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Weekly Market Wrap

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Trump & Mnuchin Send Mixed Signals on the U.S. Dollar

Jim Rickards: You Must Own a Monster Box; N. Korea Close to Being Able to Destroy U.S.

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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear the explosive conclusion of my two part interview with Jim Rickards. Find out what Jim has to say about not just gold but also silver, and where he thinks things are headed between the U.S. and North Korea. Don’t miss this fascinating conversation with Jim Rickards, coming up after this week’s market update.

Gold prices advanced this week to an 18-month high, entering a zone of critically important levels on the charts. As gold bulls sought to push prices up to a 4-year high mark of $1,375 on Thursday afternoon, bears clawed back and regained some lost ground. In volatile trading late Thursday, the gold market swung from $1,365 to roughly $1,340 an ounce.

As of this Friday recording, gold trades at $1,352, good for a 1.4% gain on the week. The silver market checks in at $17.39 per ounce after rising 2.0% since last Friday’s close. The white metal still needs to get above the $18.50 level in order to take out its highs from last year.

Turning to the other white metals, platinum is unchanged for the week to trade at $1,017 per ounce. Palladium shows a slight weekly drop of 1.7% to come in at $1,089.

A big tailwind for metals markets so far this year has been the declining U.S. dollar index. On Wednesday Treasury Secretary Steven Mnuchin said he welcomed a weaker dollar. He argued that it benefits America’s manufacturers. Left unsaid was that a weaker dollar benefits the massively indebted Treasury department by eroding the real value of its IOUs.

Previous Treasury secretaries have tended to publicly champion a strong dollar while working behind the scenes to manage its decline. Mnuchin’s frank talk about the administration favoring more dollar depreciation caused currency traders to dump dollars early Thursday in volatile trading that saw the buck get pushed back up by the end of the day, although it’s pulling back again here on Friday.

President Donald Trump weighed in on the dollar Wednesday.

Donald Trump: We are doing so well, our country is becoming so economically strong again, and strong in other ways too, by the way, that the dollar is going to get stronger and stronger, and ultimately, I want to see a strong dollar.

President Trump seemed to contradict his Treasury secretary and his own previous statements indicating that he favors a weaker dollar. But the main point here is that investors should pay less attention to pronouncements from officials and more attention to what policies they are actually pursuing.

The Trump Administration is clearly pursuing policies that lead to currency debasement. More stimulus through tax cuts and bigger deficits through aggressive spending are at the heart of Trumponomics.

This week the president announced an even bigger price tag for his ambitious plans to rebuild the nation's infrastructure. Instead of $1 trillion in new infrastructure projects, the new figure is $1.7 trillion in overall investment over the next 10 years.

To a large extent, Trumponomics has been good for the stock market, good for job creation, and good for taxpayers. But it definitely hasn’t been good for the value of the currency on international markets. If the dollar continues to fall, inflation will become more of a headline problem. And that will bring more attention to gold and silver as hedges against the ravages of inflation.

For now, precious metals remain off the radar of the mainstream financial media. It’s still an opportune time for savvy contrarians to steadily accumulate hard money on the cheap.

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Well now, without further delay, let’s get to the conclusion of my 2-part interview with Jim Rickards – renowned author, economic commentator and financial insider. And we’ll start out by finding out what Jim has to say about what the smart money is doing right now to prepare themselves for coming economic turmoil.

Jim Rickards

Mike Gleason: Jim, you're a very well-traveled individual who has his finger on the pulse of what's going on, not just here in the states, but around the world. I know you were just in Europe. Is complacency an issue all over the globe or is it just a Western World thing or an American thing? What are people thinking and doing in other parts of the world? I know that's a pretty broad question, but just speak to complacency and what others are doing here to protect themselves for what may be coming.

Jim Rickards: Well, it's definitely worse in the United States. I would say that if you go to China ... I was in Beijing not long ago and the guy I was with said, "Hey, I want to show you something." We drove around in almost like a sleazy neighborhood in Beijing, but we turn the corner and there's this thing. It's lit up like Time Square. It was a gold emporium – we were there pretty late at night, I don't know if it was open 24 hours a day – but it was certainly open after normal business hours. It's lit up like a football stadium and there's all red carpets and inside they had these gold hostesses and they were wearing these long silk dresses and they were walking around with trays of bars and coins and jewelry and display cases everywhere. And they were doing a huge business, so gold is very much in demand in China, both for personal wealth and officially.

The thing you have to remember about China, they don't have that many options. They run up huge trade surpluses. Individuals are making money, but they don't have that many choices to invest in. They can't invest in foreign stocks. They can't take the money out of the country, at least not very easily the way we can. Like if Americans want to invest in emerging markets or Turkey or Europe or Japan, it's easy to do. Whether it's a good idea or not is a separate issue, but it's not hard to do. But that's not true in China. They're pretty much confined to their own stock market and their own real estate market, both of which have behaved as bubbles and have collapsed from time to time. People look around, what else can I invest in? I think stocks are a bubble. I think real estate's a bubble. I can't invest overseas. I don't want to leave my money in the bank. What can I do? Well, you can buy gold and they do. And the government's buying gold as well.

By the way, Russia and China have both tripled their gold reserves in the last 10 years. If you use 2006, slightly over 10 years. If you use 2006 as a base line, Russia has gone from 600 tons to almost 2,000 tons. China, same thing, from 600 tons to almost 2,000 tons. Although, China no doubt has more ... the 2,000-ton figure is the official number, but they actually have a lot more than that that they keep off the books. The country is officially buying it, but the people are buying it also. I see a lot of interest in Australia and we just spent 10 days in Australia very recently and I see the same interest in Europe. The people who don't get it are Americans. I don't know why. Maybe it's because we have the dollar and the dollar's the major global reserve currency. Maybe Americans don't get out enough.

There's a surprising statistic, only 16% of Americans even have passports, 16%. That's the percentage who even have passports. Of those, most of them no doubt use them to go to the Caribbean, or Canada, or Mexico, or Bermuda. Maybe they take a trip to London or Paris once a year, Italy or something on a vacation. The number of Americans who have actually been to China or for that matter, Japan, Australia, or Africa, or anywhere else, is very, very few. Look, I don't blame people if they haven't been around, but you should understand that it's a big world out there and there's an enormous demand for gold, but I don't see it in America. I think Americans will be the last to catch on.

One of my concerns and one of the things I tell people about is when this financial panic hits and the price of gold starts skyrocketing and, of course, you'll wish you bought it sooner, but then people will say, "I want to get some." They'll actually find they can't get it, that the dealers will be backordered. The mint will be back ordered. Maybe big hedge funds or institutions will be able to lay their hands on some, but you'll actually find that it's physically hard to get. So, that's one more reason to buy it now independent of the price. I recommend it. I own it. I advise people to own it. I recommend physical gold. Gold mining shares, if they're selective, they're a leverage play on gold, but I do recommend physical gold and safe non-bank stores. Don't put it in a bank, but there're plenty of reliable insured, bonded, vault operators out there that you can rely on. But get it now while you can, the price is good and it's available and if you wait, neither one of those things may be true.

Mike Gleason: That's certainly the world we live in as a national dealer, we've seen many times where it has been difficult to come by and what we've seen in the past might be just a glimpse of what's to come when it gets really crazy. You talked about some of those drivers that is going to help gold. Obviously, a potential global financial crisis would be a big one of those. Any other headwinds, war? What do you have to say about some of the other potential drivers for gold here?

Jim Rickards: Well, war with North Korea I think is on the horizon, sad to say. Right now, there's a little bit of a détente going on. Obviously, it's prompted by the Olympics, but North Korea and South Korea are talking to each other. That's a good thing. They're going to march together in the Olympics. That's a good thing. The hotline is turned back on. I'm not saying those are bad things, those are all good things, but they're not very meaningful because none of them can divert Kim Jong-un from his goal of having a large arsenal of inter-continental ballistic missiles tipped with hydrogen bombs that can basically destroy civilization in the United States. That's his goal. He said so. He's beaten every milestone.

Notice, if you went back two years and had classified intelligence community estimates of when will he have a hydrogen bomb, when will he have an ICBM? When will he be able to miniaturize? When will he improve his guidance systems? They were all saying 2021, 2022, 2023. Nobody thought he'd get most of the way there in 2017, here we are 2018. So, he's exceeded expectations. He's dangerously close to being able to destroy the United States. The President and others, and I've met with Mike Pompeo, Head of the CIA, General H.R. McMaster, the National Security Advisor and they just say categorically that Kim Jong-un will not be allowed to have these weapons. There's no fuzziness. There's no "we need to use containment" and détente and diplomacy and sanctions and all that stuff to keep him on his best behavior. No, that's not what they say. They say, "He can't have the weapons." Kim Jong-un says, "I'm going to get the weapons." Well, you're on the path to war and there's nothing about the Olympics détente that changes that.

I'd push back the timing a little bit, maybe from the spring to late summer, but before the end of this year, this is going to come to a head. You could be looking at ... I think you likely will be looking at a shooting war with North Korea and I don't have to tell listeners what that's going to do to the price of gold, so one more reason to get it today.

Mike Gleason: Well, finally Jim, as we begin to close, any thoughts on what's ahead for gold maybe more specifically throughout the course of the year, some of these headwinds and tailwinds that you're talking about coming into play? Maybe comment on the cryptocurrencies. You touched on that briefly. I know have an opinion or two about that. Basically, talk about these anti-dollar investments and where you see things headed in those asset classes where you see the most value and so forth as we begin to wrap up.

Jim Rickards: Well, I like gold. I like silver. I talk about gold a lot and I write about it and I give presentations. Usually, the first question, is well, "Thank you Jim. What do you think about silver?" The answer is I love silver. I think silver has a place side by side with gold. There's no way gold's going to go to $3,000, $4,000 an ounce without silver chugging its way to $40, $50 an ounce. Silver's dynamics are a little bit different than gold because there are some industrial applications, but there's no question that it's a monetary metal and it's along for the ride. And I always recommend that people have a "monster box." A monster box is 500 American Silver Eagles, fine pure silver that comes directly from the Mint. It's in a nice Treasury green case. It's sealed. It's actually wrapped up with a compression strap that United States Mint on it.

The 500 coins at retailer commission will run you about $10,000, but everybody should have one. To me, it's like battery and flashlights. Hurricane's coming, you get your batteries, your flashlights, your water. Maybe you take a few other precautions. You ought to have a monster box of silver because the power grid goes down, which could happen for a lot of reasons and not just natural disasters. The ATMs are shut and the credit cards don't work and the debit cards don't work and the cryptocurrencies don't work. You walk in with five or six silver coins, you'll be able to get groceries for your family. Believe me, that'll be legal tender when the time comes, so I recommend that, gold and silver.

As far as cryptos are concerned, I have spent a lot of time researching this. I get beaten up on Twitter all the time. The trolls are out. You're a dinosaur. You don't understand it. All that stuff. In my more sarcastic modes, I'll usually say something like, "I was writing computer code before you were born," which is true in the vast majority of the cases, but my point there, I understand the technology perfectly. I read technical papers. I have the privilege of working with technologists.

I've been inside the IBM Idea laboratory. I've met the head of their hyper ledger fabric, a version 10 Project that they contributed to The Linux Foundation. Hyper ledger fabric is part of the distributed ledger technology. That's the successor to the old coin keep Blockchain that IBM is working on. There're are new coins coming out all the time, so I get the technology. But, my point is a lot of these technologists don't understand monetary economics. You have to understand both. You have to understand the technology for sure and you have to understand monetary economics. If your goal is to turn digital technology into money, you need to understand both, and I do have a foot in both camps, but a lot of the technologists don't really understand the money side of it.

So, here's what I would say. There's just mass, mass confusion. People are, and I don't blame people. This is all new. It's changing by the week. It's changing by the day, but people don't separate between the coin and the platform of the technology behind it. They take Bitcoin and the Bitcoin blockchain and they're like, "Well, they're the same thing." Well, no they're not. The Bitcoin is a token or coin that you can in theory use as currency, but the Blockchain is your foundation. By the way, there's more than one Blockchain. Somebody's yelling at me the other day about the Bitcoin Blockchain. I said, "Yeah, there's a Bitcoin blockchain, but there are a hundred Blockchains. There're probably a thousand blockchains out there at this point and they're not all the same.

Not all crypto-currencies are the same. Not all blockchains are the same and there are crypto-currencies that I could even recommend that I like, but not Bitcoin, not Ethereum, not Ripple, not Monero, not all the ones that people are all spun up about. But I make the point if you want to go to the world of fiat currencies, not all fiat currencies are the same. They may all be paper. They may all come off a printing press. They may be in digital form. They may be created by central banks, but there's a big difference between the U.S. dollar and the Zimbabwe dollar. There's a big difference between the euro and the Venezuelan bolivar and so forth.

In other words, they're not all the same and that's what I say about crypto. Don't get lured in by the word crypto. Don't get lured in by the word blockchain. Understand the difference between the currency and the Blockchain, which it uses as a platform. Understand the differences. There're all different kinds of blockchains. They're not the same. They use different technologies. There's everything from a Federated Byzantine agreement to proof of work, proof of space, proof of stake. There's now, I saw another one today about proof of, proof of work or something like that. Look, it is the wild west, but you can get a handle on it, but my point to listeners is that it's technical stuff. If you're going to take advice, get someone you can rely on and I'm not anti all cryptos, I'm just anti some cryptos. I actually have identified a five-factor formula for distinguishing the good, the bad and the ugly, so I'll be talking more about that in the weeks ahead.

Mike Gleason: Well, Jim, once again, it's been a real pleasure to speak with you and we greatly appreciate your time, as always. Now before we let you go, please tell our listeners about what you're working on these days, more about the newsletter. Maybe, how they can get their hands on any of your books or anything else that people may need to know if they want to follow your work more closely.

Jim Rickards: Sure, my most recent book, and thank you for mentioning it earlier, is The Road to Ruin. By the way, all these books are available on Amazon or local book sellers or Barnes & Noble. The Road to Ruin, which is a New York Times bestseller. The book before that, maybe listeners are interested, is called The New Case for Gold. It knocks down all the anti-gold arguments and then gives the reader a lot of pro-gold arguments and a glimpse of the future. I'm working on a new book now. It won't be out until next November. I'm not really ready to talk to you about that yet, but there'll be a new book coming out November 2018.

My newsletters, I'm with Agora Financial. Actually, we have a new imprint, part of Agora Financial, called Paradigm Press, but my main newsletter is Strategic Intelligence, but we have a number of other what we call backend publications, Project Prophecy, Currency Wars Alert and Rickards' Gold Speculators. You can find all that if you just go to Agora Financial website and hunt around a little Bit. You'll find me and find our publications. I'm very active on Twitter, which is @JamesGRickards. That's my Twitter handle and one more platform, which is Collide. It's basically a video sharing platform. I do quite a bit there. So, thanks for asking and I'm out there on all those platforms and hope people enjoy it and get something out of it.

Mike Gleason: Excellent stuff. Well, we're grateful that you took the time to share your incredible insights with us today. We certainly look forward to our next conversation. I hope you enjoy your weekend. Thanks very much. We appreciate the time, Jim.

Jim Rickards: Thanks Mike.

Mike Gleason: Well, that'll do it for this week. Thanks again to Jim Rickards, author of Currency Wars, The Death of Money, The New Case for Gold, and now The Road to Ruin, and also editor of the Jim Rickards’ Strategic Intelligence newsletter, be sure to check those out.

And don’t forget to check back next Friday for the next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend, everybody.

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