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Here are two Emails I received from our readers.  I will reply to their questions.

David

Could you please respond in one of your newsletters to this article?

Sort of a “gold as fad investment” theme, but the last 3 paragraphs are a little disturbing with a J.A. Voss quote of a big gold sell-off. I don’t know how authentic Mr. Voss’s expertise is.

Having read your newsletter, for some time now- I’m not particularly worried about my physical metals… but I do have a Roth Gold & Silver IRA invested long-term.

Gold is anything but a “fad investment.”  Gold has been steadily accumulated for the past 10 years.  Even central banks (India, China, Russia, etc.) are buyers and not sellers now.  I estimate that less than 1% of all Americans own gold in any form.  The “fad” thing to do in America is to sell gold, not to buy gold.  Only a fool would confuse a BULL MARKET with a FAD!

There is a very good chance that we have already seen “the big sell-off.”  If not, the correction could lop another $100 an ounce off of today’s price, but I believe the odds of that happening are slim to none.  Gold usually rallies in March and April and we are approaching the time of year when the move should be up, not down.  Sit tight and wait for Sinclair’s promised $1650 gold.  It is coming this year and maybe even $2000 or more.

Your IRA should be safe and your Roth even more-so since you have already paid taxes on the gold in the Roth and technically, you own it, not the government.  But, if you are concerned, you can always move your gold outside of the IRA or the Roth and take possession yourself.  At this time, I would not suggest that you follow that course of action.  If it appears that our government is sniffing around and considering confiscating our gold, I will be writing about it and you should have time to remove it before the event.  I think gold is “safe” for now, but when the price rises to $3,000 or $5,000 an ounce and the dollar is rapidly sinking and the US bond market is collapsing – that is a different story – for another time.

David,

I’m a new subscriber to your blog and enjoy reading your thoughts/views.  I have a question about DTCC.  Kal Gronvall, not sure if you know him, believes that this organization can confiscate our equity holdings in our brokerage accounts during a financial crisis. Kal feels we should closeout brokerage accounts, 401(k) plan accounts, IRA’s, etc. and invest the money in 6 month supply of food, silver bag on coins for bartering and gold and silver coins.  I’ve attached one of the articles Kal sent me.  Your thoughts/views would be appreciated.

Also, please accept my condolences for the loss of your brother. My mother always tells me to enjoy life because “we’re here on vacation” and some day it will be over.

All the best,

Art M.

Art,

I agree with setting aside a six month supply of food and a few bags of junk silver coins for barter.  That is an insurance policy for survival during a financial crisis.  If you are concerned about your stock accounts, then close them out and invest the funds in physical gold, silver, platinum and palladium.  No one will be between you and your investment if you take physical possession of your metals.  That is not a bad idea, but remember, mining shares are leveraged to the physical metals and can provide you with a stunning profit.  I am not concerned enough to sell off my stocks, but I do own a substantial physical position in addition to my mining shares.  At some point in the next two or three years I will sell most of my mining shares and invest a good portion of the profits into more gold and silver, but for now I am comfortable with a 50-50 split or a 60-40 split, shares to physicals.

Here is the article that Art is referring to —

Who Really Owns Your Stocks? Hint: It’s Not You

Monday, July 20, 2009 | Barbara Cohen

So, do you think you own the stocks you’ve bought?

Think again.

For those of you who have not heard of the Depository Trust & Clearing Corp. (DTCC) and you own stocks … sit down.  This might change your whole way of thinking.

Who is the DTCC and what does it do?  The DTCC actually provides clearing for 3.5 million securities from the United States and, get this, from 110 other countries and territories as well — all valued at roughly $28 trillion.  In 2008 alone, the DTCC settled more than $1.88 quadrillion in securities transactions.

The DTCC is also the registered owner and holder of your stock.

At present, the DTCC holds $23 trillion in assets.  It has a virtual monopoly on clearing.  In fact, 99% of all stocks in the USA are legally owned by it.

When Was the Last Time You Saw a Stock Certificate?

Remember the good old days when you bought a stock and received a certificate for it?  The SEC changed that law and went from stock certificates for individual investors to, well, your broker holding the certificate for you so that he or she will be able to legally trade it on your behalf.

The stock certificates were issued in the name of the brokerage … remember, just so they could trade them for you.  In reality, you became the beneficiary of the stocks you bought rather than the owner.

But the SEC, out of the goodness of its heart, changed the laws again, so that now the brokers can’t have the stocks in their name. Instead, the stocks must be placed in the name of “Cede & Co.”

The excuse you’ll hear from your broker is that it is just a fictitious name used by the brokerage so it can trade your stocks for you because brokerages can’t, by law, put the stock certificates in their name any longer.

To Whom, Exactly, Have You ‘Ceded’ Your Stocks?

What we have now suddenly all come to find out is the Cede & Co is actually not a fictitious name, but a subsidiary company of DTCC.  In essence, DTCC owns probably 99% of all the stocks in the entire world.

This is how it works.  You buy some shares of stock at your brokerage.  Your broker tells you that, in order to do business on your behalf, you must give the brokerage power of attorney to buy and sell.

Therefore, your stock purchases are placed in a “street name” because, according to the SEC, no brokerage can place a stock in its own name.  The brokerage then notifies the DTCC of the transaction.

The DTCC is a banking trust company and, by SEC regulation, cannot own shares in its own name, either.  So it transfers the certificates to its subsidiary, Cede & Co.

What do you own?

How about nothing?

And now you are not even the beneficiary.  The brokerage is technically the beneficiary.  You are twice removed!

Guess Who’s Also Behind the Mortgage Mess

Recently, DTCC presented testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  The hearing was on “Effective Regulation of the Over-the-Counter Derivatives Markets,” just a couple of weeks ago, and the transcripts were just released.

The subcommittee is attempting to find out how mortgages could come to be packaged and then sold, and then re-packaged and resold many times over.  Since DTCC owns 99% of all derivatives, it seems only fair that it would be called to give testimony.

Larry Thompson, general counsel for DTCC, applauded the good works of the DTCC.  In his opening statement, he said, “Now, many of you may not have heard of DTCC before. That’s purposeful. We have traditionally kept a low profile, given the critical nature of the role we play in U.S. financial markets.”   (Dah … who would have guessed?)

In truth, DTCC knew all about the Collateralized Debt Obligation (CDO) markets, who owned what, how often the same collateral was used and repackaged, etc.  Why?  Because they own it all.

The DTCC created a massive computer warehouse and keeps records of all CDO trades, all stock transactions, all derivatives, etc.  It has a monopoly on clearing.  And to justify its great job, Thompson added to his testimony. …

“I‘d submit to you Mr. Chairman, and Members of the Subcommittee, that had DTCC not had the foresight to create this Trade Information Warehouse and load the Warehouse with all these records of CDS trades in 2007, we might still be sitting here today in 2009 trying to sort out the total exposure of trading obligations following the Lehman bankruptcy, i.e., who traded with whom, at what point in time and at what price?

Next time you are in the market to buy stocks, trade futures.  You’re only in the trade for four minutes or less.  Not enough time for Cede & Co. to get their mitts on your money. .

Barbara Cohen
Contributing Editor
The Tycoon Report

Sincerely,

David Schectman

Miles Franklin