Thursday, May 30, 2013

Do you own the securities in your brokerage account? The advantages of direct registration.

Do you own the securities in your stock brokerage account?  Probably not.

If you read your stock brokerage account agreement closely you know that you do not really own the stocks in your account.  Stocks are held in 'street name'.  What you own is essentially a claim for a specific number of shares in the pool of those shares administered by your broker.  The broker has title to all the shares in the pool in their 'street name'.  This facilitates trading by enabling quick transfer of stocks from one account to another at the same broker and bundling of shares for purchase and sale.

There are two alternatives: direct registration and holding paper certificates.  Unfortunately most companies stopped issuing paper certificates several years ago.  

In summary, the relative advantages of holding securities at a brokerage in street name or as direct registration are:
Ownership Model
Street Name
Direct Registration
(Transfer Agent)
SIPC up to $500k
No SIPC.  No FDIC.  Investee’s discretion
High: ownership transferred by broker
Medium:  must instruct broker to use Direct Registration System (DRS)
Investee-Investor communication
Administered by broker
Pledging securities as collateral
Creating a margin account
Not available
Receiving interest and dividend payments
Broker is added step in payment chain - delays possible
No delays
Administration regulated by
Record keeping
Book entry.  No paper.
Investee's Register.  No paper.
Corporate governance
Easier for investee to go dark with fewer registered owners.
More difficult to avoid mandatory disclosures.

In my situation the decision whether to direct register shares comes down to:
- do I want to keep track of yet another account, password, etc. at the transfer agent?
- how often and easily do I need to trade this security?
- what are the chances that my broker misappropriates shares in my account?

I do not need securities in my brokerage account as collateral for margin debt.  I have little confidence in SIPC insurance. 

More background and my sources can be read at

At this point, I am planning to direct register about half the shares in my core holding.  

Holding securities at brokerage firms can be risky.  Ask a former MF Global account holder.  All the brokers that I use also have banking businesses.  Who knows what the assets on the banking side are invested in.  Back in 2007, one popular internet broker had significant investments in subprime mortgages, for example.  Fortunately, this broker had more ethics and discipline than MF Global.

Wednesday, May 29, 2013

Paper vs Physical Gold Article in with historical wholesale silver premuims to melt

This link is to a short article by Addison Wiggin about paper and physical gold.  It quotes Eric Sprott and John Embry who have been writing about the precious metal markets pyramid schemes for many years.

This article is significant for two reasons:
1. It is published in that, presumably has a very broad readership.  
2. A chart of wholesale 90% US silver coin premiums to melt value from 1998 to today is included.

The source for the silver premiums is noted on the chart as "".  I searched the site and found a chart of the premiums from 1998 to 2010.  The source of this data is not clear.  Perhaps the CoinExpert tracks it independently.  Data like this would be very insightful if it was clear exactly what the data represents and how it is collected.

According to the chart, current wholesale US silver coin premiums are almost 20%, which is very high and has happened only three times since 1998. The previous occurrence of 20%+ premiums was at the end of 2008.  During 2008 the market price of silver rose above $20/ounce and then dropped to almost $10/ounce.  After bottoming out at about $10, silver prices went on a tear to about $50/ounce over the following 2.5 years.  Perhaps today's high premiums portend similar silver price gains in the coming months.

Annual Gold and Silver Production by Country per the US Geological Survey

US Geological Survey statistics for annual world gold and silver production are shown below.  China and Russia are top producers of gold and silver.  Pundits typically ignore gold sourced from China and Russia because their central banks supposedly purchase all domestic production.  That assumption may be true.  But, it is good to know the significance of Chinese and Russian production.  Would they ever lease their gold?  in exchange for Taiwan, perhaps?

World Mine Production and Reserves: Reserve data for Brazil, Chile, Ghana, and Peru were revised based on
information from the respective country Governments.
Mine Production
2011 2012e Reserves7
United States 234 230 3,000
Australia 258 250 7,400
Brazil 62 56 2,600
Canada 97 102 920
Chile 45 45 3,900
China 362 370 1,900
Ghana 80 89 1,600
Indonesia 96 95 3,000
Mexico 84 87 1,400
Papau New Guinea 66 60 1,200
Peru 164 165 2,200
Russia 200 205 5,000
South Africa 181 170 6,000
Uzbekistan 91 90 1,700
Other countries 640 645 10,000
World total (rounded) 2,660 2,700 52,000
World Resources: An assessment of U.S. gold resources indicated 33,000 tons of gold in identified (15,000 tons)
and undiscovered (18,000 tons) resources.8
Nearly one-quarter of the gold in undiscovered resources was estimated
to be contained in porphyry copper deposits. The gold resources in the United States, however, are only a small
portion of global gold resources.
Source: US Geological Survey: Mineral Commodity Summaries 2013 page 67

World silver mine production increased to a new record of 24,000 tons as a result of increased production from mines 
in China, Kazakhstan, and Mexico, as well as increased recoveries from mines in Indonesia and Peru. Production 
also increased in Australia because of the start up of the Wonawinta Mine (lead-zinc) in New South Wales and a 
major expansion for the Mount Isa (copper-lead-zinc), which was processing ore from the newly opened Lady Loretta 
Mine (copper) in Queensland. In 2012, the Sindesar Khurd Mine (lead-zinc) in India was estimated to have produced 
70 tons more of silver than it produced in 2011. Overall, domestic silver production declined, with the temporary 
closure of Lucky Friday Mine, ID, in January 2012, the leading domestic primary silver mine in 2011. The mine was 
ordered closed by the Mine Safety and Health Administration after an accident and rock burst at yearend 2011 that 
led to a buildup of material in the Silver Shaft, the primary access to Lucky Friday. Production was expected to 
resume in early 2013. Output also fell at Bingham Canyon Mine, UT (copper-molybdenum), at the Mission Complex, 
AZ (copper-molybdenum), and at the Midas Mine, NV (gold). Some of the output losses were partially offset by 
production gains at the Rochester Mine (primary silver) and at the Smoky Valley Common Operations (gold), both in 
World Mine Production and Reserves: Reserve data for Chile were revised based on new information from
Government and industry sources.
Mine production 
2011 2012e Reserves
United States 1,120 1,050 25,000
Australia 1,730 1,900 69,000
Bolivia 1,210 1,300 22,000
Canada 572 530 7,000
Chile 1,290 1,130 77,000
China 3,700 3,800 43,000
Mexico 4,150 4,250 37,000
Peru 3,410 3,450 120,000
Poland 1,170 1,170 85,000
Russia 1,350 1,500                               NA
Other Countries 3,600 3,900 50,000
World total (rounded) 23,300 24,000 540,000
Source: US Geological Survey: Mineral Commodity Summaries 2013 page 147

Another Fake Bullion story: 1 ounce silver bars sold in Colorado

Fake one ounce silver bars sold in Colorado.

The producer of these bars will certainly keep trying.  Shocking that someone would purchase silver bars without testing of any kind.  It is very easy to weigh, measure, and ping test bars and coins.  Acid testing and specific gravity are straight forward as well.  Caveat emptor.  

And, link to earlier story re: fake silver eagles found by Canadian police:
Testing for weight exposes these coins as fakes, as well.

Wednesday, May 22, 2013

Good Company in Underperforming the S&P Year to Date

This article by Zerohedge shows that the S&P is up 15.4% and the average hedge fund is up 5.4% YTD.

Tyler Durden's observations are, as usual very interesting.  He points out that since the market has been steadily increase in 2013 because central banks have been buying stocks directly.  The hedge funds tend to make their gains on volatility which has been tampered by the central banks buying.

One can infer that the hedge funds have been forecasting a market decline.  Their forecasts have proven wrong.  So far . . .

Anecdotally, many hedge funds were invested in Apple at the end of 2012 which has dropped from $532/share to $439/share in 2013.  The John Paulson funds have been famously invested in gold which has taken a beating so far this year.  And, Philip Falcone's Harbinger Capital's infamously lost big in telecommunications.  We hear a lot about a few famous funds regularly.  So its good to see how the entire 'we deserve 2 and 20' industry is performing.  That is hedge funds typically charge clients 2% of invested capital annually plus 20% of gains.

Shutting down fraudulent hedge funds that achieved their gains with inside information must be hurting the industry average.  Both, by removing the cheating fund from the average and scaring others straight, or at least straighter.

Monday, May 20, 2013

Gold and Silver Volatility part II - What a day! Hong Kong Commodity Exchange defaults!

Gold and silver prices were slammed in Asian markets before the COMEX opened.  Prices started the day in the US down but then rallied at the end of the day to end up about 2%.  
Live 24 hours gold chart [Kitco Inc.]

Live 24 hours silver chart [ Kitco Inc. ]

Shares of my mining company investments were up 6-7% for the day.

There were also a couple incredible developments in the precious metals markets:

The CME halted trading last night in the silver market several times amid a flash crash:

The Hong Kong Mercantile Exchange defaulted on precious metals contracts and will be settling all existing contracts with cash not bullion.  The HKMEx has stopped trading in all commodity contracts and according to their press release "voluntarily surrender the authorisation to provide automated trading services (“ATS”) granted by the Securities and Futures Commission (“the SFC”)."

The HKMEx press release is here:

The press release is commented on here:

And, Sherrie's comments are endorsed by Harvey Organ here:

Gold and Silver Market - short term volatility

Last night in thin trading on Asian markets silver prices plunged 10% in 4 minutes and then quickly recovered most of that drop.

Who sells enough silver in a low volume market to crash the price so much so quickly?  Not a rational seller who is trying to maximize total sale price.  This is another data point showing manipulation in precious metals markets.  Seems that the manipulators are getting desperate which portends big things.  It's about time.  

No one really knows exactly what 'big things' are in the offing.  One thing that I suspect is that that paper gold and silver funds, such as GLD and SLV  and derivatives will default.  They will default in the sense that the funds and contracts will be discovered to have much less physical bullion than should be allocated to each owner.  Then the funds will force cash settlement with owners.  The cash settlement will be at the market price in the days just before the default.  The default will likely cause prices for physical to jump up since it will be revealed that physical gold and silver supplies are lower than previously thought.  Are prices currently being suppressed in preparation for default?  

Saturday, May 18, 2013

This is not your father's market correction - Jesse

This link is to another excellent post by Jesse.  There is currently so much big, fast money, leverage, market manipulation, fraud, corruption, and globalism.  No one knows "what the heck is going on."

Certainly, at this point no of us is able to see the real, whole situation

Hedge Funds Buying Call Options on Gold Miners

I have good company in thinking that precious metals mining companies are currently a good investment.  Although, $138M of call options seems a pittance for funds that "control over $60B."  Now I will have to keep an eye on when the big boys start to sell.  And, all these call option invite more shenanigan near the expiration dates.

This article is also a good reminder that one cannot know the entire, current picture of a hedge funds position.  These hedge funds, for example, could have recently sold their positions or purchased puts.

I also need to keep being reminded of how much leverage is in the system.  Since I am so conservative it is easy to forget how much risk others take on.  Of course most of these 'high yield' investors are gambling with other peoples money.  All the buying on margin and using derivatives makes market prices more volatile.  Investing only money that I have is one of my few advantages over the big boys.  I also have a longer investment horizon.  My investment performance is not measured quarterly.  No leverage and a long horizon allow me to be patient and wait out short term volatility.  And, that is exactly what I am doing today with my precious metals investments.

Friday, May 17, 2013

Mystery: Paper Gold Price Dropping while Physical Demand is Increasing

OK, Rik don't panic.  We expected this.  Prices for paper gold and silver will tumble when the paper markets start to dislocate from the physical markets.  Clearly if investors perceive a chance of default at the COMEX and GLD and SLV then they will price in that risk.  The question then is; are the paper markets really dislocating or can one acquire physical bullion for the paper prices?

A quick survey of several internet coin dealers shows that yes, you can buy bullion at the current paper market prices plus the typical commission.  Dealer commissions cover their cost of shipping and handling as well as profit.  But, retail sales of bullion in the US are a small portion of gold demand.  The bullion banks could temporarily supply US retail demand to avoid revealing a pending market default and prevent a run on the exchanges physical bullion.  Anecdotal evidence of physical gold shortages in India and China are numerous.  But, it is central bank activity that really moves the needle.  Reliable information about central bank buying and selling is not available.  We mere citizens cannot even force an audit of our own governments current precious metals holdings.

Data regarding bullion inventory at COMEX warehouses, JP Morgan and other bullion banks' accounts, and GLD and SLV is available daily.  The data does show that inventory is dropping.  However, the data is likely very misleading since any and all claims on that bullion are not clear.

So it is still a mystery.  How can market prices be dropping while demand is increasing and inventory dropping?

Nations, except China are still broke and printing more and more fiat.  Precious metals are still a good store of wealth.  Gold and silver paper market prices are very volatile.  Gold prices moved up and down $200 per ounce within a couple weeks several times in 2011 and 2012.

In October 1939, Winston Churchill gave a short radio address and spoke about whether Russia would join the Allies to fight Hitler.  The portion that most remember is "It (Russia) is a riddle wrapped in a mystery inside an enigma."  However, the quote continues " . . . but perhaps there is a key.  That key is Russian national self interest."   In other words to predict Russian actions one need not know who, why or how just what is best for Russia.

I don't know who, why or how precious metals prices are dropping but it is in the best interest of those who are short, such as the bullion banks (e.g. JP Morgan) and governments who fear an alternative to fiat currencies. Since these bullion banks and governments are running the paper markets, we should expect even more attacks.  And, we should expect even less enforcement of laws and regulations.  The 'Noteable' sidebar has links to two good articles about recent lapses in enforcement or existing regulations in the paper gold and silver markets.

Tuesday, May 14, 2013

Say it ain't so. Hiring handicapped tour guides so your kids can cut in line????

I try to keep this blog focused on business and investing topics.  Can't help myself this time.  This is a new low.  Sometimes I wonder how sociopaths are raised.  Who raises their children to have no empathy for others?  Well here is an example.

Rich Manhattan Moms hire handicapped tour guides so kids can cut lines at Disney World:  I guess the $300+ fast pass is just not fast enough for them.

This drill sergeant should be put on the case.  I look forward to when he visits the magical kingdom.  In fact I would help pay for his trip.  An enterprising reality TV show could certainly profit by putting it together.

Argentina: Case Study in Currency Devaluation

Argentina is a case study in currency devaluation and inflation.  Over the last 5 years the official exchange rate for Argentina Pesos (ARS) to the USD has devalued about 40% from about 3.2 to 5.2 per USD.

This article by Bloomberg describes some interesting aspects of business in an inflationary environment.

  • The black market exchange rate is double the official rate or 10 ARS to the USD.  Interestingly in Argentina the illegal market is called a blue market.  Seems that if everyone is doing something illegal it cannot be entirely dark.
  • Auto sales are up 30% over 2012.  Argentines with ARS want to spend them before they devalue more.  And, Argentines with USD savings can exchange to ARS on the black market and buy that new car for half off.
  • The government is trying to help local businesses by requiring companies to export the same value that they import to Argentina.  So the automobile companies are exporting agricultural commodities, which likely has the unfortunate consequence of increasing food prices in Argentina.
  • The article states that Argentines are also purchasing gold without describing how.  The government must have controls in place to limit physical gold purchases and ownership.  Otherwise Argentine banks would have no deposits.


Growth Portfolio Update: traded oil for silver

This morning I made the following trade in the Growth Port-faux-lio:

Chevron (CVX) has done has very well over the last 6 months.  But, silver has more upside potential that big oil now.  And, if the whole market declines CVX will follow it, while precious metals should be contrarian.  As discussed in a previous post, silver seems to have more upside than gold right now.  Coeur d'Alene Mines (CDE) and Silver Wheaton (SLW) are volatile, levered plays on silver prices.  At this time, I moved only about 6% of the port-faul-lio's assets to silver mining given the risk.

Wednesday, May 8, 2013

Silver Eagles in stock at some dealers - $5 premiums

This internet coin dealer has 2013 silver eagles back in stock.  The premium to current metal value is about $5 per coin.  The US Mint charges authorized partners a $2 per coin commission.  The dealer's up-charge is therefore currently about $3, which is about $2 more than early this year before the mid-April price smack down.  

SilverBid: 23.83Ask: 23.93Change:  -0.09Updated: 5/8/2013 7:40:11 PM

2013 1 oz Silver American Eagle
In stock and ready to ship!
With 1 oz of pure Silver and a beautiful patriotic design, the Silver American Eagle has become th...
 view more
Average Rating  

Availability: Now
APMEX Buy Price - $26.58
IRA Eligible Hot Item
Volume Pricing:
QtyCheck or WireCredit Card
1 - 19$30.42$31.33
20 - 99$29.92$30.82
100 - 499$29.42$30.30
500 or more$28.92$29.79


  Ask an Expert | Product Details | Product Video | Reviews

Another internet coin dealer has silver eagles available at about the same premium.  Although it is not clear which year of silver eagle they are offering.  And a third dealer has orders for silver eagles on a 2-3 week delay.

The buy price at this dealer is $26.58 which is $0.65 more than the current spot ask price as reported by this same dealer.  Presumably this dealer can purchase silver eagles from the US Mint for $2.00 over spot, so why are they offering $0.65 more?  

Physical Gold Demand and Supply: A Summary of Recent Reports

China and India are currently taking about 60% of supply including GLD outflows.  This does not leave much supply for jewelry, coin & bar, technology, and central bank demand.  How can gold prices be down in this situation?  Central banks could be selling, but I doubt it.  Perhaps the information below is erroneous or misleading.  But, the data is consistent with much antedotal information.  The most likely explanation is that the paper gold market is disconnected from that for physical gold.  And, I am confident that my ounces are a good store of wealth despite volatility in the paper gold price.

Bloomberg reports that India is importing about 100 tonnes per month.
Imports by China from Hong Kong more than doubled to an all-time high in March, Hong Kong government data showed yesterday. India’s purchases are set to top 100 metric tons in May for the second straight month, according to MMTC-PAMP India Pvt., a bullion refiner.

Reuters reports that China is importing over 200 tonnes per month. 
Net gold flows from Hong Kong to China, the world's No. 2 gold consumer after India, jumped to 223.519 tonnes in March from 97.106 tonnes in February, smashing a previous record of 114.372 tonnes in December, data from the Hong Kong Census and Statistics Department showed on Tuesday (
That makes up more than half of record gold exports to China from Hong Kong in 2012, which stood at 557.478 tonnes.

The SPDR Gold Shares EFT GLD's gold holdings declined 138.5 tonnes in April and 27.0 tonnes in the first 6 trading days of May.  GLD has 1,051 tonnes in the trust as of May 8th.  This is the lowest amount in the trust since March 2009 when gold was $928 per ounce.

Outflows from bullion-backed exchange-traded products, which
have hit record levels in recent months, continued but appear to
have slowed. The world's largest gold-backed ETF, SPDR Gold
Trust, reported an outflow of 3.6 tonnes on Friday.

Total world supply is about 4,500 tonnes annually, with the majority from mining and about 1,600 tonnes from recycling.  That is about 375 tonnes per month of supply.

Monday, May 6, 2013

Gold and Silver Supply Shrinking

The mining industry has not been able to increase production in response to the bull market in gold and silver over the last 10 years despite dramatic increases in capital spending.  Gold supply from recycling increased dramatically starting in 2008 and about doubled by 2012, "World Gold Council FY2011 Report".  Recycling provided 37% of total supply in 2012 up from about 25% in 2002.  Recently recycling has started to decline.  

According to the World Gold Council, mine production of gold in 2012 was 2,827.7t down 1% form 2011, including producer hedging.  Supply of recycled gold was 1,625.6t in 2012 down 3% from 2011.
2012 saw a pause in the rising trend in mine production from the 2008 lows as production grew by just 0.4% to 2,847.7t (9% above the 5-year average of 2,614.0t). Additional production was generated by a number of new projects coming on stream, primarily in Q1, as well as by the ramping of production at a number of relatively new operations. However, the impact of planned production interruptions and unforeseen delays at a number of mines, together with widespread labour unrest in South Africa, was of an equal scale. The net result for annual production was a negligible increase as these opposing influences cancelled one another out.
Among the countries to record an increase in annual production were China and Russia, while South Africa and Indonesia saw the largest absolute declines.
The World Gold Council's comments above imply that their production data includes miners from around the world.  I assume that  WGC members self report production data, so it is probably about as reliable as LIBOR interest rate reporting.  But is is the best that I can find.  And, it is consistent with my own analysis of 7 major gold mining companies in North America.  Production for these 7 is down 2% CAGR from 2010 to 2013E.

Finding production data for silver has been more difficult.  This report from came to my attention today.  It includes production data for miners that report their financial information to SEDAR which is the Canadian Securities Regulators electronic filing system.  Thus only mining companies whose stock trades on the Canadian exchanges are included.  You can see which mining companies are included at

Quarterly Au/Ag Production Reports from TSX/TSXv Miners

The running totals for new quarterly production reports since 1 April 2013, along with the changes on a Quarter on Quarter (QoQ) basis, for TSX/TSXv Gold and Silver producers is:
# Producers
Gold Produced
Latest Q Report
Gold Δ
Silver Produced
Latest Q Report
Silver Δ
60 of 1186,355,712 oz

217.9 tons

197.7 tonne
-6%24,561,955 oz

842 tons

764 tonne

Tonne = 1,000 kg or 32,151 troy oz of fine gold.