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I promised last week that I’d write a piece about my chance meeting with a stockbroker.  I know (knew) a little bit about this profession as I worked in the business for 23 years and managed a branch office for A.G. Edwards for 12 of those years.  Most people don’t even know what they want to do in life when they enter (and sometimes even after graduating) college, I knew at the ripe old age of 14 years old what I wanted to do.  I wanted to be a stockbroker.

During my years as a broker I saw many things, mostly things that surprised me.  When (before) I started, my view of the business was naïve to say the least.  I was still in training class when the proctor (an ex pro football player for the Eagles) told us, “If you don’t get sued in the first two years you are not being aggressive enough.”  It really opened my eyes as to what the business was all about and just how “ugly” it was behind the scenes.

Fortunately I worked the majority of my career at Edwards; they truly were a fine and upstanding firm run by Midwesterners with a Midwestern mentality.  I met Ben Edwards and even played golf with him once.  He truly believed that the customer came first, his handshake was better than any Wall St. written contract as far as I am concerned. The mentality of “NY” Wall St. was to “sell” whatever it was that they told you to sell.  We had quotas of new issues to ram down customers throat, we were “enticed” to sell in house mutual funds and other products by the firm offering the brokers higher commissions on those in house products (Edwards did not do this and had no in house products for this reason).  I saw many things that just weren’t right in my book which is how and why I eventually found A.G. Edwards.

Over the years I came across all sorts of brokers.  I’ve seen the cowboys, the playboys, the dunces, and the poindexters. I saw those with ADD and ADHD, the laziest, the fearful, the churners and burners, the youngsters and veterans, men and women, honest and dishonest.  I know that this might shock you but the average stockbroker was no “analyst or economist,” not even close.  The average stockbroker is, was and always will be … a salesman that spews out what they are told to spew out.  And yes of course, there were some very good and well-meaning people who were smart and did their own homework but these were few and far between.  If you wanted one of these people then you had to search hard and be somewhat lucky to have stumbled across them.

OK, so enough with “stockbrokers,” I want to tell you about my most recent meeting with one.  By chance I came across a broker and we were able to speak for maybe 15 minutes.  This guy seemed to me to be honest which is obviously a good thing.  He was an older guy who has been in the business for 15 years and this is a second career for him.  I have little doubt that he believes everything that he told me but what he told me was basically “the company line.”

I let him go on for a little while so I could size him up and then I asked him, “Do you really believe that?” and I knew that he did but then I followed with another question.  I said/asked, “You do know that the government is broke right?” to which he answered the same way that I would say 60%+++ of people if asked would always answer.  He said, “Yes, everyone knows that.”  And there you have it in a nutshell, he believes that the government is broke; in fact, he believes that EVERYONE knows it.  I want to break this down a little bit and explain where the conversation went from there (I’ll bet that you already have a good guess).

I asked him if he realized just exactly what he was saying.  If the government was broke then what did that mean about our “money?”  I pulled some cash out of my pocket and asked if the “issuer” of these paper bills is broke then what does it mean to the values of these bills.  I then asked if he thought the banking system as a whole was solvent and he told me that, “It is now after being saved from the 2008 debacle besides there is always FDIC.”  Really?  This is an “insurance company” that has maybe a quarter of a penny in reserves for every dollar insured.  They are an institution of the same bankrupt entity that we are discussing.  When the FDIC runs out of funds trying to save just one large bank, where will more money come from?  Besides, if the government is broke then what does it mean for all of those Treasury bonds that the bank owns as their “foundation.”  If the foundation is cracked then what does it mean for the entire house?

I then asked him if understands what and why the various “QE’s” were put into place.  He told me that they were originally put in place to “turn the economy around” and that is seemed to have worked.  He had no idea that the Fed was buying 70% of Treasury issuance but this fact really didn’t strike a chord, neither did my comment that the QE’s were plain and simple monetization of our debt and that no country ever that “monetized” has ever escaped blowing up their currency into a massive inflation.

Here is the best part.  He agreed with everything that I had said so far and even told me that my logic seemed sound to him but if it’s true …”but how come everything is doing so good, the stock market is up and everything has recovered.”  So, again, there you have it.  It doesn’t matter what the facts are as long as just one “fact” is that the stock market is “up.”

We pretty much knew all of this but the scary thing to me is just how gullible our population is.  No matter how many times there are reports of sub 2% inflation or 6% unemployment or what have you, it doesn’t make it so.  Yes I know, it does “make it so” in the minds of the masses and to this point that is all that matters.  I guess you could say that the reality doesn’t matter until it matters.

I/we knew all of this but my chance meeting with this gentleman really drove the point home for me.  The public is clueless and they have one heck of a wakeup call coming.  I just don’t or can’t understand the mindset.  Maybe people who believe that the government is broke just don’t “want” to believe it.  I am no psychologist but I am sure there is some sort of description for this affliction and that the word “denial” is a part of it.  I have spent my life connecting dots and it amazes me that when the dots are not even difficult to see or recognize, they are ignored or even invisible to the masses.

Without being insulting to my new acquaintance the stockbroker, this is an example of the “blind leading the blind.”  I get it, if you are a plumber, a doctor, a truck driver or whatever; you go to a financial planner or a “stockbroker” for your finances.  You would not go to a carpenter for surgery of a brain tumor, you would go to a brain surgeon… but the mentality today (for the vast majority) is like a brain surgeon that sticks a bunch of leaches on a freshly shaved head and says he’ll be back in couple of hours… and “you should feel better by then.”

Let me finish with this, I am sure that there are those out there thinking “OK Holter, if you’re so smart why didn’t you see gold and silver dropping and the stock market going higher?  You could have moved out of gold and into stocks and made a killing.”  This is true …as of today but I believe that I know what the “ending” will be.  We know all sorts of facts that just don’t jibe with today’s “reality.”  If we know for a fact that current demand for physical gold is (and has been for years) far higher than current production then how is it that prices have dropped?  I will answer the same way I answered to my new acquaintance when he asked why the prices are down.  I asked him, “If there were 99 counterfeit IBM shares for every one real share… then what would the price of IBM be?” (He answered “pennies”).  I also asked what the value of the counterfeit shares would be once it was discovered that they are fakes.  Please remember this thought, all Ponzi schemes looked “good,” even wonderful…before they were discovered to be Ponzi schemes and those who refused to participate looked like fools.   It is not until after the Ponzi scheme is revealed that the identity of the real fools becomes known.