Thursday, September 16, 2010

Silver, What a Trade...

By Nick Sorrentino

Warren Buffett often says that he gets one or two good investment ideas a year. When I first heard this as a budding investment advisor I remember thinking; One idea a year? Warren Buffett?

In the years since I have come to understand what he means. One idea a year is good.

I am very much a middle class kid and as an entrepreneur the investment I am most inclined to make is in my business. I don’t have gobs of capital lying around. Man, in late 2008 I wish I had.

Silver in the fall of 2008 was a huge opportunity. Prior in the year silver crested to $20.92/ oz on March 17, and then fell precipitously to a low of just under $9/oz on October 23.

In case you forgot what October of 2008 was like, all holy hell was breaking out at the time. I was a stock broker during those days and I remember it all too well. It was chaos. Unhappy clients. The world looked headed for the total abyss. Dark times swept in.

But amidst all the chaos one thing was strikingly obvious. Silver was a friggin steal.

If the Fed started printing money hand over fist silver was likely to rise as a store of value. If we headed into a V shaped recovery (which I doubted) silver would rise as an industrial metal. Rarely do these kind of obvious trades show themselves. And as I saw the price of silver decrease I bit my lip and bought a little for myself. I wish I could have bought more. I likely won’t see a trade like the fall 2008 silver trade again for a long time. That’s the way it goes I suppose.

So now we are back up over $20 again. I pray that some of the people I spoke to in the dark days with a frothing mouth bought some. I know that at least a few did. I am happy about this, and I say that the ride is likely far from over.

As the dollar gets increasingly wobbly silver will continue to shine. It won’t go up all the time, and it won’t go up forever, but I believe that the current macro economic climate will only make sense to us years down the road when China’s overheated RE markets bust, and the USA really comes to terms with its colossal debt. We will understand why things acted the way they did. In the mean time silver looks pretty darn good as we fumble around.

I believe also that it is fair to say that the specter of an expanded war somewhere in Asia in the next 3 years lurks. Who knows for sure, but if the economy continues to struggle a true philosophy of creative destruction might take hold down Washington way. If that happens silver will likely become more valuable as investors seek safety from not only war generally but also from an even more debased dollar.

Lets hope this scenario never happens and that we come to our senses and start ratcheting down overseas. But we might not.

It is also likely that if a new reserve currency emerges, silver will be a part of it.

Regardless, if you bought silver during those very nasty days I salute you. Celebrate the $20/oz price. Don’t despair if it dips below again. Just remember why you own silver. It’s real money.

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About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of Exelorix.com a social media management company.