Debt: there is No Jubilee - Fuller Treacy Money · Debt: there is No Jubilee The world has too much...

Debt: there is No Jubilee

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Gold & Silver Investment SummitMonday, 8th November 2010

Debt: there is No Jubilee

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.



DeleveragiNg: growth, austerity, DevaluatioN or Default“Capitalism without failure is like religion without sin.”

Charles Kindleberger, Manias, Panics and Crashes

How do you get rid of debt without Jubilee?Deleveraging:

1. Grow your way out: US post WW2, Japan post 1989

2. “Belt-tightening”: Scandinavia 1990s, S Korea, Malaysia post 1997

3. Currency devaluation: US 1934 Gold Reserve Act, UK 1949, 1967, (2008?)

4. Explicit default: Russia 1998, Argentina 2002 - 08



Debt supercycle eNDs: No Normal DeleveragiNg

Real GDP growth

DELEVERAGING PROCESS

Debt GDP

1 Deleveraging driven by off-trend growth is not linked to a recession.Source: International Monetary Fund; McKinsey Global Institute analysis

Average annual real GDP growth, %

Belt-tighteningn=16

High Inflationn=8

Massive Defaultn=7

Growing out of debtn=1

Totaln=32

10 years

1

2

3

4

10-yearhistoric trend

4.7

4.3

4.3

7.9

4.6

0.6

-1.7

-1.8

0.8

-0.5

-0.6

-1.4

-3.0

-1.3

4.8

4.1

5.7

5.1

3.2

4.2

4.8

2.3

3.8

1-2 yearsEconomicdownturn startsas economy stillleverages up

2-3 yearsDownturncontinues duringthe first years of deleveraging

4-5 yearsEconomic ‘bounce-back’ whiledeleveraging continues

10 years10-year trendpost-deleveraging

Recession

Deleveraging

12.81



global Debt reDuctioN: what you shoulD Do?1. Slash expenditure on entitlements

2. Reduce marginal tax rates on income and corporate profits to stimulate growth

3. Raise taxes on consumption to reduce deficits

4. Deliver by writing down liabilities in line with fall in asset prices

5. Structural reform – law and taxation changes



global Debt reDuctioN: what actually happeNsFinancial Oppression:

1. Oblige (enforce) commercial banks to hold government debt and condemn bond investors to negative real interest rates

2. Central banks cut interest rates beyond “market” rate

3. Explicit default on debt commitments to politically weak groups or foreign creditors

4. Implicit default – inflate vis a vis quantitative easing and currency devaluation

5. Revalue risk assets higher vis a vis qualitative easing eg UK Asset Purchase Program



excessive Debt that caNNot be repaiD iN fullMost developed countries had debt levels going into the Great Financial Crisis far beyond their means to service them.

DEBT BY COUNTRY 2008 % OF GDP

0

50

100

150

200

250

300

350

400

450

500

UK

Japan

Spain

South

Kore

a

Sw

itzerland

Fra

nce

Italy

US

Germ

any

Canada

Chin

a

Bra

zil

India

Russia

Source: McKinsey Global Institute

Financial Institutions Households

Non-financial business Government



peNsioNs: off balaNce sheet liabilitiesReal situation is much worse than perceived. Pension liabilities will explode public sector debt levels. Politically, cutting pensions is intolerable.

400%

200%

0%

-200%

-400%

-600%

-800%

-10,00%

-1,200%

-1,400%

-1,600%

-1,800%

Italy Germany France Portugal UnitedStates

UnitedKingdom

Spain Ireland Greece

Source: EU Commission, Eurostat, CBO, IMF, Morgan Stanley Research

TOTAL DEBT & LIABILITIES AS % OF GDP

Cost of ageing Structural deficit Initial debt level



ageiNg society: fewer taxpayers, more peNsioNersA third of expenditure for governments is age and health related costs, which will surge as generation of baby- boomers retires and dependency ratios worsen (next 15-20yrs).

OLD-AGE DEPENDANCY RATIOS – POPULATION 65+ / WORKING AGE, %

70

FRANCE

60

50

40

30

20

10

0

1995

Source: CBO, European Commission, National Institute of Population and Social Security Research

2005 2015 2025 2035 2045

GERMANY

ITALY

SPAIN

SWEDEN

UK

EU-25

US

JAPAN

CHINA

Source: Citi Investment Research and Analysis, IMF, OECD. Projections taken from IMF Staff Position Note SPN/09/21.

PRIMARY BALANCE REQUIRED TO STABILIZE DEBT/GDP AT 60% BY 203010

2030

JAPAN

USUKGERMANY

202020102000199019801970

5

0

-5

-10

-15



goverNmeNts will be uNable to reDuce Debt levelsLong term stable level of govt debt to GDP approx. 60%, the aging population negates likelihood of this target by 2030: Govts need to run a consistent primary surplus (ex-ante interest) of > 4%, ie achieving a run of 15 yrs at best surplus years ever to meet target.



sovereigN Debt: crowDiNg outAll countries are trying to borrow at the same time.

LUXEMBOURG

0 50 100 150 200

GOVERNMENT DEBT OUTSTANDING (2010 FORECAST, % GDP)

CHINA

AUSTRALIA

SLOVAKIA

SLOVENIA

FINLAND

CYPRUS

SPAIN

NETHERLANDS

AUSTRIA

MALTA

GERMANY

CANADA

U.K.

FRANCE

PORTUGAL

UNITED STATES

EURO AREABELGIUM

IRELAND

ITALYGREECE

JAPAN



sovereigN Debt rollover riskMost countries have very low average maturity levels, exposing them to rollover risk. Any increase in interest rates will raise borrowing costs.

AVERAGE MATURITY IN YEARS OF SOVEREIGN DEBT

0

2

4

6

8

10

12

14

Hungary

Fin

land

US

Norw

ay

Austr

alia

Pola

nd

Canada

Japan

Neth

erlands

Belg

ium

Germ

any

Czech R

epublic

Sw

eden

Port

ugal

Spain

Sw

itzerland

Irela

nd

Fra

nce

Austr

ia

Italy

Gre

ece

Denm

ark

UK



the market kNows the game is overGovernments are now held in such low regard by investors that in many countries corporate bonds trade at tighter spreads than their parent sovereigns. Corporate CDSs are tighter than sovereign CDSs.

COMPANIES VS SOVEREIGNS CDSs

40

60

80

100

120

140

160

180

Apr-

10

Apr-

10

Apr-

10

Apr-

10

May-1

0

May-1

0

May-1

0

Jun-1

0

Jun-1

0

Jun-1

0

Jul-10

Jul-10

Jul-10

Jul-10

Aug-1

0

Aug-1

0

Aug-1

0

Sep-1

0

Sep-1

0

Sep-1

0

Sep-1

0

Oct-

10

Oct-

10

Oct-

10

40

60

80

100

120

140

160

180

SovX Country CDS Index Itraxx Main CDS Index



wheN Does the game eND?Either you cannot service your debt or your lenders lose confidence in your ability to service it at a particular rate.

Excessive interest payments – Coupon payments too high to be serviced

Excessive reliance on foreign capital – Foreigners tire of lending to you

Governments will indulge in deficit financing

uk: a case stuDy iN how to reDuce your Debt

“Major” King: How I learned to Stop Worrying and Love Inflation





uk: poster boy of the creDit crisis“ As I have said before Mr Deputy Speaker: No return to boom and bust”

UK Chancellor, Gordon Brown 1997 and 2006

Extended business cycle caused by rates too low too long.

Stability breeds instability.

Rising house prices masked household debt to asset ratio reality.

Housing ‘ATM’ and cheap money enabled unprecedented consumption boom.

Government nominal spending doubled (1997- 2010). Govt. spending is 45% of GDP.

Government did not reign in unfunded liabilities as life expectancy extended beyond retirement age.

PEOPLE BELIEVED THEIR OWN BULLSH*T.



uk householD leverage was oN a highHousehold leverage measured by debt relative to disposable income illustrates the obscenely large increases that took place from 2000 to 2008

HOUSEHOLD LEVERAGE MEASURED AS DEBT/INCOME INCREASED IN MOST COUNTRIES

155

9 52 73 25 88 33 -10 -14 44 75

Total household debt% of disposable income

Canada includes non corporate business, which exagerates its relative size compared to other countries

Source: Hever Analytics; McKinsey Global Institute

Increase%

Switzer-land

UnitedKingdom

SouthKorea

Canada Spain UnitedStates

Japan Germany France Italy

180

105

160

81

140

111

139

69

130

96

128 124112 114

98

48

69

34

60

20002008



uk: Nice DecaDe turNs Nasty“ Who would be prepared to lend with the fear of being repaid in depreciated currencies always before his eyes?”

Georges Bonnet, the French foreign minister of the 1930s

NICE (Non-inflationary consistent expansion) turned nasty 2008

UK household debt as % of disposable income 160%; at worst US was 130%

UK overall debt is nearly 5 x GDP; excluding unfunded liabilities,

£10 trillion debt incl. unfunded liabilities, or £170,000 for every man woman and child



uk goverNmeNt, wheN iN Doubt speND£671bn Total Government spending in the financial year 2009-2010Govt support for Britain’s Banks £850 bn + £100 mm on financial advice

£280bn Insurance cover for bank assets

£250bn guaranteeing of wholesale borrowing by banks

£200bn indemnification of BoE against losses for liquidity support

£76bn purchase of RBS shares

£40bn loans and funding to Building Society and Financial Compensation Scheme

Source: National Audit Office



most growth iN the uk gDp is comiNg from goverNmeNtPublic sector is plugging the gap emanating from an ongoing deleveraging private sector. Governments effectively socialised private sector losses.

UK NOMINAL GDP: PUBLIC AND PRIVATE

(September 1961 = 100)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Mar-

61

Mar-

63

Mar-

65

Mar-

67

Mar-

69

Mar-

71

Mar-

73

Mar-

75

Mar-

77

Mar-

79

Mar-

81

Mar-

83

Mar-

85

Mar-

87

Mar-

89

Mar-

91

Mar-

93

Mar-

95

Mar-

97

Mar-

99

Mar-

01

Mar-

03

Mar-

05

Mar-

07

Mar-

09

19%

21%

23%

25%

27%

29%

31%

33%

Private GDP Public GDPPublic/Private (RHS)



uk fiscal balaNce: the Deficit Does matter “Major” King says UK faces a SOBER decade: Savings, Orderly Budgets, and Equitable Re-balancing

EUROPE: DEFICIT/SURPLUS % GDP

-16

-14

-12

-10

-8

-6

-4

-2

0

2

IRE

LA

ND

BR

ITA

IN

SP

AIN

UN

ITE

D

STA

TE

S

FR

AN

CE

JA

PA

N

EU

RO

ZO

NE

ITA

LY

CA

NA

DA

GE

RM

AN

Y

Now 1 Year Ago



uk biggest overall Debt iN g20The UK has a debt problem much worse than the US’s. We are the most leveraged countryin the world per capita.

DEBT BY COUNTRY 2008 % OF GDP

0

50

100

150

200

250

300

350

400

450

500U

K

Japan

Spain

South

Kore

a

Sw

itzerland

Fra

nce

Italy

US

Germ

any

Canada

Chin

a

Bra

zil

India

Russia

Source: McKinsey Global Institute

Financial Institutions Households

Non-financial business Government



uk curreNt accouNt: caN thiNgs oNly get better?Domestic Private Sector Financial Balance + Govt Fiscal Balance – Current Acct Balance = 0 “�The�underlying�principle�flows�from�the�financial�balance�approach:�the�domestic�private�sector�and�the�government�sector�cannot�both�

deleverage at the same time unless a trade surplus can be achieved and sustained. Yet the whole world cannot run a trade surplus.” Rob Parenteau (2010)

But the UK will have a damn good go at exporting its way to growth.

UK CURRENT ACCOUNT

-16

-14

-12

-10

-8

-6

-4

-2

0

2

Ma

r-9

3

Ma

r-9

4

Ma

r-9

5

Ma

r-9

6

Ma

r-9

7

Ma

r-9

8

Ma

r-9

9

Ma

r-0

0

Ma

r-0

1

Ma

r-0

2

Ma

r-0

3

Ma

r-0

4

Ma

r-0

5

Ma

r-0

6

Ma

r-0

7

Ma

r-0

8

Ma

r-0

9

Ma

r-1

0

Qu

art

erly

-50

-40

-30

-20

-10

0

10

Ro

llin

g 1

2 m

on

th

Current Account (Quarterly) 12 month



gilty pleasures: psNbr exploDesAfter bailing out banks government borrowing is still rising. PSNBR is £140bn on a twelve month rolling basis. This is a rise by almost a factor of 4 from 12 months ago.

PUBLIC SECTOR NET BORROWING (£bn)

-40

-20

-

20

40

60

80

100

120

140

160

Sep-94

Jun-95

Mar-96

Dec-96

Sep-97

Jun-98

Mar-99

Dec-99

Sep-00

Jun-01

Mar-02

Dec-02

Sep-03

Jun-04

Mar-05

Dec-05

Sep-06

Jun-07

Mar-08

Dec-08

Sep-09

Jun-10



boe: pluggiNg the holeThere is not enough foreign demand for the amount of gilts issued. Sterling is not a reserve currency. No one needs to own £ denominated bonds.

FOREIGN HOLDINGS OF GILTS AND YOY CHANGE IN ALL GILTS OUTSTANDING

45,000

95,000

145,000

195,000

245,000M

ar-

96

Mar-

97

Mar-

98

Mar-

99

Mar-

00

Mar-

01

Mar-

02

Mar-

03

Mar-

04

Mar-

05

Mar-

06

Mar-

07

Mar-

08

Mar-

09

-10%

0%

10%

20%

30%

40%

50%

60%

Foreign Holdings (£ mns) (LHS)Foreign Holdings as % of Gilts OutstandingYoY Change in All Gilts Outstanding



“real” speNDiNg cuts: wheN less is Not moreNominal Spending will not reduce over projected horizon of 2014/15, as Treasury/OBR will not maintain spending in line with inflation. Inflation assumptions used are 3.2 to 4.2% not the BoE target rate of 2%. And there you have the INFLATIONARY dynamic!

Source: The BBC



boe: moNey priNtiNg Never felt so gooDThe Bank of England has been more aggressive than any other central bank in expanding its balance sheet.

EXPANSION OF MONETARY BASE FOR BOJ, BOE AND FED

0 ON HORIZONTAL AXIS = MARCH 2000 FOR BOJ;

MARCH 2008 FOR BOE AND FED

75

100

125

150

175

200

225

250

275

300

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120 126Months from 1 year before QE was implemented

Change in M

oneta

ry B

ase

(0 M

onth

s =

100)

QE Starts Here BoJ BoE Fed



boe becomes the gilt marketBoE bond purchases have been over £200 bn. BoE owned almost a third of all conventional Gilts outstanding last year. BoE’s proportion of Gilt holdings have gone down slightly, only because it has paused its buying while the DMO has been issuing new gilts like they are going out of fashion.

BANK OF ENGLAND GILT HOLDINGS AS A % OF OUTSTANDING

0%

5%

10%

15%

20%

25%

30%

35%

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-09

Au

g-0

9

Se

p-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan-1

0

Fe

b-1

0

Mar-

10

Apr-

10

May-1

0

Jun-1

0

Jul-10

Au

g-1

0

Se

p-1

0

Oct-

10

March 09 is when the BoE's Asset

Purchase Facility (ie QE) began.

The BoE now holds close to a third

of all conventional gilts.

UK NOMINAL GDP: PUBLIC AND PRIVATE

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Mar-

90

Mar-

91

Mar-

92

Mar-

93

Mar-

94

Mar-

95

Mar-

96

Mar-

97

Mar-

98

Mar-

99

Mar-

00

Mar-

01

Mar-

02

Mar-

03

Mar-

04

Mar-

05

Mar-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

25,000

35,000

45,000

55,000

65,000

75,000

85,000

95,000

Total GDP Govt GDP



uk - it’s the level stupiD“ It’s the level, stupid – it’s not the growth rates, it’s the levels that matter here”

Mervyn (Major T.J.) King (“Kong”)

UK RPI Vs CPI

-4%

-2%

0%

2%

4%

6%

Jul-00

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

RPI - CPI RPI CPI



Nice oNe merv: iNflatioN is DoiNg its JobUK Debt to Nominal GDP is falling. UK Nominal GDP is at new highs.

Debt is fixed, while GDP grows nominally. The real burden of debt is eroded as inflation rises unexpectedly.



uk: this time is Not DiffereNtThe UK has suffered a severe banking crisis, whereby debts have merely been transferred, not extinguished... yet. Large banking crises and deleveraging processes typically lead to sovereign crises. The UK will be no exception.

Source: Reinhart and Rogoff, Banking Crises, An Equal Opportunity Menace

PROPORTION OF COUNTRIES WITH BANKING AND DEBT CRISESWEIGHTED BY THEIR SHARE OF WORLD INCOME

Per

cent

of C

ount

ries

1900 1904 1908 1912 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

Year

Banking Crises

Debt Crises

45

40

35

30

25

20

15

10

5

45

40

35

30

25

20

15

10

5

0 0



too much Debt leaDs to iNflatioNUK implicit default risk high as inflation arises potentially from debt monetisation.

Source: Reinhart and Rogoff, Banking Crises, An Equal Opportunity Menace

INFLATION AND EXTERNAL DEFAULT: 1900-2006

50

45

40

35

30

25

20

15

10

5

01900 1904 1908 1912 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

Per

cent

of C

ount

ries

Year

Share of countries with inflation above 20 percent

Share of countries in default Correlations:1900 – 2006 0.39

excluding the Great Depression 0.601940 – 2006 0.75



high (hyper) iNflatioN is a political occurreNce“�The�figures�demonstrate�clearly�that�deficits�amounting�to�40 percent or more expenditures cannot be maintained. They�lead�to�high�inflation�and�hyperinflations…”�

Peter Bernholz “Monetary Regimes & Inflation...pp.71”

High (hyper) inflation is caused by financing huge public deficits through money creation.

Even 20% deficits were behind all but four cases of hyperinflation.

The UK deficit may be 11.5% the size of the UK economy, but currently the UK deficit is over25% of all government spending.



Deficit levels relative to expeNDitures before hyperiNflatioNKing monetized 100% of the UK budget deficit. This makes the UK a prime candidate for hyperinflation. Unfortunately we don’t have any gold to protect us.

Source: Monetary Regimes and Inflation, Peter Bernholz

BUDGET DEFICITS BEFORE FIVE HYPERINFLATIONS

30%

-4 -3 -2 -1 0 1

20%

40%

60%

FRANCE

80%

100%

Years prior to money reform

% o

f Spe

ndin

g m

onet

ised

BOLIVIA

BRAZIL

POLAND

GERMANY



JapaN: moNetary mikaDo

Japanese debt is like a bundle of “Mikado” sticks, try to remove one and the whole lot could collapse...



JapaN: a tippiNg poiNt for sovereigN DebtJapan over the last year issued more JGBs than tax revenues it collected. This is not sustainable. Japan’s fiscal situation has been dire for some time.

Either Japan will right itself through political reform, ie debt restructuring and tax increases - and these would likely not be enough - or it will be a prime candidate for hyperinflation.

JGB TAXES, EXPENDITURES AND JGBs ISSUED

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

JGBs Issued / Tax RevenueTax Revenue / Tax Expenditures

!"#$%&&'()*+$,-(./$0

1(2+$3

TAX REVENUE, EXPENDITURES AND JGBs ISSUED

0

20

40

60

80

100

120

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

20

40

60

80

100

120

JGBs Issued Tax RevenuesTax Expenditures



hyperiNflatioN, ‘baburu keizai’ eNcore?Japan’s debt levels are now at levels only seen historically in hyperinflationary countries. By 2010 gross debt to GDP will be over 200%.

Net debt is 110% of GDP, which is better, but the asset side is owned by private sector, so does not help government financing even if they attempted confiscation.

To understand Japan debt dynamics click here: http://www.hindecapital.com/reportsZi

mba

bwe

Japa

n

Leba

non

Jam

aica

Sin

gapo

re

Italy

Gre

ece

Spa

in

Bel

gium

300

GOVERNMENT DEBT / GDP

250

200

150

100

50



boJ shirakawa goes ‘straNge love-ly’ NuclearShirakawa rides the Bomb, Oct. 5th BoJ statement allows unlimited bond purchases and all but the kitchen sink.

October 5th, 2010 BOJ implements comprehensive monetary easing policy change 35 tln yen:

1. Overnight call rate to remain at 0 to 0.1 % (“encouraged”).

2. Maintain ZIRP on basis of the “medium – to long term price stability” (“forever”).

3. Establishment of a 5 tln yen Asset Purchase Program – “temporary” measure to purchase government securities, ABCP, corporate bonds, ETFs, J-REITS.



laND of risiNg suN sets sooNerJapan has a history of 180 degree turns:

Isolation to engagement and militarism to pacifism.

Meji Restoration – restored Imperial rule in 1868 and disposed of Shogunate rule enabling capitalism on Western scale instead of feudalism.

Yoshida Doctrine – post WW2 pacifism and economic development, in spite of US encouragement for rearmament.

PM Yoshida: Japan renounces “war as a sovereign right of the nation and the threat or use of force as means of settling international disputes.”



a golDeN Jubilee 2010...Ms. Watanabe sells her bonds as Japan reflates, rearms and purchases gold.

900 tln yen worth JGBs is 10.588 tln USD at 85 yen

At $1,300 troy oz gold = 8.14bn ounces or 253,000 tonnes (8.14bn/31250) gold

But if gold at $13,000, Mrs Watanabe only needs 25,000 tonnes



bubbles: NasDaq aND sovereigN boNDs?Public debt, actually, has always had a Ponzi-like characteristic.

“�The�global�financial�system�continues�to�be�unsound�in�the�same�way�that�a�Ponzi�scheme� is�unsound:�there�are�not�enough�cash�flows�to�ultimately�service�the�face�value�of�all�the� existing�obligations�over�time.�A�Ponzi�scheme�may�very�well�be�liquid,�as�long�as�few�people�ask for their money back at any given time. But solvency is a different matter – relating to the ability of the assets to satisfy the liabilities.”

John Hussman

Source: Behavioral Investing, James Montler

250

200

150

100

50

0

-50

-100

-150

-20096

Equity fund inflows Bond fund inflows

97 98 99 00 01 02 03 04 05 06 07 08 09 10



Debt is moNey, golD was moNey, will be moNey...1914 Federal Reserve Act: Fed could create currency and reserves as long as Federal Reserve kept a minimum of 40% gold reserve against FRN (dollars).

US Money Supply Backed by Gold = US Gold Reserves x Gold Price ($/oz) US Monetary Base

Theoretical Gold Price ($/oz) = (US Monetary Base x 0.40) US Gold Reserves



golD: the curreNcy of First resortSolving our equation for additional monetary base of $600bn by June 2011, using 40% rule implies a fair value gold price of U$4,000 / oz.

Source: Thanks to EIV Investments, LLC : Dr. F. Conrad Engelhardt IV

$10

$100

$1,000

$10,000

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Pric

e of

Gol

d ($

oz)

100% of Monetary Base = $7,700/oz 40% of Monetary Base = $3,100/ozz

Current Theoretical Gold Price (end 2009)

Actual Gold Spot Price = $1,355/oz

40% of Monetary Base

100% of Monetary Base

US GOLD RESERVES AND GOLD PRICE



wheN are we wroNg?Korean and Vietnam “American” War saw surge in US money supply.

In 1971 using a 40% ruling the price of gold should have been $119 troy oz. It was $35.It was fixed. This discrepancy led to Nixon breaking the gold window and voting for gold.

Source: Thanks to EIV Investments, LLC : Dr. F. Conrad Engelhardt IV

US GOLD RESERVES AND MONEY SUPPLY

0%

20%

40%

60%

80%

100%

120%

140%

160%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Gold

Reserv

es a

s P

erc

ent

Money S

upply

$0

$300

$600

$900

$1,200

$1,500

$1,800

$2,100

Gold Reserves to

Money Supply Ratio Low

(Gold Undervalued)

Historical

Range of Gold

Reserves to Money

Supply Ratio

Gold Reserves to Money

Supply Ratio High

(gold Expensive)

Money Supply

Doubles



a crisis of coNfiDeNce: golD is the Default choice“ When you run these big debts, the problem is not with your children or your grandchildren, it’s in our lifetime.”

Kenneth Rogoff 2010

Sovereign countries rarely default alone. The world may survive a Dubai, Greek or Latvian default but what happens if a major G7 country defaults such as Japan or...?

Source: Reinhart and Rogoff, This Time Is DifferentYear

Per

cent

of C

ount

ries

60

1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

50

40

30

20

10

0

SOVEREIGN EXTERNAL DEBT: 1800-2006PERCENT OF COUNTRIES IN DEFAULT OR RESTUCTURING



“ Gold is the hedge against political instability and government default”

(A Gold Warrior, 2010)



hiNDe golD fuND: a uNique iNvestmeNt• A long bias gold bullion fund with close adherence to USD spot gold price

• A managed gold investment in three share classes EUR, GBP or USD

• A potential return in excess of the spot gold price

• A cheap method of owning physical allocated gold

• A secure method of owning physical allocated gold

• An investment in growing gold ounces vis a vis up to 25 % small cap mining holding

• A liquid investment, no subscription or redemption fees, and same month dealing



Allocated Gold Bullion (stored at secure vaults in viable jurisdiction)

Unallocated Gold Bullion

Comex & Tocom Futures (warning potential hotspot)

Physical Bullion ETFs (warning hotspot)

Swaps & Derivatives

Other

Wealth Store

Default Risk

Safer

Increased Risk

hiNDe golD fuND: a highly secure iNvestmeNt

ETFs and other vehicles for gold investment have inherent risk investors may be unaware of. An investment should hedge out all possible credit risk. Hinde Gold Fund achieves this by investing in allocated gold held in a reputable Swiss Private Bank.

Default Risk

Wealth Store

Increased Risk

Safer



hiNDe capitalHinde Capital’s structure ensures the firm’s operations are thoroughly audited and transparent.



hiNDe golD fuNDHinde Gold Fund is a managed gold investment. It aims to outperform the gold price, while smoothing any downside volatility.

HGF RELATIVE PERFORMANCE: GOLD (Last 12 Months)

-5%

0%

5%

10%

15%N

ov-0

9

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Monthly Relative Outperformance

Cumulative Relative Outerformance(RHS)



hiNDe golD fuNDHinde Gold Fund has performed well against other assets since its inception.

HGF COMPARATIVE PERFORMANCE: SINCE INCEPTION

40

60

80

100

120

140

160

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Inception to Oct 2008 - Fund Benchmark: 50% Equity, 50% BullionNov 2008 to Present - Fund Benchmark: 100% Bullion

Hinde Gold FundMSCI WorldGDM



our golDeN secret to success:a brilliaNt computer moDel...



hiNDe capital: iNvestmeNt maNagersBen Davies, CeOBen Davies ran trading for RBS Greenwich Capital in London where he managed a macro portfolio. He started his career in 1995, trading in the Credit fixed income market at Credit Lyonnais, moving to IBJI as a fixed income specialist and finally to Greenwich Capital in 1999. He graduated with a BSc in Management from Loughborough University. Ben Davies and Mark Mahaffey, former colleagues from RBS Greenwich Capital, established Hinde Capital in early 2007, primarily to focus on the precious metals and commodity sector.

Mark Mahaffey, CfOMark Mahaffey has 24 years’ experience in the international markets, having held senior posts at several leading investment banks. He trained as a fixed income specialist at Daiwa Securities before joining Midland Montagu as Director of the US government trading desk. In 1990 he jointly set up the Greenwich Capital office in London where he managed a portfolio focusing on global macro themes, before joining IBJI in 2001. His most recent appointment from 2005 was Managing Director of Bank of America London Proprietary desk.



Hinde Capital10 New StreetLondon EC2M 4TPUnited Kingdom

Email Ben Davies, CEO: [email protected]

Email Mark Mahaffey, CFO: [email protected]

Phone +44 (0)20 7648 4600

www.hindecapital.com

hiNDe capital: coNtact iNformatioN



hiNDe capital: DisclaimerHinde Gold Fund Ltd is an open-ended multi-class investment company incorporated in the British Virgin Islands.

This document is issued by Hinde Capital Limited, 10 New Street, London EC2M 4TP, which is authorised and regulated by the Financial Services Authority. This document is for information purposes only. In no circumstances should it be used or considered as an offer to sell or a solicitation of any offers to buy the securities mentioned in it. The information in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete. The information concerning the performance track record is given purely as a matter of information and without legal liability on the part of Hinde Capital. Any decision by an investor to offer to buy any of the securities herein should be made only on the basis of the information contained in the relevant Offering Memorandum. Opinions expressed herein may not necessarily be shared by all employees and are subject to change without notice. The securities mentioned in this document may not be eligible for sale in some states or countries and will not necessarily be suitable for all types of investor. Questions concerning suitability should be referred to a financial adviser. The financial products mentioned in this document can fluctuate in value and may be subject to sudden and large falls that could equal the amount invested. Changes in the rate of exchange may also cause the value of your investment to go up and down. Past performance may not necessarily be repeated and is not a guarantee or projection of future results. The Fund is categorised in the United Kingdom as an unregulated collective investment scheme for the purposes of the Financial Services and Markets Act 2000 and their Shares cannot be marketed in the UK to general public other than in accordance with the provisions of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemption) Order 2001, as amended, or in compliance with the rules of the Financial Services Authority made pursuant to the FSMA. Participants in this investment are not covered by the rules and regulations made for the protection of investors in the UK. Participants will not have the benefit of the rights designed to protect investors under the Financial Services and Markets Act 2000. In particular, participants will lose the right to claim through the Financial Services Compensation Scheme. The securities referenced in this document have not been registered under the Securities Act of 1933 (the “1933 Act”) or any other securities laws of any other U.S. jurisdiction. Such securities may not be sold or transferred to U.S. persons unless such sale or transfer is registered under the 1933 Act or is exempt from such registration. This information does not constitute tax advice. Investors should consult their own tax advisor or attorney with regard to their tax situation.

Debt: there is No Jubilee - Fuller Treacy Money · Debt: there is No Jubilee The world has too much...

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