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October 08, 2007

The Rodney Dangerfield of Commodities
by The Mogambo Guru

"As for the apparent disrespect for silver, it's the vector you get from history…and the suspicion that comes from an enigma, wrapped in a mystery, wrapped in a corrupt, stinking, filthy Comex/Nynex/government mess, so that now we are freaking doomed."

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/Nynex/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 thirty 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 Soro's 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 details, 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 as 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!

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Richard Daughty, the angriest guy in economics
The Mogambo Guru

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.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

Copyright © 2005-2008 Richard Daughty

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