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Q: David, there is a writer Bix Weir who you most likely know of and he is of the opinion there is considerably more gold in the world than people think.  He references 2 locations of big stashes and maintains the total is in excess of a million ton.  For that reason, he is saying silver is far superior to gold in protection.  What is your thought?

David Schectman’s Answer:

Personally, I believe silver is a better investment than gold apart from Bix’ argument.  His opinion does not reflect the majority view, but with or without the “extra” gold, silver looks better to me.  When the price of precious metals start to rapidly rise, gold will be too expensive for most people and it will be easier to spend $100 or $200 an ounce for silver than to spend $3,500 or $5,000 for an ounce of gold.  There is very little spare above-ground silver to purchase (most is either used up by industry or it is held by strong hands that will not let go of it) and there is a lot of gold sitting around.  The only question with gold is at what price will the owners decide to sell some?  With silver, once shortages arise, due to increased investor demand, then industry will jump in an also hoard since they need the silver to keep the doors of their businesses open.

I try and keep my precious metal portfolio around 50% – 50% but it changes as the silver/gold ratio varies so much.  Keep in mind that it is very high now, taking over 66 ounces of silver to “buy” one ounce of gold.  That number alone suggests that silver will outperform gold by two to one or better.  Back in 1980, gold was $850 and silver was $50 so the ratio was 17 to 1.  If a similar relationship occurs during the peak of this bull market then based on today’s prices, silver will outperform gold by three to one.  Don’t worry about Bix’ unorthodox view on the gold hoards.  It is not necessary to build the argument that you will do better with silver than with gold.

Here is another question for David:

Q: I have a question for your Q&A day on Wednesday. This one’s for David…regarding David’s recent article, reprinted below:

“It concerns me to the degree that I am asking myself if this is a good time to leave the Miami area and “retreat” back to the relative calm and safety on Mid America in the Minneapolis area.  That is a question I will answer in the next few months.  And knowing how much we love to live where we do, north of Miami Beach, this is not an easy question to answer.  My past tells me that I am usually right but almost always early.  I don’t believe it’s a question of “if,” but only “when.”  The disparity of wealth in South Florida is embarrassing.  Way too many ultra-wealthy and way too many very poor and under-employed.  You can almost “feel” the envy and anger from those who have less than you do.  We feel it at the shopping malls and the grocery stores.  And we do not flaunt anything, but “they” know. If gold and silver are not the best choice investments when the fuse is lit, then I don’t have a clue what could be better.  Great! I have the right investments in the middle of social chaos. I really want to be wrong here, but I am giving the topic serious though – and maybe so should you.

David across my younger years it was always at the back of my mind that one day I would like to travel across North America. Now, I would avoid it like I would avoid West Africa and for the same reasons. So, my question for you David is simple. 

“With a gun every home and massive civil unrest widely expected and prepared for nationally across America ‘very soon’, are you sure you have chosen the right country let alone state???”

Watching from the outside and having extensively read and absorbed ‘mf dailies’ for a year or two, why on earth would you ever want to stay? You have the means and the awareness, what are you waiting for now?  Surely you can see that black swan fuse only needs lighting now? The feeling is America needs war next to make your failing leaders heros anyway and you already know this too. 

Come over here maybe David. We don’t even know what civil unrest is yet; not to suggest we are the best, just take the time to reconsider your options more broadly because the time in front of us shrinks by the year week and day now doesn’t it?  If you like Miami come climb the Sydney harbor bridge on a slow week or two or maybe take in ‘little Miami’ surfers paradise…. just stick all your metal in Canada come here and retrieve it next. 

Of course, the AUD is closely following USD down the gurgler too, but where isn’t this a problem now?  Silver just isn’t going to save any of us from the vacuous already targeted rioting brain dead starving hoards beating on the empty supermarket windows is it?  When national supply routes are threatened, won’t mid-America suffer earlier and more than most states? 

David Schectman’s Answer:

There is little to disagree with in your email.  Recently, two of our close friends in Miami suggested it was time for us to move away.  They have lived there for decades and see the change and do not like the direction things are going.  You are preaching to the choir as far as staying in Miami is concerned.  Like all things, it’s all about timing.  I know I have to be a day early, not a day late so it gets complicated, especially since we do love it down there.  The real issue, as you pointed out, is not whether to remain in Miami.  It is whether to remain in America.  That’s a much harder issue to wrap my emotions around.

If Susan and I were to leave our country, Australia or New Zealand would be at the top of the list of where we relocate to, but at our age (I am 72 and Susan will be 69 in two months), with our family here, my business here, my friends here, it isn’t as easy as you make it sound.  It may be logical, but that doesn’t make it easy.  Bill Holter keeps telling me to buy rural property away from the big cities as a starter.  But we are city people, not rural people.  Yes, Minneapolis is a safer choice than Miami and the middle of Idaho is better than Minneapolis and Australia is probably better than Idaho, but that is all predicated on one’s willingness to relocate and start over.  I’m not sure it’s us!  Maybe Canada – that’s closer to the life style we are accustomed to.  But will Canada be any different from America?  The suggestions you make are more appropriate for my children, but I can’t see either of them picking up and moving their families offshore either.

Most likely, we will do what is necessary to make it through tough times and pray that the tough times don’t turn into marshal law, massive social unrest and economic collapse.  I can live with “bad,” but worse than “bad” is a very frightening thought.  Most people can’t conceive of total collapse – and even if they can, they won’t do anything about it.  I can only think of two of our clients who actually will leave when things heat up.  It takes a lot of money and a certain mindset to do it.  Both of them are 20 years younger than Susan and I are and it makes it an easier choice, at that age.

“Normalcy Bias” explains why it is so hard for people to react to an event that they have never experienced before.  America has been the place to be for the last 150 years.  It is hard to imagine a situation where that is no longer the case, though we are surly moving in that direction.  Yes, it is a question of “when.”  Timing will be everything.

Thanks for your email.  It is relevant.

Best of everything.

Q:  Can you address my wife’s concerns sufficiently to help us convert some of our “surplus” cash to gold or silver? She is a public school teacher (state employee) planning to retire in two years. Our state has the teacher’s pensions constitutionally protected (for now). Our house and car are paid for. We pay all our bills in full each month. We have no debt. Our kids went to private colleges, which we paid for in real time, so we are behind on buildup of assets for retirement. If the pension holds, we hope to do fairly well for a while (3% annual inflation adjustment built in). With the mortgage paid off, we are accumulating cash every month. I want to convert some of the cash to silver or gold but she’s afraid of it losing value. She seems more comfortable losing the fiat dollar purchasing value every year rather than risking a precipitous drop in the value of silver or gold. Also, one of her concerns is that advertising for gold/silver is only heard on conservative radio shows and the hosts are pitching it. She feels this appears as a conflict of interest and wonders why we don’t see or hear gold/silver advertising in the mainstream media.

Bill Holter’s Answer:

This is a very common question and situation where spouses have differing opinions regarding “what to do.”  First, I congratulate you for living within your means and getting “life done” without going into debt.  I ask you a couple of questions, what does “Constitutionally protected” mean?  I assume it means that the funds are sequestered in some manner and the trust fund cannot be broken into and raided for other uses.  But, what do they consist of and what is the medium they are “guaranteed” to be paid with?  The answer is “dollars” and this is the problem, what will the dollars purchase when you need to spend them?  You say there is a 3% inflation adjustment built in, how will this protect you against 10% inflation and a 25-50% overnight devaluation?

As for silver, the “precipitous drop” has already happened or should I say “manufactured.”  So much so that silver is now trading well below the cost of production.  Currently the cost of production is close to $25 per ounce, this number will only increase with inflation as mining costs increase.  I think the best way to describe the situation is “you are risking dimes for dollars (many of them)” by not owning silver from these levels.  How will mines produce silver if each ounce they produce, produces a loss?  The price must go higher sooner or later or there will be no supply.

The end of your question is “touchy” to say the least, the Conservative vs. Liberal argument.  I would first say that Conservatives more closely want to follow the Constitution “strictly” and metal is clearly appointed as “money.”  I say “strictly” because in my opinion, Liberals are more apt to “interpret” the Constitution. “Main stream” media is no source whatsoever to get your news from.  From Fox to CNN to MSNBC, spectrum to spectrum of conservative to liberal views, they all miss the mark.  It is as if the “right and left” are the right and left hands of a magician which are used to fool you and obscure the reality.

My suggestion is to strike a deal with your wife where you move “part” of your liquidity into silver and gold to start.  This would only be “fair” as currently you are 100% her way entirely in dollars.  I would also suggest that you pick a single subject that is “conspiratorial” so to speak and the two of you research it thoroughly together.  There are now many which the official explanation cannot scientifically be true, the “truth” based in fact and logic may just open your wife’s eyes and make her more amenable to the math and logic that say gold and silver are money to “save” in where dollars are better used if spent.  I suggest you try to use logic but I know, sometimes logic doesn’t work either as I have family members who think I’m a wing nut!

Q:  It seems to me that every newsletter and advisor is missing what looks like “the elephant in the room”.  Isn’t our government (and others around the world) buying up huge quantities of stocks every day in order to prop up the markets?  We know about the “Plunge Protection Team”, but does anyone know just how much of the stock market is now owned by our government? 

Andy Hoffman’s Answer:

Two weeks ago, my audio blog was titled “The Biggest Pink Elephant Ever,” in reference to the massive stock market bubble created by unprecedented, and expanding Central bank monetary easing.  Of course, the even bigger pink elephant, as you suggest, is the fact that not only are ZIRP, QE and other money printing schemes – overt and covert – propping up markets, but so is the government itself.

In most cases, “PPT organizations” like the U.S.’ President’s Working Group on Financial Markets act secretly, but in some cases – as with the Bank of Japan – they actually tell the market what they’re doing.  To that end, just last week we learned that the BOJ is buying massive amounts of stock as we speak – explaining why the Nikkei has been on a tear whilst the Japanese economy implodes.

Better yet, we learned in June that Central banks, cumulatively, have acquired as much as $29 trillion of equities or roughly half the entire global market capitalization.  And thus, when people ask, “How is the market doing?” I have to laugh, as there is no longer such a thing as an equity (or fixed income) market.  That said, once every stock is bought, there’s nowhere to go but down – especially if Central bank interest rate suppression slows down one iota, or if PPT’s stop using printed money to take stocks ever higher.  Moreover, the more stock governments own, the more communist the world gets.

In other words, betting on stocks at historically nosebleed valuations – in the U.S., most metrics are pegged above the 2000 peak – appears to be a sucker’s bet.  Either by hyperinflation or crash, eventually the piper will have to be paid – with massive real losses.