Great Business Plans or Scams?
(Depends on your view of interest rates)
Silver Stock Report
by Jason Hommel, Feb 23, 2016
I hope you will carefully consider four business ideas which I will share with you. Some may consider them to be great business ideas, others might consider them scams, depending on your perspective.
If you can keep in mind what I presented in my last email about the implications of interest rates -- all of that might be helpful to understand the following business plans, which might also help you to understand scams in the gold market.
Implications of Growth Rates
The key example to keep in mind is the last one, as follows:
1.0038 (x to the y) 6000 = 7,640,962,639 = 7.6 billion.
That means that 0.38% interest on 1 gold coin will grow (over 6000 years) to 7.6 billion gold coins (more than exists).
To me, this suggests that even extremely low interest rates lead to payments that are impossible to make, because that much gold just does not exist.
Other people believe lending at interest rates is a perfectly acceptable and totally natural business activity. To each their own. For them, they may wish to consider the following business plans:
Business Plan or Scam #1.
Offer to sell gold at 1% below spot, and offer to buy gold at 1% over spot. What a deal! This will be a better deal than any other gold dealer on earth! You will have many customers flocking to your door (unless they realize that it might be a scam). You might wish to place limits on the offer, however, otherwise, you will end up bankrupt in an hour as people would buy and sell until you were broke. So, you might wish to offer the following terms of the above offer.
A. You vault all the "gold" on behalf of all customers. They don't get to take home or hold any of the gold, they only have "gold accounts".
By placing those three limits on trading, you can really limit the losses of "losing that 1%" on all customer "long gold" positions.
Obviously, you can't make money by buying gold, because that would simply lead to a guaranteed loss of the 1-2% negative spread you are creating. So, you'd have to invest in something else. Also, you'd have to invest in something that would outperform gold, to succeed. Of course, if most client positions are long gold, and if gold goes down by more than 1%, and you just stay in cash, you are "gaining"!
To limit losses further, the company may wish to go into the futures markets to offset total company open liabilities, in case the customer's net positions were more long than short, you could buy call options, for example. But that might not work, because the cost of options might probably be more than 1%. Or, you could just take the proceeds, and invest in Berkshire Hathaway stock, which goes up by about 20% per year, and pocket the 19% difference. Or, you could take all the proceeds, and buy silver with it, hoping that silver will "outperform gold", and make up for any liability that might arise. Or, buy futures contracts on silver to help eliminate the spread that comes with physical silver.
On the other hand, you can see what a great business plan this would really be. You would essentially be borrowing money, from the public, at 1-2% rates! That's a very low interest rate! And, instead of having to "apply for the loan", people would be throwing money at you, and the amount of money you would could borrow through this scheme could be in the multi million dollar range, if not the hundred million dollar range, or even the billion dollar range. To my knowledge, there is no other business offering to buy and sell gold on such fantastic terms of "1% better than spot"! Eventually, your company might go bankrupt, of course, in several ways: First, the interest rate in the long run is a killer. Second, there are always operating costs. Third, client redemptions can cause the company to bust. Fourth, funds might be raided by company insiders. Fifth, you get the idea. But in the meantime, the company might get a good 5 to 10 to 20 year run, and you could pay yourself an oversized annual salary before things go bust. After all, that's what corporate shells are for, right? Before you go bankrupt, you might even want to take your company public!
While there are no companies out there making this kind of an offer, you might be able to discern that some do offer similar things on only slightly worse terms. Such as offering to sell gold at $1 to $10 or less over spot, or offering to buy gold at $1 to $10 under spot (within 1%), for example. Have you ever thought about how that might be enough for them to make a profit? Worry no more, for them, that's kind of like borrowing money as explained in the example above, but instead, you are paying to lend money to them! Who says negative interest rates make no sense; it's being offered in the real world on those terms.
And of course, if the market thinks that buying gold at "1% better than spot" is too good to be true, you might change the offer to "half a point better than spot", and actually reduce your borrowing costs!
Business Plan or Scam #2.
Offer a "guaranteed 10% return" in some kind of hedge fund or investment fund. Limit redemptions until after that one year hold time. Take the money, and either buy Berkshire Hathaway stock which tends to gain 20% per year and pocket the difference, OR, just buy silver, at the bottom of a bear market, like about now, and hope it all works out. Or try a combination of Berkshire Hathaway AND silver! What could go wrong? Besides, if it does, that's what that corporate shell is for, right, to limit your own liability when things go bust. This would be a million times more honest than offering a guaranteed 10% and never investing in anything, which the ponzi scheme guys do. If you bought silver at the right time, and if the fund grew quickly enough by word of mouth, it might actually work, and your fund might even grow big enough to grow the silver market!
Business Plan or Scam #3.
Offer people a chance to earn far more than they normally would on price movements in the silver and gold market. But offer terms somewhere less than what is offered in the Futures market, but better than what is found elsewhere. Or, so what, offer terms better than the futures markets! Take a risk, right?
Business Plan or Scam #4.
Offer to sell real physical silver or gold at cheaper prices than all competitors in the market, and just take 3-6 months to deliver. In this way, your company essentially "floats" on customer orders, as if it were that source of loan money at 1% or less interest rates.
I believe this is why you NEVER want to order from the people selling gold at the cheapest prices you can find. And this is also why you NEVER want to order gold from anyone who takes longer than mail delivery times of 2-4 days to deliver. About every 3-5 years, a large bullion dealer goes bankrupt and people lose from $10 to $100 million. And everybody could see it coming a mile away, except the newbies thinking they found a great deal on gold from a guy who might be a little slow to deliver but who "always delivers". Until he can't, obviously.
Please leave your comments on this article online at: silverstockreport.com/2016/scam.html
Follow me on facebook? On my facebook, my wider interests include stuch topics as health, the police state, the state of western medicine, free market ideas, bible prophecy, and other topics.