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Pay-Dirt Cheap

By David Bond      Printer Friendly Version
Apr 9 2008 11:11AM

Zurich – 'Tis a good thing the Swiss are a forgiving lot, we thought (we hoped, anyway) as the wheels of our Airbus A-333 tucked themselves into the belly of the wings and fuselage, Minneapolis disappearing below. Before the cabin crew screwed the doors shut and mercifully shut off the cellular telephones, we'd been handed our obligatory beer and Financial Times and International Herald Tribune issues, each of which regaled us with stories of the near-riot at a soccer stadium near the Swiss city of Basel, where executives of Switzerland's UBS bank were being pilloried for the once-stodgy old bank's disastrous Q4 2007 and Q1 2008 losses. Little old ladies were calling for UBS Chairman Marcel Ospel's head on a pole.

UBS's sin? It waded neck-deep into the U.S. subprime mortgage mess, and took the biggest hit of any non-U.S. bank in the world. The battlefield is still being mopped up, but the write-off at this point looks to be at least $37 billion and headed north – more even than Citigroup or Merrill Lynch. Which brought this proud Swiss flagship from being one of the safest and most profitable banking institutions to one beggaring the Chinese and the Arabs for life support. The IMF is putting the total debacle at at least $1 trillion. Even in today's debauched dollars, that's real money.

This ain't supposed to happen in Switzerland, but it did. There will be Hell to pay. This is a country where every able-bodied male possesses an automatic rifle and is well trained (i.e. “well regulated? in 2nd Amendment terms) in its use. You mess with the Swiss, you play with fire. Those little old ladies thought their banks were not like the U.S., that they were conservative and cautious. But fear, lust, stupidity and greed recognize no international boundaries.

It was with no small bit of trepidation that we approached Passport Control here, wondering how we might hide our the American nature of our passport before some mob at the Zurich airport lynched us for UBS's failings. But the forgiving part of this armed and polite society has prevailed and we caught the train to Winterthur and Stein am Rhein unscathed.

UBS and the other losers in the U.S. subprime mess could recover their balance sheets, and their fates, simply by buying low and selling high. And there's no better place to do this at the moment than in northern Idaho's Coeur d'Alene Mining District. Not that the silver miners we know are hurting for money; but their shares currently trade at a sub-prime low and unlike corporations holding Fed-inflated promissory notes, when the silver-mining industry's other shoe drops, there will be not riots, but riotous laughter at the fools who did not buy at these dirt-cheap prices.

Consider: Silver mining operations in the Silver Valley were planned, developed and executed on the premise that the price of silver might achieve and sustain itself at $7 per ounce. Silver has sustained one helluva pummeling since early March, when its price plummeted from almost $21 to $17, a price to which it now ferociously hews. Buyers who sought to purchase investment-quality (i.e., Comex-grade) silver in small (less than 1,000-ounce) quantities on the recent dip found their orders unfulfilled. There was nothing for them in the supply chain: American Eagles, Canadian Maple Leafs, even generic silver rounds, simply evaporated. Silver you couldn't give away when it was $10 an ounce is  not available for love, blood nor fiat money at $20 – or at any price.

(The conspiracy junkies amongst us inveigh at this shortage, alleging it is proof that there is nothing but paper in the silver markets. We're not sure they're wrong. There sure as hell isn't enough silver in the supply chain. Maybe there's plenty at the mines, or in somebody's basement at the Comex. But it ain't on the countertops at your local coin shop. However, we never ascribe to conspiracy to which the explanation of stupidity would suffice. Maybe everybody just got caught up short, not anticipating the serious investor demand for poor man's gold. But what does this tell you about the markets in general, when even the bulls got caught with their pants down?)

But back to our prescription for UBS: Take whatever pennies you've left from the subprime meltdown, and put them in to Silver Valley mining stocks, and recover your wealth and your pride in short order.

We hope that UBS takes our advice, and recovers its paper losses with real money. Silver is that money. If they do, they'll be grateful, and the next time we cross the border into this splendid mountain country of free and well-armed polite men and women, we won't have to hide our U.S. passport within the covers of a Hustler magazine, pretending to be a pervert over being recognised as a Yank. After all, we wouldn't wish to offend any little old Swiss ladies.

David Bond



Editor of The Silver Valley Mining Journal