Refuting the Naysayers - Phoenix Speech

(Presented in Phonenix, Feb 4th!)

Silver Stock Report

by Jason Hommel, February 8th, 2010

(Note, many people are asking me about today's dip.  I have no idea what drives silver in the short term, other than excessive paper trading, as I have noted in many past reports, such as can be found here: 
A Tribute to 7th Grade Math August 31, 2008

Currently, our wholesale supplier is out of Silver Eagles, which just broke record sales for 2009, and even greater sales for the first month of 2010.  We are rationing our remaining silver Eagles with higher than normal costs over spot prices.)  Currently, our sales at are at all time highs.

Have you ever tried to convince your friends and family to buy gold and silver?  Of course you have, and of course it did not go well, or you had to literally nag them for over a year to get them to act.  I know, because my readers tell me.

This was my main presentation for the Phoenix show:

I surveyed my readers, and 112 readers responded who all gave me feedback on what people said to them as they tried to convince their friends and families to buy gold.  I summarized the naysayers comments and so-called reasons, or excuses, that they gave to avoid buying silver or gold.

It is very interesting to know what "the other side" is saying, and thinking.  Their arguments should be closely scrutinized to see if there is any validity to the bearish arguments for gold.

Some of my readers had no response to some of the reasons the naysayers had for not buying gold.  So here are some of the things I would say, if I was part of the conversations with the naysayers, to help convince them to buy silver and gold.

Some of what the naysayers say is just silly.  But this entire issue is deadly serious.

TOO HIGH NOW: Gold and Silver are just too high/expensive now at "all time highs", a "bubble",  and perhaps they are bearish on the metals in the short term,waiting for a dip, or staying away, thinking it will crash.    Similar: Regret Wish I bought it cheaper, thinks it's too late now.   
--25 total

    --Gold is far below the TRUE all time "inflation-adjusted
  highs" which would be about $7000/oz.

2 ways to adjust for inflation:
government cpi
money creation inflation

HOW TO SELL?:  They are concerned about when, where, how to sell it, (confused about exit strategy), what will it buy, especially if cash becomes worthless, then who could afford to buy gold and silver to keep the price up?   OR: Gold and Silver are not liquid enough, You can't spend, or buy anything with them by using them as currency.  
21 total

--You can always sell or trade gold or silver at any
  time to any gold dealer anywhere in the world, they are the
  most liquid assets in the world, a perfect store of value.

How's that housing market going for you?  Not too liquid now, is it?
How are those defaulted bonds going for you, now that major portions of the bond market have frozen over?

CRAZY GOLD BUGS:  Gold bugs are nuts, weird.  OR: Those promoting gold and silver are not credible.   19 total

We are not making stuff up; the bullish argument is from government numbers:

  --The Fed admits it is creating money at all time
  highs, that the US federal annual budget is about $3
  trillion, yet all the gold in all the world ever mined in
  all of human history is valued at a mere $5 trillion.

How about those crazy real estate brokers pushing housing?  Now that's crazy.

CLUE LESS:  They admit they don't understand metals.   No time to go buy it  or research it.   
18 total

First, this is not an argument against gold at all.

Classic proof that we are not in a bubble, especially if this is the 4th most common retort.

    --You don't need to research gold for over a year before
  you buy it, you just need to get some now.  NOW!

SHUT UP:  Please stop talking about it.   They don't have the attention span to listen.  Or: They don't want to think about the bad stuff.  
17 total

It's not really an argument against buying gold.
That's like saying, "I"m sinking in quicksand, please don't throw me a branch".

PRICE CHANGES:  Don't like the volatility or uncertain & risky price changes.  (It's a gamble). 
17 total

Don't like uncertainty?  What about uncertain home prices?  What about uncertain futures of companies that go bankrupt, like Enron or GM?  What about bonds that default and go to zero?

    --Gold is not a promise!  It's solid, reliable,  & real.  And has been real for the entire history of humankind.

GOVERNMENT WILL FIX IT: They think stocks/housing/economy will come back.  The government will provide.   
14 total

UH, the economy will come back, after the fraud has been wrung out of the system, well after the gold bull run is done.  That's what happened in 1980.

SILENCE:   Deer in the Headlights / No answer / ignore it.  13

Ah, this is not an argument, is it?  For those of us who are trying to convince people, we ought to remember that when a person "does not answer", it might just be that they are learning to think for the very first time, and it takes a while to get those mental gears going.  We ought to be patient.

I'M BROKE:  No money to buy it,  I need to save, can't afford the luxury of gold, got to pay down debt first 
12 total

Funny that people say they have to pay down debt first.  Interesting.  How is that going to happen when there is $2 trillion in cash in the banking system, and $20 - 30 trillion in total debt to pay off?  Not going to happen.  What is more likely to happen is that gold will go to $50,000/oz., and that the world's gold stock of 5 billion oz. of gold increase in value from $5 trillion, where it is today, and increase to $250 trillion.  Then debt can be paid off.

BAD BROKERS:  Financial advisor talked them out of it.  9

Well, that wasn't too smart was it?  One thing to ask people is if your broker is bearish on gold, ask the broker when they were ever bullish on gold.  IE, if they missed the first ten years of this constant bull market, then they are clueless and not a reliable source of information.

Furthermore, all established brokers have an economic incentive to keep you out of gold.  If you buy it, they can't earn any commission on your account.  Gold does not pay them, it only pays you.  Gold puts them out of business.

MIGHT BE STOLEN: No place to put it, it might be stolen, too difficult to buy a safe. OR, Worried about paying taxes on the capital gain, or outright confiscation. 
9 total

Anyone who can afford gold, can afford to spend a tiny fraction on the appropriate sized vault.  Even if you only have one gold coin, you can afford a wallet.  If you can afford 10 gold coins, you can afford a small lock box, etc.

Metals don't pay a dividend or interest.  6

Metals don't have to.  Only inferior investments with higher risk need to promise a higher return.  But do they?  Bonds pay 1-4%, and gold is going up 17% per year for the last 10 years!

Bonds pay interest, and stocks pay dividends because they must compete with gold as an investment.

That competition keeps us all honest.  Even most of the mining stocks have not kept pace with metals over the last 3 years.

No leverage in physical.  A 100% or more gain in non-leveraged physical metal is not enough to be worth it to improve their life.  5 total

Physical IS highly leveraged.  Banks practice fractional reserve "bullion holding", and that creates leverage for physical holders.

If gold can exceed $50,000/oz., that's leverge of 50 to 1.  If gold can exceed a million per oz. with hyperinflation, that's leverage of 1000 to 1.  If gold can go to infinity dollars per oz., as all dollars and all leveraged promises crash and burn, then the leverage in gold is near to infinity, and thus the most highly leveraged investment you could possibly buy, except sivler, of course.

You can't eat gold, I'd rather buy food.  4

Good, buy food first.  And guns! But after $10,000 of food, you may wish to consider the metals.  $1 million of food is probably too much food, but not too much metals!  The best part of gold is that you can't eat it, thus, high gold prices don't cause starvation for the rest of the world! 

Media coverage:  Too much. (1)  Too little (1)  Too confusing (2)  4 total

Whatever.  Until most of the media in this nation is owned by Barrick and Newmont, we are not in a bubble.  Did you know that the Hearst Newspaper empire and Hearst Castle, was founded by the son of a man who made it in silver mining?

Gold is an archaic or barbarous relic.  4

Relics are valuable, which is why they are kept with tight security in museams.

They are too educated to buy "useless" gold that "does nothing".  4

God keeps men honest.  Honesty is a good thing, and provides for your future.  It boils down to two things.  You can trust your future to gold, or you can rely on the promises of other men.  As long as men on earth know how to lie, I think gold is a good thing.

Being greedy is bad.  3

I agree.  Let's shoot everyone who wants greater than 1% return in bonds; they are greedy usurers who should be put to death.  Just kidding, I have more tolerance than that, and I don't believe in using force on others.

But the point is that gold investors are not greedy, bondholders are, but they are both greedy and stupid, while gold investors are honest and wise..

If silver and gold are so great, why have they not kept pace with inflation since 1980?  4 (Bloomberg was one)

But that's why they are great!  As a recent underperformer, it stands to reason that it will outperform at some point.  But, in fact, if you go back to 1971, gold has outperformed everything else since then, and stands to continue to do so, until most of the fraud has been wrung out of stocks and bonds.

How does gold have any value at all?  2

It's rare, and fits all the criteria that money must have.  Money must be a unit of account, a medium of exchange, and a store of value.  To be those things, money must have a number of specific properties that silver and gold alone have. 

Silver is too heavy.  2

Great!  That means you get so much for your money, and means it's cheap.  If you would rather pay twice as much for your silver, so it will have half the weight, I'd be happy to overcharge you!   The point that silver is heavy is good, this keeps other buyers away right now, which proves again, that it is cheap!

The Lord will provide.  2

I agree!   The Lord has provided silver and gold for us.  If we don't accept his provision, then we have nobody to blame but ourselves if we have chosen to trust in the frauds of men instead.

I'm locked into my IRA / 401k.  2

Anyone can put their IRA into the Central Fund of Canada, it holds 95% of its assets in silver and gold, you can buy it as easy as any other stock, the ticker is CEF, look it up.

Silver's just an industrial metal, and industrial demand will go down if the economy crashes.  1

Good argument.  If the economy crashes, it has to crash against something.  That something is gold and silver.  They have been going up, as investment demand has more than offset declining industrial demand.

"You can't take it with you".  1

I don't intend to.  I have silver to help delay my own death.  The more money I have, the longer I can live here on earth!  There is a direct correlation between wealth and long life.  The great depression of the 1930's greatly shortened the average lifespan, down to about 50-60 years.  Many people will die sooner than they should in the deepening depression, because they won't have any silver or gold to protect their wealth.  It's quite sad, and they won't be taking any paper dollars into hell with them into their early deaths.

Gold and silver are only just metals.  1

And cash, stocks, and bonds are all only just paper. 

Jesus is coming.  1

And are you saying you'd rather be caught as a usurer when He comes back? 

I'm making an argument between bonds and gold here, not between being a Christian and owning gold.  Being a Christian is not mutually exclusive with owning gold.  Actually if you believe in Jesus, it should be mandatory that you not put faith in the idolatry of paper money, and rather, trust in the provisions of God, like silver and gold, instead.

I'll wait until it becomes popular, then I'll buy it.  1

Oh Lord.  "A fool and his money..."

The dollar will never crash 1

Really?  It already has! 

The government is not that dumb.  1


It's a problem of the USA only.  1

Gold has been going up in all currencies over the last ten years, and other currencies are no better.

Gold and silver has been so disrespected and derided by the government and economists  1

Frightened about market manipulation.  1

Already sold gold jewelry.  1

So making one bad decision means you have to make another, and will prevent you from making a good decision?

I'm not a gold bug.  1

And believe it or not, I'm not a silver bug!  100 years ago, the silver bugs advocated government price fixing of 15:1 for silver to gold.  No free market advocate advocates government price fixing today!

Gold is a scam.  1

As opposed to the dollar, which is something honest?  Come on. 

They don't want to buy on a dip, because the metals are "trending down".  1

"Nobody ran around with bags of coins during Katrina, and therefore metal will never been used in times of crisis." 1

Katrina in New Orleans is not the kind of crisis we are predicting.  In a monetary crisis, it's a flood of dollars, not water. 

Why would they sell it if it's so great?  1

Do you think a salesman should rather sell crap?  I was personally drawn to silver, because I wanted to discover the greatest thing in the world, and then write about that.  Jesus, of course, is first, but silver is number two!

Why do I need it if you have some of it?  (Son to Father) 1

There's a silver VAT (value added tax) of 15-17%, plus a steeper markup in the UK than in the US. 1

Try having a revolution like we did in the USA over 200 years ago!

Money is not important.  1

Fine, give me all of yours!

I know someone who knew someone who lost so much when silver crashed from $50/oz. in 1980. 1

So you know that the inflation adjusted high is about $350/oz., but you still think silver can crash and lose another 95% from $15/oz.?

As interest rates rise, gold will fall.  1

OK, tell me when interest rates will get above 17%, and then maybe I'll consider selling some gold.  But to get to 17% interest rates, the bond market will crash, and you better be in gold until then.

How do you know it's real?  1

Would you like to buy some chocolate novelty "coins"?  $1200 each!  Oh, you would not be fooled by that?  Then you probably won't be fooled by electroplated silver coins either.  Silver is 1/2 the density of gold, and simply does not feel right. 

In conclusion, I didn't note any rational argument that shows that we should not buy silver or gold.  I just found a lot of misinformation, ignorance, thoughtlessness and general foolishness.  That's not a solid basis for making a sound investment decision.  Therefore, we must reject the bad notions of why we should not be buying silver and gold.  And thus, we ought to invest into silver and gold.  I've done just that, not only owning a lot of it, but I'm fully engaged in the trading of it, to help other people get into gold and silver, which people will probably do in much greater numbers in the future, which will drive this bull market and precious metals prices much higher.