The man who bludgeoned Bear Stearns

“On Wednesday we wired all the money out of there, and they failed, as you may remember, on Friday.” 

Hedge fund veteran Simon Mikhailovich told me that in a recent conversation we recorded for our 2019 Gold Summit. We’re going live with it today, for a 24-hour period only. I highly recommend you take the time to watch it. I learned plenty from speaking to him in the short time we had him over, and I’m confident you will too. 

Simon was deep in the financial trenches in 2008. He saw for himself the systemic risk lurking within financial markets, and was one of the few to not only protect their wealth from the crisis, but to actively profit from it too. 

But to do so meant walking a very fine edge. His hedge fund was surrounded by institutions that either failed or had to be bailed out. In a way he actually helped trigger the crisis, as they pulled their money out of Bear Stearns just a couple of days before it went bust.  

What gave them conviction to pull the plug was the appearance of Bear Stearns CEO James Cayne appearing on television to say that everything was fine within the firm.  

Simon compared it to the recent claim of the US Treasury secretary that everything is OK within the US banking system… 

“There is only one situation in which the authorities over the weekend say that everything is fine: it’s when everything is not fine. There’s no other circumstance under which unsolicited statements like that appear in the press.” 

Simon and his colleagues also pulled their money out of Fortis bank, which later had to be nationalised by the Dutch and Belgian government, taking their cash to JP Morgan instead. 

They took a hit when Lehman Brothers went down, as Lehman was their counterparty and their trades that bet on chaos weren’t honoured. But they’d deliberately used several other banks as counterparties to combat that risk, and those trades made plenty of money. 

But now, having experienced first-hand just how precarious the house of cards we call the financial system really is, he’s in the business of distancing himself from it, with the help of a certain shiny yellow metal. Simon views the gold exchange-traded funds (ETFs) – like the $GLD – as a “gateway drug” to the real thing. And it’s the physical you want when things really start to go awry – something he views as inevitable, as the bad actors in the financial system the last time around have only been rewarded for their bad actions: 

“[In 2008], people ran a stop sign – and they should have hit a pedestrian. But they were excused from that by the bailouts. And so they learned the opposite lesson of what they should’ve learned. They learned that you can get away with murder. And guess what? They keep doing it. Because the first time is hard, and it gets easier and easier…” 

He’s got a great story which I won’t ruin about being left in a street with a suitcase full of gold, wheels creaking under the weightwhen he realised that there’s a business opportunity in moving gold around. This experience drove him to create Tocqueville Bullion Reserve – a fiduciary gold service for high-net-worth individuals. 

Simon is one of the shrewdest characters I’ve ever met, and I highly recommend you take some time today to listen to him. But if you take nothing else from today’s note, please just take a moment to remember this gem of a statement Simon made in our conversation: 

“There’s no area of human endeavour in which backup systems are designed to rely on the primary system – except in the field of finance.”  

That sentence alone is why you should be sceptical of our monetary overlords when they say they can and will do “whatever it takes” to preserve the financial system.  

And it’s a great reason to own some gold, even if it’s only a small amount. Physical, of course. If you want your backup generator to work, it better not be plugged into the grid... 

All the best, 

 

Boaz Shoshan
Editor, Capital & Conflict 

Category: Investing in Gold

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