Sunday, December 19, 2010

Opportunities (Updated - 60 Minutes News Story)

Late last night I got together with some friends for a pre-Christmas coffee.

Invariably the conversation turned to the topics of Silver and Real Estate, triggering an update of sorts.

During the summer, 'S' had asked my opinion about real estate.

Aware of my strident stand on the issue from friends, he wanted to hear first hand my thoughts on becoming a first-time buyer with his girlfriend.

You know my answer.

And I laid out the full case: buying real estate now was a poor decision, interest rates had no where to go but up, and the looming spectres of QE2/US debt problems/and the PIIGS meant that there were far greater investment opportunities out there with which he could benefit from in the short term.

My advice: instead of buying real estate, invest any downpayment he had set aside and by the end of the year he would be way ahead of where he would have been if he bought a condo.

My recommended investment of choice?

Silver. I specifically recommended a silver mining stock known as First Majestic (FR), a stock I have referred to several times before on this blog.

[For the sake of disclosure - at the time I owned some of the stock, I have since sold all that stock and currently I do not own any of it.]

If you read this blog regularly, you know my position on this. I do not consider myself a Gold/Silver 'bug'. I am firmly of the belief that Gold & Silver is not money, nor is it a hedge against inflation (it performs that role very poorly).

Gold/Silver is a hedge, however, against the mismanagement of the state; which at this time and place is the United States with it's world's reserve currency status.

In the summer I told 'S' that it was almost a certainty that the United States would be forced to continue Quantitative Easing on a massive scale. Because of this, I opined, it seemed clear to me that a large segment of the world would be moving into the mediums of Gold & Silver on a scale that hasn't occurred in over 100 years.

At the time of our discussion, that silver mining stock (FR) hovered at the $5.80 mark.

'S' contrasted my viewpoint with the experience of a mutual friend/coworker. He had just sold his condo for $805,000 (bought 10 years ago for $300,000). With no outstanding mortgage, it was all bubblicious profit.

What did the coworker do? He bought half a Vancouver duplex for $920,000 (a property which still required $80,000 - $100,000 of renovations) confident that real estate was the best place for his funds.

I told him our co-worker was crazy. I believe he was throwing away the opportunity of a lifetime to invest that money, realize a massive return and rent in the interim.

Fast forward to the end of the year and we had a chance to review.

So what's happened since August?

Physical silver has gone up by almost 70% and the mining stock First Majestic has gone from $5.80 to a close last Friday of $13.21.

Had our mutual co-worker invested the $805,000 in that stock, he would be sitting on over $1,833,000 today; a profit of over $1 million in just four months!

I re-iterated my point.

Real Estate right now is a tremendously poor investment choice.

There are far greater opportunities for huge returns that completely dwarf real estate.

Even if real estate in Vancouver goes up the estimated 10% next year, it won't compare to what I believe you will see if you invest in Silver.

First time buyers? Same advice. Take you downpayment and invest it.

That was my advice in August and that's my advice now.

Gold & Silver still have a tremendous upside. I can see Silver easily moving to $35-$38 an ounce by spring, hitting at 10-30% correction, and then taking off again.


The economy is stalling. QE2 is not generating the desired results, Europe is in shambles with huge debt issues still to be addressed in Greece, Portugal and Spain. And looming in the background with it's own debt catastrophe is the U.K.

Meanwhile there is the United States.

The next looming crisis will be the mounting debts of the individual States in America.

Many State and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years with the problems starting to come to a head in 2011.

If you thought the Wall Street bailouts were massive, they are nothing compared to what is going to be needed for the individual US States. And the American government, along with the Federal Reserve, are not going to allow those States to go bankrupt.

QE 3, 4 and 5 are all but assured.


Word is starting to spread that our nation's Real Estate Bubble is making our Banks look anything but sound.

Combine that with a looming credit downgrade for the Province of New Brunswick as well as for other provinces such as Ontario and Quebec and suddenly critics are saying our provincial balance sheets and economies bear a resemblance to the troubled states of Europe than a country that should be considered an oasis in the Western quagmire.

Gold & Silver are hedges against the mismanagement of the state. With what's going on in Europe, the USA, and our country, I can't envision any scenario that doesn't have massive amounts of money pouring into precious metals.

'S' was curious if my advice had changed since summer?

Not a chance.

[As always, please read disclaimer at bottom of this blog]

CBS 60 Minutes Update

Interestingly, the lead story on 60 Minutes tonight is State Budgets: Day of Reckoning. From the introduction...
  • By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.

    It has gotten much less attention because each state has a slightly different story. But in the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole in their public pension funds.

    The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.



Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.


  1. Great post!!

    Do you recommend silver mining stocks or a silver index fund? Any good ones out there?

    Thanks in advance,

  2. it is worrisome that a state like California can be broke with all their economic engines, film industry, silicon valley, tourism, wine production, and agriculture, retirement industry and services etc., isn't their state GDP greater than Canadas with a similar population. If it can happen there what could it be like here in BC

  3. "FOFOA On Gold's 'Focal Point'" on is a must read.

    It explains why gold and not silver has a future as the world moves to a 'freegold' worldwide gold standard against which all currencies will be valued.

    In the end there can be only one; bimetalism does not work.

  4. Sure it does ("bimetalism", hmmm bi... ). If you know that historical proportion of silver to gold price is.

    The problem why gold might not work is because it has no itrinsic value, you cannot eat it, fuel up your car with it and just like with any feat money it is faith based.

    I'm not saying that you cannot profit handily from holding gold, but in ideal world, currency would be based on something more absolute. Like an atomic unit of energy - i.e. quantum. Something that you can readily use to synthesize matter.

    Similarly, technological progress that would make quantum gathering/storing more efficient would naturally devalue existing stores of these units, thus preventing hoarding and forcing an investment.


  5. Thanks for the comments gang. In Transit today so will answer, and post, when I can.

  6. I don't really understand this argument that gold is not an inflation hedge. You said yourself Mr Whisperer that quantitative easing will continue and therefore large amounts of money will pour into gold. Is QE not inflation that is driving up gold prices? If I am reading John Embry correctly , he seems to think money printing (inflation) leads to higher gold prices.

  7. Something else that I find funny is this notion that gold is not money. What is money? Let's look at just two definitions of money:
    1. Money is a medium of exchange. Is the US dollar a medium of exchange? Yes.
    Is gold a medium of exchange? No.
    2. Money is a store of value. Is the US dollar a store of value? No.
    Is gold a store of value? Yes.
    So, neither gold nor currency meet the definition of money, however which would you rather have as money? I would take gold hands down, since it maintains it's value and is easy to convert back into currency.
    The only reason I see that gold is not money is because a bunch of bankers and their politicians have decided we have to use their depreciating script that is not worth the paper it is not written on, to quote Gerald Celente.
    Gold is the hitching post of the economic universe. It's our money and it exposes the deceit of the central banks, which is why government hates gold. Currency is toilet paper, because it has always reverts to it's intrinsic value, which is zero.

  8. Oh, c'mon! Removing fiat currency would take the power away from the guys with printers and give it back to the same crooks, but with an access to the gold mine and an ability to tax the hell out of gold transactions. That is, nothing would change. In ideal world gold (it not inflated by emotions as it is now) could possibly preserve one's wealth, however in the real world after all the overhead costs of keeping it and transacting in it, the lost would be just as great as if one was using fiat currency.

    The problem is not what is chosen to be a representative of medium of exchange, but how is it governed and protected.

    Again, I'm not saying that one cannot gain handily by holding gold, but this a different topic.


  9. we've gone from gold as a medium of exchange, to "money" then to "credit" now exchanges are just entries on a computer, problem with gold is that it cant be faked, manipulated or just created like money or credit and therefore gold can't be the basis of our imaginary economy where everyone is in debt all governments are broke as are most large corporations, gold just cannot keep up