The Rationale For Bullion

Physical bullion allows for direct legal ownership of the asset with no, or a minimum of counterparty risks. This is very different from purely financial products which are derivatives and only convey the status of "creditor" and often "unsecured creditor" to the purchaser. Furthermore - in the case of Paper Gold and Silver - the underlying asset often does not exists, is leased out to other institutions or has hundreds of concurrent claims against it.

The Unsecured Creditor vs. Owner distinction becomes very important should the financial product issuer, or one of it's key counterparties fail. As most financial institutions nowadays are highly leveraged and highly interdependent among one another the financial “contagion” risk of one institution’s default causing a chain reaction is quite real.

This interdependence caused the “too big to fail” dilemma as government throughout the western world are forced to bail out their overleveraged financial institutions by insuring their debts. However as we see western governments themselves defaulting and as the true size of governmental debt and their off-the-books unfunded liabilities are better understood by the broader mass of investors the risk for a systematic breakdown and chain defaults as occurred during the great depression becomes ever more real.

If western governments choose to provide near limitless liquidity, which they are, to prevent such defaults and monetize these liabilities we will likely see a loss of confidence someday as occurred during Germany’s famous hyperinflation in the 1920s.

In such a scenario physical bullion will become highly sought after as it is a hard asset that cannot be created out of thin air. In late 2008 for example the fear of a financial breakdown caused paper silver spot prices, as traded on COMEX, to fall to a low of about 9.50 USD. However physical silver demand skyrocketed causing bullion dealers to stop sales due to lack of supply and causing secondary physical markets (e.g. Ebay) to trade silver as high as 300% over spot. It took 4 to 5 months before physical bullion supply returned.

Once a serious currency crisis starts it will be too late to purchase physical bullion because, just as in late 2008, demand will immediately outstrip supply and we might even see a repeat of the 1933 US gold nationalization (see exeutive order 6102) as heavily indebted countries are forced to back their FIAT currencies with more than faith.

I wanted to own Physical Investment Silver in Singapore in late 2008 but there were no local sources at the time so it seemed natural that we should bring silver bullion to Singapore.

Silver Bullion's story as published on Sovereign Man Confidential (July 2012 Edition)

Foreword: Simon, the chief publisher of the very popular Sovereign Man Newsletter, is one of the most unique individuals I had the pleasure to meet and we clicked instantly. Our interview sums up very nicely how and why Silver Bullion Pte Ltd came about. So with Simon's permission here is the interview extract:

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Simon: Gregor- thanks for taking the time today. Just to start off, can you give us a little bit of background about where you got started?

Gregor: Sure. I was born in Germany, then at the age of 6, I moved to Italy with my parents and spent my time there until I was 17 – with the exception of a 2-year stop in England where I also went to school. At the age of 17, I was quite unhappy about the Italian school system and decided to go on a 1-year exchange program to the U.S, and then just decided to stay.

Simon: And you went to university in the US, right?

Gregor : Right. I originally studied finance and economics. Ha. At the time, I thought I wanted to work in the finance industry. And I did work in the industry for a while, at a Structured Products desk for a major bank building derivatives.

Simon: The faux-sciences…

Gregor::That’s right! You know, I realized that I wasn’t creating anything, doing anything. It was terrible. I decided to move into IT because I felt I could build something, build tools. And it felt more satisfying to me.

Simon: So how did you end up in Singapore?

Gregor: In 2005, I started getting nervous about all the paper money being printed in the US. I sold my home, cashed out of everything. Maybe I was a little early, but I was cautious. At that point I ended up going on a round-the-world trip, and Singapore was one of the places I went.

Simon: That would have been a great time to start planting flags there.

Gregor:That’s right. I read this book, it’s called From Third World to First by Singapore’s former Prime Minister Lee Kuan Yew. This book is like a manual on how to build a city-state, and in it he analyses exactly why the laws are the way they are, why the retirement system works the way it does, why the medical system works this way, etc.

Lee Kuan Yew went and looked at many Western systems, found their faults and benefits, and then took basically the best things he could find and built the Singaporean system. And as we all know, Singapore did extremely well in the last 30, 40 years, going from a third-world country to one of the richest countries in the world.

Simon: Yeah… pretty ironic that there actually is playbook for building a real economy. But instead, today’s politicians are using Keynes’ General Theory as their playbook—zero interest rates, ‘stimulus’ spending, and all that nonsense. Anyhow, after the Singapore visit, you must have been in shell shock when you got back to Europe…

Gregor: I was. I moved back to Europe briefly for family reasons and ended up in Germany. As an entrepreneur, I thought I would start my own company… but this turned out to be very hard in Germany.

That’s when I really started discovering the nature of the tax system. It’s unbelievable. Employers in Germany have to pay about 97% of an employee’s salary in various taxes to the government. So basically if you pay your employee 100, your total cost is 197.

Then out of that 100, the employee pays 48% to the government. So out of the original 197, the employee keeps 52. Of the 52, you then pays 19% sales tax on whatever he buys. And if you manage to save any of it, the government takes 30% of your interest income or capital gains.

So by the time you add everything up, the German worker is getting about 24% of the original wage.

Simon: That’s a great way to foster entrepreneurship. Hiring too…

Gregor: Tell me about it. After a while, everyone just becomes an employee and keeps his head down. I did eventually too. But the cost of living in Germany has gotten so far out of control, it becomes impossible for people to save money anymore. You can’t get ahead.

I mean, I know people in Germany who are well-paid consultants. They have no savings. Everyone thinks Germany is so rich.

The country itself… they collect so much in taxes, it doesn’t seem to be used very well. Germany keeps on having higher deficits, higher pension liabilities, etc. But the government has made no provisions, just like the United States, to cover expenses of the future.

The unfunded liabilities that Germany is facing are many times the national debt. But nobody wants to talk about that. And this is the healthy economy. Imagine what it’s like for France.

Simon:  I don’t know what you’re talking about, didn’t you hear that they fixed everything a few weeks ago?

Gregor:<laughs> Right, I forgot. Nevermind that I was paying into a pension system I will never see anything from. Or that I was spending all of my time working for no purchasing power.

It became very clear that I would have to save my own money and build my own retirement. But keeping only 24% of what I was supposed to be earning made it difficult to do that. And that’s how I ended up back in Singapore.

Simon: So when you went to Singapore, how did you obtain residency?

Gregor: This was over five years ago. Back then it was easy, I arrived in Singapore and at the time they had a program called Personal Employment Pass, which you could get if you earned more then 7,500 SGD per month in your prior job anywhere in the world. That’s about 6,000 USD or so.

So, if you had a job before moving to Singapore, they would just give you a 6-month working visa without needing a sponsorship from a local employer. I used this visa to look for a job, but at the same time my old employer in Germany was still keen to have me work for them.

What was so amazing about this was that my old employer was still paying me the same amount of money they paid me as an employee… the full "197" as I was explaining. But this time around, I wasn’t an employee-- I was an overseas independent contractor, meaning that I wasn’t being taxed in Germany anymore on the 197. I kept it all.

The best part was that Singapore deemed this ‘offshore income,’ so I didn’t have to pay tax in Singapore either. Practically overnight I went from making the "48" take home to "197"… over four times the money for doing exactly the same thing, just because I moved to Singapore.

Simon: Now, fundamentally you’re an entrepreneur. And at some point along the way, you realized there was an opportunity in silver in Singapore. Tell us about that.

Gregor: At one point towards the end of 2008, I had traveled briefly back to Germany. I was in Frankfurt, I remember, and that was when silver prices were falling. Silver was down to about $9.50.

As you know, Simon, Frankfurt has quite a lot of different bullion dealerships, and I suddenly realized that with everything falling, it was prudent to have the physical metal instead of having the ‘paper’ version like ETFs.

So I called up a bullion dealership, and they told me they don’t have any stock. Another said that they’re not selling, only buying. I called another and another, same thing. Then I got worried.

I went to 12 different bullion delaers if you can believe it. At one, I got to a dealer just in time to see the guy in front of me take the last 100 Maple Leafs silver coins.

Finally I got my hands on a 1 kilogram silver bar, ironically at the gift shop of the European Central Bank. I paid my 19% sales tax for it in Germany, and then I took the bar and flew back to Singapore with it.

At the time, Singapore had (and still will until October 1, 2012) a VAT on gold and silver… of course they call it GST (Goods and Services Tax) in Singapore.

So basically I paid a lot of money in taxes for this silver bar. But hey, I traded $10 in paper currency for an ounce of silver at the time, so I can’t complain so much.

Moral of the story, the experience showed me that there isn’t much silver out there. And soon, I think, we are going to see demand go up… and the supply will not be there again. The worse the situation will get, the more people will want physical bullion.

Simon: I absolutely agree with you. Unfortunately most people haven’t even begun thinking about precious metals… and they won’t until it’s painfully obvious that their paper currency is worthless. So what happened when you went back to Singapore?

When I arrived to Singapore, I was bent on acquiring bullion. My first idea was to go to a local bullion shop. Then I found out that there aren’t many bullion shops in Singapore, there were almost none at the time. And nobody sold silver; they only had some gold.

So I said, well, if nobody else is selling silver, and I want to have silver, I will have to bring silver to Singapore myself. And if I bring silver to Singapore, I might as well see if somebody else wants to buy some silver.

That’s really how my company Silver Bullion got started. I wanted to own silver myself… and I figured, hey, even if nobody wants to buy silver from me, I’m happy to own it myself. So I was quite relaxed about it and just grew it slowly at first. Now we’re obviously much, much bigger.

Simon: Do you feel comfortable discussing some of your numbers, in terms of the volume that you do?

Gregor: Well, the first year, to give you an idea, we had about $700,000 in sales. The second year we went up to about $6 million. The third year we went up to about $38 million. And so on.

As the numbers went up, we added more people, we went into larger, more secure offices, continued developing our systems and processes, etc. But it really just started as one guy who wanted to own and store silver in Singapore.

What helped me very much was that I was in financial system development business for 15 years, so many of the problems a company would face building the back-end systems ended up being our strengths because I made sure we had very solid IT and business process systems.

As a result, we were able to give very consistent service to our customers. And because I was investing so much in physical bullion myself-- we had about 80,000 ounces of physical bullion in storage-- we were able to have a customer walk in, buy bullion, and walk out straight away with silver in hand without having to wait for an order to arrive.

Simon: One of the things I think that sets your company apart is that you don’t do what everyone else is doing. So many other guys are just different flavors of the same Kool-Aid—shared 400-ounce bars being stored by Viamat in Zurich.

You have relationships at Singapore’s Freeport, and you also have your own secure facility, which is co-located with Cisco Certis, easily one of the most secure places in Singapore, in a country that has no crime to speak of. It’s a pretty great setup.

Gregor: I think so too. We’ve worked very hard to build the business that way, to sort of tick all those boxes after identifying the fundamental challenges in the industry. And as you know, Simon, we’ve got a lot of really great things planned over the next few months once Singapore drops the tax on precious metals in October…

Simon: Absolutely, I’m really excited about what we spoke about privately, and I can’t wait to tell our readers about it in a few months’ time. Anyhow, it’s a great story, and I appreciate your time and insight.