Hyperinflation is on everyone's lips today.  Investors are scared to death that they will wake up one morning and look out the window only to find that the world has devolved into a monetary Venezuela.  In this fantasy world, desperate people will frantically shuttle around huge stacks of rapidly depreciating cash in wheelbarrows, all while looking in vain for a business or shop that will exchange their increasingly worthless fiat for something - anything - of value.

Unsurprisingly, I have a different opinion.

I think the developed world is currently experiencing a multi-decade long "soft" depression, where economic growth, wages and consumer demand all remain stagnant.  In this scenario it is disinflation, not hyperinflation, that we need to watch out for.  Disinflation is defined as a monetary phenomenon in which inflation is still positive, but tends to move asymptotically towards zero over time.  It is important to note that disinflation is distinct from deflation, where prices tend to decline over time.

For now, though, it is hyperinflation that has caught the imagination of nervous investors.  In February 2021, genius hedge fund manager Michael Burry (who was favorably portrayed in the movie The Big Short) publicly warned that the United States is going down the same hyperinflationary road as Weimar Germany.  Since then, the financial media has been filled with breathless articles about how we are teetering on the brink of a dollar collapse as we transition into a hyperinflationary regime.

But I want to focus on one specific article I recently read titled Trading "Project Zimbabwe".  It was written by "Kuppy" of the Adventures in Capitalism blog.  I've referenced him before in a post I wrote in the summer of 2020 called Money Printer Go Brrr - The Hyperinflation Myth That Won’t Die.  I chose to highlight his latest work because it is typical of the hyperinflationary scare genre that is so popular right now.

I'll excerpt a few choice quotes below:

"I like to joke with friends that if they want to hedge their portfolio, they should buy the 2022 SPY $1,000 call [with a strike nearly 2.5x current levels] because they probably do not have enough right-tail [inflation] protection.  They roll their eyes or laugh a bit, but this is only because they have not studied the period we are about to go through."

The author then follows up with this gem:

"Part of what is so misunderstood about the Weimar period is the extreme volatility. Traditional charts simply show an index going parabolic. Even log charts look rather similar.  However, there were multiple dramatic market crashes along the way.  There were many speculators who recognized what was happening, pressed too hard and got liquidated during one of these crashes.  Others survived the margin calls but sold out through sheer panic.  Even if you know the road-map, you can get whipsawed."

Then he finally knocks it out of the park:

"I have written about this multiple times in the past year, but put selling is literally the gift that keeps on giving…in a world where JPOW has eliminated the left tail, yet retail investors are crazily overpaying for calls, implicitly juicing put implied volatilities, why would I do much else but write puts with my capital?"

This investment strategy is a huge red flag to me.  I have a fair amount of experience with options and writing puts is effectively writing an insurance policy.  You are pledging to bail out the put buyer if anything goes wrong with the underlying stock.  It doesn't matter whether it is an adverse political event, generalized financial collapse or company specific fraud - the put writer will be forced to deliver cash and take devalued shares in return.

It is akin to picking up nickels in front of the proverbial steamroller.  Everything might go swimmingly well for years at a time, only to have your carefully constructed strategy spin apart in a couple days dominated by "impossible" multi-sigma moves.  Financial history is littered with the corpses of similar trading strategies that, although back-tested perfectly over a 5, 10 or 20 year time period, nonetheless failed spectacularly within a few years of their implementation.

My philosophy is that if you write put options on overvalued or junk stocks you will, sooner or later, end up being the proud owner of a portfolio full of those same loathsome stocks.

Now Kuppy is no fool.  So why is he so enthusiastic about a trading strategy that has bankrupted countless speculators before him, especially when he understands the concept of tail risk?  What is really going on here?

In my opinion, Kuppy is getting rich by speculating.  He, along with most other market participants, has discovered that you can throw your money at almost anything during our ubiquitous Everything Bubble and still make good money.  But the problem with participating in a financial bubble is that it is a case of easy come, easy go.  You will inevitably lose any money you've made if you don't cash out.  But cashing out means walking away from future easy gains and few people have the intestinal fortitude to do that.

Therefore, most speculators resort to rationalizing their bubble antics instead.

The conventional wisdom right now is not that we are experiencing a series of obscene bubbles rife with grave financial risk, but instead that we are facing the progressive, accelerating debasement of the U.S. dollar.  This renders savings, conservative investing and prudence ineffective - indeed downright stupid - but only if the hyperinflationary narrative is true.

Unfortunately for Kuppy and company, I think disinflation is a far more likely monetary outcome over the course of the 2020s.  And if disinflation doesn't happen, then deflation (not hyperinflation) is next in line as being the most likely result!

I hold this unpopular opinion for a multitude of reasons.

First, it must be unequivocally stated that commercial banks, not the Federal Reserve, have been the unquestioned driver of money creation in the United States since World War II.  A commercial bank is just a fancy term for any deposit-taking institution that also engages in fractional reserve lending.  In our modern world, governments located in developed economies made a deal with the devil whereby politicians effectively outsourced money creation to the commercial banking system.  This means that it is private bank loan creation that drives growth in the money supply, not the Fed printing up new reserves via quantitative easing.

U.S. banking system loan growth from 1953 to 2020.

Photo Credit: Alhambra Investments

As you can see from the chart above, private lending in the United States has been anemic ever since the 2008 Financial Crisis.  And why wouldn't it be?  Consumers and small businesses that might need or want a bank loan are already debt-saturated.  Everybody has much weaker balance sheets than they did just 20 or 30 years ago.  Most banks take one look at the credit risks involved and sensibly walk the other way.

As a result, the growth in borrowing in our economy is currently driven by governments, government agencies and mega-corporations - all of which have relatively strong balance sheets and direct access to capital markets.  But floating a new bond issue through an investment bank isn't fractional reserve lending; hence it results in no new money supply growth.

I would be much more sympathetic toward inflation fears if we did not have any good data on the subject.

However, we have two modern counterfactuals that cast doubt on an inflationary outcome: Japan and the Euro area.  Both of these economies lowered their interest rates to zero (or below zero in some cases) and had central banks that engaged in rampant balance sheet expansion.  Regardless, inflation rates in both regions have been perennially lower than in the United States for many years running with no prospects for an imminent change in the situation.

The U.S., Japan and Europe have been engaging in remarkably similar fiscal and monetary policies for some time now.  Disinflation, sometimes devolving into outright deflation, has dominated in the latter two cases.  So why in the world would we expect there to be a different outcome in the U.S.?

Securities markets agree with my assessment as well.  Both U.S. Treasury bonds and the foreign exchange market have been remarkably sanguine about the future of the U.S. dollar.  If hyperinflation - or even simply elevated inflation - was lurking on the horizon for the dollar, you would expect bond investors to be a little skittish about tying up their money for 10 years at a nominal yield of only 1.5%.

Yet that is the going yield-to-maturity on a 10 year U.S. Treasury note as of June 2021.  It sure smells like disinflation to me.

Naysayers claim that the Fed's $120 billion per month purchases of Treasury and agency debt invalidate any pricing signals coming from the bond market.  But it is important to note that out of the approximately $4.5 trillion of net new Treasury issuance in 2020, only around $2.4 trillion was purchased by the Federal Reserve.  The free market happily absorbed the other $2.1 trillion with nary a complaint - and all at or near record low yields.

And that leads us to our next problem.

Economists really don't have a proper definition for the U.S. dollar and, therefore, can't accurately measure its supply.  I know, I know…the green paper stuff in your wallet is dollars.  That is absolutely true, but physical currency makes up a tiny fraction of the dollars in existence.  Most dollars these days are purely digital in nature, existing only as a series of 1s and 0s in some database.

Not only that, but dollars don't even have to be domestic to be considered dollars.  The Eurodollar market refers to all the U.S. dollars that are deposited or domiciled outside of the United States.  These are typically concentrated in tax havens like the Cayman Islands, the City of London, Switzerland, Singapore, etc., but they can reside in any foreign locality.  The Eurodollar market is massive and has a huge influence on interest rates and international capital flows.

In any case, we don't have a good definition of exactly what a dollar is.  After much contemplation, I've come to the conclusion that the commonly cited monetary aggregates published by the Federal Reserve - M0, M1, M2, MZM, etc. - are far too narrow in their scope to be useful.

The closest I've come to a good definition is this: the dollar is a currency unit that can extinguish U.S. tax liabilities and dollar-denominated debts.

But even that leaves a lot of wiggle room.

Pre-1965 U.S. 90% Junk Silver Coin Rolls for Sale on eBay

Is your money market fund dollars?  Probably not, considering that it holds short-term corporate or government debt (which is a pledge to pay dollars in the near future, but not quite yet).

How about an Amazon gift card?  It might be denominated in dollars, but you sure can't pay your income taxes with one.

And what about stable-coin crypto-currencies like Tether?  They are pegged to the dollar and (purportedly) backed by reserves, but they ultimately aren't dollars either.

In spite of these monetary instruments clearly not being dollars, they can all act very cash-like under many circumstances.  During the good times, these cash-substitutes (which are typically privately issued) proliferate, leading investors to falsely believe there is far more money in the economy than there actually is.  But when the bad times come and people need money, they quickly discover that cash-like doesn't always mean cash.

As you can see, this gets very messy, very quickly.

It also leads to the next reason I believe disinflation is in our future rather than rampant inflation: deflating asset bubbles.  Bubbles are both self-referential and self-reinforcing due to their intrinsic nature.  Persistently rising prices in an asset class (any asset class) gradually draw in more and more speculators who believe they are making a one-way bet.  Eventually, even otherwise conservative investors buy-in, deluding themselves into thinking they are prudently investing when they are really gambling.

Although primarily financial creatures, bubbles create a host of real world side-effects in the mainstream economy.  The first is the infamous wealth effect, where investors spend lavishly on vacations, home improvements and fancy dinners because they feel flush with unrealized portfolio gains derived from skyrocketing asset markets.  This is the transmission mechanism that the Federal Reserve is explicitly targeting with its reflation-oriented, low interest rate policy.

Unfortunately, the wealth effect is much less powerful than central bankers originally believed.  Rich people own most of the world's assets, but have already bought as many Greek islands, Rolex watches and bottles of vintage wine as they care too.  Piling another million or two on top of their already prodigious mountains of wealth is unlikely to spur much more consumption.  On the other hand, your average 401-k investor with a 9 to 5 job is probably not going to splurge on a new $50,000 SUV just because his Apple stock netted him a cool 10 grand.

But where bubbles really do goose the real economy is in respect to employment and wages!

The investment banks that are cranking out worthless technology IPOs by the dozen need an army of bankers, lawyers, accountants and marketers to do the grunt work involved.  Likewise, our gargantuan housing bubble is keeping an entire fleet of real estate agents in the lifestyle to which they have become accustomed.

Perhaps most interestingly, the profitless prosperity companies - Netflix, WeWork, Tesla and others like them - are directly pumping up employment in a big way.  These are often good jobs that deliver high salaries and generous bonuses.  Private equity is the typical funding mechanism for pre-IPO profitless prosperity firms.  And much like workers in investment banking and hedge funds, private equity employees also receive generous compensation.

Taken together, it is clear that the true transmission mechanism for low-interest rate fueled bubbles is through the salaries and bonuses they provide to those employed in bubble sectors.  These strong wages help keep consumption and, by extension inflation, higher than it would be otherwise - probably much higher.

Of course, we must naturally ask ourselves what happens when our dear bubbles inevitably burst?

It is difficult to see how it couldn't be a massacre.  Layoffs will be widespread and disproportionately hit bubble employees making relatively high salaries.  The freshly unemployed will be forced to tap equity portfolios and retirement accounts in order to put food on the table, but those securities will be worth much less due to falling markets.  Many formerly middle-class peoples' houses will be repossessed as continuing to pay the mortgage, property taxes and insurance will prove to be untenable.

This is the stuff of nightmares.  It is the reason the Federal Reserve is so frightened that the bubbles they've created will collapse, dragging the economy down with it.

Here is the kicker though.  The inflation rate in the U.S. since the 2008 Financial Crisis has been anemic at best.  And this is with the benefit of the Everything Bubble pumping up employment and wages.  In fact, the United State's prominent position as bubble factory to the world is probably one of the only reasons why our inflation rate has been consistently higher than in either Europe or Japan.

It isn't too difficult to imagine a near future where the bubbles stop bubbling and disinflation or deflation results.

5 Gram & 10 Gram Gold Bars for Sale on eBay

There are other good reasons to expect disinflation, of course.

The rapid expansion of private sector debt during the 2020 COVID debacle springs to mine.  Additional borrowings by large corporations, small businesses, landlords and their tenets (leases are just another form of debt) will all weigh on future economic consumption.  All that new debt will eventually have to be repaid (with interest) or defaulted upon - a highly disinflationary prospect.

We can expect tax rates to climb in the future as well.  This will be driven by the need for the U.S. government to appear at least somewhat responsible in the face of continually escalating deficits.  Tax increases, even if insufficient to close the budget gap, will be a powerful signal to markets that the government will not spend itself into ruin.

But tax increases reduce consumption in an economy and contribute to deflationary impulses.  Rising taxes on corporate profits would be especially devastating because so many investors have come to expect the companies they invest in to pay little to no tax.  However, I think the generational low for such taxes came with the passage of the 2017 Trump tax cut, when U.S. corporate taxes were dropped to a flat 21%.  Higher corporate taxes are almost a given in the current political environment, which will contribute substantially to future disinflation.

I would like to note, however, that disinflation does not mean that prices drop.  On the contrary, I think it highly likely that nominal prices will be higher 5 years, 10 years or 20 years from now.

And I'm no inflation denier, either.

2021 has seen a major upward adjustment in prices due to the lingering supply-chain disruptions caused by the COVID pandemic.  These price increases are very real and very sticky too.  We won't be giving them back, short of falling into a severe deflationary spiral.

Disinflation merely means that going forward we are likely to see slow, modest price increases, rather than dramatic, galloping ones.

The important take away from all this inflation/disinflation/hyperinflation talk is that the best way to protect yourself is to have a healthy cash cushion and to invest in reasonably priced assets.  The cash part is easy enough, even if relatively boring.  Finding reasonably priced assets in our massively overvalued markets is much harder.

This is where antiques, bullion, art and gemstones can play a vital role in your portfolio.  These are the asset classes that time forgot.  While financial pundits are hysterically shrieking about hyperinflation, many tangible assets have been curiously ignored by bubble-obsessed investors.

But their loss is your gain.

Because they are so cheap, a prudent investment in fine antiques or bullion will do well in almost any conceivable monetary future.  And it doesn't matter whether we ultimately face disinflation, deflation or hyperinflation, tangibles will navigate them all with equal aplomb.

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The ongoing silver squeeze has been 2021's seminal event for precious metal stackers and hard asset investors alike.  But what exactly is a silver squeeze?  Where did it come from and where is it going?  The Antique Sage will answer all these questions and more, so read on!

Oddly enough, 2021's silver squeeze saga all began with GameStop (ticker: GME) - a U.S.-based brick-and-mortar retailer that specializes in selling gaming consoles, video games and peripherals.  The firm's physical retail-centric business model is in terminal decline as the video gaming industry slowly but inexorably moves to an online digital distribution system.  As a result, Gamestop's physical sales have been slowly drying up as time goes by.

I consider companies in this predicament to be in "run-off mode".

If GameStop's management was honest, they would be distributing almost all of the company's earnings as dividends.  Shareholders would have to hope that they could collect enough dividends to recover their original investment before the firm goes to corporate heaven.  Of course, in reality GameStop's management is hoarding its earnings so that they can extend the life of the (almost certainly) doomed company.  It is effectively a make-work program for C-suite executives.

I mention this because a Reddit message board populated by Millennials called Wall Street Bets recently engineered a spectacular short-squeeze in GME stock.  A short-squeeze is where buyers pile into a stock that has been heavily shorted (in the expectation of its impending bankruptcy), forcing those shorts to cover (buy-back stock) and thus driving the price skywards.

In a rational market, GME would be worth $2 or $3 a share as investors wait to see if management can (improbably) save the company from bankruptcy.  But the short squeeze was so intense that the stock momentarily reached a 52-week high of $483!  Proponents of the strategy considered it vindication for the little guy, as retail investors (theoretically) stuck hedge funds and other sophisticated speculators with massive losses.

The GameStop (GME) short squeeze momentarily drove the stock price to $483 a share.

A portion of the Reddit crowd decided to apply the same logic to silver and spontaneously self-organized under the banner of "Wall Street Silver".  These silver fanatics refer to themselves as "apes" or "silver-back gorillas".  They commonly declare that they have "diamond hands" (i.e. they'll never sell).  And they love to post hilarious memes about stacking silver.

As strange as it might sound to more traditional investors, the Wall Street Silver crowd's strategy is simple.

Persistent rumors have circulated for years that a cabal of large Wall Street investment banks has suppressed the price of silver by shorting huge quantities of the metal on the paper futures market.  If a coordinated silver squeeze were to force these investment banks to cover their shorts en masse, the price of the precious metal would theoretically explode higher.

That's the theory anyway.

No one knows exactly how high silver could go in the event of a successful silver squeeze.  On the low end numbers range from $50 to $100 an ounce.  But some hardcore stacking enthusiasts speculate about $500 or even $1,000 an ounce silver.  In any case, if you owned the physical metal under these circumstances, you would instantly become rich (or at least much better off financially than you are right now).

Well, Wall Street Silver members put this radical idea into practice (sort of) in early 2021.  Adherents to the cause began to buy silver in whatever quantities they could afford.  Those of modest means bought a little, while those with fat bank accounts bought a lot.  On Thursday, January 28th (before the silver squeeze got underway) London's silver market closed at $25.21 a troy ounce.  On Friday, January 29th, it closed at $27.42.  On Monday, February 1st, it popped to $29.59.

And that's where things started going sideways.  Instead of the silver spot price continuing to rocket skyward, it gradually fell back into the mid $20 range over the course of the next several weeks.  This definitely wasn't a repeat of the GameStop scenario.

However, all those physical silver buyers taking part in the silver squeeze did have an effect.  Although the paper futures market hardly blinked, the physical silver market experienced a severe shortage.  Precious metal dealers sold out of most silver products almost instantly.  And despite refineries' and mints' concerted efforts to keep the proverbial shelves stocked, they simply cannot fabricate retail products fast enough to meet the burgeoning demand.

Consequently, the silver squeeze is very real, but only for the sorts of products that small investors like: silver bars, government-issued coins and privately-minted rounds ranging from 1 to 100 troy ounces in weight.

Pre-1965 U.S. Junk 90% Silver Coins for Sale on eBay

My personal silver scrapping story starts just a bit earlier than the 2021 silver squeeze drama, though.  Back when the COVID-19 pandemic hit in March 2020, the spot price of silver momentarily plunged to less than $12 an ounce.  However, it was impossible to buy physical silver bullion anywhere near that price at the time.

As the bullion supply shortage began to ease going into early summer 2020, I resolved to add some silver to my portfolio.  But I am always cost conscious and wanted to invest in the most cost effective way possible.  I targeted two different strategies: buying pre-1967 Canadian junk 80% silver coins for stacking and vintage sterling silver flatware for scrapping.

Throughout my antiquing career, I haven't been shy about scrapping precious metal items that are damaged or don't measure up to my standards.  This has mostly been confined to 20th century sterling flatware patterns from U.S. manufacturers - largely incomplete sets with monograms, random souvenir spoons or other orphan pieces.

American sterling silver flatware design went downhill during the 1930s and the 1940s.  I attribute this to the rise of stainless steel as a cheap, versatile alternative to sterling silver.  Silverware manufacturers began designing flatware patterns for stainless first and sterling second - or, to be more precise, they made patterns that would work in either metal in order to save money on design and tooling costs.

But stainless is a very tough material that doesn't conform well to stamping, so stainless flatware designs must be in low relief with relatively spare details.  Unfortunately, this negates silver's primary advantage of being wonderfully malleable, which means it takes complex, high relief designs well.

As a result, mid 20th century silverware patterns can be...well...boring, particularly when compared to their wonderfully ornate Victorian and Art Nouveau counterparts.

When I buy scrap silver I am very careful to salvage anything truly rare or worthwhile.  The silver pieces I scrap aren't cultural treasures that will be missed - I'm not trashing 18th century Georgian silver here!  And yet, I still have a twinge of guilt when shipping material off to the refiners.  I am keenly aware that I'm consigning these silver items to be melted down and lost forever.  While this does leave me a little emotionally bifurcated, the fat check I receive in return will have to console me.

I chose to start accumulating scrap sterling silver in the summer of 2020 for one very good reason: it was the absolute cheapest silver around by a wide margin!  As the price of silver rose to the high $20s in late summer, I bought every sterling silver spoon, fork and knife I could find with a melt value below $22 an ounce.

Here is a classic Batman & Robin meme from Reddit's Wall Street Silver board.

And here's the surprising thing - I found quite a bit of it.  According to the efficient market hypothesis this shouldn't be possible, as any rational person would price the items they sell online at or above melt value.

And yet here I was buying scrap silver with both fists on platforms like eBay and Etsy for significantly below spot.  For example, I purchased a set of vintage Gorham sterling silver butter knives in the Camellia pattern at -32% under spot.  In another instance, I bought a lot of random Lunt sterling flatware for -58% below spot.  One of my biggest coups was buying $100 face value (5 pounds or 2.2 kilos!) of pre-1967 Canadian junk 80% silver quarters for -33% under spot.  I didn't even bother to melt these coins, but instead added them directly to my silver stack.

Throughout my investing career I've repeatedly found the concept of efficient markets to be bullshit.  The (highly abridged) list of deals I've enumerated above is proof of that.  Even after accounting for shipping charges, refining fees and sales tax, I was still ahead of the silver squeeze wave.

So I bought...and then I bought some more.  In the end I acquired over 16 pounds (7.3 kilos) of scrap silver.  My original plan was to ship this off to be refined immediately.  But the 2021 silver squeeze has raised the fabrication fees most refiners charge.  This is the cost to have your silver turned into bars or rounds and is only charged if you want physical silver returned to you rather than a check.

Because I want physical silver in exchange for my scrap, I have resolved to wait until fabrication fees become more reasonable.  Luckily, this is easy to do with close to zero risk.  I simply have to sit on my hoard of scrap silver until the situation normalizes, content in the knowledge that the money I've invested is immune to the ravages of inflation.

If you're a silver squeeze enthusiast who is interested in trying out silver scrapping for yourself, I have a few pointers.

First, stay away from silver plated items - they have no precious metal scrap value!  If you don't know the difference between solid silver and silver plate, then you are in over your head.

Second, just because a piece of silver flatware is marked sterling, it doesn't mean that it is exactly 92.5% fine (which is the theoretical standard for sterling silver).  Back in the late 19th and early 20th century, large-scale silverware manufacturers had a lot of incentive to cheat on the assay.  When a silver item is being mass-produced, a 1% or 2% drop in the purity will pad out the manufacturer's profit margins nicely while being impossible to distinguish by the retail customer.

As a result, I always assume that "sterling" silver is actually 90% fine for scrap purposes.  This applies to other silver flatware and hollowware purities as well.  So I treat 90% coin silver as if it was 87% fine and 83% silver (which used to be popular in Scandinavia) as 80% fine.  British hallmarked sterling items are an exception to this rule because the government rigorously enforced their assay standards.  Silversmiths who broke these hallmarking laws suffered harsh penalties.

Old (1960s and earlier) circulated silver coins struck by national governments will generally adhere pretty closely to their stated purity as well.  But I still deduct 1% from old silver coins to account for dirt, tarnish and the fact that most silver alloys are not perfectly homogenous.  A sheet of silver used to fabricate coin blanks might nominally be 90% pure, but that doesn't mean the alloy was evenly distributed within the sheet.  As a result, a silver coin punched out of one end of the sheet may end up being 89% fine, while another coin struck from the other end of the same sheet may be 91% fine.  This issue is more pronounced when dealing with very old (pre-1900) coinage struck by less technologically advanced national mints (i.e. those from Latin America, South Asia and the Middle East).

Third, expect to only receive around a 90% payout (at most) on the actual silver content of the items you send to the refiner.  The refiner needs to make a profit and it is tough for them to make money if they charge less than about 10%.  So if a sterling silver spoon assays at 90% fine and you receive (at best) 90% of that, it means your payout will be 90% x 90% = 81% of the gross weight.

Scrap Sterling Silver Flatware Lots for Sale on eBay

A refiner's fee is also impacted by the amount of scrap material you send them.  A small lot of 10 troy ounces of silver scrap will generally be charged a much higher refining fee than an industrial-sized lot of 1,000 ounces of scrap.  So the more scrap you can send to a refiner at once, the better.  Each refiner has its own fee break-point policy, so be sure to check out their terms first.

Make sure that the overall assay of your lot is better than 75% or 80% fine.  Most refiners charge a higher fee if the total assay comes out lower than this amount (although the exact cut-off varies by individual refiner).  This is because it requires more chemicals and time to refine lower purity silver, driving up costs.

This is one reason I avoid buying U.S. silver war nickels (which are 35% fine) or U.S. silver-clad Kennedy halves (which are 40% fine).  If you ever have to send a bag of these coins off to the refiner, you will pay dearly in refining charges.

However, it should be alright to judiciously mix a few lower purity coins into a large lot of higher grade sterling silver, provided the overall assay remains above the magical 75% to 80% cut-off.  Many nations historically struck lower-purity silver coins that can be disposed of in this way.  For example, the Netherlands, Mexico and Austria have all struck 720 fine coins in the past, while Great Britain, Canada, Australia and South Africa minted 500 fine coins at one time or another.

Also make certain that your silver lot has been thoroughly stripped of any iron or lead contamination if at all possible.  Iron is poison to precious metal refining and will foul the assay of both silver and gold.  If it makes it into the initial melt it will float to the surface as a semi-solid slag, but will trap a lot of precious metals with it.  This will lower your final assay results considerably.

I recommend using a magnet to screen for iron in your scrap.  Old knives with silver-plated steel blades and sterling handles are a common trap for new scrappers.  These have to be dissembled before they can be sent to the refinery.  Worse yet, only 25% to 30% of the gross weight of an average steel-blade, silver handle knife will be good sterling.

Lead is a less damaging contaminant than iron, but has a special affinity with both gold and silver.  As a result it makes the purification process of silver alloys more complicated than it would be otherwise.  Happily, you won't usually find lead mixed in with silver items (although it can occur where soft-solder was inappropriately used for jewelry or hollowware repairs).

As a final warning, if you hope to make a profit with scrap silver you must buy it substantially below spot.  -20% below spot is a good starting target.  Even when buying scrap that cheaply, it still only implies a meager 5% to 10% net profit margin after shipping costs, sales taxes and refining fees.

In addition, most of the really cheap (i.e. sub-$20 an ounce) silver flatware that used to be available online is gone.  I should know, I bought much of it.  But even if Etsy and eBay aren't great venues for picking up cheap silver scrap right now, garage sales, estate sales and thrift stores remain viable sources of cheap material for the adventurous silver squeeze investor.

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Political risk is the single biggest danger that stock market investors face today.  And although this chimera has been steadily growing for year after year, it receives curiously little attention in the financial press.

What is political risk in the context of investing?

Simply put, it is the possibility that politicians will institute new rules, taxes or regulations that significantly reduce the value of publicly traded securities.  And while it might be impossible to imagine the newly installed Biden administration taking any substantive steps toward disinheriting our current corporate overlords, I assure you that if the economy continues to fail the average person, a different, more economically populist administration will eventually be voted into office.

But why has political risk gotten so little recognition even as it looms gray and monstrous on the investment horizon?

I think we can all hazard a reasonable guess as to why financial media outlets such as CNBC, Bloomberg and the Wall Street Journal don't want to have a serious discussion about political risk.

It spooks the muppets.

For those of you not up on the latest stock market lingo, muppet is a derisive term for a neophyte or unknowledgeable investor.  It seems to have originated in the halls of that deeply corrupt institution, Goldman Sachs, where executives would often use it to refer to oblivious clients the company was secretly trading against.

In any case, you don't want to be a muppet.  Muppets involuntarily transfer their wealth to too-big-too-fail banks and other financial monopolists.  Muppets are cannon fodder for hedge funds, investment banks, professional day-traders and other sophisticated financial players.  Muppets perennially lose money.

Stock market participants, muppets included, are largely ignoring the gargantuan political risks that are steadily building in our economy.  And that's exactly why I want to talk about it.

Before we get started, I want to clarify that there are ultimately only a handful of ways to recover your money after investing in a stock:

1) You can sell your shares to someone else for cash.

2) The company can pay out dividends from earnings.  Although it usually takes a considerable period of time, eventually you can recoup your initial investment.  Any dividends paid out after your breakeven point is reached become a gain.

3) The company can be acquired by another company, which will pay via cash, shares or a combination of the two.  If the acquiring company pays with cash, then you have crystallized your gains and truly gotten your money back.

But if the acquiring company pays either partially or fully via shares, then you really haven't gotten all your money back yet.  Instead, you're left holding at least some shares in the new, acquiring company.  In this case, refer back to items 1 through 3 to recover the rest of your money.

4) The company can be taken private.  This is a lot like an acquisition by another company, except that the buyout is usually conducted by either a private equity firm or management.  These are always paid in cash which is generally funded by debt.  As a result, these acquisitions often go by the term "leveraged buyout".

A major limitation on taking a company private is size; it simply isn't viable beyond a certain market cap.  The largest such privatization in history to date was the utility firm TXU energy, which was swallowed up by a leveraged buyout in 2007 for the sum of $32.1 billion.  This might seem like a huge amount of money, but many, many firms that are household names are far too large to benefit from leveraged buyouts.  For example, Walmart (market cap of $394 billion), PayPal ($283 billion), Nike ($214 billion), PepsiCo ($189 billion) and countless other well-known companies are much too large to be taken private.

In addition, market conditions must be just right (read: frothy) for most leveraged buyouts to occur.  It is no coincidence that 7 out of the 10 of the biggest leveraged buyouts happened during the 2006-2007 timeframe (right around the peak of the housing bubble).

5) The company can voluntarily decide to cease operations and liquidate its assets.  The proceeds must first be used to pay off any outstanding financial obligations (bonds, leases, salaries and pensions, etc.) before the remainder can be equally distributed to shareholders.  In reality, voluntary liquidations never happen.  As a rule, the management of a company will never willingly liquidate their firm as doing so would put them all out of a job.

Instead, almost all companies end their days with an involuntary bankruptcy filing once their financial condition deteriorates sufficiently.  In this case shares end up being worthless.

So it should be clear from our above list that there are only a precious few ways to recoup an investment in common stock once you make it.  And that finite number of possibilities shrinks even further when we strip out voluntary liquidations, which almost never happen.  I would also like to note that selling your shares to someone else is only really viable if the recipient either believes that 1) the company will pay a strong dividend stream in the future or 2) that they will be able to sell the shares to someone else for even more money later (aka the greater fool theory of investing).

This is important because much like humans, corporations have finite lifespans.  We all hope we invest in the next Coca-Cola or Ford - companies that have survived for more than a century.  But such superlative firms are few and far between.  Instead, we are far more likely to sink our money into pedestrian companies that will only survive a few decades at best.  And if we want to turn a profit, we have to make sure we recover our money (and a little more as well) before they go belly-up.

And all this assumes that we live in a financially stable world, which we do not at the present.  Instead, we are all swimming in a metaphorical ocean of political risk.

For example, it isn't too hard to see a future where politicians looking to mitigate anthropogenic climate change levy a series of onerous carbon taxes.  This would immediately endanger the viability of numerous companies in the oil and gas sector.

In fact, the coal mining sector has more or less experienced a similar outcome already.  While the fundamentals had been moving against coal extraction for some time, implicit government hostility toward that most polluting of fossil fuels was the final nail in the industry's coffin.

I would also like to point out that political risk for the energy sector is completely disconnected from the actual sensitivity of the climate to changes in atmospheric levels of carbon-dioxide.  For investors, whether 450 ppm of CO₂ signals imminent environmental apocalypse or not is ultimately immaterial.  All that matters is that a future political administration perceives relatively high atmospheric CO₂ levels as being an existential threat to civilization and acts accordingly.

Much-needed financial sector reform is another event that could suddenly and violently re-orient the capital markets to the great detriment of shareholders.  Although it might seem fantastical today, I have no difficultly envisioning a situation where a future populist government resolves to nationalize the corrupt too-big-too-too-fail banks: Citigroup, J.P. Morgan, Wells Fargo, Bank of America, et al.

We can't say exactly how it would happen, but it could be as straightforward as an outright seizure of bank shares without compensation by the government.  And while I believe that depositors and CD holders would certainly be made whole, bondholders might find themselves dispossessed just like equity holders.

Make no mistake, if our venal mega-banks were nationalized, most working-class Americans would cheer the action on.  In fact, it has been my longstanding supposition that the first American Presidential candidate who credibly promises to liquidate Goldman Sachs by any means necessary will easily win the highest office in the land.

Of course we don't need an outright seizure of banking shares in order to create massive losses for equity investors.  If the U.S. Federal Reserve should ever institute a fully-digital dollar, it would have the side effect of disintermediating nearly the entire banking sector in an instant.  That would mean banks would enjoy dramatically lower levels of deposits, loans and, subsequently, profits.

Shareholders would be massacred.

Another area ripe for the bitter harvest of political risk is the technology sector.  Google, Facebook, Twitter and Amazon have all proven themselves to be incorrigible monopolists.  They apply suffocating control over key areas of the information economy, snuffing out lesser competitors on a whim.

It isn't very difficult to imagine a future where a hostile political administration decides to vigorously apply heretofore neglected anti-trust regulations to these technology behemoths.  In a best case scenario for investors, these companies would simply be broken up.  But it is just as easy to see a future where the firms are nationalized or even turned into non-profits!  In either case, shareholders would surely suffer great financial loss.

The healthcare sector is also horribly exposed to political risk.  The price of both medical services and health insurance in the United States has been rising far above the rate of inflation for decades.  At this point healthcare has become utterly unaffordable to the average U.S. citizen, making it a leading cause of personal bankruptcy.  And although the Affordable Care Act (otherwise known as Obamacare) mandated health insurance coverage for nearly every citizen, the legislation did absolutely nothing to curtail skyrocketing costs.

If major healthcare reform were to pass congress and be signed into law, it could be devastating for investors in healthcare firms.  For example, the popular idea of "Medicare for All" would more or less put the entire health insurance sector out of business overnight.  Even if that doesn't happen, it is easy to see a future where prices or profit margins for medical procedures are capped across the board.

I wouldn't be surprised if a future administration, spurred on by an outraged populous, simply voided patent protections on all existing pharmaceutical products.  If these political risks weren't enough to frighten you, outright nationalization also remains a distinct possibility.

In light of the myriad political risks in today's market environment, investors would be wise to demand a quick return of their principal.  In short, it is vital to get paid back on your investments before political risk intervenes and flips the financial game board over.

Unfortunately, one simply has to casually examine the U.S. stock market to see that many people haven't put much thought into how they are going to recover their money.

Despite being obscenely successful, tech giants Alphabet (Google's parent company), Amazon, Netflix and Facebook don't pay any dividends currently and have no plans to do so in the immediate future.  Other corporate behemoths such as Microsoft, Apple, Johnson & Johnson and Visa do pay dividends, but do so at such a low rate that it will take many decades for an investor to recover his principal.

For example, as of February 2021 Apple has a dividend yield of 0.60%.  If the dividend doesn't change from its current level, it would take an investor 166 years to break even on an investment made today.  Even if we assume that Apple grows its dividend at an unrealistically robust 10% annual rate from now until eternity, it will still take you over 30 years to get your principal back.  And you will have to wait even longer (and assume perfect financial conditions persist for the entire time) if you hope to make a profit on your investment!

The bottom line is that you can't expect to make your money back in a reasonable length of time on many stock investments made today.  But don't worry!  Most investors implicitly believe they will just be able to flip their shares to someone else when the time comes - a classic hallmark of bubble psychology.

In fact, our current stock market mania is undoubtedly the most extreme in financial history.  It exceeds the Japanese equity bubble of the late 1980s, the British South Seas Bubble of the 1720s and the infamous late 1920s DJIA bubble that preceded the Great Depression of the 1930s.  Indeed, today's speculative excesses in stocks, crypto-currencies and bonds are so extraordinary that they even make the hopelessly irrational Dutch tulip-mania of the 1630s seem downright sober by comparison.

Insanity doesn't even begin to describe our dysfunctional capital markets these days.

And don't think for a moment that you'll be able to sell before things fall apart either.  The suggestion that the average investor will somehow figure out the game is unraveling and head for the exits just before political risk manifests itself in portfolio-destroying nationalizations, patent cancellations or windfall profit taxes is just hubris.  This is especially so when corporate insiders and connected political players will undoubtedly be tipped off about what is going to transpire long before you or I will get the memo.

In the end analysis, political risk isn't simply one of the biggest dangers of a dysfunctional stock market - it is the defining risk of a global economic system that is rapidly spinning out of control.  This is why I advocate for intelligent investors to carefully accumulate high quality tangible assets such as precious metals, antiques, gemstones and fine art.  Hard assets will act as a hedge against the massive economic dislocations that are sure to rock the financial world in coming years.

Smart investors will own some tangible assets and avoid financial heartache; muppets won't.  Don't be a muppet.

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