Playing Gold Without Playing Gold

The biggest form of collateral for the average Joe is his jewelry. When a person in distress goes to a pawn shop, he pawns his  gold ring/watch/necklace for a loan. When gold was ripping to the upside, the pawn dealers, like  EZPW, DLLR and CSH soared–because loan volume went through the roof. In many cases, they (the publicly traded pawn shops) sold off the pawned jewelry  or scrapped it for big profits. However, ever since gold has collapsed, the other side of the blade has victimized the shares of your locally publicly traded pawn shop.

“The Fly” is all about making a bit of coin off of the backs and struggles of the Obama proletariat.

This is what is going to happen to EZPW.

They just started selling wares on AMZN and other third party sites. Very soon, they will launch their own website, which will be “bonus money” for the company, helping to alleviate inventory builds. Year over year gold write-downs will wind down by the end of 2014, setting up for brand new growth in 2015. Ever since gold dropped, the size of their average loan has declined by 2/3rds, since everything else of value is inside of a never-ending deflationary vortex. I am talking about electronics, to be specific.

As you can see, gold is doing well this year. The pawn shops have already taken out any semblance of growth due to their gold collateral from their models, so any appreciable upside is gravy at this point. In other words, these are great retailers, tailor made for a society in flux, like ours. Once they get the gold situation fixed, I suspect share prices will explode–especially EZPW due to their online strategy.

Twelve months from now I expect to see EZPW trading in the mid-20’s and would be shocked to see it under $18.