Financial Sense Newshour
The BIG Picture Transcription
January 28, 2006
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- Superiority of Dividend Investing in Compounding Wealth
- GARP: Growth At a Reasonable Price
- Emails
- Other Voices: Reva Bhalla, Stratfor.com
- Other Voices: Jim Willie, Hat Trick Letter
Superiority of Dividend Investing in Compounding Wealth
JOHN: Well, in the midst of the world going to heck in a hand basket maybe it’s important to look at some important principles here on the Big Picture, which moves us away from the geopolitical issues, although we’re going to do some of that later on here in the Big Picture as we get to our Other Voices segment – we’ll have two guests in two different areas. Let’s talk about the superiority of dividend investing, and the principle of GARP as opposed to roller-coaster investing – otherwise known as day trading.
JIM: OK, we’re preparing our annual letter to our clients, and I was looking at the performance of both the Dow and the S&P from the year 2000 to the year 2005, and I’m just going to run by these briefly. In 2000 the Dow was down over 6%, the S&P was down over 10%; in 2001 the Dow was down 7%, the S&P was down 13%; In 2002 the Dow was down 17%, the S&P was down almost 24%; then we had a good year in the stock market in 2003, the Dow was up 25%, and the S&P was up 26%; in the year 2004 the Dow was up only 3%, the S&P up 9%; and then last year the Dow was down 0.6%, and the S&P was up only 3%.
Now, if you look at that compounding period which was 6 years, the compound return on the Dow was -1.16%, and it was -2.7% on the S&P. So that’s just the pure performance of the index itself. If you take dividends into consideration, the Dow was actually positive by almost 1%, and the S&P cut its losses to down over 1%. So, one thing, dividends do cushion downturns. Let’s say if you’re holding a growth stock with no dividend during a downturn or a bear market – that’s pretty tough if you have to go through those declines.
A second thing is when you’re getting a dividend you do not see the downturns – dividend paying stocks and especially ones that pay good dividends do not go down as much, there’s sort of a cushion there. And that’s one of the things that I believe is very important when you’re looking at compounding your wealth. It’s not just the appreciation of an investment. If you’re investing – whether it’s stocks, bonds, or you’re investing in rental real estate – it’s not just the appreciation of the assets, it’s also the cash flow it throws off. It’s something that Warren Buffett is very big on. [2:53]
JOHN: You know, Jim, if we look at investing history you would really have to admit that as you go from period to period, everyone period has its fad – whether it’s tech stocks or internet stocks or something along that line. But to really make long term investing, you have to get beyond that, and look at those things that historically work and have a good track record.
JIM: Yes, it was very faddish to invest in tech stocks in 1997 to 99, with companies that didn’t make money, didn’t even have sales, in fact though they didn’t have sales all the better. But you’re right when you look at investing over a longer period of time, there’s been a number of studies that have looked at the market over the last 80 years, and the last 100 years. If you take the last past 80 years, 40% of the return on the S&P500 came from dividends. And if you take a look over the last 100 years, almost 60% of the return investing in stocks has come from dividends. In fact, if we take the last 80 years at 1926 to 2006, high yield dividend paying companies returned 12.2% compounded, compared to the S&P which returned that 10.4%. And so higher paying dividend stocks out performed the S&P over a longer period of time, and they’re also a more crucial element in terms of the total return. [4:29]
JOHN: That’s the magic number that everybody floats around – say 10% returns or whatever; but when you really analyze what’s going on, the majority of that really comes from dividends.
JIM: And the striking thing about dividend investing is not only just the appreciation but the ability to compound your investments. A number of years ago there was a book out Triumph of the Optimists which took a look at the global stock markets – the top 16 stock markets over the last 100 years. And this’ll put it into perspective John: if you invested a dollar in the year 1900, by the year 2000 that dollar grew to $198. It compounded at 5.4% a year, so a dollar to $198 – if you live long, boy, that’s a terrific number. That same dollar, if you took the reinvested dividends that same dollar grew to $16,797. And over that 100 year period there’s that compound number of 10.1%. So, you always see these numbers thrown out all the time, “you know, if you invest in the stocks over the long haul your return has been 10%.” But the kind of recommendations they make they really forget the dividend aspect of investment, which is very crucial to compounding your wealth over a longer period of time.
And what we’ve seen from study after study whether it was The Triumph of the Optimists, if it was Jeremy Siegel’s book, The Future for Investors, the compounding effect of dividends is one of the more superior investment strategies over decades and over centuries – at least as long as we’ve been measuring them, and we’ve got now a good hundred year measurement of this kind of approach to investing, not only just in the US market but all of the major markets in the globe. The Triumph of the Optimists I believe looked at 16 different major markets from the US stock market to the British stock market, to markets in Europe so here again is a superior type example of an investment philosophy that works time in and time again, whether good markets, bad markets, superior performance dividends helped alleviate some of the negativity of stocks. If you were a dividend investor and certainly if you were compounding your money they help to increase the overall return. [7:04]
JOHN: OK, Jim, but you know we are always hearing about super growth stories, and Jeremy Siegel gave an example to talk about growth superiority.
JIM: What he did in his newest book The Future for Investors he took a period of time 1950 to 2004, and certainly if you were looking at 1950 with the advent of the major computers that were now becoming part of the American economy, and certainly there was no bigger growth story than IBM in 1950. At the same time he took a look at an old economy stock Standard Oil of New Jersey which is today Exxon – now Exxon-Mobil –and this will just give you an example to demonstrate this philosophy: the average PE on IBM during that period of time was roughly 27, and the average PE on Exxon was 13; the average dividend yield on IBM was 2%, the average dividend yield on Exxon was 5%.
Now, during this period of time from 1950 to 2004 price appreciation for IBM was 11.4%. It was a growth stock which would be exactly as one would expect. The price appreciation for Exxon was only about 9%, and the dividend returns were close to 2% for IBM and versus 5% for Exxon. And now here’s the thing, the total return which is price appreciation plus the return from investments reinvested was 13.8% for IBM, and now everybody would be very happy with that over that period of time. However, the price and total return appreciation for Exxon was 14.4%. So, a thousand dollar investment in IBM grew to $961,000, while a thousand dollar investment in Exxon grew to $1,260,000. You would have a 31% larger portfolio had you invested [in Exxon] and I would venture to say that investing in Exxon (or Standard Oil of New Jersey at the time) was a lot less volatile, and a lot more predictable during that time span. So, here was a good example of taking the penultimate growth stock, IBM from 1950, and the penultimate let’s say old economy stock, Exxon-Mobil, and you see these studies John – I don’t care if it’s Siegel, if it’s The Triumph of the Optimists, if it’s Yale University, the Wharton school – they’ve documented this, it shows us the superiority of the approach, and yet it’s ignored by investors. Instead people are more interested in what’s the latest hot fad, give me a stock tip. [10:05]
JOHN: Yeah, well, but the other method seems a lot more exciting, Jim, you know, you’ve got to admit this.
JIM: Yeah, everybody wants the next Google, or the next Amazon or the next IBM, depending on whatever it is each decade, because that’s the hot stuff. That makes great talk, you know, that’s great cocktail party talk.
JOHN: Well, as the studies do show that there is superiority in dividend compounding, it may not have the adrenaline rush that you want, but it’s good if you want to make money. It would seem like this would really were important for people who were retired, on pensions, things along those lines.
JIM: Absolutely, number one I think it’s very appropriate for people that have pension plans maybe they have a profit sharing or an IRA – where you can’t deduct losses in a pension plan so you want to be a little bit more conservative, number one. Number two since you have a pension plan you can defer taxes until you start withdrawing the money at retirement. So, if you’re getting dividends the great thing about the compounding effect is you get to reinvest those dividends and you’re not having to pay the tax. You can defer the tax until a later time when you retire and you start drawing down on the pension. So, it’s a very superior approach I believe for pension plans and IRA Rollovers, because: it’s more predictable; it allows you to compound; you’ve got income coming in that’s sheltered from taxation – it’s deferred; and it’s less risky. A company that pays a dividend is usually a well established company. A company that’s just starting out usually doesn’t pay a dividend. So, you’re dealing with more established companies with more predictable business models where they can pay out a dividend because you know the thing about paying out a dividend is you’ve got to earn this stuff, you’ve got to have the cash flow coming in to pay that dividend. So it’s very appropriate for somebody that’s retired.
When I started out my financial career – well, I started out with a Big Six accounting firm – but when I went out on my own and got into the investment business I was a Certified Financial Planner, and I specialized in retirement planning work with a lot of retired people, and one of the biggest mistakes that I always saw is people would get their lump sums or back in those days in the late 70s, people were getting a fixed pension from a company, and it sounded really the good the day that they retired but because of medical technology people were living longer so maybe if you got a pension of $2000 a month at ago 60, that was good in 1980, that $2000 pension didn’t buy you the same retirement lifestyle, 10 years later in 1990, or 20 years later in 2000. And so I have seen more people get themselves in trouble by putting all their assets in fixed income. A person retires and they say: “Oh goodness, I don’t want any risk, I want to have some degree of predictability. It’s safe going to fixed income.”
And the problem is with inflation, and I think we all have to admit we have inflation, we’ve always had it and we’re going to have a lot more of it in the future in my opinion, but if you were in a fixed income portfolio unless you had enough money that you could save and reinvest, how were you going to provide for the increase in the [cost] of living.
So what I’ve seen tragically many times is people will put all of their money in fixed income, or they take an annuity fixed payment as a retirement benefit. And what happens over time is their income doesn’t keep up with their lifestyle. So, instead of maybe taking two trips maybe they take one trip a year, and maybe the trips aren’t as expensive, maybe it’s not a cruise anymore, maybe they get in the car. And I’ve seen people that have had to move because they can’t afford [the cost of housing] – well, this is Southern California where it’s kind of nuts but that’s the thing that you have to have. If you’re getting ready to retire you better have something in your portfolio that’s going to increase the income, because you don’t know number one how long you’re going to live; and let’s say you’re a husband and wife, one of you ends up in a retirement home where the expenses could get more can almost double because you’re maintaining two households at that point. Hopefully you have long term care if you don’t have the means to take care of that.
If you’re getting ready to retire you want less risk, that’s where I think this dividend strategy is more appropriate because you’re dealing with more blue chip companies – more established companies that pay dividends – so you’re going to be taking a little bit less risk. But also you’re going to need have some means unless your pension is indexed to inflation and even there you have a problem because the inflation numbers are jerry rigged, and they really aren’t really reflective of true living costs that most people face on a day to day basis. [15:21]
JOHN: Well, also Jim but remember in the decades that you cited, investments like that – fixed investments, guaranteed investments – were a little more stable to Treasury Bills or Certificates of Deposit that now aren’t really producing much of anything, so even that is evaporated. But why don’t you give some examples of the things that you’re talking about about how this would work. You don’t have to give away trade secrets, or anything, but just examples so that people have an idea.
JIM: Well, let’s just take 3 or 4 companies. We’ll take a medical company I’ll just throw out Johnson & Johnson, Philip-Morris now Altria, 3M, Procter&Gamble. OK that’s healthcare, food , industrial type stock, consumer products – the well established brand names: Johnson & Johnson a very prominent medical company; Altria a leader in tobacco but also the largest food company in the United States, well known brands, Kraft; 3M everybody knows, Post-It notes; and obviously Procter&Gamble. But those just give you an example. In 1995 Johnson & Johnson paid a dividend of 32 cents; in 2005 Johnson & Johnson paid a dividend of $1.28. So, during that time frame in a 10 year span their dividends increased 300%.
Philip Morris, now Altria, paid $1.22 in 1995, and at the end of 2005 they paid $3.06, an increase of 151%. 3M paid 94 cents in 1995; at the end of 2005 they paid $1.68 in dividends; increases of 79%. Procter & Gamble paid 35 cents in 1995; they paid $1.03 in 2005, an increase of 194% during that 10 year period. So, if you had a portfolio of blue chip dividend paying stocks, what you were seeing was not only just the price appreciation because these stocks all did very well during that period of time, but also John more importantly if you’re depending on income wouldn’t it be nice to see your income go up 300% over a 10 year period or 80% or 194%. And these stocks were also less volatile. So, this is the kind of thing that I’m talking about and you can find this in all kinds of industries. In fact, if you’re looking at that I highly recommend Jeremy Siegel’s book The Future for Investors because he gets in to the kind of industries – his first book was Stocks for the Long Run – but then he talked about, OK, stocks for the long run, but what really works and he looks at those industries. [18:00]
JOHN: Speaking of industries, what types of businesses are going to produce the results that you’re talking about?
JIM: Well, I think number one, you’ve got to look at a business that has a stable and predictable business that they’re in. In other words if you look at consumer products or food or healthcare you know if you take medication, that’s something that you’re not going to stop just because the Fed’s raising interest rates. You’ve got to have food, you got to have water, you’ve got to have consumer products, whether it’s detergent, deodorant, things of that nature. So, a stable business, and also a business that has pricing power is very important too because if you can’t raise prices and your costs are going up your margins get squeezed, and so you’re less profitable and you’re probably not going to be raising your dividends.
Concurrent with pricing power, strong cash flow. And also I think with dividends it tends to breed a culture of integrity. You don’t see a lot of the earnings shenanigans and the little earnings games that are played with companies that tend to be good dividend payers, and also have a successive history of consecutive dividend increases. One of the things we like to look at is companies that have you know a 10 year history of raising dividends: that’s going to give you a pretty good indication because normally you’re going to go through a down cycle in the economy during that period of time but that’s going to give you a good indication of how well that company’s business plan is working. We own some companies that have increased dividends for 40 consecutive years. [19:39]
JOHN: OK, Jim, you’ve obviously been doing this, let’s look at some numbers from a real track record, namely yours.
JIM: Well, if we take a look at last year our growth and income fund was up 9 ½ %, and over a 3 year period it was up 38%; and over a 5 year period it was up 45%. And during that same period of time the S&P was down 5%, and the Dow was down. So, last year the S&P was up 3 ½ %, the Dow was down and we were up 9 ½ %. And a good portion of that 9 ½ % return came from dividends. So, it’s not just something I preach on the air, it’s something that we practice in our investment portfolios because the thing I love about dividends is we use them in our pension plan, and we advocate this use, we use it for foundations that we manage, and it’s because it’s predictable, John. When you’re getting 3, 4 or 5% dividends, you’re not going to have the down draft from buying some company that’s 60 times earnings but with no dividend that has only been in business 2 or 3 years. So, it’s less risky and it’s something that consistently has performed.
Now, the caveat there is in a year like 97, and 99 – I’ll be upfront – our performance from 97 to 99 we did not beat the S&P in 97 through 99 because we weren’t 70 or 80% in tech stocks, but we were getting double digit returns during that period of time. So, in periods where the markets really get crazy, yeah, you’re going to under perform but if you take a decade, if you take a longer period of time I think this performance will outdo the major averages, and it’s proven that way over studies and we’ve proven it you know we’ve beaten the averages the last six years.
You know, the important point about this John, is whether you’re dividend investing, or value investing, I think over a longer period of time it is proven to be a superior performance as opposed to chasing anything and maybe having one year where you’re in the right sector – you’ll see this in mutual funds where you’ll have one fund that’s very stellar in one year because they happen to be in the right sector at the right time but you don’t see the consistency, and that’s one of the things I think is very important. This value approach or dividend approach to investing produces superior returns – I mean in our growth fund we tend to be more value oriented but our growth fund was up 18 ½ % last year. And that was mainly value investing that we use with trying to buy stocks that are undervalued relative to their earnings and book value. So, those kinds of approaches over longer periods of time I think you’re going to find to be superior. [22:50]
GARP: Growth At a Reasonable Price
JOHN: And we’re back again looking at the Big Picture. Let us talk about a principle called GARP as opposed to complaining all the time which is carp – this is Growth At a Reasonable Price.
JIM: Once again you’re getting back – as we talked in the previous segment – to some form of value investing. In other words, even if you’re a growth investor and you want to buy growth stocks can you buy them at a reasonable price. Peter Lynch was famous for this kind of approach where he was a growth oriented investor and what he did is he bought growth stocks, but he also took a look at in terms of what he was paying to buy those earnings.
And one of his principles was that he would always try to buy let’s say if a company was growing at 20% a year, he would try to buy a company at a PE that was less than its growth rate. So he wouldn’t buy a company, say if it was growing at 20%, he wouldn’t want to pay 40 or 50 times earnings for that. So really what we’re talking about here is when you talk about GARP you’re trying to buy growth but you’re also trying to be careful in terms of what you’re going to pay for that growth: you don’t want to overpay, you want to buy it at a reasonable price. And one of the best times you can buy in those situations is when an industry falls out of favor, it’s ignored by investors, it’s no longer a hot sector, people are onto something different, and so its performance, as an industry lags the rest of the market. As a result, you may still have a good growth story there but the price of the stock has declined, and you have a better chance of picking it up at a lower price. [24:41]
JOHN: Well, so far, from what I’m hearing you say I would guess you’re optimistic about the markets, but I guess that’s not sort of a carte-blanche type thing, you probably have some caveats in there.
JIM: Our view and we talked about this I think in our first show of the year our view is we get the gain then we get the pain. In other words we get the gains in probably the first half of the year, the pain comes in the second half of the year, because one of the things – if you look at market history – is whenever the Fed gets done with a rate raising cycle what’ll happen is they go neutral, then all of a sudden you get another liquidity cycle that begins. And even though the Fed has been raising interest rates since June of 2004, they’ve also been pumping money in the economy. In fact, if we take a look at last year M3 went from roughly, let’s round this off from 9 ½ trillion to almost 10.3 trillion. In other words M3 grew at a compound rate of 8.3% or $787 billion. If you take a look at the last quarter of 2005 M3 went from $9.982 trillion to $10.209 trillion, so M3 increased by $227 billion at an annualized rate of over 9% – that’s probably one reason why we’re getting rid of it in March. But what happens is the Fed, even though it’s been raising interest rates, it has been pumping a ton of money into the economy. In fact when I wrote the last piece for the Day After Tomorrow I was really surprised when I did my research talking to the lenders and the homebuilders that it didn’t matter who you were talking to what lender, “hey, we’ve got 20 gazillion different types of loans to get you into this home.” There was plenty of money and credit that was available, and that was reflected in what we were seeing in the money supply figures. So, what is going to happen here is the Fed is going to increase liquidity, they’re going to pump a lot of money into the economy, into the financial markets and since the US is mainly a financial economy that means there’s going to be a lot of money sloshing around the globe looking for a home, and the minute the Fed goes soft –maybe they raise in March, and saying maybe one more time, the markets will be looking and anticipating that. There are a lot of people that are looking at these M3 figures and measures of liquidity and that is why I think you’re seeing the market react the way it is. So barring an unforeseen event, an outside war with Iran, a major terrorist attack we would expect strong market gains in the first half of the year. In other words, we get the gain first, then the pain. [27:43]
JOHN: Well, given the fact that the Fed is going to be chopping down every tree in the forest to manufacture more money what segments are going to look good to you or investors in this period?
JIM: You’ve got to brace yourself for this, but I can just see people that have been listening to this show, “Oh my goodness, what’s he drinking?” – Technology.
JOHN: What!?
JIM: You’ve got a lot of the old NASDAQ technology type stocks that have been beaten up. Let me just take one of the let’s say tech boom stars of the 90s which is Cisco, and if you take a look at Cisco their earnings are evened out – we refer to where 2 ¼ billion in 2001 and today in 2005 they’re 8.4 billion. Earnings have gone from a loss in 2001 of 1 billion to profits of almost 6 billion. During that same period of time, John, the stock went from $80 which was the high of the stock in, let’s say March 27th 2000, to a low of $8 in let’s say 2002. But you know, when you take a look at that stock, anybody that looks at a chart of this stock [sees it] has been basing for almost 5 years now. And so I mean basically from 2001 when the stock hit a bottom it has gone nowhere, it’s been in that 15 to 18 to 20 range for almost the last 5 years. You know everybody loved this stock when it was selling at 60 times earnings and now its PEG ratios are much lower, its PE ratios are much lower, its sales are higher, its earnings are much higher. And so I think in this kind of market select technology stocks are going to work. [29:51]
JOHN: Any other areas in addition to tech stocks?
JIM: I think this is the year you’re going to see healthcare stocks – you’re already starting to see that; industrial stocks, especially on the infrastructure side, whether you’re dealing with machinery – we’re looking at a company that build pipelines that are sort of immune to these hurricane surges that you see, especially in the Gulf of Mexico; water infrastructure is another area; some of the industrial stocks; I think aerospace defense; and then of course the two staples in a portfolio, metals and energy. So, I think overall this is the year that you’re going to see the large cap growth stocks many companies as I just cited have grown earnings yet stock prices have gone nowhere for 5 years and I think these large cap growth companies have gone through a long period of consolidation, I mean you can just take a look at any company from Coca-Cola, Microsoft, Johnson & Johnson, Pfizer, any of these stellar growth companies that we’ve seen that are still growing at 10 to 15% a year have been in a 5 year consolidation. I think this is a just a good example of this. [31:07]
JOHN: OK. Well, speaking of examples why don’t you give us a couple of them because this is getting interesting?
JIM: Well, I guess I just mentioned Cisco how [its] EBITDA – which is Earnings Before Interest and Taxes – of let’s say 2 ¼ billion in 2001, now 2005 8.4 billion; Texas Instruments 1 ¼ billion in 2001, almost 4.2 billion in 2005; Microsoft, 13 billion in 2001, 15, almost 15 ½ billion in 2005; Johnson&Johnson 9 ½ billion in 2001, 18.4 billion in 2005.
And the other thing too is, you know, the PE ratios that used to be 50 and 60, high 30s, have come down. Cisco’s PE is 18, PEG ratio 1.3, and long term growth rate of 14%. Texas instruments PE of 20, PEG of 1.1, Johnson&Johnson PE of less than 16, a PEG ration of 1.5. So this kind of demonstrates the point that you’re paying less than you had to 5 or 6 years ago. And in the meantime during that interim all of these companies experienced increase in sales, increase before tax earnings increase in net income and so they’ve gotten bigger, the stock price has shrunk. [32:32]
JOHN: You know, to be honest with you Jim, listening to the guy who wrote the Perfect Financial Storm, now talking about tech stocks this is heretical blasphemy. I’m going to quit this show, I’m going somewhere else: you have betrayed our core values. How’s that?
JIM: Well, you know, this is, this is the first time to be honest John since 1999 that we’ve looked at technology. We sold our tech stocks in the final weeks of 1999. Number one the valuations on the tech stocks were nuts – it was just crazy: AOL at 600 times earnings. The other thing in 1999 besides the evaluations we really didn’t know what the heck was going to happen with Y2K, and of course you know that brings back memories, I can remember to this day sailing in San Diego bay, New Year’s Eve 1999 and with the radio down below listening to see if the lights came on in Australia. So the combination of we didn’t know where we were going with Y2K, and plus it was just getting so nuts, and the fact that the Fed was continuing to raise interest rates, so that was one reason.
However, today if you look at this liquidity rally I think you’ve got to look at the sector. And the other thing that I think that you’ve got to be really careful in this business is maintaining objectivity. A lot of people would be surprised at the number of technology newsletters I get, the number of technology magazines I get. I mean, I don’t hate this sector I just thought it was grossly overpriced, and so you always try to maintain balance and I think you can’t paint yourself in the corner, the risk of being perpetually bearish really harms your returns if you’re trying to manage money, and I think you have to adapt and remain flexible. I mean, we own gold, we own energy, and we’ve done very well with it, but a lot of people get in this little mind set and they say, “gosh, I’m bearish.” Long term I am bearish on the market but there are interlude periods of time such as we’ve experienced from 2003 and what we’ve experienced in gold and in our energy investments from 2001, but to exclude an area that you think is going to do well or that has now become reasonably priced I think that precludes you from getting a good return for your investors if you paint yourself in a box. [35:05]
JOHN: Yeah, maybe what you’re basically saying is the goal is to make money by investing in the right places and if that’s the right place for the right time now, then do so whereas before it wasn’t. It’s simply looking at what the situation is as you go, it’s not a matter of picking this course and then holding to it as if it were a matter of orthodoxy or something of that nature.
JIM: You know, [it’s] one of the things we try to do with our investment roundtables. We spent the whole day Thursday in our annual strategy meeting and what we do on a weekly basis is we have outside independent research that we use so we always try to use things that always question our own thinking. In other words these are our assumptions but are we thinking, are we too biased are we ignoring something, are we overlooking something, and we’re always trying to question what it is that we do. That doesn’t mean we don’t make mistakes. You know our call on gold topping in the last two weeks of the year that was a mistake and you know we own up to those mistakes. We are now going back buying selectively in low price development juniors, I’m going to be doing a couple of financings that we’re working on right now. So those kinds of things, that is what keeps you fresh, and the minute that you get stale or you hold onto something and I think one of the biggest mistakes sometimes is you say, “well, you know, this is the way I think, and I’m going to think that way until eventually I’m proven right.” And I think that is a very dangerous mistake, that you can make investing. [36:40]
JOHN: Well, I guess we have to ask sort of a ‘let’s be honest’ question. Your Perfect Storm scenario have we recanted on that, in other words is that gone the way of the dinosaur, or is that all still in play and how does it relate to what you just told us?
JIM: Oh no, you know I’ve spent the last probably, 5 years studying inflation, deflation. When I wrote the Perfect Storm series I had 3 sort of scenarios: I had stagflation, deflation, inflation and actually the fourth which was the Perfect Storm. And I’ve spent probably the last 5 years studying Peak Oil, and I’m going to take the entire year off –sort of a sabbatical from writing – I may write one or two pieces this year but I’ve got literally 30 books that I’m going through on peak oil, that is what I’m devoting all of my efforts and study to. Now, a couple of years ago I read everything I could on inflation and deflation, and I wrote a piece in I think it was September of 2004 which I called the Great Inflation – I went out on a limb and I said this is the route that we’re going. And I remember when I wrote that piece the amount of flak that I got from that. I actually got attacked and people were saying I was nuts, I didn’t know what I was talking about, but you know I don’t hear too much from those people anymore. What I think I have discovered and through research I think the GaveKal people are right in one sense in why we haven’t seen the Perfect Storm, why it’s been delayed to some extent. And I think that explains why we got one heck of a storm from 2000 to 2003, and thank goodness we were outside of that storm and made money during that period of time. But it wasn’t the perfect storm I was expecting, that didn’t take place. The economy recovered in 2002, the markets began to recover in 2003, but when I saw what was done with monetary policy, fiscal policy that’s when I came to the conclusion about hyperinflation, which is the route that we’re going. So, I think that we’re going to see the perfect financial storm, and I think it starts taking place between the year 2007 and 2008. For those who are not familiar with my perfect storm thesis where you see 3 storms: one in the economy, one in the currency markets, and one in the financial markets. Those are the 3 storms and I think the catalyst for them this time is going to be peak oil, and that I think we hit peak oil somewhere around the year 2008. But I haven’t abandoned the Perfect Storm, it was basically saying, look this thing is postponed, the reason it’s been postponed is we’ve seen monetary policy hyperinflate like we have never seen in history before, and I think what you’re going to see unfold in the next 12 to 18 months is monetary inflation that is going to make what happened from 2001 or the end of 2001 to 2005 look moderate by comparison. And I think that’s what we’re going into which is what I think you’re going to see the first part of the six months of this year is the gain before the pain. So, the only thing that starts happening as the world recognizes peak oil, once that happens it’s going to be a rude awakening and that could be the catalyzing event that brings about this storm, unless it’s a geopolitical event that is brought about with a war in the Middle East with the great powers. [40:29]
Emails
JOHN: OK. This gets to be the really exciting part of the program. I should mention now we have a question line available to you to call in during the week. It’s at 1-800 794-6480, or if you’re calling internationally (208) 765-3081 in the USA,, and then we’ll incorporate some of those during the program.
First email comes from Rob, in Melbourne, Victoria, Australia:
Dear Jim, do you believe junior oil exploration companies are a better investment at the moment compared to the oil producers, given that the latter are trading at premiums to their net asset values? Do you think there is still substantial trading upside over the next 5 years by investing in oil producers?
JIM: I think you need to have both in your portfolio just as we advocate in a gold portfolio: you have the majors, you have the intermediates, and then you have what we call the juniors. Right now I would agree with you that some of these junior producers are selling at discounts. I would look at reserve growth on those companies, but I would definitely include all of them in a portfolio. If you’re looking at the energy sector you would definitely want to have for diversification I would have a couple majors they’re going to be less volatile, and then I would have let’s say some of the junior companies.
“This is Harry from Chicago. Question on stocks. If Matt Savinar is correct on his assessment of peak oil why invest in mining equities or oil equities. Won’t energy costs just drive mining operations and oil stocks out of business? Thank you”
Well, I think what you’re going to see as energy goes up, one thing that is already being reflected in earnings is the cost of mining which is definitely going up: the cost per ounce is going up. I think what is going to change is when you look at at investing in mining companies we’re still going to need it, they’re going to have to come up with some form of energy; in terms of the type of equipment we’ll probably innovate I believe along the lines of what we do, in terms of how we mine or bring ounces out of the ground. But I think what is more important now when you look into the future not only do you have to look at politically stable areas of the globe, but secondarily now you have to look at areas of the globe where they have their a good source of energy. You don’t want to be investing in mining companies where they’re in a place where they don’t have their own source of energy. So, one of the areas it’s one of the reasons why we like Canada, why we like Mexico, why we like certain parts of Latin America, because they have good energy sources which is going to become very important in the case of mining.
JOHN: Hope listens in Vienna, Austria, he says:
I’d like to choose my own companies to invest in. I’d like to invest in mining stocks, and I’ve compiled a list of all the companies that have come to my attention over the last year, there are more than one hundred. I don’t believe even a professional fund manager could seriously evaluate and follow one hundred companies. How many companies should be in a portfolio of say $100,000? Many newsletter advisors recommend having between 10 and 20. How does a money manager like yourself approach the problem of choosing the companies he wishes to invest from the one hundreds out there?
JIM: Well, as a money manager one of the things that we do – to answer your question – in a portfolio we don’t have more than 20 stocks or we try to keep it around 20, and we try to keep it with (in the case of our gold managed account): majors, intermediates and then the juniors. We get a lot of independent research, but you go to gold shows, you’re in contact in the industry, and then what you try to do is weed it down to where you find value. So, in answer to your question in a gold portfolio if you have $100,000 you’re investing in gold I would probably own between 10 and 20 – I prefer 20 because that’s going to allow you to have all 3 categories: majors, intermediates, and the juniors. And in the juniors you’re going to want to own a few more than you would the majors because you want to spread your risk a little bit. Obvious when you’re investing in a junior you’re taking a higher degree of risk but of course the other side of that is you’re looking at much, much higher rate of returns.
“Hi, this is Brandon in San Diego. I have a question about calculating ounces in the ground for gold mining companies. How do you come about getting that number, and how can you evaluate that number? I’d appreciate it if you would answer that on the air, thank you.”
OK, what you’re going to have to do is look at the company’s annual report. Sometimes they might not disclose it if it’s a junior mining company they may not have their first resource estimate, maybe they’re just poking holes in the ground at this time. And what you’re going to have to do is take a look at the drill results, you know, what kind of grams of gold are they getting, how deep is it, that gets very highly complex. But for most juniors that have been around for awhile, they’re a development company, they’re going to have a resource estimate that is going to tell you the number of ounces that they have, and you have to distinguish between measured and indicated ounces which means they’re more probable than inferred ounces which are less probable. And measured and indicated ounces are more valuable than let’s say, inferred ounces. And then what you can do is you can take the market cap of the company and then divide the ounces into the market cap, and find out what kind of what are you paying for those ounces in the ground, and that’s probably one of the best ways to do it. But for some companies when they’re just starting out, and they don’t have a resource estimate, it’s pretty hard to do. You’re just really at that point betting on blue sky.
JOHN: From San Francisco:
Jim, you’ve covered many times the way government statistics understate inflation and unemployment, and therefore overstate GDP growth. According to John Williams’ Shadow Government Statistics, inflation as measured by the Carter Administration standards is about 7%. The official CPI is about 2% and therefore economic growth has been overstated by about 5. If you subtract 5% from the current growth number of about 3% you get a negative number. So, are we already in a recession?
JIM: We’re already in a recession I believe, and you’re going to see it with not only the large layoffs that you’re starting to see once again in the manufacturing sector. The other thing it’s not just the GDP numbers, but it’s also the personal income numbers that get inflated; the jobs that are created each month with the birth-death model, that gets inflated. So, Robert I think we’re already in a recession. John Williams thinks that number or the recession began in the Summer, the beginning of the 3rd quarter, I think it began somewhere towards the end of the 4th quarter.
This is Ted from Atlanta. I have a question, please. And it has to do with the commitment of traders. There’s a section called non-reportable positions and I don’t know if this is referring to the specialists or the commitment of traders specialists that are making positions or if this is for the speculators or what. Could you review what that this represents, and how it can be helpful? Thanks.
JOHN: Jim, we did have some more emails, we ran long this week because we had extra input on the geopolitical situation from the Stratfor people and also Jim Willie. But for emails that are stacking, voice mails especially on the Q-line as we call it, we’ll get to those next week.
JIM: And Ted from Atlanta I just want to let you know we’ll probably answer your emails during the Morgan Report because a lot of your questions were on the commitment of traders, and I’m going to have Dave Morgan answer that question. So, look for answers to those questions in next week’s Morgan Report.
Other Voices: Reva Bhalla, Stratfor.com
JOHN: Welcome to Other Voices.
BBC: BBC World Service. Hamas is to be asked to form the next Palestinian government. Israel has not ruled out day to day contacts with any legislators…
A political earthquake rolled across the Middle East this week when the terrorist group Hamas won a majority of seats in the January 25th Palestinian parliamentary elections displacing Yasser Arafat’s Fatah party. While Hamas had expected to win a sizeable part of the elections it did not expect to corner over 70 seats giving it a clear majority and control of the new government. As Palestinian leader Mahmoud Abbas announced that he would ask Hamas to form a new government, protestors outside the legislature in Gaza, and thousands more elsewhere called for the entire corrupt Fatah leadership to go. Meanwhile, the Palestinian regime change contributes substantially to a rising anxiety in the Middle East, happening at the same time Israel faces a change of leadership itself due to the declining health of Prime Minister Ariel Sharon. The former and possibly future Israeli Prime Minister Benjamin Netanyahu led a chorus of negative response around the world to the new Palestinian government, expressing pessimism that the new government would be able to shed its terrorist persona of the past.
Netanyahu: I don’t think Israel, or America, or any right minded state in the world that is now facing global terror should negotiate politically with a regime that is committed heart and soul to terrorism. Remember, Hamas is an Iranian operation. It’s been funded by Iran and directed by Iran for several years now. And now Iran has 3 enclaves: it has the Hezbollah enclave in Lebanon; It has the Hamas enclave in Gaza which has grown stronger; and it now has a Hamas enclave in the West Bank. These 3 enclaves are encircling Israel on behest of the mother regime Iran which is committed to Israel’s destruction.
JIM: Well, speaking of Iran as the world focused on the Palestinian elections, US Secretary of State Condoleezza Rice affirmed this week that the time for negotiations with Iran about its nuclear program is over. Whatever that means, when one considers the only other options are economic or military. Needing support, Iran is cozying up to Russia who has proposed collaborating with Iran’s nuclear program at the very same time Russia itself has caused political and economic anxiety in the Ukraine and Europe over natural gas. In reality, energy is lurking behind almost all the political events we’ve been seeing happening this week, including the layoffs that Ford just announced. It’s clear that geopolitical events in the world’s gas station, also known as the Middle East, where people are running around throwing matches, are becoming unstable. Reva Bhalla from Stratfor Intelligence at stratfor.com joins us now. Reva, it’s clear that much of the impetus for the regime change in Palestine came from the fact that the Palestinian people were tired of the rampant corruption in Fatah, as well as the miserable economic condition that the post Intifada period brought. What did Hamas originally hope to gain from the elections?
REVA: Well, Hamas definitely planned on making a strong showing in these elections, but the expectation was that Fatah would still retain a slight majority. In that way Hamas could avoid those major interface positions in the government that would involve dealing with Israel and the United States, and in the meantime Hamas could control those more social security focused apparatus’ in the government. And it could build up its social support that way, it’s a very gradual process that Hamas was pursuing. Now that it’s achieved such a large majority those plans are kind of thrown up in the air, and Hamas has to decide whether it should take advantage of this, seize the opportunity and actually take control of the government and kind of force then the international community to realize that it’s a force to be reckoned with, and they’re going to have to talk with them whether they like it or not. But of course a lot of problems come with that as well when issues of disarmament come up. Most likely the group is going to try to work out some kind of arrangement with Fatah to form a governing coalition so it can still try to avoid those real problem positions, and still retain a strong showing in the government.
JIM: Hamas has always advocated violence and proclaimed one of its goals is the destruction of the state of Israel. Has it now morphed into an organization that will be able to lead into a Palestinian state and perhaps peace negotiations with Israel, or has it sold out its soul in taking this leadership?
REVA BHALLA: Well, that’s one of the biggest dilemmas for Hamas, that’s how to advance politically but still not lose its legitimacy as a resistance movement. It’s been long engaged in efforts to sell its more moderate image to its constituency and it’s been doing that by lobbying the United States and Europe. There’s been a lot of back channel talks going on, and it’s been trying to just sell itself as, “we’re the ones who drove Israel out, out of Gaza, and we’re going to do that in the West Bank as well.” The problem is now that they have such a huge majority, and as a state sponsored entity there will be a ton more pressure to disarm. Hamas though has no intention of disarming in the near future, that puts them in too much of a complicated situation. So, that whole fear of selling out is just compounded now more than ever.
JIM: Well, when all is said and done will there be any difference for the Palestinians themselves, or have they simply in this case, Reva, thrown out one group of rascals for another
REVA: Well, Hamas definitely is not Fatah. Fatah was seen as the corrupt old guard, it really didn’t get anywhere. Abbas did not have a lot of credibility among the Palestinian people, that’s why Hamas won. They’re very popular for its social services and for this whole non-corrupt image, and the important thing to realize here is that if you’re looking at this whole Israeli-Palestinian political scene who are the major players that can actually do something to advance the process forward? Now we’re in the absence of Sharon, Abbas has lost all credibility after these elections and it’s really Hamas – they have the guns, they have the popularity, and now they have the political power to actually move this peace process forward. So it’s definitely not an exchange – an equal exchange – over Fatah. [55:16]
JIM: Well, lets look at another hot area of the globe this week Secretary of State Condoleeza Rice said that the time for negotiations with Iran is over. What does that mean?
REVA: It really doesn’t mean much to be honest. This is something that has been very repetitive with the whole Iranian nuclear controversy over and over again. We’ll hear the rhetoric from the US saying negotiations are over, it’s time to go ahead and send Iran to the Security Council but Iran is very skilful in maneuvering among its allies, and you know, always plays the oil card. So, it’s got China and India on board. It has the Russians looking like it’s the chief mediator in all this. So, as long as it looks like Iran is negotiating with the Russians you can delay any kind of vote, and any kind of real action as far as sanctions or anything else. So this upcoming crisis meeting at the IEIA next week is really going to be another non-event. It’s just another futile exercise as it’s been. Now, the question is how long is this going to go on until the US decides it’s time to take real military action. Just because really the Security Council isn’t a forum for real action as we’ve seen throughout this whole scenario. [56:26]
JIM: And another issue coming up is the Iranian oil bourse. Going into [the future], how will this impact the situation? Not to mention the fact that OPEC’s meeting this week where they are already talking about cutting back on quotas.
REVA: Well, I don’t think the Iranian oil bourse is actually going to factor into this much at all. The idea behind the Iranian oil bourse being denominated in euros isn’t going to make a lot of financial sense to a lot of people, and it’s pretty clear that Iran is just trying to play the market. If they do set it up in dollars that’s another story but many investors aren’t going to put a lot of faith in Iranian finance, so there really wouldn’t be a major impact. [57:03]
JIM: And then another troubled area a final question that events in the Ukraine and also with Russia trying to reverse what we call the color revolutions in the area: we’ve seen that they are willing to use the oil or in this case natural gas weapon. How serious should we take that?
REVA: Well, Very seriously. Russia is trying to send Ukraine and Western Europe a message that it’s still trying to push back the US-led geopolitical consensus against Russia, and one way to do it is through it’s whole oil assets in Ukraine. No one really expected that, especially in Western Europe, that Ukraine would take out the oil card in this situation.
JIM: Reva as we close, why don’t you tell people about Stratfor.com what it is that you do and provide, and how they can get more information about your company?
REVA: Sure. Well, Stratfor is a private geopolitical intelligence firm. We put out analyses ranging from daily analyses to even decade forecasts so our company as the name implies is involved in forecasting and it helps businesses around the world decide where to invest, and stratfor.com has all that information provided. [58:13]
JIM: Well, you’ve been called the investor’s private CIA, so Reba thanks so much for joining us on the Financial Sense Newshour, hope to talk to you again in the future.
REVA: Sure, thank you.
Other Voices: Jim Willie, Hat Trick Letter
JIM: Well, in contrast to last year’s San Francisco Gold Show there was record attendance at this year’s Vancouver Gold Show. One of the attendees and speakers is Jim Willie, he’s editor of the Hat Trick Letter.
Jim, what were your observations? I know one of the things that you wrote on our site today is that when people were talking about gold not one person talked about the geopolitical aspects.
JIM WILLIE: Well, they talked about the geopolitical but they didn’t connect anything to the petrodollar issue that has been raised with the March opening of the Iranian oil exchange. They mentioned the nuclear threat and I thought seemed to be buying in totally to much of the disinformation that’s going on with the US government. We had I think a chapter three years ago with weapons of mass destruction. Now we have a new chapter of nuclear proliferation and I don’t know that we’ve learned anything. [59:21]
JIM: You know one thing that makes Iran different than Iraq is Iran has very strong ties through the Shanghai accord with Russia and China. That probably makes it a little bit more ominous than going into Iraq.
JIM WILLIE: Oh, absolutely, absolutely. I’m glad you brought that up because I have long thought that the Iranian oil exchange will be the actual storefront for the Shanghai Co-op group and give it a face, and give it a market place presence to challenge the London’s International Petroleum Exchange, and to challenge the New York Mercantile Exchange. But what I think is the bigger story here very much in keeping with what you say the bigger story is Central Asia – with all the former Soviet Republics with China, with Iran with the pipeline with Russia – is turning out to be a very Asian entity that is not controlled by the West, and the US doesn’t like that. [1:00:17]
JIM: Well, I know the other thing too is Putin has shown that he’s making a lot of effort to regain control over the different ‘-stans’, and he doesn’t care if he has to take some fallout by alienating some of the Europeans. He seems to want to proceed in reverse what they call the color revolutions in that area.
JIM WILLIE: Yeah, I believe Putin is a master chess player, and it’s interesting, and generally didn’t get too much play in the US press, or CNN, but one of the ramifications of the Ukraine-Russia confrontation over the natural gas price was that Russia controls the pipelines of all Central Asian natural gas that ends up going to Europe. Let me just state this a little bit differently: anything you hear about a nuclear Iranian threat exchange the word Iran with Russia. I believe the problem is a Russian threat, it’s not an Iranian nuclear one. No, it’s Russian nuclear technology being put on Iranian soil. Russia possesses nuclear weapons of mass destruction to be sure. The Soviet Union never died. It just changed its business title and the head is instead of the Communist Party it’s the KGB. So, we’ve got a completely different shift of Central Asian politics, and it’s exposing itself as kind of a lawless territory. So Putin is like an old sheriff in a territory and he decides, “well, I’m going to abrogate contracts, I’m going to rewrite the Yukos ownership papers, and I’m going to screw Pan Am Silver out of its deposits in Russia.” And so it just goes on and on. Russia is now using the energy card I think to build up its national economy at the state level. There’s state power growing in the United States, and now there’s state power growing in Russia as well.
JIM: Well, it’s interesting because on January 11th this year there was an op-ed piece in the Wall Street Journal by Sergei Ivanov, Russia’s Foreign Defense Minister, and he said Russia must be strong, but the gist of the article is we’re rearming: we’ve got a new strategic ballistic missile force we’ve just added; and he was proud of the fact their new missiles are unmatched by anybody; they’ve got a new ballistic submarine that they’re launching in two years; and they’re building up a rapid strike force of 250,000 troops that they can mobilize and put anywhere in the globe. So that sounds to me like a very aggressive Russia.
JIM WILLIE: Oh, very much. In fact I believe for the last 3 years OPEC has been trying to find a way to move away from the dollar-centric world and invest more – diversify more – of their oil revenues into petrodollars – instead of petrodollars into say Eurobonds, but they lack the military so they’ve been creating this greater reliance with Russia which does have the military might, and I believe Russia is going to be the spearhead that brings about – in old nuclear terms peaceful – coexistence between a petrodollar and a petroeuro. Why should Iran sell oil to Europe and be paid in dollars anymore than we buy Canadian oil and pay them in pesos? So, there’s a real spearhead effort here and I believe the Persian Gulf is very much in chaos. What we’ve done in the last 3 years by taking over Iraq is we’ve invited an Asian response. And the Asian response is pretty much unity in the Central Republics with a focal point in Iran. And it’s going to be a very dangerous situation and the whole banking system’s going to have to adjust to it. But this is about energy. I wrote last week Countdown to Energy War that we’ve got a world war that is underway, and it is for the world’s energy supplies. And as a result of Unocal blockage for the Chinese CNOOC, US Congressmen told them your money’s no good for buying Unocal. Well, unfortunately the money is of US dollar denomination, China has turned right around and said, “OK, we’ll lock up Central Europe [sic].” So they’ve locked up two deals with Kazakhstan.” They pretty own Kazakhstan’s entire oil supply: 40 billion barrels; they’ve locked up some peripheral contracts with Nigeria. I think you’re going to see in the next year or so, Jim, that the OPEC core is going to shrink and the OPEC fringe is going to splinter. [1:04:40]
JIM: Well, it’s absolutely amazing to see in a year when everybody’s talking about wonderful things for the economy I have never seen so much geopolitical attention: Hamas victory in Palestine; the Iranian issue; the Putin issue. So it almost looks like a remake of the Cold War, but a little bit more serious.
JIM WILLIE: Yeah, and put in a little bit of Weimar Republic into the US scene here domestically. We’ve got crazy things going on with the change of the baton from Greenspan to the new Secretary of Inflation Ben Bernanke. I think that the legacy for Greenspan is slowly going to be rewritten from its current version to one of a series of crises, domestically we have crises, and internationally we have crises. So I think the watchword for the coming year is proliferation of crises. Fannie Mae is bankrupt, they’re trying to hide that. When Greenspan took office I think it was less than $2 was required in new credit – new debt creation to produce one dollar of GDP. Well, his legacy now is it’s 4.1. So we have a very debt dependent economy. The world is an unsafer place. Iraq destabilized the entire Persian Gulf, and Central Asian area. The pipelines through the former Soviet Republics have exposed what a lawless land that whole area is, beginning with Chechnya, and extending towards you know Azerbaijan. There’s just so much going on, most Americans couldn’t identify even 2 former Soviet Republics, yet they claim to be proficient enough to vote in national elections, which is kind of a joke to me. [1:06:20]
JIM: Well, it’s absolutely amazing. I mean if we look at the money supply figures last year, M3 grew by almost 800 billion, 8.3% if you take the fourth quarter M3 growth, it was 227 billion and a growth rate of 9%, and then of course in March it disappears.
JIM WILLIE: Well, yeah, this money supply issue is really so important. If you really want to look to see what the starting point for what some of the more recent crises of the last 10 or 12 years, look to where Greenspan in 1996 had his irrational exuberance speech, and although that title is well known, the factors behind that, the inner workings are not. What he essentially did was departed from a policy where the money supply would grow as the economy did. So if the economy grew 3%, the money supply would grow 3%. But then we had the brilliant notion that we should allow the money supply to grow until the CPI starts to show problems. Well, back then what we ended up doing was a remarkable feat economically. We’d export our inflation in the form of paper – Treasury bonds – to Asia and they would overbuild their factories, they had the Asian meltdown just one year later, and then what we would do is benefit from the cheaper, overproduced Asian goods. So what essentially our inflation produced are declining prices in the United States, lower CPI, which permitted the Fed to continue to increase the money supply to such an extent that we had a stock market bubble. So this is the Greenspan legacy it’s bubble after bubble, chronic bubbles and it’s tragic because my country is now essentially, I think, bankrupt. [1:07:57]
JIM: Well, it’s absolutely amazing when I see the forecast this year. You know I want to come back to the Iranian bourse issue and Iran and also the geopolitical aspects of oil. I was astounded the first week of the year they had a very, very credible analyst, very well known on ‘Bubblevision’ and he was giving his outlook for the markets this year. One of the reasons he thought that stocks would do well is that oil would be going back down to $40 a barrel. I do not know where those who follow the oil industry on Wall Street keep talking about $40 oil. I think it’s going to go north of $80, and then in a crisis, $100.
JIM WILLIE: Well, in 2005, Wall Street got the energy pricing challenge very wrong for weather reasons and I think in 06 they’re going to get it very wrong for geopolitical reasons. I think we have to understand that Wall Street starts with the premise of a tame and declining oil price, because all of the forecast models you know expected 06 S&P earnings and other nonsense like that. It’s all predicated on BS as far as energy forecasts.
I think a bigger question that has really struck me is how the US does not own anymore the world energy reserves. We’re not dominant, so if we don’t own the wealth from energy then we had better own the wealth for intellectual property. So, you know, we’re we’re right up there as far as owning intellectual property for patents, for cell phones, for computer systems, and fiber optic systems, and now we own the brand names of all the wonderful retail chains like K-Mart and Walmart, and Best Buy, and Circuit City, and Staples, and Home Dept – these are our consumption shrines so we had better play up what we own, and play down what we don’t. We don’t own energy. I’d like to see us instead of investing wasteful money in Iraq have a national program for electricity generation, for fuel cells, for hybrid cars. For the cost of what we’ve done in Iraq we could outfit pretty much every household in the United States with a hybrid car. That would change I think our dynamics. [1:10:07]
JIM: Well, it would change our dynamics, good luck trying to get something like that through Congress though.
JIM WILLIE: Well, good luck, you know, putting aside all the special interests that are very well connected to the White house regarding the you know military-industrial complex.
JIM: Well, Jim, as we close here why don’t you give out your website and tell people about your newsletter.
JIM WILLIE: OK. The website is www.goldenjackass.com. It’s the Hat Trick Letter. I have subscriptions of monthly, half year, and full year. It’s actually, since the last time I was on the radio with you, it’s grown fivefold, so I’m very pleased. I’ve got a lot of work to do. I cover the bond market, the currency market. I cover monetary policy like all the central banks and interest rates, international economics and all the asset bears on the gold market, and the energy market. I try to cover gold, silver and copper, and I try to cover oil, gas and uranium. So, I’ve been speaking at a few conferences, mainly the Canadian circuit, Cambridge House led by Joe Martin, and was speaker in front of the largest crowd I’ve ever been in, 1100 last week at the Vancouver Gold Show. So, a lot of break out sessions, a lot of subscribers came up, it was really kind of heartwarming. But the business is moving along. I’m trying to widen my virtual staff of researchers and information gatherers so that I can provide a better service for the readers. It’s going very well and I’d like to thank you for all the help you gave in 04. I think you’re a pretty good talent scout if you will, and it was an interesting time back then, and now it’s just getting bigger and better, and this is really quite challenging and quite interesting. [1:11:47]
JIM: Well, Jim, it’s great to have you on the program. We hope you’ll come back and talk to us again in the future.
JIM WILLIE: I’d like too, thank you.
JOHN: Jim, busy, busy, busy show this week. Of course, if you’ve noticed everything is stepped up, and there are blips all over the radar which means there’s a lot to cover and hard to squash all of that into a program like this.
JIM: It’s amazing this is one of those years, John, where events are just, you know, we saw the Iranian situation at the beginning of the year; we saw also the Russian situation, we had the editorial in the Washington or the Wall Street Journal about Russia’s rearming. Then you had the little political showdown with Uzbekistan, and you know, this week Hamas. I mean stuff is just happening. And it’s coming out so quickly this is one of those years where things can just sort of overwhelm.
JOHN: Good time to be in news work. It’s better to have too much than too little when you go on the air. What’s coming up next week?
JIM: Well, coming up next week my guest will be Dr. Bob Froehlich, he’s written a book called Investment Megatrends: Six Trends That Could Alter the Markets and the Economy Over the Next Decade.
Well, John, as you said, we have run out of time. We’d like to thank all of those who called in, gave us emails, and thank all of you who have tuned into this weeks show. We will back again next week with more exciting guests. In the meantime until you and I talk again have yourself a pleasant weekend.
