Platinum
has become an increasingly attractive asset for my portfolio. Despite the
increased volatility I think this noble metal still presents an excellent
opportunity to deploy capital into. The initial buy platinum recommendation
was in July 2009 around $1,118 and was reiterated in January 2010 around
$1,618.
As
general economic conditions have the appearance of recovery, elections are
coming up after all, the demand for both silver and platinum will likely
increase. Governmental purchases for the green economy will put further
strain on the physical market.
Gold,
silver and platinum, unlike little colored coupons, cannot be produced by a
bald monkey pushing buttons on a computer that add digits to a database on
some server. Additionally, almost all the monetary and mind calming reasons
an investor would desire to hold gold also apply to silver and platinum.
EFFICIENT MARKET
HYPOTHESIS BUNK
Many
academicians propound the efficient market hypothesis which asserts that
financial markets are “informationally efficient”. That is, one
cannot consistently achieve returns in excess of average market returns on a
risk-adjusted basis, given the information publicly available at the time the
investment is made.
There
is a funny joke that those who cannot do teach. I am of the opinion that
money is made when you buy
not when you sell.
The goal is to buy when cheap and sell when expensive. The omnipresent
inefficiencies in the market allow this to happen. Based on the premise of
information asymmetry the market is always ‘irrational’ under the
efficient market hypothesis because of the economic
calculation problem. After all, how
many people continue to dispute the gold price suppression scheme?
As Mr.
Robert Landis, a Wall Street veteran and Harvard trained lawyer has asserted,
“Any rational person who continues to dispute the existence of the rig
after exposure to the evidence is either in denial or is complicit.”
The
information may be available but because of emotional, psychological, etc.
reasons individuals may engage in human action completely contrary to the
‘rational’ choice. I suppose some people could stare at the
noonday sun and proclaim ‘What sun?’ Large organizations are
merely coagulations of individuals and when the choices are made without
deliberation, skilled, calculated thought and in an irrational way then the
system becomes more unstable and the more inefficiencies result. One symptom of
these inefficiencies is increased volatility.
The
increased volatility in the markets, stimulated this time around by the Eurozone
credit crisis, can be particularly annoying and costly, in unrealized terms
over short periods of time, for average investors. For example, the 700 point
drop in the DOW in under ten minutes is an example of the return of
volatility that is primarily caused by High Frequency Trading and fake
volume.
INVESTMENT
TIMEFRAME
Perhaps
I have a different perspective. If I do not feel comfortable owning something
for ten years then I do not own it for ten minutes within which it can lose
ten percent of its value.
To be
honest, I derive greater utility from other activities than doting over a ten
second chart. This is a reason I focus on passive income cash flowing assets;
then I can clear my mind, swim with great white sharks,
present at Cambridge
House Investment Conferences on June 6-7 (hope to see you
there!), swim with sperm
whales, or a myriad of other hobbies.
So as
you make decisions in life I think it wise that you able to explain why you
are taking the job, making the investment, or whatever it may be. And if it
can not stand applying
pencil to paper then perhaps you should further deliberate
and calculate on the decision. And if you can not write an intelligent answer
to those questions then perhaps you should not make the decision. But no
choice is a choice so what should you do in the meantime?
Because
of the risks inherent in the banking system and because the little colored
coupons are trending towards their intrinsic value, nothing, therefore I
think it is prudent to eliminate
both counter-party and payment risk where possible between myself and my
capital. When you own a ton
of gold, silver and platinum that is unencumbered in anyway then you can sit,
deliberate and calculate decisions for a long time. In other words, I can
remain liquid longer than the market can remain irrational.
Think
about if you placed your capital in Euros deliberating what to buy? The
Euro has gone from $1.512 or €798.87 per gold ounce on 3 Dec 2009 to
€999.55 on 17 May 2010 or $1.227 on 19 May 2010. Four months and 25% of
its purchasing power, POOF!
Unlike
little colored coupons like Euros, Federal Reserve Note Dollars, etc. you can
be assured that any of these metals will still buy at least something
tomorrow morning. You need not fear some rapid valuation change like Harvard
Professor Kessler recounted about Germany’s Mark. “It was
horrible. Horrible! Like lightning it struck. No one was prepared. The
shelves in the grocery stores were empty. You could buy nothing with your
paper money.”
So, if
you are in doubt about what to buy then why not make the stress free decision
and buy gold, silver or platinum? You can always buy something else later and
will probably have a clearer mind for the deliberation anyway. Will you
always be able to buy more later? No, not necessarily. But you will always be able to
buy something.
PLATINUM
VALUATION AND VOLATILITY
Buying
gold perfectly serves the purposes of eliminating counter-party and payment
risks. As do silver and platinum. So among these three competing currencies
which is the cheapest?
Over
the past few years silver has hovered around a ratio of 55:1 with gold while
it usually takes about two ounces of gold to buy an ounce of platinum. In the
extremes the silver to gold ratio can reach 16:1 and gold to platinum has
reached as high as 2.4:1. Currently, silver to gold is about 65.6:1 and
platinum to gold is about 1.34:1. In both cases, it appears they are
undervalued relative to gold.
The
volatility in the platinum market has been especially fierce lately. Some
days the metal is up $75 per ounce while other days it is down $75 per ounce.
As the fiat currency system continues its evaporation this type of volatility
will wend its way into the much larger gold market. Beware of jumping
on the trampoline.
So I
think that platinum is particularly undervalued relative to gold. The increased
volatility gives me opportunities to buy which I have been doing on a regular
basis since I recommended it at $1,118.
CONCLUSION
But to
be honest, I hate buying gold, silver and platinum. They sit in my vault,
safe, buried under my favorite tree, etc. and do not increase in ounces. So
why have I been buying platinum? Because I cannot find anything else worth
buying.
While
I am swimming with sperm whales, speaking at Cambridge House World Investment Conference or
deliberating over the next investment I want to make the last thing I want to
have cluttering my thoughts like a memory leak clutters my computer’s
RAM is the issue of whether my little intrinsically worthless colored coupons
in a zombie bank still have purchasing power. Have you seen the FDIC failed bank list
lately?
Just
to put things in perspective. IndyMac had assets of about $32 billion and
deposits of $19 billion and this mammoth failure cost the FDIC an estimated
$8 billion. The seven banks that failed the week of 30 April 2010 had
combined assets of about $25.8 billion and deposits of $19.6 billion. These
failures cost the FDIC an estimated $7.33 billion. There are about $4.8T of deposits
insured by the FDIC which has a negative $20.9B
insurance fund balance. Annual worldwide platinum production is valued at
about $7.8B.
Got bullion?
DISCLOSURE: Long
physical gold, silver and platinum with no interest the DOW, problematic SLV
or GLD ETFs or the platinum ETFs or in the Angloplat, Impala Platinum
(IMPJ.J), Lonmin and Norilsk Nickel (GMKN.MM) or Stillwater Mining Company
(SWC).
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school
of economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
|