Welcome to our Friday mailbag edition!
Every week, we receive some great questions from your fellow readers on our recently published essays. And every Friday, I answer as many as I can.
So let’s dive right in… starting with this question about the SPDR Gold Shares ETF (GLD) that I wrote about a few weeks ago… I said that GLD is “physically backed” by gold. This means that GLD shares are guaranteed by the actual metal sitting in the vaults.
But reader Thomas R. has his doubts about the “physically backed” part…
I have no confidence that the SPDR Gold Shares ETF (GLD) is holding actual gold bullion in vaults somewhere! I really believe that most of its gold backing is not physical at all but “paper gold.” I think they are using derivatives.
– Thomas R.
Hi Thomas. I appreciate your concern. And I’m aware that some folks in the gold community share it. So let me address this as best I can.
Let’s start with GLD’s custodial arrangements…
GLD’s gold is held in HSBC’s vault in London. Twice a year, the gold bars are independently counted. These counts are carried out by Inspectorate International Limited.
One count is a random sample count. The other is a complete bar count. And this usually coincides with the SPDR Gold Trust’s financial year end on September 30.
Here is the latest certificate of the GLD gold bar count. Based on the April 29, 2022 random sample count, there were 87,599 gold bars of a purity between 99.50% and 99.99% and a weight of 35,228,355.235 fine troy ounces.
The most recent full count was carried out in September 2021. Here’s the report on that.
HSBC also publishes a daily list of current holdings. Here’s today’s update, showing 85,870 bars.
GLD’s sponsor (creator) is World Gold Trust Services. It is fully owned by the World Gold Council. It generally visits the vaults up to twice a year to inspect the gold.
GLD’s financial auditor also visits the vaults before signing off on its annual audits.
So, GLD’s backing is definitely “physical,” not “paper.”
A word to the wise, though.
Even though GLD is “physically backed” by gold, investors cannot redeem GLD shares for physical gold bullion. They can only sell them on the market.
The “physically backed” part just means that GLD shares are guaranteed by the actual metal sitting in the vaults. Each GLD share represents about 0.094 ounces of gold.
This is something all gold investors should keep in mind. Because it’s not just GLD. With many gold ETFs, when you redeem them, you don’t get physical gold. You receive the cash equivalent.
That said, I believe GLD provides a great way to own gold without the hassle of storing it, transporting it, and keeping it secure. That’s, of course, as long as you don’t mind never seeing or touching the metal you’re buying.
For anyone who values holding actual gold, you could consider buying gold coins. Some of the more popular ones are American Eagles and Canadian Maple Leafs. I wrote about a simple way to buy gold coins in this recent essay.
Next, my recent essay on the ridiculous compensation packages some CEOs – including JPMorgan Chase CEO Jamie Dimon – receive has prompted some great suggestions from readers.
First up, it’s Jerry, whose original email about the “good old boys’ club” prompted me to research and write about CEO compensation… Here he is again with this idea for limiting CEO pay…
Thank you for answering my question on CEO pay. I am convinced there is a “good old boys’ club.” I own a number of stocks and all one has to do is look at the boards of directors – you would probably not be shocked to see the same names over and over again. Of course, they are going to approve these outrageous pay packages for their CEO friends.
If our government wants to stop this craziness, it could stop allowing companies to use anything over, say, $5 million per year as a write-off for a salary. All compensation would be taxed the year it was received, at the market price.
That way, if stock options are part of the pay package, they would immediately be taxed at market value. Someone like our friend Jamie Dimon could receive 100,000 options but pay a tax on the $11.4 million value when issued.
Of course, this would require our elected officials to stand up to their major contributors. And we know this will never happen. One can only dream.
– Jerry K.
And Midge has another idea…
For many years, I have felt that top compensation salaries were WAY out of line in many corporations. CEOs should not be paid more than 20 times the lowest-paid worker… Maybe, in very large corporations, 50 times. They do not need that much money. Period. Let them save and invest just like everyone else.
– Midge R.
Hi Jerry and Midge. You’re spot on with your suggestions! Let me link them together in my response.
So, it’s true that many boards are made up of the friends of the CEO or other senior executives. Or they are politicians that recycle into the private sector.
These people are totally fine, for the most part, with approving the outrageous pay of their pals. That’s largely because it’s those friends that appointed them to the board to begin with.
That’s how CEO pay versus normal-people pay has gotten so out of whack.
The issue of interlocking board members came up a lot in books and articles right after the Enron scandal.
Then, it seemed to recede to the background of public, media, and political discourse. I think it’s a great topic for a future essay, though.
Now, let’s take a look at your suggestion for limiting CEO pay, Midge…
Minimum wage in the U.S. is $7.25 per hour. For a 40-hour week, that works out at $15,080 per year (before tax). So, 20 times that would be $301,600. Fifty times that would be $754,000. Most CEOs make much more than that.
That compensation distortion shows itself when compared to average wages, too. Based on current Fed data (May 2022), average hourly earnings are $31.95. For a 40-hour week, that works out at $66,456 per year (before tax).
So, 20 times that would be $1.3 million. Fifty times that would be $3.3 million. Average CEO pay is way beyond that. As I told you in my essay last week, CEOs earn, on average, 351 times the average American worker.
And of course they don’t need all that money. But it’s an issue of being “competitive” with each other that drives some of that distortion in compensation.
If we did cap CEO pay at a normal multiple of overall pay, it would decrease some of that distortion.
Meanwhile, there are other ways to level the playing field…
See, the pay gap I described above is a factor of The Great Distortion I’ve been telling you about now for a while. The rich have been getting richer, while the average American has paid the price.
But I’ve worked tirelessly for the last two years to develop and perfect a strategy to help you narrow the gap…
It’s a strategy that will help you make money, even when the markets are dropping, like right now…
Now, it may not put you at Jamie Dimon’s pay grade, but it could help you make up to 10x your money in less than a month.
I shared details of this strategy at an urgent briefing last week. To find out more while my briefing is still online, just click here to watch the replay.
Finally, as you may know by now, since I left my career on Wall Street, I’ve written several books exposing the Street’s shady practices that led to some of the biggest financial crashes and bank bailouts we’ve ever seen.
I’ve also delved into the cozy relationships between the financial, corporate, and political elites that allowed all of this to happen unchallenged.
Reader David R. has some thoughts on that, too…
I think all the Goldman Sachs executives in the federal government are crooks. Nothing has changed. If the U.S. had an atomic attack, only cockroaches and Goldman Sachs would survive.
– David R.
Hi David, the term “crooks” is probably too strong a word, but my former employer, Goldman Sachs, certainly serves as a feeder pool for some of the plum jobs in Washington. It has produced more treasury secretaries than any other Wall Street bank.
It has also produced key presidential advisors, starting back in the 1930s with Franklin Delano Roosevelt. Publicly, FDR was considered a “traitor” to the Wall Street class. But in fact, it was largely because of Wall Street money that he got elected, first as the governor of New York and then as president.
Goldman Sachs’ head, Sidney Weinberg, helped gather political donations for FDR’s campaign. He was the first man to lead the business council that Roosevelt established. This was a liaison between Washington and the business community. Throughout the years, Weinberg advised several presidents.
More recently, former Goldman Sachs vice chairman, Robert Rubin, was President Bill Clinton’s treasury secretary. Former Goldman Sachs chairman, Hank Paulson, was President George W. Bush’s treasury secretary. And former Goldman Sachs partner, Steven Mnuchin, served as President Trump’s treasury secretary.
It doesn’t matter whether they, or the presidents they served, were Democrats or Republicans. The influence of Wall Street on Washington transcends these political party distinctions. And it has done for years.
The alliances between those in power and the financial world is a topic I am fascinated by. I researched and wrote about it extensively in my 2014 book, All the Presidents’ Bankers.
I’m going to send some excerpts from that book next week specifically about the rise of the Goldman gang to political power. So look out for that in your inbox…
And that’s it for this week’s mailbag. Thanks to everyone who wrote in.
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
In the meantime, happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
Like what you’re reading? Send your thoughts to [email protected].