Wistar Holt: GATA gives vital confidence to precious metals investors

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Address by Wistar Holt
Gold Anti-Trust Action Committee Inc.
GATA Goes to Washington -- Anybody Seen Our Gold?
Hyatt Regency Crystal City Hotel, Arlington, Virginia
Saturday, April 19, 2008

There's not much I can add about gold and its manipulation that hasn't already been covered. But I would like to reflect on GATA's support to me as a financial adviser and the significant role GATA plays in my client communication.

First, a little personal background.

I spent a total of 21 years with three Wall Street firms -- Smith Barney, Paine Webber, and briefly with Prudential -- as a retail investment adviser. Early on I developed an acute appreciation for the deep-value style of the equity market, becoming an accredited portfolio manager in 1992. Unlike a traditional stockbroker, this allowed me to manage equities for clients in a fee-based, discretionary role.

As the technology sector ramped up in the late 1990s, it left value-oriented equity managers like me in the dust. Stocks like Allstate, Goodrich, and Lockheed Martin with price-earnings ratios of 9, dividend yields of 4 percent, and price-to-book values of 1.2 couldn't hold a candle to those triple-digit, "new economy" wonders of Red Hat, JDS Uniphase, and Global Crossing. Of course that all changed on March 10, 2000, when the tech bubble began to burst. Thereafter, the year 2000 saw a reversal of this see-saw as tech stocks imploded and capital flows returned to the "old economy" stocks.

Although 2000 turned out to be a good year for the value style, toward the end of the year I became concerned about a potential NASDAQ avalanche and its impact on the overall U.S. equity market, the economy, and the U.S. dollar. This prompted me to abandon all traditional equities in search for an undervalued asset class that would hedge against these three risks.

It didn't take long for gold to turn up on my radar screen in early 2001.

Gold's fundamental characteristics as a rare currency with intrinsic value, as well as a 20-year depressed price, fit perfectly into my deep-value style. Thus, I initially rebuilt portfolios with 35 percent gold mining companies and 65 percent cash. Over the subsequent six months as the equity markets imploded and gold slowly climbed, I took the portfolios up to nearly 100 percent gold mining companies, a level where our clients still stand today.

Now, typical of Wall Street, a couple of funny things began to occur to me around the middle of 2001. Upper management at my firm, Paine Webber, denounced both my abandonment of the traditional equity market as well as my concentration in gold. Next they cut off my communication with the business editors at the local St. Louis Post Dispatch, a strong and marketable relationship I had developed over several years.

I retaliated by leaving the firm and joining Prudential, where they offered a similar portfolio management program. At Prudential my portfolios prospered as gold continued its ascent until one fine day in early January 2002, when Prudential's management abruptly forced me to liquidate 70 percent of my clients' gold mining stock concentration.

Two weeks later I left the firm, started Holt & Shapard Capital Management, and began preparation for an arbitration claim on behalf of my clients and myself. I'm proud to say that both arbitrations were successful.

A few years later in 2003 at a Chicago Investment Conference, I met GATA's Bill Murphy and began to follow his daily newsletter, Le Metropole Cafe. At the time Murphy's preachings of manipulation of gold by the central and bullion banks was both enlightening and confirming. After all, since the U.S. stock market had lost $7 trillion dollars in market cap since early 2000, it was bewildering to both my clients and myself that gold had climbed less than $100 per ounce over those three years. By comparison, in the current crisis, only $245 billion in asset write-downs, or 1/28th as much damage, have driven gold nearly $400 per ounce higher, before the latest cartel-triggered selloff.

The more I read GATA's claims, the more logical they seemed. With gold being the leading indicator of financial and economic stress, no wonder gold barely rose around the terrorist attacks of Sept. 11, 2001. Or several years later, when Hurricane Katrina, one of the costliest natural disasters in history, hit the Gulf Coast, gold declined.

Of course gold's decline wasn't the only peculiarity the day Katrina hit; the stock market defied all logic and rallied that day as well.

Bill Murphy and Chris Powell, thank you for introducing us to the Plunge Protection Team as well. President Reagan's Working Group on Financial Markets, established after the 1987 crash, has been alive and well.

Now let's fast-forward to the current environment. On Monday, March 17, immediately following the Fed's Sunday-evening rescue of Bear Stearns, in merely one hour gold was slammed for $25 per ounce while the stock market reversed a 300-point decline and closed up on the day. Further, gold fell $123 ounce and the Dow Jones Industrial Average rallied 410 points for the week.

With more than 27 years of experience in the markets, I've often seen them behave in a surprising manner. But for this market action to take place, following an event that Senate Banking Chairman Chris Dodd claimed could be "not only a national but a global meltdown" if Bear Stearns had been allowed to declare bankruptcy ... well, this tops them all. It is perhaps the most counterintuitive, illogical, and irrational response to perhaps the greatest crisis this economy has ever faced.

Let there be no doubt -- when Treasury Secretary Henry Paulson vows, "The government is prepared to do what it takes to maintain the stability of our financial system," he means it literally.

We have clearly entered an environment in which government officials and regulators are confronted with serious issues of economic survival. Therefore, all options are on the table and no punches will be pulled.

Forget "moral hazard." Paulson admittedly tossed that concern out the window, allowing the guilty parties to maintain their modus operandi.

No doubt, desperate people will do desperate things; after all, as former Treasury Secretary Paul Volker describes it, "This is the mother of all crises."

Navigating through all of this as an investor is very difficult. Fortunately, with years of supportive documentation from GATA and LeMetropole Cafe, my clients fully understand the manipulation in these markets. Otherwise, I don' know how I would maintain their patience and confidence.

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Wistar Holt is partner in Holt & Shapard Capital Management in St. Louis and a member of the Board of Directors of the Gold Anti-Trust Action Committee Inc.

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