Rick Rule on Scarce Commodities, the High Price of Gold and the Sale of Global Resources
The Daily Bell is pleased to present an exclusive interview with Rick Rule.
Introduction: Rick Rule began his career in the securities business in 1974, and has been principally involved in natural resource security investments ever since. He is a leading investor specializing in mining, energy, water, forest products and agriculture. A popular public speaker, Mr. Rule is a featured presenter at investment conferences and resource investment forums throughout the world. Rick Rule has originated and/or participated in several hundred transactions over the past 30 years, including both debt and equity in private, pre-public and public companies. These private placement activities have involved companies on six continents.
Daily Bell: Thank you again for sitting down with us.
Rick Rule: It is a pleasure.
Daily Bell: You indicated back in July that you would have a fairly major transaction in the next 2-3 weeks. What was it?
Rick Rule: We have agreed to sell Global Resource Investments and the affiliated companies to Sprott Inc., who is probably Canada's premier global resource oriented money manager. Eric Sprott is somebody who I have known and admired for many years and everything that I have tried to do, he has managed to do seven or eight years before I did. He made the transition from a big brokerage firm to his own brokerage firm, which I did, followed by a decade. He made the transition from brokerage firm owner to money manager, which I did. But most importantly, Eric succeeded in institutionalizing himself, surrounding himself with a high quality group of people.
So what had been a job became an investment and a business, Sprott Inc. That was the next stage in my career for a bunch of reasons. So we have agreed to a transaction where we are acquired by Sprott in an all stock transaction. I will become the second largest shareholder of Sprott Inc. I will be a director of a public company for the first time in my life and I'll be the second largest client of Sprott. In other words, I will have more of my money managed by Sprott, with the exception of course of Eric himself, who has most of his money managed by the firm.
Daily Bell: Congratulations. Can you expand?
Rick Rule: Sure. If you Google Eric Sprott, you will see by reading some of the posts and references, the extraordinary value of the Sprott brand. It's interesting to note that the Sprott brand was not developed by advertising but by performance. His five-year performance, his ten-year performance, his 15-year performance – all have been excellent. The only resource manager who has spent less money on advertising than Eric, is me because our expansion has been performance based as well, so we are really merging two performance based cultures.
Eric has grown from 40 million dollars of assets under management 10 years ago, to six-and-a-half billion dollars of assets under management today, and as I say, largely through organic growth and performance. We believe that the next major platform for the firm's growth is in the United States.
The US market is about twelve times the size of the Canadian market, in terms of investable funds, including seven trillion dollars in cash and money market fund equivalents. It's a market where the financial services industry is much less concentrated than in Canada, very, very fragmented, lower barriers to entry and in particular it's a market that is under served in the financial community in terms of natural resources investing.
So we think it's an absolutely prime market for Sprott to come into and we think, in all humility, that we are the perfect footprint for it. We are the largest resource oriented brokerage firm in the United States, certainly the largest with regards to micro-cap resources. We have the segregated accounts business, which is not a mutual fund business but rather a business that manages accounts for individuals. It does not co-mingle with part of a pool, which is a form of a management that is increasingly popular among high net worth American individuals. They prefer that method of asset management in increasing measure to the open-ended mutual fund format. We also have permanent assets in the form of capital pools.
An important part of the thing that has set Sprott apart from their competitors and us apart from our competitors, is that the structure of many of our products are permanent or semi-permanent, which enables us to make investments in natural resource companies for the longer term.
Many of our competitors in United States and Canada seem to have trauma holding stock over a long weekend, but in fact value is developed in these companies over time. Both Sprott and Global have proven their ability to invest in young companies, help them grow over time, and as a consequence of that make substantially larger returns than we would have had we been time constrained.
So, I think both firms' orientation and both firms product mixes are uniquely suited to each other. I guess the clincher on the transaction is that I have been attempting for two years to hire Peter Grosskopf from Cormark to come and run my business. Once again Eric beat me to the punch. When Eric hired Peter as CEO, Peter called me up and said, "Can we continue our discussions in a different format?" The answer was yes.
Daily Bell: We will follow your progress with interest. But here is a related question: Is the resource sector headed into a bubble?
Rick Rule: I think the sub-sectors of resources will be headed toward a bubble. One of the interesting things about the micro-cap resource sector is that in good markets, liquid markets, it becomes increasingly story oriented and less reality oriented. So you have these odd sector meters, which often evolve into bubbles very quickly. I think in terms of the lower quality goals we are definitely in a bubble. We are seeing companies with 60 or 70 million dollars of market capitalization that don't have any gold.
The argument of course is that as the price of gold goes up that should have some impact on them. But I also believe that we have 10 years left in the resource super cycle, that isn't to suggest that we won't have some ugly downside volatility, not unlike the volatility we saw in 2008 or the volatility we saw in 1975, when in the midst of the greatest gold bull market of all gold lost 50% of its price over the course of a year. So, I think the secular gold bull market and secular resource bull market is very much intact but I expect that we'll see extraordinary volatility.
Daily Bell: What do you think of the Canadian regulatory outlook?
Rick Rule: Unfortunately, I am from the United States and I would suggest that the Canadian regulatory climate relative to natural resources is much more intelligent than the American regulatory environment. For one thing, Canada is still a resource economy and I can call regulatory authorities in Canada who have more than a passing familiarity with the industries that they are asked to regulate. In the United States, even many of the best intentioned employees of the regulatory agencies don't have any background in resources so it's difficult for them to even know what the words mean, which constrains them in terms of being intelligent regulators. If you compare the Canadian regulatory environment to other natural resources markets in the American environment, I would choose Canada.
Daily Bell: Where is financial regulation headed these days, globally?
Rick Rule: I hope it doesn't go global. I hope investors around the world are allowed to choose between competing regulatory climates. I believe that money will gravitate to freedom and to the extent that freedom is allowed somewhere, some place, I think it will be rewarded. I think the American regulatory climate is particularly troubled because the market breakdown we had in '07 and '08 came to be regarded as a failure of the market, rather than a failure of regulation.
It is my belief that this turndown was really a function of regulatory capture. I think the whole too-big-to-fail concept, the promotion by many arms of the federal government of the mortgage industry and a large number of factors almost all of which were regulatory constrained, were the causes of the '07 and '08 decline. The demands from the public and legislature have been to increase the regulatory arena, which caused the problem.
The most efficient form of banking regulation would have been to abolish federal deposit insurance. If depositors had to do due diligence on the capital adequacy ratios of the people they were depositing their money with, you wouldn't have had a problem. But, the widows and orphans demand protection and there are lots of them. I am not sure ultimately they are being protected as much as swindled.
Daily Bell: Are you a fan of any part of the increased invasiveness?
Rick Rule: [Laughing.] No, I can't elaborate, I lose my sense of humor.
Daily Bell: What is the point of all the harmonizing of regulation now occurring?
Rick Rule: The point of harmonizing at the federal level in the United States and the attempt to harmonize at the federal level in Canada will be to avoid competition between regulators. The regulators would say a race to the bottom and the capitalists will say a race to freedom. I am not for harmonization but I do think it's inevitable. You will notice that harmonization is a key word among the collectives. They would like to harmonize tax rates on a worldwide basis too. I think it's a very disturbing trend.
Daily Bell: Is the stimulus working in America or Europe?
Rick Rule: I don't see any evidence that the stimulus is working. We are having one of these famous jobless recoveries. I think the stimulus may be working for some of the senior executives of some of the bigger investment banks. I think it is certainly working for politically connected construction contractors in terms of infrastructure projects. It certainly worked for the shareholders of major banks, many of which deserve to fail and certainly would have failed without the incredible liquidity they were offered. But succeeded at what cost? It seems to me that the difficulty we are in, in terms of credit markets is that we have lived collectively beyond our means.
Let's use Greece as an example. The idea is that Greece couldn't service its debts at 1 x GDP so you extend them a credit at 1.6 x GDP. It doesn't seem to me to make any sense. I am not picking on the Greeks, I live in California and our financial picture is bleaker than Greece. I am using them as an example. The idea that a group of people who are heavily indebted and don't generate enough economic utility to service their obligations can somehow be benefitted by increasing their obligations does not make sense. People have to invest, people have to produce, people have to save. But instead people would prefer to spend and that math doesn't add up.
Daily Bell: Is austerity going to help Europe?
Rick Rule: What austerity are you referring to? It seems that the people who embrace austerity to some measure are the Germans who are already in fairly good shape. The rest of Europe, I don't think, had any intention of embracing austerity. There's some suggestion that Greece is embracing austerity as a consequence of the increase in the size of their government. The Greek people have greeted this "new reality" by burning police cars and throwing stones. Is that, then, a net benefit?
Daily Bell: War with Iran? On the menu?
Rick Rule: I don't know the answer to that. When last I was in the Persian Gulf, my friends there suggested that Iran and the United States were engaged in a dumb-presidents contest and they were curious to see who was going to win. I think there is a lot of nervousness in the region. I certainly hope that there is no war. I am always nervous about big governments talking to each other but I am more nervous when big governments don't talk to each other.
Daily Bell: Dollar going up or down long term?
Rick Rule: Long term it is hopeless. Hopeless. I think it is going much lower. It is widely reported that what you are seeing now is a race to the bottom. We have talked about this in prior interviews. The world's reserve currency is still the United States dollar and the United States is still, despite the fact that it is weaker, the world's mouth. We are the consumer that everybody looks to and if the Chinese are determined not to let the Renminbi appreciate too much against the dollar, the rest of the world has no choice but to appreciate.
Japan can't lose her competitive position relative to China in the US export market, so they have to devalue. From my point of view, all currencies go lower. I see the only currencies in the world that don't have a domestic political constituency for devaluation being gold and silver.
Daily Bell: Is the EU doomed to break up?
Rick Rule: Doug Casey wrote a good piece on that and I think he gave a good interview with you about this. I think the European Union, much like the euro, as Doug describes it, is a kind of Esperanto currency and an Esperanto Union. I see too many domestic political constituencies that feel themselves ill served. The ones in the EU that feel they have benefitted by the union are the people that are drawing the most from it and contributing the least to it. It has happened in the United States too where the productive classes subsidize the unproductive classes at nauseam.
Daily Bell: Is the West headed toward price inflation now, or hyperinflation or is the risk still deflation?
Rick Rule: I think deflation first, and then inflation. The world-wide numbers seem to indicate that we are in a gradual deleveraging process and deleveraging processes are usually deflationary. I think the political answer to that is to print like mad, which we have seen, and then ultimately face inflation. Deflation would be healthiest. The best way to deal with those debts is to liquidate them.
Daily Bell: You thought America's bailouts were ineffective. Have you changed your mind?
Rick Rule: No, not at all.
Daily Bell: Give us your thoughts on China right now.
Rick Rule: I think China has to slow down. There is no doubt that they are in a real estate bubble and it's liquidity driven. I am very nervous about the opaque nature and the politicized nature of the banking system in China. I have some personal knowledge of that and it's very scary.
Having said that living in Vancouver, one has only to observe the extraordinary success of the Chinese, epic de espera around the world. When people from China are given a measure of freedom anywhere in the world, their work ethic and their intelligence allows them to thrive – to the extent that the communist party continues to permit gradual increases in individual liberty.
I see China overcoming the opaqueness of the banking system and am hopeful that political liberalization in China and India combined will generate enough wealth that they will pull us decadent old Westerners out of the holes we have dug ourselves into.
Daily Bell: Where do you see the natural resource sector headed?
Rick Rule: Further to our discussion earlier, we are in a secular bull market that has room to run in the context of people in the third world rapidly becoming richer as small amounts of political liberalization take over. Those poorer people when they get money spend it differently than we do. When they get money they buy things that are made of stuff.
If they live below the equator, they buy a refrigerator or an air conditioner or a newer more efficient means of transportation than a worn out bicycle. So on the demand side, demand is increasing rapidly per capita. At the same time supplies are constraining as a consequence of a 20-year bear market in resources that began in the early '80s and went until 2000. The situation where you have increases in demand and limited supply is very good for commodity prices and I don't see anything really changing that.
Daily Bell: Are we seeing increased volatility?
Rick Rule: We are, but I don't think we have seen anything yet. We are headed into a period of absolute hyper volatility.
Daily Bell: How long a run will gold and silver have? Another five years? Another ten?
Rick Rule: That is a question I am ill prepared to answer. I don't think it will be as fast as many people think it could be. I forget who said during the 70's run that there's a lot of ruin left in a country the size of the United States. I think we have a slow motion train wreck not a rapid train wreck and I think gold's upward move will be in fits and starts but steady.
Daily Bell: Is silver a better investment than gold?
Rick Rule: I think in the near term, silver probably is. My new nominal boss, Eric Sprott, has done a lot of work on the amount of physical silver that is currently available in the world to meet near term investment demand and the picture that he paints is very bullish for silver.
Daily Bell: Will the historical 15/1 ratio reassert itself?
Rick Rule: I don't really understand those ratios. I think they are irrelevant myself. There are a lot of people who like technical ratios because they need precision in their minds to help make decisions, but I think the world is much more chaotic than anything that would be represented in the context of those ratios. I think some of the things that impact the price of silver and are relative to the price of gold are esoteric, like the price of base metals. When the price of base metals is high, more bi-product silver gets produced. There are many more manufacturing and fabrication uses for silver and those types of variables don't fit neatly into a performance curve that would suggest the ratios are necessarily valid.
Daily Bell: Is oil going to head up in price?
Rick Rule: Yes, longer-term, but maybe lower in the near term. In our last interview we discussed how the supply outlook on oil is positively scary. The big multi-national oil companies don't produce most of the oil in the world, contrary to what the public thinks, rather it's produced by national oil companies – the same people who can't deliver the mail.
We have a situation worldwide where legislatures have diverted free cash flow from their domestic oil industries to subsidize politically expedient domestic programs including, ironically, subsidizing gasoline for the citizenry. This has the odd impact of increasing demand while reducing supply internally. It's my belief that several current oil exporters such as Mexico, Venezuela, Peru, Ecuador, Indonesia and probably Iran, will cease to be exporters of oil in the next five years. If you took those six countries out of the equation, you would reduce world export supplies by 25% at a time when world export demand is increasing on a compounded basis by 1.8%. Those are scary numbers.
Daily Bell: What investment criteria do you use these days?
Rick Rule: Same as always, risk adjusted, net present value. We are fundamental investors. I don't have anything against technical analysis, I just don't understand it. I'm not a creature of markets, I think markets are a facility for buying and selling fractional ownership in businesses represented by shares or fractional participation of debt represented by loans or bonds. We have employed the same discipline for 30 years – nothing changes for us.
Daily Bell: Has your strategy toward identifying promising opportunities changed in any way?
Rick Rule: It has. I am a contrarian so I try to stay out of the main stream. During the 1998-2002 period we had two things we were concentrating on, one was uranium and the other was gold. Both have performed well. Uranium having performed so well it's beginning to be out of favor to be in it again. We are looking at re-entering the uranium market. We are looking at re-entering the North American natural gas market, which is extremely out of favor and we are extremely bullish on certain forms of alternative energy, mainly hydro and geo-thermal. So, yes, we are doing things a bit more differently. There was a book published, not too long ago, saying there is always a bull market somewhere. For me, that's like saying there's always something that is overpriced if you look hard enough. You can always pay too much. Mercifully for me, there is always a bear market somewhere and there is always something that is out of favor that we can buy and hold until it returns to favor.
Daily Bell: The Internet has played an important part in the precious metals resurgence. Is Internet censorship on the way?
Rick Rule: I think that Internet censorship is on the way, but I think they are going to have a hard time implementing it. We had a well-intentioned problem ourselves where the Securities and Exchange Commission said to the industry that our website, and any member firm's website, constituted advertising and that we had to be careful about prosecution if we violated their guidelines. Well, they didn't have guidelines yet and that made it difficult for us. So I think unintentional obstruction of the free exchange of information will be a problem. But I suspect that technology and the user base will continue to outpace people's ability to constrain other people. If I didn't have access myself to some very smart young people who really understand how to navigate the web, it would be fairly easy to restrict my access to it because of my own inefficiencies.
Daily Bell: Last time we spoke you believed Chile was one of the most hospitable countries to mining. Any changes there?
Rick Rule: [Laughing.] Yes. Never have faith in a government. The new conservative guy, Pinera, has ambushed me, just like they did in Alberta. Chile has gone the way of Albertastan. I mean we both agree that the prime function of a government is to steal. There is no industry that's as much fun to steal from as the mining industry because it can't be moved to another location. I guess Senior Pinera looked at the revenue generated by the copper industry and thought, "you know, I would like to dispense that revenue." In a similar move, Alberta just decided to nationalize the oil and gas industry for a while. Chile is still better than the rest, but that's damning it with faint praise.
Daily Bell: Is the recent economic crisis over? Is America on the rebound?
Rick Rule: Absolutely not, America is in deep, deep trouble. I may have this number wrong, but if my memory serves me, we have 13 or 14 trillion dollars of balance sheet liabilities and 65 or 70 trillion dollars in unfunded mandates and obligations. I understand most of those numbers but the last three zeros to the right of the decimal points are numbers I have a very difficult time with. In the United States we have to come to realize for all our greatness, for all the innovation in the country, for all it's spectacular history and for all the incredible infrastructure that we have, we have been living a lie. We have lived beyond our means. That is going to be a true reckoning.
Daily Bell: Any articles or new books you would like to mention?
Rick Rule: I have been working so hard I have had no time for sport reading but I would like to mention a book called Stones for Schools by Greg Mortenson. He also wrote Three Cups of Tea, a spectacular book. These books are about building schools in Pakistan and Afghanistan and the effort to promote education and literacy in rural areas of these countries. Both of these books are a wonderful diversion from the gloomy realities around the world.
Daily Bell: Any closing thoughts for our readers?
Rick Rule: One of the things I touched on is about volatility. You have to prepare for this in a financial sense. It is worth remembering that in the 1970 gold bull market when gold ran from US$35 to over US$800 per ounce, that in 1975 the gold price fell by half and the gold stock index fell by more than that. The sad consequence of that correction was that the people who were right about the trend but didn't have the financial or psychological wear-with-all to stay the trade, lost all their money. They had bet right but couldn't stand tight and lost. I think you will see this same pattern in the future. On the one hand you have to be prepared for one or more 50% declines in the indexes and you have to be prepared for a set of circumstances where 25% increases and decreases are commonplace. Investors and speculators who are psychologically and financially prepared for that will benefit greatly. What volatility means is that goods go on sale frequently instead of occasionally but if you don't have the courage or the financial wear-with-all to stay the trade it can be really terrible.
Daily Bell: Thanks for this opportunity to catch up with you again and hear your well-considered insights.
Rick Rule: Thank you and I look forward to the free market comments. That's my favorite part.
This is another great interview that Rick Rule has given us, and we congratulate him on the sale of his company. His interview speaks for itself (as usual) and thus we want to take some time to explore questions that we had not composed at the time of our chat. We don't know how Rule would have answered (though we can guess) but given the unsettled nature of the global economy and the rising level of paranoia in world markets, we thought this would be an appropriate place to chart some of these perspectives.
Rick Rule says he expects the Golden Bull to run much longer – he estimates another ten years; in fact, we have predicted at least another five. That's at least how long it may take for the world's economy to un-distort from the entirely artificial valuations of resources and industry provided by the Anglo-American fiat-money hustle. Of course, many do not think the system will ever get around to fully unwinding. More and more people, in this nervous environment, are simply predicting a sudden collapse and the implementation of something "new."
This is a bit ironic for us; we're used to being iconoclastic, but everywhere we look these days we find company. Of course we wish we didn't, as for the past two years we've been regularly predicting that there might be, eventually, a collapse of Western economies and a change over to a market driven gold and silver standard within a free-banking context. In other words, no grand Bretton Woods-like scheme; no huddling of major players and the sudden announcement of a new, worldwide gold standard – simply a gradual spiraling out-of-control of the world's fiat money system and dollar reserve currency.
We have predicted this possibility within the larger time-horizon of, say, five years. To be truthful, it never occurred to us that it would happen in November 2010. But as we have long pointed out, understanding broad trends in the market is one thing; timing is another.
So ... is the world going to end next week as some are predicting – even within the feedback threads of the Bell? Again, it does not seem so based on what we understand, but then again anything is possible. Yes, there are signs that have been pointed out to us; some more serious and some less so. One such is based on a Simpson's cartoon, the video of which was kindly sent to us by a concerned (and savvy) feedbacker. The cartoon is supposed to contain various Illuminati symbolism that predicts perhaps a currency meltdown, a nuclear attack or some other false flag event presaging a US state of emergency or even the initiation of world government.
There are other reports of such an event. An anti-NWO gentleman who has developed some sort of event-driven Internet software is claiming that the next week shall be an especially dangerous time for citizens of the world and especially of America. Part of the paranoia stems from Barack Obama's departure from Washington DC with much of his court, er, entourage, er staff. With the President and his retinue out of Washington, the stage is set for almost anything.
Certainly, we have noticed the steady rise of gold and silver as a result of Ben Bernanke's second round of "stimulus." The idea among some (and we have written about it) is that Bernanke is deliberately ruining the dollar in order to force other governments to go along with Western power elite plans for a one-world currency run by the IMF. Bernanke is attending a "party" at Jekyll Island where the Fed was founded and the coincidence of two large-scale gatherings of the elite (Obama in India and Bernanke off the coast of Georgia) has triggered even more musings about what is going on.
We don't discount the speculations swirling around the Internet as idle chatter. The Internet's alternative media has its spooky side but it is also inhabited by some very smart people. On the other hand, we still tend to believe as we wrote recently that the gloomy reports sweeping the 'Net could be part of a kind of promotion to drive up the prices of gold and silver in order to manipulate the market back down, shaking out small, leveraged investors and breaking the momentum of the metals markets for the near term. To summarize:
1. The Chinese and the BRIC countries generally are far from being on board with any global currency, especially an IMF-run bancor as the Anglo-American axis still controls the IMF for all intents and purposes.
2. Given that the BRICs might not agree to any kind of world government or world currency no matter how hard the Anglo-Americans push, the initiation of global governance via some sort of false-flag event doesn't make a lot of sense. There is no consensus for world government so how would an initiating-event help?
3. Why would the Anglo-American elite be intent on ruining the dollar when there is nothing to put in its place? There are no solutions at the ready, and destroying the dollar does not seem to us a course of action that is going to give Western power elites MORE power or leverage. Quite the reverse.
These are our thoughts (absent a war with Iran, anyway). China is not happy with the US; the world generally is pushing back these days when the Anglo-American elite begins to make moves of its own. We tend to believe, as we have written before, that the elite is more likely out of options than pursuing some nefarious plot that will initiate the NWO. Bernanke's "last inflation" like the last gunfight at the OK Corral is simply an indication that he is out of bullets. The upcoming G20 meetings (for the umpteenth time) will result in more arm twisting by the Anglo-American power elite and a vaguely worded communique when the concord dissolves. But we would be most surprised if it yields anything truly concrete. The bancor will have to wait for another day.
Our take for better or worse. Gold and silver – up more (perhaps?) ... before a potential correction. World government or a major false flag even in the US – kind of doubtful in our view.
This is our intelligence. Our gnomes could be wrong.
Many Publications Have Their Swiss Gnome Sources.
Introducing Ours ...
Do you expect a false-flag event?
Are you generally stressed-out?
Here, read on ...
Many of you already know of the nearly 1,000 elves (there are a few humans too) that have congregated in our great (if "close") conference room. We have hired many of them recently from St. Nick's failing and melting operations. What we have not spoken of, however, are Swiss gnomes. In fact, the elves are replacements for many of the gnomes that used to haunt these premises with their flashing axes and swarthy faces – and have now departed for other climes, thank goodness. (Frankly, we kicked them out as soon as we could.)
Swiss gnomes as you may know are very focused on gold and silver. They tend to smell (sorry, it's true), have dirty faces, long, dank, dark hair and beards (even some of the females) and live in malodorous caves squatting near their hordes of precious metals. Sometimes they clean themselves up for extended stays above-ground with the "Big-'uns" when they sense a potential profit. They were instrumental in removing gold-backing from the Swiss franc and then turned a tidy profit on resultant Swiss central bank gold sales. This actually generated a civil war between the French and German gnomes (no love lost there) and the Bell itself received an influx of disgruntled refugees as a result.
Their fixation on precious metals is overwhelming. Many stored their wages in gold in their pointy footwear (not trusting banks of course) and after a while some of them could barely walk. They sat odiferously at our overlarge conference table with their bulging, painful, sweaty boots, grumbling and fingering their axes with sullen looks. They had a predilection toward undercooked sausage sandwiches and tended to leave breadcrumbs spread copiously about after a meal. Post-prandielly, they smoked from foot-long, belching pipes. (The males preferred stogies.) Can you blame us for wanting to us to be rid of them? Thank goodness for the elves (a second stream of problematic refugees, it is true, who come with their own improbable difficulties.)
Some of our dispossessed Swiss gnomes headed toward Brussels or cooler climes such as Sweden or Denmark. Many, it must be said, did not get any farther than EU customs. Three-foot-tall, portly but pure muscle, and dressed in badly-cured fur and ill-tanned leather with greasy, long hair, they were pulled aside and patted down. When searched, they responded relentlessly (and with deadly, violent accuracy) like the miniature sociopaths they are. They refused to go through scanners, of course. Not a one would lay down his or her axe, though requests resulted in a good deal of abruptly decommissioned equipment. An attempt was made to confiscate certain side-horns of Appenzeller ale; the results placed them, instead, in certain non-gnomish bodily orifices. There were unfortunate, even sensationalistic, international news headlines.
Some of the more clever gnomes avoided customs outright. They journeyed slyly to the EU, Asia, Russia or China using underground trails known only to them; they arrived at the outskirts of great cities and small towns and settled in as best they could. These gnomes, in fact now encompass one of the largest and most strategic financial intelligence services on the face of this planet. They are especially adept at using modern electronic communications – cell phones, laptops, ipads, etc. Like impossibly hyperactive slugs, their stubby, smudged fingers flicker across keyboards of all sizes and shapes. They are still on the payroll (though only paid a pittance). If something is going on you can be sure the Bell knows about it. They are an invaluable resource and one reason why the Bell itself increasingly stands head and shoulders above the rest of the media crowd.
Do you see him? The small, mesomorphic creature standing uncomfortably in the shadows of the crowded street, gazing distrustfully upwards at the imposing bank late in the afternoon? It's hard to make out such creatures directly, but ... you do notice him once he's pointed out; his gleaming, malevolently-notched weapon slung over one shoulder; his sullen, greasy-haired, juvenile-delinquent appearance. Yes, the one with the demeanor of an axe murderer; the swarthy, smelly, disreputable "shorty." He is one of ours; large-brained, mercurial and resentful, with a broad, runny nose that can literally sniff out gold and silver from miles away. Such is his dedication, he would chew your arm off to obtain the gold franc clutched in your severed hand.
This is the Daily Bell. This is our network. This is our strategic advantage.
We are professional meme watchers. We watch the power elite – watching us. Intelligence gathering is a dirty business, but we have the toughness, talent and far-flung resources to accomplish it. Buttressed by nearly a thousand workaday elves in our vast conference room, the Bell is equipped to give you literally moment-by-moment updates on the world's continuing financial crisis. Trust the Bell. Believe in the Bell. The mainstream media may make it up. We do not.
Posted by Jack on 11/08/10 10:36 PM
Hey, I listened to the entire Cliff High interview. And it wasn't boring.
Both Cliff & the interviewer gave a good accounting of themselves.
Furthermore, I follow Cliff's associate/friend? George Ure at his site and he also seems completely lucid and accounts for his views in an accomplished manner. And yes, I even spent 10$ and downloaded Cliffs 38 page PDF and waded thru it.
So DB, while these gents referred to above lack your 1000 gnome army, nevertheless they have views of substance. And they appear to be morally upright,conscientious,sentient beings.
Now I should acknowledge the cliff & the interviewer kinda lost credibility when they drifted to the topic (or was it inferred) that the moon was inhabited by aliens and these aliens had some sort of association with the powers-that-be. Not that it might not be Click to view link's just that the more radical an idea is.. the more proof I need to seriously consider it. He and the interviewer brushed over the outlandishness of that piece too quickly for my tastes.
Nevertheless, the bulk of Cliff's thoughts were something I view as profound insight (regardless whether his predictions for this weeks predictions come to past or not).
On another subject,
reading the previous posts in this piece above, I see much energy expended on the debate of "inflation". There seems to be two sides to the definition: 1)higher prices 2) increased money supply. My input on this would be to offer that despite the claims of many pundits/bloggers (that the Feds money-printing in these QE scams was "sterilized"), it seems that basic commodities are inflating and about to reek severe havoc on Main Street.
One can debate at length the true,exact meaning of Von Mises writings along with how many angels can dance on the head of a pin. I don't need that discourse to understand that I am being squeezed and it'll get worse yet.
Perhaps it's best if Cliff call comes to past and there is a complete breakdown,reset,whatever.
Time to move on in life.
Posted by Mark Humphtrey on 11/08/10 02:21 PM
Thanks to the Daily Bell for the interveiw with Rick Rule, who is the most intelligent investment fellow I've read in years.
The only coherent definition of inflation is an increase in the supply of money. Similarly, the only coherent definition of deflation is a contraction in the supply of money. Generally, inflation leads to higher prices and deflation causes lower prices. If inflation and deflation persist, they always cause higher and lower prices.
As Onebornfree points out, inflation and deflation can be countered temporarily by countervailing shifts in the demand to hold money. If inflation occurs and demand to hold money rises, prices will rise less. But the longer inflation is implemented, the more people tend to reduce their demand for money to hold, because swollen cash balances encourage people to exchange money for goods.
As to whether or not inflation is inevitable, the answer is no, due to the nature of fractional reserve banking. When I suggest inflation is not inevitable, I mean there is a possibility, but at this juncture, not a likelihood, that events could overwhelm the Fed (or any other central bank).
What events? Massive accelerating fear that inspires people to accumulate cash currency out side the bank system. If the demand for money to hold skyrockets in the midst of some crisis, the central bank might choose to not inflate enough, or might unintentionally inflate too slowly, to prevent prices from falling. Then the phenomena of what Greenspan termed "cascading cross defaults" (toppling financial dominoes) would end the fractional reserve banking system and deflate the money supply.
Reply from The Daily Bell
Great summary. Thanks
Posted by Financial Safety Services on 11/08/10 09:55 AM
BC:"The confusion seems to be that since the Fed can create money that deflation is not possible, that all of that credit destruction would be counterbalanced. However, that's too simplistic."
I absolutely 100% agree. It is dangerously simplistic, in fact. Real deflation [i.e. an increase in purchasing power of money relative to goods/services] is always a threat, just like inflation.The future remains unknown.
BC:" First of all, the money "created" by the Fed doesn't count as long as it remains as bank reserves (credits, which are created as payment for Treasury bonds). It's not yet "money" in the practical sense until it gets out of the banking system..."
Again, yes. As you say, that new money [QE1]cannot yet be counted as part of the money supply -it has not filtered into the marketplace via new loans by most accounts but has remained within the system, apparently mainly because the Fed changed the rules to allow member banks to receive interest payments on excess reserves held when previously they received either little or nothing [I forget which].
If true, this changed the banks incentives- why loan out money for risky loans to the private sector in an increasingly uncertain business environment when they could earn guaranteed returns by simply just sitting on their excess reserves?
Another factor complicating the "true money supply" issue is the simple fact that once the Fed creates the new money out of thin air, there is _in_any_case_,normally at least a 3 to 5 year time lag before that money gets into the economy at large, perhaps longer.
And whether or not the Fed changes the rules again at some future point to encourage the loaning out of what are currently excess reserves held caused by QE1 [or whichever], or the economy somehow adjusts regardless,and the banks are _then_ encouraged to loan out excess funds in order to make more money than they otherwise would, are two more unknown factors perhaps worth taking into account.
onebornfree @ yahoo dot com
Posted by Bruce C. on 11/08/10 07:42 AM
Upon reading the comments from other readers, I think the inflation/deflation debate is too focused on the money supply issue and "velocity".
First of all there are the definitions that must be kept clear: inflation is the increase in money and credit relative to underlying real assets, and deflation is the opposite.
Price inflation is the decrease in purchasing power of a monetary unit, which can be nominal or real, and caused by many different things (e.g., increased demand for some reason, or a limited supply, etc.). Though price inflation can be personally relevant, the macro-economic event is the fundamental issue.
Supposedly about 95% of the current "money supply" is credit and it has become very top heavy. World GDP is about $55T and derivatives alone are about $600T plus. They didn't even exist 30 years ago, and they are nothing more real than bets on " ironically " PRICE movements of various assets. Most such claims are unpayable, and when everyone starts to realize the Ponzi scheme that thy're in there will be a rush to the exits. (Remember, the original Greek soverign debt scare was due to derivative consequences, not simply because a puny little 1% Euroland GDP country would miss an interest payment.)
Ditto for various bonds: When the true likelyhood of default becomes recognized valuations will vaporize.
Anyway, it is the collpase of these absurd house of cards that will be deflationary and cause (and is causing) a lack of money in the economy " or at least a lack where it needs to be.
The confusion seems to be that since the Fed can create money that deflation is not possible, that all of that credit destruction would be counterbalanced. However, that's too simplistic. First of all, the money "created" by the Fed doesn't count as long as it remains as bank reserves (credits, which are created as payment for Treasury bonds). It's not yet "money" in the practical sense until it gets out of the banking system, and that requires lending " or outright hand outs. So far, the bank reserves are counterbalancing the bank's mortgage and credit card losses, but the rest of the economy just has losses.
In the 30's Depression, the Fed let the money supply fall so money became scarce and there was both monetary and price deflation. This time around I think Ben is determined to not let that happen again, so I think what's coming will be different, although only in detail. Practically speaking, the same kind of depression as in the 30's can be experiencd in a price and monetary inflationary environment, because most people will be unable to buy much " but because of high price instead of a lack of money.
Posted by Lila Rajiva on 11/08/10 07:30 AM
Thank you for the kind words. Something about being anonymous brings out people's true colors.
Need to read and think more about the money's supply/velocity issue. It's one of those things that are more elusive than they seem to be at first glance.
Posted by Financial Safety Services on 11/08/10 06:32 AM
Thanks for feedback.
BO:"You seem to have great faith in the conventional investment strategy of diversification. To be diversified in all manner of paper crap is in itself a profound display of confidence (prediction?)in a financial system that is crumbling before our eyes."
There are no safe investments. All investment classes [i.e stores of value] are inherently risky.
Regarding gold versus paper-unfortunately, hind sight is not 20:20, so beware!
onebornfree @ yahoo dot com
Posted by Financial Safety Services on 11/08/10 06:26 AM
"Demand For Money" Clarification:
Just in case it is still not clear to a reader what I mean by the term " the demand for money", I was/am referring to the specific tendency for individuals to hold onto their money/cash once earned, instead of spending it.
It probably would have been a lot more helpful for me to refer to it as "the demand to hold on to/save cash once earned, instead of spending it" or something like that.
So that when I boldly claim that "the real-world value of fiat money in the market place is always determined by the interactions of the two factors ,the supply of money, and demand for that supply," or similar, the word "demand" in that statement is referring specifically to the individuals psychological need/desire to hold on to an emergency cash reserve in a greater or lesser quantity than they previously had thought necessary, for their own psychological well being, and ultimately, for their actual physical survival.
Sorry for any confusion.
onebornfree @ yahoo dot com
Posted by John Blenkins on 11/08/10 04:44 AM
@ john Danforth
Thanks for the link, i agree with the premiss of your post.What is unexplained is the bookies reluctance to take such a bet. Totally out of caricature.
Posted by John Edwards on 11/08/10 02:19 AM
@ Lila Rajiva.
"So the velocity/demand for money is not a tangible thing in itself, so much as a reflection of the demand for goods and services... "
I have much to learn about finance and it's theories in practice. However, I can say with some certainty that as a small business operator, who relies on demand for my services, Lila's statement holds true for me.
P.S. I'm sorry that your blog became a target for cyberfools. Unfortunately I didn't get to spend nearly as much time reading it as I would have liked, but my concentration has been taken up by the Bell of late. What I have read I really liked and enjoyed reading. I'm sure your future will be successful !
A query ?
Money as a function or mechanism for profit through it's intrinsic ability to be speculative (because it is not self extinguishing) and irredeemable, (because banks are not required to redeem their currency in gold anymore) has always disturbed me. Partly because, until now, I didn't have access to the appropriate conceptual framework on which to hang my concerns. I knew that some people have more money than others (especially me!) and I have wanted them to redistribute some of that wealth in my direction.
However, by redistribute, I mean earn some of that wealth either directly or indirectly through purchase of my services either from that person/company, or from someone who is employed and/or wealthy enough to afford my services. (One will have a tax advantage, the other, not necessarily.)
The banks complicate this structure immeasurably with their insertion of Fiat-based money supply with it's features I described earlier. (Undoubtedly this is simplistic and I am ready to have my interpretation of these theories in practice challenged.) Bank bills with their value based on fractional reserves of banks have become a supposed store of value in modern financial parlance, yet that value can be reduced at the whim of the central bank by the printing/creating of money, proving in reality that central money supply is intrinsically destroying value and distorting the value of ALL goods and services flowing in those economies.
My query is, if what I have said holds true, would the reintroduction of the Real Bill Doctrine (with discounting), backed by a 100% gold standard have a chance to stabilize the worlds financial economies, turning the Anglo-American banking institutions into more accountable facilitators of national and international trade ?
Would it wipe out speculation ? Would that necessarily be a good thing to consider as so many now rely on some form of speculation to make/augment their income? (Even interest bearing deposits come to my mind as a form of speculation on currency values)......We certainly seem to be in trouble without defaulting on debt. Could that be reasonably done while changing systems ?
Posted by Bailingout on 11/08/10 12:25 AM
"the ultimate value of the currency at any point in time in the marketplace is [must be!] always controlled by the result of the final outcome of the two factors  total supply [however defined] and  total demand for that supply[however defined]."
AT ANY POINT IN TIME
The US Dollar has decreased in value approximately 97% since 1913 (The Federal Reserve Act) due to increased supply. The values people place on the dollar, gold, silver, housing, etc. appear to vary AT ANY POINT IN TIME due to many variables including emotions (velocity).
In the long run all fiat currencies and paper investments (speculations) decrease down to the value of toilet paper. The longest lived fiat currency in history lasted only 72 years before the engineering of the glorious US Dollar (97 years).
Gold and silver ebb and flow but in the long run have maintained their value over thousands of years. They appear to be the ultimate store of value and only a fool would store their hard earned savings in anything but these two metals during times of economic and geopolitical turmoil.
Why risk your savings for, at most, puny paper returns when the worst that can happen with precious metals is the maintenance of wealth over the long term?
You seem to have great faith in the conventional investment strategy of diversification. To be diversified in all manner of paper crap is in itself a profound display of confidence (prediction?)in a financial system that is crumbling before our eyes. You weren't perhaps one of Bernie Madoffs' favorite clents?
Posted by John Danforth on 11/07/10 10:50 PM
After reading the information at that site, I am not worried. As for global cooling, it has been predicted based on sunspot cycles, a theory that has some evidence to back it up. But predicting the weather is harder than predicting the price of stocks. The best bet of all is that there will be unseasonably cold weather in some places, and unseasonably warm weather in others. Always. Another good bet is that there will be someone all alarmed about it, portending worldwide doom. At least there is some comfort to be had about the predictions made at that site; if the cataclysm fails to happen on time, you'll know it fairly soon.
My opinion? If the weather system of the earth were that fragile and unstable, we'd probably not be inhabiting it. Sounds to me like an attempt to keep alarmism about the never-showed-up ecological disaster alive.
Here's another link to worry about:
Click to view link
Posted by Wayne on 11/07/10 09:17 PM
This statement alone makes this interview worth reading .... "I mean we both agree that the prime function of a government is to steal. " Sanity is speaking here!
Posted by Amberzone on 11/07/10 07:31 PM
The Amish may be right in many ways.
Posted by John Blenkins on 11/07/10 06:42 PM
The simpsons video is at; Activist post.False Flag November 6 Predicted by the Simpsons. Also to be found on the David Icke site
Posted by John Blenkins on 11/07/10 06:34 PM
Sorry links for above;
www Click to view link./2010/09/14 life-on-this-earth-just-changed-the-north-atlantic-current-is-gone/
Activistpost.Is the day after tomorrow happening today.
Posted by Financial Safety Services on 11/07/10 06:33 PM
LR: "Is demand for money the same as demand for goods and services? I don't think so. The demand for goods and services is always finite and varies. There is ALWAYS a demand for money, isn't there?"
LR:"There is ALWAYS a demand for money,"
Maybe, maybe not, it is impossible to know for sure. In fact its impossible to know what even constitutes "a demand for money", outside of the generalization of the psychological need/preference for some individuals to hold onto cash instead of spending it.
Besides it being impossible to know all the factors that make up the demand for money, or to even closely define it, it is not even necessary " all the individual needs to understand is that just like everything else [i.e all goods/services], the ultimate value of the currency at any point in time in the marketplace is [must be!] always controlled by the result of the final outcome of the two factors  total supply [however defined] and  total demand for that supply[however defined].
We know that there is both a money supply, and a demand for that supply. We know that all three factors; demand, supply, and final price are subject to immense variation.
That, in a nutshell, is all that _can_ be definitively known- everything else is mere unprovable conjecture about whether or not at any point in time, total demand actually exceeds total supply, or vice-versa, etc. etc.; conjecture/debate which inevitably hinges on which definitions of "money supply" and "demand for money" are being employed " basically, a complete waste of time [although very popular within certain "intellectual" circles :-)]
LR: "Is there any situation where money is not demanded?"
Although I cannot think of any off the top of my head, it would be presumptuous of me to declare that there are none, I believe. I'm sure in fact that there might be many situations when money [however defined]is _not_ demanded.
Isn't it enough to know that there is a demand, and that that demand greatly varies, in unpredictable ways, from month to month and year to year?
LR:"So the velocity/demand for money is not a tangible thing in itself, so much as a reflection of the demand for goods and services... " .
Velocity of money is _not_ the same thing as the overall demand for money, as far as I can see. Please see previous post on this issue.
onebornfree @ yahoo dot com
Posted by John Blenkins on 11/07/10 06:11 PM
@ John Danforth. Back on 16 September i was sent this.
Click to view link
How does one prove if the above science is true? Others will always oppose. So i asked 4 legal big time highstreet bookies what odds would they give for the Thames to freeze over this winter.To a man they politely refused my wager.
Hi Mr Blenkins,
Unfortunately the trading department are unwilling to offer a price on the Thames freezing between November 2010 and March 2011. I apologise for the inconvience caused.
If you have any further queries please click here to avail of our Live Help
Paddy Power Customer Service
I am amazed that paddy power a giant of the betting world is unwilling to take my wager .Perhaps i should of asked william hills what odds they might of given that you would not take a bet???
RE; The Thames freezing between nov 2010/ and march 2011,
This absolutely stunned me If you google Thames to freeze over, you will see previous years these same bookies were actively marketing such a bet generally at 100/1 Was this proof to the science? No they may well of had other reasons.What is very apparent is the bookies are spooked.I cant find any who can recall them not taking a bet. Then i found a company called Quirky bet who were advertising said bet at 100/1 approx.When i rang the operator at first he denied all knowledge of above company.After he spoke to a supervisor.They told me i could have bet at 20/1 with a max of 50 pounds which i took all be it the meanest odds in the history of such a bet.
Then i got this.
Click to view link
On the 5 oct i got 2 blogs 1 Polish and 1 Swedish both reporting
the possible coldest winter in a thousand years.These 2 bloggs were taken down very quick,as luck would have it the DB posted a link from RT confirming the other reports. I also listened to the whole of the veritas interview with Clif High, right at the end he is asked if the oil in the gulf is slowing the stream and would this make the winter bad.
Clif was very affirmative to both saying western Europe was likely to suffer most. Weather predictions are indeed very difficult.With the evidence above in particular the bookies i think my 50 pounds is looking good.
Posted by Financial Safety Services on 11/07/10 06:02 PM
@Lila Rajiva:"Velocity of money, in other words, is as important as the supply. "
I say, forget the velocity of money, its not that important-it confuses the issue. It is, in the end, a symptom [a result], not a causal factor.
Besides, there are various definitions. Keynesians and other control freaks often fantasize about controlling "the velocity"of money" to achieve the dreamed of social result. As I said "dreamed of".
Having said that, as a "symptom", velocity might be an indicator of overall demand for money, for example, a low velocity of money might be interpreted as a symptom of a general high demand to hold cash instead of spending it [for whatever reasons].
However, as students of natural/alternative medicine invariably understand, you do not get rid of a disease by treating symptoms- and so vainglorious attempts to alter the economic climate by addressing/altering the "symptom" of the velocity of money are just as much doomed to failure as are most standard western medical treatments, which focus mainly on suppressing/altering symptoms, as you no doubt are aware.
onebornfree @ yahoo dot com
Posted by Zenbillionaire on 11/07/10 05:57 PM
"I just can't see what the purpose of letting the cat out of the bag via symbols in cartoons is..."
Why do people claiming to be terrorists call newspapers and assert responsibility for heinous attacks on innocent people?
What introduces more fear, taking credit for a disaster after it happened or predicting one before it happens? Thumbing your nose at the world, making it clear that you're not just some looney with a bomb, you're an egotistical looney with a bomb and nobody is smart enough to stop you. Why do serial killers leave clues? It doesn't make sense does it?
But killing millions of people because you're bored with life doesn't make much sense either.
Posted by Financial Safety Services on 11/07/10 05:46 PM
Daily Bell:".. But in your simplified explanation you are now veering toward socialism" .
I do not see how my pointing out [as Von Mises himslef did] that the final in-market valuation of a fiat currency [its real world "price", or purchasing power in the marketplace] is always dependent on the outcome of the twin factors of the supply of that money, and the demand for that supply, is "veering toward socialism" " but if you say so :-)
Regardless, in my estimation it means that the future valuation of a fiat currency in the market place [i.e. its real worth, or purchasing power] cannot be reliably predicted, even if using the [increasingly]common predictive "tool" of fixating on money supply figures. Life, and economics, ain't that simple.
onebornfree @ yahoo dot com