Thursday, July 29, 2010

Golden Castles?

Many wise observers and practitioners from Keynes and Triffin to Roubini and Grantham have thought of Gold as a barbarous relic. Let it be said, to the delight of Goldbugs, that I frown upon such a pejorative (at least for the duration of this post). Gold is championed as a store of value because as Goldbugs rightly point out.... it's always been a store of value. No need for further elegant rhetoric with such an historical pedigree. Circular, yes, but circularity is of small consequence in the search  for a universal store of value (so long, perhaps, as one leaves the little chestnut  called "price" asides). More pessimistic zealots, of say the Goldline variety, suffering both political and economic disillusionment, fear the worst Orlovian outcome - the one where BOTH politics and economics yield to chaos, (and for those so inclined if prophecy be requited, thereafter The Rapture). Gold - along with guns, ammo, and canned spam (not necessarily in that order) is seen as the best hedge of the former while "Just saying No!" may facilely suffice in the latter.

For the moment, I will not question the foundations of the fears that Gold fulfills, nor will I question the time-honored pedigree it has acquired through history. But in my travels this summer I believe I have found another [possibly] ignored asset that should  be considered by both the fearful and disillusioned alike. Quite simply, I am thinking of Strategic Castle Fortifications. More specifically, those which are typically perched above or adjacent to strategic trade routes and valley passes for they more than others benefit from geographical positioning, at least as rare if not rarer than the yellow metal itself. Whether at the mouth of an ascending pass through the the mountains, or an entrance to a fertile alluvial valley between hills, or above a narrows in a trafficked river, such fortifications have extracted rents in time-honoured fashion since man was able to construct them. 

It is hard to fault the quality of their materials as they were built to withstand both siege and full frontal assault. They boast excellent visibility for offensive and defensive manouevres, vast arrays of dungeons to imprison (and for the less politically correct amongst us, perhaps to torture) one's adversaries, as well as to cellar requisite libations to accompany the sunsets. Admitttedly it costs a few krugerrands to redo the roof, but that is true of any substantial villa or mas with a reasonable patina and square-footage beneath. Of course quality and utility aren't everything. Many of these fortifications sport some of the finest views and scenery in the land. Yes, the strategic routes beneath them have now evolved into autoroutes, autoipistas or autobahns of 6 lanes or more, with all manner of household and commerical traffic passing at great speed. And The State rather frowns upon abusing their full geo-strategic potential  but during more backward and less progressive historical times, the return of which the fearful are most afeared, these could be seen as giant tollbooth - a function to which like the hopes invested in Gold - they might readily return. 

But the similarities to Gold do not stop with their historical, novelty, and aesthetic qualities. Much to the Goldbugs delight, it takes great effort and expense to excavate and elevate such a fortification and engineer it, just as it takes enormous earthmovers and energy to coax the miniscule concentrations of gold from the surrounding ore in which it lies embedded. And of course, like the small Brinksmat army, and London Vault required to protect one's Golden hoard, so too does it take a small army to extract fees for passage and guard against would-be usurpers. Piracy is not easy. And just as Gold has been subject to seizure and confiscation by governments and brigands alike, so too, the biggest risk to extracting tolls from such a property is insuring that appropriate tribute (and respect) is given to the State or Lord or the land.  

Granted, Gold's main advantage is its divisibility. But, in Orlovian post-modernity,  there may be a social model that would allow some (and just like gold, but a choice few) similarly minded folk  - i.e. those with a hyper-active foresight, perhaps with a white-collar occupation that might be irrelevant in an Orlovian future, who want a share in a hedge against such societal breakdown, to pool their resources and potentially pursue a new occupation as a co-proprietor and partner in an enterprise that extracts tribute from prescient geographical investment.  

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....