Subject: File No. SR-Amex-2005-072
From: Cory Ford

March 12, 2006

Since Mr. Patrick of Fujifilm represents the concerns and interests of an actual silver user (Fujifilm), and an important one at that, it seems appropriate to address some of the issues and arguments raised by his letter, dated February 7, 2006.

I am an investor and an attorney, but I also have a substantial amount of economics training in my academic background. Mr. Patrick's concerns, while sincere, simply fail to make good economic arguments as to why an ETF in silver should not be allowed.

First, it must be said that Mr. Patrick feels that silver is "first and foremost an industrial component, and secondarily an investment asset." With all due respect to Mr. Patrick, in a democratic society with a free market, this is to be determined by all interested parties. If the majority of potential silver buyers want to buy silver as an investment vehicle, it is ludicrous to unilaterally declare that silver is not primarily an investment asset. Is oil primarily an investment asset? Or is it an industrial input? Can't it be both? It is whatever the people who buy it say it is, based on what they do with it.

By excluding certain purchasers, certainly, you may be able to exercise undue influence on what the underlying commodity appears to be, but where potential purchasers are allowed to have equal say in the matter and invest their money accordingly, the free market decides the primary use of a commodity.

It is, therefore, a circular and nonsensical argument to say that because silver is currently primarily an industrial component, when many smaller investors are unable to invest in silver due to physical limitations, that the nature of silver therefore must be an industrial component rather than an investment asset. It does not appear to be primarily an investment asset precisely because the investment vehicle that would enable it to be traded more as an investment (the ETF) has not been brought to the market, and that is certainly not from a lack of investor interest (as the overwhelming majority of the comments to the ETF make clear), but rather due to the "artificial" bottle neck that individuals have to go through to invest in the ETF, namely, government approval. Let the ETF start trading, and then we'll see if silver looks more like an investment asset or an industrial component. Ultimately, though, it is a worthless exercise, since it really doesn't matter, does it? Is corn primarily a food, or is it fuel? Isn't it whatever the purchasers decide to do with it?

Secondly, Mr. Patrick seems to think that an ETF would result in higher prices due to an "artificial" decrease in supply. There is an argument that I have never heard before. An artificial decrease in supply? How does that work? What makes either an increase or decrease in supply artificial? If Fujifilm buys silver as an industrial input, that's "real", but if investors want to buy silver to hold and maintain for its future value, well, that's "artificial". Even though it preserves the silver for the future, so that it could be used for industrial uses, jewelry, x-rays, or whatever sometime in the future, as opposed to consuming it today on admittedly less competitive industrial uses, well, saving the silver for the future is just artificial. This gets back to the argument that silver is, somehow by its nature, an industrial use rather than an investment asset, but that's just plain wrong. If investors are willing to buy and hold silver for the future (i.e., invest in it), then isn't the market already signalling that silver will have more value in the future than it does today? So why do we want it squandered at low prices on uncompetitive industrial processes?

Finally, Mr. Patrick's comments on the impact of higher silver prices on American jobs is simply...unknowable. His argument, first, appears to be directed at American jobs. That's just plain wrong. A silver ETF, whether traded in India, Great Britain, Canada, or Tazmania may create higher prices of silver in the short term, but it will do so across the board. Unless you believe in massive arbitrage opportunities, the price of silver will equalize everywhere, not simply be higher in the country of origin who trades the silver ETF. American industries will not be put at a competitive disadvantage, all silver users will face the same silver price cost inputs and therefore will be on equal footing.

The real argument, then, is that the photographic industry as a whole will be hurt, and that American jobs will be lost as the industry is put at a competitive disadvantage to other photographic methods, such as digital technology. This again is half wrong, and half unknowable.

The half that is unknowable is the net impact higher cost inputs and potentially lost jobs would have on the American economy. I'm not convinced a single American job will be lost because of a higher price of silver, but you have to weigh that against the number of jobs created by a higher price in silver. Certainly, more exploration into silver mines would be incentivized by higher prices in silver. This means more people to dig, more to survey, more analysts needed to analyze the data, more truck drivers, more smelting, more everything needed in silver mining. How can you possibly say that the number of people laid off in your plants would exceed the number of jobs created by higher silver prices? That's simply unknowable, and there's no point in advocating that position, because it's first, unprovable, and second, irrelevant. If the "invisible hand" of the market shifts jobs from the photo plants to the mines, so what? What rationale could we possibly put forward to not allow that? As far as the American economy is concerned, if we own X number of pounds of silver today, worth Y dollars, and tomorrow we have X number of pounds of silver, worth Y + ? dollars (a higher value assigned to the same weight of silver, due to an alleged supply crunch and corresponding increase in price of silver), then don't we have a net increase in value? Plus taxes on the sales of those silver ETF shares going to the government? Who can say that would be a net loss to the economy, and how can you even begin to defend that position?

I think what it really boils down to is your second argument, that the industry as a whole would be hurt, due to the competitive disadvantage with other photographic technologies, such as digital imaging technology, and therefore higher cost inputs would put you at a further disadvantage. This is the half of the argument that's just plain wrong. The reason standard imaging technology is at a disadvantage is because digital technology is simply better. Everyone who owns a digital camera knows this. It's cheaper, faster, the pictures are more easily transferable from one medium to another, etc. It doesn't use chemicals which are expensive and create environmental waste. In sum, the traditional imaging industry is hurting because time has moved on, and we have better alternatives available. Essentially what you're asking is that silver be "artificially" (by that term, I mean certain investors, who would like to use silver as an investment asset, are prevented from doing so by the use of government regulation) kept at a low price in order to subsidize a cost input into your industry, an industry that is dying out, so that you can stay "competitive."

That can't be a good reason. First, we still need x-rays. You said yourself silver is a "critical and irreplaceable" component. So as long as society needs x-rays, you will have a job, and so will your workers. So silver costs more to get to put into x-rays? If investors are willing to purchase silver and put it into investment vehicles that preserve that silver for its future value, isn't that a signal that investors are willing to pay the (small) additional cost of getting x-rays when they go to the hospital? It isn't as if you're going to internalize that cost yourself...you're going to pass the higher price of silver on to the consumer, who is apparently willing to pay for that cost. It could be said the average American is not investing in silver and is therefore not willing to pay the additional cost, but where else do we keep the cost of an industrial input artificially low to benefit consumers rather than let the market determine that inputs price? Well...where do we do that where it actually works is a more appropriate question.

That bring us around to the real crux of the argument. If x-rays cost more, that must be bad for the American public (I'm using x-rays as an example because they are so clearly necessary and are a good example of a useful and beneficial use of silver). That's wrong. Why is it that higher silver prices is bad for the photographic industry? Because it puts them at a further competitive disadvantage with digital technology, due to higher price inputs. Listen, as said earlier, the real reason digital technology is more "competitive" is that it's better. If the cost of silver goes up and x-rays cost more, we'll utilize the digital technology to replace x-rays, and that will be beneficial to all. The only way the market can receive proper signals and react appropriately is if the price of something is unhindered in reflecting its true value. If silver goes up, and x-rays go up, society may recognize that there is this other thing called digital technology out there that can be utilized. Why should we continue to print x-rays on film that contains silver? Maybe there's a better way, and maybe a higher price of silver will convince Fujifilm to develop that new way. Same goes for movie film. Same goes for anything...if the cost goes up, then the incentive for the producer of the technology that utilizes that cost input is to either switch to another input, or develop innovative ways to utilize the input more efficiently, or to switch to another technology altogether. That's called "progress" and it is one of the reasons America is so great, our free market system gives great financial reward to progress, as Fujifilm (a great innovator) knows. When you start throwing up legal barriers to the free market system, you get inefficiency and waste, and you will eventually be at a competitive disadvantage with those systems that did not throw up the legal hurdles.

That the cost of mining silver is currently so high compared to its (historical) price that silver is mined primarily as a by-product of other mining materials, given that everyone agrees on its scarcity and incredible value (whether its industrial value, jewelry value, or investment value) is almost preposterous. Sometimes you have to bite the silver bullet...it may cause short-term price increases to allow the ETF, but those same higher prices will encourage and give incentive to mine exploration and silver mining, which ultimately will result in more silver. Investors may be taking a big slice of a small pie right now, but the pie will get bigger. As a matter of fact, the only way the pie will get bigger is if you allow the price to go up and reflect the true value of silver, that is, the value as expressed by all interested parties, including those private investors who prior to now were unwilling or unable to invest in silver simply because of its physical problems, such as storage. In terms of progress and innovation, a silver ETF is both, as it now allows more people to express their valuation of silver, which should get us closer to the "true" value of silver, that is, the free market determination.

One more thing that needs to be said, and that is that the information about how to trade silver without the problems of storage and shipping costs are now "out there." The cat is out of the bag. You can't bottle up that information and put it back. Before, silver cost a lot to ship and store, among other things (like security). Now, someone has thought of a way to get around that. And it is going to happen. If it doesn't happen in America, it will happen. Why would any other country care what Fujifilm America thinks about its potential for job loss. If that country doesn't have a significant film industry, wouldn't it want to put itself at a competitive advantage by putting Fujifilm as a competitive disadvantage? The point is, it's going to happen. It may be Great Britain, it may be someone else, but it is going to happen anyway. The price of silver is a worldwide phenomenon...once an ETF happens anywhere the price of silver will go up everywhere, at least for a little while. And then Fujifilm is going to fact the exact same cost increases they were afraid of...and who is really hurt? Americans. We will be the ones who can't trade a silver ETF in our markets, but we'll still be paying a little more for our x-rays. That simply doesn't make sense.

Not approving it will ultimately only hurt American investors, as they will be left out of the market and be themselves at a competitive disadvantage. Those who claim they can already invest in silver (without the ETF) are failing to see that once other countries approve ETFs, as will so clearly happen, silver in America will truly NOT be an investment asset, since we will be at the disadvantage of having to pay for storage and shipping costs, when other investors in other countries will be able to invest directly in silver without having to pay for those things. That makes silver a far more expensive investment in America than in all other places, and is absolutely absurd. Why would I invest the traditional (and now comparatively more expensive) way in silver in America when I can make a long distance phone call to my broker in Great Britain and get the added return of not having to pay shipping and storage costs for my investment? Can you say no brainer? Just think, SEC, of all those tax revenues America won't get from those trades. And the price of silver will go up anyway. It will happen, it is going to happen, it is inevitable, because the information on how to do it is out there, and you can't bottle it back up. It is certain. The only question is are we on board or aren't we.

I urge the SEC to approve the silver ETF, not because it is a magic investment vehicle, not because silver doesn't have valuable industrial uses, but simply because the chance of another country eventually approving a similar investment vehicle is almost certain, and once that happens every country who does not have a similar investment vehicle will be at a competitive disadvantage. Where would you, the SEC, prefer that the silver be stored? When Indian investors are literally throwing money at the mining companies for their silver, will America forbid sales to the countries that have approved the ETF? How can you possibly control that once it happens? The only safe way to do this is to have an ETF here and have at least some control over where a massive amount of silver is stored. Period. And if we're really smart, given the small supply of silver, we'll be the FIRST country to approve a silver ETF, even if that ETF is owned by Barclays. By delaying approval, you are really only taking the chance that someone else is going to approve this thing first.