by Jason Hommel, May 13, 2005
I believe that now is an excellent time to buy silver stocks.
Here is the silver story in a nutshell:
Silver is cheap because silver is not being used as money anywhere in the world. Reduced demand for silver money causes a reduced price. This trend has taken over 100 years to fully develop.
The second trend is the age of electronics that began at the end of World War II, and has now lasted 60 years. Annual consumption of silver exploded upwards, about 10 times greater than before, and an average person in a first world nation consumes seven tenths of an ounce of silver per year. This has resulted in the consumption of about 90% of all the silver in the world, during a time when the world was reducing demand for silver as money.
The third trend is the abnormally large growth, in every nation of the world, of paper money not backed by any precious metal. Our monetary system is built on countless frauds, and is now beginning to show major signs of failing.
For over 2000 years, the amount of silver in a silver dime was worth a day’s wage — whether in Roman times when it was known as a denarius, or whether over 100 years ago in the U.S. Yet today, you can buy a silver dime, dated 1964 or earlier, for about 50 cents if you buy them in bulk, by the bag, for about $5000. Yet today, an average day’s wage is about $150.
Due to the coming failure of our monetary system, I expect silver to return to its historic value, and even higher due to the shortage. This means that I expect a silver dime that you can buy today for 50 cents to rise in value to where it should be able to buy what $150 buys today. That is a rise in value by over 300 times. That means a bag of silver, for $5000, should rise in value to over $1.5 million dollars by the time paper money fails and society demands to use silver and gold as money again.
Current monetary demand for silver is zero. Investment demand stands at a tiny 25 million oz. per year, out of 600 to 700 million oz. produced per year. I believe that a single billionaire could push up the price of silver to well over $25/oz. with less than $1 billion dollars of buying power.
Currently, silver looks ready to break out and head to $10/oz. at anytime! I’m not a technical analyst, but one of the most bullish formations is an ascending triangle, which can easily be seen on a long term silver chart.
The fundamentals for precious metals right now are fantastic.
–General Motors has nearly $300 billion worth of bonds that have been rated as junk status! Search for “general motors junk” at google.com for all the headlines. GM’s total debt is listed here: http://finance.yahoo.com/q/ks?s=GM Total Debt (mrq)²: 291.83B(illion)\
Funds will be required to start selling these bonds, which will put tremendous downward pressure on the entire bond market. As some of you may know, the Fed has long been supporting (manipulating) the bond market in three ways:
- Ending sales of the 30-year T-bond.
- Actually buying bonds, and futures, and options in the bond market.
- Not selling the $700 billion in current U.S. debt into the bond market. (How can they sell if they are buying?!)
As further proof, several treasury auctions were held this year, and almost no public buyers were found.
Bonds were once promoted as being the safest investments around. Low return was supposed to equal low risk. It’s not working out that way.
Why is this happening?
I’ll call it, “The Law of the Big!”
It means this: The biggest things cannot grow more than ¼ of 1% per year. The proof can be seen in an Excel spreadsheet. If you invest an ounce of gold for 6000 years, it will grow to about 6 billion. That’s more than all the gold in the entire world. If it’s impossible for one person to own it all, then the biggest cannot grow at more than a quarter point per year! And if they do grow more, then they must also shrink at times.
We are in a time period where the false wealth of U.S. paper dollars has been shrinking in value, as measured in gold, since 2001.
As I wrote in Nov. 2003, in my article, “Inflation & Deflation During Hyperinflation” www.gold-eagle.com/editorials_03/hommel110603.html –the gold value of U.S. paper money peaked, as it was worth just over 28 billion ounces of gold. (on paper)
June 2001: M3 7,628 billion / gold price $270/oz. = 28.2 (billion oz. gold value)
In contrast, today, M3 www.federalreserve.gov/releases/h6/Current/ is 9567 billion. Divided by $422/oz., that paper should be worth 22 billion oz. of gold. The gold value is shrinking!
As you all should be aware, what value is a paper bond paying 5% if inflation is at 10% per year? It’s a guaranteed loss of 5% per year! The government lies about inflation rates!
The “Law of the Big” means that large corporations are bound to make extremely costly mistakes at times. Going into tremendous debt is one of the big mistakes.
The opposite implication of the “Law of the Big” is the “Law of the Small”. This rule means that the smallest things will grow at the highest and fastest rates. Witness the growth of China. When individual people start out with annual incomes of $300/year, they can grow their incomes at very high rates for many, many years in a row. Witness the 314% average increase in silver stocks in the latter half of 2003!
The main implication of these two laws, for silver investors, is that the small size of the silver bullion market is virtually guaranteed to mean that we will see the highest rates of return on our investment choices, for many years to come.
Here are THREE silver stock picks that I’ve recently been buying.
Sterling Mining. SRLM.PK
I bought just over 100,000 shares at an average of $3.95. There is no reason for this stock to be trading as low as $3.05/share, as it did today. The problem must be momentum driven selling due to there being more technical traders than investors who believe in the fundamentals in this silver market. I feel fortunate to have bought 1000 more shares at $3.15 just today.
Sterling Mining has 16.6 million shares outstanding, and fully diluted, as of about a month ago, and at $3.05, has a market cap of just over $50 million, U.S.
Sterling Mining acquired the famous Sunshine mine in Idaho nearly 2 years ago. A few weeks after that was announced, the stock jumped from about $.85/share to over $2.50/share. Thus, the maximum downside to Sterling Mining stock right now should be to about $3.00/share. Certainly, big buyers will not be able to accumulate all the stock they would like at these low levels. Sterling Mining trades the most of these three stocks, as the daily dollar volume is about $100,000 to $300,000.
Clifton Mining. CFTN.PK
I have recently been buying Clifton Mining as it dipped below $.60. I was buying all I could on the bid as the stock dipped down to $.45, and back up to $.70. It was very odd, as very few of my bids were being filled, and yet the stock just kept falling. I caught up with Ken Friedman, President of Clifton, in Chicago last week. He said that he thought there may be short selling, given the way the stock has been trading, and I tend to agree. Fortunately, I was able to acquire 40,000 shares of Clifton at $.70 just yesterday.
Clifton Mining has 47 million shares fully diluted (as of May 2004, but I don’t remember them doing any significant financings since then. Check with the company though, to make sure.) That would give Clifton, at $.70/share, a market cap of $33 million, U.S.
Clifton Mining has made good progress with Dumont, their JV partner, exploring their many properties.
More exciting, however, is their patented colloidal silver ASAP solution, which is far superior to any other colloidal silver product yet found. Their ASAP solution cured malaria in all test subjects, in 5 days or less. A single order of 50 million units by any government in the world would send Clifton’s stock price soaring. Clifton sells their product for $29/bottle. Shareholders can order by the case, at $400/case, at $8/bottle, directly from the company. I take the stuff, and it works for a wide variety of things, from clearing up acne, to fixing my children’s ear aches.
Cabo Mining CBE.V CBEFF.PK
I purchased most of my Cabo Mining in late 2003 in a private placement at about $.20/share Cdn. Cabo has traded as high as $1.30/share Cdn, and currently trades at around $.61/share Cdn. I’ve been buying Cabo, even though it’s my second largest holding, currently. It’s been difficult to buy on the bid, but I acquired 13,500 shares yesterday at $.58.
Cabo Mining has 36.5 million shares fully diluted (Feb., 2005). At $.59/share Cdn. x .80US/Cdn, Cabo has a market cap of $17.2 million, U.S.
Cabo Mining has a large land position of silver properties in Cobalt, Ontario, the silver capital of the world. Cobalt historically produced 500 million oz. of silver. The type of silver is extremely high-grade “slab silver” very rich. There are about 7 historic silver mines on Cabo’s property.
Cabo Mining is also Canada’s 3rd largest drilling company, due to recent acquisitions since 2003, shrewdly negotiated at the bottom of the precious metals market, when drills were plentiful and cheap. Today, however, the mining industry has raised over $11 billion in the last year, and all of that money is looking for drills. Cabo just raised their prices 25% higher than their price the previous year, and they continue to acquire more drilling companies. This is a cash flow positive company, that is growing, and on the move. Cabo also has nearly $8 million Cdn cash in the bank!
Please remember the “law of the big” before you go out and try to buy any of these three stocks tomorrow or next week. I send this email out to just over 15,000 people now-and it’s getting bigger! My subscriber list is “BIG” for the tiny silver market. As a comparison, Silver Standard (SSRI) has about 35,000 shareholders. Also, I’m also quite a large trader myself. I have seriously considered opening up a hedge fund for silver stocks. I have decided against it. The reason why is “the law of the big”. Many times, the best opportunities in the silver stock market are simply too small for me to buy. If I were to manage other people’s money, it would mean that a smaller portion of my own money would be able to be allocated to these “tiny” opportunities that I’ve been able to identify.
If this report causes significant price gains in the three stocks above, I will be forced to look elsewhere for good buying opportunities. And if prices are moved upwards too much, too quickly, say in the next two weeks to a month or so, perhaps upwards of about 100% higher from today’s prices, I will be forced to sell my shares in these stocks. It may be wiser for you to try and identify silver stock picks on your own, or to look through my last large free report that contained a list of over 80 silver stocks to buy. You can access that report here:www.silverstockreport.com/reports/silverstockreport56.html
I never trade on margin. I never buy futures contracts. I never buy options. I am often gifted with warrants when participating in private placements