Gold Hoarders Prepare for Crisis

By Jessica Cohn-Kleinberg

This retailer is storing millions in physical gold and silver to prepare for a coming collapse … Readers think the TSA needs an overhaul … There are more problems with U.S. airport security than you might think … A unique way to make triple-digit gains as often as once a month…

More companies and banks are storing gold ahead of a crisis … The Fed roller coaster has put gold prices on a wild ride of late, sending them above their 200-day moving average in mid-October, before dropping again soon after. If you take a look at gold prices over the past six months, you can see that war playing out as goldbugs and naysayers send prices seesawing.

But in the end, there’s going to be a clear winner: As the dollar begins its inevitable fall, those who’ve been betting on gold will be left standing. It’s an outcome that’s been underscored recently as more institutions reveal their massive gold stashes — an obvious sign that they’re increasingly worried about a currency crisis, and they want to own the only antidote … gold.

For example, Overstock.com has stored $10 million worth of physical gold and silver in the event of a catastrophe so that it will still be able to meet its payroll. Not to mention the central banks that’re grabbing gold like there’s a fire sale and they’re running out of time.

I’ll let Jeff take it from here:

A tug-of-war is underway in the gold market pitting the savvy and wise against those I will charitably call simpletons.

The simpletons have been dumping gold or are pooh-poohing the metal as an anachronistic “currency” that is as out of place in a modern portfolio as an eight-track tape deck would be in a new sports car. The wise and savvy laugh at the simpletons and quietly go about bolstering their holdings of gold (and silver) … fully aware that in the event of a financial crisis (definitely probable) they will have protected themselves from the devastation that befalls traditional financial assets (including King Dollar).

I will not tell you the story of the simpletons. For there is nothing to learn from them. Soon enough, theirs will be a cautionary tale of misreading the various and sundry economic signs that have cropped up around the globe in the years since the financial crisis — a crisis that will not have played itself out until the world’s excessive debts are addressed, either constructively by debtors or destructively by debt holders.

Instead, I will tell you the story of the savvy and the wise.

Maybe you saw this headline recently: “Online retailer hoards gold as crisis defense.”

Because of either delusion or prudence, Overstock.com has loaded up on some $10 million of gold and silver — metal that would be used to pay employee wages in the event of a crisis. As chairman Jonathan Johnson explains it: “We thought there’s a decent chance that there could be a banking holiday at some point caused by a crisis and it could last for two days or two weeks or who knows how long, and we wanted to be in a position where we could continue to operate during any such crisis.”

To be clear, Overstock owns physical metal, stored in a secure, offsite location.

So, delusion or prudence? You know my call on that.

Overstock owns physical gold and silver for precisely the reason I write about all the time: insurance for the economic, monetary and governmental risks we face today. Those are very real risks. The world today spins around an axis controlled by the central banks of major economies. If one of them — just one — happens to misread the situation or act on flawed analysis (and that happens too often in government and bureaucracy, where too many ivory-tower types with no real-world experience apply theory to real-world dynamics without understanding the knock-on effects), then the status quo quickly becomes the status “uh-oh!”

Meanwhile, elsewhere in the world, central bankers are protecting themselves from, well, themselves. Gold demand among central banks is rising. They bought 175 tons of gold in the third quarter, the second-highest quantity ever. China added more than 50 tons, while Russia led the pack, adding another 77 tons to its consistently growing hoard.

Consumers (the savvy and wise ones) added huge quantities of gold to their personal holdings. Indians and Chinese combined grabbed more than 500 tons of bars and coins, each country seeing demand rise by 13%. Europeans and Middle Easterners each snapped up more than 70 tons. Americans are catching a clue, too. We stashed away nearly 59 tons, a world-leading 62% increase in demand. Despite the cheerleading of totally clueless Wall Street strategists, dingbat economists and the crowd of anti-gold nitwits on Bloomberg and CNBC, we Americans (the savvy and wise, at least) seem to realize that just maybe Yellen & Co. don’t really have control of this apple cart…

Just maybe there’s a currency crisis lurking?

The message is clear: Buy gold. Buy it often with any spare cash you have. But only physical gold — not the crazy ETF gold; that stuff is toxic. In a financial crisis, physical gold will replace King Dollar as the asset to own.

The TSA’s magic trick … Magicians have practiced the art of misdirection for as long as they’ve stood in front of an audience and tried to get them to believe in magic.

It’s something that comes to mind when I think of the TSA and its security theater. In a way, the TSA is also having a go at sleight of hand: If they make us look over here, where the long, winding lines and massive metal detectors are, we won’t let our minds worry about how effective those measures are — or fret about what might be happening out of sight. The TSA, even if only for the time we spend in the airport, makes us believe in magic.

But that illusion has been shredded to pieces this year as internal investigations continue to prove the ineffectiveness of the pricey, 14-year-old agency. Since its inception, there hasn’t been a shred of evidence to prove it’s ever caught an actual terrorist. Not to mention recent reports of TSA agents who’ve used their positions to smuggle drugs.

So last week, in Saturday’s Sovereign Investor Daily, we asked to hear your thoughts about the TSA’s usefulness. And this was clearly a topic that struck a chord because we received about 30 pages of responses. Many of you were upset to learn about another broken piece in our cracking system.

That’s why I want to highlight some of your thoughts today, and get some feedback from Offshore and Asset Protection Editor Ted Bauman.

Here’s Ted:

As someone who travels a lot, I have ample reason to dislike the TSA (especially in Miami). Some countries’ airport personnel are worse than the TSA, but not many. The vast majority do a better job … at least of treating flyers like human beings.

Before I offer my own opinion, let’s see what you had to say.

A tiny minority of you feel the TSA is doing a good job:

“The TSA is more effective at fighting air terrorism than the entire U.S. military.” — Randy H.

But most of those who feel this way favor adjustments:

“Anybody who has fingerprint records is already in a database. So set up an automated fingerprint check. Those who don’t pass or who’ve never been fingerprinted should be checked by the TSA. Keep random checks on cleared people. This way the lines would be reduced and passing security for most people will not be agony.” — Sandor T.

In the pro-TSA camp there were quite a few people who want the U.S. to adopt Israeli-style “profiling” techniques, regardless of the impact on our rights or liberties:

“Until they train their agents to profile and speak with passengers in line like the Israelis do, they are not going to be a real safety net for Americans.” — John G.

“Human rights don’t coincide with security. Terrorists use that conflict to abuse security procedures. The TSA should ask for a free hand in handling its task. There’s no other way to achieve results.” — David G.

But some correspondents pointed out that profiling can backfire, especially when implemented by poorly-educated, low-paid and prejudiced TSA employees:

“While in line, I had given a big hug to an Indian (from India) friend. I was then yanked aside for special treatment. They tore my suitcase apart and more than patted me down. I was so angry that I began to disrobe for their convenience.  Of course, that brought on the cops.  When I suggested that they did not know the difference between an Arab and an Indian, they let me go. I almost missed the flight repacking.” — Bonnie M.

On the anti-TSA side, almost everyone objected to the rudeness of the process. But many offered broader critiques — such as the notion that the TSA is designed to get us used to the loss of liberty:

“It’s the first branch of the police/surveillance state that conditions us to accept gross invasions of privacy and unconstitutional search and seizure.” — Julie C.

Then there is the feeling that the TSA is a boondoggle designed to create government jobs … or profits for crony capitalists:

“It was a great way for Chertoff to make more millions by selling dangerous backscatter X-ray machines to further degrade and sicken air travelers.” — Roger B.

One foreigner highlighted the TSA’s broader costs to the country:

“I’m an investor, but I’ve made a firm decision never to go to the U.S. again. I’m afraid of the TSA, the police and the courts. They are out of control. They always suspect me of laundering money, running drugs, being in the white slave trade or trying to steal an American’s job (as though I would prefer to leave a rich, safe country and work in a poor, dangerous one!). It’s better for me to suffer financial loss rather than run the risk of being charged with a crime I didn’t commit or being relieved of my property through civil forfeiture.  The risks of traveling in your country are just too high.” — Jan W.

Finally, several writers raised a bigger-picture question: Why do we suffer terrorism in the first place?

“We wouldn’t have to deal with TSA waste and incompetence if America didn’t insist on ruling the world. We need terrorism; we create terrorism — it’s good for business. When are people going to wake up and realize that the rest of the world doesn’t want the U.S. meddling in their internal affairs any longer?” — Pedro B.

“Terrorists only want one thing — attention. The TSA is exactly what they wanted us to do. For a tiny investment on their part, they get us to spend billions every year and scare everybody. Another partner to the terrorists is the media. Without the media sensationalizing terrorism, terrorism would not work.” — Rob C.

My personal favorite comment was this one:

“I have worked for high-worth individuals. It was surprising to me to witness the rights of the privileged few compared to the rest of us. Anyone with money can lease or buy a private jet, drive vehicles full of explosives out on the tarmac, load the jet up and take off. There are NO inspections or screenings.  Anyone with adequate funds could easily repeat 9/11 at will. Only the masses below the 1% are subject to scrutiny.” — Ray P.

What about my own view?

Well, let’s start with facts. The TSA has a budget of more than $7 billion a year; it also has access to the most advanced scanning technologies money can buy. But even by its own admission, it has not foiled a single terrorist plot. Moreover, its so-called “record of success” is clearly due to something other than competence: A “red team” appointed by its own inspector-general succeeded in getting fake bombs and weapons through the screening process in 67 out of 70 tests carried out in U.S. airports. That’s more than 95% of the time.

To make matters worse, the TSA doesn’t even address the sort of threat that seems to have brought down a Russian plane in Egypt recently — an inside job. Most big U.S. airport and airline employees aren’t screened on their way in to work at all … they just wave an ID card or punch in a PIN.

Finally, whatever the real threat of air terrorism, the TSA is a case of bolting the barn after the horse is gone. The specific measures the TSA deploys are probably useless; more important is the “security theater” it creates. Of course, terrorists don’t try to get through airport checkpoints. It’s predictable. So they go elsewhere.

The truth is that even if they don’t try to check in with guns or bombs anymore, terrorists have succeeded in making us suffer the loss of liberty and feel a burning anger at our own government. They know full well that unlike Israel, U.S. “profiling” efforts are likely to backfire and make matters worse. Profiling requires judgment. But in the U.S., everything is about rules, not judgment. Judgment would require better-educated, more expert and higher-paid screeners … costing us even more money to address a threat that has probably moved elsewhere.

So what’s the answer? Call me a heretic, but I fall into the camp that says we should be addressing causes rather than symptoms. Leave the Middle East to its own devices, and the problem will go away.

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In the Sovereign Investor portfolio … Northland Power (Canada: NPI, hold), a wind-energy company located in Canada, saw sales rise by 9%. Meanwhile, its gross profit climbed 22%, thanks in large part to its solar-power facilities, which produced higher revenues during the third quarter.

In light of these results, Northland decided to increase its guidance for full year EBITDA (earnings before interest, taxes, depreciation and amortization) by $15 million.

Despite the strong performance, the company still walked away with a net loss for the quarter. But this was mainly due to noncash adjustments on derivative contracts — nothing specific to its operations, which remain solid.

Northland has several projects in the works that will come online throughout Europe and North America soon, which will just fuel its strong fundamental performance. We are up nearly 10% at last glance, and since the company dishes out a 6.8% dividend yield, we will continue to hold our shares during this low-income environment.

Link REIT (Hong Kong: 823, hold), our Hong Kong-based real-estate investment trust (REIT), announced a 9.3% increase in revenues, which led to a 11.2% boost in net property income. Link operates more than 180 properties in Hong Kong and continues to develop properties in key growth markets throughout Hong Kong and China.

Despite the headlines clamoring about China’s slowing growth, companies like Link, who rely on China for revenue and tourism, continue to top performance quarter after quarter. Our position in Link is up a nice 32% and is paying us a 4.84% yield. Shares remain a hold in our portfolio.

Until next week,

Jessica Cohn-Kleinberg
Managing Editor, Premium Services
November 15, 2015
sovereigninvestor@sovereignsociety.com