 |
Jay's Portfolio As of March 31, 2010 |
|
|
Jay's Portfolio As of March 31, 2010 |
|
I am still in “Don’t just do something; sit there” mode. It has been relaxing. I’m allocated the way I want to be, so I’m just watching the show and spending more time thinking about more important things. I’m taking advantage of the permanent portfolio concept which protects against both inflation and deflation. Since we entered the new millennium, the asset class in the strongest secular bull market has been commodities. My experts are estimating another five to ten years for this secular bull to last. I would love to be invested in a much wider range of commodities, especially agricultural products, but to date I have not found a safe and efficient way to do so (explained in my December 2009 portfolio update). So I have been content to hold the majority of my inflation protection assets in gold and silver (44.3%), along with my directly owned oil and gas producing properties (10.0%). Ironically, gold and silver have served throughout human history as a store of wealth, and as a form of cash. Therefore they are currently serving as protection against both inflation and deflation. Don’t misinterpret this statement. Someday, gold and silver will very likely be the next bubble asset class, just as they were in 1980. But that event is not even in sight now. The average person is hardly even aware of them, and even less invested in them. The crowd has hardly begun to migrate into this asset class. I expect gold to trade at $2,000 to $5,000 and silver well above $100 before I will need to think about significantly changing my allocations. Which brings me to the subject I consider important today. Silver revisited I think it’s time to discuss my (our) investment in silver. The last in-depth discussion was in Letter 8, November 11, 2007. I urge you to re-read that letter. Much of it is still good background for this discussion. On that date, silver was trading at about $15.50. It closed last week at 17.87. That’s only a 15% increase in two and a half years, you might be thinking. True. But in spite of that, silver has approximately equaled gold’s performance for the full length of this secular bull market. At its high of $21.50 in 2008, silver had risen 4.3 times its January 1, 2000 price. At its high of $1,225 in 2009, gold had risen 4.3 times its January 1, 2000 price. Silver manipulation reported But all during this past decade, and possibly for several years prior to that, there has apparently been another force at work which has kept the price of silver from maintaining its traditional ratio to the price of gold. For centuries, the price of gold ranged from 16 to 25 times the price of silver. Then in the 1940s and again in the 1980s, the gold/silver ratio rose to over 100. During this current bull market (1-1-2000 to the present), the ratio has fluctuated from 45 to 85, averaging around 60. With estimated world above-ground supply of gold at 2 billion ounces, and silver at 1 billion ounces (and declining due to industrial usage exceeding new mining production), why would the gold/silver ratio be four times higher than its historic ratio? There may be more than one answer to this question, but very recent events suggest that a major part of the answer may be due to illegal manipulation of the silver market by one or two large, well-capitalized trading firms. Ted Butler, a former commodity trader and expert on the commodity markets, has devoted a substantial part of his life to analyzing the silver market. I have followed his work for the last ten years, and I have more confidence in him than any other silver expert I know of. For over twenty years, Ted has been furnishing evidence of manipulation of the silver market to the CFTC, asking them to investigate what he believes to be clear violations of commodity law. Nothing much came of his efforts until about a year or so ago, when several new members were added to the senior staff of the Commodities Futures Trading Commission (CFTC), including a new Chairman, Gary Gensler. As Ted Butler reported recently, for the first time in 25 years, he was invited by the agency to answer questions and present his views to senior staff. This was in connection with a public hearing held by the agency on March 25, 2010. Ted has reported that he is very encouraged that finally someone is listening to all the evidence and information he has presented over the years. Silver manipulation confirmed Although the March 25th CFTC meeting was very special, it was not covered by mainstream news. At the meeting, Chairman Gensler and Commissioner Bart Chilton expressed deep concern about two things: (1) concentrated short positions in the gold and silver futures markets and (2) the effect that position limits would have on these markets. During the public hearing, Bill Murphy of the Gold Antitrust Action Group ( GATA) reviewed the manipulation presented by GATA for 11 years (see Bill Murphy of GATA Explains Gold Price Suppression to the CFTC), and he also brought forward clear evidence of manipulation as presented by Mr. Andrew Mcguire, a floor trader on the London Bullion Market. (See Bill Murphy of GATA Reveals Whistle-Blower in Gold Price Suppression.) This wasn't the only bombshell. A manipulation denier, Jeffrey Christian, let it slip that 99% of the "gold" sold on the LBMA does not actually exist. It's paper backed by paper, or naked short selling. (You can watch his testimony and the related discussion, Adrian Douglas exposes LBMA OTC Gold Market as a Ponzi scheme, and also listen to GATA Roundtable Meeting About the CFTC Meeting.) GATA had been claiming that such illegal short selling was occurring, but they had not claimed such a large figure. Now it's official, and all professional commodity traders around the world know that the game of musical chairs probably has only one chair for every 100 participants. Unusual whistle blowing incident The story of Andrew Mcguire is quite interesting. To listen to his March 30th interview with King World News, click here: Andrew Maguire & Adrian Douglas Discuss What Could Be the Largest Fraud in History). To my knowledge, this news story has not found its way into the mainstream media, but is all over the internet. Some people say that it is due to "national security" reasons. Andrew could have continued making some good profits due to his knowledge of how the manipulation works, but his conscience began to bother him after the price was taken down from $21 to under $9 in only a few weeks. He contacted Ted Butler to discuss the situation and wrote the CFTC. On February 3rd, he told the CFTC of a coming manipulation on February 5th. When it was happening, he captured screen shots as evidence and then walked them through it step by step, since some of the commissioners didn't seem to understand exactly how it worked. However, he was disappointed that the CFTC would not allow him to testify at the March 25th hearing, so he then worked with GATA to bring the story public at the CFTC meeting through Bill Murphy. (See Bill Murphy of GATA Reveals Whistle-Blower in Gold Price Suppression.) Andrew Mcguire has put his life in danger. On March 26th, while out shopping with his wife, Mr. Maguire's car was hit by a car coming quickly out of a side road. The driver of the car then tried to escape, but he was arrested by the police after police helicopters were used following a high speed chase. Andrew and his wife were hospitalized with minor injuries and discharged from hospital. What next? On March 28, Ted Butler wrote about the CFTC public hearing and his own private meeting with senior CFTC staff. He said that Andrew Maguire's whistle blowing has the potential to set off a silver explosion, but the question has always been when, not if. He recommends that all investors take note of this development and not delay in fully allocating in silver. In no way do I set myself up as an expert on silver. I merely share with you the conclusions I have reached, and you may do with them as you wish. In a word, I still consider silver the most undervalued real asset on earth of which I am aware. It has been a store of wealth for all of human history, is no one else’s liability, is not confined to one location, is very limited in supply, and cannot be created on a printing press. Until its ratio to gold corrects closer to its historic level, I will consider it outstanding value, and want it to have a significant allocation in my portfolio. I finally learned what Richard Russell has often said, “The market always does what it is supposed to, but never when.” I interpret this to mean that over the long term the free market will value any asset based on its true supply-demand dynamics, but not necessarily in the short term, and no one knows what the short term will be in any given market climate. I do not know when the market will fairly value silver. I simply believe that it will, and I think Ted Butler said it best. Note also, that when the prices of gold and silver are allowed to float naturally, fiat currencies (including the USD) will probably be heading in the opposite direction, so plan accordingly. Should I add to my silver? I have no way of knowing what is best for any investor because there are a multitude of circumstances which must be considered. I can only speak for myself. If I were not fully allocated to silver at this time, I would become so immediately. Most important is physical silver (coins or bars) held in one's possession. If I wanted to add silver to a retirement plan (e.g. IRA or 401-K), there is only one way of doing it which I consider safe, and that is with Silver Bullion Trust (SVRZF), which also happens to be very fairly priced now at near net asset value. I personally also want to own a speculative position in silver. My favorite is Silver Standard Resources (SSRI). I want it to be at least 5% of my total portfolio. I also very much like Silver Wheaton (SLW). I want at least 3.5% in it. I have an overall limit of 15% (cost) for all my mining shares. I also hold about a 1% in long term calls on SSRI (previously discussed). Further study If you want to investigate this issue on your own there is much information available on the internet. I think you will find it an interesting study. Some good links to start with are listed below.
Final Thoughts for the Month But evil men and imposters will grow worse and worse, deceiving and being deceived. (2 Timothy 3:13 NKJV) A
prudent man foresees evil and hides himself, (Proverbs
22:3 NKJV)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
| Jay's Recent Portfolios | Jay's Working Hypothesis | Jay's Recent Transactions | Letters from Jay |
| Jay's Simple Investing Rules | Jay's Investment Model | Apply for regular e-mail updates |
| Money, Finance and Investing | Some other helpful information | Feedback |
| Biblical Economics - what most people don't know the Bible teaches about economics |
| All I Have Commanded - an exhaustive list of what Jesus expects of His followers |
|
|
|
WORDS WE HOPE TO
HEAR ONE DAY |
| WORDS
ABOUT INVESTING If you have not been faithful in the unrighteous mammon, who will commit to your trust to true riches?" (Lk. 16:11 NKJV) |
|
WORDS OF WARNING |
| TERMS
OF USE This information is public domain. Jesus said, "Freely you have received, so freely give." (Matthew 10:8b) |
|
DISCLAIMER |
|
|
| This web page was last updated on 03 June 2010 . |
Comments