Northwestern, the third-largest U.S. life insurer by 2008 sales, has bought
gold for the first time in 152 years to hedge against further asset declines.
"Gold just seems to make sense; it's a store of value," Chief Executive
Officer Edward Zore said in an interview following his comments at a conference
hosted by Standard & Poor's in Brooklyn. "In the Depression, gold did
very, very well."
Northwestern Mutual has accumulated about $400 million in gold, and Zore
said the price could double or even rise fivefold if the economy continues
to weaken.
This story is remarkable for many reasons.
First, an insurance company buys cash-generating assets to match future cash
payments, whereas gold does not produce cash flows. Northwestern has been in
business during wars, recessions, boom times, high inflation and deflation,
yet never before has the Company bought gold. The 152-year period also includes
the devaluation of the Dollar in 1933 and the elimination of the gold standard
entirely in 1971. However, now that the Federal Reserve is printing money,
leveraging its balance sheet and monetizing debt to manipulate interest rates,
Northwestern has made the decision to buy gold.
Second, Northwestern's decision demonstrates its concern about the US Dollar.
If Northwestern was only worried about inflation it could buy Treasury Inflation-Protected
Securities (TIPS). TIPS will protect against inflation (if inflation is calculated
correctly), but leaves an investor open to currency risk. Gold provides Northwestern
protection against the falling Dollar as well as inflation.
Lastly, insurance companies (as represented by Northwestern Mutual's $114
billion of bonds and mortgage loan portfolio) are traditional buyers and providers
of credit to the US financial system. By the Company using $400 million to
buy gold, Northwestern Mutual is not only taking money away from the US credit
markets and US consumers, but it is also selling Dollars, which in turn positively
reinforces the buying of more gold and selling of more Dollars by other investors.
Northwestern's decision to own gold cannot be ignored because it is another
sign of a traditional owner of US Dollars losing faith in the value of the
Dollar.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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