Category Archives: Financial Education

15 Money Tips for Tough Times

Here are some very useful financial tips by:

Dana Dratch from Bankrate.com
Monday, February 11, 2008

Granted it is slightly more geared towards Americans, but I think most of the tips are universally applicable. Please pay some respect to the author and checkout her other useful articles at bankrate.com

–begin quote–

1. Eliminate the nonessentials. One way to avoid putting spending on automatic pilot: Write down everything you buy and the price. Then go through the list and “be brutal,” says Nancy Register, associate director for the Consumer Federation of America<. Ric Edelman, Certified Financial Planner and author of "The Truth About Money," agrees. "You need to make sure you're not spending any money that doesn't absolutely, positively need to be spent," he says. "A lot of people are spending money frivolously on wants they consider needs." If you have kids, "It's a great time to explain wants versus needs," says Linda Sherry, director of national priorities for Consumer Action. 2. Start a go-to fund for emergencies. The average family will face up to $2,000 a year in unexpected bills, says Register. For families already stretching to pay the bills, those surprises can trigger long-term financial problems. While you can’t plan what or when, you can have money set aside just in case.

“You need to really boost your cash reserves,” says Edelman.

His recommendation? Aim for one year’s living expenses in an assortment of liquid vehicles, like a bank account, money market account and short-term CDs.

One way to kick-start that fund: Shave off 10 percent of your take-home pay every time you get a check, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

Keep it liquid and make saving automatic. Look for a money market account that pays the highest rate you can find, says Register. Want to make sure you’re consistent? Arrange to have the money deposited electronically.

Deposit any “extra” money you receive, like that birthday check, bonus, tax refund or raise.

3. Consider cutting back (rather than cutting out) some expenses. Depending on your current situation and concerns, it might make more sense to just scale back.

“It’s much more effective if people cut back rather than cut out,” says Cunningham, “because it’s the change in behavior that’s so tough.”

Examine services you’re paying for and not fully using, like the cell phone plan with unlimited texting or the premium cable package. Are there less expensive options that would make you just as happy? Would bundling (buying several services from the same provider) save money?

Make it a family discussion, says Cunningham. “That way, everyone is pulling in the same direction.”

4. Safeguard your current job. Remain engaged and enthusiastic, keep a high profile and network, network, network.

Make yourself visible “as someone who wants to be part of the team,” says Martin Yate, executive employment coach and author of “Knock ‘Em Dead 2008: The Ultimate Job Search Guide.”

Three keys to making yourself invaluable: First, analyze how much you save or produce for the company. And don’t be afraid to let higher-ups know what a key role you’re playing in company success.

Second, stay current with the latest developments, continuing education and technology in your field.

Third, participate in at least one local professional organization. Not only will the connections help you in your current job, they can also make securing the next one much easier.

“It immediately gives you a relative, professional network for your search,” says Yate.

5. Be on the lookout for your next job. Just like a corporation, you have to ensure your own financial survival, says Yate. If you believe that your company or job is in jeopardy, update that resume, reach out to your network, hit the job boards (anonymously) and ignite your job search.

6. Keep your debt load light. Use credit only if you are paying off balances in full every month. Otherwise, switch to cash, checks or debit cards, says Cunningham. “That way when the money’s gone, the spending stops.”

7. Barring a complete personal financial meltdown, continue funding your retirement. “Retirement is going to come,” says Edelman. “You need to be ready for it.”

8. Swap extraneous spending for smart long-term moves. You can live another month without a new DVD player, but servicing your car or home heating system could net you a nice savings through fuel efficiency and keep you from having to shell out for expensive repairs later.

9. Investigate refinancing. If your credit is good and you’re planning to stay in your house for a few more years, refinancing could be a smart move.

Prime rate loans are the lowest they’ve been in two years, so investigate if a refinance could save you money every month, says Edelman.

Do the math and analyze what it could save you.

10. Re-examine your insurance. You don’t want to be underinsured or overinsured. The key is to have enough to cover you at the best rate you can find. Shop your policies, set your deductibles at the highest amount that you can comfortably pay out of pocket and make sure you’re getting credit for everything appropriate, like having car alarms, air bags and a good driving record, says Cunningham.

11. Adjust your withholding allowance. “The average refund is well over $2,000,” says Cunningham. And most people “could use an extra $200 every month,” she says.

The goal: Pay exactly what you owe. You can use the withholdings calculator at IRS.gov to determine what your withholding amounts should be. Then make the correction with your employer.

“You can do that at any time of year,” says Cunningham.

12. Reward yourself. Hold out a little discretionary money that you can use for fun.

If you have an unexpected windfall, like a raise, bonus or tax refund, “Treat yourself with some small part and save the rest,” says Cunningham.

Another trick for monthly family treats: At the end of the day everyone in the household puts their pocket change in a big jar. Says Cunningham, “At the end of the month, you’ll have $20 or $30, and you’ll never miss the money.”

And if things get really bad …

13. Ask for an extension on your car loan. “Typically, they will do this once or twice a year,” says Cunningham.

How it works: Instead of making your regular payment this month, the lender would tack an extra month onto the end of your loan period. But you won’t get off with a zero payment this month, warns Cunningham. You still have to cover the interest.

14. Get an extension on the mortgage. Some home lenders will let you do something similar for your mortgage, says Cunningham. The downside is, while it will help you if you’re trying to make up for a short-term problem, (like a large, unexpected bill), it’s not effective if you’ve got a long-running situation, like regular medical bills, a resetting interest rate you can’t handle or a long stretch of unemployment.

To work out such a deal, contact the loss mitigation unit in the mortgage department of the company servicing your loan, says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. Other typical department tags: home preservation or foreclosure avoidance.

15. Talk to a mortgage counselor. Just as you can get debt counseling help, you also can get mortgage counseling. What to look for: a nonprofit service with counselors who are HUD-certified.

They can examine your situation and offer some options like renegotiating your mortgage or getting a rate freeze on your loan that will help you keep your home. They can also negotiate with your lender on your behalf. You can search for counselors on the HUD Web site or call the Department of Housing and Urban Development at (800) 569-4287.

However, not all counselors can be trusted. “Beware of foreclosure rescue companies or organizations that bill themselves as counseling organizations” but are for-profit, says Fishbein.

There is actually some good news for homeowners as a result of the lending crisis, says Fishbein. If you’re willing to be pretty candid about your situation, “there may be more options” available than you realize, he says. “Lenders are doing things they traditionally haven’t done to keep people in their homes.”

–end quote–

Attention Canadians – RRSP mistake that costs you dearly

Each year Canadians rush in droves to their financial institutions to top up their RRSPs (registered retirement savings plans) before the official February deadline comes, and by doing so many of them don’t realize that this practice could end up costing them dearly. How so, you may wonder. Well, no doubt opinions differ on the best way to save up for your retirement, but one thing seems evidently clear to me and to many experts in this field (not that I’m one of them), and this is that making the maximum contribution as early as you can is almost always the best way to go.

The majority of people fail to do this though, and instead they rush to their financial institutions in the last few days before the February deadline. This is a big mistake, and if you’re guilty of making it I may suggest that you consider the merits of topping up your RRSP account as early as possible. You don’t have to come up with the lump sum all at once, but try to at least contribute on a regular basis as much as you can; after all, you’re worth it, so pay yourself first!

One good strategy is to evenly space out your contributions in such a way so as to reach the maximum contribution size well before the February deadline.

As Gordon Powers from MSN Finance puts it:

When you invest this way (waiting till the last moment), you’re always playing catch up, effectively remaining one year behind in receiving those tax refunds, and subsequently getting a lower overall return on a lower RRSP balance.

That’s why contributing to your RRSP year round makes so much sense. For starters, you aren’t faced with the problem of coming up with a large lump sum right before the deadline. More importantly, regular contributions force you to save, to “pay yourself first” — something that most of us have a hard time doing.

Now get back to work! What do you think you are, retired already!? :)

Silver Stock Report – Hang in there!

Silver Stock Report

by Jason Hommel, January 24, 2008

We feel so fortunate to be sitting on exploration, development and mining stocks that have recently lost only about 35%. Yes, some lost more, but that’s about our recent average. Besides, I find it difficult to complain about a 35% dip, after having made about 1000% over the last few years, and especially not while I see those kinds of gains ahead, too.

Many of our stocks have forward P/E ratios of around 1 or 2. These are the kinds of opportunities that you typically cannot find, anywhere in history.

I have not read too much lately about the Dow to gold ratio, so I’d like to revisit the topic, to show how good we are sitting. Historically, the Dow to gold ratio returns to close to a one to one ratio when stocks bottom, and when gold tops out. When stocks bottom out, their P/E ratios, on average, are about 7. That’s the bottom for stocks.

To buy stocks with forward-looking P/E ratios less than that, like we can in the mining industry, seems an unprecedented gift. So, why do we have this gift opportunity, and how much longer will it last to be able to take advantage of it?

I think we are so fortunate because most money in the world is “dumb money” run by investors who try to invest using the methods of communists. In other words, they pool their money together with other dumb investors, and sink or swim as a group, rather than doing the real work that the hardest and best job in the world requires in the most competitive arena in the world, the capital markets.

You see, big money is often concentrated in funds. The funds have “mandates” to invest in “sectors”. These funds may have $100 million or more which is “required” to be invested in certain stocks. But when investors in these funds get skittish, they then sell their fund, and ask for redemptions, or with-drawls. But the investors know nothing about actual stock value, know nothing about stock spreads, know nothing about liquidity, and know nothing about patience, and may know nothing about the true bull market in commodities.

So, when a $100 million dollar fund gets a request to redeem $20 million, the entire fund can drop to $60-70 million in value as they sell stocks to raise the $20 million in cash, as the selling can push stock values ridiculously lower. This process can then cause further redemptions, further selling, and further panic among the short-sighted.

Meanwhile, as the masses exit the funds, there might only be about 3-5 individual investors (and one of those might be a fund) who are actually bidding on some of the tiny market cap mining and exploration stocks right now, all trying to “call the bottom”, all within about 5-10% of each other. So it hardly matters whether you call the exact bottom within about 5-10%; because if you do, you’re just getting lucky, and can hardly get your orders filled at the bottom anyway.

So, how long can it last, this opportunity to buy stocks with P/E ratios of about 1? Well, this means they can earn their entire market cap in about a year. Some of these stocks can get into production within 6-12 months. Therefore, in about 1-2 years, most of these stocks should see a rise of about 50% to 100%, minimum. After that, the big dumb funds will get jealous of our gains, and will try to re-enter the industry, and will probably push up the stocks to the point where we will see gains of from 200 to 300% in the next 1-3 years or so, as the forward P/E ratios return to the 5-7 range, which will still be “the bottom”. Thus, there is a chance that we could see far greater returns in some of our stocks, in the event that P/E ratios hit a norm of 15-20 for the mining industry, and this could well happen as the commodity boom resumes.

Is there a danger of a depression like in 1929 that could derail this commodity boom? I don’t think that’s likely. I think the great depression was largely a result of trade wars and embargos. So unless trade with China is halted, or unless there is a sudden 50% tariff on imports from China, I think we are in the clear for great gains in the mining industry.

Furthermore, China has something going for it not frequently mentioned; they earn twice what we think as they trade with us. For every $1 that they earn from us, they seem to issue $1.18 worth of Yuan currency to their people, as Yuan currency creation is running at 18%. But the $1 is kept by the Chinese central bank, which then may be invested, too. So, they get two dollars for the price of one; “Yuan” to spend domestically, and the other dollar to spend buying bonds, or foreign commodities! This kind of artificial inflation is causing their economy to really boom, and can make up for a lot of leftover, uneconomic, Communistic legacies, and cause a bunch of new economic misallocations as well.

The worst kind of Communism here in the U.S. might be said to be the Public State pension funds. This money is managed in huge pools, such as CalPERS, which is the California State pension fund, which is about $260 billion. http://www.calpers.ca.gov/eip-docs/about/facts/investme.pdf

With so much money managed by so few people, it cannot be managed wisely at all. I would be surprised if they owned even a single ounce of silver, and they could hardly invest a meaningful 5% of their fund into silver, as that would be $13 billion dollars. That would be nearly a billion ounces of silver, and current annual silver investment demand (the so-called “surplus”) is only about 50 million ounces, not a billion, which is 1000 million.

Clearly, these state money managers, running state pension funds, must have gone to state schools, which is why they probably can’t do basic math, nor comprehand the implications. The teachers are not teaching the students well enough to provide for their own retirement, but it probably serves them right, as they are all Socialists. Yes, I suppose I’m calling them “inbred” society folk, but what else can explain their institutional idiocracy, and lack of basic thinking skills? Interestingly, the Federally funded colleges don’t teach anyone anything at all about gold other than lies, which compounds their ignorance of investing basics.

Is there a risk of a currency deflation? Not likely. For a deflation to happen, currency would have to be destroyed. That could only happen if individual banks were allowed to go bankrupt and be liquidated. That doesn’t happen much anymore; instead, the big bankrupt banks buy up the little bankrupt banks, and keep their customers.

Besides, the FDIC insurance would pay off depositors anyway, which would prevent any currency deflation.

Yes, we have deflation in the dollar price of common stocks, and housing, and bonds; the three major asset classes, all at once. But for them to go down, something else must go up, and that something else cannot be the currency when it is being inflated at about a rate of 15% per year. The only other major asset class is precious metals, thus precious metals must go up; along with the mining stocks.

It would be kind of exciting to actually see a major bankruptcy of a major institution that was not bailed out, in which case we might see infighting among the banks, and be more likely to see their houses fall even harder against gold and silver.

But then again, it would be better for the bull market in gold and silver to take place more slowly, perhaps over 15 years or so, so that the holders of gold and silver can take the time to learn the necessary political and business skills needed to run the world.

I have 2 major resources on mining stocks to offer to you.

First, look at www.miningpedia.com It is a FREE comprehensive database of mining stocks. Anyone can update or enter data, it’s like wikipedia.com. Miningpedia has replaced the “silver stock report” in that it is doing the legwork on individual stock analysis that I used to do manually. This frees me up to do what I like best, which is to write commentary. My commentary retains the name, “Silver Stock Report”, but for individual stocks, please see miningpedia.com.

How to Spot a Forex Scam

Start researching Forex and you’re likely to see several ads proclaiming ridiculous guarantees such as “2,000 pips a Day!” or “400% Profits in 3 Days!!” Before you quit your day job and start trading Forex fulltime because of these outlandish claims, let’s evaluate how to spot a Forex scam.

Unfortunately, many people associate Forex trading with scams, and perhaps for good reason. The number of unscrupulous companies has been increasing. The number of Forex-related scams has increased abruptly over the last few years, and it is important for you to be able to identify a hoax.

Currency trading is an exciting and potentially profitable investment option, but as with anything involving money, there are people out there who will rob you blind if you don’t know what you’re doing. Let’s take a closer look at Forex scams, so you are properly equipped to spot one.

Understand Genuine Forex Operations

So, where are Forex scams likely to occur? Advertisements for scams can often be spotted in online pop-ups, newspaper advertisements, and the classified sections of financial magazines. How do you weed out the good from the bad?

A first step is to learn how legitimate Forex trading is conducted. Generally, Forex traders can place orders through an exchange or board of trade, a bank, insurance company, registered securities broker/dealer, or other financial institution.

This means that you should search out these types of institutions in order to trade currency. It also means that many scammers will masquerade as one of these types of companies in order to trick you. So where can you turn for help? Is there anyone out there tracking down and punishing these evil-doers? Never fear, the CFTC is here to help you.

Meet A powerful Ally – The CFTC

Even though Jack Bauer doesn’t work there (that’s CTU), the CFTC or Commodity Futures Trading Commission is a great source of information for Forex scams. They have been working tirelessly to crack down on the number of scams, and while it has taken longer than 24 hours, their efforts have produced solid results which Forex traders can utilize.

In the United States, the CFTC has federally mandated authority and jurisdiction to investigate and take legal action when appropriate against corrupt Forex brokers. Additionally, they have the ability to prosecute any firm registered with the CFTC if the firm’s actions violate any CRTC-mandated rules.

The CFTC was empowered in December 2006 with the passing of the Commodity Futures Modernization Act. Their efforts have centered on educating potential Forex traders about currency trading’s best practices as well as keeping tabs on the people who offer Forex services.

CFTC Guidelines

The CFTC has issued several reports concerning the offering and trading of foreign currency futures and options contracts. Some of the main points of advice from the advisory are the following:

  1. Stay Away From Opportunities That Sound Too Good to Be True
  2. Avoid Any Company that Predicts or Guarantees Large Profits
  3. Stay Away From Companies That Promise Little or No Financial Risk
  4. Don’t Trade on Margin Unless You Understand What It Means
  5. Question Firms That Claim To Trade in the “Interbank Market”
  6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
  7. Currency Scams Often Target Members of Ethnic Minorities
  8. Be Sure You Get the Company’s Performance Track Record
  9. Don’t Deal With Anyone Who Won’t Give You Their Background

Additionally, the CFTC warns to be careful of unsolicited phone calls about “can’t miss” investments from offshore salespersons or companies that don’t sound familiar.

The following are some of the steps prescribed to identify a potential scam by the CFTC, and we encourage you to follow them:

  • Contact the CFTC.
  • Visit the CFTC’s forex fraud Web page.
  • Contact the National Futures Association to see whether the company is registered with the CFTC or is a member of the National Futures Association (NFA). You can do this easily by calling the NFA or by checking the NFA’s registration and membership information on its Web site. While registration may not be required, you might want to confirm the status and disciplinary record of a particular company or salesperson.
  • Get all information about the company and verify that data, if possible. If you can, check the company’s materials with someone whose financial advice you trust.
  • Learn all possible information about fees charged, and the basis for each of these charges.
  • If in doubt, don’t invest. If you can’t get solid information about the company, the salesperson, and the investment, you may not want to risk your money.

No Free Lunch

One of the basic principles of economics is the concept that there is no such thing as a free lunch. This concept is for the most part true (soup kitchens excluded) and particularly applies to any type of investing, especially Forex trading.

If a Forex claim seems too good to be true and a broker is seemingly giving money away, then don’t invest. This doesn’t mean you shouldn’t try to find low commissions or low bid/ask spreads, but remember there is no invincible Forex formula or brokerage which will enable you to instantly make huge amounts of money trading currency.

Never Stop Learning

The only foolproof method to avoiding currency scams and to become a successful Forex trader is to gain as good an education as possible. The more you learn about Forex trading in general, the easier it will be to spot currency trading scams.

For example, what would happen if on your way into your favorite electronics store, someone stopped you and said not to buy that Plasma which you’ve been saving all year for, because they could guarantee you a better television at half the price? They explain all you have to do is give them $1000 in cash and they’ll present you with the TV.

Would this get your attention? Of course. Would this be a good idea? Not unless you want to wave goodbye to one thousand hard-earned dollars. How do you know? You’re a well-informed and responsible consumer with years of purchasing experience. In order to identify Forex scams you must also become a well-informed and responsible Forex investor.

Some good places to enhance your Forex scam-spotting abilities are:

Do Your Homework

A crucial part of any education – and the primary source of agony for kids over the age of 5 – is homework. But before you take anyone up on an offer or enlist the services of an enticing broker, do your homework. Thoroughly research all aspects of the action you’re about to take, and don’t act until you are absolutely certain the offer is legit.

Questions and Answers to Jason Hommel’s Silver Stock Report

Silver Bars and Coin

by Jason Hommel, January 10, 2008

I received a lot of questions in response to yesterday’s report on silver:

Silver Keeping Pace with Gold; Set to Outpace Gold
http://silverstockreport.com/2008/silver_pace.html

Question:
Where can I get silver, and what kind?
–asked by about 10-15 people.

Answer:
Coin Shops
A Brief Guide to Buying Silver:
What kind of silver, and where to get it.
http://find-your-local-coin-shop.com/

*Alan interpolates* – I might add that another good way to own silver is in the form of e-currencies such as Phoenix Dollar, Goldmoney (despite the name it offers silver as well), and also maybe e-gold‘s silver offer as well. Incidentally Phoenix Dollar also sells silver coins and bullion bars.

Question:
What kind of silver do you like best?

Answer:
I prefer 100 oz. bars, because they are easiest for me to count, and stack. But really, just get the most silver for the least money. About $.50 over spot is an excellent price, but in a fast rising market that is moving $.50/day, about $1 over spot may be more realistic.
Question:
Please refresh us soon on your advice for whether to hold silver wealth in the metal itself versus stocks, particularly the better prospector silver stocks.
–J.P.

Answer: I hold about 25% of my net worth in the form of physical silver. About 60% is in various mineral exploration stocks, ranging from silver, to copper, zinc, gold, and uranium. About 15% is in real estate. I’m aiming to double my physical holdings of silver before silver prices get too high.

Although I would like to sell some stocks for silver, and that is my plan, it’s not so attractive at these prices, because the stocks are so cheap.
Question:
Jason,
Just a quick little comment on your calculations for the $6120 price of au. It’s just a small correction and I’m probably wrong anyway. But, doesn’t your calculation assume that the quantity of au is the same today as it was
in 1980? The growth of M3 has to take into effect the growth in the quantity of au mined since 1980 doesn’t it?
–K.L.

Answer:
I sincerely believe that the growth in the quantity of gold does not matter. Why not? Because the rate of growth of gold is less than 2%, and the rate of population growth is also about 2%.

This same question can also be asked with regard to the “increased size” of the economy. No, you don’t need “more money” with a larger economy. A larger economy should merely drive up the value of a limited quantity of gold. Or, in other words, a larger economy is generally more efficient and productive, and the prices of items, in terms of gold, should be going down, which should be called “deflation”, which should be a good thing for savers, and was typical under the gold standard.
–Jason
Question:
Ordinarily and usually we use to agree with your writings. It can be said that many things you have said are true.
Yet in our country we can’t have it both ways. What is meant by that is you simply cannot tell people to buy silver and think they will get rich while confiscation laws have not only been written they exist in the Acts of the congress and signed by the chief executive.

Want citations and proof, read the Patriot Acts. This person has the information as the section was kindly pointed out by others and sure enough – its in black and white. We just don’t agree with your assessments. You create a target of yourself if you tell the world about how much silver you have since you pointedly do that in you writings Jason. For us – no, Silver is not going to make you rich, your friends in Washington are gonna knock on your door when the ratios you suggest come true. Silver will be deemed an important strategic metal by then – since you point out — that 2 billion ounces no longer exist. At least that is our opinion.

This link talks about the danger of confiscation:
http://news.goldseek.com/GoldSeek/1196605589.php

Answer:
The Patriot Acts, and Executive orders, are pre-written laws that say they can take anything and everything you own; whether cars, houses, clothes, and even your body to put you to a work camp like Hitler did.

There is not enough silver for them to confiscate to make a difference to the government budget deficit. Even if we assume there is 1 billion ounces of silver left in the U.S, which is doubtful there is that much, it’s not enough to make a difference to the government. But it can make a big difference in your life, if you have some of it.

Silver would have to be $1,000/oz. to help out the government. Do the math. The annual budget is in the trillions. That’s 1000 billion. Thus, there would have to actually BE 1 billion ounces, and the government would have to get all of it, to make any difference, and it would only help for 1 year.

The confiscation of gold in the 1930’s was more like a recall, as they do with defective cars. Just as you bring your car to the dealer to get it fixed, they paid you dollars to bring gold to the banks. There were no searches or prosecutions.

The amount of gold actually “confiscated” was far less than 1% of the public’s gold. The same benefit to the government could have resulted if they revalued gold to something like $35.25/oz. instead of $35/oz.
Question:
Dear Jason,
I am a long-time silver investor and have been interested in your Silver Stock Report. What are your thoughts about buying silver on the Comex and allowing them to store the physical.

The one problem I find with silver ownership is the physical storage issues. The Comex will store my silver for about $17. per year per contract (including insurance). Thanks Gordon.

Answer: Don’t store your silver with anyone else; and especially not with the largest banks and brokerage houses, which admit that they practice fractional reserve silver holding for clients as a standard business practice. They admitted to charging storage fees for holding non-existent silver!

And if ever they did confiscate silver, I would assume it would be the easiest for them to take it from the public stockpiles, such as at COMEX, or the ETF, or they would raid institutions that pledge to hold silver for clients, such as at kitco, or Brinks.

Remember that the entire purpose of owning precious metal is that it is hard to confiscate, because you can easily hide it. Precious metals prevent government confiscation through inflation, which is running at about 10-15% right now. Even in the “worst” confiscation of all, the 1930’s, they got less than 1% of the people’s gold, and never even touched the silver.

I think your silver will be plenty safe if you get a large gun safe, and bolt it to your garage floor. If you are paranoid, then build a wooden cabinet around it, and put a tiny $10 lock on the outside. People will assume you are “protecting your rakes and shovels, nuts and bolts, or tools”.

So, I’m generally against buying silver in the ETF’s.
Information seeking Question: Any idea on where to get charts of M3 in other currencies, or charts on the Euro gold price, or charts of inflation adjusted copper prices?

Answer: There are hundreds of great charts at sharelynx.com, but it’s now a pay site. But very worth it.
–Jason

Confrontational Question: A very interesting story. However, the simple fact is that gold was “fixed” by Roosevelt in the early 1930’s at $35.00 per oz when silver was at $1.29 per oz. That ratio is 27.132, say 27 to 1.

Therefore, silver should be 890 divided by 27 or $32.92. you don’t need to go into inflation calculations to figure where silver should be. So, by a long stretch silver was a bad investment for the long run if you bought it back then or when Americans were once again allowed to buy gold in the 1970’s.

What say you? Regards, E.B.

Answer:
Yes, and as we know, price fixing does not work.

That former fixed price of 27:1 is also based on two things that I did mention in my article.

1. The demonetization of silver started about 60 years before 1930, which created a glut of silver back then.

2. That was also long before silver was used up in electronics, which created the current scarcity of silver.

But I’m not advocating taking the action of going back in time to buy silver back then.

I’m saying to buy silver today, when the ratio is even better now for silver buyers at 56:1.

I started saying this in 2000, when the ratio was between about 70-80:1. Look at my archive:
http://silverstockreport.com/ssrarchive.htm

I think I was about right on the mark, timing both the ratio correctly, and the gold bull market right at the beginning.

What say you?
–Jason

Question: How will you know when it’s time to sell silver, and what do you buy?

Answer: I will sell silver when there is another asset that is cheaper and poised to go up farther, faster. For example, let’s say that I think silver will go to $10,000. By the time silver is $3,333/oz., then I might only expect silver to increase another 200%, and we might be in the “middle” of the silver bull market. But if I encountered another investment, with all the properties of silver today, that it is a neglected investment, a hated investment, a misunderstood investment, something you can buy for at or close to the cost of production, something scarce, with potentially high demand, and something that I could confidently predict would go up by about 2000%, then I’d sell out the silver early, and buy that other thing. That could be real estate in about 10-15 years.

As you know, governments must surviving by taxing people. After the people lose faith in paper money, and they can’t print money to survive, they will levy taxes in terms of gold and silver. And what will they tax? Probably property. Imagine they levy a property tax in terms of silver. Some holders of real estate, paid in full, with no debt, could lose their homes if they don’t have enough silver or gold to pay that kind of tax. Under those circumstances, the government could be confiscating and selling a lot of real estate that people cannot afford to hold onto. Real Estate could be the next “hated” investment class by then.
Challenge: Wrong!

Silver is languishing because the world was flooded with silver
by sovereign liquidations since the 1990s
Demand vs supply
Too much silver physical out there to make a big move.
–A.McD.

Answer: Wrong! Silver sold by nations was tiny, like 10% of annual silver mine supply. Silver is low because of lack of demand, because people have forgotten that silver is money, and they do not know how rare silver is, such as that most of it has been consumed by industry, and there is still no monetary exchange use, and thus, not much monetary demand.
Question: Should I buy rare coins?

Answer: I don’t think so. Rare coins, like diamonds, lack the fungibility to be money. Rare coins also have a high spread, a high dealer markup, and so you get much less when you sell them back. Rare coins are much worse than penny mining stocks, in that regard.
Question: What about leveraged silver, I can own about 2.5 times as much silver for the same price, and I’m guaranteed to make more money? –About 3-4 people asked.

Answer: If you are going to buy leveraged silver, then buy a futures contract, or option on a futures contract through a reputable broker, and get 5-10 times the leverage. Those “bucket shops” that give you less leverage are scammers, in my opinion. One outfit is even using my name and likeness to promote silver. I don’t mind, just don’t buy their leveraged product! I hear horror stories of of those “leveraged” guys all the time.

I strongly recommend that you avoid leveraged silver in any form, even on the COMEX exchange. Why?

Silver can never go to zero value. But a contract can, and even cost you more money than you invest!
Silver can never expire, we still have coins from the Roman era 2000 years ago! But silver futures expire, and options expire and become worthless 90% of the time.

Buying options is a very bad bet. It’s a good bet that you will lose money in options and futures, even as the silver price moves up, because the silver move up is very volatile, moving up and down with frightening speed.

Or, if you time it right, and buy futures now at $16, and silver moves to $30 in short order, futures contacts can default, and you could get a delayed cash settlement.

Futures contracts used to be guaranteed by the other party, and then the broker, and finally, by the exchange. However, now that COMEX has gone public, and since the public shareholders have “limited liability”, I think that just removed the final source of protection. But the corporate officers, and perhaps the public regulatory agencies might still be held liable, but you can’t squeeze blood from stones, nor conjure silver from the pockets of crooks. They might end up in jail, but that wouldn’t help you get silver that you were promised, that does not exist.
–Jason
Question: What about the silver to oil ratio?

Answer: It was about 2:1 at the low of $10 oil and $5/oz. in the late 1990’s. It was about 1:1 at the high of $40 oil and $50/oz. in 1980. Silver’s much better than oil right now, in my opinion.

6 Questions from one man:
A couple of points that may counter the silver move:

1. Film
2. Mining
3. New Funds
4. Jewelry
5. Unbalance
6. Drivers

Question 1: Film

Film was a massive consumer of silver. This has largely disappeared and will continue to do so as other industries convert from film to digital [not just personal camera’s]. Yes silver fibre is gaining momentum and its use in nanotech as well – but this is minor. And as silver does increase in price, these uses will decrease as will other industrial uses.

Answer: Film is already a small part of the market. But most film silver is recycled anyway. So, if less is consumed, less also comes back as recycled. Film thus does not “consume” much silver.

Question 2: Mining

Although this is not a product of supply and demand and may be argued, I believe it is still a factor, albeit minor. The cost to extract silver and the silver price can not become too excessive. I.e., the margins cannot get too large.
Sure it can. History has shown that silver mining can be among the most profitable investment on earth. This was widely recognized in the 1800’s, of course. The family fortune of the Hearst Family, of Hearst Castle, and Hearst newspapers fame, which was parodied in the film, “Citizen Kane” by Orson Wells, was built on silver mining.

Economics will balance this to a more reasonable margin.

Answer: I assume you are saying that if silver mining gets to be very profitable, then more people will mine silver, and more silver will be produced, and then ultimately lower the price. I agree. This cycle can take up to 100 years or more to play out. After all, the world has used up nearly 6000 years of silver in about the last 60 years.

Question 3: New Funds

This is an interesting one. When a meta l starts to rocket, then we see new issues/funds arising. We have this with uranium [several including participation fund by Denison], Molybdenum [sprott], new gold funds appearing [just got into CMP myself]. I haven’t seen many silver funds jumping out of the gate. This argument, though, may be a lagging indicator [possibly, funds will pop up after silver breaches 50$]

Answer: Well, there is the silver ETF. There are several silver stock funds, but they have less than $5 million invested. But this just goes to show that silver is still cheap. Several times in the past, the gold/dow ratio returned to 1:1. We have a long way to go to hit either $3000 dow/gold, or maybe it will be $15,000 for each.

Question 4: Jewelry

Silver in jewelry will not become popular until gold is out of reach. I.e., silver will lag gold. People will not buy silver jewelry until gold gets out of reach. Therefore jewelry demand will not increase significantly until gold/PGM’s get out of reach for most people. I expect this to occur when gold hits 2000$.

Answer: No, silver in jewelry is already popular, which is a “consuming force” in the silver market, as I described, because a silver ring is purchased at a cost of $125/oz. of silver. Thus, that silver does not come back to market in any “economic” way if the silver price rises a bit. Silver and gold generally do not move up due to jewelry demand, they move up due to monetary demand. IE, when the owners of silver hit such hard times, that they have to melt their rings for money, that’s when silver will be much higher. Not when people are turning in silver coins to make silver rings. You’ve got this force backwards.

Question 5: Unbalance

Why compare silver with gold at its peak valuation? I’d prefer comparing silver to a basket of natural resources including oil at various times in history when we were not on the gold standard and world economic outlook was similar to today.

Answer: Why compare at the prior peak? Because we just passed the prior peak in the gold price, and because that’s what people were asking about.

I’ve compared silver to oil in the past. It shows that silver, now, is much, much, much better than oil.

In 1980, silver was $50, oil was $40. 5:4 ratio, silver over gold.

In late 1990’s, silver was $5, and oil was $10. 1:2 ratio, but close to oil.

Today, with silver at $15, and oil at $100, silver is very, very cheap relative to oil.

If a mere 1% of oil profits were sold for silver, the silver price would surely more than double. That’s kind of what drove silver prices last time, as the Hunts and Arabs were oil money.

Question 6: Drivers

What is driving gold is the currency crisis. This is also driving other nat. resources. Silver is in the awkward position as being too expensive for industrial use [very useful industrial metal no question] and too imperfect or revered enough for jewelry [who wants a tarnished necklace??].

Answer: I agree that currency is driving gold, but it’s also jewelry demand from China, India, and Asia. But for silver, you are misinformed. For most industrial uses, silver is not replaceable. Silver is used in switches, rather than copper, because silver dissipates heat better, and is a better conductor of electricity. More silver is used in jewelry than gold. 7 times as much silver is produced as gold each year. Jewelry demand is about 250 million ounces of silver. Only 80 million ounces of gold is produced each year.

Question 6B: Summary

I do not disagree with you, I believe silver has a way to go but trading at 15X less gold is ambitious.
I fail to see why the historic ratio is “ambitious”. Especially in light of the new change that silver has been consumed, and there is much less silver around now than ever before, and thus, the ratio should easily exceed historic norms, and you have not refuted this.

A valuation of 30x may be more reasonable.

Answer (counter question): Why would that be “reasonable”?

Question 6C: I am not a gold bug, and cannot conceive that the gold standard will return, but do believe in most of the gold story [which, to some extent includes silver]. John Exter’s inverted pyramid theory makes sense to me.
The silver story is significantly different than the gold story.

I like your emails, and do appreciate them, and hope you read this. If you can easily refute my arguments above with hard numbers or historical events, then what an awesome investment opportunity. I am always doubting the gold story and desperately look for arguments against. This is the best way to gain confidence in the metal I like most.

Answer: I hope I’ve succeeded in refuting your arguments. Yes, silver is an awesome opportunity. I think it’s the kind of opportunity that has never existed before in all of human history, except maybe for the grain boom in Egypt when it was ruled by Joseph, in Genesis.

New Question: What about the silver “surplus” I’ve read about?
http://www.ft.com/cms/s/0/fdf808f4-bf1e-11dc-8c61-0000779fd2ac.html

Answer: That is a disingenuous report, and deceptive. What is meant by “surplus”? In silver accounting terms, a surplus refers to silver ounces that are purchased for investment demand, to be held long term by the public, not to be consumed by any of either industry, jewelry or photography. The word “Deficit” is a term that could indicate that mine supply is not keeping up with total consumption and investment (surplus) demand. Since mine supply is about 650 million oz./year, and since total consumption is about 900 million oz./year, the real deficit is about 250 million ounces. This deficit is made up by scrap recycling and national selling, such as from the government of India. If investors are selling more than buying, that, ironically, is called a deficit, because investor selling is filling the gap between mine supply and total demand. But if investors are buying, they call that a surplus, because there must be “surplus” silver for investors to be able to get any.

If you think about it, it makes sense. You cannot buy silver, unless you have surplus money. Even your silver bars at home represent “surplus” wealth. The world “surplus” does NOT indicate that silver is unwanted, or that there is any “excessive” silver. For example, if industry consumes 10 million fewer ounces next year that they could not find or afford because it is purchased by long term investors, then those who report on silver will say that the “silver surplus” increased 10 million ounces.

Thus, the term “surplus” is a necessity in the silver market if investors star buying. Note, the surplus is very small at about 50 million ounces. That’s not much silver to go around, and that’s a tight market.

Ironically, the article does conclude that if investors stop buying, the silver price could fall. But in this inflationary environment, where silver investors are both protecting their wealth, and making good wealth, why would they stop buying?

Very ironically, the article’s bearish tone is from Barclays, who runs the Silver ETF. This is just one of the many reasons why I do not trust the silver ETF. It’s run by the big bankers who do not want the precious metals to perform well.

New Question: Why is the market treating the silver stocks so badly? One just came out with an excellent drill report, and yet the market treated it like a day old peanut butter sandwich on dried out Merita bread.

Answer: I don’t know what Merita bread is, but I think that goes to show we are at another market bottom for silver and the stocks, and on the verge of a big move up.

Tip: China just opened a futures market in gold, and prices in China are way up, to almost $1000/oz. for gold!

http://www.gata.org/node/5916

Answer: Very interesting. This should be watched closely in the next week and months.