The Simple Silver Contrarian Play


March 23rd, 2006. Sometime between midnight and sunrise I became a contrarian, and a silver bug.

Coast to Coast AM radio is a fascinating little treasure shared by insomniacs, vampires and the manic; a bizarre worldwide syndication for everyone who isn’t fast asleep or partying super hard.

It was like the internet before the internet. Anything from interviews with movie stars to political commentary to alien abductions; you never know what you’re walking into with Coast to Coast.

But that night was Howard Ruff, explaining How to Prosper During the Coming Bad Years while promoting his book, “How to Prosper During the Coming Bad Years.”

Gold was $550/oz at the time, Silver $10.65. Despite his record over the long haul, his ideas then, in 2006, were:

-The Real Estate market is out of control, at or near the top. It will crash, starting with California.

-A Stock Market crash is coming.

-Buy Gold. Especially, Buy Silver.

Time would prove him right. California housing crumbled, Wall Street imploded, and gold and silver went on a multi-year rally.

But none of that had happened yet in 2006. Housing prices never dropped, the stock market always went up, dogs had credit cards and a younger Kyle Bass was interviewing exotic dancers with 9 houses.

Kind of reminds me of…now.

Ruff laid out a case for silver, and inside me a quiet obsession began. For the next 8 years I went all in on silver, and I really mean all in. For nearly a decade, I stored one hundred percent of my savings in silver rounds and bars, packed them into industrial safes, and buried them in rural Kentucky.

Granted, by 2015 I had parleyed it all into junior mining stocks, the resource sector, and a small secretive hedge fund that found the end of the rainbow–but that’s for a later piece.

I did well on Silver. It went from $10 to $45 to $15. Dollar cost average and I got in the silver game at $12.65/oz. Thanks Howard.

What’s interesting, cyclical, and not so coincidental is that Howard’s case for Silver is just as relevant today, if not more, than it was a decade ago.

And the similarities of our time to then are obvious. We were at the top of one cycle then, and we’re at the top of another one now. And Silver is a super cheap, super safe way to play the contrarian philosophy for profit.

So, if you believe equity markets move down as well as up, if you think real estate is expensive, if you believe a sustained permanent stock market rally isn’t likely….this is a case for those who understand that a hangover follows the party.

Why Silver? Books have been written (thank you Mr. Morgan), but here are the footnotes:

  1. Nothing is Safer—No Counterparty Risk. Your stocks can go to zero. Banks can and do go out of business. So do governments. So do currencies. But an ounce of silver can’t. If reading Jim Rickards brings you to Fear and Trembling, Silver is piece of mind if nothing else.
  2. Immortal Store of Value- At least since we invented civilization, two things–gold and silver—have served as a store of value—silver has a track record of thousands of years. It buys goods the same way today as it did 1000 years ago, compare that to your favorite currency.
  3. It’s precious and industrial. On top of the demand for silver as an investment, there is Crazy demand for silver in industry. Some people have called it a “miracle metal;” it’s the most electrically conductive of all the metals, also the most thermally conductive, and also the most reflective. Essentially everything around that has an electronic component—contains small amounts of silver.

That’s why 56% of all silver demand comes from industry—a commodity to be consumed, just like oil. With another 33% being used for jewelry and silverware, there are two powerful sources of demand in addition to investment demand. This means plenty of demand to maintain its value/usefulness in a modern world, with a ton of potential upside as industry grows.

  1. Face Value—if you buy US Silver Eagles, since they are minted by the US Mint, they carry a face value of $1. Obviously, the metal itself is worth twenty times that, but since it IS currency it can be spent like currency in any emergency, classified as currency when advantageous, and has a built-in bottom of $1.
  2. It’s more accessible than gold. You need to drop over a thousand dollars for an ounce of gold, which can be quite undesirable in certain situations. If you need to sell it during turbulent times, you’ll need a buyer with a thousand bucks in cash or trade; a lot easier when you’re talking about smaller amounts like 20 or 30 dollars, which silver offers.

Even from an investment point of view, I can’t sell half my gold eagle, but I can sell $500 of silver no problem.

  1. Inflation Hedge. You don’t have to believe the apocalypse is around the corner for silver to make sense. Even if market stability is a certainty, so is inflation. As a kid my Dad used to see the movies—including popcorn and a coke—for a dime. 10 cents. How’s the dollar been for retaining value over the years?

Those who keep their money in cash are robbed by inflation every day; those who’ve preserved their wealth in precious metals have done exactly that—preserved their wealth.

  1. It’s easy to find. You can buy it anonymously, for cash, at any coin shop in the country. Even small cities have coin shops. Or, you can buy online. Save yourself all the trouble and issues figuring out which site to use, just use www.goldsilver.com. Been the best of the lot in my experience.
  2. It’s Incredibly Cheap To Play. At less than $20/oz., anybody can make this trade. When I started stacking I was waiting tables. You don’t have to be rich to be an investor. You just have to start.
  3. Incredible Upside Potential. At worst, you’ll beat inflation. At best….this cycle could be much more extreme than the last one. Because you can still get an ounce of silver for less than what it costs to mine it! And because historically silver outperforms gold; when gold goes up silver goes even higher.

There are many, many compelling arguments from respected authorities on the subject that are calling for silver prices of $50/oz all the way to $200/oz over the next 10 years. Making 10X your money on a silver play might be optimistic, but it isn’t outlandish.

In terms of the cycle, you couldn’t be in a better spot. The stock market is at an all-time high, equities are expensive, bubbles are everywhere, and metal is cheap. The next part is a stock market decline and a commodities bull, which is already in its earliest phase.

If I’m new to the resource sector, just getting into commodities, or just unsure exactly where to deploy my capital, this is the simplest and safest contrarian play out there. The risk is as close to zero as you’ll ever see it anywhere, but paired with a generally accepted 2X-10X potential upside.

Yes, there are more plays to come, with more risk and stratospheric returns, but I love the silver play for its simplicity, safety, and accessibility.

Remember when gold was $200? How long before it’s remembering when silver was $20?

I say we’re not far off.

Cheers,

 Christoph Grizzard, The Fat Cat Investor

  

 

 

 

k.449 © 2017 FatCat Consulting Limited. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from the publisher.

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