Silver: From $30/oz to over $500 by 2020

Silver: From $30/oz. to over $500 by 2020. In under a minute, I can tell you why that price must happen, and likely when. It seems to me that the public will one day wake up and start buying silver to protect from inflation. Thus, long before, say 10-20% of people buy silver, at least 1% of the American public will buy silver. We can calculate what might happen to the silver price when that happens.

The amount of money in US Banks is about $18 trillion. 1% of that is $180 billion.

Very little silver is left; it's mostly all been consumed, so most of what is available to buy is the annual new mine supply which is 700 million ounces.

$180 billion is $180,000 million. Divide that by 700 million, and we get an implied price of $257 per ounce. Do the math yourself. I'll wait.

Permalink: [592] Top Stocks To Buy - Silver: From $30/oz to over $500 by 2020

But that price would mean that there is no newly mined silver left over for any industrial use, and that nobody else outside of the USA could buy any of the world's newly mined silver. Clearly that can't happen; those two groups would continue to buy silver, competing to buy, and driving up the price even more.

Thus, silver is very likely to be about $500/oz., by about the time that 1% of the American public wakes up and starts to buy silver. That will be the very beginning of the bull market in silver, when measured by "popular demand" -- and at that price, silver would still be very unpopular.

Just remember these key facts, and don't let anyone, or even yourself, trick you out of this developing bull market in silver. Don't try to time the peaks, don't wait for dips, just buy and hold real silver, not any kind of paper silver promise.

What kind of annual gains will that be? Let's see, if silver goes from $30 to $500 in ten years, the compound interest rate calculator tells us that will be an average annual gain of 32.49%, which is about the same as what silver has done in the last seven years, from $4.15 to $30, which is a gain of about 32.66% per year, on average.



Oh, by the way, the 1980 high for silver was $50/oz. That was when M3, money in the banks, was about $1.8 trillion. Today, the monetary base has increased about ten times higher. Thus, the true inflation adjusted peak for silver would be $500/oz. That just further confirms this $500 estimate.

But there are many reasons why silver should surpass the former highs.

Key reasons to surpass the former 1980's peak:

1. Silver is more scarce due to 30 more years of industrial consumption.
2. Paper silver scams are more abundant.
3. Baby Boomers will be retiring, cashing out stocks and draining pension plans that have not yet invested into silver, causing other investments to vastly under perform silver, making silver ever more attractive.
4. More trend investors today will notice the silver bull market and continued gains in the silver price, and invest in it, and carry it to further highs.
5. The US government and political leaders are spending like never before, and the people, even the world over, lack the political will to control government spending which will ruin all currencies.
6. There are no "safe" currencies to run to, leaving gold and silver as the only alternatives; and gold and silver have been in bull markets in all major currencies for 10 years now.

I'm sure you can think of many other reasons, but that's enough for now.

So, the true skeptic may ask, "Yes, but this guy is a coin dealer, he's just pushing his product because he has plenty of silver he wants to dump. Besides, what kind of argument will he come up with to sell silver after it hits $500/oz.?"

Let me answer this two part question. Yes, I do have silver! I have it, because I believe that the price will go up a lot, thus, it makes perfect sense for me to carry it as inventory. I sell it, because few people are able to buy it in bulk like we can, so I use my own stash, and industry connections, to enable others to buy it.

But what will I say after silver hits $500/oz., or nears that price?

I'll say, "Obviously this bull market in silver is just getting started. Only 1% of American public money is buying silver per year. Just wait until at least 10% of US money is buying silver in a year, the price will be well over $2500 to $5000 per oz. for silver."

But I would never make that argument now. Too few people would believe me, and they would think I'm some kind of kook. And people never do business with kooks.

And what will I say when silver nears $2000/oz.?

I'll say, "Everyone knows it only costs 4 cents to print up a $100 bill, and everything returns to its intrinsic value. But used paper, particularly smelly paper, is worth even less, which is useful only for things like lining the bottom of the cages of birds, or burning in the fireplace. Thus, the price for silver will soon only be quoted in terms of gold, and certainly not quoted in terms of any kind of paper money at all." But again, I'd never say that today, everyone would think I'm crazy.

Oops. Too late for me. But it's not too late for you to buy some silver!

Three Garbage Stocks

The market goes up everyday...

dow bow wow
This two-year chart represents the thirty varsity players on the U.S. economic court.

You might look at this 100% gain in two years and think that this bull market is overdue for a correction.

Permalink: [651] Top Stocks To Buy - Three Garbage Stocks

But don't worry. Uncle Ben, our fair Chairman over at the United States Federal Reserve, has it all in hand.

This is not the time to fret over debt, inflation, taxes, or unemployment...

Don't fight the Fed

This market is simple. The Fed is pumping liquidity into the market at an unprecedented rate.

There is an old Wall Street platitude that says “Don't Fight the Fed.” It means you buy stocks when interest rates are dropping and sell when they are going up.

The current Fed fund rate is at 0.25%. It can't get much lower, and no one expects them to hike rates in the near future.

Fed fund rate for sure
What are you waiting for... zero percent?

People heed the Bernanke

It looks like folks just like you and me are putting the hard times behind them...

The adjusted retail numbers for December showed $380.9 billion in sales, an increase of 0.6 percent from the previous month, and 7.9 percent above December 2009.

Total sales for 2010 were up 6.6 percent. For the fourth quarter, they were up 7.8 percent.

Car sales jumped 14.7 percent over last year. For non-store retailers like Amazon, sales jumped 15 percent. The unofficial numbers for January show a 4.1 percent gain from a year ago.

This is great stuff.

Amazon investors liked it so much that the company now trades at twice the price it did during the dot-com bubble in 1999. Amazing.


The screen

It's a good idea to screen for stocks at least once a week. I generally screen for low P/E, small market capitalization, and good dividend. From there, I go through the list and look for red flags and growth potential.

I like the companies that are under $250 million in market value, with high future growth and fat margins. I also look at debt ratios.

I call these "garbage stocks" because they ain't for widows and orphans, but they tend to run under the right circumstances.

Today, three companies in the retail sector popped up on my screen. All three shared my garbage stock credentials.

And they have something else in common: They cater to the petite bourgeois.

They are Books-A-Million (NASDAQ: BAMM), Collectors Universe (NASDAQ: CLCT), and CPI Corp. (NYSE: CPY).

The merchant of Wal-Mart

All of these companies sell products to the middle class, but none of their products are necessities...

Books-A-Million runs 223 discount bookstores in the Southeastern United States. Collectors Universe provides third-party authentication, grading, and related services for rare collectibles like coins, trading cards, and sports memorabilia. CPI runs Wal-Mart Portrait Studios and PictureMe Portrait Studios.

BAMM has a market cap of $92 million and a trailing P/E of 6.62. The company had a negative revenue growth of 5.5% year over year, but it does pay a fat 5.2% dividend. (They could also be a beneficiary of Barnes and Noble going bankrupt.)

CLCT has a market cap of $109.34 million, a P/E of 6.6, gross margins of 60%, quarterly revenue growth of 8%, and a dividend yield of 9%.

CPY has a market cap of $152 million, a P/E of 8.06, 8% margins, a flat quarterly revenue growth, and a 5.10% dividend yield.

All of these companies will see better numbers when the consumer goes back to the mall...

Based on recent retail numbers coupled with the fact that credit card borrowing posted its first gain in two years, The Wall Street Journal speculates those people who have a job are no longer fearful of losing it.

Furthermore, unemployment is forecast to drop to 8.6% by December 2011.

When the middle class gets up and starts spending again, these three small retailers will benefit.