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Rosen Blasts my Short Term
Thinking
Silver Stock Report
This month, I was honored to
be interviewed by Maurice Rosen who publishes the Rosen Numismatic
Advisory. It was a very good and comprehensive interview, with hard
questions, and provides me a good occasion to send out an email, my
first in over a month. Here it is: (with clarifications in parenthesis)
The Rosen Numismatic Advisory
--CONFIDENTIAL REPORT--
IN-DEPTH ANALYIS FOR THE RARE COIN INVESTOR
VOL. 32 NO. 5 AUGUST/SEPTEMBER 2007
Special Report, $25
WE INTERVIEW: JASON HOMMEL
"I
think silver will head beyond $8000 an oz. in less than 15 years!"
LAST YEAR I INTERVIEWED JAMES TURK who talked about $8,000 gold. Now, I
present you with a bizarre forecast of $8,000 silver. What's going on
here? We'll have to read Jason Hommel's
reasoning to find out, but I'll tell you upfront he's from the School of Hyperinflation Forecasting,
not an especially enviable place to have learned how to manage one's money or
to forecast the economy since the 1980s. Some of that institution's
graduates have told their stories in these pages and been proven dead wrong
-- so far. This latest graduate, all of 37 years old, goes a big step
farther than James Turk who, by comparison, looks to have presented the far
more moderate forecast. Turk talked of $400 silver. Hommel says $8000+.
You see, I need to challenge Hommel's prediction of
hyperinflation engulfing the U.S.
and the world for fear that you believe I joined the hyperinflation
camp. But, what if he's right? Even partially right? Go
back to the early 1970s when silver was $1.29. Who would then have
believed that silver would soar to $52.00 in less than ten years, 40-times
its starting price? The inflation we experienced then peaked at about
13%. I tremble to think of the inflation rate required for silver to go
from $13 now to $8000. Can you imagine a $1000 face value bag of 90%
silver coins valued at $5.70 million? A roll of silver quarters
at $57,000? A lowly silver dime at $570? I can't. I assume
you can't either. But Jason Hommel can.
Let's read what he has to say.
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MR: Jason,
please give us a brief background of yourself and your career.
JH: I have
a BA in Psychology from University
of Colorado at Boulder. I developed an interest in
gold and silver and made extremely successful investments in silver
stocks. I started a newsletter in 2003 and now have 51,000 website
subscribers. (55,000 now, on this free email list, and about 800
subscribers who pay for a monthly look at my portfolio.) I was the
first analyst to regularly publish comprehensive reports on silver
stocks. By the way, I am not solely immersed in silver. I analyze
other metals and stocks, such as copper, nickel, zinc, molybdenum, and of
course, gold.
MR: Let me
start off by asking you why you insist that silver is so undervalued?
JH: Going
back a century, virtually every major country in the world was using gold and
silver as currency. Today, no country uses either metal as currency,
yet gold has been hoarded by the central banks of the world, but not
silver. In all of history nearly 5.0 bilion ozs. (155,000 tonnes) of gold have been mined with over
90% of that gold still existing. On the other hand, of the total 45
billion ounces of silver ever mined, about 9% remains, the rest has been
consumed. Doing the math, the total
value of existing gold equals about $3.3 trillion, yet for silver only
$52 billion!. At the end of World War-2, total known stocks
of silver amounted to about 10 billion ounces, with the U.S.
government holding 4 billion ounces. Now, total stocks are down to well
under one billion ounces, a reduction of about 95%, with the U.S.
government's stockpile virtually gone. Silver's growing use in
electronics since WW-2 has helped to dwindle those
once-huge silver supplies. In this regard, looking to the future of China and
other once-underdeveloped nations, their use of silver should expand greatly
as their populations prosper and they join the "consumer age."
Besides all this, we have strong evidence of government manipulation in the
gold market that has been going on since the 1990s. It is strongly
suspected that the world's central banks have sold about one-half of their
combined "reported" 33,000 tonnes (1 billion ozs.)
of gold into the market to depress prices. Were it not for this
selling, the gold price could well be $2,000 to $3,000 now!
MR: Here
we are with silver at $13. In a report of yours dated 9/21/06, you
state that silver will head beyond $8,000 an ounce in less than
15-years. To me, that's an unbelievable, even
a potentially reckless, forecast. How in the world do you justify it?
(Report of reference: "Silver Summit Speech", September 21,
2006 http://www.silverstockreport.com/email/speech.html)
(Report of original $8000/oz. silver forecast: "Future Gold and
Silver Prices", December 21, 2005 http://www.silverstockreport.com/email/Future_Gold_and_Silver_Prices.html)
JH: I've
done a lot of work on how high the price of silver could go in terms of dollars.
Considering how bullish I am for silver, it is actually reckless for me to be
conservative with my forecast! Otherwise I would allow people who
bought silver at, say $12, to sell at $25 and be happy that they doubled
their money when, in fact, I am confident that silver will be going much
higher. It's important to analyze not only the silver market but the
market for dollars as well. That's what we are really talking about
here -- the ratio between dollars and silver.
Many trillions of dollars have been created in just the past few years, but
there is a time lag when those new dollars begin to affect the
purchasing value of the dollar. We have had tremendous inflation since
1914. Yet, despite the higher prices we see today, inflation's full
impact has yet to express itself. When you take into account all these
trillions of new dollars and the trillions more that will most certainly be
created in only the next several years, you begin to see the awesome
potential of inflation's impact on the dollar and the price of silver.
Looking at gold, the price today would have to be about $45,000/oz. to fully
back all the M-3 created money supply. If you include all bonds, then
maybe there's only enough gold held by the U.S. government to back every
$100,000 with an oz. of gold. Look at it this way, all the gold that
exists in the world is worth about $3.3 trillion today. That is about
the same amount of newly created paper money that was created worldwide just
last year! China
could easily buy over 2,500 tonnes of gold (which is one year's mine
supply)--(78 million ozs.) by a diversification of
about 5% of their U.S. dollar reserves. Add to this the U.S.
government's enormous $70 trillion in unfunded liabilities (mostly Medicare
and Social Security) and eventually this fraud of paper money will collapse,
as all frauds do.
MR: Are
you saying that this dollar collapse will occur within 15 years, hence $8,000
silver?
JH: The
collapse has already begun since about the year 2001. Look at the value
of M-3, a
very broad measure of the nation's money supply. Today, that total is
$12 trillion. Divide this by the price of gold and you will see in
theory how many ounces of gold M-3 will buy. The point here is that the
value of the dollar is declining faster than the rate at which it is being
printed -- the very definition of hyperinflation! We've been in this
situation for the last six years but almost no one recognizes or talks about
it! People are still debating whether or not we even have inflation!
People are being defrauded by the government's phony
inflation statistics. The actual inflation is at a rate of 10-13%,
mirroring the creation of new dollars by the Fed. During this period,
gold and silver have been rising in price at a faster rate than which these
dollars are created -- the definition of hyperinflation. Therefore,
what I did in that article where I talk about $8,000 silver is project that
if silver appreciates at a rate of 50-60% per year for the next 15 years
where will its price be.
MR: How
realistic is it to expect silver to increase at a 50+% annual rate for 15
years?
JH: What
I'm projecting is not a true growth rate but a decay rate for the
dollar. The real, inflation-adjusted rate of increase for silver will
be less than 50%, the difference will constitute the
decay, or inflation, rate. Another way to look at this is that by the
time silver is $8,000/oz., it will have the purchasing power of about
$200/oz. today. So, it is a combination of those two forces -- the deflation
of the value of the dollar plus the incrementally higher rate of the rise in
the value of silver--that are at work here. That is actually the
opposite of what we've seen for the 21 years from 1980 to 2001 when the price
of silver went down while inflation continued to erode the dollar.
MR: But
how realistic is it to use the period since 2001 to make your case that
silver has to rocket to $8,000? I've seen too many projections like
yours fall apart when made by gold and silver "experts" who used
limited periods of study.
JH: That's
a very good question. I haven't used only the experience of those seven
years to make my case. Actually many commodities have risen greatly
since 2001, some rising by ten times or more, for instance: molybdenum,
uranium, cobalt, selenium, manganese and indium. Even lead has gone
from 20 cents to $1.56. These are harbingers of monetary
destruction, exactly what occurred during 18th century France under
John Law, and 1914-1923 Germany.
I'd like to refer your readers to two interesting Internet articles. One
shows some fascinating comparisons of the purchasing power of gold in 1430's Florence, claiming that
gold now should be valued at $35,000+. Go to: http://www.gold-eagle.com/editorials_04/wang090104.html
The other is a 600-year chart showing silver historically vastly undervalued
today. Go to: http://goldinfo.net/silver600.html
MR: How
much investible silver exists?
JH: The
vast majority of the estimated existing 4.0 billion ozs.
of silver is in the form of jewelry,
flatware, tableware, etc. The world consumes more silver annually
--about 900 million ozs.--
than is mined each year, which is about 650 million ozs.,
the difference is made up by scrap recycling. What's left for
investment amounts to some 300-600 million ounces which includes all pre-1965
dated silver coins and all the various silver medallions, bars and ingots made
for investors.
MR: Much
is made of the gold to silver ratio. Some analysts see the current 50-1
ratio falling to the so-called "historic ratio" of 15 or 16 to one,
even less. What is your opinion?
JH: I
absolutely agree. Decades ago when the ratio was comfortably in that 15
- 16 range, the world had some 15-16 times more silver than gold. That
was when gold and silver were used as money. However, now there is far
less silver around compared to gold, a fact not yet factored into the current
silver price. Today the ratio is actually closer to five or six to
one based on the amount of silver mined compared to gold. As the true
scarcity of silver becomes known, and we are well on the way towards the
public's recognition and understanding of the hyperinflation
in progress, it is possible that in a "silver mania" stage for
the silver-to-gold ratio to fall close to a one-to-one ratio, perhaps even to
the point where silver is worth more than gold! I know this sounds
incredible but history shows that great economic chaos can produce incredible
market results.
MR: What
forms of silver do you recommend for investment?
JH: My
number one recommendation is to take physical possession of any silver you
buy. That means not buying any contracts, storage receipts, papered
"ownership" of silver of any kind. I can not overemphasize
this requirement enough. I am certain that as this bull market
progresses there will be many sad stories of good folks who will find out
that they've been taken by bad firms. We are entering a potentially
dangerous stage of the era of financial fraud. Don't make the mistake
of correctly making an outstanding and timely investment in silver only to
later discover that the silver you thought you owned doesn't exist! Those
kinds of frauds happened in the 1970s and 1980s when silver rose from the
$4/$6 level to $20, eventually to $50+. Imagine the awesome scope of
fraud that could occur with silver going from $13 to $8,000!
For those with the means to buy a lot of silver, 1000-oz. bars are a good way
to go. They weigh about 70 pounds and with the best hallmarks are
very liquid. For less affluent buyers, 100-oz. sized bars of .999
fineness, also with quality hallmarks, are an excellent choice, as are the
one-ounce rounds from various producers, and 90% pre 1965 dated U.S. dimes,
quarters, and halves. I'd avoid the 1-oz. American Eagles because of
today's high premium required to buy them.
MR: What
do you say for the possibility of government attacks on silver and gold
speculators? This could take the form of higher taxes, intrusive
transactions requirements, limits on ownership, licenses, and labeling us as unpatriotic profiteers and hoarders.
JH:
Anytime the government wages war against precious metals owners, it's the
beginning of the end for that country's currency, and the government as
well. We enjoy in this country a strong history of gold and silver
ownership. There are thousands of coin shops across the land.
Maurice, when you think of how relatively small is the quantity of gold and
silver existing in this country, I think the
government won't get involved. The $12 trillion in M-3 money supply
that exists today will be soaring in the future, and even with the enormous
gains I foresee for the prices of silver and gold the number of dollars will
incredibly eclipse all the silver and gold that could possibly be confiscated
or otherwise infuriate the politicians because some citizens own them. Still,
if the government ever wages that war, silver will be well into the $1,000s,
maybe $10,000/oz. and I wouldn't mind letting them buy some of my silver at
that price, still holding on to the rest!
MR: Let's
bring in the time frame from 15 years to six months. Where do you see
silver then?
JH: I see
silver easily at $30 by early next year. Gold should be over $1,000
maybe $1,200.
MR: $30
silver might not arouse the public, but won't $1,000 gold be a big event?
JH: We
tend to think that because we're so isolated in our little world of precious
metals and coins, but when the rest of the world sees gold going above the
1980 high of $850/$875, yes, it will be a breakout. It will cause some
news and might push higher to that $1,200 area, but then people are going to
back away from buying because gold will be as high as its
ever been. They will feel they missed the boat, that the price is too
high. The time when the public furiously buys gold probably won't start
to occur until the price is well into the many thousands of dollars. By
then, silver's price too will be measured in terms of four figures!
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Maurice Rosen: MY CONCLUSION What is
it with the hard-asset community's fascination with silver?
Can it be that the "poor man's gold" appeals to folks desiring a
weighty investment in precious metals? Is it the memory of silver's
stellar performance in the 1970s that fuels their passions? Is it the
work of the silver investment industry promoting a greedy allure for their
products?
(more)
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Jason Hommel:
To read the rest of Maurice Rosen's conclusion on what I had to say, send
your physical post mail mailing address, usually your home address, in an
email, to MauriceRosen@aol.com, and ask for a hard copy
of the "Hommel interview."
As many of you know, I do NOT recommend buying any sort of numismatic coins
for investment purposes. Sure, I've bought a few Roman coins, denari coins about the size of a dime, containing $1
worth of silver, for about $30 each, but only for the novelty, and as
gifts. But I'd never buy $100,000 of such things, just as I wouldn't
buy $100,000 worth of silly putty or Rubik's cubes.
So, why would I give Maurice some press? Well, his
industry knowledge led to a good interview! Also, Maurice is not
into hyping overvalued numismatics. His idea of a good numismatic coin
for minor portfolio diversification purposes would be some 100 year old gold
coins that might only cost about 15% above the spot price for gold, so you
are not overpaying much at all. Also, Maurice admitted to me, quite
frankly, that if the scenario that I suggest comes true, then people will not
have much money left over for "numismatics" and that rare coin
speculation will probably not be very affordable for anyone!
Maurice also suggested that if my readers wanted to sell their numismatic
coins, to get the money to buy more gold and silver, he would be happy to
help with that kind of request, and would give a good, fair price.
I also appreciated Maurice's perspective that 15 years is "the short
term".
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As you know, this IS the Silver Stock Report. I apologize for slacking
off on giving you silver stock picks in emails lately. I've been
spending a lot of time working on our online database of mining stocks that
now has over 600 companies listed (up from just over 250 last month). (For
paying subscribers only at this stage.)
Besides, our market has been relatively quiet, and you have not missed much
in the last few months. But I think the time is ripe for another major
rise, where we could see gains of several hundred percent. But I don't
like any of the major silver stocks these days over $1 billion in market cap,
such as SSRI, PAAS, SIL, CDE, HL, or Silver Wheaton. I don't even like
many of the mid-tier stocks in the $300 million range. Here are
some company names that I do like. (Most of these companies
are only explorers and still need to drill and discover something to put
into a 43-101 resource study, and are nowhere near having a feasible
mine.) But note they have such tiny market caps!
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Thank you.
Jason
Hommel
Silver Stock Report
Please visit Silver Stock Report for specific stock picks.]
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