The Chicago Show
Silver Stock Report
by Jason Hommel, May 1, 2007
The Chicago Show put on by Rich Radez twice a year is one of my favorite shows.
The highlight of the show is the two panel discussions. The panel of 6-7 speakers simply answers questions from the audience. This show had the most lively panel discussions that I can remember.
Can you imagine if Church consisted of panel discussions, instead of a sermon by one person? It might be like this description:
1 Corinthians 14:29-33 Two or three prophets should speak, and the others should weigh carefully what is said. And if a revelation comes to someone who is sitting down, the first speaker should stop. For you can all prophesy in turn so that everyone may be instructed and encouraged. The spirits of prophets are subject to the control of prophets. For God is not a God of disorder but of peace.
At the show, many people thanked me for my help, encouragement, and articles over the years. Many were especially encouraged by my religious perspective and references at my other site, bibleprophesy.org. One man thanked me for helping him make a half a million dollars in the last year! I was somwehat pleased to hear that, because I don't know how much he put at risk. Besides, how much credit can I take when God's the one who should get the glory for turning people back to honest weights and measures?
Jay Taylor of miningstocks.com and I agreed with each other more at this show than ever before. Jay thinks that deflation is much less likely than he used to.
Bob Moriarty of 321gold.com and 321energy.com and I had a few differing views. Bob believes in Peak Oil. I don't.
It's a long story, but here's why not.
Bob believes in Global Warming. I don't.
Bob recently sold silver at $14, and I recently bought silver as high as $14.10!
Bob says he'd hate to be a 30 year old in today's world, with all of society's problems and challenges he sees ahead. I love being 37 (wish I was still 30!), and I'm very optimistic about the future.
Bob was saying that silver was too bulky. It's "too heavy" he said, so I made a "body builder" pose to the audience's delight.
Later Bob recommended that we all take $100 to the bank to buy a box of nickels, because a nickel costs 10 cents to make and contains 8 cents worth of nickel and copper.
Bob also thinks silver will go up "last" after the dollar crashes completely, and that until then, he likes gold more. However, since the precious metals market began, the silver to gold ratio has dropped from 80 to 1 to 50 to 1, so we in silver have made more money already.
It may sound like Bob and I disagree on everything. But in truth, we probably agree on about 90% of things, especially big things like the dollar is going down in value, and that commodities are the place to invest.
Interestingly, Bob and I also own at least 2 of the same stocks: A uranium developer, Concentric Energy, that has not yet gone public, and Douglas Lake, a gold explorer in Tanzania, Africa. (But Bob bought Concentric at perhaps 1/100th of the price I paid! Kudos to him!) Bob and I have also owned many of the same silver stocks in the last few years, such as Sterling Mining, and others, I'm sure.
So, here's why I don't believe in Peak Oil: People have been telling me that we might one day run out of oil ever since I was 6, in 1976.
In the 1970's, the world had a 10-year supply of oil in reserves. Today, the world has a 40-year supply of oil in reserves, underground.
I kept saying that we must consider that everything is relative. The world has about 13-14 years of reserves of silver. And I don't believe in peak silver, even though I know a silver shortage is imminent. Why don't I believe in "peak silver", a vague concept that says the world will never produce as much as today? Because the world is producing more silver now than ever before in all of human history, and as long as the population and productivity of man continues to increase, we will probably produce even more silver every year! Also, higher prices generally stimulate production!
But if you did believe in peak oil, you should be an even firmer believer in "peak silver"--because there's less of it than oil! But there is no propaganda on, and no advocates of, peak silver! Why not? That should tell you something!
Some advocates of Peak Oil clamor for government intervention. That's why, I think. Silver advocates don't want government interference!
Here's another major reason to prefer silver over oil. Historical prices. In 1980, oil topped out in price at $43/barrel, while silver was as high as $50/oz. At the lows around the year 2000, oil bottomed at $10/barrel, while silver bottomed at about $5/oz. So, if historical prices are any guide, then given that oil is around $60/barrel, silver should be around $35-70/oz, or higher, because silver "would run out long before oil ever does." (Silver may never "run out", not even in the next 1000 years, but silver will certainly go higher in price and value!)
So if anybody is invested in energy or oil due to high oil prices, you should be investing in silver all the more!
Furthermore, I forgot to mention that nobody will ever store 100 barrels of oil on their front lawn to invest $6500. But anybody can go to a coin shop and buy a bag of silver coins for $9500, and throw it into the bottom of your closet beneath some dirty underwear, where no thief will ever think to look.
Part of the reason we have "peak oil", I think, is that 70% of the world's oil is produced by national governments who confiscated the oil from private industry. Governments generally do not risk their money on exploration, and private industry is not going to be too motivated to explore if their discoveries are going to be confiscated.
Clyde Harrison made the excellent and memorable point that the major oil companies may earn about 9 cents per gallon of gasoline, while taking all the investment risk, and doing all the work to get the oil from the ground, to the refineries, to the pump. But the government taxes gas at about 51 cents per gallon, at no risk, and no effort whatsoever!
It seems to me that with those kinds of tax rates, the government in the U.S. has actually confiscated about 85% of our national oil industry, as they take 51 out of 60 cents of profit, or 85%. So, with most of the so-called "free world's" oil already mostly confiscated, maybe that explains "peak oil" better than any geological model.
There were also some concerns in the audience about the China boom unraveling, or collapsing. It was pointed out that China has built roads to nowhere, and built buildings that remain unoccupied, and their banks have made bad loans, and that communism will collapse.
Clyde Harrison and I remain unconcerned. As one of the panelists pointed out, 3 billion people in the world are industrializing, and you don't just turn that trend off.
And, again, I pointed out, you have to compare things.
The U.S. has adopted 9 of the 10 planks of the communist manifesto, so which nation is really the more "communist" one? And the most communist argument of all is when they whisper to us that, "If we all just continue to hold dollars, we'll all be ok." That's total communism!
Another memorable question was about the gold held by the U.S. government. Do we really even have any left? None of us know, but we agree it would be better if the government didn't hold any gold! After all, we have already invested in gold, and would prefer if the government had no gold left to "dump".
Perhaps I could have pointed out that the U.S. government is out of silver, and has no silver to dump. But that's the official story. Maybe the U.S. government does have silver to dump, as was recently pointed out in an article that discussed the silver used to process uranium.
The "official" story on gold is that the U.S. has about 261 million ounces, or 8000 tonnes of gold, but it has not been independently audited since the Eisenhower administration in the 1960's.
In the last few years, GATA discovered that some 3000 tonnes of gold were reclassified as "deep storage" gold at around the same time that Germany sold some gold, so we could have less gold than the official story, which was largely agreed to by the panelists.
One reason why I don't think the U.S. has more gold than they claim is that I've been paying attention to gold in the news for the last decade. About 5-6 years ago, the U.S. government persuaded Kuwait to loan us some gold, and we gave them some military hardware as a favor for the gold loan. The article listed the gold in "tonnes". Unless you knew or looked up how many ounces are in a tonne, and did the math, you would not have realized that we gave Kuwait $800 worth of military hardware for every ounce of gold that we borrowed, and still have yet to pay back! We would clearly not do that if we already had more gold than we claim.
Also, there are two books, one is called, "Asian Loot", and the other is called "Gold Warriors" that claim that the U.S. secretly confiscated anywhere from 100,000 to 500,000 tonnes of gold at the end of World War II. These books are considered to be lies and dis-information that is completely baseless and entirely inconsistent with what we see going on in the gold world on a regular basis. Professionals such as Bill Murphy of GATA.org and James Turk of goldmoney.com agree.
The best guess is that 150,000 tonnes of gold have been mined in the history of the world, and that 33,000 tonnes of gold are held by central banks, and they may have already loaned over half of that out.
Again, I tried my hardest to make the point about how important it is to take physical delivery of precious metals.
In the last few weeks, I've ordered half a million dollars worth of silver. And as careful as I was, one of my dealers who ordered silver for me from a second dealer who promised that they had the silver in inventory and on hand, ended up having to "drop ship" silver from a third, fourth, or fifth dealers. And that was for an order of 150 bars of silver of 100 ounces each, worth about $200,000, which is "chump change" in the larger financial world. I finally got confirmation today that the last 10 bars were shipped, and this is over a week after wiring the money!
Of course, Bob quipped, "Have you ever known a trustworthy bullion dealer?" The audience laughed. But I think that most, indeed are trustworthy, much more than banks or the government!
Clyde Harrison, (who we have come to think of as "uncle Clyde" and who says family is more important than money) runs a commodity fund for Brookshire Raw Materials consisting of futures contracts and enough Treasury bills to be able to pay for full delivery. Clyde may have finally been convinced and said he may decide to take delivery of silver and gold just for the publicity of doing so!
People also asked about the Silver ETF, run by Barclays. There was an article by James Turk recently that pointed out many flaws with the ETF, and suggested that they might not have the silver that they claim to have. So, does the Silver ETF have the silver? I must admit that I once owned the Silver ETF, but I would never buy it again, due to the risk that they don't.
Barclays has made all sorts of provisions to protect themselves, but they do not protect the investor in the Silver ETF. JP Morgan is the custodian, and JP Morgan's holdings of silver can’t be audited, so you have no guarantees that the Silver ETF actually has any silver at all.
People asked about copper. Clyde gave a great answer. Look at the copper chart of the past 5 years. You see copper took off from $.75 to $4.00/lb. Then, it dropped back to $2 something. That happened when China stopped buying for about 8 months. Then, about 3 months ago, China started buying again, and inventories started dropping, and for the past 3 months, copper prices have been moving back up again, and stand at $3.75/lb! Seems to me that copper could rise to $6/lb or higher, very quickly, within months perhaps.
People asked for us to give our two top stock picks. At the shows, I always reveal things that I would typically reserve only for paying subscribers, because people who travel to a show, and show up, have already given more than $40, they have given us their time.
And by now, you've given me plenty of your time if you have read this far.
So, my number two holding right now, that I purchased on the open market, is Baja Mining (BAJ.TO, BAJFF.PK). I own about $900,000 worth of stock all purchased recently on the open market. Baja has about a $240 million market cap (that's the company value if you multiply all the shares times the share price of $1.72). Baja is a copper/cobalt/zinc project in Baja, Mexico. With the cobalt and zinc credits, they should be able to mine the copper at negative cash costs, or in other words, for every pound of copper that they mine, it costs them nothing, and they earn more than the copper is worth! Baja could earn $700 million per year, and they should have a final, bankable feasibility study due out any day now. So, it's a relatively safe, very undervalued, late stage mining project. They have a forward P/E ratio of about 0.4, and anything under 10 or 20 is considered good. I expect I may be able to double my money in this stock in about 12 months, or even less. Longer term, I may be able to make about 300-500% in this stock in 2-3 years.
My second stock pick was Tumi Resources (TM.V, TUMIF.OB), of which I own 708,000 shares which are all free trading, which has about 31 million shares outstanding, and recently moved up from $.50 to $1.00/share Canadian. The company recently drilled one hole of 12.3 meters of over 3000 grams per tonne of silver, which is 3 kilograms of silver per tonne. Let me help you put that into perspective. I've studied over 100 silver stocks since 2003. Clyde Harrison said that he thinks I may be the top expert on silver stocks in the U.S. (Maybe that's because I gave him some silver dice that I recently picked up in Mexico to remind him that future contracts are gambling!) I can't remember any other drill intercept of silver that is richer than Tumi's. But the president of Tumi is concerned that this may be a "rogue hole", and is hesitant to promote this discovery until further drilling is completed.
Some people claim that mining exploration is a gamble, because you can lose money, but that's not the same thing. The world needs mineral exploration to get the metals we need to live; in contrast, I don't think we'd all die without gambling! Mineral exploration success is true wealth creation!
The other panelists had their picks, of course, and you can go to their websites to see what they have to say. It's extremely difficult to narrow it down to two, of course, but that was the question, and with 2 from each, that usually creates about 14 opinions, or stock tips.
Peter Spina runs goldseek.com and silverseek.com, where I advertise. He and I have grown to become good friends--we laughed over beers, saying "We're one day going to be like all these old guys, and so I guess we'll be friends for the next 50 years, whether we like it or not!" He and I hung out for a while at the booth of Golden Phoenix Minerals (GPXM), which was quite busy. Together, Peter and I and the company President entered the data for GPXM into my online spreadsheet of mining stocks for my paying subscribers. Peter is definitely one of the guys out there with good advice.
A few final questions:
How would you allocate your net worth? Personally, I have about 25% in the physical precious metals, and I'm aiming for up to 33% and then maybe 50%, and I have the rest in silver stocks, and a few other natural resource stocks. (Baja Mining has no silver, for example.)
Other people at the show asked me, "Is it safe to store silver at my house in a safe, is that what I do with it--what if I'm robbed?"
Well, the statistics are that there is about 1 home robbery per year in about 200 to 500 homes or less per year, depending on where you live, and that’s in the dangerous places. And most of the time, the safe cannot be cracked. (But bolt it into the cement so they don't haul it away!) Personally, I have my silver stored in several locations, so in the worst case, all would not be lost.
In contrast, the U.S. government is inflating at about 10%. That's like robbing every 10th person of everything they have, every year. Holding silver is far safer.
Other people asked, "How can I sell my silver if it rises to $8000/oz.?! Who will buy it?" Well, at the peak of the Real Estate Boom in Florida, one in 50 adults were Real Estate Agents. At the top of the silver market, everyone becomes a silver dealer, because silver becomes money!
Another question: Where can I get gold in jewelry form, and is that a good way to get gold? Yes, absolutely! You can get gold at the spot price of gold if you buy Thai gold, or Hong Kong gold that is sold at about the spot price. See "thai gold" or "baht gold" at google.com
One final question: “Where can we get silver or gold in coin or bar form?” At the coin shops! See my recent articles here:
How to Buy Silver, & Avoid Getting Scammed
Find your local Coin Shops & Bullion Dealers
A Brief Guide to Buying Silver:
What kind of silver, and where to get it.
The next show I will attend is the freedomfest.com in Vegas in July 5-7. I won't be speaking, but maybe I'll see you there!
Disclaimer: No company has paid me to send out this report. I own Baja Mining, and Tumi Resources, and many other stocks which you can see if you subscribe to the "look at my portfolio".
P.S. Please share your comments on this report at my forum, which is one of the closest things to a “panel discussion” online.