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Business/Finance See other Business/Finance Articles Title: An Accountant’s Case for Gold An Accountant’s Case for Gold By Jody Chudley To get my accounting designation, I served six years working for a public accounting firm. Tax returns, inventory counts and auditing… oh, the auditing. I can’t really say that I enjoyed the experience. But it was a necessary step in my career — and I actually learned a thing or two about the importance of stocking away cash… and gold. Here’s what I mean… Back then, I was assigned to the audit team that was responsible for auditing 47 different municipal offices located in various tiny Manitoba towns. When I say tiny towns, I mean tiny towns. Chances are you haven’t been to Manitoba. We are like North Dakota, just a little further north and colder. What I’m saying is that it is sparsely populated. The vast majority of us live within an hour drive of the U.S. border. I had to drive a fair bit to the north on some of these jobs. One of my favorite municipalities is named Mossey River. The entire municipality has 614 people, and the town where the municipal office is located couldn’t have had 30 when I was there. There wasn’t even a restaurant within driving distance that we could go to for lunch. Mossey River Source: Epodunk Now remember, I was on a team that had to audit 47 of these places. With each municipality requiring two visits a year and the visits taking multiple days, that meant I was on the road for most of the year. That is a lot of time in a car with the same people, one of whom was my boss… an interesting character, to say the least. My boss was in his early 50s. He had been on the municipal audit trail for 25 years. He loved it. It was very, very good to his wallet. He was, to put it politely, the most thrifty person I ever met. We took his 20-year-old car on all of these trips so that he could bank the mileage allowance. When you are driving as far as we did every day, that turned into a lot of money every year. And since we were out of town every day, it meant that all of his meals were paid for. His cost of living must have been the lowest in the developed world. The rumor around the office was that he charged his wife rent. I’m not sure he actually didn’t tell me that himself. Most of us were pretty certain that he was putting all of that money that he had saved into tin cans and burying it in his backyard. There was more than one late Friday evening where a raid involving shovels was discussed among my colleagues. It has been almost 20 years since I’ve seen my former boss. But I thought of him and his backyard millions this week. I thought of him when I was listening to another frugal gentleman speak of storing cash in an unusual place… Like a kid in a candy store, I eagerly opened up my laptop to read Warren Buffett’s year-end letter to shareholders last week. I’ve gotten more education from reading those letters than I did from thousands of dollars and years of university. To make it even better, Buffett was on CNBC for several hours recently to discuss the content of the letter. During his appearance, the issue of negative interest rate policy (NIRP) came up. Excellent, I thought. Warren can explain to us what this crazy NIRP concept is going to result in. I was wrong. Just like the rest of us, Buffett doesn’t know. Buffett pointed out that what central bankers are doing today is unprecedented. It is essentially an experiment, and like all experiments, we won’t know the results until we see them. That is what makes them experiments. Buffett went on to note that interest rates are the gravity of the financial world. Without gravity, we would all be floating. Similarly, without interest rates, asset prices can be almost anything. As Warren said, negative interest rates “distort everything.” Like most senior citizens, Uncle Warren is paying a price right now for these low interest rates. His reinsurance operations sit on billions in cash, upon which Berkshire is currently earning nothing. Buffett said he’d be better off finding a giant mattress in Europe — where negative rates are already in effect — where his European subsidiaries could stuff the billions they have sitting in cash. I’ll put him in touch with my former boss so he can see if tin cans might be the better option. Warren will be OK, of course. He doesn’t need much interest income. I’m not so sure about all of the retirees who have been robbed of their expected sources of retirement income. Buffett concluded his discussion of negative interest rates by noting that whenever an action is taken, he immediately asks, “And then what?” Usually, he can figure out an answer to that question. Cause and effect. When he thinks about sustained negative interest rates and asks himself, “And then what?” he has no idea what the answer is. He, like everyone else, does not know how this movie ends. Isn’t that nice? We all get to be rats in a multitrillion-dollar laboratory experiment. Billionaires like Warren Buffett included. While the “And then what?” of the central bankers’ decision to declare war on the financially responsible may be unknown, it is no mystery why gold prices are rocking in 2016. Gold Chart People are starting to pay attention to what the central bankers are saying. The desire of the central bankers is to turn us all into hyperconsumers. Negative interest rates will make it painful to save. They want us to release all of our hard-earned money back into the economy so that the massive amounts of debt that have been piled up globally will not slow down economic growth. Everyone who is leveraged to the eyeballs can’t spend more, so how about we force the financially responsible to pick up the slack? The next step to all of this is banning cash altogether. I’m sure you have read how cash is already being phased out in Sweden. Former Treasury Secretary Larry Summers wrote about how it is time to kill the $100 bill in The Washington Post last month. If they ban cash, it will make it impossible for us to move our money outside of the financial system. It allows the government free reign to hold our savings hostage inside the banking system and charge us a fee if we are unwilling to spend, spend, spend. And with all of this talk of negative interest rates and banning cash, gold prices are rising? Imagine that. Imagine with everything that is going on wanting to have some of your wealth outside of the banking system and held in an asset that has proven to retain its value over time. It is amazing that it has taken this long. I’ve not seen any better explanation for what the price of gold is than what was provided by Jim Grant: “The price [of gold] is a reciprocal of the world’s faith in central bankers.” Maybe now is the moment — with the concept of negative interest rates spreading, with the elimination of cash a possibility, with a war on the financially responsible a reality — that the world’s faith in central bankers has been pushed too far. If it is, we are at a very bullish moment for gold, indeed Regards, Jody Chudley for, The Daily Reckoning Post Comment Private Reply Ignore Thread
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