Anarchist Pig- A Silver Bust or Buying Opportunity ?

Last week's brutal implosion of silver prices was truly breathtaking to witness. A strong rally in the U.S. dollar against the Euro was precipitated by rumors that Greece was set to tell the E.U. to pound grape leaves and issue its own currency. By issuing a new currency, the Greek government would be free to attempt to devalue itself out of its current economic train wreck.

My best guess is that the Greeks are merely playing economic chicken with the E.U. (in a friendlier version of North Korean nuclear chicken) and will not abandon the Euro. The short term news will pass and the underlying problems of the U.S. economy, among them weak employment numbers, no consensus on cutting spending and the continuing expansion of the money supply will set up silver for another move higher. Short term selling pressure could drive silver as low as $ 32.50 an ounce, which would signal a buy in my opinion. As always, don't rely on anything I say and do your own analysis.

Anarchist Pig- All That Glitters is Silver

Back in January I made some comments regarding gold, silver and the wisdom of holding some precious metals as a hedge against inflation, currency devaluation and the plain stupidity of the people running this country. Since I wrote that article, gold has rocketed to over $ 1,500 an ounce and its cheaper cousin silver is within striking distance of doubling in price. Recent comments by Fed Chairman Ben Bernanke and our seemingly clueless President have merely confirmed my belief that holding some physical metal is probably a good idea.

There are times when I wonder if Barak Obama rubs his hands together and does his best Simpson's impersonation of Montgomery Burns when the cameras switch off- "Excellent" he mutters to Bernanke filling in for Waylon Smithers, "our plans to drive the U.S. economy into the ditch are working better than expected." My suspicions about the Community Organizer in Chief were confirmed when he came out swinging against oil traders, speculators and other malcontents who were artificially driving up the price of oil- all while completely ignoring (conveniently) the fact that the U.S. dollar is dropping like a rock causing the prices of commodities (gold, silver, oil among others) to march steadily higher. I'm not a Harvard educated economist but even my rudimentary understanding of finance tells me that when you are printing dollars by the truck load, you are undercutting your own currency and prompting inflation.

Besides a weakening dollar, metal prices are driven by fear. I think there is now a real disconnect between those within the Washington Beltway and the other 99.99 % of the country that have the uneasy feeling that no matter how we rearrange the deck chairs, the Titanic is about to roll over and sink. While the government crows that inflation is barely noticeable, a loud buzzer went off in the back of my head when I recently paid $ 7.00 for two uncooked chicken breasts and $ 15.00 for a small/medium bottle of laundry soap. I walked out of the store with $ 67.00 worth of groceries that I swore would have cost half of that a year or two ago. The politicians just don't get it and the same can be said for the establishment media that labels all of this a speculative bubble. When silver last spiked it truly was for speculative reasons as the Hunt brothers attempted to corner the entire market. This time around, I see more than enough fundamental problems with the U.S. economy to justify the price appreciation.

So what's a hard working American supposed to do ? I do recommend picking up some physical metals, especially on price dips, but not betting the family farm on it. I've been telling family that anyone with cash in the bank needs to be highly tuned to what is happening to the dollar and fully prepared to move those dollars into other assets if the devaluation accelerates. Real estate if you can afford it, or maybe just the new fridge or washer/dryer that you've had an eye on. If the drop in the dollar accelerates, you might as well spend it while you can get something for it. Call me unpatriotic, but one move I made was to invest in a bear dollar inverse ETF (it appreciates as the dollar falls) which has given me a nice return- perhaps I should send a thank you note to Mr. Obama.

I have done some research into opening overseas accounts denominated in foreign currencies but the account minimums and accompanying red tape make this a far more daunting exercise than I expected. Over the past couple of years, our dear government has quietly made it far more difficult for foreign banks to accept us a depositors. I never considered this course of action because I wanted to avoid paying taxes, only because I wanted to protect the money that I have worked very hard to earn. Only an idiot would screw with the IRS- I read all of the IRS statues on reporting foreign interest accounts etc. but it was all a moot point when you can't open a foreign account in the first place. I would avoid dabbling in Forex accounts (you would do better at the dog track) but converting dollars into hard currencies through banks might not be a bad idea. I would stick with currencies from nations with strong current accounts- Norway, Australia and Canada all look good based on their strong raw material and commodity production.

Anarchist Pig- Gold Fever

It seems to me that anytime I turn on the television, I am bombarded by commercials and infomercials selling two services- tax defense against the IRS and companies selling gold and other metals. I'm not sure what the combination of these two trends mean other than the fact that the world is going to hell and I watch too much TV. Many people in the U.S. are in debt to the government and can't pay what they owe and many others are worried that the credit of the government is now at junk status and it can't pay what it owes either.

Boy do I miss Billy Mays.

Let me say that although I'm a big fan of conspiracy theories (UFO's, Big Foot, Bermuda Triangle, the Cubs never winning the World Series) I'm not one of the drones eagerly following Glen Beck's lead and loading up the garage with bullion- I don't think that I'm going to need shave gold shards off of coins to buy toilet paper after the world ends in 2012. I do believe, however, that there is real danger in our fiat money system which is nicely summed up in this paper written by Ludwig von Mises in July, 1953.

Once decoupled from gold reserves, our paper money system is supported by nothing more than the psychological hope that everything is going to be okay- the currency equivalent of sunshine, lollipops and unicorns. If you really want a good reason to stare at the ceiling fan in the middle of the night, think about what all of your monetary assets (cash, savings, maybe some retirement funds) are comprised of- electronic ones and zeros on some server someplace. Now, combine that thought with the electronic "flash crash" of 2010 and a government that needs to print billions of dollars to pay the interest on the trillions of dollars it borrowed to plug holes in the ever increasing federal debt- another $ 600 billion in "quantitative easing" (a nice euphemism for "printing money") was announced yesterday on top of the $ 1.7 trillion to date. Buying some silver, gold or even platinum seems to be a prudent idea and here are some of my thoughts (and experience) on the subject.

First off, let's start with the disadvantages to investing in metals (Note- for the purpose of this post I'm talking about real metal i.e. coins and bullion, not metal miner's stocks, ETF, mutual funds etc.) Unlike many other investments, metal is not going to pay you interest or any type of dividend while you own it- it's going to sit quietly in your desk, your safe or bank and rise and fall with the market price. The other disadvantage with owning metal is liquidity and the difficulties that may arise when the time comes to sell it. Although you think your shiny 1 ounce silver dollar is worth $ 29.00 (because that's the price of silver at the moment you want to sell it) you are entirely at the mercy of what a prospective buyer wants to pay- remember that they will have to pay a discounted rate in order to make a profit when they sell it. Finally, you can't walk into a 7-Eleven and plonk your ounce of silver on the counter loudly announcing "a round of slurpees for everyone" to loud applause-it is not going to be accepted as currency except at face value (which is $ 1.00 dollar, and you're an idiot if you spend it for that.) Remember, liquidity problems will also expand exponentially with the size of your chunk of metal so ease off the 100 ounce silver bars and start out with 1 ounce coins cowboy.

Okay, so why would you want to own some metal ? Well, there are quite a few reasons. First, unlike stocks, bonds or other investments there is no credit risk tied to your asset- a gold coin, for example, is not going to go bankrupt or be worth $ 0.00 at some point in the future. Next, metal prices rise in times of economic and political uncertainty and goodness knows we have plenty of that going on right now. Once the wheelbarrows of money from the Federal of Reserve dry up, all of that money sloshing around in the system will probably lead to increased inflation and loss of value in terms of the U.S. dollar- both good things for metal prices. Finally, there is an issue of privacy when you own metal. I actually like the fact that metals don't pay dividends or interest simply because that means I am not receiving annual forms to file with the IRS and state taxing authorities. The very fact that they are physical assets means they are portable and can be quietly given to family members (i.e. children) at some point in the future unlike stocks and bonds which have a long paper trail.

So, you might be ready right now to charge out and buy some metal. How do you do it ? Unless you live on a desert island, I recommend avoiding the Internet and dealing with a local metals broker or coin shop instead. The Internet is fantastic for doing your research and getting a good idea of how much your investment is going to cost, but I generally don't like buying metal online for two reasons. First, online companies are going to charge you much more in terms of transaction costs than a local dealer because they need to add shipping and shipping insurance to your purchase. Second, my general rule is not to buy metals unless I have some idea of the reputation of the seller- a coin shop that has been in business in your town for 25 years is probably a safer bet than an online company located a couple of time zones away.

When you decide to buy some metal, you need to consider what type you want to purchase (I'll limit this to platinum, gold and silver) and in what form (again, for brevity we will limit this to coins or bullion.) All metals have their own advantages and disadvantages as investments in terms of supply, industrial and personal (jewelry) uses which you can easily research online. I invest in all three to give my group of metals a little bit of diversification- platinum, for example, is more sensitive to industrial cycles because of its use in the automotive and electronic industries. I also invest in both bullion and coins for the following reasons. Bullion purchases (such as 1, 10 or 100 ounce bars) generally give you the best purchase price in terms of being closest to the global market price at that particular time. Again, do your own research, but the most important thing with bullion is to insure that the bar has been stamped by one of the refiners listed here at the London Bullion Market Association as being acceptable for delivery in the world market. These pedigree markings show a prospective buyer that the bar is acceptable in terms of weight and content although they will probably want to do further testing because of the amount of fraud in the bullion market. Because of fraud concerns, coins are much more difficult to forge and are therefore more easily sold. The main thing to remember with coins is that you will be paying a premium above the market price of the metal due to numismatic value or demand. I also want to note that we are not talking about investment grade coins (rare coins that are graded and sometimes "slabbed" inside of acrylic containers.) That is an entirely different animal that I am not experienced with.

Here's an example of premium when buying a coin. At the time I am writing this, a gold 1 ounce eagle is selling here at Kitco (a great website by the way) for $ 1458.54 while the price on the world market for 1 ounce of gold is $ 1,382.50 (note at the same time, a one ounce bullion bar is selling for $ 1,407.50 which is closer to the market price.) The coin is selling at a premium of $ 76.04 or 5.5 % above market while the bar is selling at a premium of $ 25.00 or 1.8 %. Both products contain one ounce of gold but the bar is actually refined at .9999 while the coin is .9167 fine- a microscopic difference because the coin needs certain alloys to be cast. Another thing to remember is to save your money. Again, looking at the Kitco pricing (which is typical) shows how sellers punish the little guy. While our one ounce gold eagle is selling for $ 1,458.54, a 1/10th ounce eagle is selling for $ 165.90- sounds like a great deal right ? Not so fast. Simple math tells us that the 1/10th eagle is priced at a rate of $ 1,650 per ounce which is a whopping $ 267.50 or 19.35 % above market price. Instead of rushing right in to buy 1/10th of an ounce of gold, it might make far better financial sense to buy 5 ounces of silver which is priced closer to market price.

So, like any investment there are pros and cons to owning metals. I wouldn't cash out all of your savings and buy some but a couple of ounces bought over a couple of years is probably a good idea. Again, do your own research and make sure you are dealing with a reputable seller.

Howard Stern vs. Sirius

I have enjoyed listening to Howard Stern for many years on terrestrial and satellite radio. For me, the Stern Show is a guilty pleasure like Scotch Whisky- something I enjoy but am not really sure is good for me. While many people dismiss Stern as nothing more than a foul-mouthed boor, you start to realize over time what a genius the guy is when you listen to him every morning (or it just might be a media version of the Stockholm Syndrome.) Putting aside the locker room humor, fart jokes, midgets and strippers for a moment, I truly believe that Stern conducts the best interviews in media- period. He has an uncanny ability to disarm and get more out of his guests than any other show host on radio or television. Throw in his dysfunctional cast of characters and you have a mix of entertainment that I happily pay for with my Sirius subscription.

Over the past few weeks, Stern has begun the rumblings that many of us heard before his switch to satellite radio. His 5 year deal with Sirius ends in January 2011 and he has made it pretty clear that he isn't enjoying the treatment he has received of late in terms of negotiating a new deal. Stern has an enormous ego, and a loyal legion of fans, and has only half jokingly proposed that Sirius change its name to Stern. He has made dark hints about taking his show elsewhere by leveraging the new technologies that have emerged over the past few years. These technologies effectively eliminate the middle man (i.e. Sirius) between the provider of content (Stern) and the consumers of that content (his audience.) If I owned shares in Sirius, I would be seriously be preparing to sell my position- fast.

Sirius stock has been dead money for years. Despite the merger with XM, and the rapid increase in subscriptions (due to Stern and free trials of the service in new vehicles) the company has yet to post a profit. When Stern joined the company in 2006, revenues for the year were $ 637 million. By 2009, revenues had increased to $ 2.47 billion- and the company still managed to post a net loss of $ 343 million. Still, for some reason hope still springs eternal. S&P put out a "Buy" rating on the shares on September 11th, 2010 while citing "uncertainties with Howard Stern's contract negotiations" as a potential risk to the shares. I think a better sentence would have read- "Howard Stern has Sirius by the short and curlies- and he knows it. If he leaves, this boat sinks."

To put it simply, Sirius needs Stern far more than Stern needs Sirius. In a matter of a few weeks, Stern could simply build an alternate location for his show to broadcast from and distribute the content via live internet streams, podcasts, pay per view and whatever else becomes available over the coming years. Instead of needing the massive capital investment that Sirius had to make in terms of satellites and equipment, he could probably be up and running on a relative shoestring. His fans, including myself, would happily pay $ 5 or $ 10 bucks a month for this type of content and Stern could probably do something in 30 days that Sirius never could- earn a profit.

New technologies are killing the old dogs of media and although satellite radio seems like the future, it could just be another victim on the list that includes newspapers, radio stations and magazines. All of these sources were merely the vehicles through which media content flowed- now that the channels for this information have become quicker, better and more personalized, the big dinosaurs of yesterday are essentially doomed. Consumers are becoming more discerning and demanding content that is customized to them, not the other way around. Why would I put myself through 30 minutes of Katie Couric, including commercials, when I can get my news on my I phone from the sources that I like and trust ? For me, Couric's inane babbling is content that has no value to me- I wouldn't even take it if it was free. Other people might pay for it, who knows ? The new media will ruthlessly expose companies and individuals that have rested on their laurels and reputations for far too long.

Anarchist Pig Investment Advice for April 20th

As I mentioned in my last Anarchist Pig update, I liked the prospects for Citigroup (NYSE: C) and was in position for a good jump after earnings were released on April 19th. Citigroup was, of course, battered by the financial meltdown and could rightfully blamed for precipitating the crisis itself. Still, I'm not here to point fingers, I'm here to make money.

My strategy was to go long on Citigroup shares so I opened the position about a month ago by purchasing 500 shares at $ 4.14 per share. At the time, Citi's book value of around $ 5.00 made this a compelling value play and I also felt that the bank's new management was making good strides to streamline their business groups and return to profitability. A few weeks after taking the long position, I further reinforced my optimism by buying 10 call contracts on the strike price of $ 4.00 expiring in September 2010, and 5 call contracts on the strike price of $ 5.00 expiring January 2012. Currently, these positions have yielded the following returns-

500 Shares Long + 17 %
Sept. 2010 call options + 62 %
Jan. 2012 call options + 22 %

Overall, this was a pretty risky bet on Citigroup. Not only was I long on shares, I also took option positions that could have been rendered virtually worthless. The call options clearly show how when you are firm in your decision they can accelerate returns above and beyond the underlying share value.

At this point, I will probably take profits on the September 2010 options position and move that money into the January 2012 options position. I am making this move because I remain very bullish on Citigroup and will also retain the 500 shares that I am long on. My personal opinion is that if you can get in at anything less than $ 5.50, you should enjoy solid returns provided you can endure the inevitable dips and panics that come with owning a battered company this one.

Next week, I will review how I sold covered call options on my position in American Rail Car Industries (ARII.) When my position in ARII reached a profit of nearly 100 %, I sold a covered call option contract because I felt it couldn't go any higher- problem is, the damned stock price has done just that !

Anarchist Pig Investment Advice is just that- advice. I am not an investment advisor, broker or investment professional and if you use this advice, you are using it at your own risk. If you take my advice, you need to do the research to see if it supports your investment goals. In other words, if it doesn't work out, don't fucking call me.

Anarchist Pig Investment Advice for April 10th, 2010

As part of my blog, I am going to start posting investment advice based upon my own portfolio. This may surprise some of my readers because how could a blog by a Buddhist Anarchist possibly include investment advice ? In my mind, it's simple. Strong personal finances equals liberty and independence and the ability to generate income, which in turn, can be used for more beneficial uses such as helping others.

So, knowing that some of my readers trend a bit more towards the radical side, my first investment tip should be right up their alley. In my portfolio, I bought the following bond and have been enjoying a nice return on it of late-

Venezuela, 10.75 % 9-19-2013
CUSIP ID # 922646BJ2 (this is the identification for this bond.)

Simply put, this is a bond issued by the government of Hugo Chavez that you can buy on the open market through any brokerage account. As of yesterday, Friday April 9th, this bond was trading at around $ 982.50. Since the bond yield of 10.75 % is based on the face value of the bond, $ 1,000.00, you actually receive a yield of 10.94 % if you buy at this price. The bond pays semi-annually, and the coupon payment you receive is $ 53.75 twice per year for simply owning the bond. I hold this bond in an IRA making the deal even sweeter because the fascist bastards at the IRS can't get their mitts on it until I retire.

The downside is that this bond is considered near junk status by the investment community and is rated B2 by Moodys and BB- by S&P. Even though the coupon payment is fixed at 10.75 %, the underlying price of the bond could fall causing a loss in the original investment. You need to have some courage to make an investment like this, but I am confident that rising oil prices will benefit Venezuela and reduce the likelihood of a default on their debt.

This week, Citigroup reports earnings and I will comment next week on the call option strategy that I put into place this week under the assumption that their earnings will improve. If they don't, I will be drinking heavily and will probably not post anything at all.

Dislcaimer- Anarchist Pig Investment Advice is just that- advice. I am not an investment advisor, broker or investment professional and if you use this advice, you are using it at your own risk. If you take my advice, you need to do the research to see if it supports your investment goals. IN other words, if it doesn't work out, don't fucking call me.