Don Coxe: “The Next Time People Make Serious Money On Gold, It Will Come Amidst A Major Kind Of Shock”
January 12, 2013 | By Tekoa Da Silva
I once again had the chance to speak with the legendary Don Coxe, Chairman of Coxe Advisors LLP, which collaborates with and advises BMO Global Asset Management—a $105 billion arm of the $540 billion BMO Financial Group.
It was an incredibly powerful interview, covering topics from his 20th anniversary and final edition of “Basic Points”, entitled, “The Final Problem”.
These topics included: the sustained delivery of “financial heroin” into global markets, the “rigged” environment of government growth, and the utility of gold as a weapon during dark financial times.
Starting out with, Don spoke to the growing symptoms which one could interpret as the death of capitalism, in saying, “When you’ve got a situation of governments that are running monstrous deficits, are able to borrow at zero…the basic bloodstream mechanisms of capitalism are seriously at risk.” He further added, “The basic system is being rigged in favor of expanding [the] size of government. If you expand the size of government at a time when the economy is not growing, what that means is, that the socialist forces are gaining strength. There’s something that’s got to happen to change that.”
Don recounted a fascinating story from his father’s service during WW II and it’s relevance to today’s financial environment. He said, “[My father] was cited for doing more battlefield anesthetics than any other Canadian doctor during WW II… he said the skill was…you had to decide who needed heroin [which was the only thing that worked for those desperately wounded and screaming in pain], rather than morphine…So you put them on heroin knowing it was a high-risk thing…and the other thing that was the skill, was knowing when enough healing had been done that you took them off the heroin and put them on morphine.”
“If you kept them on the heroin too long, they would not be able to go back and be risk-taking soldiers[and their lives would be destroyed].”
In connecting his father’s story to today’s financial environment, Don said, “I was on a platform with David Dodge, shortly after he ceased to be governor of the Bank of Canada, we were speaking to an audience in Denver. He was talking about the necessity to get off the zero interest rates very fast, because of the long-term damage [it] could do. So when I got up to speak, I told the story about my father and said, ‘Zero interest rates are financial heroin.’ [Dodge's] head just jerked, and he turned and said to me, ‘That is a wonderful analogy!’”
“My fear,” Don continued, “is that year after year…we’re going to have a whole situation where everybody has become used to these zero interest rates, and what happens when you try to restore normal interest rates? Will the economy have been so undermined…that it wont be able to deliver and function, when you’re actually pricing money the way you’ll eventually have too, which is in relation to risk?”
Concluding with his thoughts on gold, Don said,“There’s no [historical] precedent for this…When what lies ahead of you is ‘no-mans land’…you probably want to go in with a gun. If we’re going into economic no-mans land, what you say is, ‘What’s the only asset out there which for as long as we have recorded history has been used as a medium for buying goods and services, and investments? That’s gold.”
“No matter how this story turns out, I don’t believe it can turn out in a way that is going to be disadvantageous to those that have gold…[in fact] The next time people make serious money on gold, it will come a midst a major kind of shock.”
Once again, this was a powerful interview with one of the legendary investors of our time, and it is required listening for serious investors and market students.
To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:
To learn more about Don Coxe, visit: Coxe Advisors LLP
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Tekoa Da Silva
Bull Market Thinking
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