Reports - Hinde Capital

Our latest HindeSight Investor Letter - The Central Bank Revolution I (Well ‘Nominally’ So) is the first of a two part series. Part 1 examines how central bankers have embarked on a loosely coordinated effort to fight the global debt problem which has been stifling growth. Omnipotent governors, Bernanke, Carney, Draghi, Svensson, and the new BoJ governor are to take a more aggressive and activist role in pursuing a framework for growth and inflation by seeking an alternative way to conduct monetary policy. It is in our opinion as significant a moment as Volcker’s appointment to the Federal Reserve chairmanship in 1978. However, we consider this an ‘inverse Volcker’ moment.

Ben Davies CEO, concentrates on the salient relationship between Gold – Money and Debt at an evening with Wharton Business School Alumni

Whilst Spain and the Troika are engaged in a ‘Mexican stand-off’ over conditionality of a potential bailout of Spain, the ECB monetary policy meeting looks set to be yet another historic day for the viability of the Eurozone and the euro itself. We felt it was an opportune time to introduce our and Elevation LLC’s macro partner Variant Perception’s Primer on the Euro Breakup.

A report based on a recent speech given by our CEO Ben Davies at the Munich Value Conference. Ben explores the theory of what is value, looks at the world of yesterday and today and the subjects of debt liquidation and financial repression. The full presentation can be found below in the 2012 HindeSight archive reports.

A presentation of a recent speech given by our CEO Ben Davies at the Munich Value Conference. Ben explores the theory of what is value, looks at the world of yesterday and today and the subjects of debt liquidation and financial repression.

Eyes Wide Shut – UK Economic Repression and an End Solution. In the second part of this series Eyes Wide Shut – Economic Repression and End Solution, we examine how the UK’s economic freedom has come down to a circuitous relationship between the BoE, the banks, bondholders and householders. Each component threatens to undermine the other. Finally we offer some potential solutions.

Eyes Wide Shut – The UK Hitting the Wall is part I in a two part series on the state of the UK’s financial health. We wish to outline the gravity of the situation in which the UK finds itself. This nation’s ‘wealth’ is borne out of an illusionary monetary system that has utilised ‘cheap credit’ to underpin asset prices. This pernicious and self-perpetuating credit based system has created wealth, which as we will show is totally unsustainable. There is an ever present and real danger that the debts of the UK will not be tolerated by financial participants. The UK faces a very significant debt issue which threatens to become a full blown sterling crisis as foreign creditors exit the UK bond market. This is clearly not an eventuality that markets are currently assigning any probability.

In the latest HindeSight Investor Letter we examine the disparity of different nations' wealth, and discuss the common feature of all wealthy nations - economic freedom - and how this underpins the sustainability of a prosperous economy. Property rights are key to the existence of economic freedom, and thus property and credit cycles, which are themselves closely linked, are integral drivers of the broader business cycles that buffet economies.

Investors will face considerable difficulties in allocating funds successfully in the coming years. Zero interest rates and unconventional monetary easing across much of the world, coupled with anaemic growth and low future potential will be the status quo. They are a direct function from the fallout of over indebted sovereigns and private-sector balance sheets. Distorted interest rate horizons such as we experience today will serve only to muddy the waters of investment and economic policy for many years to come.

The purpose of this piece is to re-examine the viability of the European Union one full year on from when we wrote our HindeSight Letter December 2010 - "The Euro Brady Bunch." It would be fair to say that you could sum up that piece with the quote we gave from the economist Herbert Stein, "If something cannot go on forever, it will stop."

Gold's recent 8% pullback since December 1st has prompted the usual wave of portentous headlines. We'd like to outline our, perhaps slightly more festive (if you're a gold investor!), views here.

Now is a very pertinent moment to remind investors about Hinde Gold Fund’s structure. The recent collapse of MF Global draws attention, once again, to the many shortfalls in the financial system.

KEY CONCEPTS: Singularity, Exponential vs Linear Growth Trends, Law of Accelerating Returns vs Law of Diminishing Returns, Financial Oppression, Internet Reformation, Transcendent Money, Monetary Singularity

Gold Symposium, Sydney Australia, November 2011 – Keynote Speaker. This HindeSight letter develops in full some of the ideas raised in this address. KEY CONCEPTS: Singularity, Exponential vs Linear Growth Trends, Law of Accelerating Returns vs Law of Diminishing Returns, Financial Oppression, Internet Reformation, Transcendent Money, Monetary Singularity

It is an honour and great pleasure to be here before you all today. For those who have the good fortune of not knowing me, my name is Ben Davies. I am the co-founder and CEO of Hinde Capital, a UK investment management company. I want to offer you what I believe to be a truism. A golden truism.

Gold has risen 19% annualised since 2001 to [present in a basket of currencies. This is a statement not just about the US dollar reserve currency status this is a statement about the collateral worth of all fiat or paper currencies. Gold is experiencing global demand on a scale unprecedented in history. It is quite simply experiencing a re-birth, based on a universal change of attitude.

Financial markets provide constant fascination for individuals; each and everyone one of us derives, often subconsciously, certain needs or outcomes from them. These are usually personal and specific to the individual, but every now and again market participants can observe imitative or herding behaviour which can lead to the phenomena widely known as 'bubbles'. Bubbles usually reflect a disconnect between fundamentals and human perception. The outcome of such disequilibria can lead to severe corrections, or even a 'crash' as the bubble bursts.

'Freedom Fighters'- the phrase invariably conjures romantic notions of charismatic individuals mobilising oppressed populations against tyrannical regimes. Iconic images of Che Guevara, as immortalised in Andy Warhol inspired T-shirts, have become the ubiquitous countercultural symbol of the modern day freedom fighter, most notably amongst today's young.

This letter is intended for pension/wealth managers, and individual investors alike, to highlight the paradigm-shift that will be required in attitudes to investing in the aftermath of the financial crisis. Hopefully, if we achieve anything, we can help people in the future to avoid the potential outcome of . . . . THIS!

We wish to highlight not all but some of the “fears” that keep us awake at night, and illustrate why right now is not the final act for gold. 2011 could be an explosive year for this most illustrious of metals. We do not wish this, as we prefer the orderly ascent of gold to protect our investor base. We would not wish gold to become the final bubble of so many that have marred the last two decades and thereby undo its unique monetary properties, as it is once again cast aside.

In our October piece 'The World Monetary Earthquake' we used Herbert Stein’s words in reference to the parlous state of Japan. How alarmingly prescient this aphorism has become for so many sovereign nations, and none more so than the eurozone. European policymakers are not impervious to the implications of a periphery default on West Europe's banks, ie a full blown European banking crisis with all the global ramifications it entails. Germany and France will ensure that financing spigots keep the illusion of this particular fiat ponzi scheme.

The world has too much debt. In the book of Leviticus (Old Testament), a Jubilee year is mentioned to occur every fifty years, in which slaves and prisoners would be freed, debts would be forgiven. Today there is no Jubilee.

I've been invited here tonight primarily to convey my experiences in the markets. I see this section of the program is titled "The Essentials." I have taken that to mean I am here to talk about my experiences at the "coal face." For me the coal face is the marketplace -- the culmination of buyers and sellers. I would like to share my relationship and experiences with the coal face -- in particular the "gold face."

Murmurings of such 'beggar-thy-neighbour' currency devaluations have once again sprung up amongst the financial literati and rightly so. Better late than never. The truth be told is that we have been living in a highly unstable world even more so than under BW I. The dollar pegs, primarily the Asian renminbi dollar semi-fixed exchange rate, what most refer to as Bretton Woods II, have (arguably) been responsible for the financial friction we observe today.

Gold Wars are between governments and gold. This ultimately restricts the constitutional rights of the people. Gold is the vital barometer of the health of a nation’s currency. The suppression of gold by government allows them to mask the mismanagement of their currency.

As a fund manager I have experienced at first hand the irregularities that have corrupted the gold market. These irregularities run deeper than just micro distortions of the daily movements in the gold market; they are a symptom of something much bigger ‐ War.

Money can lose its value through excessive abundance, if so much silver is coined as to heighten people’s demand for silver bullion. For in this way the coinage’s estimation vanishes when it cannot buy as much silver as the money itself contains…The solution is to mint no more coinage until it recovers its par value

Precious Metal Exchange Traded Funds (ETFs) have become a popular way to invest in gold and silver. In this presentation we discuss many of the important issues we believe investors should be aware of before buying these products. For our purposes we have chosen to focus principally on the State Street managed SPDR Gold Shares trust (GLD), it being the largest precious metals ETF, with a market cap of almost US$50bn.

As a nation we have been living on debt paid for by watered-down money for decades, but so subtle was it at first, we were none the wiser. But when the pain of addiction began to be felt in 2008, we began to understand the lie. And then we went searching for the real stuff. Money for sometime has been worth what government decrees it to be worth. We trust in our duly elected government and unelected central bankers not to subvert the value of our money. It is the value of our day’s labour, by which some is paid in taxes to fund our social obligations.

Gold seems to engender all manner of emotions, and there appears to be no middle ground. Indeed the skew of hate from most media gets more pronounced at every new high. Indeed, every interim peak in gold's price over the last few years has been accompanied by a cacophony of voices proclaiming it to be overvalued. The inevitable retreats that have followed have been short-lived, briefly silencing the critics. However much to these critics’ consternation gold keeps making new highs, and with it their strident chorus of disbelief echoes out even more fervently.

The most important thing about money is to maintain its stability…You have to chose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.

Gold equity funds prior to the evolution of pure gold ETFs, were primarily the only vehicle for those seeking an investment in the precious metals sector. Most investors see “gold” in the title of a fund and invest believing they are aligned more or less with the gold price without realising there is inherently more risks associated with such funds relative to funds that align themselves to the bullion price. We have been long term supporters of one of the largest and most successful precious metals funds.

If one good is more marketable than another—if everyone is confident that it will be more readily sold—then it will come into greater demand because it will be used as a medium of exchange. It will be the medium through which one person can exchange his product for the goods of others. When a commodity is used as a medium for most or all exchanges, that commodity is defined as being MONEY.

Established in March 2006, Hinde Capital manages a gold fund for institutions through to high-net-worth individuals (the minimum investment is US$100,000). This fund is held and managed through Hinde Gold Fund Ltd, which is incorporated in the British Virgin islands and described as an open-ended multi-class investment company.

Hinde Gold Fund vs Physical Bullion and ETFs - Hinde Capital seeks to offer preservation of capital against erosion of the purchasing power of money, through an investment in Hinde Gold Fund. Capital growth is by necessity an important yet secondary objective.

Gold engenders a diversified range of opinions and emotions unlike any other asset class. Misconceptions abound; it is an inflation not a deflation hedge. It is a portfolio diversifier. It is money, a currency, a store of value and a safe haven asset. We define and challenge the validity of all these beliefs. Thematically using the theory of the Austrian Business Cycle we explain why gold and equities rally together Tactically we observe the gold seasonality, now, then and for the future

Understanding how money is created is fundamental to an understanding of this financial crisis. The Creator of Money, the Money Creature or known more formally as the Central Bank is a phrase we have purloined and bastardised from Griffin’s scintillating book The Creature of Jekyll Island – in reference to the Federal Reserve Bank and its system of spawning money out of thin air.

We are on the “cusp of a New World Order” as Sean Corrigan (Diapason Commodities Management) put it. On the precipice of a mind bogglingly fast financial and hence economic descent, the re-appraisal of Darwin’s thesis “Survival of the Fittest” appears so readily apt. In truth the phrase “survival of the fittest” was coined by the classical liberal economist and political theorist of the time, Herbert Spencer. In his Principles of Biology (1864), Spencer drew parallels to his economic concepts with that of Darwin’s theory of evolution, namely natural selection.

In Medieval Europe which was predominately illiterate and constantly short of physical money, the split tally was a technique used to record bilateral exchange and debts. A stick (usually squared Hazelwood sticks were most common) was marked with a system of notches and then split lengthwise. This is where “stockholder” derives from when we refer to modern day equity owners. The shorter half was called the foil and was retained by the party that had received the goods or funds as such that both parties had an identifiable and tamper proof record of the transaction.

There has been a tacit belief in the status of the US government. This nation would stand for sound finance; growth with price stability; to such an extent that no other nation could compete for such a hegemonic crown. Recent events have awoken foreign nations to the suspect nature of US finances, and the credibility of the US is now under severe scrutiny by these nations. We are witnessing the bursting of the largest Credit Bubble in modern economic history.

Silver Finger: This was the title of a 1980 Playboy article that makes for an astonishing read. Investigate for yourself on the link above. It gives a powerful insight into the motivations behind one of the largest financial bubbles. It would appear far from being motivated by greed, Bunker Hunt was possibly motivated by paranoia (justifiably so) and his desire to remain out of paper assets. In principle he was right in execution, just that he underestimated the Power of the State.

Under GORie, bull markets move in phases and it would be far to say Food commodities have had an incredible surge. But remember this was from extremely low levels. But it would be fair to say that some investors are clearly Smokin’ too much POTash. It seems Investors now have a case of the Munchies”- Sorry. Food is “in” and all by products that help grow it are de rigueur, hence the explosion in fertiliser and Potash companies. One of the constituents of the MOO ETF is going “HIGH” “HIGH” “Higher”.

Hinde Gold Fund’s primary aim is to provide our investors exposure to the precious metals market through a highly liquid, actively managed fund with low leverage levels. The turbulence of rapid globalisation, in our view, requires a significant allocation of resources to tangible assets like gold, which, over time should provide capital protection and appreciation. Hinde Gold Fund was created to meet the needs of investors as we head into a volatile monetary landscape in forthcoming years.

Are you an Inflationist or a Deflationist? A number of comments and questions get levelled at us everyday concerning the outcome of today’s macro events. Are we to experience deflationary or inflationary repercussions from this current downturn in the US, throughout the world? Can we experience both, have we stagflation and will we see hyperinflation?

“Make Good Use of BAD RUBBISH” was the wombles Mantra. Clearly they were ahead of their time. The 70s were a difficult time for most people in the UK , culminating in the “Winter of Discontent”. This was the term used to describe the British Winter of 1978 to 1979 during which we saw widespread strikes by the trade unions demanding higher pay to compensate for the inflationary cost of living. The BBC (British Broadcasting Corporation or Auntie as it’s affectionately called) used the Wombles cartoon as a wonderful piece of socialist propaganda.

Stagflation is a condition of the economy that is as inconvenient as the word itself is inelegant. “Stagflation is a condition in which the price level is rising despite the existence of substantial unemployment. “It connotes the simultaneous occurrence of economic stagnation and comparatively high rates of inflation.

Hyman Minsky (1919-1996) a post-Keynesian economist best articulated the process that leads to a potential credit crunch. “Stability breeds instability”. The longer a period of economic stability lasts, the more society moves towards taking more risk, they borrow excessively and overpay for assets, until the entire economy is a house of cards, built on excessively easy credit and speculation.

We invariably do not fear the predictable but we fear the volatile, unpredictable black swan and when that fear manifests itself in mass participation, hysteria and panic take over. The events of Northern Rock seemed hysterical, although in reality it was quite rational as Mervyn King declared to the Treasury select committee for people to protect their savings, (even if they did not quite understand why they had got to this place). By having an investment in a tangible asset such as Gold we hope to protect you and ourselves from this Black Swan.