Review of American Hard Assets -- April/May 2014

The publishers of American Hard Assets (AHA) continue to keep cranking out magazine issues oriented toward high-end collectors/investors/consumers.  I am pleased with the progress of this magazine.  As a reminder, here is a link to their website:

http://www.ahametals.com/

At the bottom of their home page they state just who they are aiming at (emphasis mine):

For the high net-worth individual, no other information source in the country brings you the detail and in-depth value on the topics you’re interested in. From the future of gold and other precious metals to all of the different diversification avenues for the hard assets investor, American Hard Assets is the premier source for hot industry topics, as well as the latest in gold and silver news. - See more at: http://www.ahametals.com/#sthash.U53wTswM.dpuf

The website has more news than the magazine, they are trying to keep up with current gold & silver news (a crowded space now on the Internet), as well as news on art, collectibles, Bitcoin (yes, the rich are interested in Bitcoin), etc.

So when are they going to start writing about high-end firearms?  Smile,,,

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The Cover Story is about precious metals and taxes.  Author Amber Ness starts her article with the rather famous case of Robert Kahre of Las Vegas (what is it about the Feds and Nevada???), where he paid his employees with American bullion coins at face value ($50 in the case of a 1 oz Gold Eagle) rather than the market value (around $1300 today).  In 2003 the Feds came in and busted him and various employees, put Kahre and nine employees on trial, looking at hard time in the pen...  There were a variety of tangled legal issues, and on September (2003) the jury was hung -- unable to come to a verdict.  In 2009 Kahre and three others were found guilty, he was sentenced to 15 years and restitution of $16,000,000.

Amber Ness goes on to describe the "more complicated than you would likely believe" (my terms) of precious metals and taxes.  The single most important (and unfair IMO) is that gains on the sale of any precious metals (that would include the GLD ETF as well) are taxed at a punitive 28% on capital gains.

She provides some examples of how to legally avoid certain tax events.  These would include buying American Gold Eagles, keeping purchases and sales below certain levels, and giving away (to your children say) an amount under $13,000 ($14,000 to minors) without tax liability.

These tax laws are very complicated.  Ness provides a commendable overview of this.

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In "World News Updates" are short articles on:

-- China overtaking India as the world's largest gold consumer
-- A large diamond (128 carats) being sold by Sierra Leone
-- The one tonne (world's largest gold coin) Australian goes on display in Hong Kong
-- The interesting news that JP Morgan now holds the largest amount of physical silver in the world

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AHA prints an article from Forbes.com about Bitcoin's legality around the world.  About 35 countries are listed with comments.  Note that laws about BTC are changing all the time.

Note also that AHA is following Bitcoin pretty closely.  Why?  Because the rich are too...

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Judith Rosby writes a fun article on how 2013 was a record-breaker in various ways in the diamond business.  She writes up 12 cases where record amounts were paid for various classes of diamonds, most of them in this article were colored diamonds.  The highest price?  $83.187 million for a flawless pink diamond, 59.60 carats...  Almost all of these diamonds went to auction, so we know the prices.

[Ed. Note: IMO, unless you are both very rich and very knowledgeable (or have a pro on your side), diamonds are extremely tricky and risky...]

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Gabe Benson writes "Winning and Breeding: Investing in Horses".  Horses is a hobby for the 1%...  Benson writes a good introduction to racehorses, especially the costs and major issues (pedigrees, buying & selling horses, racing, stud fees, etc.).  He covers the various costs and other issues that horse investors must cope with (a champion class racehorse costs over $60,000 for stables, vet bills, training, etc.).

I enlisted an insider ("Lady Who Knows Horses" from here "LWKH") I know.  She has owned (partly, with some others) horses, including racehorses as well as breeding horses.  She has been at this some 15 years and has loved horses most of her life.  I asked LWKH to put some color into this hobby of buying horses, as the article sketched the numbers fairly well, but provided little insight into the lifestyle...

LWKH told me that most horse owners lose money on the hobby, even if they are paying attention to horse pedigree...  They do because they love horses!  Relatively few make money.  For some, there is the social activity of being around other rich folks with similar interests (which explains many hobbies of the rich that are net financial losers).  The people who are investing in horses are those, who like hobbyists everywhere, do so because they are interested!

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The next article (by Jeff Patton (pseudonym)) is completely different: "Drugs and Money: It's What Makes the World Go Round".  Patton points out the growing fascination among Americans on the drug trade, see the popularity of "Breaking Bad" ("Better call Saul!").  He passes along a UN estimate of illegal drug sales being some $321 billion (2003).

"Patton" (who has worked for a government agency dealing with illegal drugs), his article provides a nice overview of the illegal drug business for those unacquainted with it...  Methamphetamine has been growing (worldwide, but especially the USA).  Cocaine and terrorists are related (Colombia and Peru).

He spends some time discussing money laundering and the threat (very real) that drug smuggling techniques could be used by terrorists to bring in weapons of mass destruction into the USA...

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Gabe Benson writes another interesting article in this edition of AHA: "A Different Kind of Search for Treasure Under the Sea".  He provides photos of nodules and equipment being used to examine them and bring them to the surface of the sea.

It appears that there are tremendous amounts of many metals down there in these nodules (a product of super-heated water and matter vented out from below the ocean floor.

There are numerous companies working on seeing if they can mine these treasures profitably.  But there are numerous problems (technological and political).  Benson believes that it will be years until there is any full scale production).

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Jonathan Kosares (of USAGOLD) writes an article ("Black Swans, Yellow Gold") that looks at historical price changes of gold in periods of deflation and disinflation (low inflation).  Kosares mentions that NO ONE can predict the future, it is NOT a guarantee that we will have (hyper)inflation.

Gold performed very well in our Great Depression.  And gold has performed very well since 2001.  Not so well in the past year or two though!

Kosares recommends look at holding gold to ensure one's financial safety in other economic conditions that may be hard to foresee...

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Watch expert Ed Estlow focuses on watches that pilots and astronauts wear in his latest: "Watches of the Skies".

Back in the past, when worldwide navigation devices were not available, airplane pilots often had to calculate themselves where they were...  Because of the limited amounts of space in an airplane cockpit, many pilots wore special watches  that allowed them to check time zones and even use some watches as engineers long ago used slide rules...

These watches have become popular now.  World leader Rolex makes number of these kinds of watches, but there is a lot of competition for these multi-purpose watches with large dials (they are easier to read).  Many of these are waterproof watches as well.  I saw these kinds of watches all the time when I worked in the oilfields decades ago.

It was Estlow's article that first alerted me to the new Rolex "Sky-Dweller" watch that I wrote about in my last article ("Peak Wealth?").

Nice article!

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Jared Paul Stern writes a piece on a new gold (and a silver one as well) coin celebrating tthe National Baseball Hall of Fame.  These coins will be very unusual in that they are bowl-shaped (resembling a catcher's glove on the "heads" side).  Only 50,000 of the approx 1/4 oz gold piece will be made.

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Elena Mannes writes "Treasure Assets", an article mostly about art and the wealthy.  Art prices go up and down.  There are tax considerations.

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Jason Vaile writes a (mostly) tongue-in-cheek article "How to Break into Fort Knox", the repository where out national gold is stored.

Well, it seems there are four fences (at least one electrified), land mines, cameras (covering every square inch near the depository building), motion detectors as well as roaming and stationary (in towers) armed guards.  The U.S. Mint Police are armed with machine guns.  The whole facility is surrounded by a US Army base.  The building itself is built like a fortress, it is believed that it could withstand a direct hit by an atomic bomb...

Vaile writes the following: "More recently, in 2010, Ron Paul asked for an outside audit of the vaults' contents.  This request was promptly denied by the Treasury Department, saying it would be "too expensive.""  Mmm-k.  Too expensive.  Sure.

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In "Mining News" there is a short article on Goldcorp trying to take over Osisko Mining (Osisko is the owner of the Malartic Gold Mine that I visited and wrote about in June 2013).  Osisko is still in play.

Also in Mining News are notes about platinum mine unrest in South Africa (also still going on at present) as well as notes on some small mining company results and an article on new mining laws passed in Quebec.

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John Garibald ("Hindsight") writes that the Fed's QE program as well as uncertainties with the Taper are causing problems in emerging markets.

I read something similar lately about how the Fed machinations have been affecting Brazil, so it is likely true what Garibald writes: that the hard-to-predict flows of money to the emerging markets is now flowing out.  We are near an emerging markets currency crisis he writes.  Even with differing emerging countries' responses (he says that India is essentially ignoring Fed policy as Argentina fires up the printing presses...), few of them will escape.  He does not mention China here, but the news has been getting worse from there as well.