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From Porter Stansberry in Stansberry Digest:
Nobody said a word for five blocks…
A few days ago, I (Porter) walked out of a dinner meeting at the
Metropolitan Club of New York. I can remember every sight and sound. It
all plays back in my head like a high-definition movie. This is not an
April Fools’ Day joke, unfortunately. This is a true story, down to the
last, incredible, detail.
It was 9:43 p.m. It was Tuesday night. It was about 45 degrees. I was
with two of my closest friends and colleagues. There was no wind.
Traffic was light. We took a left on Madison, heading north. We went to
Club Macanudo on East 63rd Street for an after-dinner drink.
And like I said… nobody said a word.
I was in shock. It felt like I was walking away from a car accident.
My adrenaline was pumping. My mind was racing. I couldn’t fully process
what I had just learned… but I had never been so afraid – not like this.
At the last minute, I had been invited to have dinner with one of the
most powerful men in the world. This man guards his reputation closely.
For reasons that will become clear, he does not want to be named in
this story. You would immediately recognize his name and you would
certainly know his reputation.
His career has spanned the last 40 years and includes stints at the
highest levels of the U.S. government. For the last dozen years, he has
served as an advisor to the world’s wealthiest men. He sits squarely at
the nexus between government policy and the country’s wealthiest and
most influential people.
He invited me to dinner on the fifth floor of the Metropolitan Club.
Few people outside of New York know about this club. But it’s one of the
ultimate bastions of wealth and privilege in our country. Built by J.P.
Morgan himself, it sits on the southeast corner of Central Park on
Fifth Avenue.
Among other notable events, investing legend Warren Buffett
celebrated his 50th birthday there. The most powerful and wealthiest
people in the country meet there for dinner. The real policies that run
our country get debated and decided there.
I was with two friends that night – our director of business
development, Mark Arnold, and Erez Kalir, a well-known and successful
hedge-fund manager.
Before coming to Stansberry Research three years ago, Mark was a
partner at one of the largest venture-capital law firms in the U.S. He
has worked on hundreds of major funding deals. He received his
undergraduate degree from Duke and he has both an MBA and a law degree.
A few years ago, Erez managed around $1 billion as part of the Tiger
Management group – the hedge-fund family controlled by legendary
investor Julian Robertson. Today, Erez runs a small, private
investment-advisory business… whose name you might recognize. (It’s
called
Stansberry Asset Management.*)
This firm – which is separately owned and managed – licenses our name
and uses our research to build portfolios for high-net-worth investors.
Erez is the smartest investor I have ever met. He received his
undergraduate degree from Stanford, was a Rhodes scholar, and graduated
from Yale Law School, where he was on Law Review.
You need to understand… the people I was meeting with that night were
not conspiracy theorists. They are smart, experienced professionals who
know the world (and the major players) of finance inside and out. They
do not scare easily. They have seen panics, booms, and busts all around
the world. And yet… what we learned at dinner sobered all of us and
affected us in a way no other discussion in my career ever has.
Our host – who, by the way, was scheduled to appear on national
television at 10 p.m., immediately after our dinner – began the meeting
by describing discussions among senior policymakers in the U.S. about
the possibility that
the U.S. will follow Europe and Japan into negative interest rates.
You probably haven’t noticed, but despite the big rebound we’ve seen in
the stock market, sovereign interest rates (as measured by the yield on
the U.S. 10-year Treasury bond) have continued to fall. In the first
quarter of the year, the yield fell from 2.27% to 1.77%.
According to our host, among U.S. policymakers it was becoming a
foregone conclusion that since Europe (one of our major trading
partners) and Japan were both using negative interest rates to weaken
their currencies and to avoid deflation, that it was only a matter of
time before the U.S. would do the same.
The likelihood that the U.S. will implement a negative interest-rate
policy (or “NIRP,” for short) is worrisome. You might have heard about
this new kind of monetary policy. It’s like capitalism turned upside
down.
Instead of being paid to save capital, you’re forced to pay just to keep the money you’ve already earned.
Negative interest rates are nothing more than government theft. Its
banks literally steal from you every day that you keep your money in
dollars, yen, or euros.
The dinner I attended wasn’t about these kinds of NIRP policies,
though. Our host was assuming that negative interest rates would
certainly occur in the U.S. The problem he wanted to talk about that
night wasn’t whether NIRP would happen in America. He wanted to discuss
what would happen next… and how the government could possibly put
capitalism back together if all hell broke loose under NIRP.
Here’s the hypothesis: What if NIRP spread globally? What if they’re
implemented around the world in every major paper currency? Think of it
like dominoes. Japan has done it. Europe has done it. Sweden, too.
And last night, China became the latest major domino to fall. The
overnight Hong Kong interbank offer rate (“Hibor”), which determines the
rate that banks in the city have to pay to borrow Chinese yuan from
each other, fell to
negative 3.725% annually. Who in his right mind would want to hold yuan if it costs nearly 4% a year just to keep his money in a bank?
America is likely next. If all of the world’s major reserve
currencies begin paying negative interest rates, the Federal Reserve
will have to follow. Otherwise, the dollar would soar and crash our
economy. So if all the major banks in the world are charging negative
interest rates… where will the trillions and trillions of dollars in
overnight banking deposits flee to next?
Imagine you’re the head of $300 billion reinsurance giant Munich Re.
You must hold huge cash reserves so you can pay claims, should they
arise. Millions of people around the world depend (and have paid for)
the guarantees you’ve made to protect their homes, businesses,
properties, and entire cities.
And now, instead of earning interest on these reserves, your company
must pay huge sums of money simply to keep your capital safe. What will
the people who run firms like Munich Re… or JPMorgan Chase… or Japan’s
huge Sumitomo Mitsui Banking do with their capital? How can they keep it
safe in an era of negative interest rates?
And what will individuals do? Where would you put your money if Bank
of America and Wells Fargo began taxing your wealth and your savings
every day, instead of paying you interest? How would you keep your money
safe?
Let’s see what people are actually doing when faced with this
conundrum. Munich Re is responding to negative interest rates by
hoarding cash (tens of millions)… and by holding almost 300,000 ounces
of gold. Media reports claim the firm has been an active buyer in the
gold market. As Bloomberg News says…
Institutional investors including
insurers, savings banks, and pension funds are debating whether it may
be worth bearing the insurance and logistics costs of holding physical
cash as overnight deposit rates fall deeper below zero and negative
yields dent investment returns.
Think about what that means for a little while… and see if you don’t
find yourself more than a little worried. NIRP could trigger a massive,
global “run on the bank” as everyone begins trying to hoard currency and
gold to avoid the penalties being charged by the central banks for
using paper money.
Trust me when I tell you… Policymakers in the U.S. are cognizant of this risk. This isn’t a doomsday scenario…
It’s happening right now. These risks are exactly why gold has seen its biggest quarterly move higher in more than 30 years.
The run has started.
Look who is suddenly buying gold… former vice chairman of the
investment bank Goldman Sachs John Thornton is now running Barrick Gold,
one of the world’s largest gold producers. Goldman has already
purchased
three tons of physical gold for its house account.
Stanley Druckenmiller – one of the most successful investors of the
last 30 years and former head of the Quantum Fund – holds about 30% of
his personal portfolio in gold.
The same is true across the top echelon of Wall Street’s best
hedge-fund managers: John Paulson owns stakes in several gold-mining
companies. David Einhorn is a huge gold bull, with more than $100
million invested in gold stocks. Paul Singer says it’s the only real
money. Ray Dalio – founder of Bridgewater, the largest hedge fund in the
world – says, “If you don’t own gold, you know neither history nor
economics.”
I could go on, but you get the point. Billionaires are suddenly
hoarding gold and expounding on its role in history. Doesn’t that make
you wonder what’s really going on behind the scenes? More and more
senior people in finance are buying huge amounts of gold. Why? Because
of what I learned at dinner just a few nights ago…
After outlining the risks of NIRP and the inevitable run on paper
currencies these policies will produce, our host at the Metropolitan
Club asked us a simple question…
How will the world’s central banks
regain control of the monetary system when it all finally breaks down?
What will get people to stop hoarding cash, to stop buying gold, to put
their money back in the banks?
I couldn’t believe my ears. Here was a former government official –
at the very highest level – openly discussing a global bank run and how
the Federal Reserve and other central banks would try to stop it. I have
never in my career heard anyone in government discuss such a scenario.
And our host wasn’t merely pondering whether or not this could happen.
He was formulating a plan to combat it. He was assuming it would happen…
and soon.
He then explained there would only be one sure way to gain control of the system:
To use gold. He noted that the U.S. Treasury owns more gold than anyone else in the entire world.
The details about the Treasury’s gold hoard are important to the
story. So for review, the U.S. Treasury owns 248 million ounces of gold.
It’s held, mostly in the form of gold bricks, at three locations: Fort
Knox, West Point, and the U.S. Mint in Denver.
Also important… you should know that about two-thirds of this gold
was essentially stolen from private U.S. citizens in 1933, when FDR
outlawed the private ownership of gold. The right to own gold wasn’t
reinstated until 1974. All of the confiscated gold was melted down into
bricks. Then, in 1937, it was put on a special nine-car U.S. Army train
and shipped to Fort Knox. Since then, just about the only people who
have been allowed to see the gold are auditors from KPMG. No one else is
allowed inside.
Our dinner host explained what would happen to this gold if NIRP
policies caused a global run on paper money. And that’s when I got
genuinely afraid…
The only way to re-establish credibility and regain control of the
financial system in the event of a global run on paper currencies would
be to re-establish the U.S. dollar’s convertibility into gold. Our host
described the means for accomplishing this goal. The Fed, he said, could
offer to swap all of the Treasury bonds it holds (about $2.4 trillion)
for all of the gold owned by the U.S. Treasury.
When you do the math, you come with a new dollar-to-gold ratio of $9,677.
Roughly $10,000 an ounce.
Our host went on to describe several important nuances to how such a system would work, which goes beyond the scope of today’s
Digest. I want to make sure you understand three key things I learned at this meeting…
- The first thing you must understand is the world’s system of paper money is unraveling.
The only way to prevent a collapse of the banking system under the
weight of outrageous sovereign debts is negative interest rates… the
very thing that will spark a run on the system itself. The inevitability
of this outcome is already influencing the behavior of the world’s
largest banks, insurance companies, and the wealthiest investors. And
they’re all going to do one thing: Buy gold.
- The second thing you should know is that as this crisis
unfolds, people in and around government who understand how to use our
country’s gold (most of which was stolen from citizens) will
re-establish financial order. But so much money has been
created out of thin air that the price of gold will have to soar
(relative to the dollar) to stabilize the system after it collapses.
- The third thing you have to understand is that the
government will almost surely do something to prevent you from buying
gold when the panic comes. That’s why our host (a former
leading government official) is buying gold now. And that’s why you must
do so, too – immediately.
As you can tell… this dinner had a profound effect on me. I walked
away in silence, as did my colleagues. I was simply in awe at the
enormity of what I had heard.
I’ve spent the last several days struggling to wrap my mind around
what this all means… for me, for my subscribers, for my family… and for
our country. For me and my friends who were at dinner that night,
nothing will ever be the same again. There will not be another night’s
rest without this idea in the back of our minds. There will never be
another day in our lives that we forget what we were told… and what it
means will happen.
At first, I wasn’t sure if I
could tell you anything about
what was said, or who was there. But much to my surprise, I received
permission from our host to publish a summary of what was discussed.
Then I had to decide if I dared to do so.
You see, this was
a detailed plan to stop a run on the dollar.
It’s a plan that’s being discussed in secret at the highest levels of
finance and government. If this plan is adopted and formalized, it would
be, without a doubt, the most highly classified, closely guarded
financial secret in the world. I could be putting myself (and my
company) in some jeopardy by sharing this information. But… that’s what I
felt I had to do.
And I want to do more.
First, I’m going to host a live webinar to discuss everything I heard
that night and what it means for us as a country and as investors.
Second, I’ve sent my best resource analyst around the country to meet
with leaders in the gold industry. I’m building my first-ever
gold-research product. For the first time in my career, I’m going to put
my own name on a well-diversified portfolio of gold investments.
In the past, I’ve recommended following Casey Research and John Doody’s
Gold Stock Analyst advisory. We’ve even published some gold research in the
Stansberry Resource Report.
But going forward, I’m going to be leading our efforts personally. And
I’m hiring a large new team to produce the best work available on gold
and the precious metals sector. As usual, when I decide to do something,
I make sure it’s great – far better than any other research you can get
elsewhere.
Third, we’re going to continue to follow the NIRP story every day for you in the
Digest.
Regardless of whether you attend our webinar about these risks or you
subscribe to my new gold research, I’m going to make sure you stay
completely up to date on the growing risks of a global run on the banks.
It’s the greatest risk we face to our wealth and to the stability of our country…
And most people don’t yet realize how serious these problems have already become.
You’ll see detailed coverage of this story over the next several
days, and we’ll continue to report on these risks going forward. You
won’t be among the millions of investors who never saw this coming.
One last thing… Back in 2007 and 2008, when I began to report on the
huge risks posed to our economy by the mortgage bubble, and when I
warned about Fannie Mae and Freddie Mac going broke and General Motors
going bankrupt… and the likelihood of the investment banks going bust,
most people thought that writing about these things meant that I was
hoping they would happen. Soon, I was receiving death threats. Some were even sent to my home.
Please do not conflate the facts I report or the things I warn could happen with what I
wish would
occur. I do not hope for a global run on banks. I do not hope for the
price of gold to soar to $10,000 an ounce. All of these things would be
terrible for our country and for millions and millions of people around the world.
Believe me, I hope I’m completely wrong about all of these things.
But for the first time in my career, I can clearly see that we’re
careening toward a massive collapse of the paper-money system. In my
view, it’s not a matter of “if.” It’s a matter of “when.”
I hope you’ll join me Wednesday night for a full discussion of these risks.
Click here to reserve your spot.
Regards,
Porter Stansberry
http://thecrux.com/
