3 Min. Gold News – Jim Rickards – CNBC International – Rickards’ Ratio – October 21, 2014

3 Minute Gold News

A Quick Read for Busy People

A 3 minute synopsis of the interview with Jim Rickards, author of the New York Times bestselling book The Death of Money, by Bernard Lo and Susan Li  of CNBC International.

 

Topics:

China’s GDP Growth is Bogus
Not Investing in China
U.S. Company Cash Holding at Record High
Rickards’ Ratio

Jim Rickards

CNBC International
Bernie Lo and Susan Li
Interview with Jim Rickards
October 21, 2014

CHINA’S GDP IS BOGUS

Whether China’s GDP is 7.1% or 7.2% doesn’t really matter. There’s a good chunk of waste there that the market’s not taking into account.

45% of China’s GDP is investment. A good percentage of that investment is completely wasted — perhaps as much as half.

If you put a $2 billion train station in a village it counts as $2 billion in GDP because there’s real steel and glass, and construction jobs in it.

But the village doesn’t need a $2 billion train station.

If you were applying accounting principles you would write if off to zero.

If you adjust the Chinese GDP numbers for waste, you actually get a much lower figure — perhaps 5%.

Also, it’s funded with debt and the debt is unpayable. The money is going into projects that can’t repay the debt.

So all you’re doing is building up a bigger pyramid of debt that will ultimately collapse.

NOT INVESTING IN CHINA

The only way Jim would invest in China right now is if there is a U.S. or European company that can get revenues from China without putting capital on the ground. Maybe buying stock in IBM.

He wouldn’t put any money into China until after the crash. After the crash there’ll be some good opportunities.

China has a credit crunch, a Ponzi financing mechanism, overstated GDP, and wasted investment. When you adjust for that then you have a pretty weak story.

Jim likes China and the people are great, but it’s going to crash.

You can see it a mile away.

The Chairman of the Bank of China called wealth management products a Ponzi scheme. Jim has spoken to officials at the IMF who have privately said the same thing.

It’s wasted investment financed with non-payable debt, sold to retail through wealth management products.

It’s a credit bubble and a Ponzi at the same time.

They’re pumping it up, but you get less bang for the buck every time you add liquidity. It’s kind of like QE3 in the U.S. — we’re not getting any mileage out of it.

All these things have to unwind and probably sooner rather than later.

U.S. COMPANY CASH HOLDINGS AT RECORD HIGH

Major companies have large holdings of cash because it’s a vote of no confidence.

If they had confidence they’d be deploying the cash.

In 2008 the commercial paper market disappeared overnight.

Since then corporate treasurers have said that they have to be prepared for that to happen again — and it will.

They need to self finance for at least six months and perhaps a year, because if the commercial paper market goes away they need to fund their operations.

So they’re building up piles of cash — not as a vote of confidence — but a vote of no confidence, preparing for the evaporation of the commercial paper market. They’re also doing it as a way to keep from paying U.S. taxes.

It’s all financial engineering.

It’s not a confidence story… it’s a no confidence story.

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Jim recommends that people prepare for “the death of money”, the death of the U.S. dollar as the world reserve currency, by holding their own reserves, as Warren Buffett is doing.

RICKARDS’ RATIO

I call it “Rickards’ Ratio” —  hold 10% of wealth in physical gold, and 90% in cash or hard assets like land or shares in a company or fund that deals with real things.

If we get inflation then gold historically goes up while everything else goes down. If we get deflation then cash is worth more while gold goes down. Right now the world is in a depression, but there’s tension between the two.

For someone starting out or art minded, Jim gave an exclusive interview to 3 Minute Gold News.

Here’s an excerpt:

My best advice for younger people is to work on their education or be an entrepreneur or both.

When you do have some earnings, try to save a little each paycheck even if you have trouble making ends meet. As soon as you have $10,000 saved, buy one ounce of gold as insurance against the kind of collapse we’re talking about.

Keep putting part of your pay in savings and keep putting 10% of your savings in gold.

The rest can stay in cash until you have enough to buy some land.

I’d keep away from buying a house or buying stocks until the crash comes. After the crash, there will be some bargains for those who survived with cash and gold.

That may seem undoable to those new to this, but it’s something to build towards a small amount at a time.

The Rickards’ Ratio is a way to build wealth and protect yourself, whether we get a spike in inflation or deflation, while the world reserve issues reset.

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Black Swan Dive
words and music Elaine Diane Taylor
©2014 Intelligentsia Media, Inc.
SOCAN/ASCAP

Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

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Elaine Diane Taylor and Intelligentsia Media, Inc. is for personal study and information gathering. Every visitor is responsible for their own research and decisions regarding their health, lifestyle and economics. We should all have a keen eye to finding and running after our own passions, and a skeptical ear to what we’re hearing from all sources.

 © 2014 Intelligentsia Media, Inc.

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