Sell Bonds and Buy Gold

After the Battle of Waterloo in 1815 when Britain, Austria and Germany beat Napoleon, the House of Rothschild made the equivalent of more than a billion dollars today by selling their gold and buying up bonds, precisely the reverse of the strategy they are probably employing now.

What happened in 1815 was that the Rothschilds had accumulated vast amounts of gold because they thought that with Napoleon back there would be a long war. The defeat of Napoleon therefore looked like a financial disaster for them as the price of gold would plummet without soldiers to pay.

But the patriarch Nathaniel Rothschild turned this strategic error to their advantage by swiftly buying up bonds - which had become depressed in price - and selling their gold. The gold price fell and bonds recovered sharply as the government no longer needed to keep issuing more of them to finance the war.

Buy gold, sell bonds

Now in modern markets, it is striking that exactly the reverse trade applies. Governments all over the world are about to flood the bond markets with paper to finance their bank bailouts and economic stimulus plans, and the final bill could amount to more than $6 trillion on some estimates and very much higher for a full derivatives rescue plan.

In effect the governments are about to need to raise the funds to fight another Napoleon. This massive new supply of bonds will depress the price of existing bonds, and indeed this is evident in the recent fall in 10-year bond prices and their rising yield.

Inflation of the money supply we also know to be a natural enemy of bonds which pay a fixed coupon and are thus extremely sensitive to any rise of inflation that will swiftly erode the coupon, and even make it negative in real terms. And we know governments all over the world have embarked on massive money creation. This can not be good news for bonds, although in the short term the brief return of deflation will help them.

Gold and inflation

On the other hand, inflation is the friend of gold because it has an almost fixed supply, and silver might well be better still as its supply is even tighter. Gold prices are also still relatively depressed compared to other commodity price movements over the past three decades, and silver is probably the most depressed commodity price of all.

Thus the modern Rothschilds might well be counselled to reverse their Waterloo bet and sell bonds and buy gold and silver. Timing is always a devil in financial markets - and the reversal of the recent bear market rally in stocks would give bonds another short lease of life - but getting the fundamentals right also works. That is how the Rothschilds made a billion after Waterloo.

Comments

[Emerald:]

Perhaps I will sell bonds, on the other hand buy bonds. Huh?

Apr 28 10:12 AM

[History Buf...:]

I was always under the impression that Nathan Rothschild made a killing after Waterloo by triggering a selling panic and then buying back the depressed securities for pennies on the pound because he knew from his agents that Wellington had defeated Napoleon. Others say the story is just a myth but it's hard to separate fact from fiction when it comes to the Rothschilds, they are still an immensely powerful family.

Apr 28 10:40 AM

[sorgmot:]

The current (2009) financial collapse is so vast that it and its impacts are incomprehensible to everyone. Its consequences are to tear financial relations to pieces and devastate the finances of billions of businesses, governments, and individuals.

Worthless paper contracts, I owe yous, were sold to get funds to build and sell at high prices assets that have little or no ongoing financial value.

Governments employees did not preform their duties and allowed the financial contracts to become saturated with bad (valueless) IOU's

Since governments didn't know what they were doing as they helped and condoned the creation of the financial mess, they have no ideas worth considering about how to end the mess.

Government members, their friends, and relatives took payoffs directly and indirectly as well as very high salaries and pension promises as they designed the financial whirlpool that is now destroying living standards in countries around the world.

Yes, the financial system is collapsing as people and institutions fail to make good on their promises to pay certain amounts on certain dates and destroy the system further and further by the progression of payment defaults. There is no government fix for government bad actions.

In general all asset values fall in the scramble to raise money and pay debs. The only question is which ones fall faster and farther. Gold has held up pretty well as real estate, stocks, and many other classes fell greatly.

Good luck.

Apr 28 11:07 AM

[Rob Viglione:]

I've been in the short 30-Year treasury trade since January, where I caught a good initial drop followed by nothing. I'm still waiting, but in the meantime have been buying iron condors on TLT. The income from these credit spreads is nice while awaiting the big bond devaluation.

I'm also long gold, and executing a similar market-neutral holding pattern, buying iron condors on GLD. Good income while the market trades sideways.

Apr 28 11:52 AM

[FDNY RET:]

In his only act of overt physical anger Christ threw the "Trash" out of the Temple.

I wish he'd put in the "second Coning" and get rid of the current batch, which are only more sophisticated in their methods, but less Ethical than ever.

Now as then they produce nothing more than the perception that they are "vital", as a means of siphoning off the largest slice of an economy which today as then is funded by the sweat and labor of the productive populace. by aligning themselves with the politicians they share both the wealth and influence of our Country with the benefit of contributing the least.

The big difference is today with the internet and technology, their darkest secrets are unearthed and a more sophisticated population of Serfs will toss them from their Temples--even in Christs absence.

Apr 28 12:15 PM

[Gedankonomist:]

Now the Rothschilds are causing the inflation, not merely acting upon it. After all, who do you think owns the Fed? No one knows for sure, however one can make an educated guess.

Apr 28 01:19 PM

[Davinci:]

You are forgetting the SIR Rothschilds had a spy come and tell him the outcome of the war before the market new. He then pretended that England had lost the war then proceeded to buy bonds.

Apr 28 05:39 PM

[yellowhoard:]

Like Mr. Beeks in Trading Places.

I wander if the Rothchild's spy got raped by a Gorilla in the end?

Apr 28 07:28 PM

[Tar:]

Rob,

What are iron condors?

Apr 28 08:31 PM

[berated:]

Tar,

I was curious myself. Follow the link for a definition of 'iron condors':

www.investopedia.com/t...

Apr 28 08:56 PM

[Tar:]

Thanks berated. I'd never heard that term before. The link you posted was very helpful.

Apr 28 09:09 PM

[lightmatter1:]

Until people (traders in particular) develop a moral/ethical core resulting in honesty buy precious metals. If a thing has no use other then making money don't bet on it.

Apr 28 09:20 PM

[Vuke:]

Good advice. The dollar has lost 96% of its value since the establishment of ther Fed, They're working hard on the remaining 4%,

There has been no mention of the good action in uranium stocks the last few days. Check google news on "nuclear" and watch the action on Strathmore and Ur-Energy, both aiming for production soon.

Precious metals, base metals and energy will all show strong gains on the first whiffs of recovery.

Apr 28 11:21 PM

[Francis Sch...:]

Excellent analysis! One problem is that people are impatient and want it to happen tomorrow. The other problem is that people are greedy and that they have problems in buying Gold because it does not pay an divident or an interest.
Sometimes, in order to catch a big fish, one has to be patient. This is especially true in the case of Gold and Treasuries as these markets are manipulated by the authorities like they were at the time of the Gold pool in the 1960's.

Apr 29 12:22 AM

[djk!:]

thanks for the update on the continuing (it's been 2 weeks, so far) end to the rally. when you quite notably called the end is coming *soon* on 4/13 the DOW was ~8057, on 4/28 it was ~ 8016, a drop of 40 points. Likewise the S&P was ~858 on 4/13 and ~855 on 4/28. A drop of 3 points in 2 weeks. Meanwhile, gold has gone from ~890 on 4/13 to ~890 on 4/28. It was wonderful to get the heads up on the action 2 weeks ago. It helps to know what *will* happen "soon" in order to make the big money plays.

Apr 29 08:26 AM

[Freya:]

Was it luck, superior knowledge or market manipulation? Legend has it that it was superior knowledge combined with market manipulation.

It doesn't really matter since Nathaniel Rothchild was only 3 yrs. old at the time having been born in 1812.

According to legend, his father, Nathan Mayer Rothchild, supposedly had knowledge of Naploleons defeat, went to the exchange and sold, sold, sold bonds driving prices down until he reversed course and bought everything back before the news arrived. He engineered a "panic" in Bonds and then bought them back for a song.

Gold was NOT involved. (Wiki the Family Rothchild)

Even if its about a legend, tell the story like it supposedly happened.

Sell Bonds high, engineer a Panic, buy them back low(maybe Gold was involved to buy Bonds low)

Knowledge combined with market manipulation to engineer a crash and then profit from the crash.

"Sell Bonds High and Buy Gold"? The Rothchild Legend? No connection whatsoever, just another piece of spam.

Apr 29 01:33 AM