Gold, Silver, and Bitcoin. The Perfect Trifecta - Jason Hamlin
By July 24, 2017– Published on
00:00:09 Nice to be back in Vancouver. It's been roughly five years for me. I love this city. Five years for a painful market if you've been invested in precious metal so it's nice to have a little sign of life here over the last couple of years.
00:00:29 Today, I'm going to talk about gold, silver and bitcoin. Three assets that I hold in my personal portfolio and recommend in the newsletter. Specifically, the Perfect Trifecta why I think you want to hold all three of these assets. At the end, I'll give you my top gold stock pick for the next year. With bitcoin, lots of fear and confusion and misunderstanding I think about what it really is and what it really can be. I'll talk about that and hopefully, if I finish up in time, take some questions at the end.
00:01:04 Just a note on human psychology, everyone likes to pick a fight. People are afraid of change and we see this happening in the gold versus bitcoin. I see three or four articles every week. New articles, pitting the two against each other as if gold investors shouldn't like bitcoin and vise versa. They almost feel a threat because investment dollars have shifted to some extent from precious metals into crypto currencies.
00:01:33 My point of view is that they're complementary assets. Right from a philosophical point of view, they share a lot of the same treats and characteristics but they also have certain strengths that gold has that bitcoin doesn’t and vise versa so they work very well together in your portfolio. It didn’t be one or the other type of battle, one versus that you always hear and so, consider owning both. Why own gold? I'm probably preaching to the choir here, but if your convictions have been rattled over the last five or six years of this correction and consolidation, probably worth just going through really quickly. It's been money for thousands of years. Since 700 BC at least used this money, holds it's value over time when you hear this business a lot. 100 years ago, an ounce of gold bought you a nice business suit, 50 years ago the same and today, more or less the same.
00:02:28 Inflation hedge, we see the charts of what fiat currencies do overtime and global currency debasement. Everybody is raising to debase their currencies globally to make their exports more competitive because governments love to spend money that they don’t have. Run budget deficits, either to give to the constituency and help the re-election campaign or for foreign military adventures, particularly in United States where I'm form.
00:02:57 As a deflation hedge also and people don’t talk about this a lot, but gold performs well in monetary extreme so whether it's high inflation or high deflation like in the 30s following the great depression, gold doubled and just a year and a half's time back then. It can head you in both instances. Exploding debt levels. In major development countries, debt to GDP ratios passed a 100 percent. Economist say that once you get pass this level, it's a slippery slope. It's hard to crawl your way back out. A monetary debt spiral if you will. There seems to be no slowing. Certainly, there's no kind of serious effort to bring those levels under control.
00:03:44 Lastly is a safe haven investment for increasing political tensions in. Unfortunately, we haven't evolved this species enough to reach a level of global piece. What concerns me particular is that the battles were picking now as opposed to the past, the shocking all campaigns in central and South America or the Middle East. Today, we're really poking the Russian bear as well as with China, nuclear armed military super power. It's good as a hedging times like this as well, unfortunately.
00:04:17 Fast easy to store height and transport and the formatting is a little crazy there. Why do we own silver? A lot of the same reasons is gold, but in addition to that, silver is currently very undervalued, so historically, we'll look at the gold to silver ratio on the next chart and show you why I think silver is likely to outperformed gold and years ahead. The massive paper short positions must be covered at some point. Yes, they can try to settle in fiat but when silver finally starts moving higher, this tends to throw a gasoline on the fire. I think the spike higher in prices that we're going to see will be significant when it finally happens and because silver gets to used up, right, via industrial demand, new tech, medical, military applications, et cetera.
00:05:06 Here's the gold to silver ratio that I mentioned. It was fixed by law at 15 to 1 at one point. In the earth's crust, it's roughly 17.5 to 1. During the 20th Century, it's been 47. Over the last 10 to 20 years, it is been around 55. Currently, it's around 74 or 75, all right? Anytime you see this line come up here, silver is undervalued relative to gold. The levels are pretty extreme.
00:05:41 Here was not long after the .com bubble burst. Here is a financial crisis. Here's where we were in 2016 and still a very pretty high level right here. Another thing I like to hold in the portfolio and obviously we recommend mining stocks a lot. The simple reason why is because of leverage. If they didn’t offer a leverage, I wouldn’t be investing in mining stocks. If you want to choose your returns a bit, they remained very undervalued. I like to use this chart. This is the A to I to gold ratio, right? Here's an average over since 2000 around 0.30. Anytime this line is down here, below this mining stocks are undervalued relative to gold. Anytime it's above, gold is undervalued relative to mining stocks.
00:06:33 I worked with Mike Maloney for awhile and being a precious metals dealer, I mentioned the leverage and he said, 'there wasn’t leverage', so I had to go back and look at this a bit. What I found is it depends on the timeframe of course. You want to own mining stocks when this ratio is low and climbing, okay? That's when you tend to see the most leverage, 3 to 4X the moving gold or silver typically.
00:06:58 Right now, we're at 15. Deep down lot to 0.10 at one point but you can still see it's half of this average. What that tells me is that going forward, there can be an expectation that mining stocks will continue to offer significant leverage.
00:07:15 Now, I don’t advocate holding too much of your overall wealth and mining stocks. What I'd like to do is occasionally take some of those profits off the table and put it back into Bullion so you limit your third counterparty risk. Blowout results, one other point here at the bottom. This is a nice effect of the slump that we've had in gold and silver price is that minors have been forced to tighten their belts. They had to become lean and more efficient, reduce their cost in order to survive these low price environments. Now the gold and silver are moving higher once again. We're going to see excellent profit margins and we've already seen this over the past two quarters with core and first majestic last quarter. Most recently over the past week, we've seen blowout quarterly results from Fortuna and Silver Court.
00:08:07 Another reason we want to own precious metals is this everything bubble idea. Mike Maloney talks about this as well. This is price to earnings ratio. Of course, it's a price of a stock relative to their earnings. Historically, 15 is fair value. Anything under 10 and we think of stocks is undervalued and everything over 20, they're in bubble territory, okay? Right here is the great depression just prior to it. Got up to 30 something. Did back. Here's the .com bubble, right? Really ridiculous levels here on a PE ratio.
00:08:41 What's really interesting to me though, this red circle here is just prior to the financial crises of 2008-2009, when stocks were very overvalued, real estate as well everything popped at one time and we had a huge crashed. Here's where we are currently at around 30. Remember, anything over 20 is technically bubble territory. We're at 30, a higher point than just prior to the financial crisis of 2008-2009. For a perspective, that’s how overvalued stocks are currently.
00:09:19 Another nice indicator is looking at margin debt either in absolutely terms or as a percentage of the economy. We can see right here is the tech bubble levels emerging debt. Here's a financial crisis at its height just before the crisis and here's where we are now. All time highs and what does this tell us?
00:09:37 There's complacency in the market, right? Traders are extremely bullish. They're not pricing any risk into the stock market whatsoever. It's precisely at these times if you study history that the big crashes occur when nobody is expecting it.
00:09:54 The mother of all margin calls is another thing. This means that if we do get a crash, it's going to be exasperated by the fact that there's so much margin debt. Everybody's going to have to cover. Get stopped out of their positions and the slide hastens.
00:10:09 Real estate, another bubble, another reason we want to look towards precious metals. One of the only undervalued assets I believe right now that you can be investing in. The blue line here is in the U.S. right before the real estate bubble popped. We've come back nationally not quite to the same levels. In some markets Colorado, California, Washington, Oregon, prices are back above where they were at their peak which should be concerning for any one that holds a significant real estate investments.
00:10:39 In Canada, you had this spike. It came down just a little bit and it's continued to go straight back up at the highest levels ever. This chart is showing home prices compared to the average income of a household, all right? How affordable homes are compared to how much people are making. Why that’s important is if something happens to the economy, to the job market, to wages, all of sudden there's no margin. There's no safety margin in people's ability to pay their mortgages. What you do is have a waive of defaults and of course this crashes the prices. I'd be very careful having a lot of my assets in housing right now. We're seeing bubbles in so many different markets except for precious metals. I'll also argue crypto currencies.
00:11:26 Why own Bitcoin? First of all block chain technology potential. If you're not up on what this is it really is a revolution. It was a problem that computer coders had for the longest time this immutability of ledgers. What the block chain can do is make almost any business more efficient via cutting out the middle man and proving transactions, reducing or eliminating fraud. You could think of Airbnb, Uber, the music industry so many different industries can be disrupted and almost made obsolete by block chain technology doing it better, faster and at a lower cost.
00:12:09 Bitcoin holds utility. Some people say it's not gold. I can't hold it in my hands. Why does it have value? It allows you to transfer wealth around the globe in an instant and nearly for free. Compare that to the legacy banking system, how days it would take and how many fees you would pay and how many intermediary banks would have to be involved. It's doing something that you couldn’t do before with money.
00:12:33 Limited supply, a similar characteristic to previous metals but probably even more so because the supply is capped at 20 million. It's hard coded into Bitcoins code. Right, now 16 million of those have been released. Only another 5 million will ever be created through 2140 at a predictable rate that’s disinflationary. Less and less each year are created.
00:12:58 What happens when you have a market with limited supply and increasing demand? Okay, it helps to explain why the Bitcoin prices has gone up as drastically as it has. Compared to gold, yes, gold is limited supply. We could have huge discoveries and the supply could go up. Some people believe in the Grand Canyon, there's huge secret gold deposits or if we start mining on other planets that we're going to find significant amounts of gold.
00:13:23 In some way Bitcoin supply is even more capped than something like previous metals. Buying and selling goods, transacting at lower cost than using Visa, Mastercard or the banking system so another utility that Bitcoin provides. If you like previous metals you probably like the aspect of no central bank, monopoly or Government control. No Crimex manipulation at least up until this point. People aren't leveraging at a 100 to 1 paper contracts to move the price around like we've seen in the previous metals market. That’s no longer conspiracy theory, right? The banks were caught red handed in doing this so we know what happens.
00:14:08 It's relatively private or anonymous. With Bitcoin, you have to use a tumbling service. With a little bit of effort you can make Bitcoin transactions anonymous. Some of the other old coins like Dash or PIVX have built in a complete anonymous. You can be completely anonymous using those coins. Price depreciation, probably the number one reason for most investors to be in these markets.
00:14:33 Here's a chart of Bitcoin over the past year. I think we're about 500 there and it went to 2,600. It since pulled back to around 2,200 but still, we're talking about a 5X return over the past year and it doubled over the past month before this recent correction since I put the slide together. In theory in price, I recommended Ethereum on over Bitcoin to our subscribers. We've been covering Bitcoin in my newsletter since it was around $100. I was an early adopter of this technology. Ethereum introduces smart contracts into the block chain.
00:15:10 If they set of commands, if this happens release money to this person at this address and this amount. The smart contract technology really opens the doors for what block chain can do. Ethereum, 20X over the past year. I've held it for this entire ride. 4X over the past month alone.
00:15:32 These are the type of ones in a generation investment returns that if you're in this market and time it correctly you might be able to see. If you're considering getting involved and you haven't yet, the pullback that we've seen over the past week, I think represents an excellent opportunity to get involved and to buy. Do so in trenches over time. Don’t go all in right now. Okay?
00:15:57 Bitcoin I view as the anti-dollar, right? Here's what happens. You've all seen this chart. It's fiat money that centralize with unlimited supply over time. Here's what happens with a decentralized limited supply currency. This is actually pretty realistic. What one Bitcoin would buy you in 2012, in 2013, in 2014 and if it continues on the current trajectory you can start picking out your Lambo soon.
00:16:24 In summary we want to hold gold, silver and Bitcoin together as complementary assets that serve different purposes. Gold to anchor your portfolio, retain value when the shit hit the fans scenario. Hide and transport easily, protect against inflation and as a safe haven asset. Silver, because it's undervalued relative to gold. It works better as a transaction currency and because of the industrial demand. Bitcoin to be part of this monetary revolution to have your money outside the control of the banks and the governments, the returns that we're talking about, all right, and the lower transaction that it enables.
00:17:08 If you want to check out my newsletter our portfolio is up 69 percent. Last year, it's up around 82 percent year to date. This year largely because of crypto currencies. It's usually 395. I'm taking $100 off for our conference attendees if you use this code. There's some business cards on this table. It has it on the back as well if you want to grab it.
00:17:27 I cover previous metals, crypto currencies, the cannabis market, energy and agriculture as well. My top gold stock pick if you weren't at the panel this morning is Alexandria Minerals, ECK or ALXDF in the OTC market. The question I've posed here, is it the next Integra Gold? Integra was my top gold stock pick over the last couple of years. Of course they are getting acquired by El Dorado at 52 percent premium which I'm very happy about.
00:17:58 I started looking into the Valador region a little bit more. 70 million ounces produced there over the last century. 25 million ounces of gold discovered over the last 15 years alone, all right. It bubbled up through the oceans floor into this volcanic high grade veins. It's a very rich region to be looking for gold. Alexandria has property just across the border from Integra. They're hitting high grades. They've quadrupled their resource in the past seven years. Agnico has a stake, I Am Gold Tech and Sprat recently increased its stake in the company so vote confidence by some industry insiders. I think the last word on Alexandria is they're currently valued at around $15 per ounce of gold they have in the ground.
00:18:44 Integra was taken out at around $160 per ounce of gold. They have similar gold structures. Alexandria's grades are a little lower. They haven't proven up the resources from inferred to indicated yet. They're in the middle of a drill program and I believe that they will. A very undervalued stock worth checking into.
00:19:07 I think quickly maybe I can field a question or two if any one has one. That would require the majority of the miners and stakeholders approving of that happening. If you hold Bitcoin and don’t want the supply to go up because you want your value to be maintained, your probably not going to vote for that. I view it as highly unlikely that the quantity of Bitcoin will go up beyond 21 million in the future.
00:19:28 Male: What effect do you see on the price if Bitcoin when you see the big banks probably Shanghai Bank associated with eight things doing their own block chain and they're not associated with Bitcoins? The banks are getting into the business, what effect will that have on Bitcoin?
00:19:43 Jason Hamlin: The banks are mostly using the old coin called Ripple. They pretty much own that. It's inflationary. There's billions of supply of them. They're using for transaction purposes to reduce the time of moving money around. I don’t think it'll have any impact on what Bitcoin is doing purist in the crypto currency markets don’t care about Ripple, don’t invest in Ripple. The banks will have their own version and it will suite them. I think the prices of Bitcoin, Ethereum and some other old coins that we hold will continue to appreciate.
00:20:15 Male: Yes. I had a question about regulation. There was a speaker earlier today who claimed that these Bitcoin transactions are all anonymous and Government can't tax it. What if with all the Apple pay type applications, all these electronic paying for a cup of coffee there's a record for that. When there's a record for it and it can't be tied to a specific bank source then who's to prevent the government from coming in? We just better put a tax on that because we don’t know where you got that money. They often assume that – you know what I'm talk about.
00:20:55 Jason Hamlin: The government will try. Bitcoin is a pure technology, right? It's decentralized. They can't go raid a headquarters somewhere or shutdown a server somewhere. It's much like the recording industry tried to go after torrent, right? You can still go online and download any movie or music you want using torrent despite millions and millions of dollars of effort and lobbying the government to try to get this to stop. When it's decentralized essentially there's nothing that they can do about it, right?
00:21:25 Right. I think they're going to try. I just don’t think they're going to succeed to be able to control it or shut it down. That’s just my view.
00:21:34 Male: What's your estimate on the amount of Bitcoin that would have been lost as an early adoption?
00:21:38 Jason Hamlin: I'm sorry. Could you speak a little louder?
00:21:41 Male: What do you calculate the loss Bitcoins? I heard a story of a guy that had 10,000 Bitcoins on his phone on a beach. The wave came in, wiped it out. This is before the hard wallets. Gone, they're vanished. What do you calculate is the amount that’s been lost so far precisely?
00:21:58 Jason Hamlin: Yeah. I think it's probably anywhere from 5 to 10 percent. This is good for a Bitcoin holders, right, because this reduces the supply further. The actual active Bitcoins available to bought and sold will never reach 21 million. They'll probably capped out at 18, 19, 20 million, whatever the number happens to be.
00:22:18 One other quick word, Alt coins are amazing. Beyond Bitcoin and Ethereum there's some really cool Alt Coins out there doing real estate transactions on the block chain. Factum is the name. Global super computer that pulls the resource of their users. That’s called Golem and watch these ICOs, right? They're like IPOs but it's a revolutionary new way of funding initial coin offerings. They get funding directly from people that hold Bitcoin and Ethereum sending them money. You can invest early stage before they hit the exchanges.
00:22:49 In my experience with the ICOs that I've done they've hit the exchange at two to three times the price that I paid the ICO. Of course do you due diligence. Read the white paper, who's involved, what's their business model et cetera. I do all that in the newsletter if you want to get my take on it.
00:23:03 I think my time is up. Thank you very much.
00:18:40 Thanks for your kind attention.