8/15/17 ANDY HOFFMAN - Bitcoin Buying And Bullion Swaps - The Wisdom Of Experience

Alright, let’s start by getting the B.S. out of the way – of how stocks are rising, and bullion falling, due to the “diminished Korean threat.” To start with, amidst supposed investor “terror” of nuclear Armageddon, the VIX, even at its most “terrifying” point, barely rose – whilst the stock market had exactly one bad day; during which, care of the PPT, the “Dow Jones Propaganda Average” fell just 0.93%. Conversely, the “safe-haven surge” into PMs produced exactly one violation of the gold Cartel’s long-standing “1% rule”; during which, gold rose by…drum roll please….1.2%. After which, stocks surged back to their PPT-supported highs – whilst paper PMs, during one of the thinnest trading weeks of the year, were smashed back down. To that end, today was the perfect time to publish a “soft data” surprise, via the “Empire State Manufacturing Index.” Which, along with the “Chicago PMI” and “Philly Fed Index,” is one of the most blatantly fabricated “indicators” I follow.
During such periods of ultra-thin trading, the massive deflationary trends destroying the global economy are magically “forgotten” by Wall Street and the MSM – like plunging consumer demand and surging industrial surpluses. To that end, when you control data “adjustments,” you can even produce 0.6% retail sales increase when hard, empirical data states otherwise. But wait…as I edit, I kid you not, said 0.6% “surge” has been attributed to…drum roll please…automobile sales, due to record incentives; i.e. “peak subprime lending.”
As are Central banks’ recent uber-dovish statements and actions; like the Fed, which following last week’s “disappointing” inflation data, saw December rate hike odds plunge to a new low, below 50% – whilst rate cut odds simultaneously arose. Not to mention, political chaos, both here and abroad; the upcoming debt ceiling debacle; or the fact that, as far as North Korea goes, nothing “positive” occurred other than Trump going to his golf club for a week, and “taking it easy” on the tweets. As for “markets” – at 2.25%, the 10-year Treasury yield is smack in the middle of the narrow trading range it’s been in for months; whilst the dollar index, worthless as it is as an indicator of anything other than the exchange rate between the world’s largest fiat toilet papers, it’s barely above its 52-week low – likely, solely due to said nuclear war fears, now that LOL, Europe is “fixed.”
That said, I don’t feel like spending more time today on market and economic data manipulation. As at this point, if you don’t yet understand the illusion history’s most egregious and malevolent “fintech” has produced – i.e., “dotcom valuations in a Great Depression Era,” and the lowest ever inflation-adjusted Precious Metal prices – you probably never will. Which is fine if your strategy is to simply to hold physical Precious Metals – but NOT if you invest in historically overvalued markets, or trade historically rigged ones. As in the big picture, “Economic Mother Nature” always wins – as she already has in countless non-reserve-currency-issuing” nations already; and inevitably, will do so everywhere, to the detriment of the holders of overpriced securities, and benefit of those holding underpriced assets.
The reason being, that I want to focus on pragmatic, logistical issues regarding the two most exciting investment opportunities I see today; of which, I have spilled more digital ink than my “competitors” combined; and likely, will continue to focus on, for the foreseeable future. The first being, the transformative, and liberating, impact of crypto-currency on both the legacy monetary system and Precious Metals – but more specifically, the risk versus reward profile of actual Bitcoin investing. And the second, the historic opportunity to “high-grade” one’s Precious Metals portfolio to both capitalize on “historic valuation anomalies” and address personal goals and needs.
Regarding Bitcoin, I am by no means “recommending” anything. Long-time readers are well-aware of my personal commitment; however, my commentary is written solely to explain its generational, transformational impact on the dying legacy monetary system – and from the perspective of my role as Miles Franklin’s Marketing Director, its (positive) impact on Precious Metals. As for investing in Bitcoin, I’m going to start today’s “wisdom of experience” theme by explaining just how much is involved, logistically and risk-wise. That way, if you are considering “jumping on the bandwagon” after the price has risen 10x in a year’s time, you realize what you’re getting into – particularly, relative to the risks and potential rewards of physical Precious Metals.
To start, unless you intend to meet a stranger in a dark alley and pay for “private keys” with cash, via rendezvous set up anonymously at localbitcoins.com; or find the rare “Bitcoin ATM” – where you can only buy, again in cash, in very small amounts; the principal way to buy Bitcoin is via listed exchanges. And no, I’m not even going to address “altcoins” here – i.e., all other crypto-currencies; of which, all but a handful cannot be bought with cash – but instead, with Bitcoin or other altcoins on unregulated, extremely dangerous exchanges such as Poloniex.
As for Bitcoin, it is the primary asset traded on nearly all crypto-currency exchanges – either for cash, or other crypto assets. The problem is, that exchanges are unregulated, with a dreadful history of ineptitude and failure – from hacks, to transaction and wiring delays, to the worst customer service imaginable. As in, no phone number to call, and email responses that often take a day or more, no matter how critical the issue. Additionally, if you believe Bitcoin transactions are “anonymous,” think again – as not only is the Bitcoin blockchain traceable, but so are the records of exchanges like Coinbase – America’s largest; as learned earlier this year, when the IRS requested all information about Coinbase users between 2013 and 2015. Not only that, but most exchanges have ultra-strict AML/KYC protocols, to the point that getting approved for trading can be a long and arduous process, in which a LOT of personal information is given up. And did I mention the daily and weekly purchase and sales limits – as at Coinbase, where you likely will be allowed to buy or sell no more than $15,000 worth per week? Or the fact that, when governments inevitably feel threatened by Bitcoin, they could easily shut it down or restrict its operations – as the Chinese government did early this year, when for five months clients were prohibited from withdrawing Bitcoin from their accounts.
Security-wise, consider that one must learn to control their own Bitcoin – as in, keep it entirely out of harm’s way. Otherwise, it could be hacked like Mt. Gox in 2013, or Bitfinex or the Ethereum DAO last year; or stolen – as occurred last month, when one of the world’s largest Bitcoin exchanges, BTC-e, was shut down – by who else, but U.S. regulators, for running an elaborate money-laundering scheme. This is why offline hardware wallets like the Trezor and Ledger Nano are so popular – and why, if you decide to own cryptocurrency, you must realize that the only way to do so, is to fully accept the risk of holding it outside the system, with no entity “protecting your back.”
After all that, you are left with one of the most volatile asset classes of all time. Which, while being the market’s best performer for the past six years, will light your hair on fire watching it surge and crash each day. To wit, Bitcoin first crossed $4,000 on Saturday night, and just eight hours ago hit an all-time high of $4,430. And yet, as I write, it’s back to $3,900; i.e., a prototypical 12% “overnight correction” that even Cartel-suppressed silver rarely sees. In other words, as I’ve learned over the past two years, it takes an extreme commitment to not just buy, but hold Bitcoin.
Once you make that mental, physical, and financial commitment, consider that given how nascent crypto-currency technology is; and how many “enemies” it has – both within, and without the space; the road to mainstream adoption will be at least as bumpy as it has been thus far; which TRUST ME, has been as terrifying as it has been exhilarating. As in, constant existential threats – from governments, to “big blockers,” to the illiquidity increasingly large traders prey on. This, compared to Precious Metals’ risks; the first, being how to store it safely and security – which compared to Bitcoin, is far less “terrifying,” given that large entities like Brink’s can be used to guarantee it. And the second, a Cartel that will do anything and everything to suppress the price – with the key word, in a positive sense, being suppress; which practically speaking, is all the Cartel is realistically capable of achieving; as opposed to destroy, which Bitcoin’s myriad enemies relentlessly attempt. Fortunately, simple math guarantees gold and silver cannot be suppressed forever; whilst simultaneously, Bitcoin’s rapidly expanding network effect essentially ensures it will never be destroyed. However, in the process of “succeeding,” Bitcoin’s price risk will be far greater than Precious Metals’, given the myriad “existential threats” that arise, to the detriment of price, seemingly each month.
In Precious Metals, thousands of years of data backstops their “use case”; not to mention, the intrinsic value attributed to broad industrial and decorative value; and oh yeah, “production costs” that, care of historic price suppression, are for nearly all global mines, above current prices; i.e., Precious Metals’ “ultimate downside protection.” Yes, Bitcoin has a production cost, too – but at current price levels, there is no danger of Bitcoin miners going bankrupt any time soon – although there is certainly an ongoing issue of “hash power” concentration, particularly in China.
Moreover, buying Precious Metals is a far easier, less “scary” process. As aside from major bullion dealers like Miles Franklin, one can buy at coin shops, eBay, or a number of other, in many cases regulated, sources. Storage, too, is much easier; as it’s difficult to “mess up” storing it at home, and unless you think a government will confiscate, reliable companies like Brink’s make third-party storage nearly riskless. However, a major issue with gold and silver “stacking” is that it is often done in an extremely inefficient manner – particularly in the early stages of the stacking process, before one truly understands the risk/reward profile of specific bullion products.
When I first started “stacking” in 2008, my initial purchases were of generic silver rounds and bars on eBay – which, if I were to sell today, would retrieve less than spot price. Not that that is always the case, of course – as in parts of 2008, 2011, 2013, and 2015, when physical premiums for all silver products soared. Moreover, the stacking process involves a LOT of shipping and storing costs and logistics, particularly if you intend to re-sell. Unfortunately, many people don’t realize this until their stacks have become very large, to the point that neither their composition or market value is fully understood. Clearly, gold (and platinum) have far less issues, given how much more value is stored per ounce. However, as time, and market circumstances, change, one may find themselves with even a gold portfolio that doesn’t truly optimize – let alone, address – one’s personal goals and limitations. Throw in the logistical issues caused by changes in one’s finances and/or preferences, and the necessity of periodically “optimizing” one’s portfolio could not be more obvious. Or, as I deem it, “high-grading.”
The reason I bring this up today is because, per July 10th’s “ultimate Precious Metal high-grading opportunity” and August 10th’s “Precious Metal portfolio swaps – everyone has their own reasons,” I believe the “historic valuation anomalies” noted above – like record low platinum/gold and silver/gold ratios, and historically low numismatic premiums – have created the best “swap environment” since the PM bull commenced at the turn of the century. Personally, I have taken advantage of the lowest numismatic premiums Miles Franklin has ever seen – lower even, then the bottom of the mid-1990s bear market – to scoop up century-old, authenticated gold coins at prices barely above those minted yesterday. And as well, sent a large portion to Miles Franklin’s unique “Private Safe Deposit Box” vaults at Brink’s Toronto and Vancouver.
Many long-time “stackers” have similar issues – in that, whilst comfortable with their overall exposure to the sector, they likely have not “audited” their holdings for some time – if ever. And given said historic valuation anomalies; as well as prudent risk management, changing investment preferences, and practical logistical issues – like storage, estate planning, and safety – there’s no better time to exercise the full wisdom of your bullion-buying and storing wisdom to optimize what you own, and where you hold it.
To that end, Miles Franklin’s brokers, on average, have worked in the bullion industry since the early 1980s – and thus, know more about numismatic premiums, relative product value, and storage and shipping options than anyone in the industry. In some cases, they will even travel to your home to help “sort out” your personal audit, and aid in the process of “re-balancing” one’s PM portfolio. Trust me, you’ll be happier if you do; and all you have to do to start the process is give us a call at 800-822-8080, for a FREE, no-strings-attached consultation with one of our brokers. And as always, you can email me, at [email protected].