This is part 12 of a 12 part interview with Dennis Crawford.
Dennis: I’ve reviewed a statistic recently that says there’s 7800 vacant buildings in Detroit at the present so it’s gone from an economic engine in the 50’s and the 60’s in the post war era, sort of the breadbasket of the US engine, it’s gone from that to being a shell where the firefighters and the teachers and the police officers don’t have pensions. Imagine being 65 years old and your entire sustenance for the next 20 years was dependent on that pension and it’s simply not there. So when I say diversify that’s kind of what I mean, have your interests spread around a little bit.
And in the case of what you do, developing an entrepreneurial business model, I would view that very much as diversification. It’s diversification away from your stocks and your bonds and your exposure to the ailment of the US dollar. I don’t know how there’s some people running around who believe that this is temporary, this will be fixed, we’ll grow our way out of this. If you step back from it and you look at all the fundamentals I’ll be happy to give you some referrals if you want. If you want to step back from this and look at the fundamentals and there’s some great resources on the web in this regard, you can sort of see there has to be a reset of some sort. There’s gonna be a reset of some sort, we came close to it in 2008 but by dumping buckets on money for nothing, new created money onto the system, we’ve managed to kick that can down the road and today we’re sitting in an environment where asset bubbles and real estate arguably to some extent, stocks for sure the bond market is being bullied by all this liquidity being put into the fed by the system. I mean this can’t continue forever the reason why it can’t continue forever just to bring this full circle for you is.. imagine you’re the Chinese right now and you’re sitting on 3 trillion dollars on US currencies and treasuries and you’re watching the US pour hot water into their soup broth so fast that it doesn’t even resemble soup anymore, this is very inflationary. This is where inflation comes from, it’s expended monetary policy.
So if I’m sitting on 3 trillion dollars of US treasuries as a government official over in China and I’m watching what the US is doing to their currency over the next years, and I got to wait 10 years to get my money back, that’s the nature of the US treasury right? China lends the US billions on dollars on a 10 year treasury, the US says we’ll pay interest for the next 10 years and after 10 years we’ll give you your capital back, so I’m sitting back and watching my investment saying ‘Well I’m being paid 2.5 to 3 percent for the use of my capital over the next 10 years but look what they’re doing to their money, they’re going to be paying back in US dollars that are worth a fraction of what they’re worth today.
So what’s happening is the Chinese are stopping their investments in US denominated securities and they’re buying all the gold on the planet. 2/3rds of the worlds mining production of gold is going straight into China right now, so it’s an interesting phenomena. From a geopolitical perspective the world is shifting very, very quickly, there’s significant political risk in the middle east right now with the issues of Syria and how some of the fringes play out of that. The Saudi Arabians are upset at the Americans because they’re not bombing Syria and the Saudi Arabians are the key negotiators behind the petrol dollar, keeping the dollar as the main petroleum world reserve currency and China and Japan are both using these islands on the East China Sea as a bit of a pawn to build some of their military exposure and dial up their rhetoric, then there’s the whole North Korean peninsula issue raising.
So I’d say the world is a pretty.. it’s a dynamic place right now, there’s a lot of stuff going on that.. just takes a black swan to sail in from somewhere. I don’t know if that’s an airplane into the side of another building or that’s another nuclear reactor somewhere that goes down or there’s an earthquake in California that takes out a bunch of infrastructure or another Katrina. Americas ability to digest some of this stuff is being diminished because they’re going a trillion dollars a year into the hole and their international customers are getting to the point where they’re starting to say “enough”.
So that’s the significant headwinds on the issues we face. Dialing it down a little bit to what the traders and the talking heads and the analysts would be talking about, do we have earnings momentum heading into 2014? Yeah, perhaps. Do we have some upside in the stock market from here? Yeah, probably. But is it going to correct? Absolutely. And when it does correct again I guess what 2008 tells us that there’s significant volatility going to be attached to that because there’s fear in the marketplace and my bouillon conversation is a bit of a thesis to counter some of that.
Bouillon often tends to be a bit of a fear trade. We saw bullion hit a high of 1,900 dollars in the summer of 2011 which is when the whole fiscal cliff conversation was really at its highest volume and we’ve seen a price correction right now in bullion really because for every ounce of real gold on the planet there’s 90 dollars of derivatives or sorry let me rephrase that. For every dollar of real physical gold in existence there’s 90 dollars of derivatives on that ounce of gold. I mean side bets on the underlying ounce. You don’t want to own the side bets, you don’t want to play gold from the context of owning a gold mining stock or even an ETF, you want to own the physical gold. Go buy yourself some gold coins from a coin dealer or own it in a very secure structure or own it in a very secure structure where the underlying asset is nothing but physical bullion because what’s happening is all the bullion is moving from West to East and the manipulation through the derivatives is suppressing the price through this window.
That phenomena will turn itself around eventually so if you’re looking just for an interesting idea right now, I would encourage any of your readers to look at the bullion conversation right now and you’ll have to dig a little deeper than Bloomberg, or CNN, or BNN because the western talking heads are all parroting the same federal reserve jargon and that’s not entirely where the truth lies I don’t believe.
Andrew: No, I don’t think so.
Dennis: Yeah. Probably a bigger answer than you wanted, but..
Andrew: No, that’s great. And yeah I definitely believe in the idea of diversifying your income we’ve talked about that on the site as well.
We’ve covered a real broad range of topics and I think we could probably keep going but all good things have to come to an end so is there any closing remarks or ideas you would like to leave the readers with?
Dennis: Well if you made it through this conversation thank you for reading and thank you Andrew for valuing what I have to say, enough to sit down for 60-90 minutes and chat. Always look forward to it so thank you.
Andrew: Alright thank you very much.
Dennis: Thank you.