The New Paranoia: Hedge-Funders Are Bullish on Gold, Guns, and Inflatable Lifeboats

R.A. Hettinga rah at
Sun Jan 18 06:44:26 PST 2009

The irony, is, of course, um, priceless...



New York Magazine

The New Paranoia: Hedge-Funders Are Bullish on Gold, Guns, and
Inflatable Lifeboats

		By Timothy Sohn
		Published Jan 11, 2009

Illustration by Mark Nerys

During the final months of 2008, as the financial markets imploded,
talk on trading desks turned to food and water stockpiles, generators,
guns, and high-speed inflatable boats. The system really was about
six hours from failing, says Gene Lange, a manager at a midtown hedge
fund, referring to the week in September when Lehman went bust and AIG
had to be bailed out. When you think about how close we were to the
precipice, I dont think it necessarily makes a guy crazy to prepare
for the potential worst-case scenario.

Preparations, in Langes case, include a storeroom in his basement in
New Jersey stacked high with enough food, water, diapers, and other
necessities to last his family six months; a biometric safe to hold
his guns; and a 1985 ex-military Chevy K5 Blazer that runs on diesel
and is currently being retrofitted for off-road travel. He has also
entertained the idea of putting an inflatable speedboat in a storage
unit on the West Side, so he could get off the island quickly, and is
currently considering purchasing a remote farm where he could hunker
down. If theres a financial-system breakdown, it could take a year
to reset the system, and in that time, whats going to happen? asks
Lange. If New York turns into a scene out of I Am Legend, he wants to
be ready.

Hes not the only one. In his book Wealth, War, published last year,
former Morgan Stanley chief global strategist Barton Biggs advised
people to prepare for the possibility of a total breakdown of civil
society. A senior analyst whose reports are read at hedge funds all
over the city wrote just before Christmas that some of his clients are
so bearish theyve purchased firearms and safes and are stocking
their pantries with soups and canned foods. This fear is very much
reflected in the marketprices of corporate bonds have been so beaten
down at various points that they suggest a higher default rate than
during the Great Depression. Meanwhile, while the overall gold market
has fluctuated, the premium for quarter-ounce gold coinsmeaning the
difference between the price for gold you can hold in your hand and
that for paper gold, such as exchange-traded fundsrose to an all-
time high of 20 percent. Gold is transportable, its 100 percent
liquid, and its perfectly divisible in the context of ounces, bars,
or coins, says the head of a California research firm who keeps a
supply of it, along with food, water, and guns, on hand. And most
important, theres no counterpartyi.e., its an investment beholden
to no one, and perhaps one of the few assets that will retain value if
the financial system collapses.

While it may look like these Wall Streeters are betting on such a
collapse, their embrace of survivalism is an outgrowth of their
professional habits of mind: Having observed the economys shaky high-
wire act from their ringside seats, they are trying to manage their
risk and hedge against a potential fall. Its like insurance, says
an investor who has stockpiled MREs and a hand-cranked radio. And by
the time you need it, its way too late. Leave it for others to weep
for the collapse of the social order. These guys would prefer to be in
a high-speed boat or ex-military vehicle, heading off toward their
fully provisioned compounds in pursuit of the ultimate goal: to win
the chaos.
Next: If Jackson Pollock Were a Gamer

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