Netanyahu Rushed Off Campaign Stage In Southern Israel As Hamas Rockets Rain Down
Prime Minister Benjamin Netanyahu was at a campaign event in the southern Israeli city of Ashdod Tuesday when Hamas rockets were fired on the city.
Early reports said at least 5 Hamas rockets triggered inbound warning sirens in Ashkelon and Ashdod just as the prime minister was on a campaign tour through the region.
Image via The Times of Israel
There are reports that at least two interceptions were made by the Iron Dome anti-air defense system.
Former Defense Minister Avigdor Liberman was also reported to be in the south at the time of the attack, which was possibly timed as both campaigned ahead of a key September 17 election to form a new government.
At the time of the rocket attack, dramatic video captured Netanyahu being rushed out of a building in Ashdod by his security staff.
#IDF says two rockets were fired towards the cities of Ashkelon and Ashdod, both were intercepted by the Iron Dome. Here’s a video of Netanyahu being evacuated during the rocket sirens. pic.twitter.com/9XIDb9wRux
It’s expected that Israel’s Air Force will retaliate on Gaza significantly tonight, with reports that Hamas has already evacuated their posts in anticipation.
‘One America News’ Claims Defamation In $10 Million Lawsuit Against Rachel Maddow
It looks as though liberals may never learn that just because they disagree with someone’s opinion, it doesn’t automatically make them a tool of the Russian government. And leading the charge of liberals disseminating Russiagate nothingburgers, of course, continues to be Rachel Maddow.
Conservative television network One America News (OAN) is suing Rachel Maddow for $10 million after she referred to the network as “paid Russian propaganda”. OAN filed the defamation suit in federal court in San Diego, according to AP. OAN is a small, family owned conservative network that is based in San Diego and has received favorable Tweets from the President. It is seen as a competitor to Fox News.
OAN’s lawsuit claims that Maddow’s comments were retaliation after OAN President Charles Herring accused Comcast of censorship. The suit said that Comcast refuses to carry its channel because “counters the liberal politics of Comcast’s own news channel, MSNBC.”
It was about a week after Herring e-mailed a Comcast executive when Maddow opened her show by referring to a Daily Beast report that claimed an OAN employee also worked for Sputnik News, which has ties to the Russian government.
Maddow said: “In this case, the most obsequiously pro-Trump right-wing news outlet in America really literally is paid Russian propaganda. Their on-air U.S. politics reporter is paid by the Russian government to produce propaganda for that government.”
Except Maddow, likely still upset from spending 3 years trying to promulgate a Russian hoax that didn’t exist, didn’t quite get her facts straight.Big surprise.
OAN said in its lawsuit that while reporter Kristian Rouz was associated with Sputnik News, he worked solely as a freelancer for them and was not a staff employee of OAN. And the lawsuit includes a statement from Rouz stating that while he has written some 1,300 articles over the past 4 and a half years for Sputnik, he has “…never written propaganda, disinformation, or unverified information.”
Skip Miller, OAN’s attorney stated:
“One America is wholly owned, operated and financed by the Herring family in San Diego. They are as American as apple pie. They are not paid by Russia and have nothing to do with the Russian government. This is a false and malicious libel, and they’re going to answer for it in a court of law.”
The lawsuit included an August 6th letter from an NBC Universal attorney who stated that “OAN publishes content collected or created by a journalist who is also paid by the Russian government for writing over a thousand articles. Ms. Maddow’s recounting of this arrangement is substantially true and therefore not actionable.”
Californians have had it with PG&E, a convicted felon infamous for sacrificing safety, maintenance, reliability, and people to enhance “shareholder value.” But is San Francisco overpaying? Take a look.
This – the offer made on Sunday – has been kicked around in San Francisco since the catastrophic wildfire in Butte County in Northern California last year that killed 85 people, the cause of which was determined to have been PG&E’s electrical transmission lines – how they’ve not been maintained, including not removing vegetation near them. PG&E is infamous for skimping on maintenance and investment to maximize “shareholder value.” PG&E filed for bankruptcy in January, and its shares have collapsed by about 84% over the past two years, a good example of the results of maximizing “shareholder value.”
On Sunday, the City announced a plan to bid for PG&E’s “assets” in San Francisco for $2.5 billion. These “assets” are poles, power lines, transformers, and other electrical equipment, some of it under ground, some of it above ground, infamously maintained in the manner of PG&E, including this power pole and transformer a few feet from our balcony:
This pole is just an example. Note how the pole is completely rotten, how old the transformer is, and the insulators, and the wires. The pole was placed over 100 years ago, the transformer decades ago. I’ll show some additional stunning details in a moment. These types of power poles are all over San Francisco.
As you can tell from the pole, there is no competition in the power transmission business. This is the only set of wires to the building. It’s the same all across the country. Whoever owns the wires has a total monopoly. In the transmission business, there is no free market – so forget relying on the “market” to fix this issue. All the market wants from PG&E is dividends and a high share price, which translate into cost cuts, shitty maintenance, and inadequate investment.
The city of San Francisco would buy the power from power generators, including PG&E, which is also buying power from other power generators. There is actual competition among power generators with something like a real market, including market manipulation.
The $2.5 billion purchase price would be funded by a revenue bond issue. Last November, voters approved Proposition A that authorized San Francisco’s public utilities commission to issue bonds for the purpose of acquiring PG&E’s power equipment in San Francisco. “Funding secured,” as Elon Musk would say.
PG&E is headquartered in San Francisco, but it no longer has a lot of friends here. Power outages, sometimes lasting for hours, are fairly common. I have never lived in a city where they were as common as those I have experienced in San Francisco. Some of the outages are planned and come with advance notice. Others are surprise outages because of equipment failure of some sort. I have bought extra equipment to deal with them because I can’t just shut my business down. So there is no love lost.
PG&E also provides gas in San Francisco, and this would continue.
PG&E’s 30-inch gas pipeline in San Bruno, a town near San Francisco International Airport, exploded in 2010, killing eight people and incinerating the neighborhood. A federal investigation found that the pipeline, installed in 1956, had many defective welds; but as demand grew, PG&E increased the gas pressure to force more gas through the pipeline, rather than putting a modern gas pipeline into the ground. And there were numerous other shortcomings and revelations. Shareholder value had priority.
In 2017, a federal judge convicted PG&E on six criminal charges related to the gas pipeline explosion and imposed the maximum fine of $3 million, a barely audible slap on the wrist. No one went to jail, obviously, not even the regulators that had been in bed with PG&E. But it turned PG&E into a convicted felon, for whatever that’s worth.
So, where I sit, in my WOLF STREET media mogul empire, headquartered in San Francisco, electricity service cannot get a lot worse, in terms of price and reliability, but it can get a lot better. Ultimately, the City is responsible to local voters. PG&E is responsible to its bondholders and shareholders. Those are very different priorities, from my point of view.
But is San Francisco overpaying for dilapidated outdated equipment?
Here are more photos of the utility pole out front of our global corporate headquarters. There are many of these poles around. What I want to show is just how old this thing is.
There are wooden protectors still on the pole. In modern times, protectors are made of other materials, such as plastics. But these are wooden half-pipes along the pole, put over cables to protect them. There are two types of these wooden protectors on the pole, a large one for a big cable and a small one for a small cable.
These photos show further how PG&E has handled its maintenance (“what maintenance?”) and how it has invested in its equipment. This is the same pole, seen from the bottom up. Follow the red arrows to the large wooden protector half-pipes (click to enlarge):
The photo below shows the same wooden half-pipes a little further down the pole:
In the photo below, follow the red arrows to the small wooden half-pipe:
The photo blow shows the whole rickety top. Note the large wooden half-pipe along the right side of the pole:
The question here: Is San Francisco paying too much for “assets” that will then turn out to be “liabilities” instead, namely accidents waiting to happen due to PG&E’s run-down equipment and negligent maintenance? Who is going to be toast when the ancient transformer blows up that is eight feet from our balcony? And how much would the City have to pay for this toast?
Separating out San Francisco’s electric infrastructure, for a population of about 880,000, is not going to be another fatal blow for PG&E, given that it serves about 16 million customers in much of California. But it would be a blow.
There are discussions under way at the state level to split up PG&E into smaller electric utilities and selling them to the various cities. And there are discussions underway to split the gas and electric utilities.
PG&E, has long had regulators in its pocket, as numerous investigations and scandals have shown, including the investigation into the San Bruno pipeline explosion.
California also forced ratepayers to bail out PG&E after its 2001 bankruptcy via forced above-market rates, which continue to this day, while its bond holders and stockholders were made whole at the time.
Now Californians have lost patience. And dismembering PG&E is a real option. Earlier this year, San Francisco’s public utility commission, in studying the feasibility of purchasing PG&E’s electrical equipment in San Francisco, found that a municipally owned utility could provide lower electricity rates due to lower funding costs in the bond market, and because the municipal utility would be a non-profit and would not have to make Wall Street happy. It might actually focus on its customers, who are voters.
Given the mess we’ve been in with PG&E, just about anything is better than the status quo of a monopoly whose bondholders and shareholders continue to get bailed out by rate payers, and whose rate payers in turn continue to get shafted and even killed by inadequate maintenance and investment. But that $2.5 billion looks like a lot of money for this crappy infrastructure.
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‘We Believe Him’: Desperate Farmers Blame USDA – Not Trump – For Their Problems
Of all President Trump’s critical constituencies, none have been asked to sacrifice as much as America’s farmers. Many midwestern farmers were already in a difficult spot when President Trump first came on the scene, hammered by low crop prices and farms teetering on the brink of bankruptcy.
But in the nearly three years since Trump’s inauguration, the situation for most farmers has gone from bad to worse. In retaliation for President Trump’s trade war, China has cut off imports of American soybeans. And even Trump’s farm bailouts haven’t quite made up for the damage to the midwestern economy that has occurred under his administration.
Despite this, most farmers remain loyal to Trump, and plan to vote for him again in 2020. Instead, Reuters reports, many farmers are directing their anger not at the Trump Administration, but at the USDA and the Washington bureaucracy, which believe is working to thwart President Trump’s true agenda.
Unfounded conspiracy theories have reportedly been circulating online and among farmers that the USDA is the true source of American farmers’ financial malaise. This has led to farmers threatening a USDA employees during a crop study earlier this year, prompting the agency to withdraw its personnel from the field.
According to a Reuters poll, Trump’s approval rating in rural areas has fallen slightly to 71% from a peak of 79%. Still, many farmers are struggling to “emotionally process” their pain.
Farmers are struggling with how to emotionally process their pain from the Trump administration’s policies, and anger at the USDA may be a coping mechanism, said Ted Matthews, a Minnesota psychologist who has spent 30 years counseling farmers and rural residents across the Midwest.
“The question I hear from farmers who voted for (Trump) is, ‘We believed him when he said he would help make the farm economy better, that we could save our farms. Now, who do we blame?'” Matthews said.
Of course, directing their rage at the faceless Washington bureaucracy is easier than directing it at Trump – someone they supported and voted for.
“It’s much easier to be angry at a faceless Washington bureaucracy than at the man you voted for,” said Jere Solvie, 69, grain and hog farmer from west-central Minnesota who voted for Trump and still supports him.
According to Reuters, the USDA enjoyed a brief honeymoon with farmers thanks to Agriculture Secretary Sonny Perdue’s southern charm. But the secretary was booed last month in Minnesota, after his agency made a few critical missteps, including releasing a crop estimate that prompted the biggest drop in corn futures in three years.
This is a sharp contrast to early days in the administration, when Agriculture Secretary Sonny Perdue was a reliable point person. His folksy southern charm and his appeals to patriotism helped sell Trump’s policies to farmers, even the trade war.
But Perdue’s honeymoon in farm country has ended. Farmers booed the agriculture secretary in Minnesota last month after he joked: “What do you call two farmers in a basement? A whine cellar.”
“He’s supposed to support us, especially during times of distress,” said Gary Wertish, a fourth-generation Minnesotan who farms 500 acres of corn, soybeans and navy beans, and heard the remarks in person.
Grain farmers were already furious that corn futures prices Cv1 posted their biggest drop in three years after USDA estimated a bigger-than-expected crop on Aug. 12, despite floods that slowed planting.
As desperation sets in, more farmers might finally turn on the president, particularly after a difficult harvest season.
Wes Hitchcock, a corn farmer and Trump supporter in Sparks, Nebraska, wrote a 1,700-word paper titled “USDA vs. Trump” and has repeatedly posted it on Facebook in a grain market discussion group with 13,000 members.
Hitchcock said he was unable to plant about 30% of the 2,200 corn acres he had planned to grow because of heavy rains this spring. The corn he did manage to plant is not looking great, either, he said.
“I’m going bankrupt and everybody else will this year too,” he said in a phone interview with Reuters.
After all, farmers might change their minds if they end up bankrupt.
Tapero made his regards during an interview with business news outlet AlphaWeek published on Sept. 10. He said:
“What it is is an invention, and I think it should be referred to as an invention rather than all the other things. It’s a, you know, what it really is […] It’s a truth machine. […] It’s a way to eradicate all fraud or lying by human beings.”
Bitcoin is a reward for network maintenance
He also noted that the system is now ten years old and has a good track record, all of which contributes to his will to ask “what is a security platform like that, with that track record,” worth. In the end, he concluded:
“Bitcoin, really, is just the reward that miners get for guaranteeing the security of the framework of the network, that’s what it is. ”
BTC is worth hundreds of billions of dollars
Tapero also asked what it would cost for a company to develop such a system. He said that he believes it would cost hundreds of billions of dollars, touching on the number of work hours dedicated to the development and maintenance of Bitcoin and its ecosystem.
He also added:
“Could a company even develop that? You know, maybe Satoshi realized it can only be developed slowly over time in a decentralized way.”
As Cointelegraph reported earlier today, Blockstream CEO said that Bitcoin is reverting to its historical 90%+ market dominance at altcoins’ expense.
China Vows To ‘Crush’ Pro-Democracy Separatists; Hong Kong Warns Against Foreign Influence
Beijing warned on Monday that Hong Kong is an inseparable part of China and any form of secessionism “will be crushed,” after pro-democracy demonstrators begged US President Trump to intervene in the ongoing anti-government movement now in its 14th week.
According to the China Daily newspaper, Sunday’s pro-democracy rally proves that foreigners have been behind the protests, and warned that participants should “stop trying the patience of the central government,” reports Reuters.
Chinese officials have accused foreign forces of trying to hurt Beijing by creating chaos in Hong Kong over a hugely unpopular extradition bill that would have allowed suspects to be tried in Communist Party-controlled courts.
Anger over the bill grew into sometimes violent protests calling for more freedoms for Hong Kong, which returned to Chinese rule in 1997 under a “one country, two systems” formula. –Reuters
Hong Kong leader Carrie Lam, meanwhile, warned the United States and other countries that it was “totally unacceptable” for the United States or anyone else to intervene in the situation.
“The Hong Kong government completely disagrees and expresses deep regret that foreign parliaments are interfering in our internal affairs through legislation,” Lam said during her weekly news conference, adding “We will never allow them to be stakeholders in Hong Kong’s internal affairs.”
Protesters on Sunday expressed support for the Hong Kong Human Rights and Democracy Act of 2019 introduced by US Rep. Christopher Smith (R-NJ) in June. The bill calls on the US government to protect the rights of Hong Kong protesters, including an assessment of whether “sensitive dual-use items subject to the export control laws of the United States are being used to develop the “social credit” system of China.”
“Democrats and Republicans continue to stand united with the people of Hong Kong in demanding the hopeful, free and democratic future that is their right,” said US House Speaker Nancy Pelosi last week in a show of bipartisan support for Smith’s bill.
According to Lam, approximately 1,400 Kong Kong companies benefit from Washington’s relationship with the city and that “any particular provisions applied to Hong Kong by the Americans are not exclusively for the benefit of Hong Kong,” according to CNN. The passage of the US bill would undoubtedly harm the city’s economy, which has already taken a hit due to the protests.
On Tuesday, she called for the public to stop resorting to violence, saying “Escalation and continuation of violence cannot solve the issues faced by our society now. It will only deepen the conflict, contradiction, splits, and even hatred in society.”
“To mend the society and to bring back peace, we are very willing to engage people directly in a dialogue.”
The Hong Kong protests began with opposition to a controversial extradition bill which would allow suspects to be taken to mainland China for trial in PRC-controlled courts. It has since evolved into a general anti-government / pro-democracy movement which shows no signs of abating.
Saudi Arabia plans to have uranium produced and enriched in the future for a civil nuclear power program, the newly-appointed Saudi energy minister, Prince Abdulaziz bin Salman, said on Monday.
“We are proceeding with it cautiously … we are experimenting with two nuclear reactors,” Reuters quoted the minister as saying at a conference in Abu Dhabi in bin Salman’s first official appearance since he was named to replace Khalid al-Falih at the helm of the powerful energy ministry of Saudi Arabia.
In recent years, Saudi Arabia has been planning to begin building a nuclear power plant with the help of U.S. technology. Last year, now former energy minister al-Falih said that the U.S. was not the only option for the Kingdom when it comes to developing nuclear energy projects.
Cooperation with the United States in the field of nuclear power is only possible for countries that sign the so-called 123 agreement, which stipulates a clear distinction between using nuclear technology for civil and for military purposes, and binds the signee to utilizing the technology for civil purposes only.
Referring to oil policies, the new Saudi energy minister assured markets on Monday saying thatthere would be no “radical” change in Saudi Arabia’s oil policy.
Saudi Arabia, OPEC’s largest producer and de facto leader, will continue to work with other producers to reach oil market balance, adding that the OPEC+ coalition of producers would stay for the long term.
Asked if deeper cuts are needed to support oil prices—as analysts have suggested— Prince Abdulaziz bin Salman said, as carried by Reuters:
“It would be wrong from my end to pre-empt the rest of the OPEC members.”
The new Saudi minister called on all members of the pact, however, to comply with their share of the production cuts. Saudi Arabia has been over-complying with the deal by more than half a million barrels a day, while other members such as Iraq and Nigeria have frequently exceeded their output caps.
Tailing 3-Year Treasury Auction Sees Solid Demand Despite Rising Yield
After August’s 3Y Treasury auction sold to blistering demand despite the lowest yield since September 2017, there was some speculation that today’s modest back up in rates would provide even more interest for short-dated paper. Yet while today’s sale of $38BN in 3Y notes indeed saw a modest increase in yields, rising from 1.562% last month to 1.573% today, demand was mixed, with the high yield fractionally tailing the When Issued 1.570% by 0.3bps.
The internals, however, were almost identical to last month’s, with the bid to cover virtually unchanged at 2.42 (up from 2.41), and just a whisker above the lowest yield since April 2009. That did not prevent foreign bidders from stepping up however, with Indirects taking down 46.2%, just below the 46.7% last month, and a tad lower than the 6 auction average of 47.0%. Meanwhile, with Directs dropping from 19.3% to 16.6% this led to a modest increase Dealers to 37.2% from 34.0%, if in line with the recent auction average of 36.5%.
Overall, this was a slightly weaker auction compared to last month, if certainly nothing to be concerned about.
Trump ‘Scotlandgate’ Air Force Story Crushed By NYT Report Of Long-Standing Lodging Deal
The latest leftist triggering over President Trump has once again fizzled – although the truth never gets as much attention as the initial outrage.
After the MSM spent days lambasting Trump over a report that seven US Air Force C-17 crew stayed at his Scotland resort during an overnight refueling stop, the New York Times has revealed in a follow-up that the Trump Organization had a preexisting lodging deal with both the Scottish airport and the US military that predated his presidency.
The government records, released through Scottish Freedom of Information law, show that the Trump organization, starting in 2014, entered a partnership with the airport to try to increase private and commercial air traffic to the region.
As part of that arrangement, the Trump Organization worked to get Trump Turnberry added to a list of hotels that the airport would routinely send aircrews to, even though the Turnberry resort is 20 miles from the airport, farther away than many other hotels, and has higher advertised prices.
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Both the Defense Department and executives at the airport confirmed on Monday that the airport also has a separate arrangement with the United States Air Force. Under that arrangement, the Scottish airport not only refuels American military planes but also helps arrange hotel accommodations for arriving crews, as it does for some civilian and commercial aircraft. –NYT
“We provide a full handling service for customers and routinely arrange overnight accommodation for visiting aircrew when requested,” the Prestwick airport said in a Monday statement, adding “We use over a dozen local hotels, including Trump Turnberry, which accounts for a small percentage of the total hotel bookings we make.”
Not only that, Trump’s resort was cheaper than the Marriott.
The crew, which consisted of active duty and national guard members from Alaska, was charged $136 per room, which was less expensive than a Marriott property’s rate of $161. And both were under the per diem rate of $166. –NYT
“A local agent on contract with the U.S. government assisted with the reservations and indicated that there wasn’t a room available closer to Prestwick airport,” said the Air Force in a statement, while a DoD official added on Monday that the Air Force “relies on a contracted representative at the Prestwick airport to support our aircrew needs.”
The number of such stops by Air Force planes at Prestwick rose from 180 in 2017 to 257 last year and 259 so far this year. The 259 stops this year included 220 overnight stays. Since October 2017, records show 917 payments for expenses including fuel at the airport worth a total of $17.2 million.
Air Force officials could not say on Monday how many times military crews had been sent to Trump Turnberry, but added that they are now going through vouchers to come up with such a count. –NYT
On Monday, President Trump tweeted: “I know nothing about an Air Force plane landing at an airport (which I do not own and have nothing to do with) near Turnberry Resort (which I do own) in Scotland, and filling up with fuel, with the crew staying overnight at Turnberry (they have good taste!). NOTHING TO DO WITH ME”
I know nothing about an Air Force plane landing at an airport (which I do not own and have nothing to do with) near Turnberry Resort (which I do own) in Scotland, and filling up with fuel, with the crew staying overnight at Turnberry (they have good taste!). NOTHING TO DO WITH ME
Then, Trump dismissed the entire ordeal, suggesting that he’s so wealthy that the extra business was a drop in the bucket.
“I don’t need to have somebody take a room overnight at a hotel,” he said.
That said, the “gotcha” in the NYT report is that “documents obtained from Scottish government agencies show that the Trump Organization, and Mr. Trump himself, played a direct role in setting up an arrangement between the Turnberry resort and officials at Glasgow Prestwick Airport” (which still predated his presidency).
Deputy commander of the Air Force Air Mobility Command Lt. Gen Jon T. Thomas said in a Monday interview that the Air Force has been using Prestwick for stopovers since at least the late 1990s, and that the rising number of stopovers was based entirely on operational demands; the airport has 24-hour operations and is in a convenient location.
That said, Thomas says the Air Force is reviewing the decision to place Air Force crew members at a hotel owned by the Trumps.
“Let’s make sure we are considering potential for misperception that could be created by where we billet the aircrews,” adding “It is a reasonable ask for us to make sure we are being sensitive to misperceptions that could be formed by the American people or Congress or anyone else.”
Buckle up, this one’s going to be entertaining… because I should have called this note “Why you should always read the fine print.”
This morning I read through the prospectus and annual reports of the most popular Gold ETFs in the world.
First, some background:
ETF stands for ‘exchange-traded fund’. It’s sort of like a mutual fund that’s listed on the stock exchange, meaning investors can buy/sell shares of an ETF just like they would buy/sell shares of Apple, Ford, or (God help us) Netflix.
But unlike Apple, which is an operating business with employees, products, revenue, etc., an ETF is NOT an operating business. It’s a fund that merely pools capital to own assets.
The benefit for investors is that ETFs can be an easy and convenient way to invest in certain assets which would otherwise be difficult to buy.
If someone wants to buy Egyptian stocks, for example– they could open a brokerage account in Cairo… or buy an Egypt ETF that’s listed on the New York Stock Exchange.
The ETF is a LOT easier for most investors.
But there are also ETFs for gold and silver. And I find this mystifying.
We’re not talking about Egyptian stocks. Gold and silver are easy to buy. You could have Canadian Maple Leaf gold coins delivered to your home with a few mouse clicks.
So gold ETFs provide no added convenience.
Yet there’s an enormous amount of downside.
First off– it’s important to know that if you buy an ETF, you’re paying for a ton of unnecessary expenses.
The ETF has to pay custodian fees, marketing fees, listing fees to the New York Stock Exchange, audit fees, management fees, etc.
I’m chairman of the Board of Directors for a company that’s listed on a stock exchange, and trust me– the listing fees are REALLY expensive.
If you own physical gold in your own safe, you wouldn’t have to suffer the cost of paying lawyers, auditors, and investment bankers.
But GLD does. Which means that as a GLD investor, YOU are fundamentally paying those costs.
And remember that ETFs aren’t operating businesses. Apple makes money selling overpriced hardware. But GLD has no products, and hence doesn’t generate any revenue.
So how do they pay for this mountain of expenses?
By selling gold.
Your gold.
GLD trustees periodically sell off the gold (that’s supposedly owned by the investors) in order to pay expenses.
Right in its own prospectus, GLD tells us:
“The amount of gold [held by GLD] will continue to be reduced during the life of the Trust due to the sales of gold necessary to pay the Trust’s expenses”
And like I said, those expenses are NOT cheap. I’ll come back to that.
This is important because GLD (and several other ETFs) are structured as ‘flow-through’ trusts.
So when they sell gold to pay expenses, this can create hidden tax headaches for GLD investors. The IRS could treat those gold sales as if you personally had sold gold, triggering capital gains consequences.
GLD’s 2018 annual report states this clearly on page 21:
“When the Trust sells gold . . . to pay expenses, a U.S. Shareholder generally will recognize gain or loss. . .”
But aside from the excessive costs and possible tax consequences, ETFs are simply not designed for your benefit. They’re designed for Wall Street’s benefit.
GLD, for example, has a terribly complex structure involving a ‘sponsor’, ‘marketing agent’, ‘trustee’, ‘custodian’, and various ‘Authorized Participants’.
These middlemen standing between you and your gold are all big Wall Street banks who suck value from your investment.
Here’s something really incredible: with GLD, the physical gold is supposed to be held with the ‘Custodian’, which is HSBC Global.
But according to GLD’s legal documents, the Custodian has the right to use Sub-Custodians. Yet they’re not required to have any written agreement with the sub-custodians.
Those sub-custodians can then shift your gold even further to sub-sub-custodians, which also does not require a written agreement.
This is directly from GLD’s report:
“The Custodian’s selected subcustodians may appoint further subcustodians.”
“These further subcustodians are not expected to have written custody agreements with the Custodian’s subcustodians that selected them.”
This is where it gets really ridiculous:
“[T]he Custodian does not undertake to monitor the performance by subcustodians of their custody functions or their selection of additional subcustodians and is not responsible for the actions or inactions of subcustodians.”
In other words, the gold could end up with some sub-sub-sub-custodian. No written agreement is required.
And, even though the primary custodian (HSBC) is receiving handsome fees, they have no obligation to monitor the sub-custodians, nor can HSBC be held responsible if someone screws up.
Moreover, the report states:
“The Custodian and the Trustee do not require any direct or indirect sub-custodians to be insured or bonded with respect to their custodial activities…
“Therefore, Shareholders cannot be assured that the Custodian maintains adequate insurance or any insurance with respect to the gold held by the Custodian on behalf of the [ETF].”
So, not only is there zero requirement to even have a written agreement before storing your gold with some sub-custodian, there’s also no requirement to insure the gold that they’re storing.
SOUNDS LIKE ANOTHER WIN FOR THE LITTLE GUY!
Seriously, you have to be insane to buy GLD.
Sure, it’s convenient to click a button and buy GLD with your brokerage account.
But it’s also convenient to buy physical gold coins on Amazon. Jeff Bezos can deliver them to your house via drone strike later this afternoon.
Yes, GLD is liquid. You can sell shares anytime during market hours. But physical gold is also liquid. You can sell it anywhere in the world.
So gold ETFs have no real advantage.
But the disadvantages are numerous. You’re paying a ton of unnecessary expenses, dealing with potential tax consequences, and enriching big Wall Street banks who have no obligation to do anything on your behalf.
