Segment 1: Volatility is Not Your Greatest Risk SEGMENT BEGINS AT 00:37 It really doesn’t matter where you look – sharp market losses abound right now. Economist and best-selling author Jerry Robinson dives into the wild markets and offers a positive view...
In lieu of our regular daily column, we present this very special and exclusive Q&A session with economist and FTMDaily.com Founder, Jerry Robinson.
This Q&A session is an excerpt from the Winter 2011 issue of our FTMQuarterly newsletter released on January 15, 2011. To learn more about subscribing to our FTMQuarterly financial newsletter, click here.
Q&A with Jerry Robinson
(Excerpt from Winter 2011 issue of FTMQuarterly newsletter, 1/15/2011)
Q: Jerry, since 2007, you have been warning Americans about the eventual collapse of the U.S. Dollar. Has the recent “appearance” of stability in the Dollar during 2010 changed your outlook at all?
A: This is a great question and is one that we are often asked at our organization. The short answer is no. I do not believe that U.S. Dollar will survive in the long term. But note my emphasis upon the phrase “long-term.” The Dollar is in a long-term downward trend. Long-term downward trends do look like quick, dramatic declines. Those who think that the Dollar is going to decline rapidly and suddenly, do not understand how currencies operate. While I do believe that the Dollar will eventually collapse, it will take years for the entire event to unfold, as the globe is heavily invested in a Dollar-based economic infrastructure. Those who do not understand this concept will be standing on the sidelines while many wise investors make nice profits during the slow demise of the Dollar. For example, in 2010, our FTM Investment Portfolio gave us a return of over 24%. Our portfolio is diversified across a wide array of asset classes, which protects us from a major correction in any one area. If I thought the sky was going to fall, I would be setting myself up for many lost investment opportunities in the near future.
I should add that a sudden collapse of the Dollar would be preferable to a slow steady decline – just as falling off of a cliff would be better than rolling down a rocky hill for three minutes.
Simply reading much of the analysis by many of the “Johnny-come-latelies” who have just recently jumped on the “death of the dollar” talk is enough to see that many of them are not economically literate. Beware of many of the recent economic “experts.” They have arrived at the party late, seeing the potential to sell their wares. Many of them are not rooted and grounded in a true understanding of monetary economics and are therefore prone to much hyperbole and exaggeration in their writings.
Will the U.S. Dollar collapse? The sheer volume of economic evidence makes this answer obvious: Yes. However, there are still several events that need to transpire prior to its total collapse.
Q: What are some of the events that our readers can watch for to be able to recognize when the U.S. Dollar will collapse?
A: The question of timing is interesting and yet very difficult. We live in a very different economic era than we experienced just a few decades ago. From the 1940’s-1990’s, the U.S. Dollar has been the international reserve currency held by virtually all nations for the settlement of global trade. Those of us who were not alive to witness any other economic system can barely fathom the thought of the Dollar losing its supremacy in global affairs. The same problem affected Great Britain in the early 20th century. Throughout the 18th and 19th century, the British Pound currency was the international reserve currency. Because of the immense economic power of the British Empire, the Pound was widely held and used for transactions all over the world. But early in the 20th century, the United States of America began rising to global prominence – first economically, then politically. (Remember, economic power typically precedes political power… Think China.)
As the nimble United States grew economically and then politically, it gradually displaced the debt-burdened and militarily overextended British Empire. As nations began to depend more on the U.S., they began to rely less and less on Great Britain. The loss, and subsequent transfer, of global empire status to America was bruising to the British psyche and to their national pride.
Today, we are witnessing something remarkably similar to the transference of global economic and political power that occurred at the beginning of the 20th century. This time, the mantle of global empire is falling from the shoulders of a debt-burdened and militarily overextended United States, and into the hands of a growing crop of new competitors. Europe and China both immediately come to mind. Of course, there are others. But these two nations stand out as real contenders as we head into the 21st century.
With this background, I expect to see the United States continue to suffer consistent and devastating blows to its international credibility and to its economic supremacy.
The events that I will be monitoring are 1) the U.S. government bond market 2) the continual rise of China and Europe 3) the continued destruction of the U.S. Dollar through more monetary stimulus via the Federal Reserve 4) the inability of the U.S. to gain military victories in places that should be easily obtained 5) and finally, the complete breakdown of the Petrodollar system.
Q: With all of the recent economic problems plaguing Europe, do you still believe that the Euro currency will survive?
A: My primary thesis on the Euro is simple and has not changed. I believe that the Euro is here to stay. Many disagree with me vehemently. The mainstream press is hammering Europe; meanwhile, the U.S. Dollar benefits. The Euro’s critics claim that the currency was flawed from the beginning because it forces all of its member nations to submit to one interest rate regime, despite each nation’s unique economic problems. I agree with them on that point. In essence, the Euro monetary policy is dictated by Germany’s economic needs. In the end, the primary beneficiary of the Euro system is Germany and, to a lesser extent, France. But what works well for Germany and France does not always benefit the other smaller and more economically challenged Euro nations. Therefore, critics automatically assume that the Euro, by necessity, must fail. However, I believe that the critics of the European Monetary Union are missing the bigger picture.
First, never forget that the European Union was forged over the course of decades, beginning in 1950 with the inception of the European Coal and Steel Community, which sought to unite European countries economically and politically in order to secure lasting peace. In 1957, the European Common Market was formed with the signing of the Treaty of Rome. The Common Market created the free flow of people, goods, and services across many national borders within Europe. I briefly detail the evolution of the European Union on pages 148-151 of my book, Bankruptcy of our Nation. Suffice it to say that the Euro currency is not some “new” invention. It has been years in the making. And I believe that its flaws, which are numerous, could be very intentional. How do you solve the problems of a currency that are caused by too little integration? The answer is even more integration. I believe that the globalist agenda requires the existence of the Euro, as it is the prototype of the other regional currencies that will eventually be created. Once they have “solved” the problems with the Euro, through more economic and financial integration, they will have a new model for other regional currencies. I envision one regional currency that will eventually integrate Asia, and another that will integrate Africa. So I view the Euro as the prototype for the creation of these other coming regional currencies. Therefore, the idea that the globalists would allow the destruction of the Euro is completely absurd from my perspective. Instead, they will salvage the Euro currency with all of their might.
So it is for these reasons that I firmly believe that the Euro is, and will remain, a major challenger to the supremacy of the U.S. Dollar. Do not fall for the mainstream media’s ideas that the Euro will not survive. Despite the constant reports by the U.S. mainstream media to the contrary, the globe desperately desires an alternative to the U.S. Dollar. There are even new reports coming out this week that China has expressed a willingness to “bailout” the European Union with its $2.7 trillion investment fund. Much of that $2.7 trillion is held in U.S. government bonds. (Note the irony: Bailing out Europe provides China with a benign way to liquidate much of its U.S. government debt holdings.)
Q: Jerry, let’s turn to precious metals for a moment. In the Summer edition of FTM Quarterly, you made some price predictions for gold and silver. In fact, I quote you: “As far as price forecasts, I expect that silver will reach $20.00/oz by the end of the year, which would be about a 10% return over the next few months. And I stand by my price forecast of $1300/oz for gold by the end of the summer. I also expect gold to reach $1350/oz by the end of 2010.” These predictions were met and exceeded in 2010. What do you expect from the precious metals sector in 2011?
A: 2010 was a banner year for precious metals. Gold is ten years into one of the longest running bull markets in history. When 2010 began, gold was at $1,095 per ounce. On the last day of 2010, gold reached its all-time high of $1421. The lowest price that gold reached during 2010 was $1,052.20. As of this interview, gold prices are hovering just above $1400 per ounce.
Silver began 2010 at $16.82 per ounce. Its lowest price level in 2010 was $14.82. Silver, which I am even more bullish on, is currently around $31 per ounce. When I made those price predictions last summer, they were admittedly a bit more aggressive than other economists were predicting. However, I am a believer in precious metals. I expect gold, and especially silver, to continue to benefit from the economic and monetary turmoil that will unfold in the coming months and years. I think that over the years I have built a solid case for holding a portion of your investments in precious metals.
For 2011, I expect several corrections in precious metals prices. Think two steps forward and one step back. Wise investors will view these corrections as buying opportunities. So let’s get down to my price predictions. I expect gold to reach $1650 per ounce in 2011. I expect silver to cross the $42 mark in 2011.
Going forward, the momentum favors silver. Silver is more affordable and the price appreciation promises to be more dramatic. However, silver is much more volatile than gold and should be viewed as such, especially in 2011. Investing in gold is an excellent idea for those who can afford it. However, those who wish to fully exploit the precious metals bull market should consider slightly overweighting their investments toward silver, as its returns should enhance their overall return from holding both metals.
Q: How much of a person’s investments do you think should be in precious metals?
A: This is a question that should be discussed with a trusted financial advisor. However, in my own investments, I have always felt that 30%-35% should be the maximum into any one asset class. I know some who have claimed that this is way too low and that putting 100% of your money into gold and silver is a smart move. I wholeheartedly disagree. Investment diversification not only makes wise financial sense, it is vital for protecting one’s assets. Why? Because there is no “safe” place from a cash-starved behemoth like the U.S. Federal government. As they continue to teeter on the edge of bankruptcy, expect them to start changing the rules and tax laws to give themselves access to more of your money. The best way to protect yourself from the Federal government is to spread out your funds across several areas. This will make you nimble and less prone to massive losses in the event of a change in tax law, etc.
Personally, 33% of my total investable assets in precious metals are plenty for my taste. The rest can be used for a mixture of equities, insurance products, other commodities, your own business, and a variety of other investments that can produce income streams.
Q: How much of the precious metals investment should be in silver versus gold?
A: This is another question that I get a lot. Again, I can only tell you what I do, or might do. I am just an investor – not a financial advisor. However, if I were risk-averse and wanted only to preserve and protect myself from any coming inflation, I would probably focus almost exclusively on gold. However, if I had some appetite for risk, I would begin adding silver to the overall picture as well as some palladium. In my mind, a balanced precious metals portfolio that would give me some nice upside potential, in addition to inflation protection, would include 40% silver, 50% gold, and 10% palladium. Of course, the more silver you add to the portfolio, the more risk you bring for major ups and downs. Like everything else in investing, it’s a trade-off.
Q: You mention that gold has been in a bull market for ten years. Do you think that it is too late for new investors who are thinking about investing in precious metals?
A: There’s no doubt that those who are not currently invested in precious metals have missed an amazing ride up over the last several years. However, I believe the best is still yet to come. If I am correct, around halfway through 2011, the mainstream media will finally admit that the precious metals story is undeniable. They will finally find the gumption to show the connection between the rise of precious metals and the loss of confidence in the global economy – especially the U.S. economy. Current fears of inflation will finally begin to manifest into reality by then and precious metals will finally be seen by the masses as one of the only hedges. So I expect a major influx of new precious metals investors to enter the market in the third quarter, and especially the fourth quarter of 2011. I expect this pace to gain even more steam into 2012 and 2013 as the U.S. economic crisis begins to really unfold. From 2012 and onward, we could witness gold and silver reach prices that are currently unbelievable. When gold and silver begins to reach these levels, you will begin to hear me talking about sell signals.
Q: So you would actually sell your gold and silver? Many claim that it should be held forever.
A: Yes. There will come a time in the next several years to sell gold and silver. For now, I am buying more on the dips. But I believe that there will come a time in the next, I don’t know, 4-6 years, when I will begin selling at the peaks to the late-comers. Nothing goes up in a straight line forever. It’s that type of thinking that created the dot-com crash, the real estate crisis, and every other bubble throughout history. I do not believe that precious metals are in a bubble yet. But when I believe that a bubble is forming, I will begin slowly exiting the market. Our subscribers will be alerted.
Q: Why doesn’t the mainstream media like precious metals?
A: The mainstream media likes its advertisers… pure and simple. For the last couple of decades, mutual funds have ruled Wall Street. They are major advertisers with the mainstream media. It is a fact that they practically own many of today’s most prolific financial commentators. Suze Orman is one example. Another one is Dave Ramsey. If you have ever listened to his program, he thinks everyone needs to put their money in “good growth mutual funds.” By the way, Mr. Ramsey hates gold. Coincidentally, so do mutual fund companies.
That’s why I am huge proponent of independent news sources and the independent media. By the way, those who don’t know how Wall Street works should read a great book entitled, The Pirates of Manhattan by Barry James Dyke.
Q: Commodities performed nicely in 2010. What is your outlook for commodities for 2011?
A: Our P.A.C.E. investing concept includes commodities and I feel strongly that this asset class will continue to perform very well in 2011 and into 2012. In 2011, I am personally bullish on crude oil, natural gas, copper, coal, lithium, uranium, sugar and rice. And I will be closely watching cotton, which I believe will remain highly volatile but could provide some good short-term gains.
Q: One of the things that you stress over and over again is the need for people to sit down with a trusted financial advisor. Why do you feel that this is such an important step?
A: A good financial advisor has the benefit of being able to look at your entire financial picture prior to making a recommendation. Giving out recommendations without knowing a person’s entire financial picture is akin to malpractice in my mind. There is no “one size fits all” approach when it comes to your financial gameplan. While there are certainly some good guidelines, there is no silver bullet that will work for everyone every time. It is vital that you know your entire financial picture, including your financial goals, prior to making any investments. This is why meeting with a trusted financial advisor is so vital. You may, in fact, never conduct any business with an advisor. But just the act of meeting with one and having to gather all of your financial information will be an educational experience that will help you better understand your finances.
Q: Jerry, American taxpayers have fortunately escaped tax hikes for the next two years by the recent extension of the Bush-era tax cuts. What impact, if any, do you see this having on the economy as a whole, and do you see taxes going up after the extension expires in two years?
A: In the coming years, the U.S. Federal government is going to find itself in an extraordinarily difficult place. Our leaders have been entrusted with the responsibility of leading the American people. But instead of leading them with wisdom, they have led them foolishly to the edge of the cliff. There is plenty of blame to go around. But since the blame game is as old as Adam and Eve, we will avoid that neurotic topic. Instead, let’s consider the known variables. Most American citizens expect and want: low taxes, low gas prices, continually increasing asset prices. In addition, they have been promised massive entitlements with Social Security and Medicare. Our national debt now officially stands at $14 trillion and we continue to grow this debt through deficit spending. Each year, the Federal government spends at least $1 trillion more than it takes in through tax revenues. The responsible thing to do would be to cut spending down to meet tax revenues. But it is highly unlikely that the Federal government will ever cut spending that drastically. Instead, the government will seek to raise its revenues to meet its spending levels.
The only way that the Federal government will drastically cut spending is if the American people demand it by voting out politicians who promise more entitlements. Obviously, most Americans will never turn down a “free” handout from the government. So the vicious cycle continues… Yes, taxes will skyrocket. And it will come guised in a word that is foreign to modernity: “Sacrifice.”
That is… you will sacrifice so that the Federal government doesn’t have to.
Q: Jerry, the Wikileaks debacle permeated the 24 hour news cycle during the last part of 2010. Vice President Biden and Secretary of State Clinton have both condemned Wikileaks for exposing secret government cables. Going forward, what effect do you see Wikileaks having on the attempt of the U.S. government to regulate the media?
A: Wikileaks literally revolutionized the way the media works over the last couple of years. Instead of a reporter having to go out and try to dig up information about an agency or a country, now disgruntled employees or insiders can anonymously submit their knowledge to organizations like Wikileaks. After reviewing these submissions for accuracy and authenticity, Wikileaks then sends this information to certain mainstream media outlets. I think that in our age of total and complete government corruption, organizations like Wikileaks can serve a useful purpose. Of course, Wikileaks itself is not what is revolutionary. It is the idea. So they may hang Julian Assange and succeed in shutting down Wikileaks, but a number of copycat organizations are already popping up. (Openleaks.org is the newest one.)
Governments prefer that their backroom dealings remain private. But the days of privatizing government corruption are numbered. So governments have at least two options: 1) Avoid corruption and deal justly or 2) demonize and shut down access to sites like Wikileaks. My money goes on the latter option. In my estimation, the success of Wikileaks will inevitably lead the government to attempt to intervene and censor the world wide web in the name of “national security.”
Q: Your work at FTMDaily.com, as well as your weekly radio show and quarterly newsletter, always provide very timely and important information for listeners, subscribers, and readers. What is the outlook for FTMDaily.com and for Jerry Robinson in 2011? What can our readers and partners expect for the coming year?
A: Good question. After several busy years of travel, public speaking, and writing, I took a much needed year off from the public circuit in 2010. It was during this time that I decided to launch our new weekly radio show. I had always wanted to host a radio show that would help educate people on the economy and personal finance. In addition, I had always dreamed of creating a newsletter that would give real and solid information without all of the fluff. That’s why we created the FTM Quarterly newsletter in the beginning of 2010.
As far as 2011 goes, we plan to greatly expand our reach with our weekly radio show and to dramatically increase our newsletter subscription base. I will begin going back on the speaking circuit in the Spring of 2011. This will include public speaking along with television and radio interviews.
I have also been writing a lot. I hope to release our follow up book to Bankruptcy of our Nation near the end of 2011. It does not have a title yet, but it will cover our FTM Financial Philosophy including our Five Levels to Financial Freedom.
This Q&A session is an excerpt from the Winter 2011 issue of our FTMQuarterly newsletter released on January 15, 2011. To learn more about subscribing to our FTMQuarterly financial newsletter, click here.
Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.