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It's
Sunday morning but I still have electric so I thought I would post Monday's
letter. I want my readers to focus on what I learned yesterday about safe
ETF's.
In the
1980’s a big Australian company whose fortunes had turned for the
better were seeking a firm to run its accounting operations and help the
company get a better understanding on hedging its risks. Many of the
companies they interviewed were top flight companies but at the end of the
day they felt the price for their services were too high. Instead they hired
a young trader in his late 20’s who immediately bought himself a brand
new flashy Porsche. He proceeded to total the car in an accident and ended up
in the hospital with a broken leg. As it turned out he had not even done the
preliminary due diligence on the positions he had opened for the company and
in short order the company found that this financial genius they had hired
lost $80 million in one week. The result was the firm going back to one of
the companies they had interviewed, with their tail between their legs, and
paying the fee the company required to do the job properly. This firm learned
their lesson the hard way.
Well
by now you must be asking yourself why on earth I am telling you about this
Australian firm. The answer is that this is a lesson that has had to be
learned over and over again and we still haven’t figured it out. You
wouldn’t hire a dentist to fix your car yet we think nothing of voting
for someone who has a nice smile and looks good on TV. The fact that there
are really no qualifications required to be a representative of the
government unless kissing babies, photo ops and stabbing your colleague in
the back counts.
I
remember in grammar school getting in trouble because I had the audacity to
question my teacher when she insisted on calling America a democracy. I based
my 3rd grade knowledge on having to recite the “Pledge of
Allegiance” and it always struck me as odd that we pledged allegiance
to the flag... and the Republic for which it stands.” I was in 3rd
grade and I could connect the dots. Our nation was not a Democracy it was a
Republic.
As I
grew, I found that I loved to read and was a regular at the New York Public
Library. I remember reading “The Decline and Fall of the Roman Empire”
by Edward Gibbon. I was struck by the facts that in a real democracy people
propose the laws and vote on them. Just as they did back in ancient Rome we
pretend to have a democracy but instead what we really have is a Republic. We
also have another thing that Rome had – an elite political class. Just
like in Rome the elite political class is disconnected from the people they
purport to represent and instead become a tool of the special interests or
the uber wealthy.
You
don’t think that congress is an elite class? They serve for one term
and retire with a full pension for life. They have their own social security
system. They have their own medical plan which is an elite plan and totally
free of charge. Who picks up the tab for these perks? The Middle Class does. “Same as it ever was”
– David Byrne
One of
my readers sent ne the nicest post I ever got in my life. I am human and I
sometimes wonder why I do this writing of=r if anyone is even reading what I
have written. My reader wrote “I'm so glad I found you. You mean more to many people than you think, you help mold lives and
futures with information, it's an honor, but more so a responsibility!! That
was all I needed to read. If I can help someone, what a better way to spend a
life.
So I
had a very fortunate thing happen last week. As many of you who read me on a
regular basis know I have often written that every time has a sector that is
ripe for profits. It just so happens that at this time the sector to be
picking the fruit is precious metals. There are many smart people that have
written me about Platinum and Palladium. The truth that the only thing I know
about platinum is that it is one of the rarest elements on the planet. It has
never been currency and it has some minor industrial applications but its
claim to fame seems to be that it is so rare. The truth is that I don’t
get it and I won’t invest in something I don’t understand. So
that brings us to Gold and Silver. So last week I got faked out and thought
gold was finally going to sell off. Wrong! While it did sell off from hitting
a high of over 1,900.00 on Tuesday August 23rd to make an intraday
low of $1715.00 on Thursday and closed the week at $1830.00 down $70.00. The
good news for me and my readers was that I have always been leery of the two
big ETF’s SLV and GLD. They lease the gold and
silver that they sell you. AS soon as I saw that this was another head fake
to drive the RSI and the fundamentals down Instead of buying back into GLD
and SLV I chose instead to redeploy the funds into the Sprott
funds which I already owned. The knock on the Sprott
funds is that they carry a hefty premium but that is only the case if you are
going to take possession of the gold or silver. The silver Sprott Fund (PSLV) closed the week at
$19.30 after having made an intraday high of $22.00 on Tuesday and the gold Sprott fund (PHYS) closed the week at
$15.23 after having made a high of $16.75 on Tuesday. I would recommend to
all my readers that they move away from GLD and SLV and move instead into the
Physical funds. The reason is that the Sprott funds
are not true ETF’s. They are closed ended finds which means you are not
buying shares but rater units. The physical gold and silver is audited every
tear and you know that you will not wake up one morning to find that the gold
and silver that has been “leased” to the two ETF’s GLD and
SLV are now not worth the digital bytes they are printed on. For more on this
subject click here. There is also another
fine company CEF which holds both gold and
silver in the Canadian mint which is also audited on a regular basis. While I
own more than my fair share of physical I want the ease of paper trades and I
feel with these three holdings I get the safety of knowing that my gold and
silver are real but that they are also liquid. To me it’s the best of both worlds.
In conclusion, I wanted to share
something I learned. Friday my brother and I had a conversation and we came
to the conclusion that silver was more like money than gold. While silver has
always been called poor man’s gold, remember I have often written that
I was a gold bug since I was 8 years old and since I am now 58 I had many
years of going to the store for my mother with two quarters for milk and
bread and yes - those quarters were silver. What was particularly striking
was that neither my brother nor I could ever remember in our lives using gold
as money but using silver as money was just a plain common occurrence. I am
long GLD, IAU, PHYS, UGL, SLV, PSLV, DZZ and AGQ but I will be moving these
funds into PHYS, PSLV, GTU and CEF and when the situation warrants I will
invest in AGQ for silver and DZZ for gold. As long as there is runaway debt
contagion and worthless paper money I will continue to hold my physical gold
and silver and these funds.
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