3 Minute Gold News
A Quick Read for Busy People
I love how Erin introduces Jim as a “Boom Bust All Star”. Good times.
The Death of Money
The Average Person
Where Gold is Headed
THE DEATH OF MONEY
The title is provocative but it doesn’t mean that money goes away completely.
It means that there will be a number of very important shifts:
1. The U.S. dollar will lose its status as the leading world reserve currency.
2. It will be displaced by one of several things. One of those things is the SDR (Special Drawing Rights). It’s a geeky name for world money, which is backed by nothing. The FED prints dollars and the IMF prints SDRs
The next time there’s a liquidity crisis like we had in 2008 it’s going to be bigger than the FED, because the FED took their balance sheet to over $4 trillion.
We haven’t had a liquidity crisis since ’08 and ’09 but they’ve continued to print all this money anyways.
So they’re not going to be able to go up to $8 trillion or $10 trillion next time. They’re at the outer limit of what they can do.
Where will the liquidity come from next time?
There’s only one clean balance sheet left in the world and that’s the IMF (International Monetary Fund).
Jim says that investors should do what Warren Buffett is doing — he’s buying hard assets.
A couple of years ago he bought the Burlington Northern Santa Fe Railway and took it private.
It’s all hard assets — land, right of way, mining rights, signals yards, and switches. And how does it make money? By moving hard assets — coal, wheat, corn. It’s the ultimate hard asset play.
Next, Buffet bought oil and natural gas resources. So he can move his oil and gas resources on his own railroad — he doesn’t need Keystone Pipeline.
So he’s dumping paper money and getting into hard assets.
No matter what happens to the U.S. dollar his stuff is still valuable.
Investors should do the same thing. Maybe we can’t buy a railroad but we can buy a little bit of gold, land, and fine art. There are hard asset that will preserve your wealth.
There are no guarantees and you have to be selective. Gold is volatile, partly because it’s manipulated by central banks.
In chapter 9 of The Death of Money Jim gives all of the documentation, including some recently declassified documents from the Ford Library, going back to the 1970s, up to the present day, and looking at the Bank for International Settlements (BIS), which is the central bank of central banks.
The BIS says in the footnotes of their financial statements that it transacts in the gold market on behalf of central banks and commercial banks.
There’s manipulation going on, and there’s statistical studies showing the same thing.
So, if you buy gold you have to fasten your seatbelt and prepare to ride the rollercoaster. But at the end of the day it’s the one asset that has always preserved wealth.
Buying land is the same thing. Some farmland in Iowa may be overpriced, but maybe look at buying land in Brazil.
You may not have $150 million for a Picasso but there are some well managed art funds and there are some niches.
Jim is talking about twentieth century masters, for example, and not posters for your college dorm. He is talking about investing in museum quality art pieces that are $100,000 or $200,000, with the rights to curation, and maybe sales to a museum in three to five years for $700,000 or $800,000.
These funds are hard to find but they are out there. Jim invests in and represents an art fund but he has a manager who knows what he’s doing. Some art funds are sponsored by dealers and so there’s a conflict of interest — you don’t want to end up financing the dealer inventory.
So Jim recommends land, silver, gold, fine art, and there’s a place for cash.
Cash is good in deflation which is as much of a danger as inflation. It also gives you a lot of optionality. You can pivot quickly into an asset class instead of waiting to get out of something else.
Anything can go into a bubble.
All these things are priced in dollars — art, gold, bitcoin. They are really all bets on the dollar.
So the question is “What’s the future of the dollar?”
If you think the dollar is getting stronger you wouldn’t necessarily want those asset classes (art, gold or bitcoin).
If you think the dollar is getting weaker you would want those asset classes.
The FED policy is to have a weaker dollar.
So to Jim it’s a very easy analysis.
THE AVERAGE PERSON
Many art funds are for wealthier people, but Jim has launched the West Shore Fund, a mutual fund registered with the SEC that is open to all investors of any size. They invest in a portfolio that includes some of the things that Jim is talking about — art, some gold, and emerging market stocks and bonds.
The West Shore Fund invests in the kinds of things that Jim believes preserve wealth and protects a person against inflation. Even the small investor can have a look at that.
If you have $10,000 then just buy one gold coin and put it away. You’re now 13% invested in gold.
If everything’s good you won’t get hurt too badly, but if things fall apart then that gold will go up a lot and protect your wealth.
WHERE GOLD IS HEADED
In the intermediate term it’s headed much higher, but not necessarily right away.
When you own gold you’re fighting every central bank in the world.
Central banks hate gold because it limits their discretionary policy.
It’s volatile. You don’t want to use leverage (don’t borrow to buy it).
Jim recommends physical gold coins and bars. Not gold funds.
When gold goes up $100 a day is when they may cancel COMEX futures contracts and send you yesterday’s price. That’s when all the paper gold will fall apart.
Also, when the buying panic breaks out you may not be able to get gold — the central banks will get the gold they want but you may find that your local dealer is out and the Mint can’t deliver.
Jim can’t give you a call the day before it crashes so you can sell everything and buy gold — he just knows it’s coming. :)
Their gold reserves are bigger than they’ve disclosed. Their official reserves are $1,054 tonnes.
They are lying.
They actually have, some say, $3,000 or $4,000 tonnes. It’s hard to know exactly how much, but we do have some data.
The Chinese mining output and the imports to Hong Kong are publicly known. In Chapter 9 and 11 of The Death of Money Jim goes into how they are using military intelligence assets to bring in gold off the books. He sources all his claims in the footnotes of the book.
Jim says China have closer to $4,000 tonnes and they’re buying more.
In his last trip to Switzerland, Jim went to vaults and refiners and they said China’s demand is voracious and they are sold a year in advance. The Chinese want more but they can’t deliver because they have to take care of their jewelry customers like Rolex.
In his trip to Hong Kong, Jim recently talked to a logistics person who moves the gold, and they said there’s no let up in the demand from China.
The only thing you have to make assumptions on is how much of that is private demand and how much is government demand.
The U.S. has $8,000 tonnes so China has a little catching up to do.
India was the biggest gold importer and gold consumer, but was recently overtaken by China.
The reason is that Indian slapped an import tax on gold. So many people were buying gold that it was throwing India’s account into a deficit so they put an import tax on it.
That’s when China pulled ahead.
India failed to understand how much value added there was in the jewelry business. The gold would come in and the artisans would make the jewelry.
That fabrication industry has now gone to Pakistan.
India hates Pakistan.
Jim’s best information is that they are going to remove the tax in the middle of this year for the big wedding season.
You may see a voracious Indian demand in the fourth quarter.
Investors can manage the volatility by not using leverage (don’t borrow to buy), and by just putting it away.
Jim expects gold to go to from $5,000 to $7,000 an ounce, and silver to go to $100 an ounce.
But it’s subject to the same volatility as gold and it’s not going to happen tomorrow.
It’s over a couple of years.
Bernanke said he doesn’t understand gold, and a lot of experts don’t understand gold.
Jim says they’re a simple way to understand it — it’s the inverse of the U.S. dollar.
If the U.S. dollar goes down then gold is going up. It’s that simple.
If you think the U.S. dollar is getting stronger then don’t buy gold.
Income inequality is a definite possibility and it’s outlined in The Death of Money.
One of the reasons Jim wrote Currency Wars and The Death of Money is to write for every day citizens so they could read it and look out for themselves a little bit.
Jim hopes that’s his audience.
The big guys always look after themselves. It’s the teachers, firemen, police, people with pensions, fixed incomes, retirement — they’re the ones who get wiped out.
If things get really bad and we get things like Jim perceives as money riots then you’ll see a neo-fascist response.
You’ll see the government using executive orders. Local police look like SWAT teams — they’ve got body armour, vision goggles, flash bang grenades, battering rams, and drones.
Your friendly local cop will not be getting kittens out of trees — they’ll be here to break down your door.
That force is ready if there’s too much social unrest.
Black Swan Dive
words and music Elaine Diane Taylor
© 2014 Intelligentsia Media Inc. All rights reserved.
available soon on iTunes
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns available on iTunes