When panic and fear dominate financial markets, gold and silver both tend to rapidly rise in price. We witnessed this during the last financial crisis, and it is starting to happen again. Because I am the publisher of a website called The Economic Collapse Blog, I am often asked about gold and silver when I do interviews. In fact, just a few days ago I was sitting right next to Jim Rickards during the taping of a television show when this topic came up. Jim expressed his belief that investing in gold is superior to investing in silver, but I had the exact opposite viewpoint. In this article, I would like to elaborate on why I believe that silver represents a historic investment opportunity right now.
I should start out by disclosing that my wife and I have been able to put away a little bit of silver over the years. I wish that it could have been a lot more, but so often there are other priorities that need to be addressed. For example, I have always said that people need to take care of their emergency food storage first before even thinking about any kind of investments.
But if you have money left over after taking care of the basics, I am fully convinced that silver is a wonderful investment for the mid to long term. In this article, I am going to explain why this is the case. However, I have always warned that you have got to be ready for a rollercoaster ride if you get into precious metals. So if you can’t handle the ups and downs, you should probably avoid them altogether.
As I write this article, the price of gold is sitting at $1254.30 an ounce.
Meanwhile, the price of silver is sitting at just $15.81 an ounce.
That means that the price of gold is currently more than 79 times higher than the price of silver. For the ratio between gold and silver to be this high is truly unusual.
You see, the truth is that there is only about 17 times as much silver as there is gold in the Earth’s crust. And currently silver is being mined at about an 11 to 1 ratio to gold.
So it makes sense that throughout history gold has typically sold at about a 15 to 1 ratio to silver.
During the years to come, I do believe that gold will multiply in price.
But I am also convinced that the price of silver will go up much, much faster.
As they both skyrocket in price, the price ratio between gold and silver will shift very quickly from 79 to 1 in the direction of 15 to 1.
Perhaps we may never even get all the way back to 15 to 1, but if we even got to 40 to 1 or 30 to 1, what that would mean for silver would be history making.
Let us also keep in mind that unlike gold, silver is constantly being used up in thousands of different industrial applications. The following comes from Jeff Nielson…
Over the past quarter century, more silver-based patents have been created than with any other metal on the planet. But not only does silver have unparalleled versatility, it is an extremely potent metal, meaning that in many of its commercial applications it is used in only trace amounts.
Why is this of significance? Because in such tiny quantities it is economically impractical to ever recycle any of this silver, at prices anywhere near the (absurd) levels of recent decades. Thus this silver is being consumed in tiny amounts, but in billions and billions of consumer products, over a span of decades.
Unlike gold, our stockpiles of silver are disappearing. As previously mentioned, for at least the last thirty years, the only way that our strong demand for silver could be satisfied has been through consuming portions of these stockpiles.
It has been estimated that approximately one billion ounces of silver have been used in consumer products over the past ten years alone.
Even if the world could somehow avoid the great financial turmoil that has already begun, the truth is that eventually a great demand crunch for silver would come just based on how much of it we are steadily consuming.
At less than 16 dollars an ounce right now, silver is ridiculously undervalued.
Those that are wise see this, and they are stocking up on silver coins at an unprecedented level. Just check out these numbers…
Silver Eagle sales will likely jump by 25% in the first quarter due to deteriorating market conditions. During the first three months last year the U.S. Mint sold 12 million Silver Eagles. Already, sales of Silver Eagles have reached 13 million. There are two weeks remaining in March and the U.S. Mint will likely sell another two million. This will put total Silver Eagle sales for the first quarter at 15 million….. the highest ever.
I have always said that I believe that the price of silver will eventually go over $100 an ounce.
When that happens, those that got in today will be exceedingly happy with their returns.
Others are projecting even greater gains. For instance, investing legend Egon von Greyerz believes that the price of silver could ultimately go as high as $660 an ounce, and Jeff Nielson believes that $1,000 an ounce for silver would be a fair price.
But once again, don’t even think about getting into precious metals until you have the basics squared away. It is often said that you can’t eat gold or silver, and that is very true.
In our new television show, my wife and I are always going to tell it to you straight. A lot of people out there are relaxing right now because they think that the recent stock market rally means that the crisis is over. What they don’t understand is that this new financial crisis is just in the very early chapters. There are going to be more ups and more downs, and the shaking that we have seen so far is just the beginning.
Many of you may not want to believe me at this moment, but by the end of 2016 life in America is going to look dramatically different than it does right now. So please get prepared while you are still able to do so.
Stock markets around the world continue to collapse as this new global financial crisis picks up more steam. In the U.S., the Dow lost 254 more points on Thursday, and it has now fallen for five days in a row. European stocks continued to get obliterated, and financial institutions are leading the way. But this week what is happening in Japan has been the most sobering. After falling 918 points the other day, the Nikkei plunged another 760 points early on Friday. The Nikkei has now fallen for seven of the past eight days, and investors in Japan are in full panic mode. Overall, global stocks are well into bear market territory, and nearly 17 trillion dollars of global stock market wealth has already been wiped out.
As panic rises, investors are seeking alternative investments. On Thursday, the price of gold hit $1,260 an ounce at one point before settling back a bit. But even with the fade at the end of the day, it was still the biggest daily gain in more than two years. Overall, gold is having its best quarterly performance in 30 years.
Whenever a financial crisis happens, investors seek out safe havens such as gold that can help them weather the storm. In particular, demand for physical gold is going through the roof all over the planet. Just check out the following excerpt from a Telegraph article entitled “Investors ‘go bananas’ for gold bars as global stock markets tumble“…
BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.
Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.
BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.
Meanwhile, the price of oil continues to drop to stunning new depths. On Thursday U.S. oil dropped as low as $26.21, which was the lowest price in 13 years. Not even during the worst parts of the last financial crisis did oil ever go this low.
And remember, the price of oil was sitting at about $108 a barrel back in June 2014. Since that time it has fallen about 75 percent.
Needless to say, this crash is having some very serious consequences for the energy industry. Previously, I have reported that 42 North American energy companies have gone into bankruptcy since the beginning of last year.
But I just found out that the true number is much worse than that.
According to CNN, “67 U.S. oil and natural gas companies filed for bankruptcy in 2015″…
Bankruptcy filings are flying in the American oil patch.
At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese.
That represents a 379% spike from the previous year when oil prices were substantially higher.
With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone.
A lot of people tend to think that my writing is full of “doom and gloom”, but the truth is that I often understate how bad things really are. I’ll often report one number and find out later that an updated number is even worse than the one that I originally reported.
What we desperately need is for the price of oil to go back up.
Unfortunately, the International Energy Agency says that isn’t likely to happen any time soon…
The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its monthly report.
And of course all of this is incredibly bad news for financial institutions all over the world.
During the boom times, the big banks showered energy companies with loans. Now those loans are going bad, and the big banks are feeling the pain. The following comes from CNN…
It’s never a good sign when the country’s financial lifelines are under stress. Large U.S. banks JPMorgan Chase (JPM) and Wells Fargo (WFC) that helped bankroll the energy boom are already setting aside billions to cover potential loan losses in the oil industry. Investors are worried about imploding energy loans for European banks like Deutsche Bank (DB). High yield bonds in your investing portfolio wont be looking good either — Standard & Poor’s warned that half of all energy junk bonds are at risk of defaulting.
Speaking of Deutsche Bank, their stock price continued to plummet on Thursday, as did the stock prices of most other European banks.
Things were particularly bad for France’s Societe Generale. Their stock price plunged 12 percent on Thursday alone.
This is what a global financial crisis looks like. It began during the second half of last year, and now it is making major headlines all over the planet.
At this point, things are already so bad that the elite are starting to freak out about what this could potentially mean for them. I want you to carefully consider the following two paragraphs from an editorial that I came across in the Telegraph earlier today…
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.
I think that the author of this editorial is correct.
I do believe that another financial crisis on the scale of 2008 would trigger “a cataclysmic, uncontrollable backlash”.
In fact, I believe that is what we are steamrolling toward right now.
We can already see the anger of the American people toward the establishment being expressed in their support of Bernie Sanders and Donald Trump.
But if the financial system completely collapses and it becomes exceedingly apparent that none of our problems from the last time around were ever fixed, the frustration is going to be off the charts.
Many people believed that this day of reckoning would never come, but now it is here.
The “coming nightmare” is now upon us, and this is just the start.
The rest of 2016 promises to be even more chaotic, and ultimately this new crisis is going to turn out to be far worse than what we experienced back in 2008.
When financial markets crash, they do not do so in a vacuum. There are always patterns, signs and indicators that tell us that something is about to happen. In this article, I am going to share with you four patterns that are happening right now that also happened just prior to the great financial crisis of 2008. These four signs are very strong evidence that a deflationary financial collapse is right around the corner. Instead of the hyperinflationary crisis that so many have warned about, what we are about to experience is a collapse in asset prices, a massive credit crunch and a brief period of absolutely crippling deflation. The response by national governments and global central banks to this horrific financial crisis will cause tremendous inflation down the road, but that comes later. What comes first is a crisis that will initially look a lot like 2008, but will ultimately prove to be much worse. The following are 4 things that are happening right now that indicate that a deflationary financial collapse is imminent…
#1 Commodities Are Crashing
In mid-2008, just before the U.S. stock market crashed in the fall, commodities started crashing hard. Well, now it is happening again. In fact, the Bloomberg Commodity Index just hit a 13 year low, which means that it is already lower than it was at any point during the last financial crisis…
On Monday, the price of oil dipped back below $50 a barrel. This has surprised many analysts, because a lot of them thought that the price of oil would start to rebound by now.
In early 2014, the price of a barrel of oil was sitting above $100 a barrel and the future of the industry looked very bright. Since that time, the price of oil has fallen by more than 50 percent.
There is only one other time in all of history when the price of oil has fallen by more than $50 a barrel in such a short period of time. That was in 2008, just before the great financial crisis that erupted later that year. In the chart posted below, you can see how similar that last oil crash was to what we are experiencing right now…
#3 Gold Is Crashing
Most people don’t remember that the price of gold took a very serious tumble in the run up to the financial crisis of 2008. In early 2008, the price of gold almost reached $1000 an ounce, but by October it had fallen to nearly $700 an ounce. Of course once the stock market finally crashed it ultimately propelled gold to unprecedented heights, but what we are concerned about for this article is what happens before a crisis arrives.
Just like in 2008, the price of gold has been hit hard in recent months. And on Monday, the price of gold absolutely got slammed. The following comes from USA Today…
The yellow metal has tumbled to a five-year low amid a combination of diminishing investor fears related to foreign headwinds in Greece and China, and stronger growth in the U.S. which is leading to a stronger dollar and coming interest rate hikes from the Federal Reserve. Investors have been dumping shares of gold-related investments as other bearish signs, such as less demand from China and the breaking of key price support levels, add up.
Earlier today, an ounce of gold fell below $1,100 an ounce to $1,080, its lowest level since February 2010. Gold peaked around $1,900 an ounce back in 2011.
For years, I have been telling people that we were going to see wild swings in the prices of gold and silver.
And to be honest, the party is just getting started. Personally, I particularly love silver for the long-term. But you have got to be able to handle the roller coaster ride if you are going to get into precious metals. It is not for the faint of heart.
#4 The U.S. Dollar Index Is Surging
Before the U.S. stock market crashed in the fall of 2008, the U.S. dollar went on a very impressive run. This is something that you can see in the chart posted below. Now, the U.S. dollar is experiencing a similar rise. For a while there it looked like the rally might fizzle out, but in recent days the dollar has started to skyrocket once again. That may sound like good news to most Americans, but the truth is that a strong dollar is highly deflationary for the global financial system as a whole for a variety of reasons. So just like in 2008, this is not the kind of chart that we should want to see…
If a 2008-style financial crisis was imminent, these are the kinds of things that we would expect to see happen. And of course these are not the only signs that are pointing to big problems in our immediate future. For example, the last time there was a major stock market crash in China, it came just before the great U.S. stock market crash in the fall of 2008. This is something that I covered in my previous article entitled “Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?”
As an attorney, I was trained to follow the evidence and to only come to conclusions that were warranted by the facts. And right now, it seems abundantly clear that things are lining up in textbook fashion for another major financial crisis.
But even though what is happening right in front of our eyes is so similar to what happened back in 2008, most people do not see it.
And the reason why they do not see it is because they do not want to see it.
Just like with most things in life, most people end up believing exactly what they want to believe.
Yes, there is a segment of the population that are actually honest truth seekers. If you have felt drawn to this website, you are probably one of them. But overall, most people in our society are far more concerned with making themselves happy than they are about pursuing the truth.
So even though the signs are obvious, most people will never see what is coming in advance.
Why in the world has JP Morgan accumulated more than 55 million ounces of physical silver? Since early 2012, JP Morgan’s stockpile has grown from less than 5 million ounces of physical silver to more than 55 million ounces of physical silver. Clearly, someone over at JP Morgan is convinced that physical silver is a great investment. But in recent times, the price of silver has actually fallen quite a bit. As I write this, it is sitting at the ridiculously low price of $15.66 an ounce. So up to this point, JP Morgan’s investment in silver has definitely not paid off. But it will pay off in a big way if we will soon be entering a time of great financial turmoil.
During a time of crisis, investors tend to flood into physical gold and silver. And as I mentioned just recently, JPMorgan Chase chairman and CEO Jamie Dimon recently stated that “there will be another crisis” in a letter to shareholders…
Some things never change — there will be another crisis, and its impact will be felt by the financial market.
The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets
And Dimon is apparently putting his money where his mouth is.
If Dimon believes that another great crisis is coming, then it would make logical sense to stockpile huge amounts of precious metals. And in particular, silver is a tremendous bargain for a variety of reasons. Personally, I like gold, but I absolutely love silver – especially at the price it is at right now.
Over the past few years, JP Morgan has been voraciously buying up physical silver. Nobody has ever seen anything quite like this ever before. In fact, JP Morgan has added more than 8 million ounces of physical silver during the past couple of weeks alone. The following is an extended excerpt from a recent article by Mac Slavo…
According to a detailed report from The Wealth Watchman JP Morgan Chase has been amassing a huge stockpile of physical silver, presumably in anticipation of a major liquidity event.
They’re baaaaack. Yes, “old faithful” is back at it again!
Of course, they never really left silver, and have been rigging it non-stop in the futures market, but for awhile there, there were at least no admissions of newly-stacked silver being made in their Comex warehousing facilities.
Yet, after a 16 month period of “dormancy” within their Comex warehouse vaults, these guys have returned with a vengeance.
In fact, our old buddies at JP Morgan Chase, not only see value in silver here, but they’re currently standing for delivery in their own house account in such strong numbers, that it commands our attention. Let me show you what I mean.
Here’s a breakdown of the Comex’s most recent silver deliveries to JP Morgan:
April 7th: 1,110,000 ounces
April 8th: 1,280,000 ounces
April 9th: 893,037 ounces
April 10th: 1,200,224 ounces
April 14th: 1,073,000 ounces
April 15th: 1,191,275 ounces
April 16th: 1,183,777.295 ounces
This is a huge bout of deliveries in such a short space of time. In fact, within the realm of Comex world, it’s such an exceptionally large amount, that it even creates quite a spike on the long-term chart of JP Morgan’s vault stockpile:
All in all, JP Morgan has added over 8.3 million ounces of additional silver in just the past 2 weeks alone.
Do they know something that the rest of us do not?
Meanwhile, JP Morgan Chase has made another very curious move as well. It is being reported that the bank is “restricting the use of cash” in some markets, and has even gone so far as to “prohibit the storage of cash in safe deposit boxes”…
What is a surprise is how little notice the rollout of Chase’s new policy has received. As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland. The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans. Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes . In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,” one of the highlighted items reads: “You agree not to store any cash or coins other than those found to have a collectible value.” Whether or not this pertains to gold and silver coins with no numismatic value is not explained.
What in the world is that all about?
Why is JP Morgan suddenly so negative about cash?
I think that there is a whole lot more going on behind the scenes than we are being told.
JP Morgan Chase is the largest of the six “too big to fail” banks in the United States. The total amount of assets that JP Morgan Chase controls is roughly equal to the GDP of the entire British economy. This is an institution that is immensely powerful and that has very deep ties to the U.S. government.
Could it be possible that JP Morgan Chase is anticipating another great economic crisis?
We are definitely due for one. Just consider the following chart from Zero Hedge. It postulates that our financial system is ready for another “7.5 year itch”…
JP Morgan certainly seems to be preparing for a worst case scenario.
The Chinese do not plan to live in a world dominated by the U.S. dollar for much longer. Chinese leaders have been calling for the U.S. dollar to be replaced as the primary global reserve currency for a long time, but up until now they have never been very specific about what they would put in place of it. Many have assumed that the Chinese simply wanted some new international currency to be created. But what if that is not what the Chinese had in mind? What if they have always wanted their own currency to become the single most dominant currency on the entire planet? What you are about to see is rather startling, but it shouldn’t be a surprise. When it comes to economics and finance, the Chinese have always been playing chess while the western world has been playing checkers. Sadly, we have gotten to the point where checkmate is on the horizon.
On Wednesday, I came across an excellent article by Simon Black. What he had to say in that article just about floored me…
When I arrived to Bangkok the other day, coming down the motorway from the airport I saw a huge billboard—and it floored me.
The billboard was from the Bank of China. It said: “RMB: New Choice; The World Currency”
Given that the Bank of China is more than 70% owned by the government of the People’s Republic of China, I find this very significant.
It means that China is literally advertising its currency overseas, and it’s making sure that everyone landing at one of the world’s busiest airports sees it. They know that the future belongs to them and they’re flaunting it.
This is the photograph of that billboard that he posted with his article…
Everyone knows that China is rising.
And most everyone has assumed that Chinese currency would soon play a larger role in international trade.
But things have moved so rapidly in recent years that now a very large chunk of the financial world actually expects the renminbi to replace the dollar as the primary reserve currency of the planet someday. The following comes from CNBC…
The tightly controlled Chinese yuan will eventually supersede the dollar as the top international reserve currency, according to a new poll of institutional investors.
The survey of 200 institutional investors – 100 headquartered in mainland China and 100 outside of it – published by State Street and the Economist Intelligence Unit on Thursday found 53 percent of investors think the renminbi will surpass the U.S. dollar as the world’s major reserve currency.
Optimism was higher within China, where 62 percent said they saw a redback world on the horizon, compared with 43 percent outside China.
And without a doubt we are starting to see the beginnings of a significant shift.
China’s yuan broke into the top five as a world payment currency in November, overtaking the Canadian dollar and the Australian dollar, global transaction services organization SWIFT said on Wednesday.
The U.S. dollar won’t be replaced overnight, but things are changing.
Of course the truth is that the Chinese have been preparing for this for a very long time. The Chinese refuse to tell the rest of the world exactly how much gold they have, but everyone knows that they have been accumulating enormous amounts of it. And even if they don’t explicitly back the renminbi with gold, the massive gold reserves that China is accumulating will still give the rest of the planet a great deal of confidence in Chinese currency.
But don’t just take my word for it. Consider what Alan Greenspan has had to say on the matter…
Alan Greenspan, who served at the helm of the Federal Reserve for nearly two decades, recently penned an op-ed for the Council on Foreign Relations discussing gold and its possible role in China, the world’s second-largest economy. He notes that if China converted only a “relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system.”
Meanwhile, the Chinese have also been accumulating a tremendous amount of U.S. debt. At this point, the Chinese own approximately 1.3 trillion dollars worth of our debt, and that gives them a lot of power over our currency and over our financial system.
Someday if the Chinese wanted to undermine confidence in the U.S. dollar and in the U.S. financial system, they have a lot of ammunition at their disposal.
And it isn’t just all of that debt that gives China leverage. In recent years, the Chinese have been buying up real estate, businesses and energy assets all over the United States at a staggering pace. For a small taste of what has been taking place, check out the YouTube video posted below…
For much, much more on this trend, please see the following articles…
On a purchasing power basis, the size of the Chinese economy has already surpassed the size of the U.S. economy.
And there are lots of signs of trouble ahead for the U.S. economy at this point. I like how Brandon Smith put it in one recent article…
We are only two months into 2015, and it has already proven to be the most volatile year for the economic environment since 2008-2009. We have seen oil markets collapsing by about 50 percent in the span of a few months (just as the Federal Reserve announced the end of QE3, indicating fiat money was used to hide falling demand), the Baltic Dry Index losing 30 percent since the beginning of the year, the Swiss currency surprise, the Greeks threatening EU exit (and now Greek citizens threatening violent protests with the new four-month can-kicking deal), and the effects of the nine-month-long West Coast port strike not yet quantified. This is not just a fleeting expression of a negative first quarter; it is a sign of things to come.
In addition, things continue to look quite bleak for Europe. Once upon a time, many expected the euro to overtake the U.S. dollar as the primary global reserve currency, but that didn’t happen. And in recent months the euro has been absolutely crashing. On Wednesday, it hit the lowest point that we have seen against the dollar in more than a decade…
The euro last stood at $1.1072, off 0.90 percent for the day and below a key support level, Sutton said. It fell to as little as $1.1066, which was the lowest level for the euro against the dollar since September 2003, according to Thomson Reuters data.
The euro also declined to one-month lows against the Japanese yen, which was flat against the dollar at 119.72 yen to the dollar.
As the U.S. and Europe continue to struggle, China is going to want a significantly larger role on the global stage.
And as the billboard in Thailand suggests, they are more than willing to step up to the plate.
So will the road to the future be paved with Chinese currency? Please feel free to share what you think by posting a comment below…
Did you know that the number of gold bars being purchased by ultra-wealthy individuals has increased by 243 percent so far this year? If stocks are just going to keep soaring, why are they doing this? On Thursday, the Dow Jones industrial average and the S&P 500 both closed at record highs once again. It is a party that never seems to end, and there are a lot of really happy people on Wall Street these days. But those that are discerning realize that we witnessed the exact same kind of bubble behavior during the dotcom boom and during the run up to the last financial crash in 2007. The irrational exuberance that we are witnessing right now cannot go on forever. And the bigger that this bubble gets, the more painful that it is going to be when it finally bursts. Those that get out at the peaks of the market are the ones that usually end up making lots of money. Those that ride stocks all the way up and all the way down are the ones that usually end up getting totally wiped out.
To get an idea of how irrational the markets have become, all one has to do is to look at Twitter.
Would you value “a horribly mismanaged company” that is less than 10 years old and that has never made a yearly profit at 31 billion dollars?
Well, that is precisely how much the financial markets say that Twitter is worth at this moment.
Even though Twitter will probably never be much more popular than it is right now, it continues to bleed money profusely. On a GAAP (generally accepted accounting principles) basis, Twitter lost an astounding 145 million dollars during the second quarter of 2014…
Twitter’s GAAP net loss totaled $145 million, up from $42 million a year ago. On a GAAP basis, Twitter lost $0.24 per share. Investors, however, were not expecting Twitter to be profitable by GAAP measurements, so the loss isn’t too much of a drag.
Why would anyone want to invest in such a money pit?
Currently, Twitter (TWTR) is valued at $31 billion.That’s 18X revenue, but the catch is that the revenue in question is it’s lifetime bookings over the 18 quarters since Q1 2010.
When it comes to profits, the numbers are not nearly so promising! For the LTM period ending in June, TWTR booked $974 million of revenue and $1.7 billion of operating expense. That why “NM” shows up in its LTM ratio of enterprise value to EBITDA. It turns out that its EBITDA was -$704 million. In fact, its R&D expense alone was 83% of revenues.
Of course the truth is that Twitter should be able to make money.
And it probably would be making money if it was being managed better.
The following is what Silicon Valley venture capitalist Peter Thiel said about Twitter on CNBC the other day…
“It’s a horribly mismanaged company — probably a lot of pot-smoking going on there.”
But because Twitter is a “hot tech stock” investors are literally throwing money at it.
And there are many other tech companies that have similar stories. Off the top of my head, Snapchat, LinkedIn, Yelp and Pinterest come to mind.
Fueled by the quantitative easing policies of the Federal Reserve, U.S. stocks have enjoyed an unprecedented joy ride.
However, as David Stockman recently told Yahoo Finance, the subsequent crash is likely to be enormously painful…
“I think what the Fed is doing is so unprecedented, what is happening in the markets is so unnatural,” he said. “This is dangerous, combustible stuff, and I don’t know when the explosion occurs – when the collapse suddenly is upon us – but when it happens, people will be happy that they got out of the way if they did.”
The behavior that we are observing in the stock market simply does not reflect what is happening in the economy overall whatsoever.
In many ways, U.S. economic fundamentals just continue to get even worse. Small business ownership in the United States is at an all-time low, the labor force participation rate is the lowest that it has been in 36 years, and the U.S. national debt has grown by more than a trillion dollars over the past 12 months.
But on Wall Street right now, there is very little fear that the party is going to end any time soon.
The following is how Seth Klarman recently described the market complacency that he is seeing at the moment…
To put it a bit differently, writer and investor John Mauldin is right when he says that there is “a bubble in complacency.” Fear has effectively been banished. The members of the Fed know it. Stock traders who chase the market to new highs almost daily know it. Implied volatilities (and realized volatilities) are historically low (the VIX Index recently hit a seven-year low), and falling. The Bank for International Settlements recently cautioned that financial markets are euphoric and in the grip of an aggressive search for yield. The S&P has gone over 1,000 days without a 10% decline, according to Birinyi Associates. Dutch and French 10-year government bond yields are at 500 and 250 year lows, respectively; Spain, 225 years. Spanish debt yields were recently inside of U.S. levels.
But as Klarman also observed, just because “investors have been seduced into feeling good” does not mean that this current bubble is any different from what we witnessed back in 2007…
It’s not hard to reach the conclusion that so many investors feel good not because things are good but because investors have been seduced into feeling good—otherwise known as “the wealth effect.” We really are far along in re-creating the markets of 2007, which felt great but were deeply unstable when shocks started to pile up. Even Janet Yellen sees “pockets of increasing risk-taking” in the markets, yet she has made clear that she won’t raise rates to fight incipient bubbles. For all of our sakes, we really wish she would.
Meanwhile, the ultra-wealthy are making moves to protect themselves from the inevitable chaos that is coming.
For example, the Telegraph recently reported that sales of gold bars to wealthy customers are up 243 percent so far in 2014…
The super-rich are looking to protect their wealth through buying record numbers of “Italian job” style gold bars, according to bullion experts.
The number of 12.5kg gold bars being bought by wealthy customers has increased 243 percent so far this year, when compared to the same period last year, said Rob Halliday-Stein founder of BullionByPost.
“These gold bars are usually stored in the vaults of central banks and are the same ones you see in the film ‘The Italian Job’,” added David Cousins, bullion executive from London based ATS Bullion.
Do they know something that we don’t?
The ultra-wealthy are able to stay ultra-wealthy for a reason.
They are usually a step or two ahead of most of the rest of us.
And any rational person should be able to see that this financial bubble is going to end very, very badly.
On the global financial stage, China is playing chess while the U.S. is playing checkers, and the Chinese are now accelerating their long-term plan to dethrone the U.S. dollar. You see, the truth is that China does not plan to allow the U.S. financial system to dominate the world indefinitely. Right now, China is the number one exporter on the globe and China will have the largest economy on the planet at some point in the coming years. The Chinese would like to see global currency usage reflect this shift in global economic power. At the moment, most global trade is conducted in U.S. dollars and more than 60 percent of all global foreign exchange reserves are held in U.S. dollars. This gives the United States an enormous built-in advantage, but thanks to decades of incredibly bad decisions this advantage is starting to erode. And due to the recent political instability in Washington D.C., the Chinese sense vulnerability. China has begun to publicly mock the level of U.S. debt, Chinese officials have publicly threatened to stop buying any more U.S. debt, the Chinese have started to aggressively make currency swap agreements with other major global powers, and China has been accumulating unprecedented amounts of gold. All of these moves are setting up the moment in the future when China will completely pull the rug out from under the U.S. dollar.
Today, the U.S. financial system is the core of the global financial system. Because nearly everybody uses the U.S. dollar to buy oil and to trade with one another, this creates a tremendous demand for U.S. dollars around the planet. So other nations are generally very happy to take our dollars in exchange for oil, cheap plastic gadgets and other things that U.S. consumers “need”.
Major exporting nations accumulate huge piles of our dollars, but instead of just letting all of that money sit there, they often invest large portions of their currency reserves into U.S. Treasury bonds which can easily be liquidated if needed.
So if the U.S. financial system is the core of the global financial system, then U.S. debt is “the core of the core” as some people put it. U.S. Treasury bonds fuel the print, borrow, spend cycle that the global economy depends upon.
That is why a U.S. debt default would be such a big deal. A default would cause interest rates to skyrocket and the entire global economic system to go haywire.
Unfortunately for us, the U.S. debt spiral cannot go on indefinitely. Our debt is growing far, far more rapidly than our GDP is, and therefore our debt is completely and totally unsustainable.
The Chinese understand what is going on, and when the dust settles they plan to be the last ones standing. In the aftermath of a U.S. collapse, China anticipates having the largest economy on the planet, more gold than anyone else, and a respected international currency that the rest of the globe will be able to use to conduct international trade.
And China is not just going to sit back and wait for all of this to happen. In fact, they are already doing lots of things to get the ball moving. The following are 9 signs that China is making a move against the U.S. dollar…
#1 Chinese credit rating agency Dagong has downgraded U.S. debt from A to A- and has indicated that further downgrades are possible.
#2 China has just entered into a very large currency swap agreement with the eurozone that is considered a huge step toward establishing the yuan as a major world currency. This agreement will result in a lot less U.S. dollars being used in trade between China and Europe…
The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.
“It’s a way of promoting European and Chinese trade, but not doing it with the U.S. dollar,” said Brooks. “It’s a bit like cutting out the middleman, all of a sudden there’s potentially no U.S. dollar risk.”
#3 Back in June, China signed a major currency swap agreement with the United Kingdom. This was another very important step toward internationalizing the yuan.
#4 China currently owns about 1.3 trillion dollars of U.S. debt, and this enormous exposure to U.S. debt is starting to become a major political issue within China.
#5 Mei Xinyu, Commerce Minister adviser to the Chinese government, warned this week that if the U.S. government ever does default that China may decide to completely stop buying U.S. Treasury bonds.
#6 According to Yahoo News, China has already been looking for ways to diversify away from the U.S. dollar…
There have been media reports this week that China’s State Administration of Foreign Exchange, the body that handles the country’s $3.66 trillion of foreign exchange reserve, is looking to diversify into real estate investments in Europe.
#7 Xinhua, the official news agency of China, called for a “de-Americanized world” this week, and also made the following statement about the political turmoil in Washington: “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”
#8 Xinhua also said the following about the U.S. debt deal on Thursday: “[P]oliticians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system”. The commentary in the government-run publication also declared that the debt deal “was no more than prolonging the fuse of the U.S. debt bomb one inch longer.”
#9 China is the largest producer of gold in the world, and it has also been importing an absolutely massive amount of gold from other nations. But instead of slowing down, the Chinese appear to be accelerating their gold buying. In fact, money manager Stephen Leeb says that his sources are telling him that China plans to buy another 5,000 tons of gold. There are many that are convinced that China eventually plans to back the yuan with gold and try to make it the number one alternative to the U.S. dollar.
So exactly what would happen if the Chinese announced someday that they were going to back their currency with gold and would no longer be using the U.S. dollar in international trade?
It would change the face of the global economy almost overnight. In a previous article, I described some of the things that we could expect to see happen…
If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy. Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar. At that point you could forget about cheap gasoline or cheap Chinese imports. Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively. If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living. Today, most U.S. currency is actually used outside of the United States. If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.
The fact that we get to print up giant mountains of money and virtually everyone around the world uses it has been a huge boon for the U.S. economy.
When that changes, the word “catastrophic” is not going to be nearly strong enough to describe what is going to happen.
According to a Rasmussen Reports survey that was released this week, only 13 percent of all Americans believe that the country is on the right track. But the truth is that these are the good times. The American people haven’t seen anything yet.
Someday people will look back and desperately wish that they could go back to the “good old days” of 2012 and 2013. This is about as good as things are going to get, and it is only downhill from here.
The day that silver traders have been waiting for has arrived. On Wednesday, the price of silver dropped another 5 percent. As I write this, it is sitting at $18.55 an ounce. On Wednesday it hit a low that had not been seen in three years. Overall, the price of silver has declined by 34 percent this quarter. That is the largest quarterly move in the price of silver in more than 30 years. So what does all of this mean? It means that we are looking at a historic buying opportunity for those that are interested in silver. Yes, gold is undervalued right now as well, but it is absolutely ridiculous how low the price of silver is. At the moment, the price of gold is about 66 times higher than the price of silver is. But they come out of the ground at about a 9 to 1 ratio, and unlike gold, silver is used up in thousands of common consumer products. Those that want to invest in silver should be shouting for joy that prices have fallen this low. If you have been waiting and waiting and waiting to “load the boat”, your moment has arrived.
In my previous articles, I have warned over and over again that we would see wild swings in the prices of gold and silver. For example, I wrote the following back in April…
As I mentioned above, gold and silver are going to experience wild fluctuations over the next few years. When the next stock market crash comes, gold and silver are probably going to go even lower than they are today for a short time. But in the long run gold and silver are going to soar to unprecedented heights.
Investing in gold and silver is not for the faint of heart. If you cannot handle the ride, you should sit on the sidelines. We are entering a period of tremendous financial instability, and holding gold and silver is going to be like riding a roller coaster. The ups and downs are going to shake a lot of people up, but the rewards are going to be great for those that stick with it the entire time.
Right now, a lot of people that bought silver when it was 25 dollars an ounce or 30 dollars an ounce are probably feeling discouraged.
Don’t be. You will be just fine. When the price of an ounce of silver hits 100 dollars an ounce you will be very thankful for the silver that you stored away at those prices.
We are moving into a time when we will see more volatility in precious metals prices than we have ever seen before. That means there will be some tremendous opportunities to make money. But in order to make money, you have to buy low and sell high.
The current decline in the price of paper silver does not have anything to do with the demand for actual physical silver. In fact, demand for physical silver is higher than it ever has been before.
Last year, the U.S. Mint sold 33 million ounces of silver for the entire year.
This year, the U.S. Mint is on pace to sell 50 million ounces of silver for the entire year.
So don’t be alarmed that the price of silver is falling.
Instead, be very, very thankful.
Hopefully it will go even lower.
And you know what? There is a decent possibility that the price of silver may go down a bit more. This will especially be true during the initial stages of the next financial panic.
When the price of silver does dip, it is a perfect opportunity to load the boat, because even many mainstream analysts are projecting that the price of silver is headed into the stratosphere over the long-term. For example, the following is what Citi analyst Tom Fitzpatrick told King World News the other day…
Again, if you look at silver going back to the 2008 correction, we got down to levels below $9, then we saw the silver price multiply by a factor of over 5 times. So assuming this marks a point near the end of the correction in silver, then our bias would be one that would take silver not only to new all-time highs, but we would look for a target as high as $100 for silver
A chart illustrating the projections that Fitzpatrick is making can be found right here.
There are so many reasons to own silver (even as opposed to owning gold). The following is an excerpt from a recent article about silver that really caught my attention…
7. Silver is way below its nominal record price of $50 in 1980. It is even further below the government inflation adjusted level of $135. And if you use REAL inflation adjusted numbers, like Shadowstats, the REAL 1980 inflation adjusted price of silver would have to be $450! Silver is a precious and depleting resource and when you look at the price of housing, cars, education, food, energy, taxes, insurance back in the 1980′s, it is insane to think that silver is so cheap on any level. Especially when the uses of silver have skyrocketed since the 1980’s. It is now used in technology on a massive scale and is even now said to cure cancer. Heck, they did not even have Silver Eagle sales back then, or the Silver Bullet Silver Shield for that matter.
8. This time it is going to be much larger! None of the problems from the 2008 Banking Crisis have been solved. In fact it is orders of magnitudes worse. What started out as an institutional problem, is now a sovereign nation problem. This collapse will not be a puny multi – billion dollar corporation like AIG disintegrating, it will be the Trillion dollar economies of the nations of the world and the Quadrillion dollar derivative monster markets cracking apart. There is no financial, political or social safety net left. We destroyed all of that in 2008 and are on a debt based junkie delusion.
The collapse of currencies will affect every counter-party, debt based asset in the world. Your cash, stocks, bonds, Real Estate, pensions, insurance, all of it. The collapse of financial contracts will lead to the collapse of all political and social contracts. The Anger Phase of humanity is coming and only real assets with no counter party risk will be worth anything. Most commodities have storage or degradation issues leaving only precious metals as a real store of wealth.
9. 1:65 Ratio makes silver the only choice. The current gold to silver ratio is: 1 ounce of gold is worth 65 ounces of silver. These come out of the ground at a 1:9 ratio! That means just to get back to the natural mining ratio, silver would have to out perform gold 600%. This is regardless what happens to the dollar value of gold. If gold goes to $13,000 an ounce, silver at a 1:9 ratio would be $1,444 silver.
10. The historical stockpiles of silver are destroyed. We know implicitly that gold has been treasured and kept secure. While silver has been used and abused as a cheap, industrial metal like tin. Since the price of silver has been under attack since the Crime of 1873, silver has been used in such small quantities that it has been destroyed. The US government in 1950 had 5 billion ounces of silver in its strategic stockpile, now it has ZERO. So if gold and silver come out of the ground at a 1:9 ratio and gold has been treasured and silver stockpiles destroyed, logic would dictate that the end of this silver bull market will find the gold to silver ratio BELOW 1:9 and I think it will come close to a 1:1. Either way, we are a long way away from those levels which makes silver so exciting right now.
It is the destruction of huge stockpiles like this that explains the decade long supply deficit to the growing demand of silver. Do not forget that we are only 7 years away from the United States Geological Survey’s prediction that if we continue to consume silver at these rates, silver would be the first metal to become extinct. When I challenged the USGS on that statement, they said that only a massive revaluation of silver to bring on more production and wiser use of silver would stop the extinction. I don’t think we will ever run out of silver, but I do believe that the free market will crush this paper manipulation and that anyone holding physical silver on that day will then have a lottery ticket in real value.
You can read the rest of that excellent article right here.
Do you want some more reasons to own silver?
The following are some excerpts from an excellent article by Mark Thomas…
The amount of silver consumed annually and bought for investment exceeds currently exceeds total annual mining output and has for years. That gap has been filled by sellers willing to sell from existing inventories and as prices rise. As time passes this will naturally push prices significantly higher until this fundamental imbalance reaches a true equilibrium price where supply is closer to demand.
Both industrial and investment demand for silver is growing in excess of the annual increase in mining production growth. The available inventory is low and will get even tighter over time. These two factors will lead to a continued tighter supply-demand situation going forward.
Silver is an industrial metal with over 10,000 commercial applications. Because it is one of the best electrical and thermal conductors, that makes it ideal for electrical uses such as switches, multi-layer ceramic capacitors, conductive adhesives, and contacts. It is used in some brazing and soldering as well. Silver is also used in solar cells, heated automobile wind shields, DVD’s and some mirrors.
Silver is an essential element in the electronic gadgets that are a growing part of our digital age. It is in every cell phone, smart phone, tablet, computer keyboard, solar cells and every radio frequency if ID device (RFID). This makes it an essential element going forward as the world becomes more addicted to gadgets. The growth and rising living standards of people in the emerging economies will drive long-term growth of new customers that will demand more and more electronic gadgets.
Silver’s industrial demand should increase 60% to 666 million ounces per year by 2016 from 487 million ounces in 2010. Current annual mine production is only around 700 million ounces per year growing a few percent annually.
Of a total of fifty billion ounces of silver that have been mined in history, only two ounces (estimate) or 5% remain in above ground inventories available to be bought and sold. This is due to silver being used up in industrial applications in very small quantities, which makes it unprofitable to recycle at today’s prices. A lot of silver is used in minute quantities in industrial products which are used up and discarded without being recycled.
The total amount of silver available to trade in the physical silver market is only about $70 billion versus the total gold market which now exceeds $4.3 trillion. As you can see from these numbers, the total market size of the silver market is only 1.6% of the size of the entire gold market. This lack of liquidity and use of extreme leverage in its respective futures market produces wild volatility in price fluctuations of silver.
You can read the rest of his excellent article right here.
Are you starting to get the picture?
Let us hope that the price of silver stays below 20 dollars an ounce for as long as possible, because once this opportunity is gone we will probably never see it again.
It is important to realize where we are in the greater scheme of things. The world is moving toward another major financial crisis which will usher in a brief period of deflation. Unlike many others that are talking about the coming economic collapse, I have always maintained that we are going to see deflation first and then the response to the crisis will give us the rip-roaring inflation that so many talk about. The following is an excerpt from one of my articles where I talk about this…
So cash will not be king for long. In fact, eventually cash will be trash. The actions of the U.S. government and the Federal Reserve in response to the coming financial crisis will greatly upset much of the rest of the world and cause the death of the U.S. dollar.
That is why gold, silver and other hard assets are going to be so good to have in the long-term. In the short-term they will experience wild swings in price, but if you can handle the ride you will be smiling in the end.
During the initial stages of the next major stock market crash, gold and silver will not do very well. But that is okay. Dips are buying opportunities.
As the coming economic crisis unfolds, governments and central banks all over the world will desperately attempt to resuscitate the global financial system. We are going to see money printing and “stimulus packages” on a scale that we have never seen before. Crazy things will happen with stocks, bonds and currencies.
When the dust finally settles, those that are holding “real money” will be the ones that will be in the best shape.