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.
It is indeed scary that even those in the money management industry have no idea how precarious everything is. I have a friend who is an investment advisor and is just as clueless. He’ll be the first to agree with me when I explain him the mechanics, but doesn’t know these connect the dot issues and frankly, doesn’t want to know. Another guy, father of a boy on my son’s lacrosse team, tells me I am a pessimist. Really? You point out QE debt monetization and bailouts, stimulus and still having negative GDP, the exponental nature of fiat currency, our deficit spending and decline in median incomes and ask how that can lead to any real recovery, and people want to shoot the messenger. Open minded individuals will begin to give credence to those of us in the know as the realities in the economy match what we are saying, but normalcy bias will cause most to be in the dark until an actual crisis occurs.
the phrase I was looking for was “cognitive dissonance”.
Yes, that is a better term explaining the affliction most people have. And yes, the fact that those who should know the things you pointed out DO NOT know these things makes it scarier to me.
What strikes me as AMAZING is that QE is supposedly being tapered due to economic strength and there no longer being a “need” for it. But we just had negative GDP of 1% last quarter with their bogus inflation figures (real growth is minus 2% or more). That’s not economic strength! And from what I’m hearing/reading, April figures conflict with the “bad weather” excuse. Isn’t this all proof positive that the real reason QE is being tapered is because it didn’t work, not because the economy is improving? And since QE didn’t work and the “recovery” long in tooth and median incomes falling, aren’t we pretty much screwed?
are we really tapering…with “Belgium” purchasing $40 billion per month
Right. Or is it the ECB in a quid pro quo for the fed
$ trillions in 2008/2009, or to weaken the euro, or does some other sovereign nation or the IMF need treasuries for tier 1 capital/reserve requirements? That is one topic that puzzles me a bit, potential big demand for treasuries as bank collateral or even potential SDR convertibility rather than for risk/return yield.
take your pick, doesn’t really matter.
‘Pessimist’ is the ugly name that optimists give to us realists.
You have just explained just how bad it is out there with the 99% who do not want to discuss the truth. They are going to live in their make believe world until the bitter end!
You have to be a very strong mined individual to be a part of the 1% who actually get it and that’s just the plain truth.
The history books will show that 99% lost every thing while just 1% retained their wealth. The 99% will hate the 1%.
In these times it appears that the 99% want the government to do the thinking for them while the 1% will do their own thinking.
Until the fat lady sings, have a good day.
My parents, who are getting up there in age, were finally able to sell their home in Arizona to be closer my wife and I in Virginia as well as my brother’s family in Maryland. When all is said and done, they will have a nice home and no mortgage.
Unfortunately, they don’t understand how bad things are truly getting and will keep the majority of their savings in an account with Bank of America. My brother and his 30K MBA also wears blinders.
I try to stay positive by being thankful that I’m still employed and am working on having a small farm operation with goats, chickens, and turkeys. I don’t know how long I can keep it up, but I’m grateful for every paycheck.
Keep up the good work, Bill.
keep on keepin’ on!
“OK Holter, if you’re so smart why didn’t you see gold and silver dropping and the stock market going higher?”
Like other paper financial products, the stock market is not wealth; rather it is a derivative of currency which, in turn, is a derivative of wealth.
To appreciate the stock market as a poor investment, one has to first take into account inflation by comparing the gold/stock price ratio over the last decade which shows that the market is at all-time lows in value.
Next, one has be a lightning-fast trader to react before the crowd. When a investor decides it is time to cash-in market gains, so do a lot of other investors. Profits disappear and losses appear as prices plummet.
Third, most stocks are owned by Depository Trust & Clearing Corporation, so if there were a REAL crisis, they would claim ownership of the stocks similar to the MF Global collapse.
Fourth, even if one could cash-out before panic selling, converting currency into real wealth (such as precious metals) would require paying premiums incurring more losses on the initial investment.
So one has to ask, which individual is more wealthy: the stock broker with $2 million in the market, a home mortgage, and monthly payments on his new $50,000 sports car. Or the ‘fool’ with $50,000 worth of silver socked away for a rainy day?
we are unfortunately going to find out the answer to this one day.
Bill, you’re amazed at the cognitive dissonance? However, the average person on the street knows that you can take these ‘worthless’ pieces of paper currency and trade it for just about anything. Food, shelter, etc… In fact, the diversity of things you can acquire for the worthless paper is arguably unprecedented in human history. If my stock portfolio increases in ‘value’, it does increase my purchasing power. I can go buy a car with a rise in stock prices. So those dollar bills are not as ‘worthless’ as say, a bag of wet dog shit. When you say the government is broke, you must certainly mean a different kind of broke than the average Joe with no dollars in his pocket but I’m not sure that was clarified. These distinctions are mostly academic or intellectual arguments which most people unfortunately don’t have many hours to study economics.
I’m not saying I disagree with your commentary, by the way. Just saying….
if the government “accounted” as Joe six pack must then they would have declared insolvency years ago. If your portfolio goes up and we have a crisis will your portfolio get “Corzined” by DTC? How spendable will that be? Yeah, “just sayin'”.
OK, sorry to annoy you. That wasn’t my intention. But presumably your point is to educate the public and clarify this confusing economic stuff. Or maybe it was Andy that said that was his mandate, not you. Anyway, for most people, being ‘broke’ means they can’t even buy a piece of bubble gum. It doesn’t mean being able to run a trillion dollar deficit. I’ve noticed these terms like insolvent etc… tend to be confusing for the lay person.
broke is broke.
I watched a video by Brother John F, that shows all the stocks that support the Dow Transport are in a bubble. It also show this average is also in a bubble. I mean like tulip mania bubble. If all these things are in a bubble and gold and silver are in a non bubble, then it means the prices of the last assets must be low enough so the ones with the most money can get them as cheap as possible. If we look at this as in there will be no one to sell these bubble stocks to, then we can see why the manipulation is going on this long. When everyone heads for the exit, there will be no other buyers coming in. Trust has already gone out the window at that time, either you have something everyone knows and trust or you don’t.
Here is the video by Brother John F.
paper bubble for the ages.
Always enjoy your article. These days I am really trying to understand PM market. I really appreciate if you can comment on Martin Armstrong. His prediction on gold has been right but he does not think we will have hyperinflation and dollar will be the last one stand. He tried to support his statement with historical facts. Because of his influence, a lot of people will be confused.
he is an idiot…”the dollar will be the last one standing”? Really? It is issued by a bankrupt entity.