So Who’s The Fittest?

“What a fool does in the end, the wise do in the beginning” (Spanish Proverb)

Whether or not we conform to the Evolutionary theories of Charles Darwin, there is most certainly an element of truth behind the prospect that there is indeed a “survival of the fittest”. He who flaunts his wealth, is released from it. He who mistreats his body, withers. He who disrespects other men, is himself reputed.

We see this in our world from every perspective possible. China remains to its thousands year old traditions, as it is, by a philosophy inherently averse to war. Presidents, world leaders, CEOs and Activists usually maintain the stamina throughout even the most challenging times since it was that inbred zeal that got them there in the first place. Many of the happenstances of our history are due not to mere chance but to the wiring of our very fiber.

Hitler failed not because the West defeated him in military strategy or intelligence, but because all hope was forfeited from the beginning; he couldn’t control his own faculties, how would he a nation, how would he the world?

In the makeup of Capitalism as we know it, the earliest laissez-faire economists realized that monies are safest in the private hands, and handiest in the possession of those who understand its value most. Wal-Mart together with its proprietors, the Waltons, is one of the wealthiest economies on the planet, yet at the same time it ranks as the second largest charitable institution on the planet.

Small Money and Smart Money
What has all this to do with practice investment application? Yesterday I was chatting with a friend of mine. She mentioned how she had recently pawned in her gold. “Why?” I asked. She said she wasn’t exactly sure, only that gold had run up quite some bit over the last few years and she decided to profit from it. “Do you reckon it could go any higher?” I asked with a smirk. “It’s already fallen!” she replied.

We may call the above example the Small Money. These are the people, most of society actually, who just go about their daily business and they act, well, pretty much because they are not quite sure.

Then there is what we may call the Smart Money (this does not necessarily Big Money). For examples of such we must look to large institutions that carry a sound sense of financial responsibility; Governments that provide the world with resources and labor, Funds that manage the wealth of many of the affluent with full regard to risk and reward (major ETFs and Mutual Funds may be included in this group), as well as value-conscious long-term investors.

While the Small Money (and so they shall remain) are selling – Real Estate and hard assets – the Smart Money is buying. We see this day after day as the mortgage predicament continues to unravel, but nowhere in economics does it have any mention of leaving bargains on the table.

Where I live there was a “W 55” building that was set to be completed. Unfortunately, the building went under as property values and lending fell. At auction each penthouse sold for $150,000 down from the 300s. 50 cents on the dollar!

Long Term Investors
So what are the long-term investors doing now? They are Buying. Many now see the perfect opportunity to get in on an ongoing commodity boom – read ‘Boom’ not ‘Bubble’. Gold and silver are down 12% and 20% off their highs, respectively. Where many see ‘correction’ others see ‘opportunity’.

Go out to any coin dealer and try to buy more than 50 ounces of silver. Firstly, you moat probably won’t find it. If you do it will probably be in small denominations with pictures of Brett Farve or the Twin Towers on them. The piles of metal from the mints seems rather depleted.

Secondly, you’ll face a hefty premium. It’s almost as if the real over-the-counter market has become completely estranged towards the paper market and fails to believe it. Go on eBay and try to buy silver. You’ll face premiums (outright or in the form of shipping) of $2-$10 per ounce! In a sense, the actual silver market hasn’t fallen much at all.

Many pundits of the industry stated that as prices rise, supply of scrap silver will flood the market. One thing for sure, it ain’t floodin’ it. If it is coming online, it’s coming too slow relative to demand. Regardless, it seems that higher prices are secured sooner than later.

Did someone say Rice? Let’s not even go there.

Funds and Institutions
What about the big funds? Buying. The iShares Silver Trust (SLV) has actually been accumulating physical silver as prices have fallen. This is probably in line with relative demand by the funds investors (I’m one myself).

Governments
Big Governments? Also Buying. It is said that the Central Bank of Russia has been adding to its capital gold reserves and for all we know China and others may be following suit.

“After all is said and done, more is said than done” as Aesop said and the markets seem to reflect that. Those who have bought are destined to be wealthy and those who have sold are destined to buy again.

Oh, and the essential difference between a ‘Boom’ and a ‘Bubble’ is that a boom is when everyone is trying to buy something which no one else owns but everyone else wants, while a bubble is when everyone wants to eventually sell that which everyone has and practically nobody needs.

Tags: Commodities, Economics, Gold, Markets, Silver, Wealth and Investing