Silver Stock Evaluations
Excerpts from Weekly Report # 35
Jason Hommel
goldismoney.com
The silver bull is definitely back! As I produced
this report this Friday evening, I see that most of the silver stocks
are up significantly from last week. Many are up by 20% or more, all in
one week. This week was definitely a turning point for the entire
silver stock sector.
Speaking of silver's potential value, how will it
actually be valued if the whole world returns to using gold and silver
as I expect? Sure, it may go up a lot in terms of dollars, but won't
everything else just cost that much more, too? No. No! I expect
silver's rise in value to far outpace every other asset, and every
other commodity you can buy.
As proof, let's look at the historic value for
silver. And given the ongoing supply/demand deficit, and shortage, as
reported by the two industry reports above, I expect silver's value to
far exceed the historic value.
There are several ways to evaluate silver's historic
value. The first is to look at what silver could buy, and to look at
what wages were in terms of silver.
I have written that a day's wage, in silver, for
skilled labor, about 100 years ago, ranged from being a silver dime as
one man reported, a silver quarter during the great depression in the
1930's, or as much as a silver dollar. Henry Ford paid his workers,
what was considered a very excessive $5.00 a day. In silver, at .72 oz.
per silver dollar, that was 3.6 oz. of silver per day. But remember,
that was an extremely high and very unusual wage. It was made possible
by the very high productivity of the assembly line, and little
government regulations or taxes. If silver returns to historic norms,
it will be an ounce of silver, or less, for a day's wage. Due to
scarcity of silver, it may well be more like less than a 1/10th of an
ounce of silver per day. Or perhaps, a silver dime for two weeks of
labor!
The reason is that the U.S. has well over 100
million workers, yet the world has about 250 million oz. of silver in
known inventories! If 1/10th of an ounce of silver is a day's wage of
$100, then an ounce of silver would be $1000/oz.
The other historic value was the gold to silver
ratio. One ounce of gold was the same value as about 10 to 15 ounces of
silver. Again, due to silver's scarcity today, that ratio will
certainly deserve to be exceeded, to at least 5 ounces of silver to one
ounce of gold. Thus, silver will be valued at about 1/5th of $400, or
$80, assuming that gold is fairly valued at $400. But, if gold should
really be valued at about $5,000 per ounce, then silver will be about
$1000/oz.
In both of these examples, this does not mean the
price of a gallon of milk would shoot up to $400 per gallon. I would
expect that milk prices would remain the same, at $4.00 per gallon.
If milk rises to $40/gallon, and if consumer prices
rise by a factor of ten, then increase the "future value" price for
silver also by a factor of ten, so that silver would be $10,000/oz, and
1/10th of an ounce of silver would be $1000, so that a 1/10 of an ounce
of silver would be able to buy the things you'd buy today with a day's
wage.
And if you truly believe that an economy would be
run more efficiently, as I do, without all the fraud of the dollar
negatively affecting things, then you should assume, as I do, that a
day's wage of silver (however small of an amount that would be) should
help the average consumer to be able to buy more than a day's wage of
fiat money can buy today.
Further proof: Monetary demand during inflation will
go into all tangible things, yes. However, nobody can buy and store a
billion dollars worth of "milk". Milk spoils. It's simply too
inconvenient to use as money. And so are nearly all other goods. Silver
does not spoil, and people will realize that no other commodity has the
peculiarly unique properties that the precious metals have, that make
them the only tangible things that qualify as money.
This combination of factors then, forms my view of
silver as an investment. I expect the future value of silver to be at
least $1000 per ounce, in terms of today's money and today's value and
today's purchasing power. Let me rephrase so everyone is clear. I
believe that an ounce of silver will buy what $1000 of today's money
will buy. Today, with $1000, I can buy a month's rent. Yes, a month's
rent may cost an ounce of silver in the future. Today, with $10,000, I
can buy a nice used car a few years old. Yes, I expect to be able to
buy a similar car, or better, with about 10 ounces of silver, in the
future.
I expect that most readers will either not
understand, or not believe, my point of view. That's fine. But ask
yourself: Could it really be any other way? There is going to come a
time when the silver price moves up so sharply, so violently, it will
be something which the world has never, ever seen. There is no
experience that any human has experienced that can prepare anyone for
what is coming. This will happen because the world has never totally
abandoned using silver as money, until this generation. The world has
never seen such a low price for silver as today, and the world has
never seen such low inventory levels for silver as today, and the world
has never seen such a high industrial demand for silver as today. The
world has never seen such a deficit and scarcity of real money. And the
world has never seen such a huge build up of false wealth, as
represented by the enormous amounts of paper money that exist in the
form of bonds and M3.
Therefore, I'm not scared, troubled, or concerned
after having seen silver move from $8.40/oz. to $5.50/oz. Today's price
movements in silver are but tiny wiggles, and are insignificant in the
long run, in the grand scheme of things. Silver will remain a screaming
good buy even at $50 to $100 per ounce. And at that price, there will
be billionaires lining up and begging to get it, because there will be
little else for them to buy to protect their bonds and money from going
up in smoke as inflation wipes out the paper fraud and dollar debts
accumulated by generations.
Today is not a "once-in-a-lifetime" opportunity in
silver. It's not a "once-in-100 years" event. It is an event that has
never before occurred in all of human history. When in human history
has anyone had the opportunity to earn $100 as a day's wage, and be
able to buy nearly 17 ounces of silver with that? When in human history
has anyone has the opportunity to do this while silver was as scarce as
it is today?
From Jan, 2004 to April 2004, over those three
months, the increase in M3 ($222 billion) (the money in the U.S.
banking system) is over twice as much as the value of the official U.S.
gold hoard. ($104 billion at $400/oz.)
For a while I was using M3 and dividing that by the
US gold (261 million ounces), which implies the us dollar is 84 times
more valuable than it should be, and that gold should hit $34,000/oz.
after the fraud is destroyed. Today, I realize I need to add in the
Bond market, because bonds are an asset class designed to siphon away
and replace real money, which is to say, gold. This gives a price of
about $111,111/oz. for gold. At $ 430/oz, this implies that US bonds
and paper currency are 258 times more overvalued than gold.
Gold is overvalued relative to silver, because at
current prices, it takes 68 ounces of silver to buy 1 ounce of gold.
Historically, this ratio was 15 or 16. Given the silver shortage, this
ratio will hit 10:1 or 5:1, or even 1:1. Thus, gold is perhaps 68 times
more overvalued than silver.
Silver is overvalued relative to certain select silver stocks, perhaps by a factor of 3 or 10 or 20 to one.
Thus, if you multiply all those numbers, 258 x 68 x
10, You will see that bonds and currency are overvalued relative to
select silver stocks by a factor of 139,000 to one. In other words, if
silver stocks reach their true value, and paper currency disappears as
it always does, then you might expect certain silver stocks to go up in
relative value by a factor of 139,000 times more than they are worth
today. By that time, you should definitely sell the silver stocks, and
buy gold.
Can silver stocks really appreciate so much? Is there historical evidence for such a crazy thing? Yes.
"CDE rose from penny stock status (.02 in 1967) to
an NYSE-listed, $60 per share stock in 1980. In fact, the average share
on the Spokane Stock Exchange rose in value nearly 16000% (yes, sixteen
THOUSAND percent), as America could not get enough of silver and silver
stocks."
CDE rose by a factor of 3000, or 300,000%, and by
1980, the metals boom was stopped short, and paper money's death was
postponed. If paper money dies a death that lasts a generation
world-wide, then even greater gains should have been expected.
For this reason, a wise silver stock investor should
NEVER sell silver stocks for paper cash. A wise silver stock investor
who looks for value would never sell a fairly valued silver stock for
an overvalued silver stock that traded for hundreds of thousands of
times more value than it should be. Likewise, there is no excuse for a
silver stock investor to have any cash or money market or bonds in his
portfolio for any reasonable length of time, except for when selling
one silver stock to raise the cash for another silver stock, or for
when you need to raise the cash to buy silver, or a private placement
in another silver stock.
The sheer stupidity of big money not recognizing the
value of the world's remaining silver is utterly shocking to the
rational mind. Clearly, bond holders are utterly deceived, and totally
unaware of the situation. All my readers should understand and know
that bonds were originally invented to suck the capital and money (gold
and silver) away from the people. Bonds today are a paper promise to
repay paper. What a con game! Are bond holders conservative and safe?
No, they are fools! There is nothing safe about holding a paper promise
to receive more paper when we have been experiencing hyperinflation for
the past two and a half years!
Jason Hommel
www.goldismoney.com
Final Disclaimer: I have not received any
compensation from any public silver stock company for writing up my
weekly report on "Silver Stocks--Comparative Valuations". I own shares
of the following 17 silver stocks: CMA.V, PLE.V, PDO.V, AUN.V, EDR.V,
IMR.V, KG.V, MGN, CBE.V, NPG.V, SVL.V, MMGG.OB, TM.V, OTMN.PK, FCO.TO,
KRE.V, FR.V. These are required disclaimers by the SEC: whether I've
been paid, and what I own. I believe the SEC intended this to be a
cautionary note that I own these shares, not as a recommendation or
endorsement. I reserve the right to buy or sell any stock at any time.
I believe the SEC does not require a disclosure regarding finder's
fees. Nevertheless, I have begun to receive "finder's fees" from a few
companies.
Other essays by Jason Hommel:
25 Reasons To Support The Sound Money Bill - 08 July 2004
I'm Insanely Bullish On Silver - 19 June 2004
Silver Stock Evaluations - 22 May 2004
The Silver Bull Is Back - 04 May 2004
Late April Silver Update - 22 April 2004
Silver Juniors With Cash Flow - 04 March 2004
Major Frauds of the U.S. Monetary System - 26 February 2004
Market Perspective & Cabo Mining - 12 February 2004
Usury Enslaves - 19 January 2004
Sterling Mining - 29 December 2003
The U.S. Trade Advantage With China - 17 December 2003
Rising Gold Prices Will Help The Economy - 02 December 2003
Miners to Use Silver as Cash - 27 November 2003
Private Placements in Silver Companies - 20 November 2003
Is the Silver Market Too Small to Buy? - 13 November 2003
Inflation & Deflation During Hyperinflation - 06 November 2003
Silver Price Expectations of Silver Stock Investors - 30 October 2003
Buying & Tracking Canadian Silver Stocks - 29 October 2003
Canadian Zinc--Silver Potential - 23 October 2003
Silver Stocks--Comparative Valuations - 4 - 13 October 2003
Silver Stocks--Comparative Valuations - 3 - 06 October 2003
Silver Stocks--Comparative Valuations - 2 - 29 September 2003
Silver Stocks--Comparative Valuations - 1 - 22 September 2003
Silver and Cardero Resource - 08 February 2003
The Moral Failures of the Paper Longs - 22 January 2003
CFTC Response to Silver Problem - 14 January 2003
People Talking About $32,567/oz - 10 January 2003
Letter To Authorities of Silver Markets - 06 January 2003
Why no talk of $32,567/oz ? - 02 January 2003
Refuting Myths about Gold - 28 October 2002
Controlling Gold with Paper - 10 June 2002
Impending Gold Futures Default - 29 May 2002
Certain gold stocks are still cheap - 07 May 2002
A Few Supply and Demand Fundamentals of the Dollar and Gold - 06 May 2002
New DROOY Institutional Holdings - 21 February 2002
Hommels View of Gold - 23 March 2001
Gold Price Under Differing Scenarios - 24 June 2000
Goldismoney.com
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