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Jim Rickards: How to make money through crises and crashes and a potential Trump victory
7 minute read
Economist and Author Jim Rickards confronts the James Bond conspiracies and reveals how to make money through crises, crashes, gold, stocks and a Donald Trump victory. Recorded at Sydney’s Custodian Vaults with The Capital Network’s Lelde Smits.
Lelde Smits: Hello I’m Lelde Smits for The Capital Network. Joining me here underground in Sydney at ABC Bullion’s Custodian Vaults is author and economist Jim Rickards. Jim, wonderful to have you here again.
Jim Rickards: Great to be with you Lelde.
Lelde Smits: Jim, you are just about to release a book [The Road To Ruin: The Global Elites’ Secret Plan For The Next Financial Crisis] in which you have referenced James Bond’s Spectre. Can you explain the reference, and also, are you writing fact or fiction?
Jim Rickards: This is non-fiction, these are economics books. I’m talking about the international monetary system and trying to make the point that a lot of people think it’s some sort of dark conspiracy. I make the point it’s really like-minded individuals working in synchronicity. I took the organisation Spectre, which was first presented in Thunderball, from Ian Fleming’s James Bond novel from the early 1960s, as kind of a metaphor for multi-national organisations all over the world, men and women in leadership roles, as kind of an analogue for the IMF [International Monetary Fund] executive committee.
Lelde Smits: You did mention conspiracy, and you’ve also got a number of predictions in the book. Chapter Six, I believe was titled The Earthquake 2018. What is going to happen between then and now?
Jim Rickards: Well first of all, when real crises happen the complex dynamics are identical to the way real earthquakes work. The system builds up, builds up, then it snaps; it can happen with earthquakes, it can happen in finance.
Look back at the 1998 foreshock; that was the Long-Term Capital Management L.P. (LTCM). You know I negotiated that bailout on behalf of LTCM. Then in 2008 people don’t need reminding that the entire financial system was days away from the sequential collapse of every bank in the world. So I take that 10 year tempo, come forward 10 more years, and hypothesise a collapse in 2018. But, it could happen tomorrow, that is the point, it will be worse than the last one.
Lelde Smits: So what you’re doing is really warning people here.
Jim Rickards: Correct.
Lelde Smits: But I must say they are very dramatic warnings. And, when you start to talk about conspiracies, what do you believe gives your theories weight here and makes them more than a conspiracy but a fact.
Jim Rickards: Because I use science. I use complexity theory, I use behavioural economics, I use an applied mathematical tool called base theorem. It’s all explained in the book. By the way, I do it in plain English. You can make it as geeky as you want but this book is very accessible. I have some simple examples to explain it to readers. But, I don’t like making claims without the backup. So, whether it is legal documents, speeches, equations, science, it’s all in the book, it’s all backed up, it’s not a conspiracy theory. Very solidly based.
Lelde Smits: I have read your book, and I know it’s solidly based, also with references. But really, for someone who just may flip through it, what would you say if somebody asked you, “Markets go up and down. What will make this earthquake any different to any others where the earth still remains?”
Jim Rickards: Well in 1998 Wall Street bailed out the hedge fund. In 2008 the central banks bailed out Wall Street. In the next crisis someone is going to have to bailout the central banks. In other words, as we go through these successive crises, no problems are solved, each crisis just gets bigger than the one before. The bailout gets bigger than the one before.
So, who’s bigger than the central banks? There is only one clean balance sheet left in the world, that’s the IMF. So, whether it is 2008 or sooner the IMF will bailout the central banks with world money, which they call the Special Drawing Rights, or SDR. So, that’s what’s different.
Lelde Smits: And of course the basis of this is what you describe in the book’s title as being ‘The Secret Plan’. But Jim, now the secret’s out, what do you expect will happen differently?
Jim Rickards: Well actually, nothing. When you write a book like this I hope it gets a wide audience. My other books, Currency Wars and The Death of Money, have. But, I write for everyday citizens around the world. Whether it’s Australia, the United States or Europe. I doubt very many of the PHD Harvard Professors are reading it, perhaps they should, but I don’t think it will change their plan, I don’t think it will change the outcome.
But, I am trying to do it to give people warning. To say, look, you don’t have to be a victim. There are things you can do today to prepare for the crisis so that when it comes your wealth can be preserved.
Lelde Smits: And on that note what I really appreciated in the book was your super structure of all-weather portfolio. I’m not going to give away that secret, that’s for people to read – but when we’re speaking of gold, you recommend 10 per cent investable assets go into gold, where are you keeping your gold at the moment?
Jim Rickards: Well Lelde we are in a private vault. And I recommend private non-bank storage. Now this is a vault, it is very secure, you can see we have some gold right here obviously and there is a lot more in these boxes. But, this is not a bank, this is private. And, that’s what I recommend.
You don’t want to put your gold in the bank because banks are controlled by the government. And, when you most want your gold, that’s when the banks will be closed, you won’t be able to get it. So, I recommend again, a place like the one we are [Custodian Vaults] which is private secure storage.
Lelde Smits: Ok and of course we know gold is the prime here, but if we were to look at some gold miners, what would be the kind of factors you’d be looking for before you invested in a gold mining stock?
Jim Rickards: Well that is a great questions Lelde. The thing with miners is that geology is geology. The feasibility study is the feasibility study. The cost of capital is the same. There are a lot of things about gold miners that are the same. The differentiating factors have to do with management.
There are some great mining companies out there with seasoned management doing a great job. There are some crooks and frauds. So, when you are investing in gold mining stocks, don’t just sort of do it randomly.
Lelde Smits: You’ve got to run the ruler over that management.
Jim Rickards: Get a good advisor. The other thing is there is something called streamers. Franco Nevada Corp (NYSE:FNV, TSE:FNV), Royal Gold, Inc (NASDAQ:RGLD, TSE:RGL), Silver Wheaton Corp. (NYSE:SLW, TSE:SLW), Sandstorm Gold Limited (TSE:SSL), they buy royalties from miners and that is also a very good way to invest.
Lelde Smits: So Jim, that’s gold and that’s the long term. In the short term we’ve got the US presidential elections coming up. [Donald] Trump or Hillary [Clinton]? And how on earth is the outcome going to impact gold and the economy?
Jim Rickards: Well, it will definitely have a big impact. First of all, it looks as though it is going to be an extremely close election. In my own view I think Trump will win, but it’s close, Hillary could win. But, you won’t hear that. You go to United States, look at the media all over the world, it’s as if the election is over, Hillary’s won, she’s naming her cabinet, betting odds are 80 per cent in her favour. Nobody thinks Trump could win. There are a lot of reasons to think this is going to be extremely close and he could win.
Now here is the point, markets are fully priced for Hillary; gold, stocks, everything is priced for a Hillary victory. If she wins, nothing happens because it’s already priced. But, if he wins the markets are going to go like this [point higher] – gold will go up $US100 an ounce.
So, I would buy gold now, or shortly before the election. If Hillary wins nothing is going to happen, you won’t lose much. But, if Trump wins you’ll make a fortune. So, it’s an asymmetric trade.
Lelde Smits: Well thank you for the prediction, and we are at the right place to buy some gold so might be doing that now. Thank you once again for your insights.
Jim Rickards: Thanks Lelde.