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How To Grow Your Gold And Silver Bullion

With the zirp, (zero interest rate policy) savings and bonds are not paying any significant interest. In Germany some bunds are paying negative interest rates. Few stocks are paying big dividends and most pay none at all. Everyone is trying to find a decent return on investment without taking on too much risk. The old 5 ¼% savings account interest rates that never seemed that interesting in the past now look mouth-watering.

One of the problems with precious metals has been the fact that they do not pay any interest or dividends. In today’s ZIRP market that is becoming less of a problem. However, some people have done quite well trading the gold to silver ratio. Simply trading their gold for silver when the ratio is high and trading their silver for gold when the ratio is low has proven to be quite profitable in terms of more metal at the end of the trade.

When trading gold and silver back and forth you always have a position in either one or the other. The object is not to worry about the price of either metal but to simply accumulate more metal at the end of your trades. In a long-term bull market in metals you will end up on top if you have more metal at the end of the decade.

The chart of the gold:silver ratio shows a long term ratio over the last 30 years. For the past 20 years or so if you traded your gold for silver when the ratio was 75:1 and then traded your silver for gold when the ratio was 50:1 you would have made the following trades:

December 1996          trade 10 oz gold for 750 oz of silver

December 1997          trade 750 oz of silver for 15 oz of gold

February 2003          trade 15 oz of gold for 1,125 oz of silver

March 2006          trade 1,125 oz of silver for 22.5 oz of gold

October 2008          trade 22.5 oz of gold for 1,687 oz of silver

November 2010          trade 1,687 oz of silver for 33.7 oz of gold

December 2014          trade 33.7 oz of gold for 2,527 oz of silver

Unknown date          trade 2,527 oz of silver for 50.5 oz of gold

Of course there would be premiums to pay depending on what form of silver or gold you purchased as well as sales commissions. These fees would make the trades less profitable than shown in our illustration but you get the general idea.

If you would have been careful enough to trade when the ratio was a little above 75:1 and a little below 50:1 you would have done even better. But why get greedy when these ratios are so easy to remember and execute? Just write them on the wall in big numbers and watch for them on the chart every few years.

At all times you would be holding a position in either silver or gold so you would still have a precious metals position throughout the entire time frame in either one or the other.

Also note that I did not pick the average tops of 80:1 or the average bottoms of 47:1. Tops and bottoms are hard to pick so I just chose a pretty conservative 75:1 for the top and 50:1 for the bottom.

If you have not swapped gold for silver in this current cycle you may still want to jump in and give it a try. Currently the ratio is around 73.3:1 and falling. So now you might want to hurry and trade some gold for silver. It is a pretty boring trade where you only swap every 1 to 6 years but with patience it can pay off pretty well for an asset that doesn’t pay any interest of dividends.

 

by Larry LaBorde

Portfolio Rebalancing in 2016

Volumes have been written on portfolio rebalancing and in spite of that very few people bother to ever rebalance their portfolio. Most people spend more time planning their vacation than they do planning their investments. It really does not have to be that hard. All too often one falls prey to their emotions buying this or that based on a “hot tip” from their brother-in-law. The truth is investing is very boring and requires a great deal of patience. It is difficult to remove all the emotion from the equation. People panic with the herd and end up buying high and selling low unless they have a plan.

 

One of my favorite movie scenes is from the movie “Caddy shack” where Rodney Dangerfield is on the phone with his stockbroker while playing golf. He says “buy, buy, buy! Oh, everyone’s buying? Then sell, sell, sell…”  In spite of the humor that is exactly the opposite of most people’s inclinations. The majority lose money because they let their emotions take over their investment plan.

 

I recommend taking the time to rebalance once a year. Of course to rebalance you need a plan. After several years many investors end up with no clear plan because they never take time to reevaluate. You can see many of the greatest investors’ plans in the book, “Master the Game,” by Tony Robbins. My personal favorite investment plan is Harry Browne’s famous “all weather permanent portfolio” which was introduced decades ago: 25% stocks, 25% gold, 25% bonds, and 25% cash; rebalance every year and leave it alone.

 

After many years of trying I have come to the expensive conclusion that I am not a good stock picker. I have had some really good picks in the past, but unfortunately my timing was usually too early. Churning your account is a recipe for loss in most instances. Very few traders make money competing against high speed computerized trading programs. This is where a good plan and disciplined execution comes into play. It is where you can take the emotion out of the equation as best you can. You just need to find a mix that you feel comfortable with and stick to it. For several reasons, the following is my favorite investment allocation plan:

 

DISCLAIMER ALERT:  I am not a financial advisor and this sample allocation is for illustrative purposes only. Any funds invested should only be done after you perform your own due diligence.

 

25% Precious Metals

10 percent gold bullion // 10 percent silver bullion // 5 percent mining stocks

I like precious metals because they are wealth completely independent of the banking system. They are a vote of no confidence in the government and their ability to operate responsibly. I recommend holding them yourself and not in your brokerage account. If for any reason you simply cannot hold or store your own bullion then I reluctantly advise the Central Fund of Canada (CEF) as a means of holding precious metals. As for the five percent mining stocks, try to stay away from small cap mining companies, as most are long shots that end up worthless. Try a mid cap or large producer, or even a royalty streaming company such as Royal Gold (RGLD) or Silver Wheaton (SLW).

 

25% Stocks

Even though the US market is overpriced by several metrics, the rest of the world seems to be worse and hot money continues to pour into the US market. I suppose it is seen as a safe haven right now. Since I am not a stock picker I advise 20 percent in Vanguard’s US 500 stock index fund (VTFIAX). It has a very low expense ratio and tracks the US market. The last five percent is where you can go wild and buy some of that stock your brother-in-law said you “have to have.” Five percent gives you enough to play without too much risk. You could put the last five percent in the Fidelity Defense fund (FSDAX). As Richard Maybury says, “War has always been a growth industry in the US.” Not to mention the world seems like a powder keg these days and all the adults are running around with lit matches. If playing in the stock market does not sound like fun then you could put all 25 percent in the Vanguard index fund and forget about it until next year.

 

50% Cash 

Having a high cash allocation gives you the freedom to act on a good deal and take advantage of undervalued opportunities. Without cash you have no power to buy. My father always kept a large percentage of his wealth in cash so he could jump on once in a lifetime opportunities when they came along. I remember an equipment auction in the 1980s where Dad walked in with cash when no one had cash; there were incredible deals that everyoneelse had pass on. He taught me that day that without the capital to act I could watch life-changing opportunities just pass me by. Fortunes have been made buying stocks at extreme market bottoms, but it’s impossible to do so without ready cash. Place your cash in short term US treasuries, bank deposits (always less than $250,000 per bank), and keep on hand at least three to six months expenses (in small bills held outside of the banking system).

 

Note: High yielding corporate bonds may be something to look at in five to ten years with some of this cash. For now I don’t think the risk in bonds is worth the effort. Bonds are not paying much interest right now. If interest rates go up (they cannot go much further down) then the current bonds will pay very little interest and lose much of their original value.

 

You will find that your percentage allocations will ebb and flow, some go up and others go down. Once a year sell a bit of the winners and buy some more of the losers; rebalance back to the percentages in your plan. This may seem counterintuitive, but without rebalancing and sticking with your plan your portfolio will get lopsided. Past performance does not guarantee future results.

 

This is my plan. Spend some time coming up with your own plan, write it down and follow through. Never carve your decision in stone but practice discipline and try to stick with your plan. Sometimes things change and the plan requires adjustment, minor changes when necessary are good. What you are trying to avoid is getting caught up in the short game when you’re playing a long game.

 

Patience.

 

By Larry LaBorde

Should I Buy My Dream Home Now?

Dear Fred,

 

 I am writing in response to your question, “Should I buy a bigger house now so that my adult children will have a place to stay when they come home to visit because interest rates are so attractive?”

As you well know there has always been trouble in the world. I have studied cycles in history and as they state in the book, "The Fourth Turning" history is not linear but more like a vertically extended slinky. While history advances, it does so in cycles that run approximately 80 to 100 years per cycle (four generations). The Russian economist Kondratiev in the 1920's came up with the K wave cycle of 50 or so years. Stalin didn’t approve of his work since it did not predict the end of capitalism and had him killed by firing squad in 1938, but that is another topic. Then there are cycles within cycles such as Martin Armstrong's work exemplifies based on a multiple of pi. The Old Testament also talks about seven year cycles and the seven times seven year cycle that results in the 50 year jubilee. The debt forgiveness during the jubilee is necessary to wash out the excess debt buildup in the system. (If you have ever played a very long game of monopoly the banker ALWAYS wins in the end---never forget this when trying to outsmart the bank.)  

I feel that we are currently entering into a long term economic winter (20-25 years in duration) as a result of the build up in debt that is currently overwhelming the system. We have tried everything to put it off including changing the bankruptcy laws that make it harder to enter into bankruptcy. We have lowered interest rates in order to allow us to take on and service even more debt. The world's central banks are entering into "negative interest rates" in order to encourage consumer spending and discourage savings. Competitive currency devaluations also tend to discourage savings and encourage spending. People tend to forget that Capitalism at its very heart is about accumulating capital through savings to purchase the economic tools (backhoes vs shovels; factories vs garage industries; trucks vs draft wagons) that allow the overall standard of living to increase for all of society. When Capital is destroyed, squandered on silly public works programs (bridges to nowhere) or misspent on consumer items then there is less to invest in the very powerful capital intensive tools that allow us all to live better through an increased standard of living for all.

Bill Bonner writes that economics has become a complex mathematical discipline in the past 75 years where people in power can just adjust the dials and pull the right levers in congress and at the Federal Reserve and the economy will respond like a machine. The truth is the economy is 7 billion people (a huge living organism) that is beyond the control of a few people. Each of these 7 billion souls is making individual decisions based on their own best interest (as well they should) and that the entire complex world does not respond to the tinkering of a few individuals. God has made us all with free will to live and prosper in an amazing complex society. It is my belief that the purpose of government is simply to provide a very loose framework so that we can all operate within this grand chaos and that it should simply act as a referee so that we do not harm the weak or each other. I believe that economics is more a philosophy and not a science. That being said, we should always watch out for "heard mentality" in society and therefore in economics. As Charles Mackay said, “Men go mad in herds, while they only recover their senses slowly, one by one.” I believe cycles will eventually trump the few men and women behind the curtain trying to operate society as a machine.     

Now we come to your question of a long term low interest mortgage on a larger home in today's current economic climate. Dad once said (he was quoting someone and the name eludes me) that there are two ways to deal with the bank. The first is to owe them nothing the second is to owe them 110% of all you own - anywhere in the middle is a dangerous place. Keep in mind that Dad was a banker in the late 1960's. In other words if you owe them 110% of your loan they will work with you and extend you terms and do everything possible to avoid foreclosing on you because they will suffer a loss. If on the other hand you borrow 50% from the bank and put up 50% of your funds you are in a perilous condition. If your investment suffers a 40% loss and you cannot pay they will swoop down, foreclose and sell your property at a discount where they will recover all their capital and you will loose all of your capital. Just keep this in mind.

A home is a normal person's largest investment and it is usually a poor investment when all is factored into consideration, however, you gotta live somewhere. Once you realize that a home is more of a lifestyle choice and less of an investment it is easier to move forward with your decision.   

So the big question is, will the banks remain solvent and will the economy muddle along for the next 30 years so that I can pay off my low interest mortgage? Or even better; will the banks remain solvent and will the economy soar in the next 30 years so that I can pay off my fixed interest 30 year mortgage with my lunch money? Only God himself knows for certain but if cycles are correct we are entering (or have entered) into an economic winter. If you feel your jobs are secure and if the banks (nation, economy, currency) will remain solvent for the next 30 years then you will come out on top. There are a lot of unforeseen hazards or black swans that could cause problems on the horizon. In an economic winter all sorts of crazy leaders and theories arise. If you read "The Roosevelt Myth" by Joe Flynn he has one chapter entitled "The Dance of the Crackpots" in which he details all the crazy economic suggestions that were put forth (some were even tried and failed miserably) during the beginning of the great depression during the "first" new deal. The last economic winter brought forth the fall of Russia and the rise of communism, WWI, the great depression, the collapse of world trade and several other major financial upheavals. It is NOT the end of the world, it is just a little economic madness for a while. Eventually people come to their senses (reread the quote above from Mackay), the debt is forgiven and economic spring begins again.

There will always be cycles and we simply have to live in the economic cycle in which we are born. I suggest that you prayerfully consider wise council from multiple sources (certainly do not take what I am saying as the unvarnished truth) and do what you feel is right and gives you peace in your decision. Perhaps look for a great bargain, maybe a smaller fixed rate 10 year mortgage, maybe a place you can buy now and easily add onto later, maybe a larger piece of land with a nice house that will allow room for one or two small guest cottage(s) a little later as finances permit. My only recommendation is to avoid a large long term debt that does not give you any flexibility in the future in case things get difficult.

As Mark Twain once wrote, "I apologize for this long letter but I didn't have time to write a short one."

 

Your friend,

Larry LaBorde

Master the Game

I recently finished Tony Robbins’ latest book, “Money, Master the Game,” and I highly recommend it. Many of his suggestions in the book are really simple ideas that everyone knows about, but few execute well. Robbins shines as a personal coach and motivator; he has a good way of taking these ideas and turning them into powerful, effective action steps.

 

In true motivational style, he guides his readers to visualize a future at different levels of wealth. He then directs the reader to his website where a series of questions allows one to see and outline explaining whether those levels of wealth are or are not attainable on this new trajectory. He shows us how to dream and envision ourselves in a great future and then teaches the reader how it can be obtained. He reveals how everyone can save and invest for the future with a plan. Even the most skeptical reader will see where a little funding can be found to start your retirement account right away if you want it bad enough. He then directs the readers’ attention to where even more funds can be added along the way without too much pain. He poses the question then provides a pretty satisfying answer to one of the biggest secret fears of my boomer generation, “will I outlive my savings?”

 

In the book he covers such topics as: managing risk, portfolio rebalancing, asset allocation, reducing fees, saving more and rewarding yourself along the way.  While the book is written for beginners and covers basic terms he also gets into structured notes and market linked CDs (certificates of deposit) that protect your downside risk as well as REIT (real estate investment trusts) on assisted living centers that allow you to capture the real estate upside as well as the upside of the business end of the center all while reaping the depreciation tax benefits. He discusses the benefits of hiring fiduciary experts and the fees they charge as opposed to listening to your broker’s advise.

 

In “Money, Master the Game,” Robbins suggests the reader watch a video by Ray Dalio. It is a 30-minute mini-movie, “How The Economic Machine Works,” which does an excellent job explaining the business cycle. I highly recommend that you invest 30 minutes of your life watching this short simple video at www.economicprinciples.org. This was one of my favorite gems from the book.

 

Robbins goes on to interview Ray Dalio, of Bridgewater Fund fame, in the book and that interview alone is worth the price of the book. Dalio’s “all seasons” portfolio is a “set it and forget it” fund (except for yearly rebalancing) that is quite easy for the average investor with mostly ETFs and index funds. I won’t spoil it for you, but Dalio recommends a 7.5% gold allocation in his mix. In a shameless self-promotion I invite you to visit www.silvertrading.net to fill this allocation in your portfolio!

 

An investment portfolio can be as simple or as complicated as you wish. The beginning investor should not feel overwhelmed as you can make a simple plan and get a good return. Or the more sophisticated investor can make a more complicated plan and get a bigger and better return. However you handle your retirement planning I believe you can glean quite a bit of useful information from this book. For example Robbins goes into detail about the good, the bad, and the ugly concerning annuities and PPLI (private placement life insurance), he also talks about index funds.

 

Near the end he supplies personal interviews with a dozen of the greatest investors of the last few decades. My favorite was an interview with Marc Faber, who has hosted the New Orleans Investment Conference a few times and is a delight in person. He finishes strong with how bright the future really is due to technology and man’s relentless push forward, as well as his personal secret to living (it’s pretty simple but you have to buy the book to find out).

 

So there you have it: how to make a great plan, motivation to execute that plan, good stories, and a happy ending. What more could you want in a book? There’s a reason it’s a best seller. Enjoy!

 

 

 

by Larry LaBorde

What This Country Needs Is a Good 5 Cent Nickel

If you go to the website, www.coinflation.com today you will find that the composition of a nickel is 75% copper and 25% nickel.  Originally only silver dollars were real money at .77 troy oz of silver per dollar.  Dimes, quarters and halves were 90% silver just like the silver dollar but 2 halves, 4 quarters or 10 dimes only had .715 troy oz of silver.  The difference was seignorage or the cost of making the smaller units.  The lowly penny and nickel were mere tokens that were not really worth anything near their commodity value. 

 

In 1965 due to LBJ’s guns and butter programs 90% silver coinage was removed from circulation because the commodity value of the coinage exceeded the face value.  Dimes and quarters became tokens and Kennedy halves were reduced to 40% silver for a few more years until they to became mere tokens as well.  Today all commonly circulated coins are just tokens.  However, the old pre 1982 penny with a copper content is now worth a little over 2 cents.  The new penny that is 97½% zinc has risen to almost 60% of its face value.  The commodity value of the nickel is now almost 90% of its face value.

 

Back in 2011, Texas billionaire, Kyle Bass purchased 20 million nickels that at the time had a commodity value of $.068/each.  In other words he invested one million dollars that was worth $1.36 million dollars with a downside floor of 1 million dollars.  When the Federal Reserve asked why he wanted 20 million nickels he is rumored to have replied, “I like nickels”. Today those nickels have a commodity value of only 0.896 million dollars, however, he can always deposit them at the bank for 1.0 million dollars at any time.  Not a bad investment.  No downside – only upside.

 

 

In several countries around the world there have been overnight currency devaluations where say 10 old units were worth 1 new unit the next morning to everyone’s surprise.  The new paper dollar or peso or whatever was usually a different color than the old paper currency.  The banks just adjusted everyone’s balance and the general population was given a brief period of time to turn in the old currency for the new currency at a rate of 10 to 1 before the old currency became completely worthless.  Normally when this happened the coinage never changed.  It was just too difficult to call in all the loose change and re-mint it in a new design.  So if 10 coins equaled one old paper currency unit before the devaluation then the same 10 coins equaled one new paper currency unit after the change over.  There just was not enough change out there to worry over so if you had your savings in hard change in milk jugs sitting around the house you were OK. However, if all your savings would fit in a few milk jugs then maybe you were not OK after all.

 

 

The US Mint will probably catch on pretty soon and change the metal composition in nickels to all zinc or maybe even cheap steel.  There has been talk of discontinuing the penny and the nickel altogether and just rounding up or down to the nearest ten cents.  Gresham’s law will kill the present nickel one way or another.

 

 

In the meantime, for those of you who have a little extra room in your safe and are too lazy to bolt it to the floor just add some weight to make it harder to cart off in the middle of the night.  Just ask your friendly banker for a $100 box of nickels (2,000 coins) that weighs 22 pounds and is the size of a small shoebox.  You may want to tell him you will want one every week and to please have one ready for you.  If copper and nickel go back up to 2011 prices each $100 box will be worth $136 (who says the bank doesn’t pay interest any more?).  At worst you can bring them back and deposit them in your account for what you paid for them.  At best……....well you and Kyle Bass can figure that one out.

 

by Larry LaBorde

Is It Time to Buy PM’s?

I am often asked the above question several times each day.  It looks like a triple bottom is shaping up in the near future.  Gold is getting close to its cost of production.  The gold/silver ratio is going higher indicating that silver is the better value of the two at present.  But sitting back and taking a look at the big picture consider the following top 10 list:

 

  1. Growth of the Federal Government.  The followers of Lord Keynes have the controls of power firmly in hand.  A larger central government = larger central power (central planning) = larger drag on the real economy.  Ask any small businessman (if you can still find one) about the costs of taxes, regulations and licenses.
  2. Federal debt.  Extinguishing debt is mathematically impossible with our system of money / debt.  The biblical Jubilee called for all debt to be cancelled every 50 years so that excess debt could be washed out; otherwise one person would end up owning everything with enough time.  Our federal debt is officially listed as $18.2T based on a cash accounting system.  (Based on GAAP the debt is estimated at $100T more or less.)  Our entire yearly federal budget is only $3.8T.  Our yearly national GDP is only $17.5T.
  3. Private / corporate debt.  Since 2007 private, corporate & financial debt is down by about 50% of GDP.  However, the federal government has increased their debt by about 33% of GDP.  While most households and businesses are trying to get their financial houses in order the federal government debt is rocketing higher (classical Keynes reaction).  All this additional public debt is causing a drag on the real economy.  If interest rates rise from the present record low rates we will find ourselves in big trouble.  That is a bet I would not make.
  4. Derivatives.  Speaking of debts that I would not make concerning interest rates the worldwide derivative market is estimated to be around $1,000T.  The top 5 US banks hold around $290T.  Most of these derivatives (or bets) are based on interest rates.  Just for the record, $1,000T is about 14 times the total world GDP.  Hopefully all the counterparties will remain solvent if interest rates rise and it all unravels in an orderly fashion (LMAO).
  5. Casinos and Mega-banks.  The local intra-county banks of my childhood are mostly all gone.  Banking is a special privilege where money is created through the process of loaning it into existence.  Therefore intra-county banking was only allowed because the profits from that magic were supposed to stay in the local economy.  Mega-banks in New York suck the life out of local communities and transfer that wealth out of town at the end of every day.  Casinos pretty much do the same thing in most communities.  The house take on all gambling pretty much leaves town every night minus a little local payroll and local taxes.   Both casinos and mega-banks suck the lifeblood out of communities given enough time.  The too big to fail banks are also now even bigger and have become too big for bailouts.  Watch out for bail-ins in the future (as per IMF recommendations).
  6. Monetary policy.  The current zero interest rate policy or ZIRP has allowed the federal government to expand its debt load, however, the unintended consequence is that savers have been forced into speculation.  Years ago middle class workers saved at the local bank and received interest of 5% or so in passbook savings accounts and a little more with certificates of deposit in time accounts.  The ZIRP has forced these savers into speculating in the stock market in search of yield.  Furthermore the competitive currency devaluations between countries are a race to the bottom.  No country in the history of the earth has ever achieved long-term prosperity by devaluing their currency.  This is simply insane and will result in inflation or worse when velocity finally increases.
  7. Central bank balance sheets.  The federal reserve balance sheet has ballooned to around $4.5T (no telling how much of that is worthless).  The IMF (the central bank’s central bank with Christine Lagarde at the helm) can generate fictional SDR’s at will (currently worth about $1.5/each).  Their balance sheet is only around $0.5T so there is room for expansion here it seems.  Look for more money (not wealth) to be generated at the IMF in the future.
  8. US stock market.  The p/e ratio of the Dow 30 is getting a little high which says a correction is in the air.  This may take longer to come about since with all the trouble in the world the US is still seen as a safe haven and people in troubled parts of the world like to park their wealth here in times of uncertainty.  Just for a better feel for the numbers the market cap or total value of Apple is $0.6T.  The total market cap of the largest 50 US corporations is around $10T.
  9. Foreign intervention.  George Washington warned us against “entangling alliances”.  Eisenhower warned us against the “military industrial complex”.  General Smedley Butler said the US Navy should not be allowed more than 600 miles from the coast of the continental US and that we should have the strongest DEFENSIVE military ever to protect our shores. In an effort to prop up the USD we have ignored them all.  At present it seems that we are trying to reignite the cold war with the Russians.  Pipeline politics has become the mission of the State Department.  The BRICS nations seem to be aligning against us economically as a result of our misguided foreign policy.
  10. 10.  But the number one reason to buy PM’s now is simply because you still can get them.  During the 2007 / 2008 crisis the PM market seized up.  Bullion dealers in the US had to suspend trading because orders had backed the system up and we had to wait days for it to clear before we could take further orders.

 

by Larry LaBorde

Crew’s Log

I just returned from a guy trip. Most who know me are aware that I have played on sailboats for the last 35 years. I have done a little cruising in the BVI, the Great Lakes, both coasts and several inland lakes. We also raised our children racing as a family on several kinds of boats, primarily Thistles, all around the country. But this time was different. I sailed from the Chesapeake Bay to the Bahamas in one hop – six days and five hours – with a couple of guys. Really, it was more than a sail, more than a simple guy trip; it was an adventure and I’m sure glad I said yes.

 

It all started after one of my son’s high school classmates read my last article and just happened to be back in town. The lovely Miss Puddy and I taught him, and his twin brother, in Sunday school 30 years ago. Who knew we would meet again as adults and go on an adventure together? In his previous life Captain Tim had traded energy futures, worked for a hedge fund and then disillusioned by the whole sorted business just sailed away to the Caribbean on his 36-foot sailboat. After a few years of leisure cruising he landed in the Dominican Republic for a while. He returned to Louisiana via South Africa this spring and after he happened upon my latest column on the Internet he gave me a call. We had lunch and talked sailing. He mentioned that he might be bringing a boat to Bermuda for a friend. Another skipper would ferry it down to the Dominican Republic for the second half of the trip. Somehow I let slip that if he needed help with the transport to just give me a call, as I had never sailed on a long North Atlantic trip.

 

A couple of weeks later an email appeared in my inbox from Captain Tim asking if I wanted to go to Bermuda. After about two seconds of consideration I tapped out “yes!”  And so it began…

 

Captain Tim flew ahead and checked out the boat for a week or two. I scheduled a little time off work while we waited for a one-week weather window to depart.

 

The following is an account of my blue water adventure:

 

Thursday April 17th:

The trip is on for the middle of next week. Buy airline ticket and be in Richmond, VA, next Tuesday. My sweet wife happens to leave today to visit our daughter and new granddaughter in Michigan.

 

Friday April 18th:

Dig out my son’s foul weather gear just in case I need it on the trip.

 

Saturday April 19th:

Home alone with the dogs. Taking care of last minute business details all day.

 

Sunday April 20th:

Wash any clothes that I need and start a short list of items to pack.

 

Monday April 21st:

At the office all day squaring things away. Tell everyone I will be gone four or five days. Come home; realize that I really should pack. Cannot find old duffle bag so made a late night run to Wal-Mart to buy soft luggage for the boat.

 

Tuesday April 22nd:

Fly to Richmond and meet Captain Tim at the airport. He tells me there is a change in plans (first of many). The boat owner wants us to go to the Bahamas instead of Bermuda, as the insurance surcharge would be an extra $5,000 for going so far offshore. We stop by the grocery store to provision the galley.

 

Wednesday April 23rd:

Gregg drives down from the upper Chesapeake Bay area to join us as our third.  We make a quick trip to the local West Marine for last minute items. Run last minute checks on the 2007 49-foot Beneteau sailboat and make sure we are ready to depart early tomorrow morning. We have several beers at the dock to celebrate our impending departure.

 

Thursday April 24th:

We’re up early and cast off around 7:00 am and slowly motor out of the harbor and into Chesapeake Bay. It’s quite cool but the water is pretty flat. We motor through the channel, dodging traffic and getting used to the navigation system. The navigation system has all the charts with navigation aids incorporated into the system with GPS tracking on the chart. This is all saved to the autopilot and displayed on a 12” screen at the helm. We raise the sails and cruise past Hampton, Newport News, and Norfolk, then over the Chesapeake Tunnel and into the Atlantic. As we round Virginia Beach and I go below and prepare salad, baked potatoes in the gimbaled stove and pan-fried rib eye steaks on the range for our first dinner at sea. Everything is great and I’m getting a bit of experience cooking on a gimbaled oven/stove in the little galley. It’s sort of like the Airstream (going up and down a very bumpy road with several tight curves). The winds are about 10 to 12 knots and we’re making seven knots or so under sail. It has been a great first day. We decide to take four-hour night watches. Captain Tim takes the first watch from 8:00 pm until midnight, Gregg decides on the second watch from midnight until 4:00 am and I volunteer for the last watch from 4:00 am to 8:00 am. The plan is for us all to keep an eye on things during the day, but only one person up on deck at night so the other two can sleep.

 

Friday April 25th:

It’s cold on my watch so I wear a thermal layer beneath my foul weather gear while on deck. The autopilot drives the boat, but we make minor course corrections for the wind changes to keep sailing on course. The sunrise is quite spectacular. Shortly after sunrise several large fishing boats come charging out of Cape Hatteras heading due east while we round and then turned slightly Southwest along the North Carolina coast. We still have cell phone coverage so I call Puddy and report our position, speed, and direction. I take a short nap and awake to “the washing machine”. The wind has picked up to 20 knots and the seas are angry. The boat pitches up and down, side to side and then yaws (all at the same time). Captain Tim complains that this particular boat doesn’t seem to have enough handhelds above or below. My bruising starts today. It seems every corner in the galley, at the navigation station and in the head is out to hit my hips and/or legs. I relearn how to walk in a strange sort of dance trying to keep my feet under my body as the boat moves beneath me in a random, unpredictable manner. The canvas bimini cover rips and tears away from the frame. I cut away the remaining canvas, trying to keep my balance while wielding a sharp knife. We have jack lines on the boat, this means I’m wearing a harness with a lanyard connected to the life line so I won’t fall overboard in the storm. However I could fall and hit any number of other things in the process and acquire yet another bruise (did I mention I am holding a sharp knife and standing on the transom of a boat pitching violently?). Later that afternoon after sailing for 35 years I experience my first bout of seasickness. So this is what my sweet little wife complains about whenever she forgets her medicine. Not even a ginger snap on the boat. Just suck it up, skip dinner and go to bed early. I wedge myself into my bunk to keep from rolling around and fall asleep exhausted. Tonight my dreams consist of jumping ship and swimming to shore at Myrtle Beach, or maybe Charleston.

 

Saturday April 26th;

Up at 4:00 am for my watch, feeling a little better. We have just cleared Cape Fear. The shoals go out quite a bit east of the Cape and we are trying to keep a safe distance from their wrath. There are also shoals south of the cape that we try to avoid in the dark, just to be safe. On deck Gregg has made several tacks trying to clear the shoals south of the cape but the wind is being difficult. Captain Tim suggests we forget about following the coast down to Charleston. The wind has shifted southeast and we will be head to the wind down to Charleston. So we change course and head due south out into open water. The moon is low and bright on our port hip. The stars are out in a clear sky and visibility is pretty good tonight. The wind is up and it’s a close reach headed south. The boat sails like a dream in light seas. It is possibly the best sail of my life. After Gregg and Tim go back to sleep I am alone on deck and all is right with the world. The sun comes up and it is a beautiful day. I grab a short nap after my shift. I wake up and get a bowl of granola cereal with blueberries and go up on deck. A large sea turtle swims by headed north against our course. We have entered the Gulf Stream and have turned from due south to southeast in order to get across it quickly.  The current is about 2-3 knots and is trying to carry us back North. We’re out of the Gulf Stream before nightfall and turn back South. I break out the satellite phone and call Puddy to give her another position, course, and speed.  Captain Tim cooked chili this afternoon which is perfect as my stomach is finally ready for a full meal.

 

Sunday April 27th:

Up at 4:00 am for my watch. Seas have picked up and Gregg has spent his watch sitting under the dodger with his feet on the companionway steps.  Big lightning storm in progress off the port bow a few miles off. Gregg said it was all around us earlier during his watch. The boat is pitching pretty good so I follow Gregg’s lead and sit in the front of the cockpit on the companionway and jam my feet on the corners of the top step and hold on tight for four hours. Thankfully the autopilot does not kick out and I’m able to stay fairly dry under the dodger. I watch the stars through the starboard side of the dodger and they remain in roughly the same place. The moon stays on my port hip so we are still moving in the same direction for four hours. I pray, I sing hymns, I sing any and every song that I can think of tonight. My stomach is now used to the sea and behaves. I eat a quick breakfast after my shift and catch a short nap. By the time I awake from the nap the storm has blown over. A pod of a dozen or so dolphins swims with us for an hour or more. I cook the last rib eyes and prepare the last of the salad for an early dinner. I call Puddy on the satellite phone once again and reported our position, speed, and direction. We are about 300 miles East of Jacksonville, FL.  Since we are now well out to sea I start marking our position on the paper chart at the nav station once or twice a day just in case the electronic nav system fails. We stay up late and talk this evening as the winds have dropped and it’s pleasant on deck. We talk about sailing and we talk about the state of the economy and we talk about our lives in general. I’ve always appreciated how well you really get to know someone on a small boat. I turn in around 11:00 pm.

 

Monday April 28th:

Up again at 4:00 am for my watch and the seas are kind. The wind is about 15 knots and we’re tacking our way due south, back and forth every few hours. Just before my shift is over Captain Tim comes up and we decide to tack the headsail.  I set the autopilot to tack and man windward wench, while Captain Tim is at the leeward wench. Halfway through the tack the headsail catches the mast spreader and RIIIIIIIPPPPPP.  The sail tears a four-foot gash along the seam right at the mast spreader. We quickly furl the headsail before it’s damaged further from the wind. Without the headsail we cannot sail on the wind closer than 70 to 80 degrees. We start the little Yanmar diesel and begin to motor due South straight into the wind. We’re making decent time at about three and a half to four knots. Did I mention the owner only has one headsail on the boat? We can’t find a sewing kit anywhere onboard. We have over 100 gallons of fuel left so we should be okay. There is only about 200 miles to go. I cook red beans and rice with sausage for dinner and we stuff ourselves with the last of the fresh food.  After today we are going to have to hit the dry rations. We talk of movies and Captain Tim mentions the boat has a copy of “Fight Club” in its inventory. As I have never seen it and the seas are light we decide to have movie night down below while Tim runs up and down on his watch. Great movie but I will need to watch it again after the surprise ending. Go to bed running the movie back through my head trying to remember the earlier parts and make sense of them.

 

Tuesday April 29th:

Up at 4:00 am and the little engine that could is still chugging away. If everything holds together for another 24 hours we should make it to the Bahamas. I watch the oil pressure and engine temperature like a hawk. Everything seems fine. I go over our options if the engine does quit for some reason and we can’t get it restarted. Since the wind is out of the south we could raise the mainsail and put the boat on a beam reach and just head west. The Gulf Stream would catch us and carry us north a bit since we would be moving slow but we should reach landfall somewhere around South and North Carolina… in about three days. We should have enough dry food to hold us over and there is plenty of fresh water.  We would not complete our trip but we would be fine if the wind held up. The little Yanmar engine just keeps on keeping on throughout my watch. This early morning is a fine morning and as I sit at the wheel I thank God for just how lucky I am. I’m on a great trip, have a wonderful wife and family, and have lived a great life so far.  I feel truly blessed.

Since we left we have been trailing a fishing rod with a single trailed line. As it just so happens… today, the very day we have run out of fresh food, we catch an eight to ten pound Mahi-Mahi! We carefully reel the fish into the boat, pour some gin on its gills and it quickly and mercifully dies on the deck after only a second or two. We set to work on our catch and cook half for lunch then the other half for dinner. We are miserably full all day, what a great fish. God provides just when we most need it. I call Puddy on the satellite phone and report in at about 50 miles north of the Bahamas and then I fall asleep.

 

Wednesday April 30th:

Up at 4:00 am for my watch. Our watches are becoming a part of our body clocks. We have reached the outer banks of the northern part of the Bahamas. I motor around the northeast edge in the dark, being careful to stay at least 12 miles off the reefs, until we reached Whale inlet where we should sail through the reefs and into the shallow waters of the Bahamas at dawn. The chart shows the current seas to be thousands of feet deep. Just an hour or so before daylight I turn 90 degrees to starboard and head straight for Whale inlet. The sun is up as we near the inlet around 8:00 am. The depth gauge shows the bottom quickly rise and all of a sudden we were through the cut and the ocean floor was only 25 feet below us. We sail toward Marsh Harbor on Grand Abaco Island for about four hours on a shallow sea of crystal clear glass smooth waters only 10 feet deep. The Bahamas at last! The little engine that could has held out for us with plenty of fuel to spare. We radio the harbor and are assigned a slip.

 

 

After six days and five hours we tied up on the dock and set foot on land once again.  We brought our passports to the office and they called a customs officer to come by and check us into the country. The dock master suggested we wait in the bar and have a few drinks and a snack since it might be an hour or so before she arrived. The customs officer came to the bar and welcomed us into her country, examined our forms and stamped our passports right in the bar.  There were no metal detectors, no lines, no automatic weapons, and no silly questions trying to trip us up. Captain Tim then walked out on the pier and showed her the boat and that was that. The Bahamas is such a civilized country! We celebrated our passage and toasted the Yanmar diesel engine several times. I booked my flight home in the bar for the next day but vowed to return and sail around the Bahamas with Puddy and enjoy the smooth waters with her another time. I showered ashore and finally shaved a week’s worth of grey beard. We had ribs with new friends we met from South Africa at the bar across the harbor that night and then the next morning I was off at the airport and my adventure was over (except for the trip home by air, but that’s another more boring story).

 

It has been a couple of weeks since I returned and I still have a goofy grin all over my face whenever I think back on my sail. We sailed through rough seas and storms and beautiful sunrises and sunsets. Even a 49-foot boat can seem small in the middle of the great North Atlantic at night with a vast sky full of stars.  It can be a very humbling experience. You also learn to fully trust someone when you hand over the helm to your crewmate during a storm and go below and fall asleep. You depend on each other and God to get your through the storms. I suppose it was not that dangerous, but at the time it felt like we were living on the edge.

 

In a world where we could spend days reading about out of control government spending, too much debt and the economic collapse that is sure to come it is easy to forget to live our lives one day at a time. Most important of all we must remember to enjoy every day as a unique, personal gift from God. So make out your bucket list and start checking items off!

 

by Larry LaBorde

Who Is This Guy?


A couple of weeks ago my adult son returned to Louisiana from the UAE to participate in one of his friend’s wedding.  I invited him to lunch at the Downtown (KDTN) airport near my office.  Since the cooks had taken control of the thermostat in the little café the air conditioning was working overtime and it was uncomfortably cold.  We opted to sit outside on one of the picnic tables next to the parking ramp for the transit airplanes and enjoy the sun.

 

There on the ramp of the little commuter airport was a bright shinny Gulfstream G5 with USCG painted on the side and the engines idling.  Being inland about 260 miles from the Gulf of Mexico we don’t normally see too many USCG airplanes in our part of the world.  We certainly don’t see any G5’s at the downtown airport as the larger municipal airport has a much longer runway and BAFB is just across the river with an 11,000’ runway and is a military airbase more suitable for the USCG.  We asked our waitress who was visiting.  She said that she would ask and let us know when she brought our hamburgers in a few moments.

 

The Gulfstream G-V is no small business jet.  The price tag starts at $55M and goes up from there.  It carries 16 passengers with a crew of 3 on the flight deck and 2 stewards.  It travels at 600 mph and can travel about 7,000 statute miles (which is adequate for a transatlantic crossing).   We both wondered what the USCG who is tasked with protecting the US coastal regions needed such an airplane for in its mission.  This plane was suitable for the Sultan of Brunei or Prince Albert of Monaco. 

6-2ll

  

Just as our hamburgers arrived and we were informed that the plane was for Jeh Johnson a parade of sorts arrived.  We quickly googled Jeh Johnson and found out that he was the Secretary of Homeland Security and 18th in the presidential succession line.  We looked up and saw 6 motorcycle policemen, followed by 6 black SUVs with blacked out windows, followed by 4 white SUVs with blacked out windows (carrying LA State Police officers), followed by 2 airport security cars. The terminal doors flew open and a covey of security men in suits ran onto the ramp and all talked into their sleeves at once.  The white SUVs circled the plane and parked between the airplane and the terminal building.  LA State Troopers jumped out of the white SUVs in BDUs and took up positions. 

 

My son and I looked around at the sleepy little airport and it seemed that we were the only ones near the ramp sitting on the other side of the 3’ cyclone fence trying to eat our hamburgers.  Apparently one of the troopers thought we looked threatening with our hamburgers and while about 20 yards away from us, drew his weapon and placed it under his elbow in a strange sort of threatening way without pointing it directly at us and taking aim.  We stared back and VERY SLOWLY chewed our hamburgers.  Chris said he couldn’t wait to get back to the Middle East next week where he could feel safe again.  We both just sat there afraid to make a sudden moves that might earn us a bullet.  Secretary Johnson and an admiral (he looked like an admiral anyway) boarded the airplane and they spooled up the engines and taxied off in short order.  After they had taxied clear the troopers and the men in suits talking into their sleeves relaxed and left.  We finally breathed a sigh of relief and quickly ate our lunch and left before someone else showed up.

 

We both noticed that the Secretary of Homeland Security who is over the watchful TSA did not go through any type of airport security.  No metal detector or radiation machines for the Secretary.  We also commented that this guy was not even an elected official - just an appointed bureaucrat.  I looked up on the internet and saw that the USCG not only has one G-5 but TWO (designation C-37A).  It seems that the Secretary of Homeland Security has one and the Commandant of the Coast Guard has a second one.  (Apparently these guys don’t know how to share.)  And why do they need a $55 million dollar airplane.  The biggest Learjet can carry 8 passengers with a crew of two and travels just as fast.  The Learjet only costs $21M.  The new Honda business jet carries 5 passengers with a crew of two, travels 15% slower but only costs $4.5 million dollars.  But on second thought, since he is a public SERVANT, why couldn’t he fly commercial.  Heck, I would even pay for a couple of first class tickets so he and the admiral could get one of the big comfy chairs up front.  Of course he would then have to wait in line and be subject to all the TSA security checks that he is responsible for providing to keep the rest of us safe when we travel.  This is a picture that I would like to see - the Secretary himself getting groped by one of his blue-gloved men at a security checkpoint.

 

My son mentioned that while in Dubai last month he happened upon Sheikh Maktoum’s car in front of a hotel while he was in the hotel lobby.  He looked around and saw a mountain of a man in a white robe that could have been an NFL linebacker.  He asked him, “Is that the Sheik Mo’s car?”  To which he replied that it was.  He spoke briefly with the bodyguard who was very respectful and polite for a few minutes.  The guard asked my son where he was from and when he answered the United States he immediately stated that he had never been there and would not go there.  The guard said the US looked to be a very dangerous place.  My son assured him that it was just a matter of avoiding the bad parts and that by and large it was fairly safe.  He then told him he had to get ready for their departure.  The Sheik appeared from his appointment with a colleague at a public restaurant and then walked to his car with a small security team, waved to the people and drove off.  No fanfare, no drawn guns, no hugh security detail with 50 armed men; just the Prime Minister of the UAE, ruler of Dubai and one of the world’s wealthiest men at $14B who is well loved among his subjects walking to his car and going about his business in his own country.

 

We later talked about the contrast and how US presidents used to walk among the citizens and visit with them.  President Truman left office and went home to Missouri without benefit of any security detail.  He took his morning walks and would visit with anyone who stopped to say hello.  The secret service finally put one man with him when he went out in public after a couple of months.  When did our leaders become aloof rulers too good to mingle with the unwashed masses?  We certainly want to protect our president but God forbid that if something did happen to him we have a clear succession all the way down to Jeh Johnson (#18 in line) just in case.  We certainly would not be thrown into anarchy.  I understand that the president has a security detail and the vice president but when did everyone all the way down to the 18th in line get security details?  When did past presidents, their wives, their children, aunts, uncles and cousins get security details?    

 

Where does it all end?  We are in debt up to our eyeballs and borrowing more every second so we can go even deeper into debt.  Whenever anyone mentions cutting the budget we are told that we must cut tours to the White House, cut COLAs for social security, cut Veteran’s benefits.  Why don’t we ever talk about cutting personal jets (BIG EXPENSIVE ONES) for every cabinet member and brass hat in government service?  Why don’t we ask if we really need 6,500 employees in the Secret Service (3,200 special agents)?  This is not even counting the US Marines that also provide protection services to the President.  Why don’t we ask if the first Lady needs a personal staff of 26 people?  Mamie Eisenhower only had a single secretary and they had to deduct her pay from Ike’s salary.  Where did we get the idea that everyone in government was automatically royalty?

 

There will be an end one day, as things that cannot go on forever simply will not continue to do so.  But in the meantime Mr. Secretary, can’t you and the Commandant of the Coast Guard just agree to share the same jet?

 

by Larry LaBorde

Secession and the Crimea

It seems that the last thing the internet needs right now is another story on the Crimea but this is an older story.

 

Doug Casey once said he thought there should be 7 billion independent countries in the world - one for every human being on the planet.  Just what is a country?  The first thing that comes to mind is a group of people with a common culture that live in the same place that voluntarily band together for their mutual benefit.  Sounds about right.  However, how can 300+ million people in the US have a common culture?  Can we even say that we all live in the “same” place?  We are arguing about if we even speak the same language and can talk to each other in English.   Cultural wars tear at the very fabric of our society.  Some claimed that NAFTA was an effort to join the US, Canada and Mexico into a super government.  Is this going in the right direction?  Should countries be bigger to form super powers so that they can project vast military power around the world for the sake of controlling others?  That seems to be the trend in the last 100 years or so.

 

Even in the United States, which was formerly known as the united States (lower case u), national power has trumped State sovereignty over the last 150 years.  After the War of Independence, England signed 13 separate peace treaties with the colonies.  The War Between the States was literally a war between independent sovereign states.  Visit the battlefields and you will see monuments that were erected to honor individual State armies. The war was fought with separate State armies under a unified command much like the UN today.  Each State had its own officers and chain of command.  They fought as individual armies and orders from the unified command were given and went down the chain of command in each State army.  At the beginning of the war General Lee was offered command of the united States unified command but turned it down because he could not fight against his native State of Virginia.  He considered himself a citizen of Virginia first.  So very different from today where individual states are mere political subdivisions of the United States Government.  Before the 17th amendment to the constitution Senators were appointed by the State governors to serve as the governor’s ambassadors to Washington.  Senators served at the pleasure of the governor and could be recalled.  The 17thamendment weakened the power of the individual State governors.

 

It seems that the Crimea voted overwhelmingly to secede from the Ukraine.  The big question is, “Can they do that?”.  It is indeed a big question.  It is the same question that is on the tip of millions of tongues around the world.  In Europe there are dozens of major secession movements and hundreds of smaller ones.  In the UK, Scotland is voting to break free soon.  Will they be allowed to go peacefully?  In Spain the Catalonia region with its different culture wants to be self-governing.  In Turkey the Kurds want their right to self-determination.  Venice wants to break away from Italy.  Across the Atlantic in Canada the Quebec region has wanted independence for years.  In the United States there are several current movements for independence.  In Texas, which was a sovereign country prior to joining the union, there is a growing movement to secede. In New Hampshire the freestate project has been slowly gaining momentum for a few years.  In Alaska, Sarah Palin’s husband has been active in their independence organization.  In Colorado there is currently a push for several counties to break away and form their own state.  California is just a matter of time.  There is also a movement to form a new country out of Washington State, Oregon and BC.  The list goes on and on.

 

What is the correct size for a country?  Why is Costa Rica or Switzerland a good size and Texas or California is not? 

 

Is it the business of Washington DC to hold onto a state such as Texas that wants to leave?  Better yet, is it the business of Washington DC to order the Crimea not to leave the Ukraine on the other side of the world?  Perhaps it is time to remove the log from our own eye before attempting to remove the speck from our brother’s eye.  Oftentimes it is so much easier to fix someone else than to take a hard look at our own situation.

 

What really holds us together as a country?  Some say the main glue that has subverted the individual State sovereignty is federal revenue sharing - money.  If so, what happens when the checks from Washington DC stop coming?  Or if the checks continue to come but they no longer buy anything?  How long would it take more prosperous states to unhitch their wagons from a culture they no longer felt they were a part of anymore?

 

If you think countries are forever or that borders never change go towww.youtube.com/watch?v=EY9-rXxhyb0 for a few minutes and watch the old world change before your eyes.

 

What is our US culture that holds us together?  Is it a belief in God?  Is it a common language?  Is it a belief in rugged individualism and self-determination?  A belief that we can create a better life for our self and our family if we work hard and do the right thing?  It seems that these beliefs are rapidly polarizing the country.  Are we a Godly nation that believes in common law based on the Ten Commandments anymore?  Or does whatever the majority happen to vote upon become the new law regardless of our rights?  Do we have a sense of shared values?  Do we have a national moral compass?  Do we have morals at all?  Are we givers or takers?  Do we look within and to God for solutions or do we look to the State?  Is one world government the answer or is it something smaller and more representative.  If so, how much smaller? 

 

Is the State the servant of the people (who have banded together for mutual benefit) or just “raw force” required to keep the peace between different cultures like Tito did in Yugoslavia for decades after WWII?  What is a country?  It is a serious question that requires serious thought.  Once the bribes from Washington DC stop how long will ours survive?  Will we be allowed to peacefully organize according to culture and beliefs in smaller groups or will the answer be raw power and force?  Heaven help us all (all 7 billion of us).

 

by Larry LaBorde

Pray for $500/oz Gold

Most responsible adult Dads buy life insurance to protect their loved ones. It is a strange bet we make on our own life.  We bet we die young to win but hope and pray we die old and lose our bet.

 

Gold is somewhat the same financial bet.  No one really wants to see gold hit $10,000/oz next year because of what it would take to get there.  We would be rich but live in a poor world surrounded by misery. 

 

So we place our bet and hope we lose.  In other words, we buy gold and pray it goes to $500/oz.  We pray for a long, happy, healthy financial world to live and raise our children.

 

What would a world with $500/oz gold look like?

 

It would be a world with a strong USD brought about by a surplus in federal / state / local government budgets across the country.  Where the government debt is slowly shrinking instead of growing by leaps and bounds.

 

It would look like a country with full employment in good manufacturing, mining & agricultural jobs that create wealth for everyone.

 

It would look like balanced trade with the rest of the world instead of a staggering trade deficit that keeps getting larger.

 

It would look like a Federal Reserve with a much lower profile that doesn’t conjure up $1 trillion / year out of thin air.  (Maybe no Federal Reserve at all?)

 

It would look like a much smaller government in general with much lower taxes and no income tax on labor.

 

It would look like a world where the government did not spy on its own citizens and make numerous laws that made criminals of us all.

 

It would look like locally owned healthy banks on Main Street and much smaller investment banks on Wall Street.

 

It would look like personal responsibility with medical savings accounts instead of Obama-care.

 

It would look like our troops at home defending our shores from foreign invaders instead of our government using them to fulfill its lust for money and power under the guise of chasing boogey men around the world.

 

It would look like a stable monetary system that held its value that allowed citizens to save without fear of inflation stealing their savings.

 

It would look like more privately owned small business owners who invest their profits at home and less multi-national corporations moving capital and factories offshore.

 

It would look like a country filled with Christian men and women who love God and care about one another.  With capable leaders of high moral values that put their country’s welfare above their own.

 

That’s what a world with $500/oz gold would look like.  So don’t worry about the short-term volatility.  Just place your bet.  Buy gold at whatever price you can while you can.  Then pray for it to please drop to $500/oz.  I wouldn’t mind losing that bet at all.

 

Larry LaBorde

Cry for Argentina

In 2002, my wife Puddy and I traveled to Argentina for a business trip. We traveled south a few days early and toured Buenos Aires before our conference. We found Argentina a delightful tourist destination. The beautiful city of Buenos Aires compares favorably to other cosmopolitan cities that we have visited. We found the people polite, well-dressed, prosperous and friendly.

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Detroit; Suicide or Murder?

The lovely Miss Puddy once again accompanied me on another trip.  This time the destination was Detroit.  I wanted to see the famous Detroit Institute of Art before the bankruptcy judge ordered all the pieces to be sold.  There has been a lot of ink spilled on Detroit recently.  While visiting the city I read Charlie LeDuff’s new book, “Detroit, an American Autopsy” which I highly recommend.

Many people feel Detroit did itself in with unions, municipal corruption and incompetent industrial leadership.  In other words, a death by its own hand.  It is comforting to sit at a distance and say Detroit was a suicide and therefore it cannot happen here.  But be careful for as LeDuff writes, “Go ahead and laugh at Detroit.  Because you are laughing at yourself.”

A closer inspection reveals the problem in one small word – JOBS or lack thereof.  The deindustrialization of the country and especially Detroit is really the heart of all its troubles.  Since Detroit was the biggest industrialized city in the country it only makes sense that Detroit was hit hardest and hit first.

No amount of government bailouts, downtown revitalization, reform governments or bankruptcy courts will fix this problem.  There is only one solution – JOBS.

It seems that they moved the factories overseas or south of the border but forgot to take the workers with them.  Now the city is filled with empty houses and idle hands.  Less than half the adult population works at a steady job.  With joblessness comes the desperate feeling that all hope is lost.

LeDuff talks about the hard dollar and the easy dollar.  No one wanted to work for the hard dollar – those guys were chumps.  Everyone wanted the easy dollar – the hustler.  Detroit was built on the hard work of men that wore white socks, looked at the pictures of their grandchildren and worked “one more day” in horrible conditions for 30+ years.  The new generation wants to hustle for the easy dollar.

It seems that everyone from the boardroom to city hall to the scrap dealers want to make one last big score on their way out of town because they all realize this is the end of the line.  That is why CEOs of dying corporations get their $10,000,000 bonus checks even when the company is losing money.  Why City Hall is a feeder program for the prison system.  Why the fire department has a strange symbiotic relationship with midnight scrap dealers.  (They scrappers burn the buildings partially to expose the copper wiring and plumbing making it easier to steal.)

Trying to fix Detroit by fixing these problems is like cutting at the branches.  To fix the problem you have to hack at the root – JOBS.  The deindustrialization of the country and Detroit in particular is what has caused this nightmare.

In order for a society to have wealth it must create wealth.  There are only 3 main ways to do this:  manufacturing, mining and farming.  Service industry jobs are great but an economy cannot be built on doing each other’s laundry and cutting each other’s hair.  Someone must make something, grow something or dig something out of the ground.  It is just that simple.  Mining, manufacturing and agriculture are what create wealth.  The service industry is where we spend our wealth.  All “jobs” are not the same.  It is critical that we have more jobs in the wealth creation sector.

Many new economists of the last couple of decades talk of our consumption economy.  Talk about rubbish!  What family ever spent themselves into prosperity?  President GW Bush even mailed out $600 cash to families after 911 to stimulate our economy.  He said to be patriotic and go buy that new SUV.  Well if $600 per family was good for the economy why not $6,000, why not $6,000,000 per family?  Because spending our wealth will not make us prosperous.  Only jobs that lead to the creation of wealth will ultimately raise the standard of living.  The only businesses storefronts that seemed to be open in Detroit are tattoo parlors, liquor stores, hair/nail salons and a few convenience stores with bars on the windows.  These are hardly wealth generating industries.

Our balance of trade shows that we used to export goods all over the world.  The wealth of the world flowed into our cities as we provided food, manufactured goods and mined products for ourselves and sent the excess to others.  The bottom chart shows that after WWII our trade surplus skyrocketed.  At that time we had virtually the only major economy that was not bombed into oblivion.  As the world rebuilt we still exported our surplus until a funny thing happened.

 

In 1971 President Nixon took us off the gold standard.  Now we no longer had to balance our books or pay the price of our gold reserves going overseas.  We could just print money at no cost and buy things from around the world.  We could write IOUs and spend them everywhere.  It was good to have the world reserve currency along with the largest military in the world.  After Nixon came the OPEC oil shocks where oil jumped up 70%.  Again in 1979 OPEC hiked prices.  The chart clearly shows that we started importing more and more than we exported.  Our IOU’s made up the difference.  Our national debt, corporate debt and personal debt grew.

The chart below shows the number of manufacturing jobs in the US.  Note that the number peaked around 1979 and has been slowly dropping ever since.   The last time the number of manufacturing jobs was this low was the mid 1940’s.  At that time our population was less than half of its present size so manufacturing jobs as a percentage of the workforce is much worse than this chart reflects.

There is a slight bump in the numbers at the right hand side of the chart but only because the government BLS has played with the numbers.  Now they consider “building a hamburger” at McDonalds to be “manufacturing”.  It is clear that the number of true manufacturing jobs is going down even while the population is growing.

It is no coincidence that the middle class has been losing ground.  The middle class has lost purchasing power and its standard of living since it peaked in 1979 (the same year that manufacturing jobs peaked).  You just cannot equate a job building a refrigerator with a job serving ice cream.  One creates wealth and the other is a luxury as a result of that wealth.  The jobs are not the same and yet both figure into the employment number the same.

When we drove through Detroit inside the city limits there were places that looked like Beirut after it was bombed.  We saw houses and buildings crying out to be demolished but no money to do so.  Some homeowners have tried to take matters into their own hands and have burned down crack houses and blocked the streets so the fire department could not put them out.  But once outside of the city limits the suburbs looked like most suburbs all around the US.  A surreal contrast to what was going on just a few blocks away.  However, if I am right, those suburbs may not be as safe as they seem now.

The only thing that can save Detroit and the rest of the country from what is coming is JOBS.  Not just jobs at McDonalds or the dry cleaners but manufacturing jobs, mining jobs and farming jobs.  It is too easy to say that we cannot complete with China or India or whomever because of low wages but what about Germany?  They seem to be exporting more than they import.  We have to have modern factories with the most productive equipment in the world for our workers.  The only way we can pay more to our workers than Chinese workers are paid is to out produce them.  It is going to take a lot of capital to rebuild the US industrial base.  Many factories are just hanging on and not reinvesting in more competitive machines because of fear and uncertainty.  It is going to take real leadership and a realization that things cannot continue as they are now.  We are going to have to look down on the hustler and glorify the worker that actually produces wealth in this country.  But first, we must stop the deindustrialization that is still taking place at a record rate in the US.

Maybe the best solution for Detroit was proposed by the Free-Man’s Perspective in the following article from July 2013.  In the article the author proposes that the City of Detroit be declared a tax free zone and to close down the government and privatize everything.  Manufacturing inside Detroit would be free of all taxes.

It would be the best way to bring real jobs back into the city that I can imagine.  Of course what if it did work?  Why not extend the solution to all of our troubled cities?  Why stop there?

 

The Prozac Gold Market and the Government Shutdown

iStock_000020597445_ExtraSmallWhy aren’t we seeing more volatility in the metals markets? A couple of months ago, Cyprus (Russia’s anointed “Switzerland-lite”), proved that first world banking systems aren’t completely against confiscation or “one-time taxes.” It’s also been reported that Russia and China are “stacking” metals to strengthen their own currencies and perhaps to make a play at some form of alternate reserve currency basket. The U.S. “petrol dollar” is also being threatened by Russia as the U.S. and Russia fight for who gets to control potential future Syrian pipelines. FInally, the U.S. government is currently shut down.

In the case of the shutdown, it’s not an extremely difficult logic train to see that the U.S. dollar is headed for disaster:  Wall Street is at the mercy of the Fed...which is at the mercy of the Treasury Department ...which is at the mercy of the kindergarten Congress...which is has shut down most of the government and is full of people who are not capable of compromise. All of this serves as the backdrop to metals markets that appear to be in suspended animation compared to the looming level of instability in the financial world.  So the question is, why is the gold/dollar relationship so stable? Read More...

Lessons from the Mother Country

Hot Air Balloon image for Lessons from the Mother Country article_Silver Trading CompanyLast month, the lovely Miss Puddy once again accompanied me on a trip back to the mother country.

As some of you know, I am a seventh generation French colonist living in Louisiana. I was the first generation in my family not to learn French as my primary language. Although I speak very little French even to this day, the mere sound of it reminds me of my long-gone grandmother and numerous aunts and uncles. I can remember my father enjoying visiting with his family when I was a child just so he could once again talk the language that he first learned as a child. (My mother never spoke French, so it was never spoken in our home as I grew up.) My father only learned English when he began primary school. He said he got in trouble many times for not knowing how to speak English, but he caught on quickly because he was punished at school for speaking French. My grandmother, however, struggled with English and was always more comfortable speaking French. Read More...

Sixty-fifth Wedding Anniversary

Mr. and Mrs. O.C. LaBorde as newlyweds.

Mr. and Mrs. O.C. LaBorde as newlyweds.

The author offered these remarks on the occasion of his parents’ sixty-fifth wedding anniversary in 2010 before a large contingent of LaBordes.

We are here tonight to honor our parents’ love and commitment to each other for the past 65 years.  Their dedication to each other and their family is rare today.

Modern popular culture seems to appeal to mankind’s worst impulses through profanity and obscenity in the arts, literature and modern media.  It has depicted decadence and debauchery as normal and desirable.

Here tonight are two people who have bestowed upon us a cultural inheritance of the permanent things that order and sustain a Christian life: faith, family, traditions, community, loyalty, courage and honor.

If the opposite of love is not hate, but power (an insight variously attributed to Carl Jung and C.S. Lewis), to truly love someone you must empower him or her.  Not hold power over him.  In this regard, I can certainly say that I have been truly loved by both my parents.

But what exactly did happen 65 years ago in that church in Alexandria?  It was a union of two families and two cultures.  Who were those families?

The LaBorde family originated in France, first appearing in southeastern France near Forez and Lyon then migrating over to southwestern France near Bordeaux.  Dr. Pierre LaBorde, my fourth great-grandfather, came to Louisiana with about 50 other French families when it was still a French colony.  They landed in New Orleans then went upriver to Point Coupee Parish, where they settled for a few years.  After a great flood, they all relocated to Avoyelles Parish where they remained for several generations.  My father was the first of his lineage to leave the old French outpost and once again travel to a foreign land.  He moved to North Louisiana. Read More...

Richard Feynman: Nuclear Physicist and Safe Cracker

Safe with Open Door_Silver Trading Company_iStock_000016460757_ExtraSmallMany years ago, my father was the part owner of a local bank. When I would accompany him to the bank as a young boy, the big vault door always fascinated me. I would stand next to the open door and study the lock workings through the glass panel on the back of the door, hoping eventually to figure out how to crack its secrets. Years later, I purchased the old cash safe out of that same vault and now have it on display in my office as an antique.

That old safe frequently comes to mind because one decision that a gold and silver investor has to make is where to keep the darn stuff. There are several options. You can put your cache in a bank safe deposit box, you can leave it on deposit with your broker, you can bring it home and lock it up in your own safe, you can hide it, you can invest in a fund that sells shares of gold stored in a bonded vault, you can buy mining shares, you can buy futures and so forth. The list is almost endless.

If you are investing for security, however, there is nothing like having a little gold and silver at home in a safe so that you can always get to it regardless of what happens. I am not talking about having large portions of metals stored at home, but modest amounts. If that thought makes you jittery, just think of what you have stored in your garage in “rolling stock.” Most people do not think twice about leaving their $40,000 car outside in the driveway. You need only simply take reasonable precautions with a reasonable amount of metals, beyond that you move on to other investing venues. Read More...

Anarchists are bad guys?

My wife, the lovely Miss Puddy, accompanied me to the latest Sherlock Holmes movie last night.  In the movie, a series of bombings, supposedly perpetrated by anarchist, was terrorizing Europe.  It got me thinking, what is an anarchist?

 

Dictionaries define anarchists as people who rebel against government or other authorities or “powers that be,” especially by using violent actions to overthrow the government.  I don’t agree with an individual’s using violence to get rid of a Senator or mayor or President he doesn’t care for (much less the whole government!), but I do support the idea of resisting too much government intervention in our lives.

 

If anarchists are people who want no government at all, it follows that the opposite of communism (the 100% control of society by government) is anarchy (the 0% control of society by government).  Jefferson envisioned a society in which freedom would flourish to be somewhere around 10% control of society by government.  In his model, government would act as a referee to arbitrate contracts in the courts and to provide for mutual defense as well as to secure private property rights.  This is an oversimplification of his aims, but it does reflect what I see as the amount of government that is appropriate for enabling freedom to exist.

 

Socialism, on the other hand, probably sees somewhere between 50% to 90% government control of society.  In my estimation, under Obama’s governing philosophy, government organizations bumped control of our society to about 65%. In the past year alone, thousands of new laws were passed that further restricted society.

 

Every time our lawmakers pass a new law or a new rule, we relinquish a little more freedom and march a little closer to 100% government control.  God gave Moses only 10 Commandments to follow.  Jesus simplified these to just one law, the Golden Rule.  Somehow government feels the need to expand these with tens of thousands of laws each year!

 

In the movie V for Vendetta, the main character wears a Guy Fawkes mask and overthrows a future fictional totalitarian government in the UK that controls every aspect of daily life. V tells the people they can manage their own affairs without the help of such an all-controlling government. Admittedly, Guy Fawkes himself was not an anarchist, and most likely the character of “V” was not either, but both represent a move away from oppressive governments.

 

Perhaps anarchists (people who believe in 0% government control) are not that bad if they can pull us back down the scale closer to Jefferson’s 10% government.

 

I’ve identified several functions of government that are being done or could be done by the private sector.  Collection of trash is already done privately in many parts of the country.  Many water, gas and other utilities are privatized.  There are private toll roads in some states.  Insurance investigators could look into property crimes.  On a larger scale, the government hires private companies to handle many messy details of the wars it fights.  Money itself could easily be privatized if legal tender laws were abolished; private firms that use digital gold banking accounts could easily facilitate trade without the use of government central banks.  Even space travel is now being privatized.

 

While extremism is usually bad on both ends of the spectrum, and I don’t endorse the violence some anarchists employ, I do find myself aligned closer to the 10% government envisioned by Jefferson and, therefore, closer to anarchy than the present administration’s 65% control of society, which is closer to communism.  Maybe anarchists aren’t all bad?

 

“More law, less justice.” — Cicero

 

“Men fight for freedom, then they begin to accumulate laws to take it away from themselves.”  — Unknown

China: Meritocracies, Copper, Batteries, Petrol, Solar and GOLD

In the fall of 2011, the LaBorde family attended the New Orleans Investment Conference in New Orleans.  A presentation about China by the very passionate Dr. Stephen Leeb, author of Red Alert: How China's Growing Prosperity Threatens the American Way of Life, warned that China is becoming an economic super-predator.

 

Leeb’s explanation of the current situation reminded me of a boxing match.  In one corner there stands a boxer who has a very strong reputation but who does not know he is in the ring.  In the other corner stands a boxer who is a little lighter but who has been training hard.  To tilt the scales farther in his direction, the latter boxer also purchased all of the boxing shoes, gloves, trainers and ring time while the other boxer was not even paying attention.  You can guess which boxer represents the U.S. and China in this scenario.  The United States is not necessarily done for, but it is time for us to at least realize that we are in a fight and act accordingly.

 

A long time chess player, Dr. Leeb expressed that he is downright scared of the way that our opponent is systematically playing an enviable game of strategy while the U.S. hasn’t even started to acknowledge that it is engaged in a competition that threatens our entire way of life.  His argument focused on resource acquisition for global economic control.  His comments invoked a mixture of respect for the efficiency of the Chinese machine and shock at how far behind the U.S. might be.

 

Leeb expressed particular concern about China’s workforce development strategies; its growing control of the mining and use of rare earth metals and of copper; its focus on petroleum resources; its dominance in the solar market; and its apparent stockpiling of gold and silver.

 

Workforce Development

Besides having a massive cadre of working age people and graduating more engineers each year than we have working in this country, China operates on more of a meritocracy, or by rewarding the merit of individuals, than the U.S. does.  For example, one of the premier female chess players in the world right now is a Chinese adolescent who was pulled out of the fields as a young girl when someone recognized that she had an aptitude for strategy.  If she continues on her current trajectory, Dr. Leeb suspects she will be playing grown men soon.

 

It is the mindset of elevating the best, brightest and hardest working that permeates much of Chinese society.  There are more businesspeople becoming billionaires each year in China than anywhere else in the world.  The Chinese have repeatedly been cultivating this kind of talent in government as well, and Dr. Leeb believes that this talent is playing the resource war very well. Now please don’t get me wrong, China’s leaders are not saints, and the country has a fair share of insider nastiness, but the country is playing harder towards merit than the U.S. is by far, and this should pay high dividends in the future.

 

Rare Earth Metals

Rare earth metals are the bedrock of the future of all long-life, lightweight batteries. Over the years, China has developed its mines in Mongolia and its processing plants to the point that China now produces 97% of the world’s supply.  These resources will be increasingly important as the world moves into greater use of electric cars.  Clean energy is a global concern, and the efficient storage of this energy is crucial to its adoption and success.

 

Further, China has stopped exporting rare earth metals in raw form and instead will only sell them as components in finished products such as batteries and permanent magnet motors, a core component of most high-efficiency electric generators. In doing so, China is locking down its control of key components markets.

 

Copper

China is spending dollar amounts of a similar magnitude in Afghanistan as the United States.  The difference is that the Chinese are spending their resources to build infrastructure in Afghanistan, in exchange for the exclusive right to mine the country’s copper, while the U.S. is creating the world’s best distraction for them to do so.  The reason that China is getting a leg up on the world’s copper supply is concerning is that copper is at the root of many of the world’s future “green” technologies in addition to being the backbone of many of the world’s existing technologies.

 

Solar Energy

First Solar is the U.S.-based company that was the second largest producer of solar panels in the world in 2010.  Recently, First Solar took a bath, losing 25% of its value, and the reason can be found in a recent quote from a Forbes article examining the firm’s slide.  “First Solar did not provide any details but the handwriting was on the wall.  Recently, there has been considerable anecdotal evidence that First Solar is no longer competitive with Chinese imports.”  The title of the article was even more succinct in its finger-pointing: “China Almost Kills Premier U.S. Solar Company.”

 

In 2011, First Solar led the roster of the 25 fastest growing technology companies in America.  What could bring an innovative giant like this down?  According to Forbes, the culprit was a $30 billion dollar helping hand from the Chinese government to its entire solar sector, singlehandedly making U.S. production uncompetitive.  With that kind of financial supports in play, there is just not much a company, or country, can do to prevent China from getting a complete lock on the solar industry, a potential lynchpin in the forward motion of clean energy.

 

The Oil Game

Dr. Leeb’s concern centers on one word, PetroChina.  PetroChina Company Limited is the listed arm of the Chinese National Petroleum Corporation, a state-owned producer of oil and gas.  The company tripled in value in the years since going public, was the most valuable publicly traded company on the Shanghai exchange as of September 28th of 2011, and was listed as the third most valuable company in the world after Apple and Exxon in 2012. Though the Chinese are gearing up for futuristic energy sources, they seem to have a firm understanding that petroleum-based energy will be ushering all of us into the world of green energy and will be critical in bridging the span between current and future technologies.

 

Gold

What is China doing with gold you ask?  It, along with Russia, appears to be attempting to accumulate enough to one day back its currency with it.  It is also encouraging its citizens to acquire gold by opening a new metals exchange and granting tax exemptions for its purchase.

 

China’s actions in the gold markets point to two important possibilities.  First, the U.S. dollar might be in more trouble than the western press has noticed.  Second, if metals become popular in a country with a population of 1.33 billion savers, there could be a giant boost in gold’s overall demand, driving up prices significantly. The potential that China is poised to change the global pricing of gold is sobering.

 

Dr. Leeb’s call to action has some very compelling points and, as a patriot, you can understand his battle cry.  “We are at war and we don’t even know it!  Wake up, America!”

The French Revolution

My lovely wife, Puddy, accompanied me to France last June.  We went to Normandy for a conference then onto Paris for a week.  Our daughter and a guest met us in Paris, and we encamped in an apartment one block from the Louvre.

 

One day we all went to Versailles and toured the palace and the grounds.  I tried to explain to my daughter how the grandeur we were admiring came to be.  I showed her where the peasants stormed the palace and entered the queen’s bedroom.  Can you imagine what the emaciated peasants of Paris must have thought upon seeing the gilded excesses at the Palace of Versailles?  A rich aristocracy was living in the most lavish circumstances while regular French citizens starved.

 

As usual, the circumstance leading to the French Revolution made more sense when viewed through the lens of money or, to be more exact, money mischief.

 

In 1715 after the death of King Louis XIV, the Sun King, his five year old great-grandson was named King Louis XV.  The boy’s adult first cousin, the Duke of Orleans, was appointed to be regent, running the country’s affairs until the young king reached the age of majority.

 

Many people are familiar with the Scotsman John Law, who was a mathematical genius and gambler, but not everyone is familiar with is hand in the revolution.  One year into the regency of the Duke of Orleans, John Law established Banque Generale, the first central bank of France.  I am sure that John Law told the Duke that the coffers of France would overflow with paper money and that the people would not have to pay extra taxes.

 

In 1718, after a rocky start, the central bank was renamed Banque Royale, which allowed it to act under royal decree.  As you might imagine, things started out quite well for everyone.  The bank’s new designation meant that there was more money for the Duke to spend, and the economy got quite a boost.  However, after a while, inflation soared, as it will do when a government prints lots of money.  With the Duke’s permission John Law implemented all sorts of laws to fight this inflation of his paper money.

 

First, Law banned ownership of gold and silver over a token amount (equal to about 5.5 ounces of gold or 78 ounces of silver).

 

Next, Law ordered all payments over 100 livres (about one ounce of gold or 15 ounces of silver) to be paid only with his banknotes.

 

As citizens’ faith in paper money plummeted even further and wealth started to flow out of the country, Law implemented currency controls and banned the export of all gold and silver bullion.  When, to his dismay, the situation became even worse, he offered generous rewards for people who turned in neighbors who violated the aforementioned laws.

 

Finally, Law’s banknotes depreciated so much that he decreed that if a merchant even asked if the customer intended to pay in gold or in banknotes prior to quoting a price, the merchant was to be put to death.   The logic was that the merchant doubted the value of the King’s chartered bank’s notes and was therefore guilty of treason to his king.  Of course, the penalty for a merchant not to ask was bankruptcy.

 

The final scene in this farce was predictable.  In 1720, in spite of all the decrees by Law, there was a run on Banque Royal that could not be stopped.  The Duke dismissed John Law, and he promptly fled the country, leaving its banking system and economy in shambles.

 

In 1723, King Louis XV reached his thirteenth birthday, the age of majority, and he took control of France.  A large portion of the citizens had lost their savings and had developed a hatred for paper money that would exist for generations.

 

In 1774, King Louis XV died, and his grandson became King Louis XVI at the age of 20.  Fifty-four years had passed since the run on the Banque Royale.  Most people with any direct memory of the bank were long dead.  However, France was fighting several expensive wars, draining its treasury.  The grand Palace of Versailles, which had been under construction since the reign of Louis XIV, was still being expanded during Louis XVI’s reign.  France was arguably the greatest power in the world, and it was spending itself into bankruptcy in grand style.  To make matters worse, Louis XVI held himself aloof from the general population, which literally was starving while he was secreted several miles outside of Paris, living in high style in one of the greatest palaces ever built for a sovereign.

 

In 1789, Frenchmen had had enough.  In July, violent mob overtook the Bastille, a penitentiary in Paris, to protest despotism (and in the hope of making off with valuable gunpowder that was stored there).  In October, six thousand mothers armed with pitchforks, scythes, muskets and whatever other weapons they could find marched all the way from Paris to the palace at Versailles.  Pushing through the gates, they demanded bread to feed their starving children and for the price of bread, which made up half a typical Frenchman’s diet, to be brought down to affordable levels.  The stunned king agreed to their demands.

 

The French Revolution, begun in 1789 with these dramatic events, threw the country into chaos.

 

In 1790, the National Assembly confiscated church properties.  Shortly thereafter, it issued a bond representing the value of the confiscated church properties.  The bond, known as the assignat, became a currency.  The bonds were overissued, and hyperinflation, representing a loss of confidence, resulted.  By 1792, they were virtually worthless.  More paper money schemes were tried; all failed.  Food riots broke out because there was no stable money, and the economy collapsed.

 

In 1792, King Louis XVI was deposed and the monarchy abolished.  In 1793, he and Marie Antoinette were convicted of treason and beheaded in Paris as the government scrambled to get the economy under control.

 

The National Assembly passed the Maximum Price Act of 1793, declaring price controls that only caused even greater shortages.  After all, a merchant could not expect to sell something for less than he paid for it.  Farmers refused to plant and sell crops at a loss.  Goods simply disappeared as stores shut down or were sold on the black market.  As a result of the price controls and the resultant shortages, even more food riots broke out.

 

Napoleon became First Consul after a coup d’état in 1799.  During the coup of 1799, no one seemed to care who came into power as long as he could ease their suffering.  French citizens were tired after 10 years of revolution and chaos, and they simply wanted a stable government.

 

Napoleon appointed a senate that rubber-stamped his decrees.  In 1803, Napoleon sold Louisiana to the U.S. for a mere $15 million dollars ($.03/acre) in order to generate cash for his debt-ridden country.  The following year, after five years of political and military maneuvering, Napoleon became Emperor of the French, thereby assuming total power.

 

Just before ascending as Emperor, Napoleon finally put an end to the paper money experiment that plagued France for decades by introducing the germinal franc as the new currency.  (Germinal was a month in the new revolutionary calendar.  The new calendar had 12 months.  Each month had 3 weeks, and each week had 10 days.  Year 1 was the year of the revolution.)  The new franc contained 0.29032 grams of gold.  The 20 franc coin had 0.1867 troy ounces of gold and was minted for more than 100 years, until 1915.  The 20 franc gold coin provided a welcome monetary stability in France, a stability that had been lacking since John Law appeared on the scene.

 

As we have seen, in the French Revolution, it took a dictator or emperor who seized power through a coup to restore order to the economy by going back to gold as a stable form of money.  I wonder what it will take in today’s modern world, and in the U.S.?  How long will we suffer inflation (and then hyperinflation) until we agree to cede political power to anyone who will fix the problem by throwing out the bankers and re-establishing a gold standard?  Whom will we willingly surrender the republic to in exchange for a promise to end the bankers’ fractional reserve currency chaos and money mischief?

What does a Trillion dollars look like?

A fun read to wrap your head around...

Last week the Federal Reserve decided to inject ANOTHER trillion dollars to buy treasury bonds and mortgage securities. In other words they simply decided to print another trillion dollars. So I thought you might enjoy these illustrations to help you put that number into perspective:

 

 

Counting by Hundreds

 

$100

Think of a simple $100 bill.  It is only 0.0043 inches thick, very compact.

 

$10,000

One hundred $100 bills, worth $10,000, creates a stack less than 1/2 inch thick

 

$1,000,000

One million dollars can fit in a large women’s tote bag or a camping backpack.  It weighs about 22 pounds.

 

$100,000,000

$100 million dollars, about a ton’s worth of dollars, can fit on a standard shipping pallet.

$1,000,000,000

$1 billion dollars, then, would require 10 pallets’ worth of space.  Still very compact for a reasonable sum of money.

 

$1,000,000,000,000

Finally, here’s one trillion dollars:

One trillion dollars would cover a football field with $100 bills stacked eight feet deep.

 

 

But Each Dollar Counts

 

If one thinks of the actual single dollars that make up this enormous sum of money that the Federal Reserve has so freely injected into the economy, however, the problem becomes even clearer.

 

How does it stack up?

One dollar is 0.0043” thick

 

$100 is 0.43” thick

 

$10,000 is 43” thick

 

$1,000,000 is 4,300” or 358.33 feet thick

 

$100,000,000 is 430,000” or 35,833.33 feet or 6.7866 miles thick

 

$1,000,000,000 is 67.866 miles thick

 

$1,000,000,000,000 is 67,866.66 miles thick.

 

 

Over the Moon…and to the Sun

 

How long does a dollar chain made of these amounts stretch if taped together lengthwise?

$1

A dollar bill is 6.14” long

 

$100

614” or 51.166 feet long

 

$10,000

61,400” or 5,116.6 feet (almost a mile)

 

$1,000,000

96.9 miles

 

$100,000,000

9,690.6 miles

 

$1,000,000,000

96,906.4 miles (The interstate highway system in the U.S. is a mere 46,726 miles.)

 

$1,000,000,000,000

96,906,565.7 miles.  This is the distance from the earth to the sun.

 

If a $3.54 Trillion ribbon (one including all the dollars in the reported 2012 budget) were flowing out of a machine over the course of a government work year of 2000 hours, the ribbon would have a velocity of 171,524 miles per hour, 223 times the speed of sound and roughly 0.00026 the speed of light during the work day. The world from the perspective of the dollar requires Einstein’s quantum physics to measure time as it begins to get warped at that speed.

 

A lap around the earth at that speed would take eight minutes and 43 seconds.

 

Or, you could simply give everyone on the planet $507.67.

 

 

The Fed is printing a lot of money, folks.



How To Grow Your Gold And Silver Bullion

With the zirp, (zero interest rate policy) savings and bonds are not paying any significant interest. In Germany some bunds are paying negative interest rates. Few stocks are paying big dividends and most pay none at all. Everyone is trying to find a decent return on investment without taking on too much risk. The old 5 ¼% savings account interest rates that never seemed that interesting in the past now look mouth-watering.

One of the problems with precious metals has been the fact that they do not pay any interest or dividends. In today’s ZIRP market that is becoming less of a problem. However, some people have done quite well trading the gold to silver ratio. Simply trading their gold for silver when the ratio is high and trading their silver for gold when the ratio is low has proven to be quite profitable in terms of more metal at the end of the trade.

When trading gold and silver back and forth you always have a position in either one or the other. The object is not to worry about the price of either metal but to simply accumulate more metal at the end of your trades. In a long-term bull market in metals you will end up on top if you have more metal at the end of the decade.

The chart of the gold:silver ratio shows a long term ratio over the last 30 years. For the past 20 years or so if you traded your gold for silver when the ratio was 75:1 and then traded your silver for gold when the ratio was 50:1 you would have made the following trades:

December 1996          trade 10 oz gold for 750 oz of silver

December 1997          trade 750 oz of silver for 15 oz of gold

February 2003          trade 15 oz of gold for 1,125 oz of silver

March 2006          trade 1,125 oz of silver for 22.5 oz of gold

October 2008          trade 22.5 oz of gold for 1,687 oz of silver

November 2010          trade 1,687 oz of silver for 33.7 oz of gold

December 2014          trade 33.7 oz of gold for 2,527 oz of silver

Unknown date          trade 2,527 oz of silver for 50.5 oz of gold

Of course there would be premiums to pay depending on what form of silver or gold you purchased as well as sales commissions. These fees would make the trades less profitable than shown in our illustration but you get the general idea.

If you would have been careful enough to trade when the ratio was a little above 75:1 and a little below 50:1 you would have done even better. But why get greedy when these ratios are so easy to remember and execute? Just write them on the wall in big numbers and watch for them on the chart every few years.

At all times you would be holding a position in either silver or gold so you would still have a precious metals position throughout the entire time frame in either one or the other.

Also note that I did not pick the average tops of 80:1 or the average bottoms of 47:1. Tops and bottoms are hard to pick so I just chose a pretty conservative 75:1 for the top and 50:1 for the bottom.

If you have not swapped gold for silver in this current cycle you may still want to jump in and give it a try. Currently the ratio is around 73.3:1 and falling. So now you might want to hurry and trade some gold for silver. It is a pretty boring trade where you only swap every 1 to 6 years but with patience it can pay off pretty well for an asset that doesn’t pay any interest of dividends.

 

by Larry LaBorde

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Portfolio Rebalancing in 2016

Volumes have been written on portfolio rebalancing and in spite of that very few people bother to ever rebalance their portfolio. Most people spend more time planning their vacation than they do planning their investments. It really does not have to be that hard. All too often one falls prey to their emotions buying this or that based on a “hot tip” from their brother-in-law. The truth is investing is very boring and requires a great deal of patience. It is difficult to remove all the emotion from the equation. People panic with the herd and end up buying high and selling low unless they have a plan.

 

One of my favorite movie scenes is from the movie “Caddy shack” where Rodney Dangerfield is on the phone with his stockbroker while playing golf. He says “buy, buy, buy! Oh, everyone’s buying? Then sell, sell, sell…”  In spite of the humor that is exactly the opposite of most people’s inclinations. The majority lose money because they let their emotions take over their investment plan.

 

I recommend taking the time to rebalance once a year. Of course to rebalance you need a plan. After several years many investors end up with no clear plan because they never take time to reevaluate. You can see many of the greatest investors’ plans in the book, “Master the Game,” by Tony Robbins. My personal favorite investment plan is Harry Browne’s famous “all weather permanent portfolio” which was introduced decades ago: 25% stocks, 25% gold, 25% bonds, and 25% cash; rebalance every year and leave it alone.

 

After many years of trying I have come to the expensive conclusion that I am not a good stock picker. I have had some really good picks in the past, but unfortunately my timing was usually too early. Churning your account is a recipe for loss in most instances. Very few traders make money competing against high speed computerized trading programs. This is where a good plan and disciplined execution comes into play. It is where you can take the emotion out of the equation as best you can. You just need to find a mix that you feel comfortable with and stick to it. For several reasons, the following is my favorite investment allocation plan:

 

DISCLAIMER ALERT:  I am not a financial advisor and this sample allocation is for illustrative purposes only. Any funds invested should only be done after you perform your own due diligence.

 

25% Precious Metals

10 percent gold bullion // 10 percent silver bullion // 5 percent mining stocks

I like precious metals because they are wealth completely independent of the banking system. They are a vote of no confidence in the government and their ability to operate responsibly. I recommend holding them yourself and not in your brokerage account. If for any reason you simply cannot hold or store your own bullion then I reluctantly advise the Central Fund of Canada (CEF) as a means of holding precious metals. As for the five percent mining stocks, try to stay away from small cap mining companies, as most are long shots that end up worthless. Try a mid cap or large producer, or even a royalty streaming company such as Royal Gold (RGLD) or Silver Wheaton (SLW).

 

25% Stocks

Even though the US market is overpriced by several metrics, the rest of the world seems to be worse and hot money continues to pour into the US market. I suppose it is seen as a safe haven right now. Since I am not a stock picker I advise 20 percent in Vanguard’s US 500 stock index fund (VTFIAX). It has a very low expense ratio and tracks the US market. The last five percent is where you can go wild and buy some of that stock your brother-in-law said you “have to have.” Five percent gives you enough to play without too much risk. You could put the last five percent in the Fidelity Defense fund (FSDAX). As Richard Maybury says, “War has always been a growth industry in the US.” Not to mention the world seems like a powder keg these days and all the adults are running around with lit matches. If playing in the stock market does not sound like fun then you could put all 25 percent in the Vanguard index fund and forget about it until next year.

 

50% Cash 

Having a high cash allocation gives you the freedom to act on a good deal and take advantage of undervalued opportunities. Without cash you have no power to buy. My father always kept a large percentage of his wealth in cash so he could jump on once in a lifetime opportunities when they came along. I remember an equipment auction in the 1980s where Dad walked in with cash when no one had cash; there were incredible deals that everyoneelse had pass on. He taught me that day that without the capital to act I could watch life-changing opportunities just pass me by. Fortunes have been made buying stocks at extreme market bottoms, but it’s impossible to do so without ready cash. Place your cash in short term US treasuries, bank deposits (always less than $250,000 per bank), and keep on hand at least three to six months expenses (in small bills held outside of the banking system).

 

Note: High yielding corporate bonds may be something to look at in five to ten years with some of this cash. For now I don’t think the risk in bonds is worth the effort. Bonds are not paying much interest right now. If interest rates go up (they cannot go much further down) then the current bonds will pay very little interest and lose much of their original value.

 

You will find that your percentage allocations will ebb and flow, some go up and others go down. Once a year sell a bit of the winners and buy some more of the losers; rebalance back to the percentages in your plan. This may seem counterintuitive, but without rebalancing and sticking with your plan your portfolio will get lopsided. Past performance does not guarantee future results.

 

This is my plan. Spend some time coming up with your own plan, write it down and follow through. Never carve your decision in stone but practice discipline and try to stick with your plan. Sometimes things change and the plan requires adjustment, minor changes when necessary are good. What you are trying to avoid is getting caught up in the short game when you’re playing a long game.

 

Patience.

 

By Larry LaBorde

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Should I Buy My Dream Home Now?

Dear Fred,

 

 I am writing in response to your question, “Should I buy a bigger house now so that my adult children will have a place to stay when they come home to visit because interest rates are so attractive?”

As you well know there has always been trouble in the world. I have studied cycles in history and as they state in the book, "The Fourth Turning" history is not linear but more like a vertically extended slinky. While history advances, it does so in cycles that run approximately 80 to 100 years per cycle (four generations). The Russian economist Kondratiev in the 1920's came up with the K wave cycle of 50 or so years. Stalin didn’t approve of his work since it did not predict the end of capitalism and had him killed by firing squad in 1938, but that is another topic. Then there are cycles within cycles such as Martin Armstrong's work exemplifies based on a multiple of pi. The Old Testament also talks about seven year cycles and the seven times seven year cycle that results in the 50 year jubilee. The debt forgiveness during the jubilee is necessary to wash out the excess debt buildup in the system. (If you have ever played a very long game of monopoly the banker ALWAYS wins in the end---never forget this when trying to outsmart the bank.)  

I feel that we are currently entering into a long term economic winter (20-25 years in duration) as a result of the build up in debt that is currently overwhelming the system. We have tried everything to put it off including changing the bankruptcy laws that make it harder to enter into bankruptcy. We have lowered interest rates in order to allow us to take on and service even more debt. The world's central banks are entering into "negative interest rates" in order to encourage consumer spending and discourage savings. Competitive currency devaluations also tend to discourage savings and encourage spending. People tend to forget that Capitalism at its very heart is about accumulating capital through savings to purchase the economic tools (backhoes vs shovels; factories vs garage industries; trucks vs draft wagons) that allow the overall standard of living to increase for all of society. When Capital is destroyed, squandered on silly public works programs (bridges to nowhere) or misspent on consumer items then there is less to invest in the very powerful capital intensive tools that allow us all to live better through an increased standard of living for all.

Bill Bonner writes that economics has become a complex mathematical discipline in the past 75 years where people in power can just adjust the dials and pull the right levers in congress and at the Federal Reserve and the economy will respond like a machine. The truth is the economy is 7 billion people (a huge living organism) that is beyond the control of a few people. Each of these 7 billion souls is making individual decisions based on their own best interest (as well they should) and that the entire complex world does not respond to the tinkering of a few individuals. God has made us all with free will to live and prosper in an amazing complex society. It is my belief that the purpose of government is simply to provide a very loose framework so that we can all operate within this grand chaos and that it should simply act as a referee so that we do not harm the weak or each other. I believe that economics is more a philosophy and not a science. That being said, we should always watch out for "heard mentality" in society and therefore in economics. As Charles Mackay said, “Men go mad in herds, while they only recover their senses slowly, one by one.” I believe cycles will eventually trump the few men and women behind the curtain trying to operate society as a machine.     

Now we come to your question of a long term low interest mortgage on a larger home in today's current economic climate. Dad once said (he was quoting someone and the name eludes me) that there are two ways to deal with the bank. The first is to owe them nothing the second is to owe them 110% of all you own - anywhere in the middle is a dangerous place. Keep in mind that Dad was a banker in the late 1960's. In other words if you owe them 110% of your loan they will work with you and extend you terms and do everything possible to avoid foreclosing on you because they will suffer a loss. If on the other hand you borrow 50% from the bank and put up 50% of your funds you are in a perilous condition. If your investment suffers a 40% loss and you cannot pay they will swoop down, foreclose and sell your property at a discount where they will recover all their capital and you will loose all of your capital. Just keep this in mind.

A home is a normal person's largest investment and it is usually a poor investment when all is factored into consideration, however, you gotta live somewhere. Once you realize that a home is more of a lifestyle choice and less of an investment it is easier to move forward with your decision.   

So the big question is, will the banks remain solvent and will the economy muddle along for the next 30 years so that I can pay off my low interest mortgage? Or even better; will the banks remain solvent and will the economy soar in the next 30 years so that I can pay off my fixed interest 30 year mortgage with my lunch money? Only God himself knows for certain but if cycles are correct we are entering (or have entered) into an economic winter. If you feel your jobs are secure and if the banks (nation, economy, currency) will remain solvent for the next 30 years then you will come out on top. There are a lot of unforeseen hazards or black swans that could cause problems on the horizon. In an economic winter all sorts of crazy leaders and theories arise. If you read "The Roosevelt Myth" by Joe Flynn he has one chapter entitled "The Dance of the Crackpots" in which he details all the crazy economic suggestions that were put forth (some were even tried and failed miserably) during the beginning of the great depression during the "first" new deal. The last economic winter brought forth the fall of Russia and the rise of communism, WWI, the great depression, the collapse of world trade and several other major financial upheavals. It is NOT the end of the world, it is just a little economic madness for a while. Eventually people come to their senses (reread the quote above from Mackay), the debt is forgiven and economic spring begins again.

There will always be cycles and we simply have to live in the economic cycle in which we are born. I suggest that you prayerfully consider wise council from multiple sources (certainly do not take what I am saying as the unvarnished truth) and do what you feel is right and gives you peace in your decision. Perhaps look for a great bargain, maybe a smaller fixed rate 10 year mortgage, maybe a place you can buy now and easily add onto later, maybe a larger piece of land with a nice house that will allow room for one or two small guest cottage(s) a little later as finances permit. My only recommendation is to avoid a large long term debt that does not give you any flexibility in the future in case things get difficult.

As Mark Twain once wrote, "I apologize for this long letter but I didn't have time to write a short one."

 

Your friend,

Larry LaBorde

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Master the Game

I recently finished Tony Robbins’ latest book, “Money, Master the Game,” and I highly recommend it. Many of his suggestions in the book are really simple ideas that everyone knows about, but few execute well. Robbins shines as a personal coach and motivator; he has a good way of taking these ideas and turning them into powerful, effective action steps.

 

In true motivational style, he guides his readers to visualize a future at different levels of wealth. He then directs the reader to his website where a series of questions allows one to see and outline explaining whether those levels of wealth are or are not attainable on this new trajectory. He shows us how to dream and envision ourselves in a great future and then teaches the reader how it can be obtained. He reveals how everyone can save and invest for the future with a plan. Even the most skeptical reader will see where a little funding can be found to start your retirement account right away if you want it bad enough. He then directs the readers’ attention to where even more funds can be added along the way without too much pain. He poses the question then provides a pretty satisfying answer to one of the biggest secret fears of my boomer generation, “will I outlive my savings?”

 

In the book he covers such topics as: managing risk, portfolio rebalancing, asset allocation, reducing fees, saving more and rewarding yourself along the way.  While the book is written for beginners and covers basic terms he also gets into structured notes and market linked CDs (certificates of deposit) that protect your downside risk as well as REIT (real estate investment trusts) on assisted living centers that allow you to capture the real estate upside as well as the upside of the business end of the center all while reaping the depreciation tax benefits. He discusses the benefits of hiring fiduciary experts and the fees they charge as opposed to listening to your broker’s advise.

 

In “Money, Master the Game,” Robbins suggests the reader watch a video by Ray Dalio. It is a 30-minute mini-movie, “How The Economic Machine Works,” which does an excellent job explaining the business cycle. I highly recommend that you invest 30 minutes of your life watching this short simple video at www.economicprinciples.org. This was one of my favorite gems from the book.

 

Robbins goes on to interview Ray Dalio, of Bridgewater Fund fame, in the book and that interview alone is worth the price of the book. Dalio’s “all seasons” portfolio is a “set it and forget it” fund (except for yearly rebalancing) that is quite easy for the average investor with mostly ETFs and index funds. I won’t spoil it for you, but Dalio recommends a 7.5% gold allocation in his mix. In a shameless self-promotion I invite you to visit www.silvertrading.net to fill this allocation in your portfolio!

 

An investment portfolio can be as simple or as complicated as you wish. The beginning investor should not feel overwhelmed as you can make a simple plan and get a good return. Or the more sophisticated investor can make a more complicated plan and get a bigger and better return. However you handle your retirement planning I believe you can glean quite a bit of useful information from this book. For example Robbins goes into detail about the good, the bad, and the ugly concerning annuities and PPLI (private placement life insurance), he also talks about index funds.

 

Near the end he supplies personal interviews with a dozen of the greatest investors of the last few decades. My favorite was an interview with Marc Faber, who has hosted the New Orleans Investment Conference a few times and is a delight in person. He finishes strong with how bright the future really is due to technology and man’s relentless push forward, as well as his personal secret to living (it’s pretty simple but you have to buy the book to find out).

 

So there you have it: how to make a great plan, motivation to execute that plan, good stories, and a happy ending. What more could you want in a book? There’s a reason it’s a best seller. Enjoy!

 

 

 

by Larry LaBorde

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What This Country Needs Is a Good 5 Cent Nickel

If you go to the website, www.coinflation.com today you will find that the composition of a nickel is 75% copper and 25% nickel.  Originally only silver dollars were real money at .77 troy oz of silver per dollar.  Dimes, quarters and halves were 90% silver just like the silver dollar but 2 halves, 4 quarters or 10 dimes only had .715 troy oz of silver.  The difference was seignorage or the cost of making the smaller units.  The lowly penny and nickel were mere tokens that were not really worth anything near their commodity value. 

 

In 1965 due to LBJ’s guns and butter programs 90% silver coinage was removed from circulation because the commodity value of the coinage exceeded the face value.  Dimes and quarters became tokens and Kennedy halves were reduced to 40% silver for a few more years until they to became mere tokens as well.  Today all commonly circulated coins are just tokens.  However, the old pre 1982 penny with a copper content is now worth a little over 2 cents.  The new penny that is 97½% zinc has risen to almost 60% of its face value.  The commodity value of the nickel is now almost 90% of its face value.

 

Back in 2011, Texas billionaire, Kyle Bass purchased 20 million nickels that at the time had a commodity value of $.068/each.  In other words he invested one million dollars that was worth $1.36 million dollars with a downside floor of 1 million dollars.  When the Federal Reserve asked why he wanted 20 million nickels he is rumored to have replied, “I like nickels”. Today those nickels have a commodity value of only 0.896 million dollars, however, he can always deposit them at the bank for 1.0 million dollars at any time.  Not a bad investment.  No downside – only upside.

 

 

In several countries around the world there have been overnight currency devaluations where say 10 old units were worth 1 new unit the next morning to everyone’s surprise.  The new paper dollar or peso or whatever was usually a different color than the old paper currency.  The banks just adjusted everyone’s balance and the general population was given a brief period of time to turn in the old currency for the new currency at a rate of 10 to 1 before the old currency became completely worthless.  Normally when this happened the coinage never changed.  It was just too difficult to call in all the loose change and re-mint it in a new design.  So if 10 coins equaled one old paper currency unit before the devaluation then the same 10 coins equaled one new paper currency unit after the change over.  There just was not enough change out there to worry over so if you had your savings in hard change in milk jugs sitting around the house you were OK. However, if all your savings would fit in a few milk jugs then maybe you were not OK after all.

 

 

The US Mint will probably catch on pretty soon and change the metal composition in nickels to all zinc or maybe even cheap steel.  There has been talk of discontinuing the penny and the nickel altogether and just rounding up or down to the nearest ten cents.  Gresham’s law will kill the present nickel one way or another.

 

 

In the meantime, for those of you who have a little extra room in your safe and are too lazy to bolt it to the floor just add some weight to make it harder to cart off in the middle of the night.  Just ask your friendly banker for a $100 box of nickels (2,000 coins) that weighs 22 pounds and is the size of a small shoebox.  You may want to tell him you will want one every week and to please have one ready for you.  If copper and nickel go back up to 2011 prices each $100 box will be worth $136 (who says the bank doesn’t pay interest any more?).  At worst you can bring them back and deposit them in your account for what you paid for them.  At best……....well you and Kyle Bass can figure that one out.

 

by Larry LaBorde

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Is It Time to Buy PM’s?

I am often asked the above question several times each day.  It looks like a triple bottom is shaping up in the near future.  Gold is getting close to its cost of production.  The gold/silver ratio is going higher indicating that silver is the better value of the two at present.  But sitting back and taking a look at the big picture consider the following top 10 list:

 

  1. Growth of the Federal Government.  The followers of Lord Keynes have the controls of power firmly in hand.  A larger central government = larger central power (central planning) = larger drag on the real economy.  Ask any small businessman (if you can still find one) about the costs of taxes, regulations and licenses.
  2. Federal debt.  Extinguishing debt is mathematically impossible with our system of money / debt.  The biblical Jubilee called for all debt to be cancelled every 50 years so that excess debt could be washed out; otherwise one person would end up owning everything with enough time.  Our federal debt is officially listed as $18.2T based on a cash accounting system.  (Based on GAAP the debt is estimated at $100T more or less.)  Our entire yearly federal budget is only $3.8T.  Our yearly national GDP is only $17.5T.
  3. Private / corporate debt.  Since 2007 private, corporate & financial debt is down by about 50% of GDP.  However, the federal government has increased their debt by about 33% of GDP.  While most households and businesses are trying to get their financial houses in order the federal government debt is rocketing higher (classical Keynes reaction).  All this additional public debt is causing a drag on the real economy.  If interest rates rise from the present record low rates we will find ourselves in big trouble.  That is a bet I would not make.
  4. Derivatives.  Speaking of debts that I would not make concerning interest rates the worldwide derivative market is estimated to be around $1,000T.  The top 5 US banks hold around $290T.  Most of these derivatives (or bets) are based on interest rates.  Just for the record, $1,000T is about 14 times the total world GDP.  Hopefully all the counterparties will remain solvent if interest rates rise and it all unravels in an orderly fashion (LMAO).
  5. Casinos and Mega-banks.  The local intra-county banks of my childhood are mostly all gone.  Banking is a special privilege where money is created through the process of loaning it into existence.  Therefore intra-county banking was only allowed because the profits from that magic were supposed to stay in the local economy.  Mega-banks in New York suck the life out of local communities and transfer that wealth out of town at the end of every day.  Casinos pretty much do the same thing in most communities.  The house take on all gambling pretty much leaves town every night minus a little local payroll and local taxes.   Both casinos and mega-banks suck the lifeblood out of communities given enough time.  The too big to fail banks are also now even bigger and have become too big for bailouts.  Watch out for bail-ins in the future (as per IMF recommendations).
  6. Monetary policy.  The current zero interest rate policy or ZIRP has allowed the federal government to expand its debt load, however, the unintended consequence is that savers have been forced into speculation.  Years ago middle class workers saved at the local bank and received interest of 5% or so in passbook savings accounts and a little more with certificates of deposit in time accounts.  The ZIRP has forced these savers into speculating in the stock market in search of yield.  Furthermore the competitive currency devaluations between countries are a race to the bottom.  No country in the history of the earth has ever achieved long-term prosperity by devaluing their currency.  This is simply insane and will result in inflation or worse when velocity finally increases.
  7. Central bank balance sheets.  The federal reserve balance sheet has ballooned to around $4.5T (no telling how much of that is worthless).  The IMF (the central bank’s central bank with Christine Lagarde at the helm) can generate fictional SDR’s at will (currently worth about $1.5/each).  Their balance sheet is only around $0.5T so there is room for expansion here it seems.  Look for more money (not wealth) to be generated at the IMF in the future.
  8. US stock market.  The p/e ratio of the Dow 30 is getting a little high which says a correction is in the air.  This may take longer to come about since with all the trouble in the world the US is still seen as a safe haven and people in troubled parts of the world like to park their wealth here in times of uncertainty.  Just for a better feel for the numbers the market cap or total value of Apple is $0.6T.  The total market cap of the largest 50 US corporations is around $10T.
  9. Foreign intervention.  George Washington warned us against “entangling alliances”.  Eisenhower warned us against the “military industrial complex”.  General Smedley Butler said the US Navy should not be allowed more than 600 miles from the coast of the continental US and that we should have the strongest DEFENSIVE military ever to protect our shores. In an effort to prop up the USD we have ignored them all.  At present it seems that we are trying to reignite the cold war with the Russians.  Pipeline politics has become the mission of the State Department.  The BRICS nations seem to be aligning against us economically as a result of our misguided foreign policy.
  10. 10.  But the number one reason to buy PM’s now is simply because you still can get them.  During the 2007 / 2008 crisis the PM market seized up.  Bullion dealers in the US had to suspend trading because orders had backed the system up and we had to wait days for it to clear before we could take further orders.

 

by Larry LaBorde

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Crew’s Log

I just returned from a guy trip. Most who know me are aware that I have played on sailboats for the last 35 years. I have done a little cruising in the BVI, the Great Lakes, both coasts and several inland lakes. We also raised our children racing as a family on several kinds of boats, primarily Thistles, all around the country. But this time was different. I sailed from the Chesapeake Bay to the Bahamas in one hop – six days and five hours – with a couple of guys. Really, it was more than a sail, more than a simple guy trip; it was an adventure and I’m sure glad I said yes.

 

It all started after one of my son’s high school classmates read my last article and just happened to be back in town. The lovely Miss Puddy and I taught him, and his twin brother, in Sunday school 30 years ago. Who knew we would meet again as adults and go on an adventure together? In his previous life Captain Tim had traded energy futures, worked for a hedge fund and then disillusioned by the whole sorted business just sailed away to the Caribbean on his 36-foot sailboat. After a few years of leisure cruising he landed in the Dominican Republic for a while. He returned to Louisiana via South Africa this spring and after he happened upon my latest column on the Internet he gave me a call. We had lunch and talked sailing. He mentioned that he might be bringing a boat to Bermuda for a friend. Another skipper would ferry it down to the Dominican Republic for the second half of the trip. Somehow I let slip that if he needed help with the transport to just give me a call, as I had never sailed on a long North Atlantic trip.

 

A couple of weeks later an email appeared in my inbox from Captain Tim asking if I wanted to go to Bermuda. After about two seconds of consideration I tapped out “yes!”  And so it began…

 

Captain Tim flew ahead and checked out the boat for a week or two. I scheduled a little time off work while we waited for a one-week weather window to depart.

 

The following is an account of my blue water adventure:

 

Thursday April 17th:

The trip is on for the middle of next week. Buy airline ticket and be in Richmond, VA, next Tuesday. My sweet wife happens to leave today to visit our daughter and new granddaughter in Michigan.

 

Friday April 18th:

Dig out my son’s foul weather gear just in case I need it on the trip.

 

Saturday April 19th:

Home alone with the dogs. Taking care of last minute business details all day.

 

Sunday April 20th:

Wash any clothes that I need and start a short list of items to pack.

 

Monday April 21st:

At the office all day squaring things away. Tell everyone I will be gone four or five days. Come home; realize that I really should pack. Cannot find old duffle bag so made a late night run to Wal-Mart to buy soft luggage for the boat.

 

Tuesday April 22nd:

Fly to Richmond and meet Captain Tim at the airport. He tells me there is a change in plans (first of many). The boat owner wants us to go to the Bahamas instead of Bermuda, as the insurance surcharge would be an extra $5,000 for going so far offshore. We stop by the grocery store to provision the galley.

 

Wednesday April 23rd:

Gregg drives down from the upper Chesapeake Bay area to join us as our third.  We make a quick trip to the local West Marine for last minute items. Run last minute checks on the 2007 49-foot Beneteau sailboat and make sure we are ready to depart early tomorrow morning. We have several beers at the dock to celebrate our impending departure.

 

Thursday April 24th:

We’re up early and cast off around 7:00 am and slowly motor out of the harbor and into Chesapeake Bay. It’s quite cool but the water is pretty flat. We motor through the channel, dodging traffic and getting used to the navigation system. The navigation system has all the charts with navigation aids incorporated into the system with GPS tracking on the chart. This is all saved to the autopilot and displayed on a 12” screen at the helm. We raise the sails and cruise past Hampton, Newport News, and Norfolk, then over the Chesapeake Tunnel and into the Atlantic. As we round Virginia Beach and I go below and prepare salad, baked potatoes in the gimbaled stove and pan-fried rib eye steaks on the range for our first dinner at sea. Everything is great and I’m getting a bit of experience cooking on a gimbaled oven/stove in the little galley. It’s sort of like the Airstream (going up and down a very bumpy road with several tight curves). The winds are about 10 to 12 knots and we’re making seven knots or so under sail. It has been a great first day. We decide to take four-hour night watches. Captain Tim takes the first watch from 8:00 pm until midnight, Gregg decides on the second watch from midnight until 4:00 am and I volunteer for the last watch from 4:00 am to 8:00 am. The plan is for us all to keep an eye on things during the day, but only one person up on deck at night so the other two can sleep.

 

Friday April 25th:

It’s cold on my watch so I wear a thermal layer beneath my foul weather gear while on deck. The autopilot drives the boat, but we make minor course corrections for the wind changes to keep sailing on course. The sunrise is quite spectacular. Shortly after sunrise several large fishing boats come charging out of Cape Hatteras heading due east while we round and then turned slightly Southwest along the North Carolina coast. We still have cell phone coverage so I call Puddy and report our position, speed, and direction. I take a short nap and awake to “the washing machine”. The wind has picked up to 20 knots and the seas are angry. The boat pitches up and down, side to side and then yaws (all at the same time). Captain Tim complains that this particular boat doesn’t seem to have enough handhelds above or below. My bruising starts today. It seems every corner in the galley, at the navigation station and in the head is out to hit my hips and/or legs. I relearn how to walk in a strange sort of dance trying to keep my feet under my body as the boat moves beneath me in a random, unpredictable manner. The canvas bimini cover rips and tears away from the frame. I cut away the remaining canvas, trying to keep my balance while wielding a sharp knife. We have jack lines on the boat, this means I’m wearing a harness with a lanyard connected to the life line so I won’t fall overboard in the storm. However I could fall and hit any number of other things in the process and acquire yet another bruise (did I mention I am holding a sharp knife and standing on the transom of a boat pitching violently?). Later that afternoon after sailing for 35 years I experience my first bout of seasickness. So this is what my sweet little wife complains about whenever she forgets her medicine. Not even a ginger snap on the boat. Just suck it up, skip dinner and go to bed early. I wedge myself into my bunk to keep from rolling around and fall asleep exhausted. Tonight my dreams consist of jumping ship and swimming to shore at Myrtle Beach, or maybe Charleston.

 

Saturday April 26th;

Up at 4:00 am for my watch, feeling a little better. We have just cleared Cape Fear. The shoals go out quite a bit east of the Cape and we are trying to keep a safe distance from their wrath. There are also shoals south of the cape that we try to avoid in the dark, just to be safe. On deck Gregg has made several tacks trying to clear the shoals south of the cape but the wind is being difficult. Captain Tim suggests we forget about following the coast down to Charleston. The wind has shifted southeast and we will be head to the wind down to Charleston. So we change course and head due south out into open water. The moon is low and bright on our port hip. The stars are out in a clear sky and visibility is pretty good tonight. The wind is up and it’s a close reach headed south. The boat sails like a dream in light seas. It is possibly the best sail of my life. After Gregg and Tim go back to sleep I am alone on deck and all is right with the world. The sun comes up and it is a beautiful day. I grab a short nap after my shift. I wake up and get a bowl of granola cereal with blueberries and go up on deck. A large sea turtle swims by headed north against our course. We have entered the Gulf Stream and have turned from due south to southeast in order to get across it quickly.  The current is about 2-3 knots and is trying to carry us back North. We’re out of the Gulf Stream before nightfall and turn back South. I break out the satellite phone and call Puddy to give her another position, course, and speed.  Captain Tim cooked chili this afternoon which is perfect as my stomach is finally ready for a full meal.

 

Sunday April 27th:

Up at 4:00 am for my watch. Seas have picked up and Gregg has spent his watch sitting under the dodger with his feet on the companionway steps.  Big lightning storm in progress off the port bow a few miles off. Gregg said it was all around us earlier during his watch. The boat is pitching pretty good so I follow Gregg’s lead and sit in the front of the cockpit on the companionway and jam my feet on the corners of the top step and hold on tight for four hours. Thankfully the autopilot does not kick out and I’m able to stay fairly dry under the dodger. I watch the stars through the starboard side of the dodger and they remain in roughly the same place. The moon stays on my port hip so we are still moving in the same direction for four hours. I pray, I sing hymns, I sing any and every song that I can think of tonight. My stomach is now used to the sea and behaves. I eat a quick breakfast after my shift and catch a short nap. By the time I awake from the nap the storm has blown over. A pod of a dozen or so dolphins swims with us for an hour or more. I cook the last rib eyes and prepare the last of the salad for an early dinner. I call Puddy on the satellite phone once again and reported our position, speed, and direction. We are about 300 miles East of Jacksonville, FL.  Since we are now well out to sea I start marking our position on the paper chart at the nav station once or twice a day just in case the electronic nav system fails. We stay up late and talk this evening as the winds have dropped and it’s pleasant on deck. We talk about sailing and we talk about the state of the economy and we talk about our lives in general. I’ve always appreciated how well you really get to know someone on a small boat. I turn in around 11:00 pm.

 

Monday April 28th:

Up again at 4:00 am for my watch and the seas are kind. The wind is about 15 knots and we’re tacking our way due south, back and forth every few hours. Just before my shift is over Captain Tim comes up and we decide to tack the headsail.  I set the autopilot to tack and man windward wench, while Captain Tim is at the leeward wench. Halfway through the tack the headsail catches the mast spreader and RIIIIIIIPPPPPP.  The sail tears a four-foot gash along the seam right at the mast spreader. We quickly furl the headsail before it’s damaged further from the wind. Without the headsail we cannot sail on the wind closer than 70 to 80 degrees. We start the little Yanmar diesel and begin to motor due South straight into the wind. We’re making decent time at about three and a half to four knots. Did I mention the owner only has one headsail on the boat? We can’t find a sewing kit anywhere onboard. We have over 100 gallons of fuel left so we should be okay. There is only about 200 miles to go. I cook red beans and rice with sausage for dinner and we stuff ourselves with the last of the fresh food.  After today we are going to have to hit the dry rations. We talk of movies and Captain Tim mentions the boat has a copy of “Fight Club” in its inventory. As I have never seen it and the seas are light we decide to have movie night down below while Tim runs up and down on his watch. Great movie but I will need to watch it again after the surprise ending. Go to bed running the movie back through my head trying to remember the earlier parts and make sense of them.

 

Tuesday April 29th:

Up at 4:00 am and the little engine that could is still chugging away. If everything holds together for another 24 hours we should make it to the Bahamas. I watch the oil pressure and engine temperature like a hawk. Everything seems fine. I go over our options if the engine does quit for some reason and we can’t get it restarted. Since the wind is out of the south we could raise the mainsail and put the boat on a beam reach and just head west. The Gulf Stream would catch us and carry us north a bit since we would be moving slow but we should reach landfall somewhere around South and North Carolina… in about three days. We should have enough dry food to hold us over and there is plenty of fresh water.  We would not complete our trip but we would be fine if the wind held up. The little Yanmar engine just keeps on keeping on throughout my watch. This early morning is a fine morning and as I sit at the wheel I thank God for just how lucky I am. I’m on a great trip, have a wonderful wife and family, and have lived a great life so far.  I feel truly blessed.

Since we left we have been trailing a fishing rod with a single trailed line. As it just so happens… today, the very day we have run out of fresh food, we catch an eight to ten pound Mahi-Mahi! We carefully reel the fish into the boat, pour some gin on its gills and it quickly and mercifully dies on the deck after only a second or two. We set to work on our catch and cook half for lunch then the other half for dinner. We are miserably full all day, what a great fish. God provides just when we most need it. I call Puddy on the satellite phone and report in at about 50 miles north of the Bahamas and then I fall asleep.

 

Wednesday April 30th:

Up at 4:00 am for my watch. Our watches are becoming a part of our body clocks. We have reached the outer banks of the northern part of the Bahamas. I motor around the northeast edge in the dark, being careful to stay at least 12 miles off the reefs, until we reached Whale inlet where we should sail through the reefs and into the shallow waters of the Bahamas at dawn. The chart shows the current seas to be thousands of feet deep. Just an hour or so before daylight I turn 90 degrees to starboard and head straight for Whale inlet. The sun is up as we near the inlet around 8:00 am. The depth gauge shows the bottom quickly rise and all of a sudden we were through the cut and the ocean floor was only 25 feet below us. We sail toward Marsh Harbor on Grand Abaco Island for about four hours on a shallow sea of crystal clear glass smooth waters only 10 feet deep. The Bahamas at last! The little engine that could has held out for us with plenty of fuel to spare. We radio the harbor and are assigned a slip.

 

 

After six days and five hours we tied up on the dock and set foot on land once again.  We brought our passports to the office and they called a customs officer to come by and check us into the country. The dock master suggested we wait in the bar and have a few drinks and a snack since it might be an hour or so before she arrived. The customs officer came to the bar and welcomed us into her country, examined our forms and stamped our passports right in the bar.  There were no metal detectors, no lines, no automatic weapons, and no silly questions trying to trip us up. Captain Tim then walked out on the pier and showed her the boat and that was that. The Bahamas is such a civilized country! We celebrated our passage and toasted the Yanmar diesel engine several times. I booked my flight home in the bar for the next day but vowed to return and sail around the Bahamas with Puddy and enjoy the smooth waters with her another time. I showered ashore and finally shaved a week’s worth of grey beard. We had ribs with new friends we met from South Africa at the bar across the harbor that night and then the next morning I was off at the airport and my adventure was over (except for the trip home by air, but that’s another more boring story).

 

It has been a couple of weeks since I returned and I still have a goofy grin all over my face whenever I think back on my sail. We sailed through rough seas and storms and beautiful sunrises and sunsets. Even a 49-foot boat can seem small in the middle of the great North Atlantic at night with a vast sky full of stars.  It can be a very humbling experience. You also learn to fully trust someone when you hand over the helm to your crewmate during a storm and go below and fall asleep. You depend on each other and God to get your through the storms. I suppose it was not that dangerous, but at the time it felt like we were living on the edge.

 

In a world where we could spend days reading about out of control government spending, too much debt and the economic collapse that is sure to come it is easy to forget to live our lives one day at a time. Most important of all we must remember to enjoy every day as a unique, personal gift from God. So make out your bucket list and start checking items off!

 

by Larry LaBorde

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