Black and White

May 29, 1998

It does not occur anywhere near frequently enough, but when it does, the objective seeker of truth is potentially richly rewarded. It banishes boredom, it chases conformity, and it stimulates serious reflection. The "it" to which I am referring is when two analysts who are diametrically opposed as to the condition of an investment vehicle, debate said vehicle. The observer of such a debate can only benefit, because all the good and bad are likely to be trotted forth, leaving the reader to pick and choose what makes sense to him. If only all of life's choices could be framed by the debate of two truly opposite opinions.

It is in that spirit that I ask you to read the latest (and indeed all) of Martin Armstrong's analyses of silver, dated May 19 (www.pei-intl.com). While not the only silver bear, Mr. Armstrong is certainly the most spirited and most consistent. One would be correct in noting that I strongly disagree with just about everything he writes about silver. But that doesn't make him necessarily wrong, or me right. Only the weight of the evidence and logic and the fullness of time will determine that. In the meantime, allow me a critique of his latest offering.

I'm going to gloss over his referral of silver investors as "hoarders", and of those bullishly inclined as the "fundamental promoters of propaganda" (I guess that would include me), and deal with what I think are the two major points of his current thesis. I have just about given up on him offering a serious rebuttal of my claims that metal leasing is a fraud and that the silver short interest is the greatest of any commodity in history in terms of production and inventory. So be it.

The first point that Armstrong makes in his May 19 article, is that the greatest threat to the silver longs is the CFTC (the Commodity Futures Trading Commission). While I suppose it is possible that he may be proven correct by some fluke, it certainly shouldn't be for the reasons he suggested. His thesis is that the CFTC, being flush from its great victory over Sumitomo in the copper manipulation, is ready to flex its muscles against the silver longs, who have obviously been doing something wrong (just look at obscenely high price). Please. Is this the same CFTC and the same copper manipulation we're talking about that occurred in last few years? Is this the manipulation that went on for years and only ended when Sumitomo fired its head trader (Mr. Copper or Mr. 5%) and wrote off $2.6 billion? Is this the same CFTC that claimed afterward that it had been investigating the copper market all along and was just about to take action? Does Armstrong know the difference between proactive and reactive? That such a huge manipulation in such an important market over such a long period of time could have occurred is mind-boggling . This is the very reason for the existence of the CFTC, and they just blew it. If the CFTC can't halt a years long manipulation in a major world commodity, why are they allowed to exist? As far as the $150 million fine - if this were a football game, the CFTC would have had the flag thrown at them for a late hit or piling on. It was merely a matter of honor for this notoriously weak agency to gain some measure of redemption, after all, how was Sumitomo going to fight something they already admitted to publicly? Armstrong should be careful what he wishes for. If the CFTC were in fact to really investigate the silver market, they might just have to confront a paper short position far in excess of what is economic or what exists in any other commodity, in addition to addressing the question of how can ten years of deficits in the real supply/demand equation not result in rising prices? Or maybe we'll just have to wait until there are zero available supplies and last minute emergency measures are introduced to restore orderly markets, ala palladium.

The second point Armstrong makes also relates to the threat of the CFTC to the silver longs, and revolves around him warning the longs that if they have to buy silver, it better not be real silver - it better be paper silver. And if it is paper silver, it better not be the paper silver you ask to take delivery of real silver on. Because then you are really going to be in trouble. Just try explaining why you would want to hold anonymously, and not on margin, a cheap commodity that is in chronic deficit, just try. It is statements like this that make me think that there truly is a manipulation and conspiracy to hold down the price of silver. I mean, what other possible motive could someone like Armstrong have to push the paper equivalent rather than the real item, aside from seeking to prevent more pressure in the cash (real) silver market? We're talking about $5-6 silver, what is the risk to a bona fide investor on a fully paid for position? To me, it sounds like the worried plea from a desperate short. Whose advice should a serious investor take - the cash and carry example of the world's greatest investor, Warren Buffett, or someone warning you to buy only the paper version of a very cheap tangible asset or else the government is going to get you? It strikes me as extremely unwholesome that Armstrong would plead stay away from the market, or just buy the paper, when there are persistent reports that he is orchestrating strategic paper shorting campaigns. I don't know how that can be considered ethical, or even legal.

What I say or what Armstrong says about silver isn't really the point, the market will do what it's going to do. Either we have a fundamental shortage or we don't. The point is that in any debate, there should be and must be some accountability for the expectation of the validity and truthfulness in the statements and theories offered. The objective observer should and will gain from an honest debate. I'm not so sure that's what we're currently experiencing.

Gold's special properties mean that it has a greater variety of uses than almost any metal.