Posts Categorized: Bill Holter
This article was written for subscribers last week. Because of the importance of the topic it was decided to post for the public.
Apr 24, 2019
If one offered investors a fat tail put option that never decays or expires, costs about -1% pa to carry, has no counter party risk & no chance of ever becoming worthless, there would be a line out the door. But when one explains that this option is physical gold… no interest.
– S. Mikhailovich
The above quote has been atop www.jsmineset.com for over 6 months now. Recently, several readers have asked “what does it mean and why has the quote remained for so long”? With financial markets bloated and ready to implode without notice, let’s look at this very important concept and then expand on it as you will see.
First, what is a “fat tailed put”? A put option is something speculators use to bet on downward movement, or hedgers use to protect long positions. In this instance, the “put” happens to be against the financial system as a whole. In other words, a put, or a bet/hedge against a systemic implosion. A “fat tail” refers to something that begins to move exponentially the higher the sigma event becomes. The worse the event, the greater the move higher of a fat tailed put in far greater magnitude. Ultimately in a credit meltdown, owning gold will be the equivalent of owning “all the marbles”!
A couple of topics for you today that are connected, obvious, yet not understood or even contemplated at this point. First, have you ever wondered why the names of many fiat currencies refer to “weight”? Such as the Peso, Peseta, Lira, or Pound amongst many others? This is similar to the names of various roads, like “Saw Mill Rd.”. It was named that because years ago there was actually a sawmill down the lane. These fiat currencies with “weighty” names started out as receipts for either gold or silver. They were convertible into a specific amount of metal when presented at a bank.
In essence these currencies were representations of physical metal since they were redeemable but far easier to carry around due to the lack of weight. In today’s jargon, paper currencies that were redeemable in specie were “derivatives” of the metals themselves. Then as time went on, the redeemability was cancelled and the currencies became true fiat, unbacked by anything except the credit worthiness of the issuer.
Over time, ALL currencies have become fiat and these currencies steadily devalued. I would ask, how can anyone have the thought these currencies can gain value versus gold or silver over a long period of time if they were originally spawned as derivatives? Can a derivative ever become more valuable than that it originated from? The answer of course is no and should be followed by another question; can a monetary guarantee from any government ever be more ironclad than that of physical metal itself?
Bill has recently been appointed to the advisory committee of Tri Origin Exploration. As disclosure, Bill and his wife, and related companies are shareholders of Tri Origin.
Today’s writing will be review of something Jim has talked about MANY TIMES going all the way back to 2004-05. Back then (and ever since) he stressed a couple of items pertaining to those of you who own stocks. His advice was centered on “you” and how to protect yourselves. The entire concept was simple, DO NOT let your broker hold your shares of ANY stock you hold unless you are very actively trading.
He suggested this for two separate but connected reasons. First, if your broker holds your shares and the broker goes belly up, good luck in getting access to your shares. You would probably eventually get access but it may take years as your broker goes through the bankruptcy courts. Can you imagine owning shares in a company that explodes in value but you do not have access to selling ANY of the shares?…Not even an odd lot to buy food with! This is no joke nor a crazy hypothetical, you should have learned back in 2008 just how close to this reality we came. Shares either in hand or held at your transfer agent are the best way to “GOTS” (get out of the system).
There is also another reason to not let your broker hold your shares. When you first purchased your stock, you “bought” it which means you were “demand”. In a real world of supply and demand, your purchase acted to push the stock up. If you leave your stock with your broker, especially in a margin account, your broker will lend these shares out to short sellers who will sell the stock and negate your demand. In effect, your broker via lending the shares will negate your purchase and to put it bluntly, TRADE AGAINST YOU!
Legally, your broker cannot lend shares that are not in a margin account, or in a retirement account. We have seen just in the last few days where brokers are requesting clients with retirement account to borrow their shares. THIS IS 100% illegal! The only way to assure your bought and paid for shares are not used against you is to either hold them in physical form or have the transfer agent hold them, end of story.
Now, why do we remind you of this now? Because many of you own TRX and other mining shares. There are some very large short positions broadly across the mining share spectrum. We also believe there is a large “naked” and thus illegal short position that is prevalent. As we told you on this weekend’s call, Jim checked with two separate clearing facilities and found they are offering 72% and 95% to holders of TRX to lend their shares. If you wanted to borrow IBM or Apple, it might cost you 5-6%. There is NO REASON to offer such unbelievable terms unless someone is very short and needs shares to cover the position?
Bluntly, there has been a concerted effort to damage the mining industry via short sales to depress share pricing. Financing has been nonexistent since 2011 and depressing share prices has worked to make it difficult to finance via the equity markets. The good news is that gold and silver have bottomed (along with the mining shares) and these short positions are beginning to hurt. The old saying “he who sold what isn’t his’n, buys it back or goes to prison” truly applies here!
Bottom line? If you own TRX or other mining shares (including physical gold and silver), DO NOT hold these at a broker because as sure as the Sun will rise tomorrow, your broker will lend to short sellers what you fully bought and paid for if you let them. Help yourself and help the industry by not giving them ammo that you paid for to shoot holes in your investments!
I will be travelling for the rest of the week so there will not be a writing from me later in the week. I will be checking in and posting items of interest. I will be spending the day Wednesday with Jim as it is his birthday. He is smiling ear to ear with the action in TRX and eagerly awaiting drill results. He has put his life, heart, soul and net worth into this project, don’t help short sellers impede his efforts…get your SHARES OUT OF THE SYSTEM!
We posted this article over the weekend… and they call us the crazies? Let’s look at this from a very broad standpoint because if anything displays where we are as a world, financial and otherwise is captured right here!
So, a bond offering with “the worst ever” covenants is three times oversubscribed causing a repricing with less discount and lower yield than originally offered? Is this important? Is it company or industry specific? Or, is it an illustration of something far larger and systemic? I would argue the problem is definitely systemic and certainly a symptom of “mob madness”.
Forget about company or industry specific because as it stands now, over $9 trillion worth of debt all over the world sits with negative yields! We won’t go over the topic of negative interest rates again (as we have several times in the past), because even a 6 year old understands it makes no sense and is untenable from a systemic standpoint. Suffice it to say, a snake can never eat its own tail and live to talk about it.