In Transcripts

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

“On today’s program Jim Deeds teaches us from his experience-driven knowledge of investing and common sense, just how important it is to acquire silver today.”

– Kevin Orrick

“What you are talking about is, you are dealing in something on both sides that people need. And after looking ahead to the future you would say, “If I can’t buy a silver coin, I would sure like to have a small farm somewhere.” You can come up with a lot of different answers, but if you start to have questions about the money, and your trust in the money, then your basic needs become very, very important, and to focus on need, I think, might be the investment area to look at now.”

– Jim Deeds

Kevin: I am eager, Dave, because Jim Deeds called. He has been calling over and over and over this last month or two, and he has been saying, “Are you guys paying attention to silver? Are you even looking at what is going on?” And this is a man who we have on, on a regular basis. He has a relationship with your family, and a history with your family. But what we know Jim to be is a value investor, and he is also a position investor. He teaches people how to take a position in something that makes sense, and then just watch.

David: But his emphasis is on that which is undervalued, and it is no longer arguable that the stock and bond markets, and real estate to some degree – these markets today are overvalued. What is argued is whether some new event, whether it is a tax policy shift, a fiscal shift, whether those things will change the revenue streams of the companies in the broader indexes, and raise their prices even higher, with some justification, of course, if those hypothetical events do come to pass.

Kevin: And you have to look for an investment that is commonsensical. We live in a different day and age where it is very technological and people will say, “Oh, price earnings doesn’t matter. It doesn’t matter how much debt we have in the country. Common sense would tell you that that doesn’t work.

David: We highlighted that a few weeks ago when we were talking about GM and Ford making between $1400 and $1500 a car. Tesla, the new story of the century, loses $15,000 a car, but don’t let that stand between you and owning shares.

Kevin: (laughs) That’s right. So what does make sense?

David: What makes sense? I’ll tell you something a family friend shared with me yesterday while at our office. As a person that sets the tone for company culture in his enterprise, he insists that 10% of his employees’ time each week is spent bettering themselves and continuing their education. That is four hours of dedicated reading and reflection. That is an investment from his point of view, that makes sense, and I agree.

Kevin: And you pushed that here. Honestly, Dave, we have the Book-A-Month. We don’t always do it every month, but we read numerous books through the year as your employees and we sit around and discuss the book afterward.

David: From a vantage point of this gentleman’s co-workers I think they must appreciate that that sort of investment is sort of a radical departure from the norm of hyper-productivity and micro-management. In fact, throughout his office there are areas where you can go and sequester yourself. You can read, you can think, you can learn and you can grow. That is an investment and that is something that just makes sense.

Kevin: For years we read a man named Richard Russell. Richard passed away last year. He lived a very long life. He wrote about Dow theory for over 50 years, and I know I read 30 years of those 50.

David: Education was a critical choice, in his opinion, in where you should continue to invest, and he mirrored John Templeton whose personal investment in education – he continues that with his legacy through the Templeton Foundation, but he was always advising. One of the top ten things that you could invest in was your own education. I think, today, we will expand the scope in terms of what you should be investing in. What just makes sense?

Kevin: And Dave, I have to tell you, I have a fairly extensive bookshelf, like you. There are a number of books that I have bellied up to the bar to pay for that Jim Deeds recommended to me. He is a reader.

David: He is one man that I have known since my teen years and continues to excel at this kind of personal educational growth and development. And frankly, in areas that stretch beyond balance sheet analysis, macro-economic reflection. He captures a glimpse of the beautiful. He is looking for the soul-stirring in nature from behind a lens. And I think that brings a radically different kind of perspective to what Jim Deeds sees when he does happen to be considering a value play in a certain asset class.

Frankly, what he has done is, he has trained himself to see the world from a different perspective, and I appreciate the balance which beauty brings to the sphere of finance, sometimes an area that breeds cynicism and suspicions, but it is an interesting perspective in balance.

Kevin: I have always enjoyed the fact that Jim can key us in on something two, three, four years early, so that we can take advantage of it, as well.

*     *     *

David: Jim, you have commented and given us perspective in many areas before. When we are looking for an investment that just makes sense, is there a way that you choose an investment?

Jim: David, I appreciate your introduction. It is amazing that you mention photography, because it might fit everything we are going to talk about this morning. I enjoyed photography but never did it as seriously as I have the last 30 years, and that happened when I lost my sight in one eye. I only mention this as a beginning to our program. When I lost sight in one eye it changed a lot of things that I do, and obviously, photography was something I could do a lot more of. And the point that I am making is that you really don’t appreciate what you have until you lose it, or you are apt to take many, many things around you for granted.

I am sure that most people who are seeing with two eyes never think twice about the fact that they enjoy each day and have a normal life. I won’t go any further except to say that once you lose one eye, every day you wake up and say, “Wow, it is a beautiful world and I can still see it. This is a miracle.”

Having said that, I would say two things leading into this. I want to talk about silver, but I think two things might be important, quickly, to say. One is, I am two generations, perhaps even close to three generations, removed from some of the listeners today, and that is a huge difference. I know your dad has talked about this, and I have, as well. A cultural change in America has taken place and continues to take place at a very rapid pace, so things that we see, or the perspectives that we have, are certainly, from behind, or from yesterday. And our challenge, of course, is to update this and to stay on top of what is happening. And then if we can do it best, try to look ahead. That is why I wanted, and appreciate, the chance to talk to you about silver, because at the moment, silver would be on the lowest level of investment choices, I would guess, with most people.

David: As we look at this two-generation gap from you, to many of our listeners, I think I am somehow in the middle because the things that have influenced you were, to a degree, required reading in our household. I know you have been influenced by Gerald Loeb’s book, The Battle for Investment Survival, originally published in 1935. That was required reading in our house. It is a classic. Can you tell us about it, and some perspective that that brings to, again, how you choose an investment?

Jim: That is a neat question. It is something that I have enjoyed all my life. I went into the investment business – I was shortcutted – I went to work for Dean Witter in 1968, and in 1968 I thought I should read and learn as much as I can. And so, there were many investment gurus over the next 30 years that I picked up each one and read what they did, and many different people with different opinions.

And I kind of focused that down into three people this morning who really, effectively, directed me in the direction I wanted to go in my investment career. And that was that they were investors. They weren’t gurus, they weren’t short-term timers. They were amazing people with thoughtful ideas about the art of investment.

And of course, as you mentioned, if we look back, Gerald Loeb’s book was really a landmark book in my mind, and I read that, and there were many ideas in the book, but the one idea that came through to me that was with me the rest of my life, he wrote specifically about an ever-liquid account. He had a chapter written about the ever-liquid account. I won’t waste time on that, but I will say only that an ever-liquid account, in his mind, was an ongoing thought process with how he invested his time or his money in the best profitable and positive way he could. So, in simple terms, today he would decide, I have five things I am most interested in. I list them from one to five. Number one is really important to me and down to five, and these are where I will spend my time or my money.

And then what he did, which is reverse of what most people do, is that from that day on, he would look each morning as he got up at what had happened overnight and what was changing in the world. And then he would ask himself, “Is number one still number one, or is there a better idea out there?” This is an amazing self-correcting way, in the investment market, or in your life, to keep on top of what is happening, and to be in tune with change.

So, I was amazed, and I ran investment portfolios, stock portfolios, in that fashion. I usually never had more than three, four, or five ideas, at the most. And sometimes I would get down to where I had all of our money invested in only one idea because it was just, by far, the best. That is why I mentioned silver to you the other day. I think all of a sudden in today’s world, silver might be considered as something that might be pretty good.

David: It is interesting, because I went to work at Dean Witter 30-something years after you did, and the review in my first year at Dean Witter, of that required read, Battle for Investment Survival, gave me a very different perspective on what Wall Street’s approach was, and then as we led up to the year 1999, 2000, 2001, what it had become. Because in Loeb’s book, he is not afraid of a concentrated position. In fact, he would argue that you keep an eye on the eggs in your basket and there is no possible way to be an expert on 1,000 different eggs in a singular basket. Just know what you know, and know it well.

So that idea of sort of refining and reviewing and re-analyzing and making sure that what you own is still worth owning. But if, in the end, it means you own a concentrated position – this is one of the scions of Wall Street – he would say, “That’s okay.” It kind of flies in the face of what we hear from Wall Street today.

Jim: I would agree with you 100%, and actually, my last time, the most successful investments I have, I was always a pretty much one-on-one kind of person. I will mention two other people only in this conversation because I saw Joe Granville, I got to know Bobby Prechter, and I listened to Stan Weinstein. I listened to many, many people over that 25-year period, with ideas or cues or ideas as to how you might make money in the market. That was the main cause they would talk about.

There were only three people, however, that really stuck in my mind as to how to invest, and that is certainly a question. It might be in question today as to whether anybody knows how to invest any more – just trade the market. But on the investment side, which I think is really worth talking about, specifically in relation to silver, on the investment side, the second guy I read, which I got his annual reports when his stock was 150, was Warren Buffet. I used to get his stock reports every month and read what Warren was doing.

He would say one thing, and it was so simple. His whole approach was so simple. I’m sure people think he is a genius, and he is, in simplicity. His whole idea was that you would identify, as an investment, or you could identify it as a job opportunity, the very best situation out there, the one that would serve the people the best in the years ahead – not today, but in the years ahead.

And then he said, number two, wait, in the case of stocks, until you can buy that investment when nobody else wants it. He said, “Look for a franchise, one that can’t be easily duplicated.” He ended up recently buying Burlington Northern railroad. You sure can’t duplicate that. And he bought Sherwin-William paint, and you can’t duplicate that. So his idea was simple. You look for the leader of the franchise, then you wait until you can buy it at a point in time when nobody else wants it.

The third fellow was the same way – Jimmy Rogers. I read him way back when. Jimmy Rogers was a partner of George Soros, and Jimmy Rogers had a different view. He said, you have to look at least two years ahead, and you have to be looking today at what people may want or need two years from now. It was an amazing way of looking at things and obviously, he and Soros were very, very successful using that approach. I remember reading at one point, the Israelis had had a seven-day war with Egypt, or someone, I don’t remember exactly who, but their whole air force has been shot down.

It was kind of a dreary ending to the war, and Jimmy said, “If the Russians provided the Egyptians with better aircraft than the Americans can provide for the Israelis, then we are going to have a big change in how we design and make airplanes in America, and I am going to check out and see which companies will be able to adapt to that change.” And he did. He came up with names that nobody had ever heard of. And that is, of course, how Jimmy Rogers made an awful lot of money as a long-term investor in the markets.

David: In both cases, when you talk about Warren Buffet – one, he had something to say about finding value. And there is that theme of the value of patience, because he is willing to wait. The way you describe it, he is willing to wait for the price to be cheap, but then the next ingredient is, he is willing to wait for the price to not remain cheap, which means that he spends most of his investment career waiting.

Jim: It’s just so simple when you start thinking about it. You’re looking for something that people need and use every day, but then in markets, and in stock markets it is a little easier, perhaps, than in life, but in markets, obviously, you have the up and down cycles, and so you just have to wait, when you ID it, until the next down cycle appears. In the 2008 cycle when Goldman-Sachs was going broke, he bought some Goldman-Sachs stock when they needed money bad. He is a genius at just waiting and being patient.

And then, what you just said is exactly right. The patience is paid off on the other end because usually those holdings last anywhere from four or five, up to 20, years in his investment ideas, and that is a long way away from what most people are doing today.

David: That’s fascinating. In a world of high-frequency trading, we’re fascinated by – and Wall Street firms practically require you to be in and out 20 times a day, then you’re a good customer. Anything shy of that, you really don’t represent value to them. So, we’re moving into a brave new world.

You said Jimmy Rogers looks two years out. He taught a course on investing at Columbia University, and would have students look at investments that had worked very well. And then he would basically reverse-engineer those success stories, and have them analyze the factors that they needed to observe in advance in order to predict, and thus participate, in the investment. Again, you are talking about looking ahead. Today is not the issue. Tomorrow is what you are looking for.

Jim: (laughs) You’re right. It’s exciting and it’s fun. In my own life, I would only mention two things because they’re laughable, and my son mentioned them this morning. The first one is sales engineering. When I got out of the University of Colorado, because that is what I took in school, I was selling into the construction market. This is just the way life is. All of a sudden I realized – I was working with a concrete company so I was seeing buildings going up, and I realized that on just about every corner, at least in Colorado, we were seeing a new bowling alley being built.

This was in 1960, believe it or not – way back then – and we were in a recession, and bowling alleys were a neat idea because people didn’t have to spend much money to go out on a Saturday night and bowl. I would look at these bowling alleys going up and it would always say, “Pinsetters by Brunswick Balke Collender. I had been an investor for some time, and I called my stockbroker – a neat guy – and said, “Hank, I’d really like to buy some Brunswick Balke Collender.” And he said, “What is that?” (laughs) These are miracles when they happen. And I said, “I see they’re building bowling alleys and I think I want to own some.”

So he did, and the long and the short was, four years later, Brunswick Balke Collender was in the most active list on the New York Stock Exchange every day in the five or ten most active stocks because all of a sudden bowling was out there in front of everyone else. And that paid for my first house, so it was nice to understand how that system worked. And I’ve tried, and have not always been successful, to do that over and over. And that leads us to today, which we hope is a good idea, and that is silver. Silver is as far out of sight as it has probably been in your life or mine, to the average investor. Would that be right?

David: Particularly when you look at values relative to each other, because in terms of price you could go back to the 1920s and 1930s. You had a $20 gold piece and silver, at the classic ratio of 15-to-1 was right around $1.30 an ounce, $1.25 per ounce. That’s where it was, but now it’s $16-18, fluctuating in that range here in the last few weeks. Is it more expensive? Is it on anyone’s radar? Relative to the rest of the world it’s still dirt cheap. Relative to gold, it’s very inexpensive. And it is kind of in an interesting place – a neglected theme. Both metals are. But particularly in the U.S. context because, we look at gold demand in India, for instance, just as an indication of global interest in the metals. Jewelry demand was up 16% last year. Chinese bar and coin demand rose 30% in the first quarter of this year, according to the World Gold Council. These are cultures that save in ounces. They look at gold and silver as a reliable store of value. In the United States nobody cares. U.S. mint numbers are down pretty catastrophically since the beginning of the year, but that is just an indication of where the mindset of the American investor is. They would be the guys who are buying Brunswick, not when no one is paying attention, but when it has already hit the most active list. And that is what they are doing in the stock market today.

Jim: I watch CNBC, obviously, because I am really still very much involved in enjoying the stock market, and I participate, and I haven’t heard silver mentioned, in memory, for a long, long time (laughs). And just to back up what you just said, I do read quite a bit and I saw the mint came out with a report on both gold and silver American Eagle coins, and in the first four months sales were down more than 50% in those coins. So obviously, individual investors in America aren’t very excited about silver.

Then, of course, on the commodity exchange, the report came out a couple of weeks ago that the commodity market, which is where they trade paper gold and silver, which is worth discussion in itself, but anyway, that is just a price-setting mechanism, which doesn’t relate directly to physical at all, it is just people speculating on the price of gold or silver, but the short position in silver was a 23-year record high. The largest number of people had sold silver short, meaning they think it is going to go down, in 23 years. The position was that big.

And that got my attention as to what we are talking about today, because I thought, if you can buy something that world history tells you always comes back, and comes back, and comes back again, gold and silver money seem to always return when everything else fails, and if you can buy silver today when nobody in the world seems to want it, that might be a pretty good time to look.

David: So, when you think about saving money for the future – silver, does it fit the category of interest?

Jim: You’re asking a good question, which just came to me this morning I’m sorry to say. But the answer is that we have – you and I, and everyone in this country have been interested in making money. The whole economy, the whole culture, is designed around how much money can you make, how much do you earn, where can you get a better job? So we have been involved all of our lives in making money. And I think, maybe, at this point in time, we should be looking at what will we need, rather than how much more money do we want?

And if you think of need, then a silver coin or a gold coin, obviously, comes into focus very quickly because in really impossible times, where everything is changing daily – this morning they were accusing Trump of giving secrets to the Russians, two days ago they were accusing him of treason because he had fired the FBI director. I’ve never seen America up in the air, nor the world, with more change, more rapidly, and without answers, that you and I can answer.

And you say, “Wait a minute. I might just need something simple, and if I can buy when nobody else wants it, a silver coin is money, real money. It’s physical, I control it, and on top of that, other people accept it and know what it is, and as you just mentioned, it is used all over the world.” So it is kind of an interesting time.

David: Let’s talk about scenarios. We have the Trump administration, kind of an X factor in play. We don’t know what policies will either be announced or what will actually, plausibly, be pushed through. Maybe signing statements and executive orders will accelerate the trend if he gets very much pushback from the legislatures. So, let’s say we hit Trump’s target, 3% annual growth. It is a success story. Does silver fit in that scenario?

Jim: It surely does. You see, that is the most exciting part of the whole silver story at the moment, and you and I are on the same page. You can look at two things that may happen ahead, and I surely don’t know which it will be. Maybe President Trump will be successful and get growth in our economy back up to 3-4%, which means that industry will be humming and people will be moving, and everything will be working the way it should. And the amazing part, if I am answering your question correctly, is that silver is a one-of-a-kind metal, it is a franchise, in Warren Buffet’s terms. It is used in the technology area more and more every year, all over the world, in technology products.

On top of that, you and I both know, we can talk later about it, it is in short supply. The short supply comes about from the fact that silver is found on the surface of the earth while gold, they can go a mile deep and find gold a mile deep in the earth. So most of the silver is open to man’s exploration and a lot of it has already been found.

The Silver Institute comes out and says we have probably 17 years left of mining silver, and the amount of ounces per ton go down every year because it is harder and harder to find and there is less and less silver available. So in a boom time, as you expressed, which I think President Trump wants, silver would be an industrial metal in high demand, and at the moment nobody is talking about it, so it would seem like it would fit.

David: From the Silver Institute, one of the categories of growth from last year to this year was in the area of photovoltaic demand. And it was a pretty big increase. As a percentage, it was monstrous. But in terms of millions of ounces used per year, that is an area where, as people continue to want clean energy, as people continue to improve the quality of cells that collect energy from the sun, it is interesting. Silver is smack dab in the middle of that.

Jim: I think that really makes sense. And I have sat and looked at this. Silver might be one of the few things we can look at, at what seems to be a bargain basement price – the price is quite low, we can discuss whether we think that is right or not, but certainly, from an investor standpoint the price is very, very low. If the economy picks up, which I think is an awfully big if, but a possibility, certainly, with Trump, silver demand will go up on the industrial side. That is the beauty of silver versus gold. Silver is an industrial metal. Gold isn’t anywhere near that much of an industrial metal, at least, at this point.

However, if things don’t turn out quite right – and I could name 20 different crises out there, all different, that might affect the economy, America, the world, in the next year or two or three – if it doesn’t work out quite right, silver and gold turn out to be the two base metals that have been around, you can look back at Rome in the year Christ was born, and the Romans had a silver coin, and 300 years later they had diluted and diluted and diluted the silver coin down to the point where they had no silver left in the coin.

So you can go back in history and look, and again, silver and gold have been the last man standing when it comes to a monetary value that people can hold and possess in their own hands. And silver, if everything went wrong, and if we went to a cashless society, which we may well do, would be a representative of something physical that people could use in barter if all of a sudden a cashless society wasn’t working too smoothly.

David: So, best case scenario, Trump is right, we get 3%. Or, he’s not right, he is just lucky and gets what he wants. Worst case scenario is we have sort of the resolution of financial excess, which, if you are a student of financial history, would say you either have classic default or the historically predictable inflation. And maybe even inflation in an advanced stage. We have central banks who have put out a concerted effort to stave off deflation, and they have fought it furiously. Perhaps that shows up in a final scenario as super-inflation, high levels of inflation, hyper-inflation – we don’t know. The classic default would take us the other direction – deflationary contagion spreading through the frailties in a very leveraged financial system. And you would make the case that you don’t care – one, two or three – one very positive outcome, two potential negative outcomes, silver still has a very interesting play.

Jim: Well, you are back to the basic concept of investing, and that is, you want to own today what people are going to need in the future. And I guess you would say whether the economy picks up and grows fast, or the economy collapses in a debt collapse, you would need silver in either case, perhaps more than any other kind of financial asset you could think of. I have talked about that before, the fact that gold is an amazing store of value, and we all know that, and we have been working on that for many, many years. I started investing in gold stocks in 1968, so I have been conscious of gold as a stock market investment for some time.

But the catch at this point is, gold, if we were to have a financial problem, and if we had a default on the bond markets, the price of gold, I guess if you listen to other people, or if you listen to me, you can put any number on it you want. It could be $5,000, $10,000 or $20,000 an ounce. My point would be that at that point you couldn’t take it to a farmer’s market and buy some food. At that point in time, a silver coin, on the other hand, even a silver dime – a silver dime today costs about $1.35, I think, for one of those old silver dimes – you could take the silver dime to a market and buy food for the next week. You might need that silver coin as currency. That was the whole exciting part of this that I was thinking about when I told you I would like to talk about silver.

David: So we have things to consider, and I don’t know if these are short-term considerations, long-term considerations. You and I think in terms of the free markets, and we think in terms of markets that are driven by supply and demand. In the modern era, however, we have something that has almost supplanted and replaced the free markets – the capital markets. They drive everything.

And basically, what it has done is put credit and debt in the driver’s seat. And instead of our traditional concept, if you go back to economics 101, where demand and supply balance each other out and price is sort of the adjudicator, we have excess demand created through our fiat system, and then of course, through a fractional reserve banking system. That allows for even greater leveraging of the underlying monetary base.

So are the old rules out? Do we have new rules which allow the Federal Reserve to kind of guide the economy forward where, again, supply and demand doesn’t matter, we just see an infinite repricing to the upside of all financial assets because, again, capital markets are in control, it is no longer a question of supply and demand. And if capital markets are in control, it is just a question of how much money will be printed and where it will flow.

Jim: That’s right. And I’m sorry, because I just happen to be that age, but that is the scariest part of everything we talk about, because I look out my window at most of my neighbors – the guy across the street flies an airplane for United. I can take him, and work my way all up and down the street, and most of the people, at this point, having read about a 20 trillion dollar current deficit in the United States, or maybe knowing that we have over 100 trillion dollars of future promises for Social Security, for Medicare and Medicaid, that type of thing, those numbers are so big, if you ever sat and tried write down a trillion and saw how many zeros it was, you would say, “I don’t think I care anymore.”

And so, I would say that people have really turned away from that in that it is so over our heads that they just decide either to live for today, or take for granted what we have, which has been so easy for so long, that I guess tomorrow will be just like today, won’t it?” And in that case I would say, the changes we see happening in the world would tell me the change will be amazing in America. It has to be. While President Obama was president they doubled the debt from 10 to 20 trillion dollars on the current balance sheet.

At some point people will wake up, and if we don’t, obviously, other nations are, and they are saying, “Gee, if you can print money like that, then why would I want to sell you anything? The money isn’t worth the paper it is printed on. That is kind of a dire prediction, but I think history would tell you that it could happen.

David: So again, the amount of debt that you have, you can maintain it if you have a steady income, and for our economy, that means you need to continue to see economic growth to be keeping up with those debt payments and obligations. When you see cracks within the economic system in terms of activity, where there is a slowdown in economic activity, it is sort of the front edge, it is an indicator that maybe you won’t be able to service the debt. At least, that is, hypothetically, the concern.

We have housing starts in April – those were down several percentage points, after being down considerably in March. It’s just a small crack, but it’s a crack in consumer mortgage finance. What about auto lending? We have noted this before that there is a tightening within the auto lenders and, of course, we are starting to see used autos hit the market at very low numbers. Again, it is just a small crack within consumer finance, but remember that consumer spending is also two-thirds of our economic activity.

Jim: That is a really important thought. I think it is.

David: Here we are, trying to judge the direction of the economy and I think you very fairly have said, maybe we have a success story in the making. Not exactly sure how it comes together, but by hook or crook, if we get a 3% growth rate in GDP, everybody will be happy, and the stock market will rage, and silver may have its place in that event. Worst case scenario, however, you still have your bases covered.

Jim: When you look at those debt numbers and you realize how big they are and how fast they are growing, I think President Trump is a very positive and a very bright person, but I think he is behind the curve, personally. It’s easy for me say out here in Colorado. He is behind the curve in relation to the debt and how to ever dig out of that debt. So we hope the rest of the world will go along with us. We have had the reserve currency of the world in the dollar for many, many years now, and it has been a lot of fun.

Nixon got us off of the gold standard in 1971 so the dollar no longer is backed by anything other than a promise of the United States having the biggest military force on earth, which we do. We spend as much on military, our country does, as every other nation on earth combined. So, at the moment, as I see it, we first had a gold-backed dollar, then we had an oil-backed dollar in our partnership with Saudi Arabia, and now we have a military-backed dollar. And I think those are very dangerous times, any way you would look at it.

Then, the most exciting thing, I thought about this morning is the fact that we spend that much money on defense, and on money, and yet the thing we are most afraid of is a terrorist who either has a rapid-firing rifle, a Molotov cocktail, or perhaps he can take over an airliner and crash it into a big building. This is amazing that our fear is of a primitive attack, and yet we spend more and more money on the most sophisticated armaments in the world. So the debt picture is hard to add up, but it really makes sense. And therefore, a silver coin that you could hold in your own possession might be a pretty good idea.

David: It is interesting, I had this conversation with our boys over the weekend. It’s that time of the year. Two cows went to market and the cows that we keep in the herd are the ones that we give affectionate names to and they are usually heifers. And the bulls – we’ve already got enough bulls and they are the ones that get named after some form of a hamburger or roast beef, or what have you. And so, each of my boys sold a cow. My older son was a little upset because his was skinny. It was awfully skinny this year, and it didn’t yield quite as much.

But both of them were wanting to wheel and deal. This was Sunday night. They wanted to wheel and deal on Sunday night, and they said, “Okay, what’s the price of silver?” I said, “It’s about $16.50.” And they said, “Well, last time we bought it, it was $18. That’s great, we get to buy a few more ounces.” For them, there is a savings plan in mind. They like silver.

Jim: What you’re talking about is, you are dealing in something on both sides that people need. Food is obvious, and if you are looking ahead to the future you would say, “If I can’t buy a silver coin, I would sure like to have a small farm somewhere.” You can come up with a lot of different answers. But if you start to have questions about the money, and your trust in the money, then your basic needs become very, very important, and to focus on need might be the investment area to look at now.

David: And that is what you said earlier. We have asked the question, and we continue to ask a question that doesn’t have a specific answer. How much do we want? And there is an infinite inclination, driven by greed, to leave that unanswered, and just continue to move the goalposts. If it is $100,000 a year in income, maybe it’s $1,000,000 a year in income. If it’s a million dollars in net worth, maybe it’s 10 million dollars in net worth. Whatever it is, we can always move the goalposts if the question driving the conversation is how much do we want. And you are asking the question, reframing completely, saying, “What will we need?” That is a totally different way of looking at things.

Jim: And that would be the only thing I could conclude on in talking about this, which is really fun, and you could talk the rest of the week about it, and that is, we think maybe we are on the edge of dramatic change here in America. Here in my neighborhood the culture is certainly different from anything I have known before. People’s interests are way different from anything that I had or my dad had. So we know there is change and it is coming faster and faster. And as you look at that, you’re saying, “Wait a minute. I have to fit into this. Where do I fit?” Well, the question there becomes a lot of fun, because you say, “If I do see change coming, what would be something that people will need two years, or three years, from now?

I would give you two examples. I think a silver dollar for barter, or a silver dime for barter, might be an idea. And I would say if your son wants to become a plumber, that’s a pretty good idea. We have had a neighbor, and my daughter, in the last month, have both had their sewage lines clog up between their house and the street. And this sounds pretty common, but in both cases, the plumbers came out, and in a day-and-a-half they fixed it. And in both cases, they charged them $5,000. I’ve thought about it since it happened and I thought, “Golly, when your sewer line plugs up, you are at the mercy of the guy who can fix it.” Now, there must be a lot of opportunities like that coming where people will still have a need and not be able to do it themselves. And that would be the exciting part of business as we look ahead, right?

David: Oh, absolutely. Absolutely. A few months ago, you sent me a chart of silver by Ronald Rosen. I don’t know if you remember that. He was arguing for a replay of the 1970s, looking at an annual logarithmic chart of silver. What do you think are the catalysts that take us into the third digit for silver? And are we really talking about just an extension of the trend – long-term devaluation of the dollar, just being accelerated and shrunk where time gets compressed, and all of a sudden, instead of the long journey from $1.30 an ounce back in the 1920s, to $16 an ounce, or for gold, from $20 to its high here recently of $1900? That is a story of currency devaluation. Are we talking just about a monetary Ponzi scheme?

Jim: I think I would just give a plug because it is a fellow I know. Doug Noland has been writing the Credit Bubble Bulletin, I think, since 1997 or 1998, and for some reason, I just happened to latch onto it at that point, and Doug writes a letter every week, believe it or not, updating on credit, money markets, and where they are at. And as you watch and go through that, he is amazing in the detail and in the update that he gives you, which gives you a perspective on what is really happening. You don’t see those numbers anywhere else, and you don’t see those ideas anywhere else.

But the point I would make in answer to your question is that monetary growth and debt growth have been exponential. That’s a big word, and basically, that means that while it took 50 years – well, I remember silver being a dollar and a quarter back in 1966, I remember the Hunt brothers cornered the market and silver got up to $50 an ounce. And that happened in 1979. So, in answer to your question, obviously, there are many unknowns that could change the price of physical gold or physical silver. And to my way of thinking, in terms of Warren Buffet or anyone else, the ever-current portfolio, silver would be one of those that has the highest potential for gain and the lowest risk factor that I could find.

David: All right, so you are a classic, what I would describe as a position broker. Forty years ago this is what you were doing. You would research an idea, a company, a management team, a growth trajectory within the economy. You would triangulate, you would build a position. Work us into what that looks like for silver today.

Jim: My son reminded me of it this morning. It was really interesting. At Dean Witter I was a broker. I was buying silver and gold stocks up in Canada at that time. It was one of the local points back in the 1969, 1970, 1971 era. And it looked so good to me, as a broker, that on the side I went out and tried to get each of my clients, and I got about 15 of them, to buy a bag of uncirculated silver dollars. The banks had always given away silver dollars to open an account back then in Denver so they had bags of uncirculated silver dollars. I bought those for about 15 clients. I didn’t charge them any commission or anything, I just said, “I think you ought to set these aside. They are a good idea.” We were paying $5,000 a bag, at $5 a coin for a Morgan, or an uncirculated Morgan, or a peace dollar. I obviously set some of those aside for myself at that time. And Chuck reminded me this morning, in that era between then and when, he was probably seven or eight years old, by the time he and his three sisters went to college I sold a bag of silver dollars for $26 a coin – that was $26,000 – and I sold a half-bag, believe it not, to ICA for $52 a coin. And those silver dollars paid the entire cost of our four kids going to college. So I speak from past experience that at least once, these things have come true, and it would seem like we might be on the edge of seeing that happen again. Is that any kind of an answer?

David: It is. So what we are asking is, what we will need. And a need could be a variety of things. A need could be what you anticipate as a supplement to retirement income. A need could be what you anticipate as college tuition. A need may be – fill in the blanks. But you answer that question, do the math, and see what that equates to in ounces today. And it is a different way of saving.

Jim: In my own mind, if people had savings, and that is a good question because most people don’t save anymore, most people can’t save anymore, so you are talking to a rarified group of people who still save money or who try to save money. But if they did, it depends on the level of their savings, but I would certainly think that anybody should have five boxes – a box of silver eagles is 500 coins, and if it were me, and I were 40 years old and could afford it, I would have five boxes of silver eagles just in case.

Number one, it would be a godsend if the money seems goes kaphlooey. Number two, it probably will turn out, since they are totally out of favor at the moment, to be a very fine investment, as far as the price going up, even if you don’t need them. So, I think that would be something I would look at. I think many people probably can’t afford that and they should at a juncture where we refer to silver dimes, silver quarters, and silver half-dollars. Certainly people can set a few of those aside. It lets you sleep easier at night, it would seem that way to me.

David: Well, I agree. I think one thing that I don’t have the clear memory on is that particular investment going up ten-fold.

Jim: It is amazing when it happens.

David: But you’ve seen it. Obviously, you’ve seen it in multiple assets classes, but you have also seen it in silver, and understand the circumstances that drive it. But it is actually, in a short period of time, when it occurs, that it occurs. So Jim, you saw the run from 1966 to 1979 when you were selling it. It went even a little further into 1980, and sold it at $50.

Jim: This morning, I remember walking down the street, 17th Street, which is where all the banks and brokerage firms were. I had just bought half a bag of circulated silver dollars from a stock broker, believe it or not, who worked for Merrill Lynch. I was walking down the street and I met a neighbor. Of course, the street was crowded with people, and he said, “Jim! There you are. What are you doing, carrying your money to the bank?” (laughs) Little did he know that I had silver dollars inside that bag. It was amazing. And it worked out pretty well.

I think the main thing today is, it is exciting, you can either get very glum about this picture or you can get kind of enthused about it. And I would be enthused. I would say, cultures change, people change. If you look at history, if you look at today, if you look at our lives, you see opportunity that you never saw before. Ray Kroc was a malt machine salesman out in California, and he recognized that two brothers, the MacDonald Brothers up in San Francisco, were selling a lot of hamburgers. And on top of that they were wearing out their malt machines about three times or four times as fast as anybody else. He went up and talked to them and said, “Can’t we open a franchise and try to build some of these somewhere else?” And the brothers said, “No, we don’t want to do it, but we’ll give you the rights to go ahead and try.” So we know what happened with MacDonald’s.

The same thing, exactly, happened – and these are fun because you are interpreting how a culture changes – the same thing happened with Howard Schultz at Starbucks. Howard Shultz, when he graduated from college, went to work for a company in New York City that sold coffee-grinding machines all over the country. This was years later, and he saw exactly the same thing. He saw that there were two brothers up in Seattle that were selling coffee and wearing out their grinders four times as fast as anybody else. So he said, “I’m going to go up and see what they’re doing.”

And of course, the long and short of it is, he quit his job, went to work for them, offered them to be a partner and they said no. Then he went on a buying trip to Italy and he said, “What are all those people doing up and down the street?” They said, “Oh, they all stop in the middle of the morning to have a latte.” And Howard said, “What’s a latte?” These are amazing stories. And these come about from change. So Howard Schultz came back and said, ‘I want to build some coffee shops.” The brothers said, “That’s the dumbest thing you can do. A coffee shop never made any money.”

Howard Schultz said, “Number one, I’ve got something called a latte that nobody has seen. Number two, I’ve got an idea that people are seeking community. They don’t get to talk to each other, and one thing about a coffee shop is, when you go in, you all sit down and talk together.” The rest is history. You can see what happened with that. So I look ahead and think those same kinds of opportunities are maybe hidden, or maybe if we start to look we will see them today. And in the money business, it strikes me the silver coin might be one of those. It very well could be the same thing.

David: Well, it strikes me as very important that how we save for the future is sort of in the middle of this conversation. And although we can’t anticipate the exact ways that culture changes and continues to morph, or what opportunities will look like, having the reserves and resources to be able to press in, and on the basis of value exchange, do something about that, is very critical.

I mentioned to you at the beginning of our conversation today, a friend who is in town, and we talked about the time that he gives his employees to continue their education, and how that, for me, is a no-brainer in terms of an investment. I learned about value exchange and silver when I was six years old from that gentleman who exchanged a cookie tin full of dimes for a beautiful convertible Trans Am. For a six-year-old boy, I was absolutely mesmerized. We drove away, and I’ll never forget thinking, “I don’t even know what the cookie tin had in it, but I want one of those cookie tins, and whatever was inside, because you can get a Trans Am, a gold Trans Am, Special Edition, with the flaming wings on the front hood.” I mean, it was absolutely spectacular.

Jim: People have been doing that same thing for thousands of years. When times got tough, or different, all of a sudden a silver or gold coin appears again, and you can do what you just explained, right?

David: Well, that’s right. And that happened to be in the timeframe of around 1980. Silver was trading at very high levels, and it made absolute sense to be taking your silver, or gold in that case, and exchanging them for other stuff, using them as money, which is to the point. What is the primary object of owning gold and silver? In my opinion, it is the best substitute for cash and that is the best form, I think, of saving money for the future.

Jim: It’s probably the most recognized you could get. I would agree with you, wouldn’t you?

David: Absolutely the most recognized.

Jim: And I get excited about the future. I think I know that 90% of the rubber tires that we use in our cars now come from outside of America. So I could tell you, “David, forget the gold and silver, let’s just build a warehouse and store up a bunch of tires because people are going to need tires someday.” And if world trade breaks down like I think it might, when they don’t quite know what the right currency is going to be to make a trade from one country to another, if our warehouse of tires is still there, people are going to need rubber tires, and we’ll be in business. Now, see, there will be a lot of creative new thinking. Some will work, and some won’t. But it’s a heck of a lot of fun to try, right?

David: It is, Jim. Thanks for joining us again. We appreciate your insights and perspective. Thank you so much.

Jim: You guys have a good day.

*     *     *

Kevin: One of the things I love about this place, Dave, is the history. You are talking about someone who, when you were six, you got a chance to see the value of a tin box of silver. And you are talking to Jim Deeds, somebody that you also knew, going back into your single-digit years. These are people who know. These are people who have seen these things happen. I don’t think on either occasion, either of these people would tell you to buy silver so that you could get rich. They are basically saying, “Look, this is something that you need. This is a way that you can spend when money, the money that we now know today, doesn’t work anymore.”

David: Well, that’s right. The only change that has occurred in our family is that today it’s cigar boxes instead of cookie tins.

Kevin: (laughs) And it’s your kids, right now, who are down to four years old, as far as doing the trades, right?

David: Absolutely.

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