Guest Post: "The World's Most Undervalued Asset", by Ted Butler

72
Mon, Apr 28, 2014 - 1:32pm

"Uncle" Ted wrote up this fantastic column for his subscribers last week. The analysis is so important that he made it a public article earlier today and he's given me permission to reprint it here.

"The World's Most Undervalued Asset"

by Ted Butler

First off, it is pretty audacious to label any investment asset as the world's cheapest when you consider the implications of that claim. Most of the world's investors are value oriented, always on the prowl to find undervaluation and if they could identify the single most undervalued investment opportunity, it would only be a matter of time before they descended upon it. Simply put, if you could identify the most undervalued investment asset in the world that would be another way of saying you had identified the world's best investment opportunity.

The next step would be to back up any such claim with straight forward reasoning and facts to substantiate any claim of extreme undervaluation. That's the purpose of this article, namely, to show why I believe silver is the cheapest investment asset to own and that it is likely destined, therefore, to be the best investment opportunity over time. The only caveat is one of time. It would be unrealistic to assume that if you were able to identify the cheapest investment asset in the world and purchased it that you would be instantly rewarded. If the whole world mispriced something, it is unlikely the undervaluation would be corrected the instant you bought it; give it time, say five to ten years.

I'm not going to speak today about silver's undervaluation in the ways unique to silver, such as it being at or below its primary cost of mine production or of how scare and rare it is, particularly in dollar terms, or how much it has dropped from its price highpoint of three years ago. Certainly, one could establish whether silver was undervalued by such measures, but that would not be the way to determine if silver was the most undervalued investment asset in the world. The only way to determine what the world's most undervalued asset might be is by comparing all assets to each other. In other words, you can only declare any asset to be the most undervalued by relative price comparison.

Fortunately, a relative comparison by price is not a difficult thing to do. Instead, trying to figure out why I didn't see this sooner is more difficult to answer. But in my defense, I discuss silver's relative valuation to gold on a non-stop basis. After all, silver and gold are as connected as love and marriage or a horse and carriage; it's hard to conceive of a better relative comparison. So let's start with gold and silver. It is said that a picture is worth a thousand words, so let me see if I can spare you some unnecessary verbiage. For the sake of uniformity, let me present silver's relative valuation as it is usually depicted, namely, by dividing silver's price into gold's price and stick to that format in the examples that follow. Remember, the higher the ratio, the more undervalued silver is to the item depicted. These charts cover the last three years or so.

Here's silver compared to platinum;


Silver compared to palladium;


Silver compared to copper;



Silver compared to crude oil (West Texas Intermediate);



Silver compared to the Dow Jones Industrial Average;



Silver compared to the US Dollar Index;



Silver compared to the 10 year US Treasury note (interest rates);




Remember, the higher the relative price ratio, the more undervalued is silver. I'm not intentionally leaving out any other comparisons and would include real estate if I knew of a chart. I believe silver would show up as generally the most undervalued if you included all other commodities. My point is simple – on a relative basis, silver is the cheapest asset of all. And to my mind that makes it the asset offering the highest prospective gains for the future.

I'm not trying to trick anyone in any way – this is as straight forward as it gets. As I indicated earlier, I'm kind of mad at myself for not writing about this before now. And just because it's as simple as pie that doesn't invalidate the approach. About the only thing I haven't addressed is how silver got to be the most undervalued investment asset in the world. I suppose, if there were some obvious and compelling legitimate explanation for why silver should be so undervalued relative to everything else, perhaps the undervaluation would be widely understood and justified. But there is no such justification.

The best thing about silver's extreme undervaluation is that the reason for it is as clear as is the undervaluation itself; not in terms of legitimacy, but certainly in terms of clarity. As I have reported recently and for years, COMEX silver has the largest concentrated short position of any traded commodity. Eight traders, led by JPMorgan, are responsible for silver being the most undervalued asset in the world. The world's largest concentrated short position should logically result in the world's most undervalued asset. I think this is good news because it would be impossible for me to show conclusively that silver was the cheapest investment asset of all without providing a definitive explanation for the unprecedented undervaluation.

Of course, I suppose a rejoinder to silver's compelling undervaluation leading to eventual outstanding investment performance might be if JPMorgan and the other commercial crooks on the COMEX were able to continue to manipulate the price indefinitely thru additional short contracts. While this can extend silver's undervaluation in terms of time, it cannot last forever. Additional paper short sales by JPM and the crooks will blow up in their faces at some point or the COMEX will shut down. That's because selling additional paper contracts short will not satisfy physical demand in excess of physical supply. That day must come, for no other reason than silver is the cheapest asset in the world.

That is not to say that silver can't get even more undervalued in the short term, but isn't this what investment is all about? Is it not the universal goal of all investors to seek out the most undervalued assets and try to avoid the most overvalued sectors?

As must be expected, silver didn't get to be the cheapest investment asset in the world without price pain and suffering. It is guaranteed that whatever might be the world's most undervalued asset only got to that point because it was overlooked and unappreciated or loathed or manipulated. There is no way the world's most undervalued asset could achieve that status through positive investment returns. By definition, the cheapest investment asset in the world had to have horrid price performance to get to that point. It's good news that the reason in silver's case was due to deliberate price manipulation because that manipulation must end at some point.

Also good news is the fact that silver is no stranger to being the best performing asset in the world, as was the case most recently up through the price highs of 2011. The reason silver was the very best investment asset was because it had formerly been incredibly undervalued before that price run. It is said that history doesn't repeat itself, but in the case of silver, I don't see how that can be avoided. In more ways than not, silver today reminds me of the time when it traded under $5 per ounce. As was the case back then, the thought that it might eventually climb more than ten times in value was widely disbelieved and openly scoffed at. That's because silver was the most undervalued asset in the world, both then and now. If you didn't catch the first run, you've just been given a second chance.

And it is also interesting that silver is registering as the most undervalued investment asset precisely at the same time when there is more total investment net worth and buying power in the world than ever before. The assets in hedge funds alone are now at a record $2.7 trillion; 1 percent of which ($27 billion) is more than the value of all the silver bullion in the world (if it could be bought). The 100 million oz of new silver available for investment annually would take only one-tenth of one percent ($2.7 billion) of hedge fund assets. Unless hedge funds have stopped looking for undervalued assets, I can't help but feel that's a set up akin to a lit match and a barrel of dynamite.

Don't be confused by the simplicity of this presentation. Comparing the relative price of all investment assets is the only objective way to determine which is the most undervalued. Right now, on that objective basis, silver is the cheapest investment asset in the world. I feel fortunate to have made this observation and even more fortunate that it doesn't conflict in any way with anything I've written previously. I'll probably make this article public (sometime next week) after subscribers have had a chance to digest it. To me, it's a big deal.

Ted Butler

April 23, 2014

For more information on Ted's invaluable subscription service, please go to https://www.butlerresearch.com

About the Author

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  72 Comments

CPE
Apr 28, 2014 - 3:41pm

Follow the Yellow Brick Road - Remix

I love this

FOLLOW THE YELLOW BRICK MIX DJ Flip
brokerk22
Apr 28, 2014 - 3:51pm

@indiana rod

Everyone is saying 5-10 years for this shit to blow up to save face from being wrong. We are so f@#$ing tired of the length of this fraudulent crap we are desensitized.

Colonel Angus
Apr 28, 2014 - 3:59pm

on CDE

I followed them at one point and was surprised to see how bad things have gotten...here's the only thing I find about them. Maybe there is a problem in the corporate office...

https://empowerednews.net/coeur-mining-inc-nysecde-investor-investigatio...

Seems like a screaming deal to me, if all goes well with this lawsuit...

Hagarth
Apr 28, 2014 - 4:02pm

@IRBarter - THE TOW BGM-71E MISSILE

The 'E' model is the anti-era version which puts it somewhere in the late 1980s to 1990s. The 'F' version is probably the current version that the us military is using and they are probably giving away old stock that's currently being replaced, so the E's that are being sent were probably manufactured in the last 10 years.

So what is being shipped is hardly the 1970 version as the graphic and the text on open market BGM71s implies. If anyone tells you different do some research. Strange thing is the article makes it sound like the TOWs are on loan since the "Supplier" would like the launchers back.

Nick ElwayCPE
Apr 28, 2014 - 4:05pm

Even More goalseeking?

Why start at 1687 instead of 1500?

Studying the 1500's retrieval of gold and silver from the new world this UC Davis professor reports:

https://mygeologypage.ucdavis.edu/cowen/~GEL115/115ch8.html

Quote:
A tonne of gold was worth about 10­12 tonnes of silver
, so that gold represented over half the value of the bullion until the 1560s. The early peak in gold production marks the development of gold mines in Colombia, behind Cartagena.

CPE, I understand your chart starting in 1687 is widely circulated and accepted as gospel. I wonder what it is based on. Let me know if you can.

metalsbyamile
Apr 28, 2014 - 4:07pm

Words of Wisdom

As H.L. Mencken opined, 'The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, and intolerable.'

CPE
Apr 28, 2014 - 4:21pm

RE: Nick Elway

First, let me describe the origin of "the Critic":

The birth of first Artist and first critic by means of natural selection

Also, after another counter-party fails, like Lehman did, let me know, if you can, what the value of those derivatives are then or even now. And if you say that no one is allowed to fail, then precisely how many more Dollars, Euros and Yen must be printed to plug that hole?

johnchewNick Elway
Apr 28, 2014 - 4:26pm

Gold way outperforms silver in a credit crisis

If and when there is a credit crisis, expect gold to outperform silver. Already you see that the stresses in the banking system (Neg. GOFO) are pushing up gold relative to silver/ and other commodities. Yes, silver is a part money but not fully like gold.

To get silver to really fly I think you will need skyrocketing interest rates because then the Fed's balance sheet gets vaporized (except for the ? 8,000 tonnes of Gold?) and the US Dollar becomes toast.

metalsbyamile
Apr 28, 2014 - 4:30pm

Welcome to the year of the whores

Yes...how prophetic!

BBC caption fail: Welcome to the year of the whores

As millions of people around the world celebrate the Chinese New Year, something appears to have been lost in translation at the BBC.

Instead of welcoming in the year of the horse, a subtitle error saw the BBC usher in the ‘year of the whores’.

One eagle-eyed viewer took a screen grab of yesterday’s gaffe before it was picked up on social media.

‘So it’s Chinese New Year, but the BBC subtitles got a bit confused about the year,’ said one.

Another added: ‘Happy Chinese New Year, according to BBC Subtitles it should be an interesting one!’

https://metro.co.uk/2014/02/01/chinese-new-year-bbc-welcomes-year-of-the...

SILVER STACKER
Apr 28, 2014 - 5:07pm

RE: Nick Elway

And that chart is just Douche Bank! JP Morgue has $70 Trillion of their own. $1.5 Quadrillion worldwide.

Even if 90% cancel each other out, that's still $150 Trillion, and that's the way paper is going to die!

https://www.zerohedge.com/news/2014-04-28/elephant-room-deutsche-banks-7...

GOT SILVER?

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