Learn from the Titans

You own the biggest widget company on the planet. For the last 3 decades, you eat, sleep, and drink widgets. Your manufacturing cost is 50 cents, and you sell them for a dollar. As a literal titan in the industry, your vantage point is unrivaled, allowing you to see where business is headed, long before anyone else. You are certain a year or two from now, demand for widgets will plummet & the market will be flooded with supply. Meaning much lower market prices for widgets ahead, likely well below production costs. What would you do in this scenario?

This is what Bagholder would do:

1. Cut costs by slowing down production

2. Sell off existing supply as fast as possible.

3. Remove the wholesale bid.

4. Offer discounts to all customers

5. Offer even bigger discounts to bulk buyers

6. Give favorable terms to all buyers…like take these widgets and pay me in interest free installments

7. Market to existing buyers of similar products - find the guy buying generic “Acme” widgets, and make him a deal he can’t refuse

8. Sell forward production. Enter into contracts with regular customers to lock them into buying a multi-year supply.

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Now let’s flip the script…. A year or two from now, there is going to be a huge increase in demand and a tremendous shortage of widgets. Based on your experience, those widgets could easily sell for ten dollars within a couple years. With all that in mind, what would you do?

This is what Bagholder would do:

1. Spend more to ramp up production.

2. Stockpile supply.

3. Increase the wholesale bid, even if paying a premium over current cost.

4. Raise prices immediately.

5. Limit the size of customer purchases - no bulk orders.

6. Make terms of sale onerous…like pay me know, and get your widgets later.

7. Steer customers into similar generic “Acme” widgets, ones with no forthcoming shortage.

8. Buy the forward production of other manufacturers, locking in multi-year supply.

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Notice how everything we do in the second scenario is the exact opposite of everything we did in the first scenario. When we know prices are headed lower we behave one way, and when we know they are headed higher, we behave another. While this is a fictitious example involving widgets, it is applicable to any industry, or any market. The biggest players in a given market understand the supply and demand fundamentals better than anyone, which means they also know before anyone, which way prices are headed.

Unfortunately, Bagholder is not a Titan of any industry…. So, no inside information on which to trade. Absent that, the next best thing you can do in the investment arena, is to align yourself with the biggest players in a given market. Meaning, get on their side of the trade. Easier said than done, as the titans will not tell you what they are doing, and even when they do comment, those comments are often intended to misdirect. So, how exactly do you align yourself with them?

This is where the hypothetical widget experiment from above becomes relevant. While the biggest players can verbally mislead (Lie) about their markets, what they can’t do is behave in a manner that misdirects. As the late PJ O'rourke said:

"People will tell you anything, but what they do is the truth".

In other words, their actions will give away their intent, every time. So your job, if you want to invest successfully, is to find a market that exhibits all 8 of the telltale titan behaviors, listed in one of the two widget scenarios above. By observing their behavior, you can deduce what they are thinking, and thus which way the market is headed. It then becomes easy to position yourself on the right side of the trade.

Is there any existing market that is currently exhibiting all 8 signs? Bagholder can think of only one market which qualifies, the physical precious metals market. Let’s discuss that market as it relates to the signs above….

The Titan kingpin in the precious metals market, and it is not even close, is JP Morgan Chase. They already have the world’s largest known physical hoard, and yet even at today’s prices, they are actively spending money to increase their stockpile. Bagholder has been in the precious metals business for decades. Wholesale bids are the highest they have ever been, both nominally and in percentage terms. The current bid on silver eagles (the standard of silver coins) is 20% over melt. US silver coinage, known as 90% in the trade (which historically bids at a 9-10% discount to melt) is currently bid at 15% over melt. Proof Gold Eagles, the standard of gold coins, are currently bid at 18% over melt. Bagholder could go on, but no need.

Not only have the bid prices on physical increased, the ask side is even crazier. Relative to spot price, the sell premiums are also the highest Bagholder has ever seen. Ask price on Silver eagles right now, at the largest retailers in the country is 60% over melt (see image above)!! Even paying a 60% premium, they are difficult to find in large quantities. There are no bulk orders available, as you can plainly see, they are “out of stock”. As if the 60% premiums are not making the terms of sale onerous enough, notice in the image above how putting them on a credit card results in a 4.2% surcharge. Also notice, as this is written the date is March 24, and yet your ESTIMATED date of shipping is April 18th. So, pay me today, for a hamburger on Tuesday.

Why does $25 worth of silver cost $40? It is one thing to have the conviction to buy silver at today’s advertised “spot” price of $25, It is something altogether different to be willing to pay a 60% premium on top of that, just to take home that ounce. It requires extra strong conviction which minimizes the number of people willing to get long. The record high premiums to buy physical silver are a devious mechanism designed to steer novice buyers away from buying physical silver at $40, and into the SLV or CME - where those buyers are led to believe they are taking a silver position for only a cost of $25. The problem with SLV or CME is you are not getting physical silver, only a paper promise. SLV is the equivalent of ACME silver, a similar product, but not the real thing - It is of paramount importance to understand the distinction! Click here for a more detailed explanation on why it is not real.

One of the most successful publicly traded companies in the precious metals industry the last 2 decades is Wheaton precious metals (WPM). They do not have any mines. Their business model is to provide miners cash today in exchange for the miner's future production of precious metals. In other words, Wheaton is locking in a multi-year supply. Since going public, their stock is up 15 fold, plus dividends. Disclaimer: Bagholder does not have, nor recommends a position in WPM. It is only mentioned here to illustrate the point that the most successful companies in the industry are the ones buying forward production.

All the signs of a market about to rise in price are there, just look at the "bold" in the previous 4 paragraphs, also notice not a single sign of lower prices ahead. The behavior of the titans in this industry is crystal clear, for anyone willing to see it. Their behavior screams higher prices ahead. Do NOT fall for the cleverly placed trap of SLV or the CME. Buy the real thing.

Learn from the wisdom of Walter White, Titan of his industry: Do not settle for "a tepid, off-brand, generic cola - when you can have Classic Coke". Buy real Silver, Buy real Gold and Fuck the premiums.