The Gold Report: Just reading the papers today, we’re seeing lots of interesting news. We see GM has come out of bankruptcy, we see Goldman Sachs, BofA and Citigroup all recording record profits. We’re even hearing, in some cases and some places that home sales are increasing. What is going on?
Bob Moriarty: That’s an example of how total the distortion is in the news media in the United States. First of all, 96% of the news media is controlled by six people. Their vested interest is not in telling the truth; their vested interest is in selling products. What we call the news media is really better termed a propaganda media. It’s all propaganda.
Let’s take, for example, year-on-year railway shipping of automobiles is down 49%. Nobody in creation could honestly believe that GM is in better shape now than they were a few weeks ago. Coming out of bankruptcy is a legal maneuver; it’s not a financial maneuver. They’re out of bankruptcy; it’s perfectly true and perfectly meaningless at the same time. The government now controls GM.
As negative as I am toward American management in business today, the only people who are far worse would be government bureaucrats. For example, in mid-July I saw Paulson’s testimony about how they threatened bankruptcy when BofA’s negotiations with Merrill Lynch almost came unglued. Bank of America President Lewis didn’t take care of his shareholders, which he has a legal obligation to do. He pandered to the government and Paulson said, “We’ll just replace you.” Since when did we become a communist society or socialist society? It’s no longer capitalism; it’s government control of industry.
On one hand, we’ve got the financial system totally controlled by Goldman Sachs. On the other hand, we’ve got government control of Chrysler and GM and major segments of the economy. We have the worst of all possible worlds.
As to the record profits you mention, we’re in a depression. If these guys are making money, it’s because they’re manipulating the markets and stealing from the taxpayers. There’s a difference.
TGR: We have this big push for more government oversight and if we already are allowing banks to steal money, what will additional government oversight going to give us?
BM: Congress gave these guys the ability to steal. There’s been something like $14 trillion total in government guarantees and loans and giveaways. In 5, 10 or 20 years from now, we’re going to look back and say this was absolutely unbelievable. That money is simply evaporating. The government talks about the deficit going over $1 trillion dollars this year. In the first six months, the actual debt of the United States increased $2 trillion. On a $14 trillion economy, the debt is going to go up $4 trillion this year. That’s never happened before in history. It’s just absolutely amazing.
TGR: Speaking of debt, as you probably know, California is not hinged on either financial industries or the auto industry, but it’s been paying government contracts with IOUs.
BM: California is a disaster waiting to happen. It could fire every state employee and still not balance its budget. California has the eighth largest economy in the world and although they threw together a budget at the 11th hour, the prospect of having to declare bankruptcy still looms.
One thing that no government bureaucrat will do at any level in the United States today is decrease spending. We’re bankrupt; we can’t afford to pay the debt that we already have. Obama is just expanding power and size of government enormously. What we must do at all levels is reduce government spending and these guys don’t want to do it. The government always wants to increase their power, not decrease it. The way they gain power and votes is to spend money. So they say there’s no alternative.
TGR: Isn’t it true that no U.S. state can declare bankruptcy?
BM: Oh, of course, they can declare bankruptcy. Cities go bankrupt all the time; so can states. We have 37 states that are not going to be able to balance their budgets.
This is so simple and it’s been happening for millennia. Periodically you go through a time where there’s too much debt. You’ve got to wipe out debt and start all over again. Nobody wants to admit that. California’s not going to pay their debts, and neither is the United States. They can’t.
TGR: Thinking about potential bankruptcy and the debt of the Federal government, one of your common themes is that there will be riots in the streets. You talk about this on an international level, but you also apparently expect it to also happen in the U.S. So far, it hasn’t happened. Do you think part of that is because social legislation is making the U.S. population complacent?
BM: I don’t think so. I will say the U.S. population is complacent to just an incredible degree. We saw a lot of attention focused on Iran over charges of malfeasance in their elections. The last two presidential elections prior to Obama coming in were absolutely stolen by the Republicans. It was so crooked, it was unbelievable the American population didn’t do anything. But when I’ve talked about rioting in the streets in the United States, you can look and see what’s happening in China right now. Everybody in the world is sitting on a powder keg and it would take very little to ignite that and it absolutely is going to happen. The fact that it hasn’t happened yet doesn’t mean I’m wrong. It just means I’m wrong with the timing, but my call was for this summer and we’ve still got some summer to go.
TGR: Shifting from social unrest to financial unrest, when we last interviewed you, you were talking about the $600 trillion of outstanding derivatives and the potential—if it begins to unravel—of putting heavy selling pressure on the financial markets. Do you see that beginning to happen?
BM: Absolutely. The big crash that took place from last July through November was unusual because it had far more to do with unwinding or deleveraging of derivatives. For the first time in about 10 years, derivatives actually went down. I’ve been making the comment since 2001 that derivatives were a financial time bomb and the bigger they grew, the bigger the explosion was going to be.
Here are the numbers you need to focus on. According to the latest figures put out by the BIS (Bank of International Settlements), derivatives decreased by about $100 trillion from July through December 2008. But for derivatives to deleverage $100 trillion, it wiped out $50 trillion worth of net asset value. For us to knock that $600 trillion to something more manageable—like $50 trillion—could wipe out $250-$275-$300 trillion worth of assets. There isn’t $300 trillion worth of assets in the whole world.
So the simple explanation is that there is far more debt in the world than assets to cover it. We have not come to grips with that. We’ve not seen the bottom of the stock market and I believe there will be a massive deleveraging starting shortly. The bankruptcy of CIT or the situation in California could well be what starts it.
TGR: Do we necessarily have to unwind all of the debt? Can’t we live peacefully with some amount of derivatives?
BM: No. With derivatives, people bet on things that make no financial sense. There’s nothing gained financially. It’s a giant crap game, where everybody’s playing with Monopoly money, and the game is rigged. I’ve been saying that for years. I’m the last guy in the world to believe in conspiracy theories, but Goldman Sachs just brought criminal charges against one of their programmers for stealing a software program that allowed them to front-run their own customers. I think 87% of their trades were profitable and they were doing $100 million a day in profit. They were stealing from their own customers.
TGR: How is it they’re suing this programmer and not the management?
BM: The programmer stole the code and was going to take it to another company. But in their criminal complaint, they said the software would allow someone to manipulate the stock market—that the software was designed to manipulate the stock market.
TGR: If the papers are filed and they’re admitting that the software is designed to front run and cause abnormal profits, why isn’t someone bringing Goldman Sachs to court?
BM: Goldman Sachs owns our government. The government of the United States is a subsidiary of Goldman Sachs.
TGR: How do we break that link?
BM: We go bankrupt, we have riots, we have a revolution. You hang people from the nearest yardarm.
TGR: Your conversation about the riots and the bankrupt and the further crash in the stock market goes back to something you’ve been saying all along—to invest in gold and silver. In fact, you suggested that the percentage of gold and silver in investors’ portfolios should equal the probability of financial collapse they expect. You’re talking about 100% probability for financial collapse, and the last time we talked, you were 100% in gold and silver and various forms of it. But your recent writings suggest that you’re moving out into some other sectors now. What’s the story?
BM: I was a little bit inaccurate in what I said. Here’s a more accurate way of putting it. The very most important thing that anyone can do for themselves and for their family is to have an insurance policy of physical gold, physical silver or physical platinum. Those are insurance policies. Once you get past the insurance policy, the very safest things that you can invest in right now are producing gold or silver mines, near-term producing gold mines or energy.
The scary thing about energy is that it goes up and down. Natural gas right now is an absolute disaster. Nobody is making money in natural gas. We could still have more declines in the price of natural gas and oil. However, we have passed peak oil. Demand has continued to increase even with a depression and we’ve got not only peak oil, but we’ve got peak food.
Potash is interesting. Potash hasn’t come down very much. It got up to about $1,000 a ton and it’s about $550 a ton now. There are three or four or five really good potash companies and I think they’re very attractive.
But you want to invest in real things, tangibles that produce something that is valuable in real-world Economics 101—silver, gold, platinum, potash, oil and natural gas. So when I talk about gold being insurance against financial collapse, all of the rest are, too, to varying degrees.
TGR: Thank you for clarifying that. You mentioned your focus on producing or near-term producing gold and silver. You’ve been saying this all along, and in fact, we give you credit for calling a couple of great companies in this sector. One is Evolving Gold (TSX.V:EVG), which just this week has gone up 225%. You also called Minco Silver Corp. (TSX: MSV).
BM: Those are not great predictions on the part of Bob Moriarty. The stock market got absolutely creamed last October and November, so hundreds of stocks were up hundreds of percent. That said, I really like Minco and Evolving Gold. I like Passport Metals Inc. (TSX-V:PPI.V) in potash. I went to see Great Panther Resources (TSX:GPR) and Endeavour Silver Corp. (TSX:EDR) (NYSE.A:EXK) earlier this month. These are producing companies with good management and those are exactly what you want to be buying. I also saw Silvermex Resources Ltd. (TSX-V: SMR) on that trip.
TGR: What’s new with these companies?
BM: I was the first person to ever write about both Endeavour and Great Panther, and I’ve reported on them since then. I’ll be following up on the reports that I did a couple of years ago. I’d never been to Silvermex before. Interestingly enough, it’s run by the same management of Timmins Gold Corp. (TSX.V:TMM). But I am extremely biased as anybody who knows me knows and I love Mexico. I think it’s a great mining environment.
TGR: Any others on your radar?
BM: I just recently visited Hawthorne Gold Corp. (TSX.V:HGC), too, a near-term producer in Canada. They own a mill in Jade City, BC, and they’re going back into production. Pediment Gold Corp. (TSX:PEZ) (OTCBB:PEZGF) (FSE:P5E) came out with an announcement in mid-July that they’re going to get started on a drill program at their gold project in Sonora. I want them to do what they’re doing; I just want them to do it faster. Timmins is on track. They’ll be producing gold either the third quarter or fourth quarter, good management, good project. They’re financed now. And these are all kind of things that you want to be looking at.
TGR: Are there any other companies that you’d like to point out as potential rising stars?
BM: I came across a really interesting company that’s very attractive called Commerce Resources Corp. (TSX.V:CCE) (PK SHEETS:CMRZF) It has the world’s next tantalum and niobium project; it’s still an exploration play at this point.
TGR: Any more?
BM: Actually, there are hundreds of gold companies, silver companies, resource companies selling very cheaply. They are cheaper than they’ve ever been relative to the price of gold and silver and that creates good opportunity. Gold is very cheap at $940, silver is pretty cheap at $13.40.
But it’s important to understand that even though prices have come down, the supply of commodities has dwindled faster than demand has decreased, so we could see explosions in the price of copper or lead or zinc or niobium or tantalum or silver or gold. There will be a lot of surprises to the upside. Shares of resource companies are still at record lows, so you could see lots of companies go up 1,000%. Evolving Gold is one of my favorites. It got down to 14 cents in November and has been trading around $1.80 recently.
TGR: With supply falling faster than the demand, what other metals should we be watching for surprises?
BM: All of them. We’re all familiar with the concept that demand for metals goes down when you go into a depression. That’s absolutely true. Rail car shipments of metals in the United States are down 40%. But the key is a lot of these mines have high-cost operations, and when the price of metal goes down, they just put the mines into care and maintenance. So the surprise in the metals will be a surprise to the upside.
TGR: When do you expect all of the government’s infusion of currency into the system to produce inflation?
BM: Everybody is talking about deflation. We don’t have deflation. Housing prices may be down, but we have inflation and it’s a lot higher than most people realize. Ignoring the reported numbers because any government numbers today are fantasy, what do you suppose the core inflation rate is today? What do you feel from your experience?
TGR: I would say not quite double digits.
BM: You called it very well. I’ve told people for years that their own experience is as good as or better than anything else. John Williams from shadowstats.com is saying that inflation is close to 9.5%. That’s what the real numbers are. We have a lot of inflation right now and it’s only going to get worse.
TGR: But at the same time, aren’t a lot of the discount stores in essence keeping prices capped?
BM: They are. The opportunities are shocking now. It’s extraordinary. I’m just knocked out when I go to the stores and see the number of items on sale.
That said, though, the consumer is broke. If you don’t have the money, it doesn’t make any difference if there are sales going on or not. But for the core items, I see a lot of things going up. I just sent a book, interestingly enough, overnight from Florida to Colorado. For a five-pound book, it cost me $42. I was in absolutely shock. I thought it would be $10 or $15 or maybe $20 tops.
TGR: Any parting comments?
BM: There are opportunities, as I said, but we are not out of the woods. The economy is not recovering. Unemployment is still shooting through the roof and things are going to get far worse before they get better. We have another crash coming this fall.
TGR: We look forward to one day when we say things are looking up.
BM: We’re going to have to smarten up first. We can’t keep doing incredibly stupid things like all these recovery programs. They’re nothing but giveaways for the vested interests.
DISCLOSURE: Bob Moriarty: I personally and/or my family own the following companies mentioned in this interview:Evolving Gold, Minco Silver, Passport Metals,Pediment. At 321gold.com we receive money for advertising from the following companies: Evolving Gold, Minco Silver, Endeavour Silver, Great Panther, Passport Metals, Pediment, Timmins, Commerce Resources.
Wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought 321gold.com to the Internet almost nine years ago, and later added a second resource site, 321energy.com, which coves oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on the current events affecting both sectors. Before his Internet career, Bob was a Marine F-4B pilot with more than 820 missions in Vietnam. A Captain at age 22, he was one of the most highly decorated pilots in the war.
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