Test The Plumbing
What a small sale revealed about the physical silver market
Cheah Cheng Hye should stay far away from Edward Jones, Ameriprise, or any of the other ~330,000 “wealth advisors” scattered across the U.S.
These are the advisors whose advice stops at, “You gotta be in the stock market.” They also ask you how old you are, and based on when you’ll likely die, they apply an investing formula. It’s the financial equivalent of a county-administered daycare program.
The 330,000 headcount comes from a 2021 BLS (Bureau of Labor Statistics) estimate. It went on to predict retiring Americans need more not less of this good advice with another 30,500/yr joining the ranks of advisors through 2030.
It’s a veritable army of U.S. stock market evangelists. And if any one of them sat next to Mr. Cheah on a Southwest Airlines flight and faced the dreaded “so, what do you do” question, he’d be in for a stern lecture.
Not that Mr. Cheah would be in the middle seat on a Southwest flight, ever. Or any commercial airline for that matter. He’s a billionaire who likely avoids crowds and inquiring middle-aged managerial types at all costs.
“Lifetime Savings”
Back in 2008, Mr. Cheah started buying gold. First a little, then more.
He originally came from Malaysia, where he was a financial journalist. He segued into active investing and is a wealthy 71-year-old today.
The gold buying wasn’t a popular thing to do. He told Bloomberg:
“I was a very patient investor – I bought precious metals, didn’t trade them, and considered them part of my lifetime savings”
That type of behavior triggers the American wealth advisors. Gold is dead money. It pays no dividend, creates nothing, and requires storage headaches. To that, Mr. Cheah says:
“If you have physical gold in the warehouse, or in your bank safe, nobody owes you anything.”
True… it’s the only major assets in the world with no counterparty risk. That means someone doesn’t need to perform for it to work.
In fact, Mr. Cheah goes on to effectively say human nature does the work for you. Politicians, bureaucrats, control freaks of all flavors will always support the gold price. They’ll attack, malign, manipulate, inflate, and all that predictable behavior supports the one thing Mr. Cheah sees as the antidote.
His Radical Strategy
It makes so much sense in retrospect.
Mr. Cheah ran his business, owned stocks, a few bonds, and kept buying a little gold the whole time. He recommends this asset allocation to serious wealth-builders.
The man has an estimated net worth of ~$1.4 billion now. He’s not really a gold fanatic, he’s a realist.
There’s something about gold that’s comforting…for a middle-class person. To be clear, middle class means non-elite, noble, or otherwise influential.
Forget about the media definition, if you make less than ~$1mil, you’re middle class. In the power hierarchy, not the tax-bracket sense. And you’ll slowly realize preserving your own personal sovereignty is your key responsibility in this life.
There have always been classes, there always will be. Americans are so scrambled with digital messaging they have no clue how social order works. That’s good for the few who fight for a hand on the controls. You want a bamboozled populace. They’re easier to herd.
For the small minority who wake up, gold acts like a beacon of truth. I bought my first ounce of gold in ~2004. It’s difficult to remember exactly when. They say you never forget your first, but there have been so many it’s all scrambled now.
While we love stories of risky, radical trades, twenty years of steady gold accumulation was pretty boring.
I remember going to a collectables store. This is the place where people take safe deposit drawers after grandpa dies. Savvy, crusty, quiet men behind the counter examine things and low-ball the heirs. It’s like a pawn shop without the power tools and yard equipment.
My guess is, you’ve never been to a pawn shop… I have. I started going to them in the fourth grade when my friend Shelton G. wanted to buy a stereo for his room. We rode our bikes up there. He showed me the unit and explained his dad, a tobacco executive, would return on Saturday to negotiate with the chain-smoking guy behind the counter.
I liked the whole scene. I’ve always liked it. When I bought my first two 1908 Saint-Gaudens gold coins from the guys running the collectables store, I knew pretty much what I was getting into. While I’m sure I overpaid a little, it was fun, nostalgic in a way.
And it kept going. I got into it. Holding gold coins in your hands is fun for some unknown reason. They’re heavy, dense. They have fun designs. I got a jeweler’s loop to inspect them. Mostly to show the crusty counter workers I had some faux knowledge which deters high-ball offers.
Steady Wins the Race
One coin at a time in the early days… this kept up.
For a stretch I worked for a gigantic marketing firm masquerading as a financial publisher. This means a handful of people producing financial research, an army of people selling it.
Every month I had a little cadence. I’d make a double mortgage payment, and buy a gold coin. I did other things like buy stock, pay bills, buy a watch, overpay life insurance, and do the occasional private placement. But the double mortgage payment and the coin were bedrock.
Keep in mind, both of those monthly moves are, on paper, idiotic. Gold does absolutely nothing… it’s dead money. Paying the back end of a mortgage is even dumber.
However, this stuff adds up. I ended up with tubes of coins. I paid off the mortgage… and the gold price handily beat the S&P 500 Index from 2000-2026.
It’s true… from 2000 to today gold is up ~1,733% and the S&P 500 Index (SPX) is only up ~375%.
Sure, if you bought the SPX at its low on March 9, 2009, you’re up ~10x. But I remember that day… even gold seemed like it might fall in half again. But it didn’t…
Steady and even-keeled wins the race. Investing according to a pie chart allocation like Mr. Cheah suggests also wins. That means splitting assets between stocks, bonds, and foundational investments like gold and Bitcoin. But most people won’t do it…they hang out at the extremes looking for miracles.
Noisy Distractions
We can’t know what Mr. Cheah is up to right now… with this inevitable, yet parabolic gold rally.
He doesn’t write a biweekly newsletter. But I do, so TTL subscribers can see what I’m doing. And I’m doing roughly the same thing I always do. My guess is Mr. Cheah is doing about the same too.
I’ll make little tweaks. Sometimes, I want to test the plumbing. In trading, how the market handles a small sell order tells you a lot about the plumbing… if there’s a leak, and where it is.
Yesterday I took two 100-ounce silver bars up to a local coin shop. The counter guy looked stunned, like, “You’re the E.B. Tucker from YouTube?” I might be… Either way, “See if you can sell these two bars.”
I’m curious if silver bars find a bid right now. I’m not bearish on silver, but it’s hard to store, and I’d love to sell a little of it here at ~$113/oz. Mostly, to test the plumbing. How the market takes this small sale helps me decide how much physical I want to hold onto.
The shop owner came out and told me he has, “100 sellers for every buyer.” Which might be hyperbole but it did seem like everyone from regretful 2011 buyers to junkies with silverware were in there clogging the counter.
I have an odd affinity for junkies. It started in 1997 when I worked for an electrical construction firm doing third-floor rough-in. That’s where you run all the metal conduit pipes before the concrete trucks show up to pour the walls and floor.
I had a 1994 Ford Ranger, manual shift. The supervisor Roosevelt asked me to pick up Maryland Mike on the way to the shop where we met at 6:00 AM to pile into the company work trucks.
Mike was a journeyman electrician, clever guy. He had fun stories, some involved minor jail stints and other colorful details. Monday through Thursday he’d be waiting for me at 05:30. Friday mornings I’d have to drive a few blocks around his apartment looking for him.
Evidently, the direct deposit payroll, a new thing back then, hit Friday morning at 00:00. Mike figured this out and went to an ATM pulling all the payroll out at once. He’d then go smoke crack for as long as possible, sometimes coming up for air in time for work… at least, that was always his firm intention at the start of festivities.
This all eventually led me to explore community college as a means to exiting the commercial construction field. That took less than 6 months. But you never forget what you learn about human nature in these settings.
Standing at the counter yesterday with 200 ounces of silver I’d love to let go of for ~$113/oz I can spot the junkies and know exactly what they’re up to. People are selling, not buying.
A Private Digital Central Bank
Tether is buying… evidently.
If you don’t know, Tether is a company that sells digital tokens valued at $1 in exchange for actual $1s, like the green paper kind.
The company takes $100,000 of your dollars and gives you 100,000 digital dollars which you can apparently use to more quickly swap other digital money without bothering with the green dollars again.
While this digital swapping goes on, the company, Tether, uses your $100,000 to buy corporate bonds, gold, and recently, gold stocks.
It really makes you wonder if there’s any point to Tether… meaning, you could just buy the gold yourself. I get the whole digitized “crypto rails” thing. But it’s still weird to watch a private company morph into a quasi-central bank.
Either way, gold at $5,280 has a value of ~$36.7 trillion or about half the value of the entire U.S. stock market. That’s probably about enough for gold…
Mr. Cheah’s Pie Chart
At TTL, we run the Trustee Portfolio. There are two parts, Core, and Cyclical.
At the top of the Core section, we have foundational assets. Gold is one of them, but there are two others.
The point of foundational assets is to stabilize the portfolio. Like Mr. Cheah, there’s a large slice beyond that dedicated to stocks… and there likely always will be.
Stocks represent the value of human ingenuity, drive, determination, property rights, and ultimately, the profits generated as a result. It’s a western thing… really, an American thing.
Some people get bulled up on international stocks arguing they’re, “so cheap.” We don’t…
Years ago, I wrote a newsletter focused on international equities. I visited a different country every month, which was fun for a while until I developed time zone vertigo, dreaming in German only to take the elevator down and discover I was in South Korea.
What you figure out on this boondoggle assignment is, foreign stocks are cheap for a reason. From shareholder rights to dividend policies, corporate finances match the culture. U.S. stocks tend to deserve the higher earnings multiple.
And we’ll own U.S. stocks, in TTL. We’ll own them because they represent the creative power of American ingenuity. It’s not an ideological thing; it’s a practical reality.
Meanwhile, gold at ~$37 trillion is fully valued…. If you argue against that in the comments, be sure to tell us what kind of drama you expect ahead that justifies a higher gold valuation.
U.S. stocks have a value today of ~$73 trillion. It means gold is worth half the entire U.S. market.
For all of you calling for a radical market decline… consider a scenario where gold has a value closer to equal stocks. You’re betting then on American ingenuity being worth the same or less than a static rock.
Again, no disrespect to gold… it’s TTL bedrock, don’t forget that. But the price rise has short-term limits.
Some of you will hit us with the argument that our ~$37 trillion gold value is worldwide versus U.S. listed equity. Fine… but the entire rest of the planet, the other ~95% of the humans inhabiting the rock, only managed to create another ~$65 trillion worth of stock value.
Point here is… gold looks fairly valued unless something insane happens. If you’re betting on insanity, we’d expect your actions to match.
Silver’s Plumbing
Then comes silver, which needs a plumbing test. Here’s the problem; at ~$113/oz spot, the physical market is already breaking…