Golden Jackass Tobacco Shop

[Waterboy]

From Puplava's Thursday wrap:

Gearing Distorts Markets
This whole artificial process of paper market distortion of the commodity markets has allowed prices to deteriorate at the same time that
demand has risen and supply has contracted. Prices have been kept low; while demand for products has expanded. This runs contrary to
general economic laws of supply and demand. Demand increases, supplies contract and the price of a commodity falls. The fact that nobody
questions this is even more astounding. While demand has risen, the supply of particular commodities have fallen off due to disinvestments,
divestiture and the general contraction of most commodity-like businesses. Supplies and reserves accumulated over decades have been
drawn down in order to meet supply deficits. The gasoline in your car probably came from an oil well that was discovered 25 years ago in the
US and over 40 years ago in the Middle East. The silver that is used in your camera is coming from the sale of scrap silver and the depletion
of above-ground inventories. Gold deficits are made up from central bank sales and gold leasing. This consumption of above-ground
stockpiles of commodities accumulated over decades cannot last forever.

As inventory levels from natural gas, oil, silver, gold and other commodities are drawn down, a supply train wreck or price shock is slowly
building momentum. Already we are facing our second oil price shock in three years. Oil prices have been distorted by a combination of
political convolutions and derivatives. Once supply stockpiles are depleted, prices will reverse and head higher as demand fundamentals and
a loss of confidence in paper overwhelm commodity markets. One day soon Americans and the West in general are going to wake up to find
the financial world and the commodity markets aren’t as they seem. Supply shortages of key commodities, energy outages and other supply
disruptions should become more commonplace. In the case of silver, gold, oil and natural gas, we will see prices rise to their true fundamental
value, which by the way is much higher than what is now reflected in the markets.

Short Positions Distort Bullion & Share Prices
A good example of this is the silver markets were short positions on the COMEX and short positions in key silver stocks have acted to suppress
the price of the metal and key silver stocks far below their intrinsic value. The following table below shows the growth in short positions in silver
stocks that have doubled, tripled, and in some cases quadrupled since May of this year. These short positions have been the key, along with
short positions on the COMEX in silver, to keeping the price of silver and silver stock prices suppressed. Yet, nothing has changed
fundamentally in the business. According to CPM Group, the silver deficit will be larger this year than last year. And despite a recession and
weakening economies across the globe, silver deficits last year were close to 80 million.

Short Changing The Silver Market: Short Interest on Settlement Date
Silver Mining Stock
12-14-01
3-15-02
6-14-02
9-13-02
Apex Silver (SIL)
280,036
268,367
614,131
791,665
Hecla Mining (HL)
103,500
105,500
1,130,654
2,405,148
Pan American Silver (PAAS)
11,672
4,509
519,723
1,002,105
Silver Standard Resources, Inc. (SSRI)
37,843
5,060
461,810
874,062


I recently met with the head CEO of a silver mining company who has been able to increase the reserves of his company significantly over the
last four months adding real value for his shareholders. And yet his stock has been sold short and driven down in half as a result of a huge short
position. I know most of the key owners of this company and very strong hands hold it. The float is narrow and the short position would take at
least 3-4 days to cover at present volume. Nothing has changed fundamentally that would warrant such a short position.

There are very few large silver mines in the world in comparison to gold. And silver
stockpiles are running out. At the present rate of deficit, there is approximately 1-2
years left in above-ground stockpiles (not counting silver coins). Pure silver mines
are rare since most silver is mined as a by-product of other metals. About 80
percent of the supply of silver comes to the market as a by-product of other base
metals. Pure silver companies can be counted on two hands. Silver, as a
commodity, is getting rarer even as demand and use for silver increases. Why do
you thing Buffett bought silver back in 1997 and still holds on to it? Why have
Gates, Soros, Tish, and others bought silver? There is a reason. They think the price
of silver is going up. It is becoming a rare commodity in that it is harder to find;
while supplies dwindle. Its price is kept down artificially by huge short positions.
Note the chart to the right which graphically depicts the total short position noted
in the table above.

Investment Philosophy Determines Position
There are two ways in which to look at this situation: one negative and one positive.
It all depends on your investment philosophy. If you’re a short-term trader, you can
skip this part because it will be of no use to you. You can trade into the stocks or metal when it explodes at much higher prices. If you are a
value investor and think long-term, you have an opportunity that has been handed to you. You have the chance to accumulate shares of only
a handful of pure silver companies in the world at bargain prices. The shorts in effect are subsidizing your investment purchases. I have always
used these kinds of opportunities to buy at someone else's expense. As prices head lower, as short positions increase, I can use the opportunity
to buy key mining companies, in my case just two, at much lower prices. The shorts will have to cover, and when they do, the very narrowness
of the market in pure silver companies will explode. You can see this in the price of the shares back in May, June, and July. As other buyers
came into the market, the price of silver mining shares exploded before forming a double top and heading down as short interest increased.

If you are a believer in this metal, based on strong long-term fundamentals, then you are now afforded the opportunity to accumulate shares at
much lower prices. Or if you own them, you can acquire additional shares at much lower prices and significantly add to your position. Of
course this philosophy only applies to believers in silver’s fundamentals and investors who think strategically and outside the box.

Investment success doesn’t come easy. If it did, we would all be millionaires. Success comes from hard work, a right attitude and the
development of an investment philosophy. Going along with the crowd and the consensus will lead you down the path to mediocrity and
below-average returns. Just think of what you been have told by Wall Street and most analysts and economists. You have been told to buy and
hold even as they trade, short, and sell. Think of what their advice has brought you. Look at long-term charts of silver, gold, oil, and natural
gas. Look at how these markets have performed, then look at your S&P Index fund or your mutual fund and draw your own conclusions. One of
these markets is emerging as the new bull on the Street and the other is dissipating in a protracted bear market. Which side of the fence are
you on? Isn’t it time to cross over to the other side of the street?

You have been afforded another opportunity to buy, buy when prices are cheap. You have also been given another opportunity to sell. Don’t
listen to the media or Wall Street analysts or economists. They have steered you wrong for the last three years. How many more years do you
want to experience the pains of a bear market before most of your hard earned savings are eaten away? Do your own homework, look at the
charts and get wisdom and understanding. If you don’t have the time, then find someone who does. More importantly, take responsibility for
your own finances. This is not the time to play ostrich and bury your head in the sand. Storms are swirling all around you and it is time to get
prepared.