Jesse's Café Américain

14 July 2010

The Sprott Physical Silver Trust

Since silver is 'the people's gold' I would expect this trust to be very popular.

This fund has the monthly delivery option as does PHYS for gold.

Presumably the delivery will be in standard silver bars of 1000 troy ounces with a minimum fineness of .999. This is approximately 68.5 pounds avoirdupois. The bar would be worth about $18,280 at today's prices. Presumably there will be some fees involved in delivery. This size is popular with institutions.

This fund could put some stress on the silver bullion market which is already a bit tight by any measure. We assume the prospectus will indicate a negative position on leasing of the fund's silver, and the requirement not to engage in fractional reserve silver bullion.

Of course there need to be explicit auditing standards down to the bullion level to avoid some of the counter party risk appearing in some of the ETFs which deal in subcontracting with passive audits. ETFs are fine for a trade, but if one is buying bullion for insurance against currency risks, then the auditing and allocation issues become rather substantial.

Financial Post
Sprott Has a New Physical Silver Trust
Barry Critchley
Wednesday, Jul. 14, 2010

It has worked for gold plus a number of other metals including molybdenum and uranium -- though it didn't work for copper -- and the hope now for the promoters is that it will work for silver. We are talking about the Sprott Physical Silver Trust, which wants to raise capital via the sale of US $10 units.

As the name suggests, the issuer will use the proceeds to invest in physical silver bullion. "The Trust seeks to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding physical silver bullion without the inconvenience that is typical of a direct investment in physical silver bullion," states the prospectus.

The document offers a number of reasons to invest in physical bullion: It's convenient, all the proceeds will be invested in physical silver; the silver will be stored at the mint and the trust will be able to secure lower transaction costs than investors doing it themselves. But the fund is geared to those who like their income in the form of capital gain; the trust does not intend to pay any dividends.

But one wrinkle is that once a month, unit holders will be able to redeem all or some of their units and receive physical silver. It's not immediately clear why a unit holder would want to do that, other than to provide unit holders with comfort that they can get their hands on the metal...

One reason for the popularity of funds that invest in physical metals is the favourable tax afforded U.S. institutions. The prospectus talks about the capital gains advantages for such buyers: The tax rate is 15% (though it will rise to 20% by year end) on such investments compared with the normal 28% tax rate.

h/t Rodd, aka 'Silverholic'

James K. Galbraith: The Financial System Must Be Reformed

Although I differ considerably from Mr. Galbraith's conclusion that government must take on a larger role financing the reconstruction through the active allocation of capital, I cannot fault his call for a serious reform of the financial system as the sine qua non for a sustainable recovery. Why substitute one version of financial engineering by corrupt politicians for another?

I am pessimistic that this will happen, yet. Although the pigmen feel that they have 'won the war,' and will continue from outrage to greater outrage, until they provoke a reaction, and the people finally rise in their righteous anger.

It has not happened yet, at least successfully. Washington is under siege by an army of lobbyists with cash in hand.

But it is almost a certainty that the pigmen, who think that they have won the war, will go from outrage to outrage, until the people finally rise in their righteous anger. The pigmen cannot restrain, cannot reform themselves even when it is so obviously in their own interests. Such is the instinct of the predator class to insatiable, seemingly obsessive, self-destruction. Enough is never enough.

"Tombé de l'éternel, Satan veut l'infini. Tombé de l'Être, il veut l'Avoir. Mais le problème est insoluble à tout jamais. Car pour avoir et posséder, il faut être, et il n'est plus. Tout ce qu'il s'annexe, il le détruit. Et certes, il pourra tout avoir, puisqu'il est appelé Prince de ce Monde dans l'Évangile - mais il n'aura que ce monde-ci." Denis de Rougemont

"Having fallen from the eternal, the Evil One's desires are endless, insatiable. Having fallen from pure Being, he is driven by the desire to possess, to fill his emptiness. But the problem is insoluble, always. He is compelled to have and to hold, to possess and consume, and nothing else. All he takes, he destroys. Certainly he rules the material, as he is called the Prince of this World in the gospels - but only of the things of this world." And since material things will have an end, he is condemned to a gnawing hunger, and the wages of his pride, oblivion. The is no greater punishment for pure ego. And the knowledge of this is his torment.

"What to do? To restore the rule of law means first a rigorous audit of the banks and of the Federal Reserve. This means investigations. Representative Marcy Kaptur has proposed adding a thousand FBI agents to this task.

It means criminal referrals from the Financial Crisis Inquiry Commission, from the regulators, from Congress, and from the new management of troubled banks as they clean house. It means indictments, prosecutions, convictions, and imprisonments. The model must be the clean-up of the Savings and Loans, less than 20 years ago, when a thousand industry insiders went to prison. Bankers must be made to feel the power of the law in their bones.

How will this help the economy? The first step toward health is realism. We must first stop pretending that bad assets can be made good, that bad loans will someday be repaid, and that bad people can run good banks. Debt crises are resolved when debts are written down and gotten rid of, when the institutions that peddled bad debts are restructured and reformed, and when the people who ran the great scams have been removed. Only then will private credit start to come back, but even then the result of bank reform is more prudent banks, by definition more conservative than what we've had...

The entire host of neglected priorities of the past 30 years should be on the agenda now. That is the way—and the effective path—toward prosperity."

James K. Galbraith, Tremble Banks Tremble

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.