them actually mine metal.

TGR: Very good. David, I really appreciate your time. Once again, you’ve been a wealth of knowledge and insight.

When people ask David Morgan, “What do you do for a living?” he has the good fortune of being able to respond, “I do what I love.” A precious metals aficionado armed with degrees in finance and economics as well as engineering, David created (and recently revamped) the silver-investor.com website and originated The Morgan Report, a monthly newsletter that covers—very broadly speaking—money, mining and metals. A dynamic, much-in-demand speaker all over the globe, he considers himself a big-picture macroeconomist whose main job is education—including helping people understand money, the benefits of a sound financial system, and the importance of research and patience in investments. In addition to The Morgan Report, David has written for Kitco’s Money, Metals and Mining Review, The Herald Tribune, Futures Magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron’s, The Wall Street Journal and (of course) The Gold Report. In addition, he has been on CNBC, Fox Business, and BNN in Canada. Searching “David Morgan Silver” on YouTube yields pages worth of links to some of these (and other) programs he’s appeared in.

Critical Mass

As a general rule, the most successful man in life is the man who has the best information

As the world’s population and standard of living continues to climb, demand for more – and cleaner energy – grows alongside the pressures we continue to put on our environment….  Read the rest here

To Know Us Is To Love Us

The Wallace Street Journal

By David Bond, Editor

Silverminers.com

To Know Us Is To Love Us

Wallace, Idaho – To know the hard-rock mining business is to love it. But you’ve got to learn it to know it. This business is so full of charlatans, characters, fortunes made and lost, splendid, big-hearted souls, death, murder and mayhem, and governmental and pressure group interests as to confuse an Einstein intelligence.

This rant comes up because of a chance meeting with Hecla Mining Co. CEO Phil Baker here in Wallace a few days ago. We had just sent Mr. Baker a copy of Paul Sarnoff’s “Silver Bulls – The Great Silver Boom and Bust,” following up a conversation we’d had with him in January at The Cambridge House conference in Vancouver about Gregg Olsen’s superlative work, “The Deep Dark” about the Sunshine Mine Disaster of 1972,  (Any time you catch a mining CEO with curiosity, with which Baker brims, and one who sends books that move him to his department heads and requires them to read it, well, you indulge that curiosity.)

But back to “Silver Bulls,” there’s a back-story here: the late and elegant Phil Lindstrom, whose former home here in Wallace we now inhabit and share with a mortgage company, introduced us to the late Paul Sarnoff back in the 1970s, who was holding court in the bar at the Davenport Hotel during a Northwest Mining Convention. Mr. Lindstrom was at that time a very Important Person with Hecla, whose job duties we never fully understood but who could wax so eloquently on the subject of silver and mining that it did not matter.

At any rate, in the course of our conversation with Mr. Baker at Albi’s here in Wallace, the subject of other books about mining came up. And it got us to thinking: somebody (God forbid it might be us) should do a thorough bibliography on this strange business of breaking sulfide rocks out of the sides of mountains and from beneath them, then converting these rocks into money, and present it in an  entertaining order. After all, the business is as old as King Solomon, and at least as fascinating.

Author John Fahey was our introduction to this world. A book of his, “The Days of the Hercules” – that’s a play on words – carried us through our first snowy winter in Wallace, Idaho. To think of the desperation and the hope that drove men and women (not always together) from the warmths of Milwaukee, Chicago and San Francisco to the snow- fire- and flood-infested north of Idaho, well, it beggars the imagination, albeit Fahey paints a splendid picture.

Following Fahey, we next picked up Sarnoff’s “Silver Bulls,” which puts you in the front-row seat of the roller-coaster that was the late 1970s and early 1980s silver market and America’s most recent taste of runaway inflation, there with the Hunts, the Saudis, Jimmy Carter’s Cabinet and the Commodities Futures Trading Commission in leading roles. Paul was there for all of it, trading for Conti-Commodity and then for Paine-Weber. He knew all the players. In his lifetime Paul Sarnoff wrote something like 33 books. But “Silver Bulls” is the important one. He said so, too.

We took a little break from books to cover some real-time mining and labour activities, including a 9-month strike at the Sunshine Mine and the collapse of Bunker Hill’s supplies of mine concentrates from South America. Then Mount St. Helens blew up and buried us in grey crud for a summer. It was a great year for newspapering but a lousy year for mining, as Paul Volcker and Ronald Reagan buried metal prices and broke Jimmy Carter’s inflation over the mining man’s back.

The sun eventually pierced through St. Helens’ greasy air, and someone turned us on to Steve Voynick’s “The Making of a Hardrock miner: An Account of the Experiences of a Worker in Copper, Molybdenum, and Uranium Mines in the West.” Despite our fairly frequent visits to the bowels of the Sunshine Mine’s lower levels off 10 Shaft, we had no real idea of what it’s like to toil in the stopes a mile underground every day. Voynick tells this story, and he tells it elegantly.

(Voynick wrote a beautiful piece in some Colorado newspaper 20 years back, during the farming credit crisis, when everyone was holding a Farm Aid or some other crusade about the poor farmers. Its title said it all: Who Weeps for the Miners?)

Fahey re-entered the scene a decade or so ago with “Hecla: A Century Of Western Mining.” And back there we were again, in those steep, icy, muddied, snowy, fire-prone hills of northern Idaho, with the men and women who out of desperation or hope populated our hostile woods and crude cities. There’s a novel suggested in every page. One of these days . . .

But by a decade ago, mining had disappeared from the American radar screen. If it ever even mattered to the American psyche – and trust this: miners were the first to settle the western part of this continent, only afterwards did farmers and loggers follow, to tend to the miners necessities – the business of mining became the object of derision, hatred and control by environmental pressure groups. The United Snakes government, always eager for an opening, followed suit.

A few nay-sayers called the Greenies’ bluff, most notably Danish environmentalist Bjorn Lomborg in his seminal 1998 “The Skeptical Environmentalist.”  In it, Lomborg questions our sense of priorities, that for a few micrograms within a sampling error we should perhaps not tear down entire industries.

Then in 2002, Peter Samuel, a most unlikely author, published the definitive work on the lead-poisoning hoax that has been perpetrated by the U.S. Environmental Protection Agency, entitled “Lead Astray.  Samuel describes EPA’s evolution from a guardian of clean water and air into a gigantic earth-moving enterprise by scaring people to death, with the United Snakes EPA as the general contractor, skimming 10 points off the top.

We come now to “North Idaho’s Superfund: Facts and Fraud” by Fred Traxler and Robert Hopper. Traxler is a chemist and Hopper is a hard-rock miner, who owns the Bunker Hill mine. They take Samuel’s work a step further, first by confirming (with the government’s own numbers) the government’s deliberate fraud of confusing the local hicks with the very real dangers of lead-oxide paint and putty in their older homes with the innocuous effects of mineralized mining camps in the hard-rock West. (After all, if you’re looking to mine lead, wouldn’t you go to where the Planet put the lead? And why would lead concentrations in northern Idaho’s Cataldo Mission, built several decades before mining even commenced in this district, be so far above EPA’s required minimums?)

What is so darkly disturbing about Traxler’s and Hopper’s heavily-footnoted tome, “North Idaho’s Superfund,” is how far we’ve come. That a regional extension of a federal agency can systematically reduce a once-proud and self-sustaining community into a cattle-yard of dependent cowards. From joy leaps defeat. Read the books. Hopper’s and Traxler’s books are at The Silver Summit’s office, 604 Bank Street, Wallace, Idaho USA 83873 (tel. 208.556.1621). The others may be found on Amazon.

Will Silver Hit New Highs?

Will Silver Follow Gold to Record Highs? by Northwest Territorial Mint Staff

Gold reached all-time (non-adjusted) highs in 2009 and has maintained above $1,100/oz. into the first months of 2010. Yet, why hasn’t silver peaked as well? Though it rose 45% in 2009, silver is hovering around $17/oz. and still well below its 1980 peak of $50/oz. Northwest Territorial Mint recently asked some experts in the silver industry to give us their view of silver — where it’s been and where it’s going.

How would you explain silver’s relationship to gold? Hugh Clarke, vp of corporate communication for Endeavour Silver Corp, notes that the silver/gold relationship was once the opposite of what it is today, with silver being the highly prized metal at one point in history. “Silver is known as the “Poor Man’s Gold” although most of your readers might be surprised to learn that 4,500 years ago silver was considered more valuable than gold, as the supply of silver was scarce. With the discovery of large silver deposits in present-day Spain, Turkey and other countries, silver became more plentiful than gold and lost its price dominance. The big discoveries in the New World after 1500 AD hastened silver’s price decline, relative to gold. As civilizations evolved, both metals were used as currency and a historical relationship was established. In recent history, gold has been much more valuable and for those people seeking safety or insurance; their first choice is gold but if the gold price is too dear, they’ll buy silver.”

Jeffrey Christian, managing director CPM Group, describes the inventory amount and interchangeable relationship of the two metals. “Gold and silver have a loose relationship. They share a long history of being used as money, extending back five millennia. They also share many physical and chemical properties, which gives them some substitutability. For example, both silver and gold can be used in some electronic applications, and in some medical and dental devices. Both are immune to corrosion from many weaker acids. Both have enormous inventories, much of it in jewelry and statuary, built up over the past 5,000 years.” David Morgan, founder of Silver Investors, points to the wealth-protecting properties that have drawn investors to the metals over the millennia. “Both have been real wealth and safe havens for all of recorded history. Silver and gold were both consider money until the advent of the electrical and now electronic age when silver took on the primary role as an ‘industrial’ metal.” What does being known as an “industrial” metal do for silver’s investment value?

As Clarke points out, silver has gained widespread use throughout many industries in recent years, “Over the past two decades, the use of silver in industrial applications has exploded. I call silver “The Miracle Metal” because of its unique properties. It’s the best conductor of electricity, the best conductor of heat, it’s the most reflective of metals, it’s malleable, ductile and it’s beautiful and it also has anti-bacterial properties. The applications for silver in everyday living touch everybody on this planet. The US Patent Office issues more patents for silver-based products than any other metal, by a very wide margin.” Christian points to the dual role that silver plays as a unique strength. “CPM Group often says that gold clearly trades as a financial asset would. It trades like currencies and bonds. Silver straddles the financial markets and the industrial commodities markets. It is both. It shares some market characteristics with gold, like the enormous inventories built up over 5,000 years, and the high ratio of derivatives to annual physical supply and demand changes.

Silver also shares other characteristics with industrial commodities such as oil and copper. This duality of nature sometimes helps support silver prices. Industrial demand sometimes will rise for silver at a time when financial interest in gold and silver are waning, which is not uncommon in the early stages of an economic expansion.” What’s the value of the gold/silver ratio for investment purposes? Clarke doesn’t see much value in the gold/silver ratio. “For many, many years the silver/gold ratio was 16:1, for the past few years it’s been in the 50-80:1 range, reaching a high of around 100:1. At present it’s about 60:1. It is what it is. The gold/silver ratio is meaningless to me. What is meaningful to me is the fact we are in the midst of a powerful bull market for gold and silver and a great many factors, including supply-and-demand and currency debasement — amongst others — lead me to believe that we are not even close to the top. The best is yet to come.” Christian concurs with Clarke’s view on the ratio, “At CPM Group we largely ignore the gold/silver ratio. It is largely meaningless as a trading or investment guide. The gold/silver ratio has ranged between 16:1 and 100:1 over the four decades of free gold and silver prices. Some people will point to the average over this time, saying that the price needs to revert to it. There are no economic, geologic, or mathematic reasons to suggest that. People will speak about the reversion to the mean, but they misunderstand what that term means. The concept of reversion to the mean refers to the idea that the return on investments should revert to their mean over the long run. It says nothing about the absolute dollar value, level, or ratio of those investments. Worse still: The concept that all investments revert to their mean return is unsubstantiated by data across financial markets. It is a belief, like the idea that aliens from outer space brought humans to colonize the Earth. You can believe if it helps you to sleep, but investing based on rational expectations has always been just fine for me.” Morgan takes the opposite view on the ratio and notes that he has found success in trading it, “One of the most important methods to increase your gold holdings (or silver if you prefer) is by trading the ratio — I have done this successfully the entire bull market so far.” Using 1980 as the benchmark, gold has passed its (non-adjusted) highs in 2009, but why hasn’t silver?

According to Clarke, the global economic crisis may provide investors with an opportunity to get into silver at a good price. “With the credit crunch of 2007-2008 and the ensuing global recession, there was pressure on silver as it was thought that industrial demand would slacken. The silver price got crushed, reaching a low of around $8.00 an ounce in late 2008. Silver is playing catch-up and even though I love gold, I’m convinced that the silver price will out-perform gold’s price.” While seeing strong silver demand in North America, Christian points to global trends being more unclear on silver’s outlook. “Our view is that the gold price has risen further this time around than silver because gold is seen more broadly as a financial asset and a form of quasi-money. In the silver market, demand has been strong in the United States, which has a strong tradition of investing in silver. It has been moderately strong in Canada and a few other places. European and Japanese investors tend not to turn to silver in times such as we recently have experienced, but focus more on gold. In India and the Middle East investment demand has been higher for gold, but investors have been less interested in silver. In fact, there have been significant sales of silver jewelry and investment bars in the Middle East and India as investors have sought to take advantage of the higher prices.” Morgan thinks it may be a bit premature for silver to experience rapid growth, “It is way too early in the cycle for silver to move into an acceleration phase. However, a good study of the last cycle would give an accurate picture of how silver performs vs. gold in an inflationary environment.” … Hugh Clarke is vice president of corporate communications for Endeavour Silver Corp, a silver mining company focused on the growth of its silver production, reserves and resources in Mexico. Jeffrey Christian is managing director of CPM Group, a commodities market research, consulting, asset management, and investment-banking firm. David Morgan is founder of the Silver Investor and editor-in-chief of the monthly precious metals research guide, “The Morgan Report.”

Will Silver Always Be Second to Gold?

Today I wanted to comment on the article written by Roubini Global Economics.. First the title is theirs and secondly the overall thinking of the article is simply that silver will not reach the price of gold. I agree– what I wish to point out is some factual errors that the full article states. The most glaring is that the ratio of silver to gold in the ground is 16 to 1. This is off by a factor of two! The current ratio is about 8 to 1. It has never been higher than 12 to 1, yet this kind of mis-information is present all over the web.

The monetary ratio is (was) 16 to 1. The natural ratio (amount of silver to gold in planet earth) is now 8 to 1 and going back into the 12th century was twelve to one.

Here is a link for the Roubini article: http://www.roubini.com/analysis/104274.php

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