“I found a secret way to make 400% with gov’t-issued bullion – Even if gold NEVER goes up another penny in value”

by Travis Johnson, Stock Gumshoe | June 2, 2011 3:24 pm

This story has been making the rounds for quite a while — and in different versions, I’ve written about essentially this same pitch before … but it’s been years since it really hit the Gumshoe radar, and folks keep asking, so I thought I’d check out this latest version of the ad for you.

The pitch is that a woman named Lee Mason, who signs the ad letter and is a researcher for Steve Sjuggerud[1]’s True Wealth[2] newsletter, had a wild trip to Zurich and learned all about this “secret” way to make huge returns from government issued gold[3].

The “secret” stuff and the Zurich trip, with the photos of Lee and of the grand hotels and skyline in Zurich, is balderdash — I have no doubt that she went there and met with some other investing folks, who probably spent a fair chunk of Porter Stansberry[4]’s cash wining and dining each other, but that’s not where she and Sjuggerud learned about this particular investment.

And in fact, she doesn’t even tell us that there actually is a secret in Zurich, though it’s implied by the letter — she talks about the “information she extracted” during her visit, and there is a bit of a connection between this particular investment idea and Switzerland, but it ain’t exactly a new strategy. I’d guess that she was actually there for one of the many investment conferences or confabs by one of the gazillion Agora[5]-related publishers, but that’s just a guess.

Still, there is an actual investment that she thinks you should buy — more than one, in fact, as we learn a bit later with a few “add on” teases … so what is it?

Well, she spins the Zurich-connected story of the Rothschilds first, to get us going — and that is enough to probably get anyone excited, since there are at least as many conspiracy theories (and actual conspiracies) surrounding the secretive Rothschild banking empire as there are about the Holy Grail. I’m sure you can read something online right now that tells you both that Rothschilds found and hid the Grail, and that they sunk Atlantis.

But the family did start with a particular kind of money that’s related to what Sjuggerud and Mason are teasing here — Mayer Rothschild got his start, in part, by trading rare gold coins[6]. That was a long time before the Rothschilds got to Switzerland, but the connection between the Rothschilds, Switzerland, and gold has been strong for a long time. Coincidentally, they’ve backed away from the gold trading business these days, and probably did so at the worst possible time in the early 2000s (according to this article from the Independent[7]), but none of us is investing in the Rothschilds … so why the heck should we care?

We’re also told, in case the Rothschild name doesn’t ring your bell quite loudly enough, that many other fortunes have been made using this “secret currency” as well — like those of the Onassis, Hunt, Adams and Hopkins families, and even JP Morgan.

And then we finally get into a bit more hinting about exactly what kind of investment this is …

“But the good news is, you don’t have to be wealthy or well connected to take advantage of this incredible gold currency.

“In fact, right now you can safely make 400% gains or more… even if you’ve never bought a currency, stock, or gold investment before.

“Plus, I’m going to show you exactly how to capitalize on this situation… even if the gold price doesn’t budge a penny…

“Keep in mind, the secret currency has NOTHING to do with owning bars of gold, Krugerrands, gold mining[8] stocks, gold mutual funds[9], gold options[10] or futures, or any other type of gold investment you’ve likely considered before.

“Instead, it’s a little-known investment vehicle, first offered to the American public by the Federal government in the early 1900s, under the direction of U.S. Treasury Secretary Charles Barber.”

So that tells me we’re probably still on track with this being the same kind of thing that Sjuggerud has been teasing for years … but let’s get some more of Mason’s letter to get us all riled up and provide some more hints:

“The way I look at it is, if you think you’ve missed out on the current gold bull market… you haven’t, not by a long shot.

“There are very few investments anywhere in the world that are this safe… and have a realistic chance to give you gains of 1,000% or more in the next few years.

“This is one of them… probably the only such investment in the world right now.

“Steve Sjuggerud recommends you take at least a small portion of your portfolio, and safely make great returns over the next few years, thanks to the U.S. gov’t issued gold currency.

“He has been helping people take advantage of this opportunity for the past 9 years….

“It might just be the best opportunity in American history for this type of investment…

“It’s not a stock. So you don’t have to worry about its value going to zero. And this ‘product’ will never be obsolete.”

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And we get a few more quotes from other sources about how successful this investment is relative to gold:

“… over a 30-year period, the average annual return on this investment is historically more than 300% greater than the return on gold, a study done for the House and Senate’s Joint Committee on Taxation showed.

“‘When gold goes up, [this investment] follows and eventually rises much more gold,’ says the Blanchard Economic Research Unit, a private firm of gold analysts….

“…the last time the Salomon Brothers brokerage firm included this vehicle in its annual investment survey…
This CURRENCY VEHICLE RANKED #1 OVER THE PRIOR 20 YEAR SPAN with an annual return of 17.3%.

“In other words, it was the single most profitable thing you could do with your money.

“It beat stocks, bonds, gold bullion, silver[11], artwork, diamonds[12], U.S. Treasury bills, real estate[13], and oil[14], according to an article in the Chicago Tribune.

“Remember, this investment has nothing to do with stocks. And nothing to do with bonds. Instead, it’s a unique currency vehicle created and issued by the Federal Government, which can pay you several hundred percent over the next few years, with almost no risk.”

So what is this?

Well, just like when Sjuggerud was pitching this as the “Secret Currency” … this is a tease for owning rare US gold coins[15].

If you’re not a coin collector or gold bullion investor, you might not know a lot about the rare coin business — I can’t say that I’m an expert, but the basic distinction for gold enthusiasts is between bullion coins and rare coins.

Bullion coins are the ones you can buy from the US mint right now, or from any number of government mints or private mints around the world, they are intended to simply be a fairly arbited and guaranteed measure of the precious metal — so the American Eagle, South African Krugerrand, Canadian Maple Leaf or Austrian Philharmonic, for example, are each promised to include one troy ounce of gold and can be relied on to be pretty universally recognized as such. You buy these coins generally not because you think they’re collectible (though some do end up being so — not so likely now, with production of all of these coins being extraordinarily high), but because they’re an easy and convenient way to buy ounces of gold, in a way that’s more easily exchanged than a plain gold bar. These coins often trade for a bit of a premium over the cost of gold, you pay for the convenience and the minting and, if they’re in high demand, you might pay a bit more for scarcity when folks are lusting to buy gold, but generally they track extremely closely to the price of gold as its traded on the futures markets and commodity exchanges.

But it’s not bullion coins that Sjuggerud and Mason are pitching — they’re talking about rare coins. There are all kinds of rare gold coins that can be bought and sold, but the ones that are arguably the most traded and most available are the pre-1933 US gold coins, mostly double eagles ($20 denominations) that include nearly an ounce of gold and were used as currency (or, as in many cases, squirreled away) in the 80 or so years between the start of the California gold rush and Roosevelt’s famous depression-era revaluation of the dollar, which included the confiscation of private gold coins and stopped the US Mint’s gold coin program for about 40 years. (There are plenty of other often-traded rare gold coins, including British Sovereigns, Austrian Ducats, and a few others that many coin investors would recognize.)

There are still certainly many thousands of these coins available, and they trade with some frequency, but those that were turned in to the government in 1933 were melted down, so the supply is far more limited than the supply of modern bullion coins. And the supply of the most popular coins in excellent condition is smaller still, so that relative scarcity creates a swinging pendulum of the price of these coins that is influenced by the gold bullion price. They rarely get too close to trading at the melt value[16] of these coins, but whether they trade at a premium of 10% to the gold value or 200% depends on the scarcity and the collector interest in a particular coin.

The most popular of these coins are the Liberty Head Double Eagles, which were minted from around 1850-1907, and the St. Gaudens Double Eagles which took their place from 1907-1933. Both were $20 face value coins that contained roughly an ounce of gold (.9675 troy ounces — the gold price was set by the government at $20.67 for almost this entire time, so .9675 ounces was, you guessed it, $20).

And since the little hint in the letter was that this “secret” currency was first authorized under US Treasury Secretary Charles Barber, it must be that Sjugerrud is still proposing the St. Gaudens Double Eagles as a safer, gold-beating investment, something that he has indeed recommended many times in the past. In fact, he wrote a free article recommending these coins back in January calling them the “most ridiculously good deal in gold right now,”[17] and apparently had re-recommended them to his paid subscribers in the months before that.

In that article, he specifically recommended the MS-65 St Gaudens coins — the MS stands for Mint State, and the numbering system is used by the major grading firms to categorize the quality of the coin. MS coins are supposed to be uncirculated with no real sign of wear, and the distinctions between the numbers going from 60 up to 70 include blemishes or other signs that the coin is slightly less than perfect — MS 70 is supposed to be effectively perfect, most coins that come straight from the mint will not achieve this level of perfection. So MS-65 is really, really purty. And expensive, compared to the bullion price — Sjugerrud said in January that he was recommending them because the premium was historically so low that they were ridiculously cheap, largely because the price of gold had gone up so much and these MS-65 St. Gaudens coins had not climbed as quickly.

In that article, he said that the premium percentage that you would pay over the spot price of gold to buy one of these collectible gold coins was lower than it had ever been in history — with examples from far back in history, when gold was $35 and lesser quality uncirculated St Gaudens coins traded at $60 for a 70%+ premium. According to the chart in his article, the premium was often at 600-800% in the 1980s, then over the last 20 years has gradually dropped from roughly 200% around 1990 to about 60% in January (he cited MS-65 St. Gaudens at the time at $2,170 with gold at $1,350). So what is the premium now? According to APMEX, one coin dealer I’ve used before, you can now buy a PCGS certified MS-65 St Gaudens Double Eagle for $2,290 … gold is at $1,534 as I type, so that’s a premium of just under 50%.

So if you believe Sjuggerud is right about that premium being absurdly low and these coins being the best value around, they’re still priced similarly, even a little more cheaply if you’re going by that percentage number. I’d caution that there doesn’t necessarily have to be a straight percentage relationship between the price of gold and the price of a collectible that’s made of gold — you could also as easily think of the premium in dollar terms instead of in percentage terms, and that makes today’s premium look far more substantial in historical terms, though it would still be way below the premium that these coins got for a while in the 1980s and 1990s. I don’t know anything at all about that historic market or what might have been different back then, so I won’t dispute that Sjugerrud and the friend who he often cites, Van Simmons, are far more expert than I — it doesn’t mean that they’re right that the premium value of these coins will explode and magnify the expected rise in the price of gold, but it’s not a crazy theory and it has happened before. Far be it from me to understand the mind of the collector. Van Simmons, by the way, is one of the founders of the PCGS group of coin graders, and a big owner of the publicly traded company that owns PCGS, Collectors Universe (CLCT)[18] — you might remember that as the stock teased by Ian Wyatt[19] last fall as a high-yielding gold investment.

And I mentioned that there were some other investments teased by this letter — here’s one for a bonus:

“The Secret to 900% Gains
“(954% gains in this case, to be exact)

“It might just be the best opportunity in American history for this type of investment…

“It’s not a stock. So you don’t have to worry about its value going to zero. And this ‘product’ will never be obsolete.

“Plus, you are the boss. So you don’t have to worry about crooked executives running a stock into the ground.

“If things go badly in America – if the dollar continues to weaken, if our politicians keep spending, if the national debt and taxes go up … this investment class could hold its value or even go up….

“John Paulson[20] is famous for making $15 billion shorting the housing market in 2007 and making another $5 billion betting against financial firms in 2008. Recently, he said of this investment: ‘If you don’t own one, buy one. If you own [one], buy another one, and if you own [two] buy a third and lend your relatives the money to buy [one].’

“Warren Buffett[21] recently ploughed another $305 million into companies that operate in this arena. It’s an investment that ‘makes sense for most Americans,’ says Buffett.

“And Bill Ackman[22], the founder and CEO of hedge fund Pershing Square[23] Capital management is also bullish on this investment and feels there has never been a better time to get into the game. It is ‘now a screaming buy,’ Ackman says.”

So what’s that?

Ummm … “buy a house.” At least, that’s what Paulson, Buffett and Ackman were talking about in those quotes, in not so many words, the historic opportunity for Americans to buy homes.

Buffett’s Berkshire Hathaway owns a lot of companies, from brick makers and carpet manufacturers to prefab housing companies, who profit from the housing business. That quote came from statements he was making back in February, covered in this article[24] — basically, he said a housing recovery is going to happen at some point, and lower prices and super low interest rates make home buying a good deal for a lot of people.

Paulson’s quote comes from a talk he gave last September, when he warned of double-digit inflation and basically said that buying houses at a super-low fixed rate now is a great way to profit from that inflation — it was covered in a Forbes[25] article here, he called it the best time in 50 years to buy a house.

And Ackman’s quote was part of a presentation about the general attractiveness of single family real estate, and the potential that it would develop into an institutional investment class at some point (like timber[26]), you can see the quote and the presentation here.[27]

So is Sjuggerud telling us to buy a house? Given the free commentary he often shares, I wouldn’t be surprised if he was still suggesting buying depressed real estate or foreclosures as rental properties, or tax liens on these houses — he lives in Florida and talks up this kind of thing in his free Daily Wealth[28] letter with some regularity. Me? I can barely stand the pain in the neck that owning one house represents in terms of upkeep and maintenance, so I’m unlikely to be adding any more single family homes to the Gumshoe portfolio … but that doesn’t mean there aren’t a lot of cheap houses out there. Unfortunately, the preponderance of cheap houses means that the stocks you can easily buy in this sector, the home builder companies, are probably going to be a disaster for a very long time even though many of them, like the houses themselves, look dirt cheap.

There you have it — nothing too sexy or new in this teaser pile, but I thought I should take a look given the large number of questions on Lee Mason’s top-secret Swiss gold story … if you’ve got an opinion on buying rare, collectible gold coins (or, in the parlance of most dealers, Pre-1933 US gold coins), or, for that matter, on buying cheap houses, feel free to let it loose with a comment below.

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