I am going to bore you by waxing sentimental about how things have changed over the last 50 years…just a little. TV has changed, movies have changed and attitudes about everything from A to Z including what is right and wrong have changed. We live in a world where there is no “black and white anymore” (I am not speaking of skin color), everything is grey. Almost anything that is done or even thought about has to have “but this might offend some special interest” before it. The Pledge of Allegiance? Offensive. Displaying the American flag? Offensive. The word “God?” Offensive. And of course more and more courts are ruling that anything “offensive” to any special interest group cannot stand. Never mind the masses or the common sense and harmony of “live and let live,” if a tiny subset of society “might” have their feelings hurt…no can do. Forget about “laissez fare,” freedom of expression (except for the tiny subsets), truth, and justice or the American way…it’s all changed.
And so has our money since …1971. “Gold is no longer money” we are told. Never mind that foreigners not only still think so, they believe it more now than ever in the past as judged by their import appetites. What used to be considered “wildly over valued” is now “undervalued.” Back in the 1950’s when the U.S. government DID have all of the gold and DIDN’T have an unpayable debt burden…rates were higher than they are now. “Risk” was actually compensated for by lower price and higher interest rates. “Risk” or value today doesn’t even enter into the equation as far as I can tell.
Would you like an example? How about Facebook? This company sports a $150+ billion market capitalization a PE ratio of over 150 and a book value of only around $12 billion which mostly was accrued from their IPO proceeds. This puts them at the doorstep of the 20 largest companies in the U.S. and amongst the top 50 in the world by market capitalization! Really? If Facebook all of a sudden “went away” in a puff of smoke would the world really change that much the following day? Yes there would be “withdrawal symptoms” displayed by some but it wouldn’t be like flipping a light switch only to find that there is no more electricity. Or walking into your garage and out onto the street to find that all automobiles have vanished. How about global cell phone service going down and not coming back up? How would the world change the following day? But Facebook having a top 20 market cap? Is something like that with such a small tangible book value really so indispensable that it should be included in the top 20 companies…by “value?”
On the flip side of Facebook is the mining industry. I say “flipside” because Facebook is something that is perceived to be indispensable yet isn’t and the mining industry is viewed to have zero necessity at all but actually will be seen as the foundation to the global financial system after the great unwind. The market caps of the entire global precious metals mining industry is roughly $300 billion or double that of the single company Facebook.
Have you ever seen a gold or silver mine before? I’m sure that you have…in pictures on the internet but to see just one single mine operation in person is a different experience. The amount of land, equipment, labor and thus the capital required to pull ounces out of the ground… the enormity, is awe inspiring! Just one single mine operation, and many companies have several mines worldwide so you would need to multiply the “awe” several times for just that one company and then many more times for the total # of companies. When you add all of these together you get a whopping “$300 billion?”
Think about $300 billion for a moment, what does it equate with and compared to what? Well, how about “QE” pre taper? 3 ½ months worth of Fed “pumping?” Or “our” deficit? Roughly 3-4 months time? Or maybe 7 or 8 months of our current account deficit? Do you remember TARP and how that was rammed through Congress? That was $700 billion…with the stroke of a pen (and some arm twisting)…and presto it “existed” at over double what all mines added together are now worth. We could of course talk about the $17 trillion that the Fed conjured up out of thin air and “secretly” (for over 1 year) had also lent out in late 2008 “to save the system”…this is a little over the top but that little escapade was nearly 60 times larger than the “value” of the global mining industry!
“Who cares? You’re an idiot Holter and comparing apples to oranges…and besides gold and silver aren’t money and are meaningless anyway…so the mining industry is lucky to have ANY market cap value at all!” (It’s OK, I figured I would jump the gun and print what many would like to comment or at least thought of before the comments came rolling in). The point is this, gold and silver are money, and they have always been money. What people perceive to be “money” today has been proven many many times throughout history to have been valueless? Fiat (unbacked) paper money has been “promoted” over the last 40+ years to actually “be” money and to have value on its own…this is the “perception” which is what counts at any given time…but when all is said and done, “perception” is just that and the reality is what will count.
When the global and systemic Ponzi scheme(s) in anything and everything financial does finally unwind the “perception” will change and the reality that gold and silver actually are money will become apparent. It is at this point that the global mining industry will again be perceived as “important,” actually a necessity! While mining is considered a joke or a sideshow right now, an economy cannot perform or sustain without “money.” When the current freely created “monies” blow up, and they will, the “production” of real money will come into fashion again.
Many of you do not know that 100+ years ago the mining industry was considered like a utility that was a suitable investment for widows and orphans. They were like banks that truly stood on a solid foundation and paid stable dividends. Even for those who do not believe in mining but do understand gold and silver as money…someone, somewhere must “create” money supply in the future and that would be the world’s mines. Please remember what JP Morgan and Mayer Rothschild said, “Gold is money, everything else is credit” and “give me control over a country’s money supply and I care not who its ruler is” respectively. They were correct when they made these statements and are still correct to this day. From my point of view, perceptions change with time but they do not change the fundamental realities. The “realities” after all when all is said and done are what will count… while the “perceptions” at any given time will be forgotten or at best reside books.