Markets, Riots, War and Peace

[A change of tone and tempo this week from our good friend Richard Charles, owner of Lake Tahoe-based Alpine Capital. His observations concerning gold’s historical role during periods of intense global strife should remind us that bullion’s sometimes crazy price swings should not be investors’ focus right now.  RA ] 

With plans to attend memorial service for a dear teacher friend of 92, as Rick asked for a modest commentary, thoughts turned to finite things. JFK’s poet laureate Robert Frost wrote:

Nature’s first green is gold,
Her hardest hue to hold.
Her early leaf’s a flower;
But only so an hour.
Then leaf subsides to leaf.
So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.

In 92 years, Vera survived the Great Depression, The Great Inflations and World Wars. She saw a few years of peace dividend in a country with more riots than years of her lifetime. At this time we face a market test in our lives and history. Wednesday, waiting for the latest Fed decision on interest rates, we saw a record low Put to Call Volume Ratio of 3%. We consulted several sources to make sure it was not an artifact. Our experience is when people give up buying or selling puts for income, protection or speculation, TTOBGH, — that’s the old ball game, honey.

What to do ? Always, the question of survival and thrival — or at least less loss. When I was a young Merrill Lyncher, we had a customer gallery on our trading floor. I was always interested in what the well-dressed old guys had to say. In 1980 gold briefly breached $1000 as Hong Kong produced $1000 gold coins to commemorate the Year of Elizabeth II and Lunar Monkey Year. I asked the eldest market spectator if he were going to sell his gold.
He sputtered and nearly fell over. ‘Heck no!’ he shouted as he regained his balance. He later said he had bought gold under the $20 legal price at $17.06 in 1931 and would never sell because it was his financial guardian.

Criminalizing Gold

The San Francisco Financial District Business library on Sansome Street verified gold indeed sold down to $17.06 before FDR recalled gold, headlined as a Currency Stabilization Act in 1933, with a threat of ten years in prison and $10,000 fine back when $10,000 bought mansions. JP Morgan shipped his gold coins to Europe. Joe Kennedy sold his stocks and bought silver in Canada. Some swapped bullion for exempt collectible coins with large haircuts. In retrospect, the smartest thing to do was buy precious mining companies like Homestake and Placer Dome. Their labor and other costs fell during the depression, while the demand for their product increased with riots, risk-off and war. The result was extraordinary dividends and returns.

Today we find ourselves in a fine financial mess, with bonds losing half their value, stocks sideways, facing fears of World War III, nukes, plague, starvation or worse. Rather than take a contrary-opinion approach to the end of the world, we are diversifying and dollar-cost-averaging financial and real assets into copper, gold and silver funds like SLVP and VGPMX. You an fin more information about the global stock fund here; and about iShares’ Silver and Metals Miners ETF here.  As good as gold ? Maybe better.

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