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John Miller
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Studied international affairs at the George Washington University with a focus in economics. Experience as a senior manager for a large retail chain. Managed multiple locations with sales in the low seven digits. On Twitter @PoliticsOfMoney
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  • Premium Expansion Trick Enhances Returns On Silver, Diversifies SLV Holdings

    With equity markets at all time highs and precious metals hitting multi-year lows there is renewed interest in the iShares Silver Trust (NYSEARCA:SLV). Investors are looking to both take some gains on their stocks and increase their diversification by buying alternative, non-equity correlated assets. It is a traditional strategy of rebalancing and attempting to buy low, sell high.

    SLV Chart

    SLV data by YCharts

    One strategy a number of monetary metals investors who move into the SLV are missing is the use of premium expansion to augment their returns in the metals. The basic idea is to purchase certain government issued bullion devices that change their design each year and have relatively high but limited mintages. Sometimes these coins are called "semi-numismatic". These coins generally trade in their year of issue at a small premium to generic, non-government issued bullion rounds that trade closer to spot prices. However, as time passes the premium these semi-numismatic coins demand expands quickly providing either down side protection to declining spot prices or increased gains in advancing metals' markets.

    Drawbacks/Advantages To Coins

    There are two main drawbacks to investing in the coins highlighted below. First, holding physical coins decreases liquidity; selling physical metal takes both time and expense. Storage and insurance also represent a larger portion of physically held assets' expenses compared to an SLV investment that benefits from economy of scale. While liquidity issues cannot be completely overcome, most reputable, low-cost dealers do repurchase these government bullion devices from the public and they are traded regularly on the secondary market. Depending on the size of your investment, the storage, insurance and transportation costs will vary. A good rule of thumb is to expect to lose 5% on these costs. Bear in mind that when you personally hold metals these costs are somewhat offset by a reduction in counterparty risks associated with the SLV.

    Is the premium expansion worth the aforementioned drawbacks? Take a look at the following silver coins and decide. First up are the Australian Lunar coins produced by the Perth Mint. The Perth Mint was founded in 1899 and owned by the state government of Western Australia. This mint produces the majority of Australia's legal tender bullion coins. Each year a deferent design is minted based on the Chinese zodiac. The Lunar coins are minted in various weights of solid silver and gold; the popular 1 oz. silver coin has a mintage of 300,000. The following table illustrates the premium expansion of the silver Lunar coins. Included in the table is data for the U.S. Mint's America the Beautiful coins which are discussed below the table.


    Current Retail Price/OZ

    Spot Price$16.55
    2015 Lunar Goat - 1 oz$28.12
    2014 Lunar Horse - 1 oz$46.62
    2013 Lunar Snake - 1 oz$33.61
    2012 Lunar Dragon - 1 oz$55.00*
    2014 ATB Everglades - 5 oz$21.41
    2013 ATB Mount Rushmore - 5 oz$40.62
    2013 ATB White Mountain - 5 oz$23.11
    2012 ATB Denali - 5 oz$43.00

    Source: APMEX (*approx.) (bold indicates little premium increase)

    In 2010 the U.S. Mint introduced a 5 oz silver bullion device program honoring the National Park System. Each year five designs are released. The ATB bullion coins are minted in two versions: "uncirculated" and "burnished". The data above is for the basic "uncirculated" coin. Mintages on these coins range from 20,000 to 126,700. Think of the "uncirculated" coin as the base device and the "burnished", with its upgraded finish, packaging and Philadelphia mint mark, as the premium device.

    One can see from the information above that choosing the correct coin is the key to maximizing the premium expansion strategy. While all coins from the two series highlighted above show premium expansion over time, collector preferences and prices are clearly based on non-technical coolness factors. Factors to consider are design, subject matter and mintages. One coin receiving positive design reviews for 2015 is the Perth Mint's 25th Anniversary Kookaburra coin. While picking the next big winner is never easy, keep in mind that all bullion is backstopped by the underlying value of its metal content.

    Just as one should diversify their portfolio into alternative investments, so too one should diversify these alternative investments to hold both physically backed ETFs and personally held metal. If chosen wisely, personally held metals should show premium expansion that augments returns relative to ETFs that solely track the spot price. Consider trading with a low costs retailer like Provident Metals (of NASCAR zombie fame) or their high volume competitor APMEX, which boasts an unparalleled selection. There are a number of great retailers in the marketplace; compare prices, terms and reputation to the two dealers above before jumping into a transaction. You may be surprised by the outsized gains possible with just a little education and leg work.

    (Author's note: More interested in gold than silver? Please leave a comment or send a personal message if interested in an article about semi-numismatic gold coins that show premium increases.)

    Nov 26 12:45 PM | Link | Comment!
  • No Big Beat From Apple This Quarter

    Over the past two quarters Apple (NASDAQ:AAPL) handily beat guidance and analysts' expectations. Observers generally agree Apple presents conservative guidance while accepting that the company has the best insight into future sales. During their Q2 earnings call, the company guided revenue at $34 billion for the upcoming June quarter (Q3 2012). This compares to Q2 revenue of $39.2 billion. While we do not believe a $5 billion dollar decline is forthcoming, CFO Peter Oppenheimer gave compelling reasons to believe that the company will face a sequential decline in revenue this quarter (unlike the March versus June quarter comparison from last year). This decline would put revenue in the $37.5 billion range, which is inline with expectations.

     Revenue Estimate June 2012
    Analysts' Average$37.38 Billion
    High$41.73 Billion
    Low$34.54 Billion
    Apple Guidance$34.00 Billion

    Source: Yahoo Finance

    iPhone Supply and 4S RolloutiPhone 4S

    The first reason Oppenheimer gives in support of a sequential decline in revenue relates to differences in the supply of iPhones. Last year supply to new countries was still being added during the April to June quarter. This year the iPhone 4S rollout in China and 20 other countries occurred in January, completing the rollout for all countries. Basically, demand was filled during the March quarter this year rather than the June quarter like last year.

    iPad Supply and Price Decrease

    Relatively more supply was on hand for the launch of the new iPad during the March quarter of this year when compared to the launch of the iPad 2 last year. Because of the greater supply, 3 million units of the new iPad sold in the first few days. Revenue that was previously captured in the June quarter again moved to the March quarter as with the iPhone above.

    Apple also lowered the price of the older iPad 2 to $399 in March. The company believes in the short run this will lower revenue. However, both Oppenheimer and CEO Timothy Cook indicated they were still learning about the elasticity of the demand of the iPad 2. They highlighted the fact that the lower price unlocks educational demand and led to a marked change in demand in several countries.

    Strong Dollar

    The recent strength in the dollar will weigh on revenues in the current quarter. The strong dollar dampens demand in foreign countries for US exports by making the products more costly in the local currency. Other large US based multinationals such as Procter and Gamble (NYSE:PG) and PepsiCo (NYSE:PEP) have recently warned that the strong dollar will be a headwind in the current and coming quarters. For sequential comparisons versus last year, it is interesting to note we saw a weakening of the dollar for the same period.


    High launch supply and fast country rollouts of the iPhone 4S and the new iPad moved revenue from the current quarter to the previous quarter when one compares to last year. The lower price point on the iPad 2 and the strong dollar should also decrease revenues. After two quarters of significant beats of analysts' expectations, investors should show caution in increasing their position prior to the upcoming earnings call.

    Disclosure: I am long AAPL.

    Tags: PEP, PG, AAPL, earnings
    Jun 30 5:36 PM | Link | 1 Comment
  • World Of Warcraft Numbers To Decline Rapidly Again

    Last quarter we saw a stabilization of active subscribers in Activision's (NASDAQ:ATVI) World of Warcraft game. While numbers had been quickly falling all of 2011, we correctly predicted a small loss for the quarter ending in December. Using the same methodology, which primarily looks at census data from a third party website provided by commentor bdy and looking at new content release (which drives participation), we are predicting a loss in subscribers at Activision's flagship in excess of 500,000 subscribers.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 09 8:27 AM | Link | 5 Comments
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