The World’s Dumbest Buyers and Sellers

Question: Who are the World’s Absolute Dumbest Buyers and Sellers?

Answer: Governments.

The proof lies in actions taken by central governments I have observed in my lifetime. Specifically, the Resolution Trust Company (RTC) selling commercial real estate following the S&L debacle, U.S. Government Contracts (defense and non-defense), Eastern European central governments selling gold reserves following the disintegration of the U.S.S.R.

Remember the RTC blowing out the commercial real estate the S&L’s were holding following their demise in the late 80’s early 90’s? One of a line of product failures for individual investors was private placements. The demand for these exotic investments became so intense that branch offices drew client names from a hat. Fights among the brokers were common because the purchase of a unit meant an 8% commission on investments of tens of thousands of dollars. Then came the proverbial nail in the coffin, the ’86 Tax Reform Act. Many of these private placements were invested in commercial real estate. Fast forward several years, the RTC is forced to be the government agent for selling the assets. The goal was to sell, not optimize recovery of losses. A big distinction! Then I remember reading a headline in the WSJ along the lines of “The RTC Announces the Completion of the Real Estate Liquidation.” All of the market was flushed with inveontory. In my hometown several investors bought strip malls for $5,000 to $10,000. By this time the private placements were sitting in the client’s accounts with next to zero value. It became so ludicrous that they and the brokers ignored them completely. Then slowly there were notices coming from the reorganization departments at the brokerages that an offer was being made to buy the units. Looking back the offering prices were so ridiculously low, but nevertheless it was a simple decision to remove the embarrassment from the client’s statement. I’ll leave it to you to research the change in values of commercial real estate following that time period.

I’m not even going to add bytes to the fact the U.S. Government contracting system is an absolute exercise in ‘he who has the lowest IQ gets to make the decisions.”

Following the disintegration of the U.S.S.R the eastern European central banks learned they needed hard currency (U.S. Dollars) to operate in their new economic reality. The liquid asset at their disposal to convert to dollars? Gold. Thus became the impetus for the decline of the precious metal to it’s mid to low 200 dollar per ounce low. Since then gold has become so popular we can not escape an advertisement for gold.

As I sit on the plane catching up on emails between Hartford and Chicago, I read in my Seeking Alpha email, the following blurb:
Central banks load up on gold. European central banks have become net buyers of gold for the first time in more than two decades, while central banks globally are set to buy more gold this year than they have since the Bretton Woods system collapsed forty years ago. The shift towards gold has helped push the price of the metal up more than 25% this year. Gold futures +0.5% to $1,824 (2:45 ET).

Is this a reason to panic, absolutely not! But I would be a seller on spikes and rallies with a game plan. The Dumbest Buyers in the World have no concept why signaling is not an investment virtue. And one day, the World’s Dumbest Buyer becomes the World’s Dumbest Seller. And they are as dangerous as falling trees.


About Consulting With Results
Experienced Consultant focused on delivering results across various industries, and throughout the value chain.

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