Implications of Growth Rates

(9 growth rate examples)

Silver Stock Report

by Jason Hommel, Feb 20, 2016

If you are going to be a successful investor, then you need to know crucial facts about various implications of various growth rates. I have provided 9 examples below, and thought provoking questions after each one.

Today's email is sponsored by Mines Management, who is providing me with 5000 shares, to share the following news. After 11 long years, they finally got their permit on a billion dollar silver/copper project. Their market cap is $17 million as of Fiday. http://finance.yahoo.com/q?s=mgn&ql=1

MINES MANAGEMENT, INC. (NYSE-MKT: "MGN", TSX: "MGT")(the "Company") will host a live webinar for analysts and investors to discuss the recent issuance of the Record of Decision for the Company's 100% owned Montanore silver-copper project previously announced on February 12, 2016.

The webinar is scheduled for 8:00 a.m. Pacific Standard Time (PST) (11:00 a.m. EST) on Tuesday, February 23, 2016, and will provide an overview of the Montanore silver-copper project, and a discussion of the recent completion of federal and state permitting process and the Company's plans for the project.

Individuals wishing to participate in the webcast should register in advance at the following link:
https://attendee.gotowebinar.com/register/3004794127605167363

An email will be sent to registrants confirming the registration and access information. Registrants should allow extra time to log in prior to the presentation.

For those unable to participate in the live event, the webcast will be archived and available on the Company's website.

About Mines Management

Mines Management, Inc. is engaged in the business of exploring, and if exploration is successful, developing mineral properties containing precious and base metals. The Company's primary focus is on the advancement of the Company's 100% owned Montanore silver-copper project located in northwestern Montana in the United States. The Montanore is an advanced stage exploration project, which deposit contains mineralized material of approximately 81.5 million tons with average grades of 2.04 ounces silver per ton and 0.74% copper in two mineralized zones.

The project recently received positive Records of Decision marking the completion of the permitting process, allowing the project to move forward toward development. Additional information regarding the completion of permitting is available in the previous announcement issued on February 12, 2016 or Company's website at www.minesmanagement.com

FOR MORE INFORMATION:
Douglas D. Dobbs
President, Mines Management, Inc.
905 West Riverside Avenue - Suite 311
Spokane, WA 99201
Phone: 509-838-6050
Fax: 509-838-0486
Email: info@minesmanagement.com
Web: www.minesmanagement.com

===== Growth rate examples:

#9.
BRK-A Shares growth from $290 in March, 1980 to $197,310 in Feb. 2016 over 36 years.
link to 36 year chart for BRK-A
197,310 / 290 = growth of a factor of 680 times over 36 years.
To determine growth rate, formula is:
1.x (x to the y) 36 = 680
1.2 (x to the y) 36 = 708 too high
1.19 (x to the y) 36 = 524 too low
1.198 (x to the y) 36 = 667 low
1.199 (x to the y) 36 = 687 high
1.1986 (x to the y) 36 = 679.6 nearly there
1.19863 (x to the y) 36 = 680.2

The average annual interest rate that would match the 36 year overall growth of Berkshire Hathaway Inc. is 19.863%.

I, and many others, would have thought that BRK-A's growth would have stalled about 5 years ago by now. It has not.

Question: What are the implications of this near 20% growth rate? Is it sustainable in the long run? How long can this kind of growth go on?

#8.
1.10 x to the y, 50 = 117

10% interest, over 50 years, = 117 times as much as initial capital.

This used to be the insurance company or investment fund presentation on how an investor can turn $10,000 savings, "over a lifetime" into over $1 million, if he invests in "the stock market"! "The American Dream".

Questions: Is 10% growth rate sustainable over 50 years? What about world wars? What about currency collapses? What about stock market collapses? Would a person be much better off trying to determine which sector of the market will be "the next great bull market for the next ten years" like the guys at Daily Reckoning often have suggested?

#7.
1.06 x to the y, 100 = 339.

That's 6% interest, on 1 gold coin, over 100 years, grows to 339 gold coins.
OR
6% interest, on $100 million (at $20/oz. gold), over 100 years, compounds 339 times the initial capital of $100 million = $33.9 billion. (at $20/oz. gold = 1,695,000,000 oz. of gold)

Context:
1914: New York Fed Opens for Business
The New York Fed opened for business under the leadership of Benjamin Strong, previously president of the Bankers Trust Company, on November 16, 1914. The initial staff consisted of seven officers and 85 clerks, many on loan from local banks. Mr. Strong recalled the starting days at the Bank in a speech: "It may be said that&hellipthe Bank's equipment consisted of little more than a copy of the Federal Reserve Act." During its first day of operation, the Bank took in $100 million from 211 member banks
link: fed history

Why study 6% in relation to the Federal Reserve? They admit that the owners are paid 6% on their capital:
link: fed source that the owners of the Fed earn 6% per year. "The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year."

Questions: Did the Fed grow its initial capital beyond the amount of gold owned by the USA? Did it foreclose on the usa? Is that why we left the gold standard? Gold coins don't pay interest over 100 years, but rather, it costs money to store them. But can you grow a currency faster than the appreciation rate of the value of gold? Why, or why not? Can you lend gold during times when gold was money? Can you trade gold for bonds that do pay an interest rate today? Should the trade be the other way, selling bonds for gold now?

#6.
1.06 x to the y, 200 = 115,125

That's 6% interest, on 1 gold coin, over 200 years, would grow to 115,125 gold coins.
OR,
That's 6% interest, on 1 million dollars, over 200 years, would grow to 1.1 trillion.
OR
That's 6% interest, on 100 million dollars, over 200 years, would grow to 110 trillion dollars.

Context:
1816: The Second Bank of the United States The situation deteriorated to such an extent that in 1816, a bill to charter a Second Bank of the United States was introduced in Congress. This bill narrowly passed both houses and was signed into law by President James Madison. Henry Clay, Speaker of the House, cited the "force of circumstance and the lights of experience" as reasons for this realization of the importance of a central bank to the U.S. economy.

The Second Bank of the United States was similar to the first, except that it was much larger; its capital was not $10 million, but $35 million. link: about the Fed's history

6% interest, on $35 million, over 200 years, would grow to 115,125 times $35 million = 4,029,375,000,000 = $4 trillion.

Questions: Is it possible that bankers owned $100 million nearly 200 years ago, and have grown their wealth into the trillions today?

#5.
1.06 x to the y, 300 = 39,062,459

That's 6% interest, on 1 gold coin, over 300 years, would grow to 39 million gold coins.
OR
That's 6% interest, on 1000 gold coins, would grow to 39 billion gold coins, over 300 years, about 6.5 times as much gold as exists.

Questions: Is it possible that banking existed 300 years ago, and that back then, somebody had a fortune much larger than 1000 gold coins, who was able to consistently grow their wealth and take over much of the financial world today?

#4.
1.02 x to the y, 1100 = 2.8 billion.

That's 2% interest on one gold coin, over 1100 years, will grow to half the gold in the world.

Contextual numbers:
The Catholic Church was founded around 380AD, 1636 years ago, from 2016.

Questions: Is it possible that the Catholic Church has grown its wealth faster than 2% over the many years, much longer than this 1100 year hypothetical example?

#3.
1.012 x to the y 2000 = 22,962,808,688

That's 1.2% interest on one gold coin, over 2000 years, will grow to 23 billion gold coins, just under 4 times as much gold as exists.

Contextual numbers: Jesus Christ walked the earth around 2000 years ago.

Questions: Does this imply that "in the long run", such as over 2000 years, even a growth rate of 1% is unsustainable, because the value of a gold coin cannot actually grow into 4 times as much gold than exists. Can it?

#2.
1.0038 x to the y 6000 = 7,640,962,639 = 7.6 billion.

That's 0.38% interest on 1 gold coin will grow to 7.6 billion gold coins (more than exists), over 6000 years.

Contextual numbers:
Population of the earth: 7.4 billion, 2016, est.
link: world population

Total gold in the world: At the end of 2014, there were 183,600 tonnes of stocks in existence above ground. x 32,151 oz./tonne = 5,902,923,600 = 5.9 billion ounces.
link: gold.org supply and demand numbers

#1.
In 2014, world annual gold production reached 2,860 metric tonnes, x 32151 oz./tonne = 92 million ounces.
link: annyal gold production source

The 2014 increase in above ground previously mined gold? 92 M / 5900 M = 1.56%.

Question: Does this imply that the upper limit for growth rates, on the biggest piles of wealth, are actually less than 0.38% in the long term? Could someone who owns up to half the wealth of the world actually grow their wealth faster than 0.38%? What would happen if they did?

Questions on the questions:

What is a "fair" rate of interest? Who should set the rate of interest? The biggest lender? The Federal Reserve? Should there be any limits on what lenders can do? Why do we ban loan sharking, but allow credit card companies to charge 30% or 33% annual interest rates?

Can a government effectively ban lending? Can a government ban the enforcement or collections of collateral on lending? Can a government simply refuse to be used as the collection arm for collateralized lending contracts? Can a government find a middle ground of not banning lending, but simply refusing to recognize the lawful validity of usury contracts?

Why are some limits on interest rates reasonable, while other limits are not? Some suggest setting any kind of numerical lawful limit is arbitrary, and thus, whimsical, and thus tyrannical. What defines what is reasonable vs. what is tyrannical? And how would you definitely know the difference? Is it tyrannical to demand payment of more of something than exists?

Does lending at interest require the use of force to collect the collateral in case of default? Would a lender who attempts to use force to obtain the collection of collateral be initiating the use of force on a contract that might be theoretically invalid or impossible to obtain such gains?

Without the disclosure of the effects of how interest compounds over time in all sorts of examples like I just shared, are all interest rate contracts invalid due to failure to fully disclose the potential terms?

Is the "right to contract" really unlimited? Can I hire an assassin legally? Can I engage someone in a contract that would require them to kill themselves? Can I write a contract that would require someone to enslave themselves even if slavery is outlawed?

If you are earning 3%, but the official inflation rate is 2%, but the real inflation rate is 6%, are you gaining or losing?

Is this religion or is it math? Are many other math concepts accused of being religious? Why is this topic considered religious?

If you are an atheist who prides yourself on your grasp of logic and math over "beliefs", don't you have to accept the implications of these math examples?

If you are a Christian, can you rightly avoid the implications of this math, on the sole "belief" that a guy traveling in the wilderness (Paul) had a vision who told him to teach that "the law" was put to death when Jesus died on the cross, even though Jesus, after he came back from the dead, said to teach all the commandments in Matthew 28?

Is the math racist? Why are those who talk about "usury" often accused of racism? What does racism have to do with math?

Are these topics taught in Universities? Why not? Are these examples taught in divinity school? Why not? Are these topics taught to financial advisors and brokers? Why not?

What do you think about these questions? What do they imply? What is your conclusion about growth rates? Can you summarize what you think you have learned today, and post it to my page?

Thank you.

This message was brought to you by Mines Management (trading symbol: MGN), who just got a permit on a billion dollar project. Their market cap is $17 million as of Friday. http://finance.yahoo.com/q?s=mgn&ql=1

While Mines Management stock might go up far faster than any of the examples above, I think the upper limit of the growth of their market cap might be around $500 million to $1 billion, at today's metals prices.

Please leave your comments on this article online at: silverstockreport.com/2016/growth.html

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