Rick Rule's #1 Pick
The Fed has just announced unlimited QE as market turbulence refuses to subside in what looks like a perfect storm for gold.
The kind that unfortunately brings with it a very real human toll. I spoke with one of the most successful speculators and investors in the resource space, Rick Rule.
In part one, we talk the macro scenario, whether the Fed can print its way out of this, which commodities Rick is most bullish on, and why we’re on the verge of a historic cycle for precious metals. Enjoy and be safe out there.
To your wealth,
Gerardo Del Real: This is Gerardo Del Real with the Outsider Club. Joining me today, and I can't think of a better time, is somebody that really needs zero introduction from me, Mr. Rick Rule. Rick, how are you today, sir?
Rick Rule: I'm fine. Like everybody else, sort of a little concerned about various things that are going on. But the truth is that my health, my wife's health, everybody's health is great. So the best it could be expected, sir.
Gerardo Del Real: That is absolutely the best-case scenario. It’s good hear that and I hope that continues to be the case. Let's get right into it. I stepped away for 20 minutes to prepare for this interview and in the 20 minutes that I stepped away, the Fed announced that daily repo operations would now be up to $1 trillion daily. Mortgage security purchases went from $107 billion just half an hour ago to $122 billion.
Before anything, you consider yourself I believe a credit analyst. I've heard you say that many times over. So I want to talk about the credit profile of the world and the U.S. But before that I have to ask, Rick, how does this financial panic, taking the human aspect aside, compare to the crisis back in 2008?
Rick Rule: Well, I think this is probably going to end up being a little bit more severe than 2008, in large measure because of the policy response to the 2008 crisis. The 2008 crisis was a liquidity squeeze that was brought on by imprudent lending. And my own belief is that the fiscal and policy response to that encouraged more imprudent lending and imprudent borrowing. We are beginning to run out of fiscal tools. I'm not one of those who thinks that we're on the verge of a greater depression, but I am one of those who believes that over time, markets work better and more surely than governments.
So my suspicion is that the economic wind that we've had, the recovery that we've had since 2008, is first of all over. And probably we need a good old fashioned recession to cure some of what ails us. The cure, of course, won't feel like a cure. Resets seldom do. You can't dig your way out of debt by taking on more debt.
Gerardo Del Real: It seems like the response this time is just a more aggressive accumulation of debt, correct? Both as a global response and nationally here in the United States. Is that accurate?
Rick Rule: Absolutely. Gerardo, what your listeners need to understand really is that the political response is very easy to understand. There is a war on savers, who are scarce, by spenders, who are numerous. When that outcome is decided by voting, it takes on the sort of aspect of that old libertarian lapel pin, "Elections are where four coyotes and a lamb vote on the lunch menu."
Negative interest rates penalize savers on behalf of spenders. Similarly, quantitative easing, which was the government's word for counterfeiting, deprives savers of the spending power of their savings. Spenders don't have to worry about that. So the circumstance that we have is very easy to understand. You just can't justify it.
Gerardo Del Real: Typically, when we have these types of panics, there's a rush to bonds and we just have not seen that this go round. And I think here in the U.S., the Fed's response — and you could add the ECB and the BOJ with slightly different scenarios — but the Fed's response speaks to the worry that they won't be able to reign in rates.
Do you believe that, here in the U.S. anyway, the Fed can delay that inevitable reset for another couple of years with this aggressive counterfeiting, as you called it, of the currency?
Rick Rule: I do believe that they can do it. I don't believe that they can totally control credit markets because you are beginning to see divergence. In other words, you are beginning to see various tranches of the debt market begin to price themselves according to risk. Rather than the 10-year trend to convergence, you're beginning to see divergence. But I believe that the majority of Americans want to believe in their government and they want to believe that a war on savers by spenders is a good thing. The majority of Americans, I think, unfortunately are not very good at arithmetic or economics and they don't equate it with helping people whose wants and needs exceed their means.
Gerardo Del Real: One more question for you, Rick, while we're on the topic of government. Do you believe this is where people, the average American, Joe the plumber to take a name from the past, starts to lose confidence in government, if this stimulus response and the fiscal one that's going to follow it is ineffective? Because I see municipal credit markets are in trouble. The treasury market's in trouble, fixed income, the corporate bond market, all of it seems to me extremely fragile.
And I agree with you, I don't believe the Fed's going to be able to control all of it and when it loses some of it, do you believe this is where the everyday American starts to really question whether what's behind the curtain really is the best policy for everyone?