Avoid Single Digit Midgets, Consider Gold

In the financial realm, many are lured by the the derivative illusion and are hampered by the self-deception that the way they see things is the way things really are. Nowhere is this more evident than among the heard of grandiose single digit midgets: Bank of America (BAC), Citigroup (C), Barclays (BCS), ING (ING) and soon to join them UBS (UBS).

Single Digit Midgets

The Charlotte Business Journal reported on November 5, 2007 that “Bank of America is now the largest bank in the country by market capitalization — and it may stay that way for a while.

After weeks of flip-flopping with Citigroup Inc. for market-cap supremacy — with the financial rivals no more than $3 billion apart at various points”. Such venerable illusions based upon currency illusions are rapidly dissipating.

Bank of America and Citigroup Inc. are single digit midgets. Their current market capitalizations are $28B and $19B respectively. The rapid evaporation is even more stark when valued in gold. The most powerful currency is gold and it is the most reliable tool for performing mental calculations of value.

Since the great credit contraction began, former behemoths Bank of America and Citigroup have shrunk to become a mere 10% of the current assets of the five oil majors Exxon (XOM), Chevron (CVX), Total (TOT), British Petroleum (BP) and Conoco Phillips (COP). Other former behemoths, like Bear Stearns, Lehman Brothers, Washington Mutual, Indymac, etc. have evaporated into the annals of history.

I am still amazed the oil majors have not bought gold and emptied the COMEX of every bar. When my 17 December 2008 article was published, gold was a mere $850/ounce and would have accounted for a mere 0.36% of their current assets. At all times and in all circumstances gold remains money and cannot evaporate like corporate deposits at Citigroup or Bank of America. I reiterate that the oil majors should buy and demand physical delivery of every registered and deliverable COMEX gold bar.

On my article ‘How the Treasury Bubble Will Burst and Why‘ at Seeking Alpha I received a comment from Alan Brochstein, CFA and fellow Gold Standard Contributor who provides analytical services for hire. He said, “Trace, sorry, but this makes absolutely no sense…” This is not surprising considering he wrote on 8 Dec 2008 (‘Own Gold? Time to Fold‘) that “gold remains a sucker’s bet…”

International Banking Trouble

While America has her own banking problems, the rest of the western world has theirs. Eastern Europe’s problems are epic. The entire herd of single digits midgets have somehow convinced the politicians they are important. All of them are rapidly evaporating. Why are so many countries making the stupid decisions to bailout the banks?

COUNTRY	GDP	BANKS	ASSETS
Denmark	$312B	Danske Bank (DNSKY.PK)	$615B
England	$2.80T	Royal Bank of Scotland (RBS), Barclays (BCS)	$8.6T
Switzerland	$313B	UBS	$3.0T
France	$2.60T	BNP Paribas, Agricole, SocGen, Dexia	$6.7T
Germany	$3.30T	Deutsche Bank	$2.7T

At the IMN Real Estate Conference, keynote speaker Henry Cisneros, former HUD Secretary and Obama sycophant, remarked, “We must have large regional banks like J.P. Morgan (JPM), Bank of America, Citigroup, etc.” Why?

Humanity survived for thousands of years without large regional or national banks. The world is not going to end if they evaporate. What is the point of bailing out rapidly evaporating institutions? For example, Citigroup has already received more than twice its market capitalization in TARP funds. The derivative black hole will vaporize whatever illusory currency reaches the event horizon.

As the Mentor in C.S. Lewis’ short but masterful The Great Divorce taught, ‘all Hell is smaller than one pebble of your earthly world: but it is smaller than one atom of this world, the Real World.’ Fiat’s jaws are rapidly shrinking and eventually will be unable to bite even the smallest gold atom.

The great credit contraction continues to grind on and the increasingly irrelevant single digit midgets continue evaporating. Eventually these soon-to-be-worthless single digit midgets will become at the most footnotes in the annals of history. The current price of the monetary metals, while rising, in a few years will be considered extremely cheap. Those who fail to secure some physical gold or physical silver bullion, as silver is still in backwardation, will be, using Mr. Brochstein’s term, ’suckers’.

Disclosure: Long physical gold and silver. No positions in the worthless banks or in the oil majors.

Comments

[PeteK:]

Gold is the only thing we can trust .
From generations to generations.
History can't be wrong.

Feb 19 06:45 AM

[Duke Wong:]

What is the disadvantage if Citi and Bank of American go to be nationalized? Is that means, goverment is going to buy them? Thanks,

Feb 19 08:06 AM

[monday1929:]

And as every Empire, company, and fortune has vanished, neither has it gone DOWN.
Sometimes it is wise to be frightened and foolish to be brave.


On Feb 19 08:52 AM CLH wrote:

> Gold the only investment that hasnt gone up in 500 years. Insurance
> policy for frightened people.

Feb 19 09:43 AM

[EE:]

According to Ted Butler at butlerresearch.com ,one or two banks have a huge illegal short position in silver and slightly less in gold due to manipulateing these markets. Sooner or later they must default, thus destroying the COMEX & CFTC henchmen and futures markets. Avoid any paper promises or metal ETFs except the Candian one which I am drawing blank on now. It starts with a C. The bank is probably JPM.

Feb 19 10:31 AM

[yellowhoard:]

Meredith Whitney has it right. The government should fund the strong regional banks and let them offer liquidity to American borrowers.

Feb 19 03:53 PM

[5142152-337:]

CLH: I can't speak for anyone else, but I for one am tired of your daily baseless, incorrect comments about gold. You make assertions more often than not that are totally false without any basis of fact. For those readers who may not know the truth, you are misleading them and are pushing your agenda of being a hater. Your latest statement above <gold is the one investment that hasnt gone up in 500 years> is so incorrect that it is abusive. In the future I will report any such statements you make that are false and without supportive documentation to SA. Be warned. If you want to be a hater, be a hater, but state facts, not sludge!

Feb 19 07:15 PM

[31October:]

Why should the "government" (i.e. your taxes) "fund" (by stealing other people's [your children's money]) ANYTHING?

On Feb 19 03:53 PM yellowhoard wrote:

> Meredith Whitney has it right. The government should fund the strong
> regional banks and let them offer liquidity to American borrowers.

Feb 23 03:26 PM