March 21, 2020
Synopsis of an interview with James Rickards, author of the bestselling books Currency Wars, The Death of Money, Road to Ruin, Aftermath and A New Case for Gold, with Daniela Cambone, the Editor-in-Chief at Kitco News.
TOPICS:
Covid-19 and the System
The Market
Ice-Nine Scenario
Gold Confiscation
Gold Storage
Billionaires
Gold Price and Availability
U.S. Election
Covid-19
Video Link
COVID-19 AND THE SYSTEM
Jim has said since 2008 that each bailout will get bigger and bigger, until the central banks, and specifically the Federal Reserve in the U.S., can no longer re-liquify the world’s monetary system.
We are uncomfortably close to that place now.
Dr. Anthony Fauci, the chief immunologist at the U.S. National Institute of Allergy and Infectious Diseases, has been right there next to President Trump during this corona virus crisis.
Dr. Fauci said, “If you think you know where we are you don’t. And if you think you don’t know where we are you’re right.”
That means if you’re looking at the official cases and fatalities then you’re not looking at reality.
This is a movie and not a snapshot.
The infections are much higher, and sadly the fatalities are going to be much higher.
Get the best information you can but don’t think that you’re looking at reality – it’s much worse.
In January, the only information we had was coming out of China, and we all knew they were lying.
Then the virus spread from China to Italy.
Italy isn’t lying about the number of infections so we have better data now.
You can see Italy went from 2 cases to 200 cases, and now the virus is approaching 40,000 cases in a matter of a few weeks.
If you look at Spain you can see they have 5,000 cases, but Italy was at 5,000 not that long ago.
Are the Spanish circumstances different than in Italy? Not really.
We might expect that Spain is on its way to 40,000 infections. And then France, and then other nations.
Then you can talk about the United States.
This could get into the millions of cases in the U.S.
It’s not going to just get worse, it’s going to get a lot worse.
THE MARKET
The market is trying to look at the future and re-price to where it thinks things will be in a few months.
But it’s trying to re-price to something it doesn’t fully understand. Like trying to hit a moving target.
ICE-NINE SCENARIO
In the Kurt Vonnegut novel Cat’s Cradle, a physicist invents an isotope called ice-nine that causes water to freeze upon contact. So if you poured it in a stream then the stream would freeze. But then the rivers would freeze and the ocean would freeze, and all life on earth would end.
Vonnegut was talking about contagion and how a small event can result in a doomsday scenario. The book was related to nuclear war, but Jim brought it into the economic world and related ice-nine to financial contagion.
If there’s a financial panic and the government closes the New York Stock exchange, it would mean that no one can sell their stocks to get the cash they need.
But closing the stock market wouldn’t solve the problem. The pressure wouldn’t stop.
People would try to get cash by selling or redeeming their money market funds.
So the government would have to shut down the money market funds.
Then people would go to the banks to get their cash out, and they have to shut down the banks and freeze accounts.
It would be a contagion spreading from exchanges to money markets, to brokerage accounts, to banks … and you would end up shutting down the entire system.
So Jim is saying that shutting down one part of the financial system doesn’t fix the problem. There has to be other solutions.
One solution is physical gold.
GOLD CONFISCATION?
It’s highly unlikely that precious metals will be confiscated by the government.
In 1933 the U.S. government made it illegal to own gold, and had all citizens sell their gold to the government for the day’s price of $20.67 per ounce.
Then he raised the price of gold to $33 per ounce. (Thereby devaluing the U.S. fiat paper dollar.)
The greatest period of sustained deflation in American history was 1927 to 1933. During that time gold went up 75% from $20/oz to $35/oz.
At that time the U.S. was on a gold standard. Today we’re not.
So in 1933 you couldn’t get a profit from gold because the price was fixed. Today you can make a profit because the price is not fixed.
Jim’s also not sure about the level of trust in government today. How many people would line up to hand in their gold like they did in 1933?
GOLD STORAGE
Jim uses the “bicycle standard” when thinking about storage.
It’s best to store your physical gold in a non-banking location somewhere within a bike ride from where you live. In a crisis situation you don’t want it to be in another country, or so far away that you can’t reach it.
And a bicycle won’t get stuck in traffic if a city is trying to evacuate quickly in an emergency.
Don’t store gold in a bank because they can freeze safety deposit boxes.
BILLIONAIRES
Jim’s never met a billionaire who doesn’t have a lot of gold. They don’t talk about it because they don’t want you to know about it.
But they do.
PRICE AND AVAILABILITY
Right now you can trade paper gold contracts but you can’t find physical gold and silver to buy.
There’s a disconnect between the low price of gold and silver and the supply shortage. (In economics, the less there is of something in high demand, then the higher its price.)
In Jim’s book The New Case for Gold he said not to wait to buy your bullion. (He’s always recommended storing 10% of your investable money in physical gold.)
If you knew which day a crisis was going to hit you could just sell your stocks the day before and buy gold.
But you won’t know which day that will be.
Jim always said not to wait for the panic. If you wait you won’t be able to get any.
If it’s a concern then get your gold now.
If you followed that advice and got your metals then that’s good for you.
If you didn’t do that then good luck getting your order filled now.
In the 2008 crisis the price of gold went down for a few months.
There’s a saying that goes: “In a panic, you don’t sell what you want, you sell what you can.”
You might want to sell stocks or junk bonds today but they’re no bid. No one wants to buy them. But there’s always a buyer for gold.
Gold is always liquid.
So people are selling their gold to get cash to meet margin calls on their equity losses.
WEAK HANDS AND STRONG HANDS
Gold buyers are divided into weak hands and strong hands.
Right now the weak hands are dumping the metal as fast as they can.
The strong hands will buy it but not yet. They’re waiting to see where the bottom is. They’ll wait for the last distressed sellers to get rid of their gold and then the strong hands will buy.
At the beginning of the 2008 crisis the price of gold went down, but then it tripled over the next four years.
Jim expects something similar right now because the safe harbour demand is still there.
STOCKS
It’s not a good idea to buy distressed stocks right now. We don’t know how bad this is going to get and where the bottom will be.
CORONAVIRUS
This is going to get worse than people realize.
We’re not talking about just going from 10,000 infections to 1 million. What if we start talking about 10 million or 20 million cases. This is what the government is worried about.
With an average fatality rate of 4% and 10 million infections, that means 40,000 dead. And heaven help us if it’s 100 million infections. That’s 4 million dead. That’s worse than all the wars in U.S. history.
That’s not a prediction on Jim’s part and we all pray that doesn’t happen, but it’s on the table and those kind of dynamics are happening in Italy, France and elsewhere right now.
GOVERNMENT INTERVENTION
The U.S. is giving about $1 trillion in loans to various industries. The good news is it means there aren’t going to be bankruptcies and there won’t be as many lay-offs as there would have been.
Daniela points out that QE is not a cure for an infectious disease.
The Fed has no ammunition left for stimulus or economic growth.
All they’re doing is keeping the system itself from freezing up.
The government is doing fiscal policy of $1 trillion in loans but that can’t give growth because the debt-to-GDP is already 106%. At that stage of debt you don’t get any growth when you keep borrowing. You just get negative growth at that point.
There’s too much debt.
RECESSION
It’s happened very quickly, but there’s no way to avoid a recession now.
And the question is whether it will become a depression.
And how bad will it get.
PENT UP DEMAND
You’re probably hearing the phrase “pent up demand” but there isn’t any.
Lost sales in services are lost forever. If you don’t go out for dinner this Friday it doesn’t mean you’ll buy two dinners out next Friday.
TRUMP
A recession or depression hurts President Trump’s odds for re-election.
Until a month ago the odds of a recession were below 20%. So by Jim’s model, Trump’s odds of winning were 80%.
Now the odds of a recession are above 50% which means the odds of Trump’s re-election are below 50%.
On the other side, Trump could get some credit for the way he handles the virus crisis, so there could be a recession but people don’t blame him for bad policy.
Right now it’s a toss up between Trump and Biden, and the markets haven’t even started thinking about that yet.
JUST THE FLU?
Think this is just the flu? Tell that to the Italians. They know it’s not just the flu.
It’s apples and oranges.
Flu has been around forever so the numbers are relatively constant year after year and the market prices that in. Plus there are vaccines.
The flu is known and doesn’t come as a surprise.
Covid-19 is a new disease. We don’t know how bad it is. We don’t know how it spreads. We don’t know the contagion factors. Can it be spread in the air?
And we don’t have a vaccine.
Covid-19 is forty times more lethal than the flu.
You have to play this out as a movie and not a snapshot.
With a death rate that’s forty times higher than the flu, no vaccine, and no way to limit the spread other than social distancing, you could be looking at 1 million deaths.
PREPPING
The system is fragile and it’s a good idea to be prepared.
Jim can be found at www.jamesrickardsproject.com and on Twitter.
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Here’s How Gold Moved This Week:
And Last Year:
from The Gold Hub at www.gold.org
My thoughts…
The pandemic situation is evolving quickly.
The biggest concerns are with supply chains for medical supplies in a timely manner. Test kits, beds, ventilators, masks. No one is supplies enough for a pandemic with this growth rate. Governments are doing the best they can and once an order is given it takes critical days to manufacture and ship the items. If China had been honest with numbers it would have given nations a crucial two months worth of prep time, but there is no data you can trust from there.
With the current data out of Italy it looks like 80% of cases are mild to medium, 20% need a ventilator to help with breathing, and 5% need an ICU unit. It’s a physical disease that given the same circumstances will probably spread at the same rate. So mathematical models can make best guesses for preparations in new areas. If 10% of a city of 100,000 is infected that’s 10,000 people ill. 2,000 of those will need a hospital bed and respirator, and 500 will need an ICU. So if many are infected at once then the 2 – 4% death rate will rise because of lack of medical help. The only hope to lower the death rate is to lower the amount of people sick at the same time.
So do that social distancing. Stay home. It spreads without you knowing, and person infects others for up to two weeks before they feel ill themselves.
Have some cash out of the ATM in case there’s a run. Have a full tank. Get some precious metals if you’re able. Have a pantry of food without hoarding every single damn toilet paper roll in the store. Be kind.
Everything has a season. Every closed system moves in cycles. Both large systems and small. It all goes around in a cycle. So be assured that spring will come and there will be a time for new plans and experiences. But for now the world is in winter and it will become colder, and the storms will become more fierce.
But each of us has a part to play, and we have gifts that lift the lives around us and bring joy and comfort in even the gentlest of ways. We can all help each other to be our highest and most expansive selves, and to feel quiet and okay without progress and accomplishment for now. There’s a time to heal and nurture. To mend and tend to quiet things. Time to slow it all down. Let this pass by as best we can and help others do the same. Afterwards a glorious spring will come on the earth. New ideas. New tech. New paths to explore and love.
Talk to you soon,
Elaine~
Gold now sits at $1,498.80 US/oz. from kitco.com
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Thank you to Jim Rickards for including me in his bestselling book The New Case for Gold.
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Coins and Crowns
words and music | Elaine Diane Taylor
©2019 Elaine Art & Media
ASCAP/SOCAN
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 costs go up and the jobs go down. Hunger goes up and hope goes down. Anger goes up and it all goes down, down, down.
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World Without an Anchor
words and music | Elaine Diane Taylor
©2019 Elaine Art & Media
ASCAP/SOCAN
Single available on iTunes.
In a world without an anchor
We’re subject to the sea
It’s Right before a tempest
Left screaming at the breeze
Walls of rage and water
Will test what you have learned
That in a world without an anchor coins are tossed and boats will burn.
There’ll be ships that lie deep (in) state beyond (the) reach
Who will wear a yellow vest?
Who will wash up on the beach?
In a world of flags and spices
We were playing pipes and drums
Sailing on the winds
We were selling souls and sums
Gold trading one way
And silver in return
But in a world without an anchor
We’ll all drown in debt in turn
There’ll be ships that lie
Deep in state beyond the reach
Who will wear a yellow vest?
Who will wash up on the beach?
In a world of borrowed soldiers
The captains’ damage owned
But the treasure chests are missing
And the golden anchor sold
We are fed with cake and follies
We are tethered to the shell
They were bailing out the breaches
They’re now bailing in the hell
There’s ships that lie
Deep in state beyond the reach
Who will wear a yellow vest?
Who will wash up on the beach?
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Not Much of a Holiday
words and music | Elaine Diane Taylor
©2015 Elaine Art & Media
ASCAP/SOCAN
Single available on iTunes
Bank holidays and long lines at ATMs to get enough for the day. Debt deals behind closed doors. The media telling us what to believe. China building islands in the South China Sea and claiming all the international waves. Markets close and rockets crash. Silken road, treasure, files hacked. Oil, fusion cold. News and nations all sold. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.
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Preparing for the Fall is a live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.
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Elaine Diane Taylor 