Happy 5th birthday to the crisis! "I started shouting at the TV," says this BullionVault user...
I LIVED half my life with zero interest in financial affairs, writes Armand Thompson, a customer at BullionVault since the run on Northern Rock in autumn 2007.
Banking was for geeks. Like everyone else I had a mortgage, life insurance, a pension, kids, but I wasn't interested in that stuff. I was a professional musician in the 1970s, an advertising copywriter in London in the 1980s, then a dotcom analyst in Silicon Valley in the 1990s. In 2000, I moved to Spain. I was tired, I wanted to be semi-retired. I was going to live on the beach and write books, maybe movie scripts.
The Spanish property market was frothing and people were doubling their money every 18 months. Life was one long party. Plenty of background for my stories (they say write about what you know). But good things never last. Property bubbles crashed, interest rates plummeted, Tony Blair got bored with starting wars and Mr Brown moved over as PM. Gordon was a moron (surprisingly few people picked up on Jilted John's punk anthem as a slogan), but hey, he'd been promised the job and by John Knox he was going to do it.
2007 and Northern Rock happened, first UK bank run in 100-blah years. It didn't look good, people queuing up Depression-style. Luckily Gordon Brown knew just what to do, guaranteeing the whole bank with a wave of the hand. It sounded great. At the time I didn't know what a central bank was. I decided to find out – educate myself in monetary affairs – if only because I didn't want my bank going belly up. I read Bloomberg, the FT, Motley Fool, the Telegraph.
But economists eh? If you laid them end to end...One day I saw Jim Rogers on TV calling them all cretins – finally, someone who agrees with me. I graduated to the blogosphere. Sidestepping the Lizard people and those who see Illuminati under every bed, I found The Daily Reckoning. Some people were Buying Gold. This finance stuff was quite interesting. And these people seemed to talk sense.
Over the next few months, the crisis deepened, the clichés were trotted out by nervous-looking politicians, tame pundits and the media:
- The sub-prime problem is contained;
- The rise in unemployment is transitory;
- The recovery is just around the corner;
- There will be no double-dip.
Wait a minute, I was getting flashbacks...
- Stocks have reached an all-time plateau;
- There is a world market for maybe five computers;
- The buggy-whip sector will come roaring back (okay, I made that one up).
The rhetoric rumbled on, but things were clearly getting worse. The Bank of England's Mervyn King stared into the abyss and declared himself very afraid, Hank Paulson held Congress to ransom – a trillion dollars right now or all your cash machines go offline. Wow, this is Bruce Willis territory. But okay, now you have my attention.
Bloomberg suddenly got interesting, it was like watching a soap. My wife told everyone I was going insane. I started shouting at the TV, at Barney Frank, Chris Dodd, that weird Californian woman eyeing up Hank's bazooka. Congress folded before the flop, and before you could say ABC we had TARP, TALF, ALF, everybody was dividing CDOs by SPVs and driving an SUV. The dust settled and Bear Stearns was no more, Lehman was handed to JPM. Northern Rock, RBS and half of Lloyds were toast. Game over. Problem solved. Right?
In the movie business, they have a saying: Nobody Knows Anything (hat tip William Goldman). But now I know what a central bank is. It prints up free money, then lends it out at interest, right? Now I know what fractional reserve banking is. It's the old goldsmiths' 10% scam, right? But the problem hadn't really been fixed. Dip #2 was coming up fast on the inside straight. For the first time in my life I had some money, but where to put it? Somehow I didn't trust banks anymore.
Searching the internet in 2007 had turned up a company called Bullionvault. Online gold ownership? Bound to be a scam, I'd heard about Icesave. But hang on a minute, look at the charts. Gold Bullion is some seriously expensive gear. And it's going up: £350 an ounce, £11,000 a kilo. Ah, but what goes up usually comes right back down. So I did some more reading: Jim Sinclair, Martin Armstrong, James Turk, and now this other guy impressed me – Paul Tustain, the guy who launched BullionVault. Not a money guy, not even a gold guy, a dotcom guy – like me. I liked his approach.
Online gold ownership...? Well let's see, I am dotcom-friendly, I get this. I found out about ETFs, coins, bullion banks, gold leasing and GOFO rates, Roosevelt's confiscation, Kennedy's exec order, Nixon's gold window, the London Gold Pool, the Washington Agreement, unallocated accounts (their assets, your liability – Jeez, these banksters are something else). I read about allocated gold, privately held outside of the banking system. I made a decision. There's a full-on crisis that is not going away, what's the best way to protect myself?
I may not be George Soros, but I'm not an idiot. Hell, the Germans had got gold, the Spanish had done it, the Romans did it, the Egyptians did it, the Assyrians did it, the Chinese, Russians and Indians are still doing it – can't argue with that kind of history. The only wild card in 5,000 years of gold hoarding was Gordon Brown – but as we know, Gordon is a moron. So I bought gold and five years later, a 300% increase. Barbarous relic, pays no interest. But it's a better return than any deposit, CD or money-market account.
Earlier last year, I read about silver, available stocks and industrial use, the Hunts, rumours over big short positions. Now as a layman, it seemed to me there's a supply problem here, so I bought some silver. Right now it's up nicely too. Around the same time, a friend asked me about silver as an investment – I recommended BullionVault and told her that silver at those prices was a no-brainer. Instead she bought a second home. With a mortgage. In a crashing market. There you go.
So fast forward to September 2012, and the economic backdrop has got even worse. We've had Madoff and PFG revealed as your basic Ponzi schemes, with MFGlobal and others commingling client accounts, plus the Libor fixing scandal. We have ZIRP and NIRP distorting the bond and FX markets. Pay the government to hold your money? Yeah, right. Money itself has evolved interesting new qualities: in addition to rehypothecating somewhere else, it can now simply "vaporise". That must be why it's so hard for regulators to investigate, when the evidence just, you know, vaporises in front of your eyes.
Speaking of quantum physics, in a few days, the German Constitutional Court will open the box to observe whether the ESM exists or not – at the moment it's the Schrodinger's cat of euro-finance. Should they find a dead kitty, what will be the quantum states of the wave-functions formerly known as Klaus Regling, head of the ESM, and his 57 (obviously one of each variety) staff?
In the rest of the world, Mario Draghi (a man with an interesting CV), has promised whatever it takes (uhh, that'd be more QE, Mario – but call it Outright Money Theft if you want) to save the Euro (and his job). The USA faces another deficit ceiling and the bearded Bernanke has his fat finger helicoptering over the printer button (even more QE), all with a presidential election (so close, so exciting, so American Idol) coming up. The Middle East is a tinderbox and the proxy Israel/Iran conflict could blow up right after the election is over. China's growth is dipping alarmingly just as the new politburo is about to emerge from the smoking room. And here in Spain, we have more than 5,000 corrupt politicians, regions announcing bankrupcies, an ongoing bank run with unsustainable outflows of more than 5% of GDP per month, bondholders about to get stiffed, and a terrified government that is both incompetent and broke.
So you could say my interest and experiences in precious metals investment were driven directly by the onset of a continuing and worsening financial crisis. Given what we've seen, I'm surprised more individual investors haven't bought bullion. In fact, as a direct result of the crisis, I've learned how central banks and the entire banking system work. And why they don't work. That's why now all of my assets are held outside of the system. I don't keep money – apart from for immediate bills. I'm not a doomer, it's a question of confidence – I'm not confident that one day it won't rehypothecate. Now my wife tells everyone how smart I am. I hope she turns out to be right.
Maybe people still think buying bullion via an online platform is somehow not safe. Yet we all bank, trade and shop online? I'd rather own ounces of bullion held under bailment in a private vault in a secure jurisdiction, than anything in a vaporisation-prone bank account, safe deposit box, money market, investment fund or broker account. To me, Buying Gold and silver is the only option in a financial environment that is heading for collapse in one of two ways: rapid, unexpected hyperinflation, or a long, drawn-out decline.
We are stuck between a rock and a hard place. As Woody Allen says: let's hope we have the courage to make the right choice.
Thinking about Buying Gold yourself today...?