by Bill Holter, Miles Franklin
Before getting to the topic of “all in!”, I have a story for you which may be of interest. All the way back in 2002, I travelled out to Colorado Springs for the shareholder meeting of a very small and obscure royalty company named Golden Cycle Gold. While there, we did a tour of the Cripple Creek mine and its operations. The nearby town, Victor, looked nearly like a ghost town 30 miles off the beaten path. The only industry was the mining operation and a little bit of tourism. During my trip, I met a long time Director of the Golden Cycle Gold Company, “Frank,” he had a different view of economics than almost anyone I knew. He believed the U.S. was bankrupting the country with armaments manufacturing, just as did the old Soviet Union and that the U.S. would eventually meet the same economic fate during a currency collapse of the dollar, as had happened to the ruble. ..
Frank and I spent almost two days together and I furiously picked his brain. He was a fountain of information as I learned more about the mining industry from him than any other source.
He said; ” gold was an immutable object,… it didn’t do anything,… it just sat there….. it was just one ounce of gold,… it was paper money that historically depreciated in terms of the yellow metal.”
Frank was drawn to the Golden Cycle Company by a statement made by famous financier Charles Allen of Allen &Co., who said: “If monetary conditions were right, the Company could make stock market history, “(the Allen family had escaped Europe just prior to the worst of the Holocaust and understood the value of gold money).
As time would have it, the Company was sold. He said; never ever did anyone ever believe the conditions we are witnessing today could have been extended into the hereafter, with printing press money, without a major economic collapse and depression. Symbols for the theft of the public’s buying power by banks, such as QE, were not even part of the financial lexicon. The only analogy he knew had relevance to today’s financial situation was during the days of John Law and Fiat Money in France in the 1700′s… He now says; “Those conditions, or happenstance, so well understood by Charles Allen, exist today, ….. for Gold and Gold shares to make market history,……. (in this poker game of International Finance), he says; ALL IN!
After the first day in the field, we met for dinner and a few beers (where we met a 6′ 9” Australian with long blonde hair who put Rambo’s physique to shame …turned out he was an international (legal) arms dealer!). This is where I first heard of the concept “re set”. He talked about gold demand outstripping supply, manipulation and many other topics which I was aware of but only scratching the surface at that point. The biggest thing he talked about was “collateral”, or lack of it. He posited the system was nearly at full margin in a sane world, the only two outcomes could be some of the debt being cleansed, or exactly what followed. Namely interest rates being crushed with anything and everything not nailed down being used as collateral for margin. In retrospect, he was early but very correct how this would all unfold.
The reason I relate this story is because back then I needed something or someone to “strengthen my knees”. Gold and silver would get smashed when logic said otherwise. Very little information was available on the internet to that point other than a few websites including GATA. Jim Sinclair had just begun posting for another website and had not even gotten his own up and running. Back in those days, the biggest shot of adrenalin was when John Embry who worked for a mainstream Canadian bank wrote publicly about blatant manipulation. John’s writing was sorely needed by the gold community to confirm their thought process. It is in good part this very reason I began to write in 2007, to hold shaky hands and to calm the fearful. Most of all after this trip, many of my thoughts were confirmed and cemented. To Frank, my mentor, I owe a huge debt of gratitude!
As for my topic “all in”, should you be? My answer to this is to be as fully invested in precious metals assets as you are comfortable with. Please understand this, because central banks, sovereign treasuries and behemoth financial institutions are already “all in and then some” with their support of paper assets …when the dam breaks you will most probably not have the chance to go “further in” with precious metals. Bad money will chase good money into hiding and be met with “not for sale” signs.
This concept of “all in” has been personified, only in reverse by the world’s central banks, treasuries and financial institutions. They have created $ trillions upon $ trillions of new currency, they have borrowed even more $ trillions while the institutions play in over a $1 quadrillion casino. Any thing “marginable” has been used and already borrowed against. Interest rates have been crushed to zero and below by the necessity to be able to pay the interest while stock markets float higher with little to no volume as the HFT algos swap some spit back and forth. Real gold and silver have been sold 100 times over and are fictitious in pricing and availability.
If you did not understand the meaning of the above paragraph, I will spell it out. The world is one giant and collective margin call. “Net worth’s” that are calculated, relied on and believed in today could be seriously cut, wiped out or even become negative overnight. “This can never happen” you say? It already has in many instances for those long euros or short francs on margin …and this was only the tip of the iceberg. Do you suppose some oil traders, or even some drillers and producers have gone belly up? We know they have. EVERYTHING paper has the very same affliction as oil and this FOREX cross, the values are skewed! Not only are they skewed, this has been purposely done. The problem is with the “manner” in how it has been done. Derivatives, or leveraged paper, has been used to paint a picture necessary to retain confidence. As this picture morphs from true realism to more and more abstract, confidence ebbs with it. As more and more financial soldiers fall, other troops begin to worry, drop their arms and turn tail. This is how it works. Panics occur because confidence decreases.
Looking at the real economy, how much more can we expect out of it? Corporations have supplanted small business and in their quest for profits are cutting jobs and expenses to the bone. Can young people afford to buy entry level homes to help push current owners to the next level? Can the working population support a 50% and growing portion who collect benefits? How long can parents support 25 and 30 year old children who cannot afford to provide for themselves? Who will support the parents? It never “was” like this because it could not be, it was not and is not sustainable. What Washington and Wall Street have forgotten is oh so important yet ignored. In order to have truly healthy financial markets, the real economy must function and function well. The real economy is just as far over the cliff as the federal fiscal situation with no one left able to either pass the baton or to save the day.
Let me finish with these thoughts. It used to be the real economy would generate cash flow in excess of what was needed to fund current operations and to pay debt, this is no longer so. The necessary “cash” is now coming from the central banks because the economy is no longer sufficient to do so. This is why it “feels bad” out there, there is little money making it to the streets. Soon it will feel even worse because even with bogus and fudged numbers, an official recession is again arriving. How much further can the central banks go? Further than “all in”?