Thursday, July 01, 2010

Channelling Levi Strauss

I have  long been a proponent of the Levi Strauss approach to most highly-sought-after though long-odds pursuits. Of course I do not mean the Structuralist-School member of the Academie Francaise, but the utiilitarian SF-based purveyor of dry-goods, who kitted out the miner-forty-niners searching for the motherlode out west. Most never found what they sought, but Mr Strauss (the retailer) did mighty-well supplying the essentials clothes and tools for them to dig for their dreams. 
So as we remain amidst a modern-day financial gold rush, IF one is skittish about the utility of gold itself, the probability of hitting the proverbial home-run with the yellow metal already at multiples of its former price in less-stressed times, or if one is concerned about more practical aspects of converting it into usable bits come Orlovian outcomes, or if one be in the camp that believes eventually that inflation and fiscal yawn will be met with either tight money or market vigilantism - devil take the hindmost, it may be worth thinking about how to channel the spirit of Levi Strauss (the dry-goods retailer - not the philosopher).

One of the main challenges with bullion is where to keep it. The home is frequently not a safe place - not without the retrofitting by Diebold or such. Saftey-deposit boxes are better, but ownership is recorded and in a banking holiday, could be opened and seized by the State. The banks are capitalising by increasing their vault capacity to cater to the new owners, distrustful of keeping it ummm errrr anywhere.
One could open a a family of Gold ETFs. Although Mr Einhorn dumped his for the physical because he found it cheaper to store than the mgmt fee, there is no reason why a 10bp management fee ETF for physical Gold bullion isn't out there already. Heck with GLD now with a market cap of $50,000,000,000, 10bps is $50,000,000, a cool fee for a passively-managed investment Fund with a single yellow asset.

The late Mr Strauss would have appreciated a chain of Retail Gold Storage Vaults that provides storage, exchanging like quantities, assaying, market-making. It is obvious that a largegold bar would be useless at the town market, and even 1-oz eagles or Krugerrands  are overkill for daily business. Hence the need for a real nationwide retail bullion bank that would exhcange local IOUs in claims on smaller quantities. Of course the Fed might have something to say about this...  But here, the brand extension possiilities are large. For example what about Beretta Bullion Bank? One could deposit their bullion and withdraw some ammo? Free weapon with large deposits etc. Or Smith & Wesson Bullion Bank. Now, what idiot would tempt their fate trying to rob an institution guarded by heavily armed Sam Elliott-type (see photo right)?

There is room in the brave new world of Gold $5000++ for speciialized transportation services.  Everyone knows that Brinks guards are fat, lazy and given their wages, are wholly not committed to their job. And why should they be?? In the world of Gold $5000, you want bad-ass motherfuckers like Blackwater (or rather XE Services as they are now known), with no qualms about shooting first and asking questions later, or queasiness regarding torture, guarding your hard-earned speculative savings. Indeed you may have to pay them more than Brinks, but as the rather pertinent saying goes: "Fifty percent of a Gldmine is better than one-hundred percent of nothing...". 

If not a proper bullion bank, then perhaps a more Professional Retail Shop. At least make it look serious. Makle it LOOK more like a bank rather than a bad stamp collectors or used baseball card shoppe, in the low-rent dead-end section of the mall. With Gold $5000, this baby should have brand-new neon, and be front-and-center, next to the big fountain in the central plaza. 

There are still other ways to ride the Gold $5000 bandwagon. You can start up your very own Canadian (or Australian) Junior mining company, where all you need is a piece of derelict land, a hole, a press release, a PO Box and a Vancouver listing. If ever you wanted to sell pennies for a dollar, this is the way. Or, you could broker mining machinery, trade/distribute heap-leaching chemicals, sell your own version of "Miracle Bullion Polish" on late night TV or QVC. Or better still, you could, like my old boss in my very first post-university job, hire a bunch boiler-room snake-oil hucksters to harass gullible senior citizens via telephone to part with their meagre savings by buying bullion from YOU at heavily-marked-up prices, and with exhorbitant storage contracts, something they did while riding exer-cycles in a windowless, furnitureless room in what was once known as The World Trade Center. Some people have no shame.... 


Anonymous said...

That's all well and good Cass, but it doesn't get us anywhere. The glaring price of gold is in fact serving it's purpose, and it has nothing to do with inflation. At $1,000+ gold is screaming that policy writ large is an utter failure and that those with their mitts on the tiller haven't peered out of the narrow tunnel they look through to contemplate anything but the same. I guess we could all take our investable capital and plow it into GE's and the like whose business model in plain sight does not foot. Or throw it at some zombie bank, (large, medium or small) who sits on non-performing loans to businesses who are just as zombie like because that's official policy for it is just too damn scary for Ben or Timmy to see a clearing price anywhere (that 15 minutes back in early '09 was well enough for them). Or maybe some REIT's whose capital structure is all off sides, but hey, they got through the window and were able to secure 7 year money at 5% so they retire a little debt and then use the remaining to buy something that yields maybe 8-9%, which in the end will net me maybe 2%, not to say anything of the credit risk related.
You once wrote that the post-apocalypse landscape looked to you like a slow motion deflation, if I'm correct, and I see it every day. The walking dead bleed all those around them, and those who entered this drama in rude health or even relative health slowly but surely find that there simply is not much money to make with the way the deck is currently stacked. I make no excuses for the Glenn Beck's and their ilk who are just as grimy and immoral as my brokers who pitch me deal after deal that takes 10 minutes to find crater sized holes in. "Drink the Kool Aid" they say "your only making 50 bips on your cash" and out on the risk curve we're slammed b/c the only way we can get out of this with a bond and currency market still neutered is if asset prices rise in enough proportion so we can all consume them again. But you and I and every one with a half a brain knows that ain't gonna happen. Now, if we accept that , and then re-read Ben and his play book, we know he's not going to accept that. He may or may not have political handcuffs on to do more, but if he can he will.

I'm really not trying to be smart, and I have a ton of respect for your views but I think I can say flatly that in comparison with all the other crap that floats around us (and is pitched with the same amount of shame), the barbarous relic (and barbarous it is) is in relation still under owned.


PS; I'm not one who thinks that somewhere in the future that the clock is going to simply stop and I agree there's lot's else to own if that is going to happen or to hedge against it.

WT said...

Interesting piece, and I loved the opening, but BullionVault seems like the no-brainer answer to this question.

Anonymous said...

this reminds me of wise advice given to me from an old market hand years ago when i was first starting out: "don't be the gambler, be the casino"

as far as gold itself, seems like you aren't a big fan and think current buyers are akin to the 49ers who were the "gamblers" of that time and not the casino. But what, may i ask, is/are the catalysts for it to selloff or to be at a high?

David Pearson said...


An interesting piece. In Argentina and such places, "Casas de Cambio" are the Levi Strauss equivalents. These are ubiquitous. Their reason for being is to provide stores of wealth in hard currency. Basic services come in two forms: 1) exchange into dollars (cash) for one's home safe; or 2) wire transfers to one's off-shore dollar bank account. So to have such an industry, you need three things: a pool of savers holding unsafe currency; a safe alternative; and a banking system too dependent on government cronies to want to rock the boat.

On a related note: the gold rush of debt repudiation should also have its Levi Strauss. I suggest a mortgage lender that only lends to walk-aways on their next home. They screwed up once but are likely to be good credits going forward, and Fannie wants to ban them from receiving mortgages for seven years. I don't think the big banks can go against Fannie and Freddie this way, which creates an opportunity.

joe said...

The way to sell pick-axes (unless there's a big argentina style crack-up like Pearson alludes to) is to promote a charting and ata system for the masses to trade fx and commodities.

And web services to help the masses sell gadgets and crap, in a bid to be entrepreneurs.

Anonymous said...

This is a good article on Levis Strauss:

Anonymous said...

On the subject of gold mines, (as opposed to gold) my
all time favorite is Mark Twain's definition: "A hole in
the ground with a liar standing next to it."

valeriobrl said...

Nice post..