King always does a good interview and gets the best guests. Listen here to his interview of the Swiss fund manager.
Via Zerohedge, a suit has been filed in the US district court for western North Carolina by a group of citizens alleging that the Federal Reserve is an unconstitutional cartel and Ponzi scheme. Also named as defendants are several large banks and their CEOs, Geithner, Bernanke, Hank Paulson, Greenspan, John Snow, Shiela Bair and several other hacks and oligarchs.
The suit enumerates various “evils” committed over the last 97 years, but reaches way too far and dilutes the case by stringing together an overarching theory of a grand plot against the American way. Since it doesn’t stick to clear-cut issues of constitutionality such as the legal tender laws it is unlikely to get traction, but there can’t be a better place for it than in Western NC.
I take it as a sign of the times. It’s heartening to see people channel their anger about the economy into the study of banking history and take action that will at least open some more eyes.
I happen to have similar positions at the moment, though unlike Rogers, I’m a bear on commodities and China, which he seems to be perpetually long. Here’s today’s Bloomberg interview.
- Long euro as a contrary position. Too many shorts out there.
- All these countries (Spain, Portugal, UK, US) are spending money they don’t have and it will continue.
- ECB buying government and private debt is wrong.
- EU is ignoring its own rules about bailouts from Maastricht Treaty.
- Governments are still trying to solve a problem of too much debt with more debt.
- Fundamentals are bad for all paper currencies. Good for gold.
- Is “contagion” limited now? Well, for those who get the money…
Here’s a longer interview from a few days ago on the same topics as well as stocks:
- Rogers has a few stock shorts: emerging market index, NASDAQ stocks, and a large international financial institution.
- Rogers owns both silver and gold, but is not buying any more. He’s not buying anything here, “just watching.”
- Optimistic about Chinese currency. Expected it to rise more and faster, but still bullish.
- Thinking of adding shorts in next week or two if markets rally (my note: they have now).
- “Debts are so staggering, we’re all going to get hit with the problem,” no longer just our children and grandchildren.
This is deflation, a contraction of money and credit. Hardy anybody argues about that anymore. So what happens next? Will Obama and the bailout maniacs inflate a new bubble in green energy in their new, green deal? Maybe, but it would only be a limited bubble, not the worldwide craze in any and all non-dollar assets that we saw the last time around.
Don’t assume that any new bubbles at all will form for a long, long time. The mood has shifted from risk to hoarding. Now that people have been burned by everything from dot-coms to gold miners and are scared to death of losing their jobs, they are going to hang onto the one thing that still works: Washington Wallpaper, the little notes that promise, “I owe you nothing but more of these IOUs.
Deflation will rage, until it doesn’t. We are still early in this phase, since among the public there is still a healthy fear of the dollar and paper money in general. But over the next year, as commodities and foreign currencies slide still lower and consumer prices stay solidly and noticeably negative, people will forget about the deficit and the $100 trillion in debt at just the wrong time.
This is the rule of maximum pain for the maximum number. The dollar is not yet ready to fail because it is too feared and despised. But when people let their guard down and sell for $450 the Krugerrands that they are paying $900 for today, take all that they have, because then the real fun will begin.
Just as the public will get too complacent about holding I-owe-you-nothings (Doug Casey’s phrase), Congress and Obama will get too complacent about printing them up, and the whole debt-based money system will come crashing down. I don’t pretend to know how it will play out (hyperinflation or just plain-old, “sorry, we can’t pay” default), but it will be visibly ugly, and I am glad I’ll only be watching it on TV. This won’t be pretty anywhere, but the US is not a civilized country anymore, and it has a most uncivil government.
The gold market is making a nice little plunge today back to the $850 level. Take a look at this chart. From 1998 to March 2008 gold made as perfectly formed and complete a bull market as you could imagine:
In my mind, the support line for gold lies around $600 or slightly under — just cut off the blow-off top on the chart and extend the trend line from the early years of the bull. The inflation scare of 2005 to last summer is all but over now that we are in the most powerful deflationary environment since the 1930s.
I welcome this fall in gold, and so should everyone who has cash, because that cash will be destroyed by the actions of our governments over the next several years. Lower gold prices mean that you can bail out of your paper money for real money at very favorable exchange rates.
Enjoy deflation while it lasts.
The gold price dropped the most in 25 years last week, 8.4%, and remains down about 21% from the all-time high of $1,033 in March. Investors’ surveys showed bullishness on the metal in the high ninety percent range in March, with a bounce back to near 90% during the second peak of $989 in June. Simply put, almost everyone thought gold would go higher. The commentaries on Kitco.com hummed with the surety that gold would soon retake its 1980 inflation-adjusted high of $2500 as the dollar slid to Peso-like status.
The atmosphere was cult-like, and a bit intoxicating for libertarian-minded gold bugs (are there any other kind? ok, anarchy-minded), yours truly included. We are all waiting for the return of non-liability, non-printable, non-degradable, timeless money, for if civilization marches on (some would say, for civilization to march on), gold and silver should at some point reassume their rightful places in society. They just do the job so much better than all the kinds of paper, shells, clay tablets, fiddle sticks and digits that have been tried over the years. The great hope is that specie is taken up spontaneously when the world’s corrupt (is there any other kind) governments implode from the debt that their fiat money has enabled.
Well, I would say that that possibility grows stronger with each misstep by our bankers-in-chief, but it is by no means a sure thing in the near future, more like a long-shot, since the anti-gold and pro-central banking propaganda runs deep after a century of indoctrination and dumbing down of the populace. Our governments have become masterful manipulators, and crisis-management is their specialty (if you think Katrina was a failure, you must not have gotten any of that $80 billion), so don’t count on 1776 all over again. More like 2001 in Argentina: meet the new boss, same as the old boss.
But yes, while governments get viscous in a crisis (and be sure, retaining control over the nation’s money is top priority, justifying all kinds of emergency measures), they do get weaker internationally, and the financial system is international. I do expect to see greater use of digital gold banks among the world’s citizens who are free to use them, and the precious metals may see a resurgence in hand-to-hand use in markets where governments turn a blind eye, such as the bazaars of Asia.
I have believed since first waking up to gold that we would see a 1:1 Dow:Gold ratio again, but when the breakaway run to $1000 started in 2007, I became convinced that deflation would snuff it out and I bought long-dated puts to hedge my holdings. Deflation is now destroying wealth at a blistering pace, and gold is being wrested from weaker hands, such as people who need cash more than their old bracelets, or momentum-chasing hedge funds facing margin calls and withdrawals.
We are just now entering the strongest phase of the credit crunch, when bank failures will be a near-daily occurrence and the equity markets will be knocked back to 2002 or 2003 levels in short order. Job losses are mounting, and consumers are getting very tight, bringing bankruptcies to all kinds of bubble-era self-indulgence industries: home furnishings, electronics, coffee shops, restaurants, organic foods, big autos, toys with small engines, pleasure travel, clothing and accessories.
As of last week, almost every major asset class had tipped its hand, and all will lose to the house: cash and treasury paper. Real estate went first, then commercial paper, then stocks, then municipal bonds, and this summer energy and all of the metals turned. All I am waiting for is a washout in corporate bonds, but they can’t be far behind.
How low could gold go? A 50% retracement of the run from $253 in 1999 to $1033 would be $643. I give it better than even odds that we go a bit lower than that. But keep in mind that I think stocks will fall 80% from their highs and real estate 60%. Commodities are much more volitile, so a 40% fall in this context could still be considered a bull market setback (the same goes for oil). I’ll certainly be buying if it happens, and I won’t ever give up hope of being able to pay for groceries with silver pocket change or a home with an electronic gold transfer.