Why goldbugs consider ETFs a scam?

[gasull]

Where is exactly the "scam"?

THE TRAP OF EXCHANGE TRADED FUNDS (http://news.goldseek.com/GoldenJackass/1208358000.php)<o></o>
The Exchange Traded Fund concept is simple. The application is not, especially when criminal motive is executed, protected by USGovt regulators and Wall Street bankers. Any ETFund managed by a US firm or London firm should be regarded as fraudulent unless proven otherwise. To me, it is beyond disbelief, moving toward shock, that the gold community has not attacked the StreetTracks GLD fun for its fraudulent operations. They fail to comply with their own prospectus. They fail to comply with disclosure. They have successfully diverted plentiful physical demand into a fund managed by JPMorgan. Gold believers have been duped. Every day, one can read of some respected analysts who endorse this ETFund vehicle, despite its fraud. Where is the thought process? If the mafia opens up a neighborhood savings & loan after city-wide thefts, then one should harbor suspicion. The Barclays ETFund for silver, named SLV, is another fraud. Jim Turk of GoldMoney has revealed its highly questionable behavior. Both GLD and SLV have probably been using their gold and silver bullion to short gold and silver for a few years. These vehicles keep down the price of gold & silver, or at least neutralize money invested in them in terms of the metal prices. The precious metals community has been hoodwinked, still happening sadly. The gold community does a great job in researching and scrutinizing the track record, competence, and integrity of management when examining a stock for a mining firm, but not for ETFunds like GLD and SLV. Very strange and inconsistent usage of gray matter in my opinion. The Hat Trick Letter provides a special report on this controversial topic in February, with past coverage in the April 2007 report last year.

[Spartacus]

IMHO they represent too attractive a target for regulators & legislators.

if Gold rises immensely, there's this nice huge pile of it ...

See Bart's quote from Volcker " ... letting the Gold price rise was a mistake ...."

(EDIT: I'm not a gold bug - I owned a Gold miner, Northgate (NGX on tsx), for a couple of years, but that's the only Gold I've touched for a long, long time)

[grapejelly]

it's ludicrous. People always want shortcuts. I don't blame them. The only real value that gold has is that it is a commodity that acts as money in bad times and doesn't represent a liability of someone else. GLD and SLV are paper, not gold. They are schemes to speculate on the price of gold. Not bad in themselves, but neither here nor there when it comes to having gold.

If you don't hold it, you don't own it. You can bury it somewhere safe but you must have it or you are just kidding yourself.

[jk]

The only real value that gold has is that it is a commodity that acts as money in bad times and doesn't represent a liability of someone else.
i agree that gold is likely useful in a mad max scenario. but it's also useful as an inflation-play investment. maybe i'm overly optimistic [first time anyone- including me- has said that about me], but i don't expect "mad max." i do expect hard times, including significant inflation. with that inflation, i expect precious metals to rise markedly. gld and slv are reasonable vehicles for such a scenario.
btw, i also expect that at some point, i'll sell my gld and slv. conditions will change, and it will no longer be inflation that i wish to hedge. but that won't be for years, most likely.

[grapejelly]

i agree that gold is likely useful in a mad max scenario. but it's also useful as an inflation-play investment. maybe i'm overly optimistic [first time anyone- including me- has said that about me], but i don't expect "mad max." i do expect hard times, including significant inflation. with that inflation, i expect precious metals to rise markedly. gld and slv are reasonable vehicles for such a scenario.
btw, i also expect that at some point, i'll sell my gld and slv. conditions will change, and it will no longer be inflation that i wish to hedge. but that won't be for years, most likely.

Well, gold and silver are an inflation hedge but they are also insurance and not just against Mad Max. They are insurance against the breakdown of fiat currencies.

Thing is, change occurs very discontinuously. That is, things change all of a sudden. The conditions for their changing were present for years. Then one day, they change bigtime. Like overnight.

Think the Nazis in Germany. Or Argentina in 2001-2002. It is more the norm. But because these sudden periods of catastrophic change are infrequent in people terms, we get used to things "as they are." We are wired for "recency bias" and against taking sudden infrequent change into account.

It's a concept that Taleb (Fooled By Randomness) explains very well.

Having gold help somewhere is like having imaginary gold. It isn't yours and in event of some major event, you will never see that gold.

Kinda defeats the purpose of having gold, if you ask me. Now, during normal times as an investment speculation, it's fine I guess.

[c1ue]

One way the gold ETFs can be a scam is similar to how the Russian oligarchs 'bought' their state resources:

1) Open a bank
2) Bribe enough people that the bank gets government deposits
3) Use deposits to buy government 'auctioned' resource companies
4) Accept 'payment' of government's own money
5) Repeat

The gold ETFs by accepting people's money to 'buy gold', can in fact use the cash to play with gold futures in a number of ways.

For example: Timing. Since there is some lag between the purchase of the ETF share and the actual underlying gold transaction, the ETF has market maker advantages. The mechanics of ETF purchases also help (i.e. gold going up, ETF growing; gold going down, ETF shrinking)

I can see how expectation of the ETF growing (backed by incoming pending ETF share purchases) could be leveraged into short term futures transactions.

[Lukester]

One way the gold ETFs can be a scam is similar to how the Russian oligarchs 'bought' their state resources: ... 2) Bribe enough people that the bank gets government deposits ... 5) Repeat.

C1ue - having grown up in Italy I am entirely immune to moralising about the conduct of business via bribes. This shit "merely happens" and those who want to start crusades against it are welcome to their thankless task, but I certainly don't want to get conscripted!

However I do note an incongruity. You have in the past mentioned that you'd secured some business opportunities in Russia by means of a few well placed "contributions". Well, curiously, that's OK in my book. I'm thinking, "nice work if you can milk it".

But what does rub me the wrong way a little is to then drop into your descriptions of cynical business structures in other posts such as the above, mentions of "contributions", (AKA bribes), which you portray with an air of fashionably weary "realism".

I'm doing a tally here, and noting A) you employed this cynical method for business advancement personally setting up a juicy franchise over in Russia, B) you then deposit observations about it in posts here which assume a jaundiced and fashionably weary "cynical" air, as if to imply that these are "necessary evils" in our world.

I would most admire you consequently, for consistency of stance and for "bluntly honest talk", where you to take it a step further and openly endorse this as a viable business model. After all you actually employed it, and yet in other posts you seem to decry it. It is a double standard to first employ, and then affect a casual disparagement of it in the form of "fashionable cynicism".

It's only the disingenuous part which I take exception to. Do you take my point here, about not flirting too much with "cute" on the topic of who uses "monetary inducements?

[c1ue]

There are huge differences between the above outlined Menatep scheme and what I do in Russia.

I'll give you an example:

Menatep took the government's money (literally as a deposit - the process well lubricated with bribes), then used it to defraud the Russian people of the benefits of Russia's natural resources endowment.

I, on the other hand, am not paying anyone a bribe. The monopoly I derive is because I agree to spend money to upgrade a bit of local infrastructure which the local government doesn't have budget for.

In return, the infrastructure improvement - in this case a nice covered bus shelter/waiting station - guarantees me a several year monopoly on the vending business in that bus stop area.

The other work that I do is of similar calibre. I don't pay a physical bribe to anyone, but I do see to it that the bureacrats responsible for the areas I work in are able to accomplish some social good. Furthermore the resulting business is completely above board - I pay all local sales taxes and will adhere to government policy on the 'sin' substances; I fully expect cigarette vending to be made illegal in 3 years or less. But then the break even on this project is between 3 and 6 months.

[Lukester]

Curiously disinterested city government there C1ue.

A 100,000 Ruble monthly cash stream, and a bus shelter project whose tiny cost amortizes itself in 3-6 months? The government is so "strapped" they forego the 100,000 Ruble annual cash stream by doing this small project themselves, even though it would pay for itself in 12-24 weeks, and provide a roughly $50K per year cash stream thereafter which they could employ on other public works projects, to fund a school or health clinic, pensions, or just generally to recapitalize their strapped municipal coffers?

My sense is that when any entity is genuinely "strapped" they don't pass up juicy opportunities to gain added public revenue very often. If a city cannot venture into vending machine concessions, it most assuredly finds an entreprenurial "relative of a city employee" to do so. But then again, this may merely have been a serendipitous deal just awaiting your arrival, while all the other strapped local entrepreneurs in this country bursting with raw capitalism, as well as their government failed to arbitrage it first.

A $12K-24K one time investment that yields $50K a year, at least theoretically in perpetuity, is something which normally get's "arbitraged" locally with fairly predictable regularity, particularly when a community is not affluent. I also recall you clearly hinting on these boards once about the disbursement of some "inducements" in the process of developing this bit of business. Maybe I misread your comment, and it was merely an offer to spend $12K-24K of seed money on a public works project. :cool:

So it's a case of the city and all it's entrepreneurs having overlooked a juicy $150K potential revenue over the following three years? In the US, this sort of opportunity would "linger" on the market about as long as a half a cup of water in a hot frying pan. You say your often-mentioned cynicism is the product of a "former idealist". Indeed, I have a sister who made that same progression, from wanting to save the world (Marxist) to being one of the most confirmed cynics. Even at 20 years old I had an intuition that such people find the cynicism ultimately to be their most natural habitat, particularly when they have a love affair with Marxism to begin with.

There are huge differences between the above outlined Menatep scheme and what I do in Russia.

I'll give you an example:

Menatep took the government's money (literally as a deposit - the process well lubricated with bribes), then used it to defraud the Russian people of the benefits of Russia's natural resources endowment.

I, on the other hand, am not paying anyone a bribe. The monopoly I derive is because I agree to spend money to upgrade a bit of local infrastructure which the local government doesn't have budget for.

In return, the infrastructure improvement - in this case a nice covered bus shelter/waiting station - guarantees me a several year monopoly on the vending business in that bus stop area.

The other work that I do is of similar calibre. I don't pay a physical bribe to anyone, but I do see to it that the bureacrats responsible for the areas I work in are able to accomplish some social good. Furthermore the resulting business is completely above board - I pay all local sales taxes and will adhere to government policy on the 'sin' substances; I fully expect cigarette vending to be made illegal in 3 years or less. But then the break even on this project is between 3 and 6 months.

[c1ue]

Lukester,

First of all, if the bureaucrats were entrepreneurs, they wouldn't be in the position they are in.

Secondly, who said it was their idea? It was mine - or rather my business partners.

Thirdly, the revenue is not fixed. No vending revenue is ever safe - Duty Free being a notable exception. I already mentioned that cigarette vending is likely to be outlawed, the question is when.

I'm not vending liquor, but the other major income streams all have their potential risks.

But I've got the cash, have the terms, and am willing to take the risk.

The bureaucrats get to show that 'SOMETHING GOOD' happened here for no risk, and for likely significant sales tax gain, without spending a dime.

Everybody is happy.

Isn't that the classic American Dream?

The difference is that in America, some monied dude would instead put in a Starbucks selling $7 coffee instead of the $2 coffee I'll be offering.