Monthly Archives: April 2013

Cyprus, Is That Your Final Answer?

“Consensus: ‘The process of abandoning all beliefs, principles, values, and policies in search of something in which no one believes, but to which no one objects”  Margaret Thatcher

         There is a consensus in America that the economy is improving.  There is a consensus that Wal-Mart shopping Americans have a grip on things (See sign below), and that we aren’t linked to those messy financial destruction birds flapping their poverty stricken wings around the Mediterranean.  Let’s consider some recent web examples of intellectual competence.

#1: A customer in Ohio handed the teller at his bank a withdrawal slip for $400.00, saying, “May I have large bills, please”  The teller looked at the customer and said, “I’m sorry sir, all the bills are the same size.”

#2: At a Ford dealership in Canton, Mississippi, a woman arrived at an automobile dealership to pick up her car, and was told the keys had been locked in it.  She went to the service department and found a mechanic working feverishly to unlock the driver side door.  As she watched from the passenger side, she instinctively tried the door handle and discovered that it was unlocked.  “Hey,” she announced to the mechanic, “it’s open!”  His reply: “I know.  I already got that side.”

#3: A customer in Idaho had a Sears garage door problem, and needed repairs.  The Sears repairman told him that one of his problems was that he did not have a ‘large’ enough motor on the opener.  The customer thought for a minute, and said that he had the largest one Sears made at that time, a 1/2 horsepower.  The repairman shook his head and said, “Sir, you need a 1/4 horsepower.”  The customer responded that 1/2 was larger than 1/4.  The Sears guys said, “NO, it’s not.  “Four is larger than two.”

#4: A woman and her daughter went through the McDonald’s take-out window in Arkansas, and gave the clerk a $5 bill.  The total was $4.25, so she also handed her a quarter.  Mickey D’s employee said, “You gave me too much money.”  The customer said, “Yes I know, but this way you can just give me a dollar bill back. She sighed and went to get the manager, who asked me to repeat my request.  The woman repeated her request, and the manager handed her back the quarter, saying, “We’re sorry but we don’t do that kind of thing.”  The clerk then proceeded to give the woman back her $1 and then, 75 cents in change.

#5: A woman from Kingman, Kansas called the local township administrative office to request the removal of the DEER CROSSING sign on her road.  Her reason: “Too many deer are being hit by cars out here!  I don’t think this is a good place for them to be crossing anymore.”

These Americans are out there…and they vote.  (But I doubt if these people subscribe to my weekly Letters.) There is a correlation between applied intelligence and Wall Street success.  This correlation perhaps doesn’t work during market panics, but it applies most of the time.  Results based on future events are not visible.  We must act based on probabilities.  If we knew the outcome of our investing actions in advance, the returns would be as paltry as T-bond yields.

#6. Not all of the slow speeding bullets fly around in fly-over country.  Look at the Justice Department’s February, 2013, civil lawsuit against the Standard and Poor’s people in Los Angeles.  I know it seems unlikely that the Justice Department would actually sue any financial firm anywhere for anything other than perhaps a high noon buggery of a small animal on the steps of the New York Stock Exchange, but anybody can have a day of conscience.  The Feds have rushed to sue civilly – soon after the mortgage bond crash of 2008 – saying that the S&P rating firm committed fraud when it allegedly “misrepresented its AAA rating on some mortgage paper as “independent and objective.”

In their formal defense, the highly compensated S&P attorneys said that “Statements about their firm’s independence and objectivity were mere “puffery” and were never meant to be taken at face value by investors.”  The S&P lawyers noted two earlier court decisions where such statements by S&P were ruled legally protected puffery, and argued such language shouldn’t support a fraud claim now.”  I believe the consensus of LA lawyers is that this defense is perfectly good lawyering, and it’s no big deal anyway, since most of the LA Courthouse is surrounded by the media circus over the Michael Jackson family lawsuit against the big promoter AEG.  To most humans, however, the S&P defense is not humorous.  And even weirder, it’s also not surprising.

So How Does This Relate To Cyprus?

Well, dumb consumers and a crafty ratings firm lawyers may not relate exactly, but they were an entertaining intro.  And they do indicate the likelihood that Americans are even paying attention to Cyprus. But, several things have changed since the March 15 sacking of Cyprus.  We now have the final bill for the “bail-in.”  We have a professional Wall Street consensus that the gold bull market is finished.  And finally, we have a consensus (according to Barron’s Big Money Poll) that we’re on our way to Dow 16,000, in what Barry Ritholtz has called the most hated rally in history.

The London Telegraph on the Bank of Cyprus, April 28, 2013:

“The so-called ‘bail-in’ forces savers to foot the bill for the recapitalization of Cyprus’ biggest bank, after it was hit by massive losses from its exposure to debt-crippled Greece.  [Bank of Cyprus “invested” depositor money into Sovereign Greek bonds…which have performed, umm, badly.”]  Bank of Cyprus said it had converted 37.5% of deposits exceeding €100,000 into “class A” shares of itself, with an additional 22.5% held as a buffer for possible conversion in the future.  Another 30% would be temporarily frozen and held as deposits, the bank said.

The bail-in is part of attempts by Cyprus to find €13bn – a figure nearly double the island’s original bill – to shore up its economy.  Other measures include a possible sell-off of the nation’s gold reserves.  The European Union and the International Monetary Fund are providing a further €10bn to the island.

Passing over the staggering cost of Cypriot banker stupidity and subsequent greed, and ignoring the usual Wall Street puffery concerning the possible Dow Jones Industrial Index levitation, what about me?  Is some sort of bail-in to be collected from my bank savings accounts or, God Forbid, my retirement accounts, What can I do to keep the predator banker from the door?

Two Guys Who See Consequences of the Cyprus Bail-In

1.  On April 9, 2013, Kyle Bass, hedgie guy, and a member of the board of the University of Texas Management Company (UTemco) talked.  In this two minute video, he casually talks about UT’s decision as a fiduciary to get their gold from the COMEX.  UTemco took delivery of a billion bucks worth of gold.  The delivery of 1600 bars may explain why JPM’s COMEX inventory has dropped.

2.  On April 25th, 2013, Jim Sinclair wrote, “Thanks to the revelation brought to the world regarding the paper gold fraud [which followed the Cyprus blow up], certain gold shares will now advance by many hundred percents.  Some are likely ten baggers like in the 1980s.

Good growing intermediate producing gold shares will lead gold majors, gold and all equities now to new highs in its own unprecedented bull market as the successful short of gold share hedge funds sitting with huge shorts have become complacent.  There is a new definition to the right gold companies.  They are the holders of the real physical supply.

The biggest move in gold shares in the 1968 to 1980 gold market was after gold broke from $887.50 to $449.  The recovery from $449 to $750 witnessed the gold shares moving up by many hundreds of percents.  The same is going to happen now because there is no significant above ground supply of gold.  It has been stolen or purchased over the past many years.  The big dirty secret is out. There is no gold.

The formula for profits in gold shares in order of significance are:
1. Mid tier producers or those moving into that position.
2. Located out of the reach of North America or Euroland.
3. Strict control of overhead.
4. Huge comfortable short positions.

Keep in mind that the repository of physical gold is the intermediate sized producer with low production costs and run tight ships overhead wise.  Something other than the way colonialist majors are run with no attention to the shareholder or their host countries.  Physical gold unimpeded by the paper scam can trade at prices that will set your hair on fire.”

Intermediate Gold Companies?

See the list from its April 2013 update nearby.  These are companies GSA likes.  Not all qualify under Sinclair’s requirements above, but all of these are trading at much cheaper prices than a month ago.  There are many others.  Do your own Due Diligence!  There be risks here.

GSA’s current Top Ten also  includes the royalty companies Royal Gold and Franco Nevada, but wasn’t reviewing them in this late April Update.

GSA has no problem allowing me to talk about Top Ten List news after he’s passed the information on to subscribers.  He wants new buyers.

What decision have you drawn from Cyprus?  Got Gold or Silver?

Michael McGowan