Silver 3: Respond as a Small Investor

Rebecca Ridolfo, July 2015
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  1. Leverage & Counterparty Risk
  2. Flying to Quality
  3. Shopping for Silver
  4. Sources

Leverage & Counterparty Risk

When securities are leveraged, the results are magnified – the profits are bigger in good times and the losses are bigger in bad. When the market goes against your position, losses can rapidly eat through your entire original investment and more. You know you' re broke when get the dreaded margin call – “a broker's demand on an investor using margin to deposit additional money or securities” Investopedia – or your fund goes bust, as investors in Nobel-prize-winning LTCM discovered in 1998.

“The risk to each party of a contract that the counterparty will not live up to its contractual obligations … also known as default risk.” Investopedia While low prices create short-term benefits for manufacturers who use silver & derivatives investors, the pressure on miners greatly increases counterparty risk. As a game of musical chairs, a market crash would leave at lot of participants standing empt-handed. The Contracts For Difference game works only as long as very few participants ask for delivery of the underlying assets at the same time. But what if 50 or 100 people are chasing each ounce of metal? It creates huge default risk and the winners are likely to be the powerful, those who can enforce their claims above those of their competitors.

Now I can see why they say that possession is 9/10ths of the law. In 2012, the German government tried to repatriate its gold, stored with the US Fed. The Fed refused to allow German officials to even view their own gold at first and then gave a timeframe of 7 years for its return!? At what point does delayed become rehypothecated become stolen? If the banksters can do that to a government, what can they do to you? The small investor's counterparty risk is massive in comparison to that of governments & big banks, which have become expert at getting to the front of the queue when anything goes into default. And defaults have never been more likely. Max Keiser

Flying to Quality

“Holding [silver, money, investments] outside of the system, so that it is not encumbered by counterparty risk, has never been more important.” SD Metals & Markets The system continues to limp along provided industrial deliveries are still being made. However, the downwards pressure on stockpiles & mining companies is growing. It cannot continue in the same vein forever. Combined with the teetering pyramid of derivatives, these mismatches are a breeding ground for Black Swan events. [Nassim Nicholas Taleb]

Whenever a market bubble pops or a fiat currency collapses – as has happened hundreds of times during recorded history – market corrections leave only one thing standing and that is productive assets. When the hysteria subsides, what retains its value are hard assets like commodities, land, property & machinery. It must be wholly owned, because if it's leveraged, it could melt away in a flurry of margin calls, bankruptcies & defaults. If it's not in your control & possession, you may not be able to get it back – as the Germans, Dutch et al found out the hard way when they tried to repatriate their gold from the US Fed.

At the moment, the markets are utterly dysfunctional and the old tried-and-tested strategies no longer apply. I advise you to look in the opposite direction from wherever you're being pointed. Ponzi schemes depend on herd behaviour. Look at charts & documentaries about previous crashes, particularly the 1929 one. The Glass-Steagall Act, designed to stop a repeat of the big Wall Street crash, was repealed in 1999 and the situation has reverted to the casino 1920s. When things really get out of control, the public won't find out until it's a fait accompli. Roosevelt Institute

Three other areas for research are 1] other commodities, 2] crypto-currencies and 3] crowd-investing (2&3 being largely outside the mainstream banking system).

Shopping for Silver

The long-term prospect for silver is one of the very few things that are looking bright to me. Silver is a store of value against disruption in the fiat currency markets (2016: and hyperinflations like the one Venezuela is currently enduring). Rather than generating income from dividends or coupons, long-term profit depends on capital growth, which necessitates the anticipation of future demand. At the moment, silver prices remain below mining cost – for once, the only way really is up (or oblivion). The price suppression is about the only way that Joe Ordinary can profit from QE in the long term, by buying valuable but suppressed commodities cheap. (Note that prices of oil, copper, iron, lumber etc are also crashing, a sign that the underlying economy is faltering.)

To avoid counterparty risk, you can hold precious metals at home, since they are compact and do not spoil or rot. They can be hidden in furniture, doors, walls, bins, in the garden & in geocaches. Much safer than a vault to which someone else holds the key. ArduinoTronic has an excellent YouTube explaining how to hide your valuables.

I researched 12 bullion companies, 3 of them in detail – I even checked the addresses on Google StreetView – before deciding on Baird & Co. Their margins are very tight and, to my knowledge, their deliveries are reliable. Baird is a mint listed on the LBMA, so it's as close to source as a retail consumer can get. When the system breaks, they will be one of the last to go.

Please rely on yourself, do your research and protect your wealth & loved ones. Good luck!


The Silver Institute website home

Investopedia dictionary

RT's Max Keiser on gold repatriation article

Eric Dubin of News Doctors & the Doc of Silver Doctors video 18:41 to 18:49

The Black Swan – the impact of the highly improbable; Nassim Nicholas Taleb, 2007

Roosevelt Institute article

ArduinoTronic on hiding valuables video


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