This month we present a staff interview of Independent Living Senior Contributing Editor Seth Van Brocklin. The interview covers a wide range of timely issues that are important to investors.
Some analysts were predicting a big crash this fall. Where are we now with the markets?
It’s a dangerous time for investors, in my opinion. Yes, the stock market is still holding up insofar as it hasn’t crashed. But the upside bias that has been in place since 2009 appears to be giving way to increasing downward forces. The technicals and the fundamentals underpinning the U.S. stock market are both deteriorating.
By fundamentals, presumably you mean the economy?
Yes, the economic numbers as well as the earnings outlook for corporate America. Earnings growth is anemic at best. Valuations are stretched. Corporate stock buybacks could continue to support equity prices, I suppose. But they do nothing to boost actual sales or earnings growth. In the absence of a strong economy, a strong stock market is highly suspect.
If the economy was strong, then the Federal Reserve would have raised interest rates by now. The Fed genuinely wanted to. I don’t think they were lying earlier this year when they said they would likely raise rates. They were just using the wrong economic forecasting models.
Here I should give credit to Jim Rickards. He called out the Fed early this year, back when the consensus was that the central bank would raise rates by September. Rickards said no, the Fed wouldn’t raise rates, because policymakers are data dependent and the economic data won’t come in as rosy as they think. He was right.
Look at the workforce participation rate. It’s at generational lows. Look at the retail sales figures for October. They came in much worse than expected.
Wal-Mart shares took a huge dive. They’re having trouble moving inventory. They’re going to have to lower prices on big-ticket items to try to undercut online retailers. Wal-Mart’s profit margins are already thin, so deeper discounting isn’t good for shareholders. It’s good for consumers, but the Fed doesn’t care about that. Janet Yellen and company want to see rising price levels, not falling price levels.
Speaking of rising price levels, you have long advocated precious metals as part of an inflationprotection strategy. Yet inflation hasn’t taken off like many gold bugs were predicting.
What’s your take on what went wrong and where things are headed?
Well, first off, it’s important to acknowledge that a lot of the forecasts and pronouncements made by gold and silver gurus have been wrong. They can blame manipulation. They can claim they will be proven right in the end. And maybe in a few years with gold at $5,000 an ounce they’ll be gloating about how they predicted it.
But the point is, almost no one in the hard money camp believed that it was possible for the Fed to pump so many trillions of dollars into the banking system, into the mortgage market, into the bond market, without creating an inflation problem in the real economy. We underestimated the extent of the deflationary forces the Fed has been combatting.
Now to my credit, if you’ll allow me, three years ago I did tell Independent Living subscribers that in a worst-case scenario gold could fall to $1,000 an ounce. Did I expect gold to get that low or to get as low as it has for as long as it has? No. But it was an alternative scenario I allowed for.
We’ve never advised people to put everything into precious metals based on false declarations of a definite bottom. We’ve always stressed the importance of diversification, of having a backup plan. And certainly precious metals should play a role in that.
Gold and silver prices stabilized over the summer and started moving higher in October. I know you can’t say for sure whether the bottom is in, but are you encouraged at this point?
Yes. I’m encouraged that gold and especially silver represent good value compared to stocks, bonds, and cash. I do think that gold ultimately will get to $5,000 an ounce – maybe higher. A lot of very serious, wellrespected investors who aren’t gold bugs have turned bullish on the precious metals. Jim Rickards has been spot on with his recent economic forecasts, and he’s very bullish on gold.
Even if there is no currency crisis in store in the near future, precious metals still look attractive on a supply and demand basis. The mining industry has been decimated. Mines around the world are scaling back operations, laying off employees, and, in some cases, shutting down entirely. So the ability of the industry to meet any kind of rise in demand with a rise in output has been hampered.
And demand for physical bullion has been very strong this year. 2015 may set an all-time record for sales of Silver Eagles. The only reason why it wouldn’t is because the U.S. Mint literally can’t keep up with demand. The Mint has been rationing out supplies of silver coins it makes available to dealers.
So there is a raging bull market underway on the physical side. And in my opinion, it’s only a matter of time before things turn around in a very big way on the price charts.
What about the argument that precious metals are being rendered obsolete by new innovations such as Bitcoin?
Well, some crypto-currency true believers make that argument. They say that in any kind of financial crisis or currency crisis, people won’t be rushing into gold or bartering with junk silver. They’ll be using digital currencies that they can access on their smartphones.
There’s certainly merit to the idea that modern technology makes it unnecessary to carry around physical coins in your pocket. But you know, as much as gold bugs get ridiculed for their doom-and-gloom scenarios, the digital bugs seem to me to be even less realistic in their utopian idealism.
A lot of them think Bitcoin is going to not only make gold obsolete as money, but it’s also going to take down the Federal Reserve, prevent governments from waging wars, and end poverty in Africa. All this utopian stuff isn’t coming to fruition. Bitcoin is still down 70% from its all-time high.
Even though Bitcoin is a new phenomenon, the argument that it will replace gold isn’t really new. It’s the same line you heard from paper fiat money bugs.
They said that eliminating gold and silver backing from national currencies would make precious metals irrelevant. But the only way governments can actually make gold and silver irrelevant is by banning them from being traded privately. As long as markets are allowed to function, metals will continue to serve as an important monetary barometer. There’s a reason why the world’s most powerful money masters – the central bankers – still hoard gold and don’t hoard Bitcoins. It’s because gold remains the ultimate money. Gold doesn’t need to circulate in the form of coins in order to function as money. It can sit in vaults in the form of bullion bars and serve as backing for digital currencies. I mean, which would you rather hold for the next 30 years –$1,200 in Bitcoins backed by nothing or an ounce of gold?
The thing is, an ounce of gold doesn’t have to be in the form of a coin. You can have $1,200 in some kind of gold account that represents a full ounce of gold in a bar stored in a secure, fully insured vault somewhere. That’s where platforms like Bitgold can emerge as superior alternatives to Bitcoin. If you can get the convenience and versatility of digital money combined with the solidity of real gold backing, you can have the best of both worlds.
So I don’t see the rise of digital currencies making gold obsolete. Far from it.
Let’s turn to another subject you often write about – demographics. What kinds of demographic trends should investors be paying attention to now?
Demographic issues are really at the forefront of the news coming out of Europe and Syria. Here in the U.S., demographic issues are behind the rise of Trump Republicans. Last month, Lee [Bellinger] wrote about the Trump phenomenon as an expression of voter backlash against GOP sell-outs and the left’s sanctuary cities and other illegal immigration programs. In a sense the political wars taking place in this country are really, when you get down to it, demographic wars. The left and the right are fighting over the future makeup of the American electorate.
But the demographic fate of nations isn’t just about immigration. Japanese prime minister Shinzo Abe recently appointed a demographics minister. He’s charged with helping boost Japan’s ultra-low fertility rate. The way things are currently going Japan’s working population will be cut in half over the next 50 years. They’re headed for a demographic death spiral.
As is Europe.
But Europe is taking a very different approach to addressing the problem. The European Union is demanding that all EU countries take in masses of refugees from the Middle East and Africa. Germany is leading the way by taking in 800,000 migrants – mostly Muslim, almost all from outside Europe. It’s truly an unprecedented demographic transformation that’s underway in Europe. They’re essentially importing populations to replace the native European ones that are dying off. Some are calling it the great replacement.
It’s one way to avert a population decline. But Japan has decided not to pursue population replacement. Care to guess how many refugees Japan has admitted over the past year?
A lot fewer than 800,000, I would imagine. Maybe more like 8,000.
More like 11. Literally, Japan admits no more than a dozen refugees in any given year. The United Nations, Amnesty International, and other globalist groups have been pestering Japan to bring in more refugees and put them on welfare. But so far, the Japanese refuse to give in. They’re willing to give more than their fair share to international aid programs, but they’re not willing to turn over their cities to high-risk foreign populations.
Japan has some of the safest large cities in the world. I’ve walked the streets of several of them – from Tokyo to Kyoto to Osaka. I never had to worry about getting mugged or being the victim of the knockout game. It doesn’t happen in Japan. The most dangerous Japanese cities have violent crime rates that are a fraction of a typical American city, let alone a typical Third World city.
I know I’m giving a long-winded answer here, but it’s a very important subject. And because it’s so controversial, hardly anybody wants to talk about it frankly for fear of saying something politically incorrect.
That’s certainly true. But given the demographic realities you described, are there any investing implications?
Sure. Countries with declining populations will have difficulty growing their economies and stock markets. Countries with rising populations will get a demographic bump.
The countries that are projected to see the biggest population increases this century are mainly in Africa. They will likely remain poor in terms of standards of living. But in terms of their total aggregate consumption and the total size of their economies, they are bound to grow.
I would definitely be looking at investing in the places with the highest growth rates. That includes Africa, the frontier markets of Asia, and the emerging markets.