The Gold Report: Since the last time we chatted in July, Bob, a lot has happened. Congress raised the debt ceiling, as you predicted.
Bob Moriarty: Right.
TGR:Then the Super Committee failed to produce an agreement so we can look forward to the automatic debt reduction of $2.2 trillion.
BM: The Super Committee was totally illegal and unconstitutional in the first place and it was totally ineffective. They couldn't reduce spending by $1.5 trillion over a 10-year period. Give me a break.
TGR: Okay. Moving on. . .Unemployment remains at about 9%.
BM: You say 9%? I don't think so. How about 23%
TGR: The list goes on. Occupy Wall Street protests have sprouted up all over the country. And of course, Newt Gingrich is the leading Republican candidate.
BM: That anyone could even consider Newt Gingrich for anything above the role of dog catcher is pretty terrifying.
TGR: There's more. We've seen riots in Europe, with the epicenter in Greece. We've got a weak German bond market.
BM: Weak? It was a total failure; 39% coverage is a disaster. Germany is the bedrock of the EU, and if they can get bids for only 39% of bonds it's over—over—for the EU.
TGR: The Italian bonds coming up should test that theory.
BM: Italian bonds are paying 8% or something like that. It can't do it. The Greek two-year bond is paying 160%. The one-year bond is paying 270%. Greece has defaulted. Italy, Spain and France are going to default. It will be a series of cascading bank defaults. Dexia Bank failed a month ago. The banking system is under water. I've been saying that for years. It's true.
TGR: So looking at this whole developing picture, from the crisis in Europe to the U.S. debt debacle, from stubborn unemployment, protests and riots to the upcoming presidential election—what do you make of all of this?
BM: The piece I wrote in early October captured it. I said things were about to get "fugly" and it's time to head for the bunker.
TGR: In your Nov. 11 article, you stated specifically that you'd climb out on a limb and suggest that 2012 will go down in history as the year of bank failures. How do you see that scenario playing out?
BM: Okay. Here's what's important to understand and very few people understand this. If you start off with $1 million and loan it from one institution to another to another to another, you may have a net of $1 million. But if somebody defaults and that $1 million asset disappears, you get cascading defaults of every institution that had that $1 million asset. It's really simple. The Greek default—and Greece has defaulted even though they won't admit it—will cause a default in Spain and Italy, and that's going to cause a default in France and that's going to cause a default in the U.S.
TGR: And what happens when they default?
BM: The banks close. What can we do? We have more debt in the world than assets, so we have to write off the bad debt. Unfortunately, no government in the world is talking about that. The only people talking about it are Gerald Celente, Kyle Bass and me.
TGR: But bank foreclosure is more than writing off bad debt. That creates catastrophic. . .
BM: It's a good thing if a business fails, because that means somebody who is efficient comes along and picks up the slack. We do not need to reward failure in the banking system. We need to reward success.
TGR: Could the banking system write off a portion of the debt?
BM: Nah, they are under water now. It's a zombie banking system and has been since about the middle of September 2008. Just a while ago, at the end of November, the Federal Reserve disclosed $13 billion in profits to the banks from the trillions in loans they made back in 2008 that they've been lying about ever since. They were bailing out Barclays, Royal Bank of Scotland and lots of other banks that had nothing to do with the United States.
TGR: Is there a banking system that will survive these cascading defaults?
BM: The question should be: "Can you have a banking system that is sound and secure?" And the answer is yes. The Canadian banks are in a lot better shape than the U.S. banks. A sound, secure bank cannot have those zombie assets, such as the mortgages that we know people are not paying off. Half the mortgages in the United States are under water, with 25% in default. Those mortgages must be written off.
TGR: Couldn't a component of the banking system—some of the regional banks in the U.S., particularly those that have written off some of those mortgages and are really more about loaning to local businesses and local communities—survive a banking system failure?
BM: The banking system in the United States is a network of giants and the regional banks really don't exist anymore. I don't have specific numbers but I think the big five banks probably represent 90% of the banking system. That leaves no fallback, really.
TGR: When the U.S. banks close, you're in the Cayman, but what happens to the rest of us?
BM: Since Bretton Woods in 1944, governments have been spending money they don't have and it's time to pay the piper. A lot of people's "assets"—Social Security, pensions, Medicare, Medicaid—will evaporate. They'll disappear. We need to go back to a real world economy where people produce things of value. We need reasonable taxes. And we need a reasonably sized government that doesn't spend beyond its means. This is true of individuals as well as governments.
TGR: How do people waiting in line for pensions, Social Security, Medicaid, etc. . .
BM: That money has to come from somewhere. Anything the government gives one group has to be taken from another group. The net is it costs you money to have the government provide healthcare, Medicare, Social Security. We would be far better off if the government didn't provide these things. We didn't have Social Security 100 years ago and people were fine. When I started working 40 years ago, people still had pensions from their employers. By and large they don't have much of that anymore.
TGR: Unless they're government employees.
BM: Yeah. Then you are going to get paid twice what the private sector is getting paid.
TGR: Your November article also said what you have been suggesting for months that cash is the best investment people can hold. In fact, you concluded with these words: "It's time to stay in cash and head for the bunker." As you mentioned before, "times are about to get fugly."
BM: Right.
TGR: Do you include cash equivalents such as gold or precious metals under that "cash" umbrella?
BM: No, I mean cash. The best investment to be in for the last six months was cash, U.S. dollar cash. Even Gerald Celente had a six-figure account with MF Global and the money simply evaporated. Without cash, people who go to bed wealthy will wake up poor.
TGR: All the goldbugs say that will happen if you keep your money in fiat currencies too.
BM: That's not necessarily true. At times, investing in fiat currencies is a good deal. If you were investing in U.S. dollars in March 2008, you would have been better off that fall than you would with any other single investment. Gold went from about $1,200/ounce (oz) to $700/oz, while silver went from $21/oz to $9/oz. The stock market crashed. The gold juniors crashed. Sometimes being in cash, U.S. dollars, is a good investment. It's been a particularly good investment for the last three or four months.
TGR: Because your analogy goes back to 2008, when we had a severe crash, is it fair to extrapolate that you're predicting another severe crash?
BM: We are going through a crash right now.
TGR: If that's the case, why should anyone be in equities?
BM: You can't ever invest 100% in anything. No one can guarantee the future. All you can do is hope you get it right 55% of the time. Cash, U.S. dollar cash, has been a good investment since this past April, and it's still a good investment. Europe is about to blow up and the dollar is a safe haven. There is a lot of deleveraging going on. And, as in 2008, the U.S. dollar is a good place to be. And cash is better than having the money in T-bonds, with a negative interest rate.
TGR: You are expecting the banking system to collapse, and banks typically hold cash. What value is the cash if the banks fold?
BM: You can buy things with it.
TGR: So you're saying people should physically hold their cash in their homes?
BM: I do. I have some money in the banks to pay bills, but mentally I have written off every cent in the bank. I accept the fact that I will go down to the bank one day and the ATM won't work anymore and the bank will be closed. You can have cash sitting in the bank, too, but at the same time you have to understand the great danger with the banks. While I wouldn't sit on a half million dollars in cash at home, if I had it in a bank I would be prepared. I think everybody should keep three to six months in liquid assets, and that certainly would involve cash and gold and silver. Cash and gold and silver will be very valuable when the banking system collapses.
TGR: If the banking system collapses, how long will it be before new banks emerge to take over the fundamental role of banking?
BM: It's not "if" the banking system collapses; "when" would be more accurate. You simply cannot justify the banking system today. The sooner we get to whatever comes next, the better off we'll be. My opinion is that all fiat currencies will crash, and when they do, we'll go back to a gold standard.
TGR: How quickly can we develop a gold standard from the annihilated banking system?
BM: It depends on how big the riots are. Governments never act. They only react. If we have riots in every major city in the United States and hundreds or thousands of people a day are being killed, the government may actually take some action that would make sense. That would be to say, "We have a financial system that doesn't work. We need to go to a financial system that does work." Gold and silver work and they have worked for 5,000 years.
TGR: Do you see a situation where the government would start a national bank?
BM: God, I hope not. That would be adding fuel to the fire. I think that "unlimited stupidity" and "government" belong in the same sentence. But if the government started a national bank, that wouldn't be unlimited stupidity―that would be infinite stupidity.
TGR: Earlier you made a point about having to be right only 55% of the time to move forward with a balanced portfolio. Let's assume that an investor has some hard assets now, in safe havens, with some at home. At that point, does this investor turn to the market?
BM: Yes. I just bought 100,000 shares of a company that did a financing at $0.80 in April. It now has $0.46 per share in cash and its stock is selling at $0.23. If I can buy cash at $0.50 on the dollar, I'll do it.
TGR: So you are looking for opportunities with a company's value below its cash balance.
BM: Any time you can buy at a discount, that's a good deal. If you can buy a dollar for $0.50, the upside is $0.50. We see this happening every 10 or 15 years. In the summer of 2001, a number of stocks that were selling for less than the cash they had on hand doubled or tripled or quadrupled when the market turned around. In September and October of 2008, something like 200 companies were selling for less than their cash on hand. A Russian silver company was selling for $0.20 on the dollar. You simply cannot get a more favorable environment than buying cash at a discount. Any time you have that opportunity, you should throw money at it.
TGR: So, what companies are you finding that have cash at a discount?
BM: People are going to have to look for them themselves. All the figures are available to everybody. I use Stockhouse and StockWatch and look at the ratios.
TGR: We're hearing that capital is so hard to come by, yet we found at the San Francisco Hard Assets Investment Conference at the end of last month quite a number who were getting capital.
BM: Those deals had actually been set up for months. The last few weeks the financings literally just stopped. Everybody is in a total panic now. I watched stocks drop 25% and I have to tell you, it was pretty scary even though I was one of the guys forecasting it. When a company loses 25% of its value in a week and there is nothing wrong with the company, it's scary. A lot of times I see things happening that scare me and I don't want them to happen. I talk about them because I have an obligation to talk about them.
TGR: Could you talk about the kinds of companies that are actually building their value?
BM: In August 2008 the Philadelphia Gold and Silver Index, which is a measure of pure psychology, went to the lowest level it had ever been in history. Stocks were cheaper in August, September and October 2008 relative to gold than they had ever been. But gold was $700/oz. Silver was $9/oz. And they got clobbered. So it's natural that big gold and silver shares got clobbered too.
Now, we have $1,700/oz gold and $32/oz silver, and stocks are cheaper today than in 2008. That is totally irrational. Those kinds of circumstances do not continue for very long. In 2008 platinum came down to the same price as gold. Platinum is $210/oz cheaper than gold today and that has never before occurred in my lifetime. I don't think it's occurred in history. That's an example of something that would be a very good opportunity.
TGR: So if the juniors are on sale, are the majors also on sale?
BM: Yes.
TGR: How should investors begin looking at the whole plethora of mining companies to decide which ones really create the value?
BM: My priority would be junior production stories. You've got Timmins Gold Corp. (TMM:TSX.V; TMM:NYSE.A), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BLV), Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:Fkft), First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:Fkft; FRMSF:OTCQX), Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A) and Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL; RIOAF:OTCQX). There are dozens, dozens of good production stories. Nobody quite knows where the price of gold and silver will go, but anybody in production now is literally minting money. You would have to be profitable. You couldn't possibly not be profitable.
TGR: You wrote about Meadow Bay Gold Corp. (MAY:TSX.V; MAYGF:OTCQX) back in October. Is that still an interesting story to you?
BM: It's a really funny story. It totally screwed up its drill program. It was drilling for an epithermal vein system and hit a porphyry system. The significance of that is that porphyries are really big, so instead of having potentially 1–2 million ounces (Moz), literally overnight it went to having 3–4 Moz potential.
When I made that same comment about screwing up the drill program with Meadow Bay's chief geologist, he laughed, because if you're going to screw up by finding a much bigger deposit than you thought you had, that's a really good deal.
TGR: You'd called it a no-lose drill program. Did you know it was going to come out the way it did?
BM: It had announced one hole—a porphyry hole. As soon as I knew it was porphyry I understood the future was bright indeed. That's a really good company and it is doing a really good job.
TGR: Do you have a preference toward production of gold versus silver?
BM: Silver has attracted a lot of attention with people who simply don't know what they are writing about. And they attract all the nutcases. You can make a lot more money shorting silver than you can going long silver because people get totally irrational. There is no shortage of silver. We are not about to run out of it. The ratio over 100 years has been 47:1—47 ounces of silver per ounce of gold. In a financial collapse, the ratio actually goes higher. I could see silver going to 100:1 before it goes 30:1. But, the primary factor in the price of anything is the cost of production. Silver costs $6–8/oz to produce, so $32/oz silver is pretty expensive.
TGR: So you would want to look at junior production companies that would still be profitable with silver at $10/oz?
BM: The silver companies would still be extraordinarily cheap even if silver went to $15/oz.
TGR: Do you have any other companies with no-lose drill programs or other nice surprises in store on your radar?
BM: Dozens of companies have done exceptionally well. I just came back from two weeks in Colombia, where virtually everything is a slam-dunk. Sunward Resources Ltd. (SWD:TSX.V) is going to be announcing really extraordinary results. It already has about 8.6 Moz. That's an extraordinary amount of resources for a company only two years old.
TGR: If Sunward is still drilling, how big might that get?
BM: A lot bigger.
TGR: Double?
BM: Could be.
TGR: In what timeframe?
BM: Two years.
TGR: Any others you'd care to mention in Colombia?
BM: Colombia Crest Gold Corp. (CLB:TSX.V; EAT:Fkft), Red Eagle Mining Corp. (RD:TSX.V), B2Gold Corp. (BTO:TSX; BGLPF:OTCQX), Bellhaven Copper and Gold Inc. (BHV:TSX.V), Solvista Gold Corp. (SVV:TSX.V) and Continental Gold Ltd. (CNL:TSX). But, there are 36 listed companies in Columbia, and I don't think you could go wrong investing there.
TGR: So Colombia as a region is a good play.
BM: It's a phenomenal play.
TGR: You're also big on Africa.
BM: I used to be, but Africa is getting really stupid. Tanzania's come up with suggestions and changes to the mining laws. Ghana's started getting greedy. In every business cycle when the cost of the commodities goes up countries start thinking, "You know, we hate to see these guys making all this money so we need to make sure it won't happen."
TGR: So Africa's fallen out of favor.
BM: Australia, Peru and Argentina are also getting stupid.
TGR: Do you hold better hope for the U.S. on the mining front?
BM: The U.S. has some really wonderful properties in Arizona, Nevada, Idaho and Oregon. The western part of the country was wealthy due to mining and we are going to go back to that. I think the U.S. will split up into a series of five or six nation states. Florida has nothing in common with California and California has nothing in common with New York. But again, the U.S. as we know it might not exist a year from now.
Take a look at what I said a few years ago about riots in the United States. Occupy Wall Street started in September. It was a peaceful demonstration. There was no crime. There was no violence. The police started it by barricading young women behind the net and then spraying them in the face with pepper spray.
Occupy Wall Street hit a nerve in Americans and spread all over the country. When it got to Oakland, the police decided they needed to up the ante, so they started firing teargas grenades in the face of an Iraqi War veteran from 10 feet away. If I did that, I'd be in jail for attempted murder. Since a policeman did it, he got away with it. They beat another protester so severely with batons they put him in the hospital in critical condition with a damaged spleen. They have pepper-sprayed priests, 84-year-old women and pregnant women. And these are all peaceful protesters.
The key to understanding what is going on is the police continue to escalate the violence. The next thing will be something similar to Kent State, where they plant an agent provocateur who will fire a gun into the air and the police will take that as permission to start shooting protesters. When that happens, it will literally start a civil war—and it could happen any day.
TGR: That's not like citizens of one state going against citizens of another state because they have fundamental differences.
BM: No, it would be a civil war of peaceful citizens against a violent, corrupt, out-of-control government. We have every bit of that now. The police are the ones doing the escalation, and sooner or later Americans will start defending themselves. If it had been my son or daughter who was shot in the face, I don't know what my reaction would be. Those protestors all have parents and brothers and sisters and friends. I'm shocked at the willingness of police to escalate violence against people who are no threat to them at all. It could get really bloody really quickly.
TGR: Why do you think this is Occupy Wall Street and not Occupy Pennsylvania Avenue?
BM: The term should be AWA—Americans with an Attitude. I think that these protests are underway in 113 cities, so obviously a lot of Americans in a lot of locations are angry.
- 23% of Americans are angry because they're unemployed.
- 46 million Americans are angry because they are on food stamps.
- 50% of mortgage holders are angry because their mortgages are under water.
Big business owns government. You have to go after big business. Barack Obama and this administration are totally controlled by external forces. They are controlled by Israel, Wall Street and the media. But we do not have an activist government that's actually doing anything. It's totally corrupt, bought and paid for. Everyone in Congress, with the exception of Ron Paul, has turned into a pimp.
TGR: That's why congressional approval is as low as what―18%?
BM: 7%. The devil does better than that. Someone did a survey a week or so ago comparing Congress to Satan and Satan came up with an 8% approval rate.
Convinced that gold and silver were at their bottoms, and wanting to give others a foundation for investing in resource stocks,
Read more posts on The Gold Report »
No comments:
Post a Comment