'A Different Phrase For Bear Market Is Sale'

Video Length 00:26:11

Transcript:

Maurice Jackson: Today, we will find out if there is a crisis response for your investment portfolio. Joining us for a conversation is legendary investor Rick Rule of Sprott USA.

Rick Rule: Maurice, thank you so much for having me on. These are really interesting times, and it's fun to address your audience in times like these.

Maurice Jackson: Sir, it is an absolute privilege to have you on our program during these extreme global market conditions. Speculators want to find out what you're doing as a crisis response and what actions they may take on their portfolio under these current market conditions. From your perspective as one of the most highly regarded credit analysts in the world, was this financial collapse inevitable?

Rick Rule: I believe it was. I think what is more interesting than the pin, the pin being the virus, was the balloon. I really believe that the balloon is a function of various policy decisions and decisions that people, individually and as a society, made. I'm not belittling, by the way, the virus. I think that the rapid spread of the virus and the fact that there is, at present, no cure per se for the virus—that what you do is support the patient until the patient heals themself—means that there will be circumstances where the number of patients that require care exceeds society's current ability to provide that care. So, I'm not belittling the impact of the trigger or the virus.

What I would point out, however, was that the virus was the pin, and debt and the lack of savings, a lack of equity, was, in fact, the balloon. What we're into in an economic sense right now is a classic liquidity squeeze, a classic circumstance where trust between individuals, trust between individuals and their government, trust between banks has all eroded. Everyone is holding cash. Anything that has a bid is being sold, not necessarily by the investor but, as often as not, by the margin clerk where margin is unwinding.

Among gold investors, the lack of near-term response to go buy gold in the event of a crisis is always bewildering, because everybody buys gold in anticipation of the fact that gold will respond. First of all, gold has done its job. It hasn't held all of its value, but it's held a lot of value, and the fact is that gold has been sold to meet margin calls, which means for its owners, gold did the job. It provided the liquidity that enabled investors to hold on to some of their portfolio. That bid was there to hit while other bids weren't hit, but more importantly for gold investors and gold stock investors, the circumstance that causes the gold price to go up is not the crisis itself, but rather the policy response to the crisis. 

In every circumstance, governments around the world are responding to the lack of liquidity, the lack of trust and the economic dislocation caused by the coronavirus to increase liquidity—that is, to pump more currency into the markets. Understand what this is. The currency isn't backed by anything. What the governments are doing with quantitative easing and liquidity operations, with overnight operations, is really truly counterfeiting.

The second thing that they're doing, of course, is that they are lowering the interest rate. In the case of the United States, 10-year treasury now to zero. So, if we think about the combined response of increasing the stock of currency unbacked by anything while simultaneously reducing the compensation to savers on borrowing, what we are doing is guaranteeing that people who save for future consumption in conventional instruments—U.S. 10-year treasuries and things like that—are absolutely guaranteed to enjoy lower purchasing power in the future than they enjoy today. That set of circumstances historically has always favored gold.

So, my suggestion to people is that the near-term performance of gold has been good. The intermediate and longer-term performance of gold should be very good. Notice that I said should be, because predictions often tell you more about the predictor than the future, and while everyone wants certainty, the only certainty that exists is that there is no certainty. We exist in probability. But if you think about gold's response over time to circumstances where officially sanctioned liquidity—that is, government debt and things like that—are questioned, gold has always done well in those times. I would expect gold to do well in those times today.

My own suspicion is that the gold stocks will continue to suffer relative to gold, but my belief is that ultimately, the gold stocks will do well relative to other stocks, and even relative to gold itself. If one remembers the period of time 2008–2010—that financial crisis—you will see immediately after the crisis that the gold price fell off. Then, the gold price recovered as a consequence of policy response. Then, the price of gold equities really took off as a consequence of the gold price.

In this circumstance, it is my suspicion that past will be prologue, and I think that your subscribers and our clients should look at their portfolios in that same vein. Sorry for the long answer, Maurice, but I've been answering this question all weekend so it's fresher on my mind.

Maurice Jackson: Well, you're speaking my language, and you've covered all the bases of what I actually want to cover, but I'll ask a couple more questions here, because these are questions that we received, of course, from shared clients and subscribers. What are the Fed's actions indicating to you? Second, are they enough? Is this finally the collapse that we've heard for a number of years? Is this finally going to come to fruition?

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Wannabe Warren 10 months ago Member's comment

Only if you can stay solvent till the bottom.

Michele Kalker 10 months ago Member's comment

Good point, Warren!