- This topic has 4 stemmer and 21 svar.
14. april 2009 kl. 7:58 #138104Anonym14-04-2009 7:58
Det burde være tankevækkende, når skat trækker på lønkontoen, og sige mere end en hel del om en mands karakter.
Den slags typer har jeg aldrig haft i min bekendtskabskreds.14. april 2009 kl. 10:55 #138114Anonym14-04-2009 10:55
Specielt for US-dollarindehavere:Fra MineWeb.COM’s:
MINING FINANCE / INVESTMENT
REFLATING THE BUBBLE
Ditch dollar, buy gold, silver and currencies to counter inflationary depression- Peter Schiff
Amid an “inflationary depression” in the U.S., Peter Schiff sees opportunities in the maelstrom. He advises investors to act quickly and “divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States.” Interview with The Gold Report
Author: The Gold Report
Posted: Sunday , 12 Apr 2009
VANCOUVER, BC –
The Gold Report: Peter, you were one of few people to predict financial crisis that the U.S. and the world is now in the midst of. At a recent conference, you called the conditions that we’re facing “an inflationary depression.” Can you describe what you mean by that?
Peter Schiff: Well, basically, that is the condition that the government is creating here in the United States, and an inflationary depression is going to be a protracted period of economic decline accompanied by rapid increases in consumer prices. So, it’s going to be something like the stagflation of the 1970s, only much more stagnation, or outright contraction of the economy, with the cost of living increasing even more rapidly than it did then.
TGR: As we look at some of the things that Obama’s trying to put into place, is there anything the government could do now to avoid this?
PS: There’s nothing the government can do to avoid some serious short-term pain. The country is in a lot of trouble because of all of the monetary mismanagement of the past, the reckless government spending and the money creation that led to the phony economy.
We’ve spent a long time squandering wealth in this country. We’ve borrowed a lot of money and foolishly used it to consume. We’ve allowed our industrial base to disintegrate, and it’s going to be difficult to rebuild a viable economy. But we’re never going to rebuild one if the government stands in the way. What the government is doing now with their polices is trying to reflate the bubble; they’re trying to get Americans to borrow and spend even more money when we’re broke from the money that we shouldn’t have borrowed and spent in the first place. And the government is trying to get itself bigger. The government is trying to grow its size at a time when it needs to contract because we’re really too broke to afford a bloated government.
It was bad in the past-it was making us less competitive, but at least we could afford it; now we clearly can’t. So, we need less government. We need sound monetary policy. We need higher interest rates. We need to allow businesses to fail. We need to allow companies to go out of business or bankrupt. We need to allow foreclosures to take place. We need to allow people to lose certain jobs. We can’t try and interfere with that. And to the extent that we do, we’re going to create this depression; and if we keep printing money, we’re going to have massive inflation on top of it.
TGR: In your talks, you’ve said that printing money will cause massive inflation and the collapse of the U.S. dollar. Can you speak to that?
PS: People think you just create money and use it to spend. But when you create money you don’t create purchasing power. So, what happens is you have to pay more money; you create inflation. The way you get increased purchasing power is through increased production, and simply printing money doesn’t cause factories to appear. It doesn’t cause consumer goods to appear.
In order to have real increased consumption, we need to produce more, which means we need more savings and investment-and the government is discouraging that with its policy, not promoting it.
TGR: Will the government bailouts help increase production and ultimately purchasing power?
PS: No, no, the bailouts are destructive to the economy because the government is bailing out industries and companies that should be failing. They’re keeping nonproductive companies in business, which ultimately undermines the competitiveness and the productivity of our economy.
Bankruptcy is like when a body has an infection. It fights it off, and that’s what the free market is doing by trying to kill off noncompetitive companies. Bankruptcy is a positive force in an economy. Maybe it’s not positive for the entity going bankrupt, but it is positive for the economy as a whole because it’s purging from the body of the economy nonviable companies that are squandering our resources.
We need companies to fail so that more prosperous companies can succeed. By keeping certain businesses around, the government is preventing others from coming into existence that would have been more productive.
TGR: So, if the government would step back and let the free market systems work, how much sooner would they be able to make the turnaround, rather than having the government do it?
PS: We’re not going to turn around at all as a result of what the government is doing. We’d turn around a lot sooner if they would let free market systems work, but it wouldn’t be instantaneous. We’ve got to dismantle the phony economy before we can rebuild the viable economy. We’re going to have this transitionary pain. We have to get over all the damage that has already been done in response to the government and bad monetary fiscal policy. We had a bubble economy; we had an economy based on Americans spending money they didn’t have and buying products they couldn’t afford or that they didn’t make. We had an economy built on debt, consumer debt, and financial engineering, and our companies were generating profits from accounting rather than from production. And the whole thing was phony; the prosperity was phony. We need to address those problems, and get back on the road to economic viability.
TGR: Is this a U.S. phenomenon or is this worldwide?
PS: Well, it exists to lesser degrees in other countries, and certainly other countries are affected because they’re producing the goods that we’re consuming and they’re lending us the money to pay for it and, ultimately, we can’t pay them back. And so their economies are going to suffer as a result of all the wealth that has been squandered and all the resources that have been wasted on production for American consumers because we can’t afford to pay.
TGR: The government is printing money. What is going to be the impact of all that money coming into the economy?
PS: Well, it’s going to force up prices. Eventually real estate prices will start to rise, stock prices will start to rise; but Americans aren’t going to be richer because the cost of living is going to rise a lot faster. The price of food and the price of energy are going to rise much faster than the price of stocks or real estate.
TGR: Do you see a pending collapse in the U.S. dollar?
PS: I do see a collapse in the dollar. The dollar is already been losing value, but I think it’s going to lose a lot more.
TGR: What should investors be looking at as a safe haven for the money that they have now?
PS: Well, they should be looking at the traditional safe havens like gold and silver; they should also be looking at other commodities and at investments outside the United States. There are a lot of opportunities around the world. There are a lot of stocks that are extremely inexpensive, in my opinion, particularly in the Asian markets and the natural resource space.
There are a lot of stocks trading at valuations I have never seen; there’s a lot of pessimism built into the global markets right now, and there are fire sale prices. The world has overreacted to our problems and the way our problems have affected their economies. And in this market environment of de-leveraging and asset liquidation, prudent investors who do have cash can find tremendous bargains around the world. They can preserve their wealth and actually profit from what’s going on.
TGR: Can you share with us some sectors people might consider?
PS: In general, the productive sectors of the economy have companies that are manufacturing products and have good balance sheets, companies that operate within a resource sector that has tremendous reserves-whether it’s mining reserves or energy reserves-or companies that operate in various forms of agriculture. There are great opportunities there. Stocks are trading for very low, single-digit multiples off of depressed earnings. And you have a lot of companies offering dividend yields north of 10%, and these are real dividends paid from earnings. But, as an investor, you have to do your homework to find them. Bond rates are so low we can get incredible yields on equities, and this is a great opportunity, especially if those yields are going to be paid to us in currencies that I expect to strengthen significantly against the U.S. dollar.
TGR: What countries and currencies do you see emerging first from the recession?
PS: Well, ultimately, a lot of the currencies that are currently pegged to the U.S. dollar will be very strong, a lot of the Asian currencies. We already see a lot of the resource currencies starting to move back. We have seen rather substantial strength in the Australian and the New Zealand dollars in the past few weeks. I do think you’re going to see strength also in the Euro, as the Euro seems to be a good alternative to the dollar as far as a reserve-type currency. And the Europeans’ monetary policy is not nearly as bad as ours, so more of that type money will be attracted to the Euro and will probably benefit other Euro-zone type currencies-Scandinavian currencies, the Swiss Franc-those currencies will benefit, as well.
TGR: China and Russia and some other OPEC nations are calling for the IMF to come in with an international currency. I think they’re calling it special drawing rights.
PS: Yes, China was talking about trying to look for alternative reserve currencies to the dollar, and they’re floating a balloon of special drawing rights issued by the IMF. I don’t think that’s a good idea. Ultimately, China does indeed need to convince the world to look for another standard. China needs to find another reserve on its own and it can do that. The Chinese should start divesting U.S. dollars now. They can choose any currency they want as their reserve currency. When they do start divesting dollars it will impact the value of the dollar.
TGR: Will we see a return to a gold standard?
PS: Currencies need to have value and paper is not value. No fiat currency in history has ever survived. Everyone says this one is going fine but we’ve only been off the gold standard since 1971-it’s too soon to tell, but it’s sure not looking good.
TGR: Will you see a return to the gold standard in your lifetime?
PS: Yes, I will-it has to happen.
TGR: What investment advice do you have for our readers?
PS: Investors need to act quickly and take charge of their financial destiny. We’re facing the largest redistribution of wealth through inflation.
The hardest hit will be the savers and investors who will see their savings wiped out if they are kept in U.S. dollars. Dollars will be stolen from the savers to pay for these huge government-spending policies-for health care, education and the bailout.
I would divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States, and focus on companies that own real things that have a demand.
Peter Schiff is President & Chief Global Strategist of Euro Pacific Capital in Darien, CT. Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A widely-quoted expert on money, economic theory, and international investing, Peter has appeared in the Wall Street Journal, New York Times, L.A. Times, Barron’s, Business Week, Time and Fortune. His broadcast credits include regular guest appearances on CNBC, Fox Business, CNN, MSNBC, and Fox News Channel. He also served as an economic advisor to the 2008 Ron Paul presidential campaign. His best-selling book, “Crash Proof: How to Profit from the Coming Economic Collapse” was published by Wiley & Sons in February of 2007. His second book, “The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down” was published by Wiley & Sons in October of 2008.
Published courtesy of The Gold Report – http://www.theaureport.com14. april 2009 kl. 11:01 #138116Anonym14-04-2009 11:01
Bemærk specielt, hvad følger.:
TGR: Will we see a return to a gold standard?
PS: Currencies need to have value and paper is not value. No fiat currency in history has ever survived. Everyone says this one is going fine but we’ve only been off the gold standard since 1971-it’s too soon to tell, but it’s sure not looking good.
TGR: Will you see a return to the gold standard in your lifetime?
PS: Yes, I will-it has to happen.16. april 2009 kl. 7:24 #138176Anonym16-04-2009 7:24
Fra the Daily Reckoning:
–“Ah yes. About that. Why haven’t we seen it yet? You’ve seen massive fiscal stimulus plans the world over, a huge increase in the monetary base, and lower interest rates. But no inflation. Bond traders don’t seem especially worried either. They are not demanding higher interest rates because they fear future inflation. And gold? Well, it’s plodding along. But shouldn’t it be going much higher as the supply of fiat money explodes?”
–“You’re thinking is so old fashioned. It’s true. Or at least it used to be true. In the days when we had a gold standard, it was a great defense against government monetary fraud (that’s what I used to call inflation, before I became a central banker).”
–“Oh. What do you mean?”
–“If each unit of paper currency in your hand is redeemable for gold, then each holder of paper units has the power to hold the government accountable for its fiscal and monetary policy. If the government prints too much money to pay for its spending programs, unit holders can redeem their paper for gold. This draws down the governments stores of real gold, forcing it to either reduce the supply of paper money, or lose all its gold.”
–“Why would it worry about that if it could just print more paper?”
–“Because paper is not money. And your trading partners will not accept your paper if it is not backed by either real money or the ability to collect taxes from your people.”
–“I’m not sure I follow. Back up a bit for me.”
–“Okay. Back when everyone was on a gold standard, before the Great Depression, international accounts were settled in gold. It wasn’t just citizens who could demand gold for their units. Nation states could do it to. Governments who ran up fiscal imbalances would see international holders of their currency redeem those paper units for real gold. This encouraged a kind of competition among nation states, or at least a kind of accountability. If you ran up deficits and borrowed a lot of money, gold flowed out to pay your creditors and to pay for your exports. Your inflationary monetary policy cost you your national inventory of gold and silver.”
–“So what happened?”
–“My you ask a lot of questions.”
–“Hurry up. I think I have to wake up soon.”
–“Well, under a gold standard, governments are forced to manage their monetary system for the benefit of their people. You get a stable price level because the value of the money is not fluctuating constantly with changes in the money supply. Governments want to avoid causing a run on their gold supply that would result from fiscal and monetary mismanagement.”
–“Why did the world go off the gold standard if it was so good? What changed?”
–“Lots of things. For example, with a gold standard, governments and people must live within their means. This is deeply unpopular with politicians, who must bribe populations with bright new shiny things to get elected. Gold makes it harder to bribe your people and win an election.”
–“Okay. What else?”
–“For whatever reason, perhaps because it is in their nature, governments like to take their people to war. It keeps them distracted from other problems, usually caused by the government. But war is expensive. To pay for a war you must increase taxes or borrow money. If you increase taxes (directly or indirectly) you risk alienating your population and causing a tax revolt (and sending a lot of economic activity underground, out of the view of the tax collectors). So you have to borrow. It’s the only way to greatly expand spending without raising taxes to punitive or socially disruptive levels.”
–“Ah. I see. Under a gold standard, you couldn’t borrow excessively without causing a run on your nation’s gold. So…a gold standard was a natural constraint on a nation’s ability to make war.”
–“Yes. That doesn’t mean nations didn’t go to war before there was a gold standard. It just means that if you had to pay for your war with real money, it made it an expensive proposition. And if it undermined the value of the currency your citizens held, they were unlikely to support you. In a monarchy or dictatorship, that doesn’t matter so much. But in a democracy, it matters a lot.”
–“If what you’re saying is correct, Maestro, then there’d be a clear connection between the creation of fiat money which is not backed by gold at all, and war between nation states.”
–“There might be. But you’re still thinking too small.”
–“What do you mean?”
–“It’s true that most nations suspended the gold standard upon entering World War I. This allowed them to run up ruinous debts to private bankers. They tried reinstating it, but then the Great Depression hit. And more than ever, governments needed the ability to print money to pay for domestic ‘wars’ on poverty and unemployment.”
–“Right. And then World War Two-which was partly a consequence of the ruinous debt and reparations Germany could not repay-came along and you saw a huge explosion in government debt, this time mostly through bonds.”
–“That’s right. Which brings us back to inflation today. When the government finances exploding debts through the issuance of new bonds, investors typically demand higher interest rates to compensate for the inflation that results from the increase in the money supply. But today, in a kind of conundrum, bond investors are not demanding higher interest rates.”
–“Who knows? For one, they don’t see inflation. They see falling prices that come with a collapse in global demand. But it could be that they fear the world wide recession more than they fear inflation. The contraction in global trade and national GDPs has investors fleeing for the safety of bonds. This allows governments to print money and expand the monetary base with apparent impunity.”
–“Yes. Why, there in Australia where you’re sleeping, the government is going to announce a budget in May which may include a $50 billion deficit. This is a country that had a surplus just a short time before.”
–“That’s not as bad as my home country. In the U.S., the government is going to run a trillion dollar deficit this year. And it’s told everyone that number will double. But it doesn’t seem to have dented demand for U.S. bonds yet.”
–“No, it hasn’t. And that’s because without a gold standard, governments don’t have to compete for capital as fiercely as they used to. They can all sell bonds to investors to finance deficits, provided the deficits aren’t too jaw-dropping and provided they can continue to collect taxes to pay interest on the debt. Plus, they’re colluding with one another to eliminate tax competition among countries, which gives them an even stronger grip on your wealth.”
–“I’m with you Maestro. But I don’t see where this is going.”
–“Let me show you. Governments can only raise direct taxes (income taxes) so much before it negatively affects the economy (and social cohesion), which in turns lead to falling tax revenues as real economic activity slows. So a sure sign of governments that are getting desperate for revenue is an increase in indirect taxes.”
–“You mean like the alcopops tax here in Australia?”
–“I’ve never heard of that. But if it’s a tax that the supplier of a good or service passes on to the consumer then yes, that’s exactly what I mean. It’s an efficient way for the government to raise revenue without looking like it’s being grubby, desperate, or just plain greedy. It can also claim the taxes are being raised to discourage socially undesirable behavior, but this is generally just a lie to disguise the need to raise revenues.”
–“Ah. I see. You know the alcopops tax is illegal anyway, by the way. The government collected revenue on a tax using a law that hadn’t been properly been passed by the Parliament. How is that possible? What about the Rule of Law?”
–“What about it?”
–“Never mind. You need to finish your lecture before I wake up. When will inflation result from the large increase in the monetary base?”
–“I have no idea my boy. You see at its core, fiat money greatly accelerates the rate at which scarce resources are depleted. Land, labour, capital, and raw commodities are allocated based on a demand that isn’t sustainable. If you do that long enough-let’s say for the last seventy years or so-you get an entire global economy (and population) that exists because of the increase in credit. That’s the world we live in. And it’s all falling apart with the credit depression you’ve been writing about.”
–“Wait a second Maestro. Are you saying that the scope and scale of this economic contraction is a lot greater than anyone expects because the fiat money system itself is failing?
–“You said it. Not me. But it does make sense to say that the last twenty years or so of building national economies around the growth of residential real estate and the finance sector has greatly hastened us to a day of reckoning, as your friend Bill Bonner might say. We will find out if all that investment made by banks is merely ‘temporarily impaired,’ or if it represents an enormous misallocation of our collective resources and has made us poorer for years to come.”
–“So what should we do?”
–“This is your dream. You decide.”
–And then we woke up. We’ve faithfully recollected as much of our conversation with the Maestro as clearly as possible. But what about the “what should we do” part? We have a few ideas. We’ll send them your way tomorrow.
———————————-16. april 2009 kl. 7:28 #138178Anonym16-04-2009 7:28
Foregående citat fra Daily Reckoning kun for yderligere at belyse, at moderne pengeøkonomi er svindel og bedrag af de institutioner, der skulle stå til ansvar.16. april 2009 kl. 9:23 #138184Anonym16-04-2009 9:23
Moderne pengevæsen hviler på statens implicitte involveren i, hvad der må karakteriseres som falskmønteri17. april 2009 kl. 22:24 #138288Anonym17-04-2009 22:24
Sean Rakhimov: The Calm Before the Storm
Source: The Gold Report 04/17/2009
SilverStrategies.com editor Sean Rakhimov expects the economic crisis may go on for a generation even with (or because of) all the government intervention. In this exclusive interview with the Gold Report, he tells us he expects physical gold and silver to lead the parade. When picking stocks to buy now, he says investors have to decide for themselves whether a company will survive the washout; it may be tough going from here to there, but ignoring short-term market fluctuations and sticking with survivors should prove beneficial in the long run.
The Gold Report: Sean, when we last spoke, in December, there was more anxiety about the state of the market, particularly as far as determining the bottom. What’s your view now that we’ve actually had some decent financial indicators come out in the last week or so?
Sean Rakhimov: I take a much longer-term view and, basically, the way certain things — like metal prices or market bottoms — are going to react is going to depend largely on what happens elsewhere, mostly with the government. The things we’re trying to analyze are not masters of their own domains, so to speak. I think a lot of this money printing that has been taking place is starting to filter into prices and it’s showing in metal prices, it’s showing in grocery prices, it’s showing in all kinds of prices.
In terms of a market bottom for the general market, I hesitate to predict that because, again, so many things are wrong and so many things are moving or changing that it is absolutely impossible, at least for me, to predict. What I do know is the market is going to significantly underperform vs. gold. Before the end of this cycle I expect to see the Dow-to-Gold ratio to be on par. Again, if they’re going to print another few trillion dollars (and/or other currencies), the market may go up in nominal terms. All kinds of things can happen, but I do think all this money printing is already starting to show up in prices of hard assets. It’s only going to accelerate going forward.
TGR: With all the money printing already underway and the possibility of even more, how do we begin to explain the U.S. dollar’s valuation, relative to other currencies?
SR: Somebody who is a lot more proficient than I am likes to say that the U.S. dollar is the worst currency in the world, except all the others. Basically, the entire financial system is in trouble and anything can happen. For instance, reports from places like Russia say that the population is getting out of their own currency and is trying to put their savings in U.S. dollars. There is all kinds of confusion on all levels and the recent G20 meeting only proved that there is no fundamental difference in the approach or in measures they’re trying to take or proposing to take to address the situation. I don’t think they have any idea what needs to be done. If you recall, in our last interview I anticipated that that the powers that be will fail to agree on potential solutions to these issues.
TGR: Last time we spoke, you predicted three crises would occur: a debt crisis, followed by a currency crisis, then an oil crisis. Do you feel those are still what we’ll be facing and are we through any of them yet?
SR: No, I don’t think we are finished with those by any means. I think the debt crisis is underway. Perhaps it’s evolving into a currency crisis, but there are still a lot of things that need to be worked through. I think the bond market, which is a big debt market, is going to get in trouble. Many governments around the world will probably get into all kinds of trouble with their debts.
That includes the U.S. Another big issue for the average person is that municipalities will get in trouble. Then you have the corporate bonds that have been performing better on the assumption that the corporate bondholders will have priority access over the equity stakeholders to assets of struggling companies. I think that’s a false notion, in that there are not going to be any assets to be had or there are not going to be enough to go around, because those assets need to be sold in order to be distributed to bondholders, and they’re not going to be sold for much. I’m making a general statement here, but basically I don’t think the corporate bond market is going to do well. The banking sector is in trouble, the consumer is in trouble, there’s all kinds of credit card debt, and commercial real estate is another big bubble that’s going to pop.
So I don’t think the debt crisis is over yet and the way we’re addressing it, of course, is by issuing more debt. That’s not going over too well, so the governments are resorting to printing money outright. I think that’s going to continue and will eventually lead to a currency crisis, so we’ll probably have another year or two of this sort of slow sliding into a major crisis. I don’t think there’s a clear-cut beginning and end to these crises, and I don’t think the big picture has changed.
TGR: If we’re in the debt crisis, but not yet at the currency crisis, how will gold and silver react? Will it be flat until we get to the currency crisis?
SR: Probably not, because again, with these crises, there’s not a clear-cut beginning and end and in different parts of the world or in different countries or currencies they may perform differently. For instance, gold made a new high in a number of currencies, including the Canadian dollar and Australian dollar and Swiss franc. So in those countries the attention is already glued to these things and people are reacting accordingly. In the U.S. for the time being gold is doing better than silver, but it has not made a new high since 2007. In terms of the global market, it’s going to largely depend on what the governments are going to do. If tomorrow, the U.S. government announces another bailout package of, say, $10 trillion, to save the bondholders or somebody else or the municipalities, all bets are off. In that scenario, gold or silver can move up overnight.
I do not believe that at this point trying to time these markets is a good idea. I think this is the time to do your homework, get prepared. This is the calm before the storm in financial assets and investments.
TGR: Do you feel commodities, as they move into more of these bigger issues, will be one of the few investment areas that will shine?
SR: Yes. The commodities themselves will absolutely, positively do that. They will be revalued and they will take on new (old) roles, such as store of value. I think it’s happening already. In the case of some dollar-rich countries like China, Japan, and South Korea they are starting to get rid of their dollars by buying assets in the ground worldwide. Just a couple of days ago there was news about a new billion-dollar hedge fund based in Hong Kong that would focus on resources. There are going to be more and more of these; some will be public and some will be government-sponsored or owned by other entities that do not play in the public market. It’s already happening and the metal prices have inched up, some of them significantly — copper was recently over $2.00. Base metals had a bit of a jump. So this money printing is starting to have an effect, and the only place cash-rich countries can go to that makes any kind of difference to their long-term perspective is commodities.
I think the simplest way to define it for an investor is things that people need (vs. want) will go up in price and the more vital the commodity is, the higher the price will go. But the easiest way to play it would be gold and silver and, specifically, physical gold and silver. That’s your cash, basically. Once you have taken care of putting some of your assets in gold and silver, you will learn about other things that are available to you, wherever you are. For instance, in Africa it could be gold or diamonds and in Brazil it could be agriculture and oil. In Mexico it could be silver. I think gold and silver are crucial for cash preservation and at some point in the future in one form or another they will be used to acquire other goods and services.
TGR: Since you’re talking about physical and using it to convert in terms of purchasing power, how do you view actually owning the physical metal, and having it stored somewhere vs. an ETF or something like the Central Fund of Canada Ltd. (NYSE.AMEX:CEF)?
SR: I think all investors should have some gold and silver coins. For instance, if they’re going to gold, the amount of metal the size of your Blackberry will be about $50,000 worth. That’s a sizeable amount. It’s very small and very easy to put away. In silver, it would probably be a little more challenging because it’ll take a little more space and it’s heaver, but I assure you the time will come when it will stop being bulky and heavy. So, depending on each person’s preference and abilities, they should choose one or the other or a mix of the two. There are types of accounts (e.g. retirement accounts) where you may or may not be able to buy physical metal. In that case, things like the Central Fund of Canada would be a good choice.
TGR: How are you viewing silver now compared to gold? I believe the ratio is now very large between the two. Over the next few years, would you expect silver to perform better than gold or just continue to mirror it?
SR: I am absolutely convinced that during this cycle we will see the gold-to-silver ratio in the 20 range, which means silver would outperform gold by at least by a wide margin. Silver is poor man’s gold, more widely used and available in smaller denominations. Hence the overall demand for silver will be higher. This has been well demonstrated in the recent shortages of retail investment products in gold and silver that resulted in high premiums as compared to large bars that traded at spot price.
TGR: Many individuals are saying gold and silver are great for insurance policies, but real investments should be made in the mining companies.
SR: I have two different opinions on that. On the one hand, I agree that generally and historically mining shares did outperform the metals, at least the most successful ones, three to one. On the other hand the metals usually outperform their respective indices. This is a very important to understand: the best gold stocks will do better than gold itself and will be excellent investments. But there is no way for everyone to own only the best stocks and avoid the losers, someone will end up owning the losers and there will be a lot of more of those than winners. This was easily observed in the last tech boom, which gave us spectacular winners such as Oracle, Cisco and others. But there were scores of losers that didn’t survive and many people, including yours truly, lost money in those.
If you feel that you can pick the winners, by all means buy resource stocks. On the flip side, if you are not sure, then stick with the physical or at least take care of the physical first.
The last couple of years have been a testament to that approach that myself and some others, like David Morgan, have been the proponents of for the longest time. I can give you an example. My stock portfolio is down over 50%; my physical portfolio is up. And there will be other times like these that will test your convictions and your patience. I have pretty strong convictions about the metals and the economy and currencies and the way things going to play out, so this type of environment does not necessarily scare me. It is very unpleasant and trying, but I don’t see any alternative. If you have a better plan of how to navigate these waters, I am listening.
TGR: Are there some companies that you can share with us that you’re looking at that fall in that category of picking the right company and sticking with it?
SR: I’ll give you an example of one that we discussed previously. SilverCrest Mines Inc. (TSX.V:SVL) is a junior that operates in Mexico: their project there has a feasibility study. The share price has declined with the rest of the market over the last year. Then it rebounded from the bottom by around 300% in the last four to five months. To me a company like that is worth holding and looking at whenever it gets cheap because I believe they will build that mine and they actually, as of today, still plan to be in production by year end. They’re waiting for some permits and they’re working on financing and they’re working on mine plans. You might have to hold through thick and thin in some situations where you have good reasons. This company would be one of them.
The project they have has low capex cost and they anticipate a one-year payback. I like those odds. I like the people that are working on it. Can they be successful? I think so. Will they be successful? We’ll see. In the meantime, the market can do all kinds of things and for all kinds of reasons. You have to stick to your guns and adjust your strategy based on solid reasoning as opposed to impulsive reactions to market fluctuations.
TGR: Are there other companies like that that you’re looking at and saying, hey, there are good fundamentals here—the market has just misjudged it and panicked?
SR: For the majority of investors, in the silver space, I like Pan American Silver Corp. (TSX:PAA) (Nasdaq:PAAS), one of the bigger companies, and Silver Wheaton Corp. (NYSE:SLW). Pan American put two mines in production in the last month. They expect to produce 21.5 million ounces this year. Now they should be profitable at that, but if silver goes even halfway up to where I think it’s going, that’s going to be one blue chip company. Silver Wheaton is another one that should benefit from higher silver prices. I think they’re profitable at current silver prices, but pretty soon they should also be getting the benefits of their investment in Peñasquito, the big mine that Goldcorp is putting in production. When that kicks in it should add about 10 million ounces to production, so that’s going to be a lot.
In the junior space, I think investors should look very carefully at whatever companies they’re either holding or considering, and have good reasons for either. The market will test their conviction — absolutely no doubt about that. Silver market is very volatile, and all kinds of things can happen in the short term. Mining and exploration are among the riskiest businesses out there.
TGR: You’re also following Fortuna Silver Mines Inc. (TSX.V:FVI) and Kootenay Gold Inc. (TSX.V:KTN)?
SR: Yes, those are two companies that I keep track of. Kootenay Gold is a company founded by Jim McDonald, who has a very good track record of finding deposits that become mines. I know of at least two. They recently put out a press release saying Kootenay made three new discoveries, which doesn’t happen a lot, and that’s on top of their flagship Promontorio project. I expect the company to do well and I think it’s in good hands. Compared to the rest of the market, their share price has done remarkably well.
Fortuna Silver is another company that I like and that company is a producer, with a mine in Peru. What makes it even more interesting is their asset in Mexico, where they have a gold-silver asset in Oaxaca. They plan to put that project in production next year. So that should beef up the company’s balance sheet and improve its prospects tremendously. This year Fortuna plans to produce 1.6 million ounces of silver in Peru at a cost of about $2.00 (net of base metal credits). Provided things work out the way they plan, they’re going to do well there and the project in Mexico, once it’s in production, should significantly change the bottom line.
TGR: Are there any last insights you want to give us in terms of our investor readers?
SR: Well, if I have one message for investors, I would recommend that they use this time to evaluate their own situation, their job, and where they live in preparation for what is ahead and take action. I think it is particularly important on this stretch because the world they live in will be very different three to five years from now, to the negative.
TGR: Sean, we appreciate your time and your insights once again.
In a previous life, Sean Rakhimov designed financial systems to support different areas of the investment banking business. He seized the opportunity to learn about options trading, securities lending, payments processing, clearing and settlement, fixed income securities and margin transactions. He’s not only been putting those learnings to work ever since, but also sharing them with others, with writings published on such internet portals as Le Metropole Café, 321Gold.com, SilverMiners.com and—of course—The Gold Report. Sean, who has been involved in a number of research projects for renowned silver guru and newsletter writer David Morgan, now publishes and edits his own website, SilverStrategies.com .
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