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In the emails that our readers at Casey Research send
our way, questions and concerns about the possibility of gold confiscation
rank high.
My somewhat standard response is that, yes, it’s possible, but that we should
see straws in the wind well before it happened… allowing us to take
measures to protect ourselves.
While I don’t want to make too big a deal about it, there have been
clear signs of late that the U.S. government is taking an unhealthy interest
in your gold.
My recent article “I Smell a VAT” touched on one
such straw. The relevant point being that, thanks to a regulation slipped
into the healthcare legislation, coin dealers – and all businesses, for
that matter – will have to begin reporting any purchases of $600 or
more from anyone, including clients selling back their gold.
While I think the overriding intent is to pave the road for the
implementation of a value-added tax (VAT), there’s no question that the
legislation simultaneously paints a target on the back of the free trade of
precious metals.
Then, a couple weeks ago a friend sent me a copy of Mother Jones, an a unapologetically “progressive” mouthpiece
with a cover story titled “Glenn Beck’s Golden Fleece.”
And friend and correspondent Lowell sent along an article with an embedded
video link to an lengthy ABC News “investigation”
by Clintonista George Stephanopoulos that picks up
on the Mother Jones story.
Now that you’ve watched the video – and if you don’t, some
of what follows won’t make any sense – I’d like to share
some observations based on personal experience.
About Coins
Years ago, I headed up the publishing division of a company (that will go
unnamed) with a separate division selling coins. I was there when the coin
business started, and while not involved, was impressed at its rapid growth
in the heady days of the 1970s gold bull market.
Then something happened. While the founder was a strong advocate for hard
money and sincere in his intent to do the right thing by his customers, as
the coin business grew, he increasingly recruited “professional”
managers to run the firm – hired guns whose sole focus was boosting the
bottom line and, by so doing, their bonuses. And the business hired more and
more “professional” salespeople – the sort of folks who
know how to squeeze a client good and hard.
As the company’s sales soared, fueled by hard-hitting marketing, the
founder’s good intentions began to weaken under the onrushing flood of
cash that began to wash in. In time, the entire conversation at the coin
division switched from “What’s good for the customer?” to
“What coins can we sell with the biggest mark-up?”
On those occasions when I was invited to comment on what was going on, I did
what I could to argue against the corporate culture that had developed, but
my impassioned and increasingly angry fights with the managers of the coin
division couldn’t win out over the millions in profits being made. As
much as I enjoyed my job, the situation became so degraded,
I had no choice but to resign.
Now, let me be clear. The company broke no laws and, in fact, did nothing
that I suppose most businesses on to a good thing might not do; marketing was
generating lots of prospects, and the sales force was selling.
The problem was that the product line had moved from selling highly liquid
government-issued gold and silver bullion coins to selling illiquid
“modern rarities,” an oxymoron if there ever was one. Whether
“proof” Mexican silver dollars, “treasure” coins, or
privately minted commemorative coins, the one thing you could be sure of was
that the mark-ups were huge.
Which meant that, in the absence of an active collectors
market – which, when it comes to “modern rarities,” just
doesn’t exist, and never will – the coins were very unlikely to
ever provide a reasonable return on investment, let alone be a good asset to
preserve capital. Quite the opposite, they were almost certain losers.
Buyer Beware
In the ABC video, you’ll hear a sound bite from a client of Goldline who spent $5,000 on “collectible”
coins, saying that he wanted to buy bullion, but that the sales guy “kinda, sorta talked me into
buying these other coins.” Soon thereafter the buyer decided to sell
those coins and, when he did, he took a 42% loss. Which, he points out, was a
big hit to his net worth.
You can probably spot all the things wrong in that paragraph, but I’ll
do it anyway.
First, the disgruntled former client says he was looking to buy bullion
coins, but the sales guy switched him to a “collectible.” Whose
fault is it that he allowed himself to be swayed? Quoting Nancy Reagan, when
dealing with a salesperson, often times the best thing to do is “just
say no.”
Second, if taking a loss of about 42% on an investment of $5,000 really hurts
his net worth – he shouldn’t have been buying illiquid coins in
the first place.
Third, buying any “collectible,” or pretty much any asset, at
full retail and then turning right around and selling it, is invariably a
sure-fire ticket to a quick loss.
Finally, who is to say that the coin dealer that bought the coins off the
client didn’t lowball him? That, too, is part of generating a profit in
the coin business.
While I feel sorry for the former Goldline client,
he really can’t blame anyone but himself for that loss. He didn’t
do his homework or stick to his guns when the salesman tried to move him up
to a higher-margin product line.
As for the company, I don’t know them, but I do know that they spend a
lot on marketing and celebrity endorsements. It doesn’t take a genius
to figure out that money has to be recouped from somewhere –
specifically, the clients. Which is why I strongly suspect that, yes, the
company’s salesmen are especially aggressive. And that they try very
hard to load their clients up with high-margin coins.
Let me recap some lessons from this article, and based on my own brush with
the business.
First, if you’re going to become a coin collector, don’t think
you can stumble into it and enjoy any measure of success. Do your homework
– then do some more – before actually laying out your hard-earned
cash. Fortunately, there are a lot of useful resources out there for you to
rely on… pricing guides, auction results, and numismatic groups, to
name just a few.
More important, however, is that if you are not going to be a collector, then
stay away from anything but U.S. or Canada-minted bullion coins, or bullion
bars issued by the widely acknowledged mints such as Johnson Matthey.
Will the bullion products be exempt from confiscation, should it come to
pass? No. But trying to avoid confiscation by dealing yourself into a large
loss right out of the box by overpaying for an illiquid pseudo-collectible is
just silly… no matter what the sales person tells you.
What’s in the ABC Video That Should Concern You
While imminent confiscation isn’t really addressed in the ABC
exposé of Goldline, there were some things
that caught my eye as worthy of further reflection.
The first was the contention by the appropriately named NY congressman,
Anthony Weiner, that it was ludicrous to suggest that the government could
ever just confiscate a person’s gold. Excuse me? Deep breath. If the
Weiner were to repeat that contention to my face, the conversation might roll
out something like this…
“What!?! Did you actually just say what I think you said?”
“Why, yes, David, I did.”
“Are you kidding?”
“Why, no, David, I am not.”
“So, a government that can invade countries on false pretenses…
arrest people and throw them into prison camps and hold them indefinitely
without trial… whisk suspects off to foreign countries to be
tortured… hit targets in sovereign nations on the other side of the
globe with missiles fired from drones… declare imminent domain to take
private property in order to give it to a hotel developer… confiscate
homes because someone on the property, maybe not even the owner, is caught
with a marijuana cigarette… freeze the bank accounts of anyone
suspected of a crime, then not let them use their own money to defend
themselves… offer known criminals, murderers even, ‘Get out of
jail free’ cards if they testify against someone else… but they
wouldn’t confiscate gold? Oh, and by the way, Roosevelt already did it
once, you moron!”
“Who are you calling a moron? Security, we have a problem.”
Another deep breath. Pat hair back into place and resist urge to apply my
forehead to the keyboard.
But enough of Mr. Weiner.
The second thing that should concern you – and the EVP of Goldline tossed Stephanopoulos a soft pitch down the
middle on this one – was when he mentioned that his salesmen have
instructions to “advise” their clients on the best sort of coins
to buy. Paraphrasing Stephanopoulos, “But your people aren’t
licensed as investment advisors, are they?”
No, but I suspect that, if this witch hunt continues, they may soon have to
be.
Especially because a congressional committee has been set up to investigate
this serious matter. Surprise, surprise, the co-sponsor of the committee is
none other than Congressman Weiner. Apparently he was chosen for this
particular bit of dirty work. While all of this may be nothing more than
grand standing and bare-knuckle politicking, any time Congress gets involved,
pretty much anything can happen; keep your eyes open for a fresh assault on
the gold coin industry.
And, finally, the thing that probably concerns me most is that, whatever else
he is, Glenn Beck is a highly visible and apparently effective critic of the
current administration. Having failed to knock him off the air by unleashing
a well-financed boycott that
chased away many of his advertisers, it appears the Democrats are now
pursuing their vendetta against Beck by attacking the business practices of
the show’s largest sponsor. No matter what your opinion is of the man,
this sort of determined government-backed assault should make your antenna go
up.
Is Goldline an angel? Based on my experience with
the industry, probably not. But in this case, I’m not sure that that
matters as much as that they sponsor Beck’s show.
A Final Word – on Confiscation
Do I think confiscation is imminent? No.
But I do think that the straws in the wind point to yet more regulation. This
could ultimately place gold dealers under the watchful eye of the SEC or some
other Frankenaucracy that emerges out of the new
financial reform legislation.
I am not a fan of regulation – even if it sounds like a good idea. For
instance, to protect the ignorant from predatory salesmen. My rationale is
that this is not a perfect world and never will be. Humans can and will find
a way around every rule (witness the fact that Madoff,
the former head of the NASDAQ, was able to scam billions off clients). Therefore,
the sooner the citizenry learns that they have to rely on their own common
sense – and actually educate themselves – before reaching for
their wallets, the better. Having an implied government blessing over every
transaction does nothing but create a false sense of security.
But that’s just my particular, and some think peculiar, world view.
Back in the world we live in, any new regulations will, if nothing else,
assure that any private transactions between you and your favorite coin
dealer will become a thing of the past. The new reporting requirement on
purchases of over $600 pretty much makes that a reality.
With this new layer of reporting in place, should the sovereignty come to the
conclusion that it, versus you, should be in possession of your gold –
they’ll know whose door to knock on.
Of course, we can’t know if and when such a thing might occur…
but to pretend it can’t is to be naïve or, in the case of Weiner,
disingenuous.
In my article, “I Smell a VAT,” I touched on some ideas for how
you might protect yourself from a possible gold confiscation (none of which
involved buying overpriced coins.
There is one other option I didn’t mention – expatriate. Many of
the happiest people I have met in my life have their passport from one country,
residency in another, and money/gold in a third.
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As David says, getting your money – and maybe yourself – out of
the U.S. is one of the smartest strategies to protect your wealth from the
long and ever-growing arm of the government. Click here
to read our new report on the 5 best ways
of internationalizing your assets.
David Galland
Managing Editor, The Casey Report
David Galland is managing
editor of The Casey Report.
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