3 Min. Gold News – Q & A Interview with Jim Rickards – March 31, 2015

3 Minute Gold News

A Quick Read for Busy People

 

3 Minute Gold News Q & A interview with Jim Rickards —  New York Times bestselling author of The Death of Money and Currency Wars, and Chief Global Strategist at West Shore Funds.

March 31, 2015

 

Topics:


Home Ownership in the Current Climate – Buy, Rent, or Sell to Pay Debt
Artists and Economics – Resources to Learn About the Economic Climate, Global Players and Terminology
Rickards Ratio – Gold, Cash and the Next Step

 

 Rickards - Brisbane

Jim Rickards

 

Question #1

Home Ownership in the Current Climate – Buy, Rent, or Sell to Pay Debt

Geopolitical tension is building, and at the same time there has been a string of events signaling a challenge to the US dollar’s role as the world reserve currency.  Do you have any recommendations for those starting out and thinking of either buying a first home or selling their home to pay off debt? With the shifting values in currencies should they take any of the cash you were recommending they save, and use it for a down payment on a home? Should they sell a home now and pay off debt before the prices reset? Or would it be best to build their assets in cash/gold/10-Year Treasures and wait for the market to come down before buying? Are housing prices likely to come down everywhere or do you believe places like Vancouver, London and New York might remain high due to capital coming in from places like China?

 

Jim Rickards:

 

Housing decisions are challenging from an investment perspective because housing is never just about investment; it’s your home! Everyone needs a place to live. You can either buy or rent. There’s a big emotional attachment to buying (in the U.S. we consider home ownership part of the American Dream). But I’ve never been that emotionally attached to owning property. For me, the buy versus rent decision is pure math. You can do simple pre-tax and after tax calculations taking into account rent, mortgage interest, tax benefits, property taxes, maintenance and expected appreciation and then compute a rent-or-own comparison. Based on that, just do what makes the most economic sense. I rented my home from 1974 to 1981, owned a home from 1982 to 2008, and became a renter again since 2008. (I do own some investment property I don’t live on, but that’s different). To me, it’s all about the math. When you rent, you are not flushing home equity down the drain. That capital is available for other investments that might be worth more. In my case, I took home equity in 2008 and invested in fine art, venture capital and gold and that portfolio has outperformed the housing market since then. So, there’s no right answer, you just have to make some assumptions, crunch the numbers and see what works best. One tip: Most of the value of owning a home does not come from equity appreciation. It comes from living in your own home without paying income tax on the imputed value. Think about it. If your employer gave you a home, you would have to calculate the imputed or deemed value of living there on a rental equivalent basis and declare that on your income tax return. But when you own your own home, you do not pay tax on the value of living there. Over ten or twenty years, that adds up. That’s the biggest single benefit of home ownership.

In the short run, markets like Vancouver, New York and London will continue to outperform other markets, partly based on foreign flight capital. But, if those markets take on bubble characteristics, they may have further to fall if a crash comes. For couples starting out, it’s probably better to rent and save money in safe investments like medium-term Canadian and U.S. government debt. Then, when a correction comes, they should be able to pick up some bargains.

Of course, if you have a home already and you’re considering the purchase of income producing property such as rental housing or farm land, that’s different. In that case, the best way to think about real estate is that it’s something like a bond. You make an investment (which may or may not be leveraged) and you receive a return – rent on real estate is like getting an interest payment on a bond. You usually don’t pay any income tax on mark-to-market gain on the principal of a bond or real estate, so tax deferral plays a role. Land will tend to go up in inflation, down in deflation. Bonds do the opposite – they go up in deflation and down in inflation. So a balanced portfolio of income producing property, cash and high quality bonds will give good protection against inflation and deflation along with reduced volatility and good liquidity due to the cash.

 

Question #2

Artists and Economics – Resources to Learn About the Economic Climate, Global Players and Terminology

 

Currency Wars and The Death of Money were easy for a non-economic person to understand while at the same time being in-depth and informative. Are there any other resources you can recommend for someone artist minded or just starting out, to help them understand the economic climate, the global players and the terminology?

 

Jim Rickards:

 

A good way to absorb a lot of economics without having to slog through dry prose and difficult equations is to read economic history by entertaining authors. Cycles tend to repeat themselves and human nature never changes so the lessons of 1914, 1920, 1929, 1971 and 1998 are just as valuable today as they were then. With this in mind, I recommend the following books:

When Genius Failed – by Roger Lowenstein
The Panic of 1907 – By Robert F. Bruner and Sean D. Carr
Saving the City – by Richard Roberts
Lords of Finance – by Liaquat Ahamed
Too Big to Fail – by Andrew Ross Sorkin
The Forgotten Depression – by James Grant
The Battle of Bretton Woods – by Benn Steil
The Forgotten Man – by Amity Shales
All the President’s Bankers – by Nomi Prins

If you read them all, I guarantee you’ll know more about risk in capital markets than Janet Yellen!

 

Question #3

Rickards Ratio – Gold, Cash and the Next Step

 

Last June you recommended that people start out by saving $10,000 in cash, and then buy 1 oz. of physical gold. Given the ramp up of the currency wars and geopolitical tension, do you have any changes or modifications you’d make to those recommendations? Once a person has their 1 oz. of physical gold and the remaining approx. $8,000 in cash, can you offer a next step suggestion for the not-quite-so-newbie?

 

Jim Rickards:

 

My recommendation of a 10% allocation to gold is unchanged. The idea is that it’s a big enough allocation to preserve wealth if things fall apart, but small enough that you won’t get hurt if the economy stabilizes and gold goes down. With the remaining $8,000 or so, you won’t have enough to invest in alternative funds like art, venture capital or hedge funds. But an investor could take a look at the West Shore Real Return Income Fund (NWSFX:US). Full disclosure – I am the Chief Global Strategist for the fund and have a financial interest. Read the prospectus carefully before investing. The reason I recommend it is because the West Shore fund has some gold, fine art, Treasury notes, cash and other things I recommend to investors in its portfolio. It was designed to enable small investors to have some exposure to alternative strategies without having to invest directly into alternative funds. Another good idea is to keep some cash to reduce volatility and give you some optionality in case things fall apart. You can be the one to scoop up some bargains after the crash. So, a $10,000 portfolio might go $1,500 in gold (one ounce), $5,000 in NWSFX (diversified and liquid), and $3,500 in cash (for liquidity).

 

Jim Rickards can be found on Twitter and at James Rickards Project. Jim’s newsletter is available at Agora Financial.
Currency Wars and Death of Money can be purchased through Jim’s website shop at James Rickards Project.

 

For Jim — Thank you for taking the time to write and to offer your outlook and suggestions. I receive many emails expressing appreciation for your information and for allowing your media interviews to be posted in synopsis form here.  ~Elaine

 

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AlbumCover.PreparingfortheFall

 

Preparing for the Fall is a live solo album by Elaine Diane Taylor available on iTunes — includes the singles Wag the Dog, Black Swan Dive, Bitcoin Barbarians, Miss American Pie and The Gods of the Copybook Headings.

 

 

 

Wag the Dog (Drums of War and Backroom Banker Passes)
words and music Elaine Diane Taylor
© 2014 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes

 

Coins and Crowns
words and music Elaine Diane Taylor
© 2012 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.

 


The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
©2014 Intelligentsia Media Inc.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes

 

 

Another Week on Wall Street (Naked Short Selling and Fiat Currency)
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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Nothing on this site is given as personal investment advice. We’re all responsible to watch how the wind is blowing, and to do our own research and make our own decisions.

 

 

 

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