Gold Bug Gumbo
Mix a bushelful of investment advisors, add equal handfuls of inflationists and deflationists, and lace with a dash of humor. Serves thousands in New Orleans. A report on NCMR's 1980 recipe.
It was Wednesday evening, November 5, 1980, and the granddaddy of all the hard-money conferences was about to begin in style. Jim Blanchard's National Committee for Monetary Reform has come a long way since the Legalize Gold movement began in New Orleans in 1974. The few hundred "gold bugs" of those days have increased as much as the price of gold, and most of the several thousand newest converts were prompt in their pilgrimage to New Orleans '80. As the golden sun set in the Goldwater west, Jim Blanchard's golden girls ushered us toward golden tablecloths covered with Cajun canapes and golden-brown fried shrimp. The feast was appropriately interrupted by the sudden appearance of a (dare I say it) brass band.
All of the biggies were there, along with some new apostles and, for comic relief, a Carter bureaucrat. Five days of economic masochism were about to begin. The "Great Debate" between inflationists and deflationists continues to rage, with both sides still pushing gold as the ultimate hedge. Trilateralism is still a major undercurrent—some speakers see Trilateralists in every gold mine and have developed investment strategies based totally on the doings of Chase Manhattan Bank. And warnings were put out against a new threat. The SEC and its proposed laws requiring the licensing of investment advisors, including, apparently, investment newsletters.
Thursday morning was beautiful in New Orleans, just as the Chamber of Commerce had said it would be. The first general session began at 8:20, just as it said in the program. Our first speaker was Nicholas Deak. He holds no hope for our currency. It will be wiped out and replaced by another currency, he said—and he has seen 'em come and seen 'em go. Deak still recommends Switzerland as the ultimate hedge but was short-term bullish on America. T-Bills look good, he said, as do gold and silver, as usual.
Deak was followed by Lewis Lehrman, founder of a private retailing company and of the Lehrman Institute. Lehrman detailed the tremendous expansion of government borrowing to finance deficits, squeezing out private-sector borrowing and thus capital investment. The country's gold and silver reserves have been squandered, and inflation is out of control. Is there any way out? A return to the gold standard—and it is possible, he said.
Then came Christopher Story, discussing the financial crisis facing the international banking system, with special emphasis on US-Saudi Arabian relationships. According to Story, the United States is building military bases in Saudi Arabia to the tune of over $40 billion—giving the United States an overall surplus in its balance of payments. "Petro dollars" are being recycled in mysterious ways. He saw strength in the US dollar and had a couple of tips for international investing and tax avoidance.
After a refreshing "energy" break—orange juice and yogurt—Franz Pick picked on us. There is no hope; the currency is doomed, bonds are in ruin, and the country is bankrupt. War will be seen as the solution by our politicians, traitors they be. Sound a bit pessimistic? Pick was almost immediately contradicted by Andre Sharon.
As in his workshop the night before, in front of the general assembly Sharon was good. He saw growth in the American economy, called ours an "era of opportunity." Andre stressed capital preservation and, because "good investors diversify and are flexible," overseas investment. Gold is on a short-term downturn, and Australia is on a long-term upswing. The Russians are truly on the move, according to Sharon, but they, too, are having their problems. To Andre, the Russians are not the greatest threat; the economy is.
Julian Snyder feared that our foreign policy is a big part of our problem. The Trilateralists are everywhere. It's the same old gang no matter whom we elect. He sees the banking system as the culprit and the American citizen as its victim. Iran and the hostages were a put-up job to save Chase Manhattan and Jimmy. He correctly perceives the problem as more than just inflation or depression; it's freedom versus slavery.
Richard Russell, a calm theoretician of the Dow, then gave us his view of the future. Politics will not solve our problems. It costs $2 billion a week just to service the debt. The debt will consume us. In the meantime, however, stocks look good!
William Rickenbacker took us to lunch time with his "Confessions of an Investment Advisor." He laid out three solid rules for investing: take a long-term approach, be deliberate, and diversify. He recommended some good investment books, all very conservative, and then suggested his "Old Man River" (obvious attempt to be relevant to the setting) stocks. Rickenbacker suggested we review the rarely heard of but traditionally solid stocks Ball Co. (mason jars), R.R. Donnelly (grain dealers), and US Tobacco (dippin' snuff is big these days)—the good old "widows and orphans" stocks. His confession was accepted, and he was found guilty of being an investment advisor.
Lunch in New Orleans is truly a feast. Soups and gumbos abound, fresh seafood is everywhere, and gourmet restaurants are as common as investment advisors. Though tempted by gold and almost seduced by silver, I made my major New Orleans investment in food! And what a gain I made on it!
James Sinclair got our minds off the food and back to reality. A highly respected Wall Street analyst, Sinclair warned of the major cycles in the markets—which suggest a major downturn from early 1981 until late 1982. Then he sees the cycles gathering major support for a huge upward trend. Strategic metals are going to be big winners in the near term, he added consolingly.
The next speaker was Bert Dohmen-Ramirez. I had not heard of him before, and I was in for a pleasant surprise. The boom and bust cycle is a function of interest rates, he said, and watching the Federal Funds rate is the key to predicting interest rates. When the Federal Funds rate is within 1¼ percent of the interest rate, then money is tight! Those who anticipate the government will make money.
Nelson Bunker Hunt, bailed out of the silver storm by Uncle Sam, was a highly anticipated speaker. Now I like "good ol' Texas boys" same as the next fellow, but there is a limit. Nelson inherited millions, maybe billions, so he doesn't have to worry about making more. He shed no light on silver, making money, or even how to inherit a little. He did, however, tell us how he likes the way the Moral Majority worked. He felt the election was significant and hoped Reagan wouldn't be "controlled" (by Trilateralists?). He characterized America's decline—that is, booze, drugs, low productivity—as a spiritual problem solvable only by a return to Jesus.
Bunkie was followed by Lawrence (L.T.) Patterson, who called the roll of the Trilateral Commission and the Council on Foreign Relations and demanded that the Republican platform be enforced. (It calls for no subversives in the cabinet, I guess.) Reagan had already met with Kissinger and Rockefeller on September 3. You didn't read that in the Los Angeles Times? The Trilats, you see, control the media. Much like Bunkie, Patterson concluded that we all should say some prayers for Reagan and the USA.
The Thursday session concluded with George Will, syndicated writer, Newsweek columnist, and formerly with National Review. He started out by saying that the election of Reagan was a revolution, but a little later he said the vote was not for radical change, and Reagan will not be able to cut much off the many government programs. But any government that subsidizes Chrysler and tries to break up IBM at the same time, he noted, is in serious trouble. The private sector is being suffocated, and political moderation is necessary before economic growth can continue.
Thursday ended with free drinks for everyone who could stand up and get to the nearest bar. They were conveniently located at all entrances, exits, and 50-foot intervals in between. Each evening there were hospitality suites—more free drinks—where one could go for some one-on-one investment counseling. Being gregarious, I went; but, being relatively poor, I drank.
The Friday session began with "Walter Bressert and his opinion on how the major cycles were affecting the financial community. He saw dropping gold and silver prices, rising food and selected grain prices, and a bottoming out of the major cycles in 1982.
By now, 1982 had come up on numerous occasions, and I assume they were all talking Kondratiev Wave theory. Most of the inflationists see 1982 as the beginning of the last wave—that is, hyperinflationary blowoff.
Jerome Smith was the next scheduled speaker, but his place was taken by Robert Meier, of a Costa Rican brokerage firm. While Smith's topic was supposed to be the inevitability of hyperinflation, Mr. Meier's speech could have been titled "The Inevitability of Currency Controls." Bob listed numerous laws and restrictions that are already on the books and reminded us that Roosevelt's "bank holiday" was passed in eight hours! Meier urged prudent planners to move some of their assets out of the United States while there is still time.
Gary North of Remnant Review was our next speaker. With increasing interest rates and the new social security taxes, he expected a serious recession early in 1981. If a recession fails to materialize, though, we will be off again to high inflation rates, he said.
North added that the United States is very close to war with the Soviet Union—or maybe it's the other way around. He viewed the next 18 months as crucial in this respect. One's portfolio should be "paperless" he said—mostly gold and silver, with T-Bills being a wise investment for the next 18 months. By 1981, currency laws will permit US banks to use foreign government bonds as reserves!—a path to unlimited monetary expansion.
North was followed by Anthony Boeckh. His predictions were precise and backed with detail. He hoped the election was a watershed but pointed out that conservatives have been the super-inflators of the recent past.
Tony jumped from politics to the economy without missing a beat and laid out his scenario for the near term, 1980-82. He claimed not to be a bear but said that the Fed overreacted and the squeeze is on! If the savings rate increased consumer spending would drop drastically, as would housing, autos, etc. With the contraction in the rest of the world getting tough, he predicted that we will be swimming in oil by 1982. "But"…but, he said, the recession will provide surplus capital for a recovery. He was bullish on the dollar and stocks (selected issues, of course) and thought bonds would make a strong move if inflation is eased.
Albert J. Lowry was a refreshing change of pace. He was buoyantly optimistic on real estate, pointing to mass migration to the "Sun Belt." "These areas will continue to boom," he said. Then he initiated the uninitiated in the many ways to finance real estate—141 in all, he said.
After an energy break, there was Verne Myers. Verne is the granddaddy of the deflationists, I guess. We have had many chances since 1967 to straighten out our economy, but we took the wrong road each time, said he. The industrial nations of the world are broke, and the giant pyramid of debt cannot be paid—although Mr. Myers did not say exactly when the crunch would turn to full-scale depression. He conceded that there may be one more inflation, but it will be short-lived. Interest rates of 25-30 percent will surely be the breaking point—cash will be king, and everyone should keep enough cash for one full year.
Lunch…magnificent New Orleans cooking. I hate to eat fast in New Orleans, but Harry Browne was the 3:00 P.M. speaker, and Harry Browne is not to be missed.
Harry began by reminding the attendees that they're "rich" because they had gone against the cliches of the '70s but that this was now the '80s. He likened the gold movement of the '70s to a religious experience, with gold, silver, and Swiss francs the holy trinity. "This is a new world," he warned. "We are no longer unique. We are insiders now.…Look out!" Inflation cannot be assumed forever, and inflation does not treat all groups alike, observed Browne.
The dollar was rising for the first time in many years, and Harry found that significant. Gold and silver have come a long way since they were $35 and 92¢ an ounce. There are no sure things on the immediate horizon, he said, pleading with the audience to reevaluate their goals in the erratic '80s.
Following Harry Browne isn't easy, but Gordon McClendon did it. Gordon is the archetypal Texan. His daddy gave him a few bucks, and he parlayed it into a few million. Gordon started us off with a standard opening joke, gave us a little of his, "I'm just an ol' country boy lookin' round the big city" routine, and then got right down to business.
Gordy—we all felt closer to him by then—liked a lot of things; gold, silver cash, and foreign currencies (in a foreign country, of course) should form the "core holdings" of almost 25-35 percent of a portfolio. Gordy knew he wasn't talking to pikers here—"Take possession like Bunkie, and don't trust them paper stock fellas; but if you must, buy some Australian mining stocks like Kalgoarlie, Hill 50 Gold, or Crusader Oil, or Broken Hill, or…or…or!"
"And them Swiss bankers?…Hell, there is better ones in the Netherlands or Singapore, or you might try United Overseas Bank or maybe try the London Metals Exchange or the Mid-American Metals Exchange or maybe you'd like Alberta.…There's always Lloyds of London."
Oh yes, Gordy also recommended other things if you really want to diversify your portfolio, like a western store in Singapore or ancient coins and the US Electric Car Company. But, he said after his short list of good buys, remember to save five percent for things like Picassos, and Van Goghs or pre-Columbian artifacts and other fine collectibles. We should have Gordy buy Egypt, take possession, and solve the Mideast crisis. If five percent of your portfolio could buy a couple of Goyas and a Pieta you need to listen to McClendon and learn! As for the rest of us "poor boys," I will mail you the phone number of his broker in Sydney for $10 and a self-addressed stamped envelope. Or his broker in Singapore, or…
Larry Abraham waded through the ankle-high B.S., calmly took the microphone, and immediately brought our attention back to the USA. "Productivity is down, money for research and development is off 25 percent, our exports are down 35 percent, bonds, savings down, and fixed rate loans are a thing of the past." What's the answer? Recapitalization! How do we profit from it? Larry tells all.
Seems there has been a revolution in financing. One person leases, one person has equipment, and another may have the skills, and they all have the makings of a Limited Partnership—in drilling, mining, agriculture. And there are profits aplenty in this arrangement, noted Mr. Abraham, and lots and lots of tax advantages.
Lloyd McAdams was the next speaker; his topic, "Gold and Interest Rates." What is the relationship between gold and interest rates? Why, they move together! If they are opposite, something has to change, but gold never changes first. Got it? He kept on trying to explain.
Gold is exactly inverse to AT&T, with gold being ahead. But what determines the rate of interest? Funny you should ask. With no inflation, the normal interest rate is two percent (real). Remember when one ounce of gold bought a tailored suit or 20 barrels of oil? Or when a hundred ounces would buy a house? Neither did I, but just add the inflation rate to two percent, and you'll have what should be the rate. "Level is irrevelant," said Mr. McAdams; "change is important." And when interest rates go up, bonds go down. Okay, let's hear it…the i rate connects to the gold rate, the gold rate connects to the phone rate, and the bonds come tumbling down, down, down. One more time in the key of Au!
Our last speaker of the day was Mark Skousen. Mark is very bright and very casual. His forte is financial privacy, and I was disappointed that he didn't speak on his area of expertise. But he did deliver his promised speech, "30 Tips in 30 Minutes." His workshop where he was more one-on-one was far better.
A long day of speeches was over, and three workshop periods were ahead after dinner. The schedule was demanding and accurate, and I was impressed with Jim Blanchard's organization. But I was also impressed with the food at Commander's Palace in the Garden District just west of the convention area. I made the workshops, but what a horrible thing to do to a great meal!
Howard Ruff was the first speaker of Saturday's session. He is a good speaker and knows how to get control of an audience. His strong suit this day was politics. "It was not a landslide," said Ruff. "Only 52 percent of eligible voters voted, and Reagan only got 51 percent of those. Forty-seven million people still get a check from government, and the recent recovery is only a blip in the coming recession." He too sees 1982 as the crucial year. "A deep recession with recovery in late 1981," said Ruff. He forecast that silver would rebound soon and gold would continue up.
Montague Guild followed Ruff. Investors must be aware of sociopolitical factors and their increasing volatility. "We must assume a 15 to 20 percent inflation rate," and "OPEC has ceased to exist." He projected that oil prices would rise, defense metals would rise, energy and high technology stocks would rise, and gold and silver would be volatile. He likes Australia and Japan for their strong economies.
The next scheduled speaker was Paul "Crash of 79" Erdman. Erdman never did show, but lame duck Secretary of the Treasury Michael Blumenthal was moved up to the number three spot. Blumenthal is the enemy, and I believe the vast majority of the audience held that view. Yet they remained polite—not a single boo throughout the speech—and gave him an applause farewell.
Mike really believes that oil causes inflation—really! "Tax cuts for individuals are wrong" and "We need to save more so we can invest more" rolled right off Mike's lips with no stuttering.
Up stepped Dr. Fred D. Collender to fascinate the entire audience with his knowledge of South African stocks. If you want to know more about S.A. gold mines than you ever knew anybody knew, ask Dr. Collender. After Fred, we took a break.
Robert Kinsman opened the second session on time, as usual! Besides, Robert Kinsman is a systems analyst. He described the economy as a system (naturally) with a "flaw." He then likened it to a "shower"—really he did—complete with hot and cold knobs. "Wild fluctuations are the normal function of a system trying to rectify the flaws." Kinsman recommended a "liquid portfolio" and announced that hyperinflation is the most probable scenario.
R.E. McMasters's subject was to be commodity markets, and he did give them a few passing remarks. The bulk of his speech was about agriculture. Big conglomerates now control 85 percent of the agriculture dollar but practice poor agricultural techniques, according to McMasters. He predicted violent weather and drought. The American farmer is a "loan junkie" faced with rising costs, and many of them quit farming each year. "The Department of Agriculture now has one employee for each 10 farmers," said McMasters. "All rats and insects are on the rise due to federal restrictions on herbicides."
Economist Martin Anderson is Reagan's senior advisor on domestic affairs, well known for his free-market position. He jumped right in with both feet, calling Jimmy Carter a "disaster" and "not just bad luck." Martin called the election a "referendum on liberalism" and then outlined Reagan's proposed program to encourage economic expansion. The audience responded loudly to Anderson's speech. He didn't give us any investment advice—only hope.
The session was closed out by one of the great eccentrics of our time, Eliot Janeway. Eliot welcomed all "fellow romantics" and then got down to business. He said he is not "infatuated" with the metals but rather likes South African gold stocks for their cash appreciation and yields. He also likes real estate, but only in large lots managed by professionals. The time to buy gold is when the stock market goes down, he said.
Janeway's manner of speaking is gruff, even harsh, but he gets his points across loud and clear. He didn't see any major changes for the '80s—just the same old problems getting worse. Eliot is a character and loves his image, but he is a professional. He suggested professional management for almost all portfolios, especially in the turbulent times ahead.
From 1:30 to 2:50 (not 3:00) we are permitted to go to lunch. Fortunately, there are only 100-150 good restaurants within walking distance, and La Boucherie on Rue Chartres is one of the best for soup and sandwiches. Try the gumbo if your gut is asbestos-lined, as mine must be.
But I digress…back to the auditorium and its lousy acoustics for the afternoon session.
Jesse Cornish opened the session by reading his "last will and testament." Jesse is not that old, nor was he as close to death as his speech was. He noted that we have created a "legacy of debt" to leave our heirs, and most of his time was spent repenting. He advocated gold and silver and recommended taking possession of all of it. Precious metals is his field; but as for wills, Jesse should get a good lawyer.
Frank Vogl followed Jesse and talked to us about where OPEC's billions will go. Vogl is a correspondent with the London Times and was a very good speaker. He pointed out that the OPEC countries lack good money management and have a constant fear of confiscation, so he predicted they will remain flexible. With an investment portfolio that will approach $800 billion by 1985, it will definitely pay to keep an eye on where that money is going. Remember when we were assured by the media that the Arabs were going to buy up America, lock and stock (they already have the barrels)? Well, it turned out to be less than .01 percent, and we haven't heard from Walter Cronkite since. Vogl was good!
The next speaker was Louis Rukeyser, and he stole the show. His speech was alive with biting satire and beautifully droll humor. His grammar was perfect, as was his diction; the man is a master speaker and obviously fully prepared. He was the highlight of the day!
His pet peeve, he said, is economic education. He lambasted public education for its lack of economic education, but he really saved his best shots for the media. He went down his list of 10 points—budget, taxes, labor, business, energy, foreign policy, etc.—explaining one by one what it will take to recapture our free-market economy.
The release from Rukeyser left us exhausted, and ahead was still the big cocktail party, the Presidential Analysts Panel, and the Great Debate. The cocktail party was a true extravaganza! There was a New Orleans Room, a Houston Room, a Mexico Room, and a South Pacific Room with foods to match. Being a good reporter, I tried to cover every room. Heartburn set in between Mexico and the South Seas, but I managed to survive the trip. At 9:00 P.M. we gathered again.
Louis Rukeyser was the chair for both the panel and the debate. It looked like the Presidential Panel was supposed to be a warm-up for the big finale. There were but two panelists: Jesse Helms and Bert Dohmen-Ramirez.
Jesse Helms came on strong with his "good ol' boy" act, but you could quickly tell that Jesse "ain't as dumb as he looks." Helms toes a pretty straight line in his economics; even Milton Friedman hasn't swayed him from the gold standard. He ripped the TV pundits and the mediocrity of our schools for confusing the issues of our times. He recalled that during Jackson's time they paid off the national debt…and then had a party. Let's "have another party!" he cried.
Helms's opposition, Bert Dohmen-Ramirez, took his best shot early. "They rail about patriotism, family, and morality, but they don't address the real problems," opened Bert. "Excessive debt inflation is the problem, and it will be 25 percent next year, and Reagan can't help it," he said. And he worries about the Trilateralists.
Jesse stole the show and most of Bert's time with his wit and humor, but Bert made them realize that it was no time to relax and called Reagan the "great right hope." A short "stand up and stretch" was ordered by Mr. Rukeyser as chairs were rearranged for the "Great Debate."
The moment arrived, and the debaters were introduced: Dines, Exter, and Myers on the Depression/Doom and Gloom team; and Ruff, Sinclair, and Story on the Up, Up, and Away Inflation team. John Exter was first, to give the debate a gentlemanly tone to follow. He pointed out that "the debt" is larger than just the federal debt and suggested that his opponents overestimate the power of government.
Howard Ruff threw down the first glove and smartly accused his opponents of underestimating the power of government. He agreed that we will probably have a "scary brush" with deflation in the next year or two but that government has the ability to inflate "beyond our dreams." The "scary brush" will give government the "will to inflate" and when it does, Ruff said, "You ain't seen nothin' yet."
James Dines, character that he is, picked up the gauntlet and hurled it back—"with style," he would add. "The deflation started in '68," he shouted. (They must not have read Dines's book, I thought.) "We are in a money crisis," said Dines, "and the printing presses can't do a thing about it."
Up stepped cool, suave Jim Sinclair, who coolly and suavely defined the depression team out of existence. And since inflation is "sociopolitical in relationship but political in effect," the government will react. Jim confidently returned to his seat.
Verne Myers told a Texas joke to clear the cobwebs and set up his touche. "This is not currency inflation we are talking about, but debt inflation," said Verne. "The government just puts zeros in its books, and the figures are going to start disappearing." The panic for cash, of all types, will bring the house down regardless of the printing presses. Verne rested the case.
Chris Story gave us mechanics on how the government could inflate and why. The new banking laws he mentioned will make it possible, and the default of the Third World countries will make it necessary. Being British, he strode confidently to his seat.
Each was permitted a parting shot, and Exter tried valiantly to restore order and reason and remind us of "bank holidays." Ruff unexpectedly agreed and then said, "They'll use the holidays to print the money." Dines warned them that they were really going to be "surprised!" Sinclair assured us the debt could be "monetized." Myers rose to tell us that the old crowd in Washington was gone now, and the new gang won't resort to such things. Story reminded us that the rise is "continuous,…inexorable."
Seems like deflation is in a depression these days, or is it the other way around? Oh well, the Great Debate was over, and all balloons had been pricked. We went to bed confident there would be no breadlines in front of the hotel to hinder the morning session.
Saturday's finale was none other than "superbear" James Dines. Egotistical, flamboyant, eccentric—all those descriptions fit Jim Dines. He was a bear at the first convention, and he'll be a bear at the next one. "Buy gold anytime below 600," he advised. He was bearish on currencies, said oil and real estate will crash, and bonds are "out."
After more gloomy forecasts, Dines gave us his 10-point plan for changing the course of America. He began with the necessary gold standard and continued on to call for a rebirth of the American revolution. Jim received a standing ovation. Although the inflationists were clearly in the majority, Dines argued his case very well. It's difficult not to hedge your bets after listening to him.
And so it goes, right up to the final words from the final speaker. Three thousand some people, as confused as ever, shuffle toward the doors. A multi-day monetary madness marathon was over.
Jeff Calvert is part-owner of three western wear retail stores in Texas. He formerly taught high school and has traveled extensively.