Berko: The Carlyle Group and gold
Friday, April 26, 2013 7:00 AM
Dear Mr. Berko:
I envy the politicians, including Bill Clinton and George W. Bush, who invested money in the deals with The Carlyle Group and made millions. Now that The Carlyle Group has come public (May 2012), it has lowered the bar and will accept a minimum of $50,000 (I can afford $125,000), and I would like your thoughts on making a personal private equity investment with the firm. I believe – and I have a good source of information – that past returns on this private buyout capital firm have been between 20 and 50 percent annually for the past 20 years. I’m also thinking about investing $50,000 in gold bullion. The gold market has been fairly weak lately, and I think it may begin to resume its uptrend again. What do you think?
S.G., Wilmington, N.C.
The Carlyle Group LP (CG-$32.87) is a U.S. government-connected private equity firm whose wealthy clients include past presidents, retired honchos from the departments of Labor, the Interior, Energy, Defense, State, Homeland Security and Transportation, and hundreds of congressmen. CG’s clients also include influential uber-wealthy citizens who easily raise billions for state and federal election campaigns. And over the past few decades, CG has made suspiciously timely and hugely profitable investments in defense, energy, agriculture, telecommunications, banking, health care, shipping, mining and construction industries all over the globe. During its first 20 or so years of private activity, CG made obscene fortunes for those who had enormous fortunes to invest in the company’s private partnerships. However, these fortunes were made because it’s still legal for members of Congress to use inside information to make personal investment decisions and to use their influence to make certain that those investment decisions are profitable. Sadly, in 2004, the lovely Martha Stewart spent several hundred thousand dollars in legal fees but still spent five months at a federal hotel for trading on inside information.
And for suckers like you, CG has lowered its velvet rope from $5 million to $50,000 because the old, smart money smells bad times ahead and is beginning to pull out. CG’s performance began to show strain just before the firm went public a year ago at $22. Now management is facing strong pressure from big shareholders who are demanding diversification and higher returns. But CG is having big trouble attracting money for its buyout funds. CG’s original investors, who can easily raise billions with a dozen phone calls, realize that most of the low-hanging fruit already has been picked and that what remains hanging would place their money at unacceptable risk. That is why drooling greenhorns such as you are invited to participate and pay annual fees of 2.6 percent plus 25 percent of the net profits. And as certain as it is that somewhere in the world a newborn is crying, your piddling $50,000 won’t be managed with the same care as that old money. Wake up, fool! When the bourgeoisie permit the proletariat to join their club, the proles’ table is in steerage.
I chuckle when folks ask about “investing” in gold. Gold is not an investment; it’s a speculation, like shooting craps, five-card stud or investing on fast dames and slow nags. Gold doesn’t pay dividends or earn income. It’s too heavy to put in a briefcase, and it’s gotta be assayed before it’s converted into a spendable currency. Yes, it has increased enormously in price in the past dozen years. However, its annual compounded appreciation since 1934, when it was priced at $35 an ounce, is less than 5 percent. Recently, several big banks were convicted of manipulating the Libor, raping trillions of interest from borrowers. Now other banks are being investigated, because it seems gold prices also have been manipulated, taking advantage of gold buyers. Last December, a contact at Barclays told me that the daily price of gold is set by a contingent of powerful banks. He said these manipulations affect jewelry prices around the world, as well as the earnings and share prices of hundreds of companies that mine gold. Holy Herman and Harry, now we can’t even trust our banks anymore.
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