Transcript Return on Investment of the Recruiting Process

Protection Against the Rising Risk
of a Systemic Financial Meltdown
or...
a
The forgotten role of gold
Louis Boulanger, CFA, Founder and Director, LB Now Limited
New Zealand Society of Actuaries 2008 Conference + 11/12 Feb 2009
“Gold is money and nothing else”
J P Morgan, 1913, to the US Congress
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“It is not because things are difficult
that we do not dare; it is because we
do not dare that things are difficult.”
- Seneca
(ca 4 BC - 65 AD)
Roman stoic philosopher
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“All truth passes through three stages.
First, it is ridiculed.
Second, it is violently opposed.
Third, it is accepted as being selfevident...”
- Arthur Schopenhauer
(1788-1860)
German philosopher; influenced Einstein
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Agenda

About prudence now...

The truth about money today

Economic Freedom vs. Debt & Delusion

The role of gold as a standard

The need for monetary reform

How to protect until then

Some of my sources
1. About prudence
“A prudent man foresees the difficulties
ahead and prepares for them;
the simpleton goes blindly on and
suffers the consequences.”
- Proverbs 22:3
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The paradox of prudence


Prudence defined by man-made laws and court
cases IS NOT the same as the virtue itself

Who ever said that to be prudent is to imitate your peers?

Is fiduciary irresponsibility not partly to blame for this crisis?
The word now seems synonymous with cautiousness

In this sense, prudence means a reluctance to take risks

Such reluctance is prudent only for unnecessary risks

But when unreasonably extended or applied based on
false beliefs, then it becomes reckless and cowardly
False beliefs

Today’s ‘USA’ is still based on US Constitution

Government guarantees are as good as gold

Central bankers can and will save the world

US government can’t default on its debt

Inflation is dead or no longer a worry

NZ is in better shape than ROW

Monetary system is sound
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Forgotten aspects of prudence


Caution is not the only or main aspect of prudence
The following are the other integral parts of prudence
according to Scholastic philosophy:
 Memoria (accurate memory)
 Intelligentia (understanding of first principles)
 Docilitas – the most forgotten one
 Solertia (sizing up a situation quickly)
 Ratio (discursive reasoning)
 Providentia (foresight)
 Circumspection (ability to take all relevant circumstances into account)
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Docilitas – let’s remind ourselves
“The kind of open-mindedness which recognizes
the true variety of things and situations to be
experienced and does not cage itself in any
resumption of deceptive knowledge;
the ability to make use of the experience and
authority of others to make prudent decisions”
2. The truth about money
“Truth, like gold, is to be obtained
not by its growth, but by washing
away from it all that is not gold.”
- Leo Tolstoy
(1828 - 1910)
Russian author
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What is money?
Money is anything that is generally accepted
as payment for goods and services and
repayment of debts.
The main uses of money are:
1.
2.
3.
as a medium of exchange;
as a unit of account; and
as a store of value
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Is this ‘good’ (sound) money?
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There sure is a lot of it around…
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“If the American people ever allow private banks
to control the issuance of their currencies, first
by inflation then by deflation, the banks and
corporations that will grow up around them will
deprive the people of all their prosperity until
their children will wake up homeless on the
continent their fathers conquered.”
-Thomas Jefferson
(1743 - 1826)
One of America’s Founding Fathers;
3rd President of its United States (1801-09)
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Well, guess what?
It’s already happened!
I call it the ‘Monetary Tragedy of the 20th Century’




1910: the Fed is surreptitiously created
1913: the Federal Reserve Act is passed
1934: gold possession became illegal in US
1971: END of gold exchange standard set in
1944 in Bretton Woods (President Nixon
unilaterally declares US dollars owned by
foreign states are no longer redeemable
in gold, as was intended by the BW system)
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Money (as we know it) is dying

I know… your mind is repelled by this assertion

BUT IT’S THE TRUTH (which can set you free)

That’s why you need to rethink your ASSET MIX

This is the 1st time in history that NONE of the
world’s currencies is redeemable in gold (or silver)

Cause & effect in economics can be separated by
decades, as was clearly the case with this crisis

The derivatives monster (>US$1Q!) is mostly credit!
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Unprecedented Fed action…
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Inflation time bomb…
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Who’s going to buy @ 2%?
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“In effect, there is nothing
inherently wrong with fiat money,
provided we get perfect authority
and godlike intelligence for kings.”
- Aristotle
(384 BC - 322 BC)
3. Gold & economic freedom
“This is the shabby secret of the welfare
statists' tirades against gold. Deficit spending is
simply a scheme for the confiscation of wealth.
Gold stands in the way of this insidious
process. It stands as a protector of property
rights. If one grasps this, one has no difficulty in
understanding the statists' antagonism toward
the gold standard.”
- Who said this??????
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Alan Greenspan did!
In an essay entitled ‘Gold and Economic Freedom’
he wrote in 1966 and which published in Ayn Rand’s
Objectivist newsletter and reprinted in her book
Capitalism: The Unknown Ideal, in 1967
In his essay he wrote: “gold and economic freedom
are inseparable”.
Greenspan has never publicly retracted a word of this
essay, not even in The Age of Turbulence, in 2007
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What you should know about gold

Gold is one of the world’s most misunderstood assets
Powerful forces govern its price (especially since ‘71)
 Despite ‘barbarous relic’, gold remains valued RTW
 Why? Because it is useful as a monetary commodity


It’s the only asset that can compete with Govt bonds


It cannot be debased by creating it ‘out of thin air’ by
government fiat – like all currencies today are incl USD
Gold is nobody’s liability (unlike any other asset)

Hoarding gold is a protest vote on Govt issued money
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Gold is special and unique

The only commodity produced for accumulation

The entire aboveground gold stock is only
about 155,000 tonnes (less than 8,000 cubic meters)

Gold’s supply is its aboveground stock




This is crucial to understand how to analyze gold
Annual supply is falling and is currently increasing
aboveground stock year after year by only about 1% p.a.
A gram of gold mined today is no different from a gram
of gold mined by the Romans two-thousand years ago
So...gold price is principally a function of demand
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Demand IS rising; mostly ETFs
Source: Casey Research LLC, Big Gold, Vol II, Issue 7, July 2008, p7
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Consider this:
At the moment, the sum total of the world’s paper financial assets
(including equities, bonds and bank deposits) comes to a grand
total of about US$100 trillion.
Value of all physical gold held by private investors and central
Banks, on the other hand, is only about US$1 trillion.
Now, just suppose that some of the owners of all that paper
got a wee bit spooked and decided to convert a mere 5% of it
into gold.
Anyone need a tutor to understand what US$5 trillion in
new demand would do to the gold price? Didn’t think so.
4. Gold as a standard
“Ownership of gold is not about lust: it is about
liberty of the individual. The gold standard is
not a ‘game’: it is the embodiment of the
timeless principle “pacta sunt servanda”
(promises are made to be kept).”
-Professor Antal E. Fekete
(1932 - )
Renowned mathematician and monetary
scientist (www.professorfekete.com)
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“In any discussion of the future of gold, or the
price of gold, the first thing that must be
acknowledged is that gold is a political metal for
the simple reason that gold, in its historical role as
a currency, is fundamentally incompatible with the
modern financial system.”
Ferdinand Lips
(1931 – 2005)
Swiss banker, author of Gold Wars, Foundation
for the Advancement of Monetary Education, 2001
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Is gold a barbarous relic?
Some have claimed so with great effect:
“In truth, the gold standard
is already a barbarous relic.”
John Maynard Keynes
(1883 – 1946)
British economist whose ideas had a major impact on modern
economic and political theory.
He was a key figure behind the 20th Century global monetary
system post WWII (Bretton Woods).
Above quote is taken from his Monetary Reform, 1924, p172
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I don’t think so...
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Need more evidence?
Gold Price % Annual Change
USD
AUD
CAD
CNY
EUR
INR
JPY
NZD
CHF
GBP
2000
-5.66%
10.56%
-2.19%
-5.80%
0.68%
1.24%
5.61%
11.64%
-4.68%
2.06%
2001
2.50%
11.30%
8.80%
2.50%
8.10%
5.80%
17.40%
9.10%
5.00%
5.40%
2002
24.70%
13.50%
23.70%
24.80%
5.90%
24.00%
13.00%
-0.96%
3.90%
12.70%
2003
19.60%
-10.50%
-2.20%
19.50%
-0.50%
13.50%
7.90%
-4.50%
7.00%
7.90%
2004
5.20%
1.40%
-2.00%
5.20%
-2.10%
0.00%
0.90%
-4.07%
-3.00%
-2.00%
2005
18.20%
25.60%
14.50%
15.20%
35.10%
22.80%
35.70%
24.45%
36.20%
31.80%
2006
22.80%
14.40%
22.80%
18.80%
10.20%
20.50%
24.00%
19.39%
13.90%
7.80%
2007
31.40%
18.60%
10.40%
23.00%
17.90%
17.50%
24.70%
20.53%
21.50%
29.20%
2008
5.80%
32.50%
32.40%
-1.10%
11.90%
30.40%
-14.90%
39.27%
0.20%
44.30%
Average
13.84%
13.04%
11.80%
11.34%
9.69%
15.08%
12.70%
12.76%
8.89%
15.46%
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Familiar with the Dow/Gold ratio?
QUESTION: Will
the Dow/Gold ratio
drop to 1 again?
Before the Fed
After the Fed
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Still doubtful gold is money?
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The true nature of this crisis

It’s not a credit crisis

It’s not a housing crisis

It’s not a banking crisis

It’s not a financial crisis
The above are all symptoms/manifestations of…

The Great Global Monetary Crisis
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The true nature of the problem

You can’t solve a problem with more of the same
 the problem can’t also be the solution!

The true cause is the fiat money system itself
 it’s a financial bubble machine!

The nature of the problem is one of MEASURE

Money should once again be defined as
a unit of weight of gold
 after all, that’s how it used to be (but we forgot!)
About the gold standard
The gold standard is a monetary system in which
a region's common media of exchange are paper
notes that are normally freely convertible into
pre-set, fixed quantities of gold.
The gold standard is not currently used by any
government, having been replaced completely
by fiat currency, and private currencies backed
by gold are rare.
This has never happened before in human history...
There is no measure for what our ‘money’ is worth!!!
Greenspan (again)
“Under the gold standard, a free banking system
stands as the protector of an economy's stability
and balanced growth… The abandonment of the
gold standard made it possible for the welfare
statists to use the banking system as a means to
an unlimited expansion of credit… In the absence
of the gold standard, there is no way to protect
savings from confiscation through inflation.”
Source: ‘Gold and Economic Freedom’, 1966
“The gold standard strikes back”

That’s how Professor Antal E. Fekete sees it

“The chickens of ‘71 are coming home to roost”

All fiat currencies are in a race to the bottom

Asset price volatility is highest in living memory
WHAT’S GOING ON?

Capital is being destroyed

Global monetary system is collapsing
4. Need for monetary reform
“We cannot solve our problems
with the same thinking we used
when we created them.”
-Albert Einstein
(1879 – 1955)
A man who should know…
My newfound purpose

First, look after myself and my family
 then look after OP’sM as I do my own

Educate, awake as many as I can
 that’s why I write the e-letter Prosper!

Advocate actively for monetary reform
 both here in NZ and overseas
 Sound Money = Economic Freedom
Bretton Woods ‘III’

What do I mean ‘III’?

BW ‘I’ died in 1971 (and was buried in 1976)

BW ‘II’ has been in place ever since (37 yrs)

What’s BW ‘II’?
 The

Great Delusion of Money as Debt
What will BW ‘III’ be?

That depends on who wins the war…
5. How to protect?
“It's not whether you're right or wrong
that's important, but how much money
you make when you're right and how
much you lose when you're wrong.”
-Warren Buffett
(1930 - )
American investor
Own some bullion!

ETFs are NOT the same (that’s paper gold)

Gold mining shares are NOT the same thing

Bullion is the only asset that has ever been
able to successfully protect one’s wealth
from the devastating effects of systemic risk

Bullion IS NOT an investment… IT’S MONEY

Think of it as INSURANCE (or a protest vote)
Want to know more?
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Some of my sources
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www.gata.org
www.bmginc.ca
www.mises.org
www.leap2020.eu
www.chaostan.com
www.richebacher.com
www.globalresearch.ca
www.caseyresearch.com
www.lemetropolecafe.com
www.professorfekete.com
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Suggested books to read

Gold Wars, by Ferdinand Lips, 2001

Debt & Delusion, by Peter Warburton, 2005

Petrodollar Warfare, by William R. Clark, 2005

The New Paradigm for Financial Markets, by
George Soros, 2008

The Case Against the Fed, by Murray N. Rothbard,
Ludwig von Mises Institute, 1994

The Theory of Money and Credit, by Ludwig von
Mises, Liberty Fund, 1981 (translation of 1924-34)
Thank You.
Any Questions?
Louis Boulanger, CFA
Founder & Director, Louis Boulanger Now Limited
P O Box 25 676 St Heliers, Auckland 1740, New Zealand
tel: +64 9 528 3586; mob: +64 275 665 095; email: [email protected]