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Ted Butler Never Had a Clue About Silver, Beginning in 2000. Here Are 5 Charts That Prove This -- A Warning to His Disciples, Who Have Lost Half Their Money So Far.

Gary North
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September 12, 2008

Here are three charts. They reflect a fact of investment life. Gold, silver, and platinum move in lockstep.

There are no independent fundamentals for silver and platinum. Platinum and silver have moved with gold, up and down. All statistics on platinum and silver are irrelevant. The market treats them as one commodity: gold. The percentages differ; the direction does not.

Silver has fallen 50%, while gold has fallen 25%.

Ted Butler has never understood any of this. He has written as though silver had an independent existence, as if reams of statistics made silver different. He was wrong. This was a gold play, from 2000 until today. It will remain a gold play.

All three have been falling ever since March 18. These are not corrections. These are massive sell-offs. This is a sell-off of the entire precious metals sector.

I predicted this on March 18. I posted my prediction for my subscribers on March 19. You can read my article here. On March 17, the day gold peaked at $1036, I ran an article by Rich Pearce of Pearce Financial on how to short gold. You can read it here. I gave my readers ways to protect their capital without selling their coins.

I used the Austrian theory of the business cycle to make this call . . . and 45 years of investing in the precious metals.

For the record, I started promoting gold again in October, 2001, in my newsletter, Remnant Review. I got them in close to the bottom, and I got them out (or hedged) on the day gold peaked. My critics can say what they will. I beat this market this time.

Anyone who argues that a tiny handful silver manipulators -- three banks -- in the commodity futures market have forced down the price of gold, silver, and platinum, is arguing that an obscure metal is at the heart of the entire precious metals sector. Silver is a byproduct of copper, lead, and zinc mining. Yet we are asked to believe silver investors are the target of a cabal of three banks have brought down platinum, silver, and gold. How? By selling silver short.

This is the explanation offered by Butler.

There is a huge problem with this argument. Butler's evidence of this short selling is from mid-July. Silver started falling on March 18. So did gold. So did platinum.

This is not the work of three silver speculators, however well-funded. It is the work of the free market. This is what happens in most recessions. Precious metals fall.

By clinging to the argument that speculators did this, Mr. Butler has misled his readers into believing that, somehow, market forces were favorable to silver. At some point, the speculators, highly leveraged, would be ruined by market forces.

He was wrong. Those readers who took him seriously have lost a lot of money.

It goes beyond the silver market. The logic of the position gets worse. The implication of his argument is this: three banks, by taking short positions -- which have proved immensely profitable to them (which is why people speculate in the futures market) -- are behind the collapse of the entire world commodities market. It is not just the precious metals that have collapsed. It is the entire commodities complex.

Look at the most recent chart of the Commodity Research Bureau. (Courtesy Moore Research Center, Inc.)

I knew this was coming. On May 12, I said oil was not going to $200 a barrel, but would fall back dramatically, probably to $75. How did I know this? The Austrian theory of the business cycle. It had nothing to do with manipulation. It had nothing to do with futures speculators. To paraphrase James Carville in 1992, "It's the recession, stupid!"

Gold and silver peaked on March 17. Ten days before, I predicted that the entire commodities complex was going to fall, and soon. This was in the middle of the boom, when everyone said commodities would go through the roof.

How did I know? The Austrian theory of the business cycle. I have continued to read and re-read the works of Ludwig von Mises and Murray Rothbard for my entire adult life. Even more important, I understand them. It's not enough to read them, or say you have read them.

Butler's argument on secret silver manipulators flies in the face of economic theory and statistical reality. This has been an international commodities collapse across the boards. The power of the trading departments of three banks could not possibly have caused this.

The fact that commodities have all collapsed indicates that the fundamentals of the market are against commodities. But Butler still refuses to accept this argument. I think there is a reason for this. He honestly thought that the market was going to push silver far higher.

He does not understand Austrian School economics. He does not understand that Greenspan's bubble was matched by central bank bubbles around the world.

We are watching the unraveling of the greatest fiat money bubble since 1980. Silver and gold fell for 21 years. I think the FED will be forced to inflate sooner, but this is reality. The bubble has popped.

The collapse of the commodity complex is what drove down gold and silver. I sensed this on March 17, when the non-precious metals fell, and said I so in an article on March 18. I said gold was probably next in my March 19 report. I sensed that the recession had at last popped the bubble. Yes, I guessed. But I guessed right. I called the top of the seven-year bull market in precious metals. I prepared my readers to sell off their gold -- not all of it, but in stages.

Butler wants to make silver a special case so he can blame insiders, whose actions he could not possibly have known about. Yet the CRB chart shows that silver was a special case in one sense only: it fell by a larger percentage than most other commodities. It fell twice as much as gold.

There is this question: "If insiders pulled this off, why now? Why not a year ago or a year from now? Why July?" Answer: because silver had peaked on March 17, and the guys who went short figured there was more decline to come. They were right.

Butler never saw it coming. This market blindsided him and everyone who believed he knew what he was talking about. He didn't.

His defenders (nursing their losses) may say, "But Butler has far better statistics than North does." Quite true. He has reams of statistics. But if statistics lead to a 50% loss, what are they worth? My view is that capital gains beat statistics every time.

Getting out of a bull market at the top is what matters most, not statistics.

I explained why March 17 was the peak in my March 19 article. I recommended shorting gold in March 17, the day of the peak. To those critics who say he is right and I am wrong, I say this: I have been right since March 17, and Butler has been wrong. Silver is down by 50%. Here is what I wrote on March 18 and posted on March 19:

Every loss is a loss. It does not matter if you admit this. It does not matter if you decide not to sell. Every loss is a loss.

If you own an asset, and it falls in price by 50%, you lose 50%. Yes, even if you never sold, and it goes back up. If you sell the asset at the top and buy it back at the bottom (50% decline), and it goes back up to where it began, you make 100%. You own twice as much. Not owning twice as much as you would have is an economic loss.

This is what has happened to silver investors. Gold investors are down 25%.

Butler still will not admit that the great bull market for silver is over for now. Those who believe them have their capital at risk. This is why I am writing this article.

Metals Bugs

As far as I know, there are no platinum bugs. Platinum investors and users are not committed to platinum as a way of life, as the cure for economic problems, or as the touchstone of moral purity. There are no defenders of the platinum standard. Nobody writes books on The War on Platinum. Yet it moves in lockstep with gold and silver.

We do not see lots of financial news stories on platinum. There is no equivalent of GATA, the gold bulls' outfit. There is no organized effort of platinum bugs to get the Federal Reserve to stop selling its platinum hoard. This is because there is no platinum hoard.

The gold bugs at GATA have always complained of gold manipulation by central banks. They may be right. Central banks do hold gold. Gold leasing is concealed selling. But that this recent downward move in gold is the result of central bank selling is highly questionable. I don't believe it is. I have seen no evidence that it is. But I will hold my peace.

The silver bulls are without excuse. Blaming "silver insiders" for silver's catastrophic decline in price, as if any government official or central banker cares about silver, is simply a desperation thesis. It is a desperate search for some explanation other than the obvious one: the commodity bubble has popped.

My concern is for investors. They trusted Butler because he sounded confident. He also had all those statistics.

The fact is this: Ted Butler did not know what he was talking about. Silver is down by over 50%, and still he parades his crackpot theory that three banks deliberately targeted silver, against the true fundamentals of silver, risking everything.

He was wrong.

Investors who believed him have been harmed greatly. He kept them hanging onto their silver, keeping them in a bear market, vainly hoping for the reappearance of market forces bullish for silver, has cost them millions of dollars.

That is why I am writing this. I hope that those who took him seriously will give up waiting for the great bull market in silver to reappear. It is over, unless there is war in Iran.

I have been a silver investor since 1963. I have seen silver bulls come and go. They have all had their heads handed to them by the market. I knew Bunker Hunt personally. He went bankrupt. His line was a classic: "A billion dollars doesn't go as far as it used to."

It is the newcomers to silver who have made their reputations by showing up unexpectedly at the bottom in 2000-2001, and who never warned their readers of the collapse that began on March 18. I did. The two big ones are Ted Butler and Jason Hommel.

On September 11, on the 321 Gold site, there were the usual articles on how it's time to buy silver and gold. These run daily. But this one caught my eye. It was written by Israel Friedman. Underneath his name in the article is -- twice. Investment Rarities sells coins. It publishes Ted Butler's articles. The owner of Investment Rarities, Jim Cook, tells me in an email that he has never met Israel Friedman. The article is titled, "What the silver manipulation means to me," Friedman wrote the following. "I don't think that any intelligent investor can now argue that the metals market, especially silver, isn't manipulated as Mr. Butler claims."

Well, I am an intelligent investor who called the top for the precious metals within 24 hours, and I think Mr. Butler's argument is without foundation.

Mr. Friedman is identified as "a friend and mentor to Theodore Butler. He has followed silver for many decades." He may have followed silver, but he does not understand basic economic theory. Here is basic economic theory: Consumers set prices, not manipulators, producers, or anyone else. This is basic economic theory. I have discussed this at length here:

The concept of consumer sovereignty is fundamental to Austrian economic theory. It was taught by Carl Menger in 1871, and it has been taught by all Austrian School economists ever since, including Mises and Rothbard. I have written about this here:

Anyone who argues that commodity futures market speculators who go short in silver can determine the price of silver for more than a few days, let alone across the board, does not understand economics. He is an economic ignoramus.

Mr.. Friedman, Mr. Butler, and Mr. Hommel did not see this coming. They sucked their followers into a trap. The popping of the commodities bubble sprung the trap.

Consider Jason Hommel. On September 10, he said he didn't know what the price of silver was. Incredible!

I am going public because I know how convincing Butler was. Newcomers did not recognize all the old arguments, stretching back three decades -- arguments that did not protect silver bulls in 1980 from a collapse.

I believe that it is time for an old timer to call a spade a spade. I have 45 years of experience in the precious metals market as an investor and 50 years of studying Austrian School economics. And I say this: Ted Butler did not know what he was talking about, from 2000 until today. Why do I say this? Because Butler never recognized the reality of the three charts at the top of this page.

The bull market in silver had nothing to do directly with silver. It had to do with gold. All of Butler's statistics on silver were irrelevant from day one. The silver market has always been the poor man's gold market. As goes gold, so goes silver. Butler was hypnotized by silver. He did not understand that silver's story is gold's story. It has no independent existence.

Like the bull who pays attention to the matador's cape rather than the sword, Butler and the silver bulls took their eyes off the fundamental issue: gold.

The recession has caused the fall in silver's price. A few smart commodity traders sold silver short and made a lot of money at the expense of those who were long on the other side of the contracts. They were smart timers. Ted Butler and Jason Hommel were not.

It does not matter how many statistics they pile up to prove that silver should be going up. It went down by over 50%. Investors can't eat statistics.

The silver bulls guessed wrong, and they have had their heads handed to them on a greenback platter. If they had sold in mid-March, they could have re-bought at today's price. Even paying income taxes, they would still be way ahead.

They at least should have told their readers to start selling, 10% or 15% at a time, taking profits (or avoiding losses) all the way down. That would have been prudent. They were not prudent. They were blind. The market has imposed losses on blindness, as it always does.

Butler is the Jerome "Silver at $100" Smith of this decade -- a man who rode the wave up, never understanding what was going on, believing his own reams of irrelevant statistics, and crashed in 1980 because he never understood what he was talking about. If you have never heard of him, you are a newcomer. For background, click here.

It was a gold play, 1967 to 1980. I rode it up all the way. It was a gold play from 1980 to 2001. I rode it down. (I sold silver bullion short in 1980 to protect my position in silver bags. I was a silver hedger, not a speculator.) It was a gold play from 2001 to 2008. I rode it up. It ended on March 17. I sold half my gold position on March 19. I had been there, done that. I was too heavy in gold. I was too vulnerable to a fall. I made 2.5 to one.

I warned my readers of my concern that week.

Ted Butler has yet to warn anyone. He keeps pretending silver will come back, that his disciples have not lost half their investment and must make 100% just to break even. He is playing Snow White: "Some day, my prince will come."

He is hiding behind endless re-hashes of statistics, plus his conspiracy theory about manipulation in July. The commodities market doesn't pay any attention. It has issued its judgment, which was Joe Louis' judgment: "He can run, but he can't hide."

Butler will not learn. That is obvious. His ego is on the line. His reputation is gone. He stands there shouting: "The manipulators did it!" Why did he recommend silver if three banks can achieve this degree of control? What kind of lunatic investment is silver? (Greek mythology buffs will get this.)

If you are his follower, you must now learn on your own. You have been led into the wilderness by a blind man. Now you must find your way back.


If you were trapped by these men, I beg you to re-think your confidence in them. Begin here. Read Mises' Theory of Money and Credit. My booklet can help them get started: Mises on Money. It's free here:

It remains a good idea to have some silver coins -- maybe 20% of the value of your gold coins. We could get war with Iran. Someday, the Federal Reserve will inflate seriously. But avoid the next silver mania and the tarnished silver bulls who fed it. You must know when to sell. Silver bugs will never tell you when to sell.

I realize that there are investors in silver out there who bought because these guys seemed to know what they were talking about. They will deeply resent the fact that I am saying that the emperors never had any clothes. They will regard this as at attack on their credulity. It's not an attack. It's merely stating the obvious. The investors were as taken in as the silver bulls were. There comes a time to cut your losses.

These men did not sound the alarm in time. I suggest that you pay no further attention to them. You are on your own.

I authorize you to print this article, post it, forward it, and do anything you want to distribute it, just so long as you do not tamper with it. There are a lot of victims out there. They need to be warned. That is why I opened the linked articles to the public. They were originally available only to my subscribers, who paid for the privilege of being warned.

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