Why Wall Street Hates Gold and Silver Howard Ruff - May
9 2008 1:28PM
The following is excerpted from Chapter 12 of my new book,
How to Prosper in the Coming Bad Years in the 21st Century.
It is in book stores now, but not widely circulated. If you
have bought a copy, thanks! If not, you can go to www.rufftimes.com
and click on book or subscribe. You
can also order from www.amazon.com.
Wall Street ignored gold and silver during most of the 1970s
hyper-profitable bull market. They were either outright hostile,
or acted as though the metals didnt even exist. I got
no respect, even though the first edition of this book sold
2.6-million copies and was near or at the top of The New York
Times best-seller list in both hard and soft cover for two
years, and I was all over the media; Wall street Week, Oprah
twice, Regis and Kathy Lee three times, etc, etc. They were
usually hostile. Wall Street paid little attention to gold
until it passed $650, far too late for them to have much of
a chance for their clients to make money. In retrospect, we
know that in 1979 the aging bull market was almost over. Soon
after it made a brief climactic spurt to $850, and then went
into a multi-year decline. They did their usual thing; they
bought high, and then held on too long, and sold low.
Why the hostility? Partly because they believed their own
rhetoric! Historically, because rising gold always means falling
stocks or a troubled world, and they made most of their commissions
in the stock market, they had to remain bullish on stocks,
and bearish on gold. Investors wouldnt buy stocks if
their advisors were bearish. They sneered at the inflation
fears of us gold and silver fans, and derisively called us
gold bugs. OK because I have lost much of my respect
for them also for a lot of reasons. I also didnt get
any apologies from them when inflation rose to 18% and gold
to $850 and silver to $50, and didnt expect any. Unfortunately,
most of the young whippersnappers who now control Wall Street
were in diapers 25 to 30 years ago, so they havent experienced
rising gold and inflation. Consequently, another gold bull
market is inconceivable.
I cant resist telling you about one of the funniest
things that ever happened to me which illustrates the skepticism
of mainstream media types. In 1978 I was on a national promotion
tour for the first edition of this book when I was in Detroit,
rushing to a TV station for an interview on a big live morning
show. I barely got there in time. The host turned to the camera
and said, Today were going to study psycho-ceramics,
and with us today is a crackpot from California. And
the interview went downhill from there; with his biggest argument
being that silver was an impractical investment for most people,
unless you were very rich.
One year later I found myself in the same studio, same host,
promoting the mass paperback of my book. But this time, when
the light went on, he said, Today we have with us one
of Americas most brilliant financial advisors,
and the interview was terrific from then.
After the show, I asked him what had changed his mind. He
very sheepishly said, I read your book and bought silver
from a local coin dealer, and tripled my money. So the
media is not infallible, even though they are usually wrong.
Inside Wall Street
Let me explain to you how Wall Street works. It is a culture,
as well as a financial institution.
Most of the young brokers who are the big producers on Wall
Street are college graduates who have been trained in the
stock market. In order to get the necessary advanced licenses
to work there, they are trained in all the conventional investment
vehicles and their relevant laws and regulations. Then they
build their clientele based on the stock market. Commissions
But they are human beings, subject to all the habits, behaviors
and peer pressures that plague all of us. They are surrounded
by group-think. They make tons of money on the
status quo. I have visited firms on Wall Street with big trading
rooms full of twenty-something men and women whose annual
income is measured in the millions all on stock sales
Few big Wall Street firms sell bullion (right off hand I
cant think of any, although the ETFs will probably change
that), so it is only money out of their pockets if hot-shot
brokers tell their clients to sell some stock and put the
money into bullion or coins. Maturity and client concern are
scarce commodities on Wall Street.
When you meet these young brokers, you would be astounded
at how money-oriented they are. They talk about their commissions
and the things they buy with them. In their parking garage,
I never saw so many Porsches, and Lexus and Mercedes.
Too many of them are bloodless mercenaries. And they are congenitally
bullish on stocks, because thats where their bread is
Jim Dines is a case in point. At one time he was Wall Streets
fair-haired boy. He had written the book on technical investment
analysis which is still a classic, and his studies told him
that we were moving into a giant gold bull market. Not being
very reticent by nature, he made no secret of what he had
concluded, and he went from fair-haired boy to outcast. It
wasnt long until he and Wall Street had to part ways.
But Jim is the very definition of maverick, so
he started perhaps one of the first gold newsletters and called
himself The Original Gold Bug. He was there before
me. Jim and I became friends, and he was even a guest on my
TV show, Ruffhou$e. I honor him as a real pioneer, and thank
Wall Street for firing him. The newsletter business would
be poorer without him, and he is still publishing, and he
is well-worth reading (see the Appendix). He has a quirky
life and is one of the bigger egos in a business that is loaded
with big egos (like me), but he is a true professional, and
an example of how Wall Street is so anti-gold.
Many of you watch financial shows, populated with guests
who are typical examples of main-stream Wall Street thinking.
The hosts and hostesses of the shows are steeped in the same
traditions and attitudes. On the rare occasions when I am
asked to be on such a show, I know that they are either ignorant
of my real financial views, or they are spoiling for a fight.
Until gold and silver have risen so far they cant ignore
them any longer, they will not be interested in me. Until
then, we gold and silver investors will be operating in an
open underground movement, operating below the radar.
If your brokers opinion is important to you, you may
be uncomfortable here. If you arent a maverick, you
had better become one, and be quiet about it. You will have
to leave the herd, and for a while, the herd is all on Wall
Gold, Silver and the Perfect Storm
Gold and silver can be profitable in both a Best Case and
a Worst Case. Both will be immensely profitable in very different
ways, and the outlook is very different. First lets
The Worst Cases: Terrorism and Other Things
The worst case is easy to describe. It means that terrible
things have happened. Lets consider just a few of the
Remember that 95% of the dollars in existence are in cyberspace
in the computers of banks. The terrorists have enough
money to hire the best hackers in the world, and there is
no computer system in the world that cant be hacked
into, given enough time, money and talent. Where could Osama
Bin Laden get the most bang for the buck? By destroying or
corrupting the computers that run the monetary system of the
He already attempted to do just that when he brought down
the World Trade Center. Fortunately, his intelligence was
out of date. Until about a year earlier many of those computers
that control the monetary system of the world were in the
World Trade Center, but they had recently been moved across
the Hudson River to New Jersey, as well as to Panama. Consequently,
rather than the dollar and the Western (Christian) Worlds
currency and bond markets being destroyed by the hideous blow;
the markets were up and running in a very few days with hardly
a burp. But there is an even more-deadly and less-risky alternative
for Bin Laden.
Panama and the Dollar
When we negotiated away the Panama Canal to Torrijos, the
Panamanian Dictator, our chief negotiator was Sol Linowitz,
a member of the board of Chemical Bank in New York. He was
appointed for one day less than six months, so his appointment
would not be subject to Congressional approval, and sure enough,
the giveaway deal was signed one day before Linowitzs
term was up.
One key part of Linowitzs banker-inspired mission was
that the Canal Zone would be a Free-banking Zone,
not subject to regulations or oversight. Even before the deal
was signed, bank buildings were going up all over the Zone.
Every multi-national bank was there, and it appears that they
moved many of their international money systems there, with
no oversight or regulation. Who is to determine their safety
or vulnerability? No one!
If terrorist hackers were to hack into those computers and
infect them with a destructive virus, the entire dollar-based
monetary system could disappear in a nanosecond. In that case,
for all practical purposes, the only spendable money left
would be gold or silver coins or barter in a disrupted world.
And what if they were able to sneak a nuke onto a ship and
detonate it while in the canal? Its already bad enough
that the Chinese are in control of the ports on both ends
of the canal. Imagine the chaos with the banks obliterated
and commerce fatally crippled.
Or maybe they would only hack into the Air Traffic Control
system, indefinitely grounding every commercial plane in America,
or into the North American power grid, and your ATM or the
electronically operated cash registers at the Super Market
wouldnt work and the stores couldnt open, and
food in the freezers would slowly thaw and spoil. Wouldnt
it be ironic if the monetary system of the world was brought
down by some left-wing idiot/savant of a 17-year-old Al Quaeda-paid
genius or hacker, driven by money, ego and political ignorance?
Or what if terrorists manage to smuggle a nuclear weapon
into the U.S. and detonate it, taking out the government,
the Pentagon, or a few million people, throwing America into
chaos, and driving gold and silver into the stratosphere.
Or exploding nuclear weapons in the stratosphere, destroying
every transistor within hundreds of miles with an EMP (Electro-magnetic
These and innumerable other scenarios may seem beyond the
edges of credibility, but I dare you to say they are not possible.
And I am sure there are other scenarios I havent thought
This is not a forecast, only a speculation about a possible
worst-case, we-hope-not scenario.
The Hyperinflation Scenario: We Do It to
Ourselves The Most Likely Scenario?
What if monetary inflation rose as a result of soaring demands
on government with the soaring deficits and unfunded liabilities
and the subsequent inevitable consumer inflation rose until
defensive consumer buying broke out into a real hyperinflation,
with the modern money machine running night and day, like
Germany during the 1920s. This would make money increasingly
worthless and the precious metals increasingly precious. History
tells us that this has happened over and over again, and we
are repeating most of the same deadly mistakes.
Lets pretend we are transported into a future where
America is devastated by hyperinflation, and see what it looks
The world will be in terrible trouble, and the prosperity
and comfort that now surround you will be in tatters. You
will be surrounded by people struggling to survive, let alone
to prosper, as in the 1930s. Thats what happened in
Germany after the hyperinflation of the deutschmark, and the
general suffering was the fertile ground which gave birth
to Adolph Hitler. If you have prospered by holding gold and
silver, you can buy a lot of safety and security while the
country is being mended.
These are only a few of the possibilities. You can probably
come up with better ones than I did. Share them with me, but
dont give up hope. There is still
The Best Case
Even if none of the worst-case scenarios ever happen and
we wipe out or neutralize al Qaeda and the currency system
hangs together, monetary inflation has already been cooked
into the economic cake by the Federal Reserve and industry,
and so is the silver supply/demand situation. It is inconceivable
to me, given 31 years of studying and monitoring the economics
of inflation that the flood of money being poured
into the economy of the world will not result in inflation.
If that doesnt happen, we will be making history; that
will be the first time that the money machines have run out
of control that the result was not a ruinous, big-time inflation.
Even in this best-case situation, you will make
a bundle on this monetary-inflation-sensitive investment,
even in a still-orderly world.
If all else fails, you can count on the $50 trillion in the
unfunded liabilities of Social Security, Medicare and the
prescription-drug program to trigger a flood of money
printing, and the subsequent monetary inflation, follows
as night follows day with soaring price inflation. As it becomes
obvious to the public that these programs are plummeting into
insolvency, the consumer inflation rate will soar, and so
will gold and silver.
When the dire facts become obvious, Congress will start desperately
searching for solutions, but which ones?
Will they raise taxes and watch FICA soar and young taxpayers
revolt in a war between the generations? I doubt it. Will
they cut benefits or raise the Social Security retirement
age? Maybe a bit, but not much. Will they memorialize the
current dysfunctional system by simply printing money? You
bet! This will lay the groundwork for more ruinous inflation,
and soaring gold and silver.
In this best case (the most likely I think, I hope?),
we will at least see, at the very least, rising inflation
and an inflationary recession or depression (which is already
written in cement), and the metals and their mining stocks
will go up perhaps five to ten times, perhaps a lot
There is no best-case or worst-case scenario
in which I can conceive of gold and silver being losers. You
can mortgage the kids and bet the farm! We can keep the odds
decisively on our side!
By Howard Ruff
The Ruff Times
Howard J. Ruff, the legendary author and financial advisor,
has re-edited and will re-issue his 1978 mega best seller,
How to Prosper During the Coming Bad Years, still the biggest-selling
financial book in history, with 2.6 million copies in print.
He is founder and editor of The Ruff Times Financial Newsletter.
This article appeared in the May 9, 2008 issue of The Ruff
Times. The newsletter is much more comprehensive and deals
with a broad spectrum of middle-class financial issues and
includes an Investment Menu from which you can build your