Mike Krieger Explains How To Short Corruption In 2011

Tyler Durden's picture

Submitted by Mike Krieger of KAM LP

How to Short Corruption in 2011

Just because you do not take an interest in politics doesn't mean politics won't take an interest in you.
- Attributed to Pericles, ca 430 BC
 
Suspicion towards a currency, once awaken, develops insomnia.
- James Dines

 

Addressing the Commodity Chatter

In the waning days of 2010 and the first week of 2011 it seems everyone under the sun has decided to weigh in on commodities general and gold specifically.  Although I disagree with the conclusion of many of these notes, several of them are very well thought out and bring up excellent points of debate.  I will address one note in particular in this email and others possibly in the future.
 
Dylan Grice of Societe General is in my opinion one of the best big picture guys on the sell-side today.  I find him to be intellectually honest and someone with a deep sense of human history, which is the crucial component of any successful analysis of global macro trends.  History is in effect an intricate model of human nature.  Since human being are the components of both civilizations and markets, what ultimately drives the big dynamic shifts that change the world forever is human nature itself.  In the period that we are told is the whole of civilized human history (I have serious doubts about this but that is for another time), human nature has clearly not changed although our toys and weaponry have.  All you have to do is study history to see this.  If you don’t understand human nature or and the intricate but volatile web of events we call history you have no business being a macro investor.
 
Ok, so back to the Grice piece.  In his Popular Delusions piece from December 15, 2010 he talks about how commodities are a horrible investment in the long-run and that you are much better investing in growing businesses.  I am not going to argue with him here although I just want to make two points.  First, is commodities have powerful secular bull markets and having exposure to this asset class is absolutely crucial to a macro investor such as myself that plays these big secular trends.  I have not succumbed to a delusional love affair with this asset nor am I buying into some long-term Malthusian nightmare.  At some stage investors will get this way (it happened in 2H08), commodities will rise to far too fast, and it will be time to get out.  The attitude toward commodities in early 2011 is nothing like it was in 1H08.  It is much more restrained and in fact more investors like equities than commodities today.  I was there in 1H08.  I called it a bubble then.  I have a track record.  This is not 2H08 from a sentiment perspective.  This run has a long way to go in certain commodities (precious metals, agriculture and oil) from where I sit.  A long way.
 
The more important point Grice makes is one I am hearing repeated by parrots on television that don’t have half the brain power or understanding of Grice.  As such, I want to address this point of view once and for all.  In his note Grice writes:

When you buy commodities, you’re selling human ingenuity. Why bet against human ingenuity by buying physical commodities when you can bet on it by investing in the enterprises whose task is to remove the bottlenecks and lower commodity prices? As a strategy, this is something I will focus on in later notes. I think there are more efficient ways to gain exposure to commodity markets and I will write in more detail about them after Christmas.

While I think this statement on its face it correct, it is misleading and subject to poor interpretation by the weak minded.  Yes, it is true that when you put capital into commodities you are betting against human ingenuity, but human ingenuity can be stifled by outside factors such as government and corruption.  So in buying commodities, and precious metals in particular, I am in fact betting against real GDP growth and human ingenuity…in the SHORT-RUN (this can be described as several years or more when you look at markets from a truly long-term perspective as I do).  Longer-term a bet against human ingenuity has been a disastrous bet and I believe it will be again.  Nevertheless, the state of corruption and incompetence embedded within the current leaders of the United States and the Western World in general (and our Asian soft-colonies) is of such a magnitude that they are stifling human nature, its ability and desire to innovate and yes, ingenuity itself.
 
Shorting Corruption in 2011

While many will say I am a perma bear and just see everything as half full, I cannot wait until the day that I can sell all of my precious metals and commodity exposure and start to invest in non-mining and commodity businesses and equities generally.  I have no doubt that this day will come but this is all a process and we are very, very far away from that day from a price perspective.  A large part of my intent in writing these notes is to catalyze the change so that it happens as quickly as possible.  The quicker we can change the guard within the elite class on Wall Street and Washington the quicker we can get on with human ingenuity.
 
Very early on I noticed that what Aldous Huxley and others have called the “power elite” have almost total political and economic control of the system.  Remember the quote attributed to Mayer Rothschild over two hundred years ago that perfectly and simply states:  “Give me control of a nation's money and I care not who makes the laws.” Combine this quote with Lord Acton’s: “Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men” and you can start to really put all the pieces together on how money power works and how it has taken the entire world hostage to its selfish ends.
 
The founding fathers of the United States of America were very well aware of this aspect of human nature when they framed the constitution which is why they made money gold and silver coin and also why they were obsessed with the idea of a division of powers between the executive, legislative and judicial branches.  It is also why states rights was such as big issue.  Unfortunately, what we have today is almost the worst case scenario.  While under a gold standard the politicians will cheat and print and then default (like the United States did in 1971) at least there is the legal framework of moral money during that period.  Under a completely fiat system where money can be created to infinity and that power is granted to a small group of unelected academics (the Fed) that answer to the banks...well you get what we have today.  A society where all the wealth has become concentrated in the hands of a very small, corrupt and unenlightened elite.  Once their greed has collapsed the system they then scramble to secure their positions using their political connections (see the period from 2008-today) and in the process destroy the middle class.  To protect themselves from the “people” they then try to put in a police state or a more authoritarian government.  This has happened over and over and over in history and is happening again right now.  This is pre-1789 France make no mistake about it.
 
So when the masses of a formerly free people figure out what has happened to them it is not pretty.  My whole hope is to avoid the masses turning violent.  There is no need for it.  The system has an Achilles heel and it is precious metals.  People must become educated on money power, how it works and then use the system against itself.  The entire power of the elite resides in fiat money creation.  Buy physical gold and silver and take delivery if you want to short corruption in 2011.  Take that away and they go away.  Enter human ingenuity.   
 
George Soros and the New World Order

Many people hear the term “New World Order” and immediately shut down.  They think conspiracy theory.  The truth is this is a term the elite themselves use all the time in describing what they want (see Soros interview here http://www.dailypaul.com/node/153418?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+dailypaul%2FFClq+%28The+Daily+Paul+-+Continuing+the+Ron+Paul+Revolution+Ron+Paul+for+President+2008%29).  What we have the is second worst possible outcome in the U.S. dollar currency system.  The absolute WORST outcome for humanity and freedom is the New World Order outcome, which in a nutshell is a global government and a one world currency.  Think about it.  It is bad enough to have the U.S. fiat dollar but at least you can flee to another nation.  If there is one currency that must be used everywhere and it is managed by some power hungry maniac in Brussels what kind of world do you think that will be like?  I’d rather not.
 
I personally think there will be no New World Order because people are waking up and becoming educated on how things work and they are doing it fast.  The smartest of the elite are in their old age and we will be rid of them soon enough thanks to natural causes.  My observation of their progeny is that they are much less intelligent, motivated and forward thinking than their ancestors.  I can’t wait until the day I don’t have to listen to the dangerous fantasies about how civilizations should function from the like of George Soros or Warren Buffet.  You guys had your day.  Go away please you have done enough to ruin the future of my generation.
 
All the best as always,
Mike

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Xibalba's picture

One world currency you say?  Cue the hoards of Armageddon doomsday prophets.  I'll go first:  

16 And he causes all, the small and the great, and the rich and the poor, and the free men and the slaves, to be given a mark on their right hand, or on their forehead,

 17 and he provides that no one should be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name.

 (Rev 13:16-17 NAS)

NotApplicable's picture

I can see Congress now, mandating implanted RFID chips in welfare recipients in order to stop debit-card fraud (once we get to say... 150M people on welfare). Not to mention all of the other political "problems" it will solve.

malikai's picture

"While many will say I am a perma bear and just see everything as half full, I cannot wait until the day that I can sell all of my precious metals and commodity exposure and start to invest in non-mining and commodity businesses and equities generally."

I believe investment in a mining or raw material business should be an investment in human ingenuity. After all, as time goes on it takes significant ingenuity to extract more resources from diminishing reserves, nevermind what it takes to find the stuff in the first place. And mining companies can and do go broke during their industry's bull periods. Think Enhanced Oil Recovery and In Situ Leaching.

velobabe's picture

mikey, your very calming for me. maybe boulder and it's energy and weather has gifted your ideas and pen. i enjoyed reading your peace.

CIABS's picture

i am very reluctant to say anything discouraging about krieger's outlook and attitude, which i admire.  but i'd feel a lot better about his recommendation if i didn't think that the members of world's ruling class have been personally accumulating gold and related assets in recent decades and that they already own most of the gold in the world.  that leaves a lot of us trying to get hold of a little bit of their true currency so as to be able to play their game when the game changes.

hidingfromhelis's picture

Agree completely.  The uber-wealthy are typically ruthless and corrupt, and I bet they can read the writing on the wall.  Most of them didn't get where they are by being ignorant.  They are invested in tangible things as well.  The rest of us are scrambling for the little bullion crumbs that have fallen on the floor at this point.  Whatever form reset takes, a lot of the same folks will emerge with wealth and power intact.

P.S.  When I got up from the chair, your avatar's "eyeball" seemed to track my movements...creepy.

the rookie cynic's picture

I'd be suprised if the New World Order playbook didn't include a gold and silver end-around, complete with chop blocks, leg whips, and uneccessary roughness.

Bruce's picture

Another zinger by his lordship:

"The issue which has swept down the centuries and
which will have to be fought sooner or later is
the people versus the banks." - Lord Acton

deja vu...

 

RicktheDick's picture

Good piece and I do agree with most of what Mike espouses here. However, he seems to drastically underestimate the extent that the ruling class will go to in order to reatin their elite status. One truism of human nature is that people do not go quietly.  

the grateful unemployed's picture

its also possible human nature has changed, and technology hasn't. i consider someone like Bill Gates the enemy of his own technology. in order to make a large business out of Microsoft he destroyed competition and innovation. the elite are largely hanging on to wealth that no longer means anything. and yes human ingenuity makes all commodities fungible. the bailout was done to keep the financial dinosaurs from going extinct. the first capitalist thought, we need to give the people a reason to work (other than fear and oppression) so let's give them money, and never quite as much as they need. 

it's ironic of course that Bernanke and Obama want to push the stuff out of helicopters! They realize how worthless money is!! but I agree that the new world order is just a loaf of wonder bread for everyone. the real new world order is that the best and brightest nation will rule, without the use of power, or manipulation or greed, which is were Bernanke and Obama lose it. people who crow about the decline of the Am Empire have it all wrong, it is just the beginning, because we do everything much better than the rest of the world, which includes cleaning up our own messes.

jeffgroove102's picture

Excellent article, and I firmly agree on how things actually change, the old farts with the unenlightened ideas need to die off. I still am a bit concerned that the public is not really vested in precious metals. It unfortunately creates that old saying"when the gap between the rich and the poor widens, revolution ensues."

max2205's picture

too funny...you'll be waiting a while since the bottom was in 2009 and prices are dear at this point... good luck

faustian bargain's picture

Is that why food prices are rising?

Trailer Trash's picture

Dear ZH Community, Please provide some advice.  I would like to purchase some Gold and Silver today, my first purchases.  I have decided to buy Eagles just for personal reasons, realizing that there is a premium. My questions are: Regarding Gold, Does anybody care about "Dates of our Choice" versus a specific year and "Original Mint Tubes" or "Brand New Coins".  I would prefer the "cheaper" gold unless all of the other stuff is of any specific concern or value. Also, if the premium is roughly the same, is there value in purchasing .5 oz versus 1 oz.   Regarding Silver, Monster boxes, sealed or unsealed.  Again, I would prefer the "cheaper silver" unless there is some express advantage in the purchase of a mint sealed box. From your previous recommendations, I understand that Tulving is a reputable house from which to purchase.  Yes? 

MrBoompi's picture

Like almost everything else, the more you buy, the cheaper the price.  Dates of choice might have more value to the numismatist as opposed to an investor.  One ounce of .9999 silver is worth the same as another, unless the coin itself is special for some reason.

 

If you can afford a full monster box, good for you!  I have most of my stuff stored at Goldmoney, but buy some rounds from APMEX too.  I found Goldmoney to be convenient and cost-effective even though I pay storage fees.

Cognitive Dissonance's picture

I have most of my stuff stored at Goldmoney.....I found Goldmoney to be convenient and cost-effective even though I pay storage fees.

Considering the fractional reserve nature of Gold and Silver selling, IMHO if you don't physically control it you don't own it. Period!

I don't care what they tell you, it's quite possible they don't even control what they claim they are controlling for you.

RunningMan's picture

CD is right. Buy a safe, and hold the physical. And guard it with your second amendment rights.

Dagny Taggart's picture

Absolutely. And FYI for anyone who BTFD, APMEX has received silver eagles and resumed timely shipping.

velobabe's picture

buy a heavy safe. when the shit hits you know what, i am renting now, but i will take the contents out and run with it. i thought i would have to think about exiting with my safe in tow. but i can't do that. i will just leave it in this piece of shit condo shit and take my PM's i am wearing and go gentle into the night. the safe is just that, safe.

Dollar Damocles's picture

I've heard James Turk (owner of goldmoney) interviewed countless times over the last three years.  I would give that guy my gold with no reciept and trust him to credit it to an account with my name.  Few people in the world that I would trust like that.  Eric Sprott is another.

That being said, PMs stored at gold money are not private.  They are just as subject to capital controls and taxes as any other bank account.  Gold is the only truly private financial asset left in the world if you buy it with cash and hold it physically.  Take advantage of that.  Since the most dangerous thing to the PM investment is political (not economic) risk, keep in mind that total secresy is the best "vault".

I hold some PMs with goldmoney, primarily because of the great convenience of being able to sell into multiple currencies, and WT money to foreign bank accounts.  GM is just a bank the way a bank should be - a storage vault that charges fees and doesn't do loans with their clients money.  But I would never hold more than a small fraction of my bullion with anyone, even goldmoney, because Turk is trustworthy, Uncle Sam isn't though, and he will know every oz that you have held at GM under current reporting laws.

velobabe's picture

don't trust anybody, except yourself. you are the only person that has your best interest at hand. believe me on this one. your spouse, could be questionable, your children, ? your pilot of your gulfstream 650, ?

Dollar Damocles's picture

My trust is very discretionary.  I follow a pretty simple formula.  To trust anyone with money, they need to A:  Have character and B:  Have more gold than me (i.e. be solvent)!!!  This basic formula can be applied to any individual or institution accross all of human history.

An interesting thing about those who understand and love sound money, is that they generally tend to be moral people.  The cause of all of the economic problems in the world today, which you can describe till your face turns blue in mechanical ways (business cycle theory, credit expansion and contraction, inflation deflation, etc etc), could really be summed up in two words...  Fraud and Theft.  So I guess it's not suprising that those with the greatest insight into our economic problems, and who predicted it, generally tend to have moral insight, which usually is an attribute of moral people.  People who love sound money and understand the connection between sound money and individual freedom are also some of the best people I've ever had the pleasure to know, both those I know personally and those I know only through interviews, speeches, and lectures.  The guys from GATA, Jim Sinclair, Eric Sprott, John Embry, Ron Paul etc, you listen to these guys and when they stray from talking about the markets and into philosophy or political philosophy, you will see that these guys are noble and decent people - very idealistic, very moral.

Funny that you mention family - I don't trust my family with my metals cause they don't meet my formula - honesty yes, solvency no.  James Turk on the other hand, I do, because he does.  However, over all I agree with you.  The only thing better than knowing people you can trust, is not having to trust them.  I keep 80% of my metals in my own fist and recommend that to anyone.  That being said, there are multiple ways to own gold and silver, each with their own pros and cons, and it is not a bad idea to be somewhat "diversified" (the word that has killed so many 401kers who are only diverse in equities) in the way and the location that you own gold.

NotApplicable's picture

The advantage of sealed vs. unsealed monster boxes is the added degree of confidence that the contents have not been altered, thus a slightly higher premium.

As far as different sized gold eagles, smaller coins may be easier to liquidate. The premiums will never be close to equal though, as it relates more to per coin, than it does per ounce. So, if you want to maximize your gold holdings, go for 1 oz. coins, while if you want to maximize your ability to liquidate, smaller coins are better. 

I have dealt with Tulving and found him reputable, but his minimum purchase sizes are prohibitive to small buyers.

akak's picture

Dear TrailerTrash,

Why do you keep asking this exact same question over and over again on multiple threads for the last several days (at least), despite having been answered numerous times already?

To other ZH posters: I am suspicious of this poster for just this reason, and would not answer their questions.

NotApplicable's picture

First purchase = overcoming inertia = fear of buyers remorse

Change is never easy, especially when it is counter-intuitive to "conventional wisdom."

Most of the people I convinced to buy Eagles took over 2 years to finally move.

Trailer Trash's picture

Thank You NA.  You hit the nail on the head!  And, sorry akak.  When I first asked, akak was the only person who responded.  My professional background leads me to like larger sample sizes when collecting data. I was trying to get around ten opinions before making a decision. Many in the ZH community are very knowlegeable about PM purchases, and, perhaps, for that reason rarely talk specifics. They might talk preferences, but do not explain why.  I read often but post little.

akak's picture

OK, sorry TT. I can now see why you might have wanted to post your question multiple times, in order to receive some kind of consensus answer --- I had not considered that angle.

We have had enough questionable or outright dishonest characters in this (and other) forums, that perhaps I am a bit too watchful and suspicious by this point, some might say even a bit paranoid.  I am sorry if I unjustly accused you of being here in bad faith.

Apocalicious's picture

Agreed akak. This isn't someone who needs convincing. This is someone from some sort of a sales angle, perhaps tracking the frequencies of certain responses. The posts are virtually identical, over weeks, I believe, not days.

 

I smells a rat, a rat I says...

Trailer Trash's picture

No Apo, just since this Monday, first business day of the year.

Stuck on Zero's picture

I would buy old U.S. silver dollars.  Everyone recognizes and loves them.  They are the old "cartwheels" from Vegas.

MrBoompi's picture

I buy silver because I see absolutely no ingenuity in inflating the money supply.  But I did receive this alert from APMEX yesterday:

 

Have you secured your order of 2011 Silver American Eagles yet? Now is the time to act. We have received news that the U.S. Mint is limiting the allocation of 2011 Silver American Eagles to distributors. We will accommodate as many of our customers as possible, but it will be “first come, first served” for this beginning allocation.

ApplesConspiracy's picture

I'm not sure I buy that. 

 

I've been on their site the past few days and the marketing/pricing of the site looks like it is designed to take advantage of the yearly-buyer type collectors who would be looking to add 2011 versions. 

Maybe I'm off base, but I find the premiums and such a little bit higher than usual just in time for the wave of 2011 buying.

As an anecdotal example, you suddenly need to buy 30 of common coin types to get a discount instead of 20. 

Tao Jonesing's picture

I cannot wait until the entire world is back to using just gold as money.  That will fix the George Soroses of the world who want a single world currency!

Oh . . . uh . . . heh . . .

Yeah.  There's more than one way for your NWO to skin the one world currency cat. 

faustian bargain's picture

Which is why money should be determined by the market, not fiat.

NotApplicable's picture

The quicker we can change the guard within the elite class on Wall Street and Washington the quicker we can get on with human ingenuity.

Meet the new boss, same as the old boss.

And also,

Don't hate the player, hate the game.

gorillaonyourback's picture

yes very optimistic, but hard betting against the champs, they have been running things along time, the internet has been the big soap box, but will it continue, think about net neutrality, who controls the telecommunications satellites. The rebelion/revolution has to start locally and spread to neighboring cities.  Its not bad enough yet. Can they feed us and give us our soma? I think only when we get hungry will it be time. In a way i hope i start getting hungry. I need to loose a few fuckin pounds anyway

Stevm30's picture

aka: Die already.

Stuck on Zero's picture

Great piece of work.  As for the New World Order ... everyone is in favor of it in concept.  Everyone hates the people who would be these leaders.

faustian bargain's picture

Who is this 'everyone' of which you speak?

Stuck on Zero's picture

Think of the NWO as sold: International coordination, end to poverty, no more wars between nations, cooperation on the environment, global labor laws, free trade etc.  In other words the NWO promises to end all problems associated with nations fighting each other.  Who isn't for that?

goldmiddelfinger's picture

Shorting corruption has never been much of a money maker to my mind. The bad guys in finance are in a golden era

reddog's picture

Today it's  “Give me control of the world's COMPUTERS and I care NOT ABOUT ANYTHING ELSE.” 

gangland's picture

"Yes, it is true that when you put capital into commodities you are betting against human ingenuity, but human ingenuity can be stifled by outside factors such as government and corruption.  So in buying commodities, and precious metals in particular, I am in fact betting against real GDP growth and human ingenuity…in the SHORT-RUN (this can be described as several years or more when you look at markets from a truly long-term perspective as I do).  Longer-term a bet against human ingenuity has been a disastrous bet and I believe it will be again.  Nevertheless, the state of corruption and incompetence embedded within the current leaders of the United States and the Western World in general (and our Asian soft-colonies) is of such a magnitude that they are stifling human nature, its ability and desire to innovate and yes, ingenuity itself...the quicker we can change the guard within the elite class on Wall Street and Washington the quicker we can get on with human ingenuity."

Mike, thanks, that was very good, best explanation of a bear mentality I've come across.

But I don't think people are waking up in enough numbers at a fast enough rate and if they are, they'll reject it, they won't fight, they'll beg for the police state. especially in the big cities.

velobabe's picture

just my observation about the elites progeny or multiplies of them from several X's, they are dumb and ugly on the whole. i have seen a lot of them. low expectations on their parts, for sure. they are so screwed in the head. daddy did it to them. one i know of in particular, has all his boyz learning kung fu etc. he has a full time martial arts warrior on board his private jets that fly the world around daily. i wonder what that tells about one elite. trying to bring some Zen into the time traveling fraud and corruption and raping of every continent he can get his hands on. quite simple folks, these elites are just pussy men.

Violetta's picture
Violetta (not verified) Jan 6, 2011 11:42 PM

"The quicker we can change the guard within the elite class on Wall Street and Washington the quicker we can get on with human ingenuity.
 
Very early on I noticed that what Aldous Huxley and others have called the “power elite” have almost total political and economic control of the system."

and he is expecting radical change anytime soon? 

mt paul's picture

power 

always needs 

a neutral...

 

to complete the circuit ...

 

metaphor bytches