It's no Bull: We're in a Real Commodities Bull
Joseph Fasciani
November 22, 2004
At November 19th's 321gold.com, you can find one of investment advisor Adam Hamilton's superb essays that explain a complicated subject very clearly and well. This one, however, is rather different from his usual coverage, as he here gives the background and support basis for our present ten year commodities bull market, which we are most likely only nearing the end of its first two years.
Inflation drives bull markets, and most people age 45 or more understand this. What the same people may not know equally well -- and people under 25 not at all -- is that low interest rates to the contrary, we are already many years into a long inflationary cycle. And the real rate of inflation is far more than what we are led to believe.
Why does the public not perceive this? Well, only eight corporations now control 90% of all the USA's media, and each of them wants to protect its market share and stock sales, so why would they want you to know? General Electric and Microsoft, for example, sell many tens of billions annually to the US war machine, and they also jointly own NBC, their own propaganda factory and outlet. To keep up war profits and maintain domestic markets, they decide to tell you only what you need to know. It's that simple and out front. Is that a problem?
This is not a conspiracy, from their point of view. They see it as a useful way to manipulate the markets and your purchase of their products and equities, which is crucial to their ongoing success. God forbid that you become aware, stop buying their paper equities, and turn instead to physical assets, such as precious metals and other basic commodity markets. That -- for them -- is a problem.
Nor are most people aware that this is exactly what Bill Gates has done: nearly four years ago he dumped twenty-five million of his Microsoft shares, then used that money to buy 10% ownership of PAAS, Pan American Silver Mines, a huge group of producer mines in North and Central America. At the time he did this, silver was about US $4.50, and PAAS was about the same price per share. Today, silver is US $7.65, and PAAS shares are $18.00. Surprised?
And what a coincidence! Warren Buffet -- formerly the richest man in the US before Gates bumped him -- also went out and bought 130 million ounces in bars, now stored at secure Mid-West sites. When he did this in February 1998, silver immediately went up 25%, and has never looked back. Finally, why did George Soros -- already a multi-billionaire -- also buy a massive silver stake at the same time? Just coincidence, of course, no conspiracy here.
But everything hinges on just how bad inflation actually is, doesn't it? with gimmicks such as 0 percent financing, multi-year warranties and service, or no payments due for six months, etc., etc., it is easy to think that the cost of acquiring these is next to nothing. That may in fact be the case -- in the very short term -- but it is not true for the longer run, which is where we find ourselves living.
As Adam rightly points out:
"And, amazingly enough, the assumptions underlying this real Commodities Research Bureau (CRB) are quite conservative. Rather than use true money supply growth, up 1079% since 1972, we used the Consumer Price Index (CPI) to inflation-adjust the CRB. The CPI is "only" up by 364% over the same period of time, far less than true monetary inflation. While the majority of monetary inflation was absorbed by a growing economy, which increased the amount of things money chases, true inflation is still far higher than the CPI indicates."
If this is true, and I am certain that it is, then as investors and speculators, we must change our tactics accordingly, otherwise we will make wrong decisions and miss opportunities. If we use the 1079% factor, then the real (coming soon to a coin shop near you!) price of silver must be at least US $22.00, three times what it is now (as opposed to using the 364% CPI figure). The public is only now -- and slowly at that -- becoming aware of this sea-change, as are the mutual funds and other mass-market investments.
One way to see this shift very clearly is the immediate success of GLD, the first USA-based Exchange Traded Fund (ETF) in gold, launched this week in NY, which on Thursday, its first day of trading, sold nearly six million units, and on Friday sold nearly twice that many, to become the fifth most heavily traded equity of the week. Clearly, history is being made:
Please keep in mind this happened in a week when the overall markets declined. The Dow Jones can't keep its head above 10,500, and is slowly drowning in this sea-change.
But hey, don't take my word for it. Here's Don McAlvany, of The McAlvaney Intelligence Report:
"If one considers the tightness of the 933 million ounce global (above-ground) float of silver, much of which is in strong (long-term) hands, which have no intention of parting with it anytime soon, Buffett is in a rather commanding position in the world silver market. What if more large OPEC oil producers begin to convert let's say one or two percent, or five percent of their petro dollars into silver (as they did into gold and silver in the 1990s)? The global squeeze in silver and spike in price would be huge. And like the present price rise in oil, it might last a lot longer and rise a lot farther than it did in the 1970s."
Yes, I know you're thinking this McAlvany guy is pretty sharp, figuring out a great silver squeeze play that can make billions for the lucky holders. And you're right to think that, because it's true, and because it will soon happen (my sense is 18-24 months). But I'm also sure that you didn't know Don wrote this on November 9, 2000, almost four years ago.
Just one more remarkable coincidence, isn't it? No conspiracy there, for sure.
Got milk? Got silver?
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