The Rodney Dangerfield of
commodities By The Mogambo Guru
Junior Mogambo Ranger (JMR) Andrew H has a
question about silver. He starts off saying, "Most
everyone agrees that silver has a monetary value,
yet it seems no one can agree on how to determine
it. If silver will have a greater value over time,
why are so many people looking at it as an
industrial need and not a monetary one?"
My answer to that is that silver does not
have any monetary value, and I say this with
complete assurance, since no country or
economy has a currency tied to
silver (except the Liberty Dollar folks!). You can
buy silver and sell silver using official "money"
to effect the transaction, but silver is not
"money". Ergo, silver has no monetary value. It's
as simple as that.
Hugo Salinas Price
seems to agree with that, and says, "Today, not a
single currency in the world has a valuable
content; all of the one hundred and eighty or so
currencies in the world have absolutely no
intrinsic value at all."
As for the
apparent disrespect for silver, it's the vector
you get from history (it's been low for a long
time), bias (the silver cartel and government
interests), real industrial demand met through
dis-hoarding government stockpiles, zero real
monetary use, and the suspicion that comes from an
enigma, wrapped in a mystery, wrapped in a
corrupt, stinking, filthy Comex/Nymex/government
mess, so that now we are freaking doomed.
In short, I dunno why silver is selling at
such a discount. I only know 4,000 continuous
years says it can't last, the problem is huge,
without an explanation it can only be explained in
retrospect, and thus it qualifies as a looming,
dooming Black Swan event, and people who buy
silver now are going to make a lot of money!
This brings up Bernard Baruch (1870-1965),
who was an arrogant, dictatorial, fascist creep of
the first order, sort of like The Mogambo without
a mustache. Nevertheless (according to
Wikipedia.org), he made a fortune in the stock
market, most famously by going massively short
against companies that he thought were overpriced,
and "he amassed a fortune before the age of 30 via
speculation in the sugar market. In 1903 he had
his own brokerage firm," and "By 1910, he had
become one of Wall Street's financial leaders."
In short, he knew what he was doing and
had the guts to risk it all.
I bring this
up because a quote of his appeared in a
Cryptoquote puzzle in my local newspaper, and it
is what seems to be the precursor to George Soros'
famous dictum to "Identify the trend whose premise
is false, and then bet against it."
Mr
Baruch is quoted as saying, "I am a speculator.
The word comes from the Latin 'speculari', which
means to 'observe'. I observe." Hahaha! Perfect!
So, putting these together, observe what
in the hell is going on, find the error, and bet
real money that errors and stupidities cannot last
very long. Case in point: silver is selling at the
lowest ratio to gold, or anything else you can
name, in 4,000 years of history. It should be
selling - at a minimum - for $40! Right now! Can
this trend continue?
And it's not just
silver, but gold, too, because when you read
between the lines, you can see that both of these
guys - both of them! - are saying to buy gold, as
Alan Greenspan's enormous blunder in letting
Congress spend all that excess money and credit
for all those years is now beginning to reap its
just desserts, which sounds really nice, bringing
up visions of pies and cakes like it does, maybe
with a little ice cream on top, until you look it
up in a dictionary, and then made even more
remarkable since Bernard Baruch has been dead for
more than 40 years! Yet he knew! What a guy!
Antal Fekete, at Memorial University of
Newfoundland, writes, "gold is good", even if huge
new finds of gold are found. It will not change
things, as, "It is not the absolute change in mine
output that has an impact on the value of a
monetary metal, but the relative change as a
percentage of existing stockpiles. For this reason
gold is more valuable than silver: the huge
stockpiles of gold make the impact of a change
negligible. Ergo the value of gold is more stable.
In technical language, the marginal utility of
gold declines more slowly than that of silver.
"As a consequence," he continues, "the
specific value of gold is higher. This means that
the value of the unit weight of gold is higher
than that of the same weight of silver. The
monetary metal with the higher specific value is
more portable both in space and time."
In
other words, if I was going to loot the employee
pension fund and run away to start life afresh, I
would be best served by converting the traceable
money into gold, because I could carry that much
gold, but not into silver, which I can't.
Mr Fekete, obviously taken aback by my
sociopathic corruption, agrees with me, however
reluctantly, and says, "In more detail, the cost
of transporting the unit of value as represented
by gold is lower. For example, if the bimetallic
ratio is 15, then the cost of transporting the
unit of value as represented by silver is about 15
times higher. Roughly the same rule applies to the
cost of storage as well. This makes gold superior
to silver as a monetary metal. It is more suitable
as a vehicle to transfer value over space as well
as over time."
I held up a finger to
indicate that I wished to add that since silver is
selling at a stunning, amazing, historically low
percentage of the price of gold, then silver has
more upside potential! But, as usual, like
everybody, he didn't want to hear what I had to
say, and he left, but he gave me a finger on his
way out. Just like they all do.
And I am
buying silver to see who laughs last!
Richard Daughty is general
partner and COO for Smith Consultant Group,
serving the financial and medical communities, and
the editor of The Mogambo Guru economic newsletter
- an avocational exercise to heap disrespect on
those who desperately deserve
it.
Republished with permission from The Daily Reckoning.
Copyright 2007, The Daily
Reckoning.
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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