Welcome to our Friday mailbag edition!
Every week, we receive some great questions and comments from your fellow readers.
I read every piece of feedback we receive. And it’s my pleasure to respond where I can.
Writing newsletters can be a very individual pursuit. I enjoy the dialogue with all of you via the weekly mailbag.
So if you have any thoughts on anything I write here at Inside Wall Street, please be sure to pass them on to me at [email protected].
This week’s mailbag runs the gamut of monetary policy, the ethics around earnings announcements, the Gold-to-Silver ratio, and how best to invest to profit from the coming silver bull market…
And there’s even a sneak preview of something I’m working on for next week that I can’t wait to share with you…
Let’s get to it!
First up, Walter F. had a lot to say about fellow readers’ comments…
Nomi, I can almost agree with the comments at the end of the January 19 newsletter. Reader John R. stated how crypto is a Ponzi scheme and gold and silver are the only true currency in the Constitution. E.M. complained about the government stealing our Social Security money.
I would think you’d have more educated readers, as both of these statements are factually incorrect, almost.
While Article 1 Section 10 described gold and silver as the only legal tender, that has changed so much. Thanks to FDR and those after him, we have a fiat currency today. So John R. is partially correct.
Gold and silver also go up and down and may be up 600% in the last 22 years. A good run, but it all depends on when you bought it.
To the guy with the point about Social Security: Oh, they stole it alright… and wrote an IOU. But if you do the math, you do get more than you put in, depending on when you start taking it out and how long you live.
For example, I need to put in for 7 more years, then live for 7.4 before I start receiving more than I put in. Would I have done better if I invested on my own? Probably. But would I have been that disciplined? Probably not.
– Walter F.
Hi Walter, thanks so much for your note. I appreciate you considering the views of your fellow readers. You bring up some excellent points.
I agree that, in the end, sound selection strategy and timing of investments are both critical components of preserving and growing your wealth. I’ve always said that the difference between a bet and an investment is time.
It’s also true that the Social Security system is flawed. But it does offer an external source for holding your money as you age.
The first consideration of investing is how much money you absolutely need to cover your expenses, emergencies, and extra desires.
That’s a personal number, of course. And it’s important to have a more conservative approach to protecting that money. That includes Social Security.
For the rest of your money, a more expansive, sound investment strategy is possible. But keep in mind that there can be life and market uncertainties at any point in time.
Regarding gold and silver… Between FDR and Nixon, our reserve currency system has been relegated to being fully fiat.
That’s what allows the Federal Reserve to fabricate money with no limitations… and thus distort the level of the markets relative to the real economy.
But there’s still legacy and use value in gold and silver.
As for Bitcoin, I believe there’s future value. That’s because of its potential to exist as a currency of exchange that is not fiat. The math and technology behind it are also key reasons for my conviction in it.
That said, I also believe most cryptocurrencies will either disappear or have only sporadic upside over the long term. (Not all of them – but that’s a topic for another time.)
Thanks again for your questions, Walter.
Meanwhile, Kim K. wrote in with a question about the ethics of earnings announcements, following my recent essay, What Wall Street’s Earnings Season Means for Your Money…
Hi, Nomi! I thought companies were somewhat obligated to warn shareholders if their upcoming earnings were going to be far below what was expected, rather than just clobbering us on their call. What gives? Thanks for your hard work and sharing your insights!
– Kim K.
Kim, thank you for your kind words and also that excellent question. You’ve hit on a key problem with disclosures.
Publicly traded companies aren’t obligated to warn shareholders in advance of anything. They are required to furnish quarterly and annual reports about their financial and operating conditions, along with guidance about future potential or risks to the Securities Exchange Commission as part of the Securities Exchange Act of 1934.
They are also required to provide material disclosure on several items. That includes major internal stock sales or purchases, issuing new shares, or fundamentally changing their formation.
When I consider a specific company for investment, I sift through this information. And I examine its growth potential in one of our five core sectors.
This helps me focus on what’s behind the headline announcements around earnings.
Next up, a great question from Ernest B. It’s about a key metric my colleague Lau Vegys wrote about a couple of weeks ago: the Gold-to-Silver ratio…
Just finished reading the discussion of the Gold-to-Silver ratio. I have a question: Do you think the existing median is still valid? I wonder if it doesn’t go back too far. Silver’s use as an industrial metal is accelerating. Wouldn’t this have the effect of changing the ratio?
– Ernest B.
Hi Ernest, thanks for writing in! It all depends how far back in time you go.
It’s important to keep in mind that, for thousands of years, governments worldwide often regulated the Gold-to-Silver ratio. They did this for monetary stability (or to further their own narrow interests).
This was when the ratio remained pretty steady, ranging between 11 and 16. The Roman Empire, for example, officially set the ratio at about 12.
The U.S. government fixed the ratio at 15 with the Coinage Act of 1792. In 1834, it changed it to 16.
Then, in 1934, President Roosevelt fixed the price of gold at $35 an ounce. This caused the ratio to rise to new, higher levels. It peaked at 99 in 1940.
The year 1968 marked another turning point for gold.
This was when a Gold Pool stopped selling gold on the London market. The Pool included the U.S and a number of European nations. This allowed the market to freely determine the price of gold.
As a result, over the past 50 years or so, gold and silver prices have been set by market forces. That’s the reason why the Gold-to-Silver ratio has been so volatile. (To read Lau’s essay on the Gold-to-Silver ratio, just click here.)
So, taking the existing average from 1968 onwards – 57 – does seem reasonable to me. Go further back in time, and you get too much noise and distortion, thanks to the government meddling I mentioned above.
And a shorter time frame, as you suggest, would give a much less reliable average. But as a matter of interest, I asked Lau to work out the average for the last 25 years. It’s 65.
So even if we were to use a 25-year average, at 79, the current ratio is still considerably above it. This means at today’s gold and silver prices, it takes 79 ounces of silver to buy one ounce of gold.
Now, that’s not the highest it has ever been. But it’s still high compared to both the 25-year and the 53-year averages.
Recall that, as Lau wrote, every time the Gold-to-Silver ratio went above its long-term average, it eventually plunged below it afterwards.
And you’re right… silver’s increasing use as an industrial metal will help drive the ratio down. As Lau outlined recently, silver’s key role in the emerging Green Energy trend will spur demand.
This will drive silver prices higher. And this, in turn, will bring down the Gold-to-Silver ratio.
Now, in his essay on the Gold-to-Silver ratio, Lau recommended an easy way to play the opportunity.
That brings us to our next question. It comes from Fletcher E., who has an alternative suggestion…
I am curious why SIVR was chosen by Lau Vegys over PSLV. Being Canadian, PSLV is closer to home. It has a lower price to accumulate more shares with… is considerably more liquid… and percentage wise, over the past year, PSLV and SIVR are in lockstep with each other.
– Fletcher E.
I reached out to Lau for his thoughts on this. Here’s what he had to say:
Aberdeen Standard Physical Silver Shares ETF (SIVR) is an exchange-traded fund (ETF), which we were specifically looking at in this instance.
As you probably know, an ETF’s price tracks its net asset value (NAV) very closely. Closed-ended funds, like the Sprott Physical Silver Trust (PSLV), tend to reflect market values.
As a result, shares in a silver-based, closed-ended fund like PSLV respond more strongly to market sentiment. So they can trade at a discount to NAV, or at a premium, depending on the prevailing market sentiment. And sentiment can swing wildly.
Generally speaking, an ETF is just a simpler and more retail-friendly product. So, in this case, SIVR was just an easier proposition. Plus, it boasts a lower expense ratio: 0.30% versus 0.62% for PSLV.
That said, I also like PSLV. It’s very liquid. And you can actually redeem your shares for physical silver bullion. Plus, PSLV offers potential tax advantages for certain (non-corporate) U.S. investors.
Now, I can’t give personalized investing advice. But, broadly speaking, PSLV is an option that may be worth looking into, depending on each person’s specific situation. But for the reasons outlined above, I’m sticking with SIVR for now.
Finally, here’s a little preview of an exciting exposé we’ve been working on, based on a reader’s suggestion…
Last month, reader Paul S. wrote:
Corruption will destroy not only our country but all countries. You seem to be wearing rose-colored glasses! Everything is being manipulated by the elitists. Why don’t you share with us who’s made all the money since this plandemic was fabricated.
In last Friday’s mailbag, I promised to dig more into this for you.
Thanks to Paul’s prompt, I found some really fascinating trends. They point to the sectors and individual companies at the core of Congress’ investments.
Knowing all this, we can pinpoint opportunities to profit. That’s all I can say about it for now… But be sure to keep an eye on your inbox on Monday, when I’ll send you my report.
And thanks again, Paul, for pushing me to look under the hood on this.
That’s all for today! Thanks to everyone who wrote in.
If I didn’t get to your question this week, please write me at [email protected]. I’ll do my best to respond in a future Friday mailbag edition.
Happy investing… and have a fantastic weekend!
Editor, Inside Wall Street with Nomi Prins
Like what you’re reading? Send your thoughts to [email protected].