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Financial Sense Newshour

The BIG Picture Transcription

April 19, 2008

Part 1

The Decline of the Giants

JOHN: Well, if we go back to February – I don’t know why February right now is starting to seem further away than ever, but anyway – we did a series on natural resources and energy. And one of the salient points that we discussed is that since 1985, the world has failed to discover what we use every single year when it comes to oil; and then we discussed other issues such as why energy prices were heading higher. And if you remember the prediction here on the program in January was for $125 a barrel oil this year. We’re just about to 115 now so we’ve got 10 to go and I think we’re going to make that before the end of the year easily. So this week we are going to begin the Big Picture with another important fact about oil which is most of our oil comes from giant oil fields; oil fields that were discovered over 40 to 60 years ago and we have not been finding any new big ones anymore.

JIM: We’ve often discussed on the program that we’re not replacing the oil we consume each year with new discoveries – that alone I think would get people’s attention. But it hasn’t – because you always have “well, we’ve got technology, we’re still making new discoveries,” and we always make these assumptions, “well, if demand grows by x percent the supply will be there.” Well, this has been going on for over two decades but I believe there is a related problem as to why this is happening, and the reason is most of our oil comes from oil fields discovered anywhere from 50 to 70 years ago.

Now, most people – and this is a key here – are unaware that just 14 oil fields account for 20% of the world’s oil production. The biggest oil field, Ghawar, accounts for one-half of Saudi production, and Ghawar was discovered back in 1948. That field is now in decline. And if you look at the second largest oil field, Cantarell in Mexico, as we’ve often commented, that was discovered back in 1976. It peaked in 2005 and has now gone into rapid decline. If you take a look at the third largest oil field, Burgan, it was discovered in 1938. It has gone into decline. [2:44]

JOHN: I know that this is something that Matt Simmons has discussed here on the show in the past interviews that we’ve done with him recently.

JIM: Yeah, Matt did a study of the world’s major oil fields back earlier in the decade and this goes back to a meeting Matt had at the Pentagon in the late 90s. They had all of these oil experts and they were sitting around the room and they were saying, “China’s production will be x in 2010, and Saudi oil production will be x.” And then Matt said, “how do you guys know that?” “Well, that’s what our models say.” And so that prompted Matt to embark on a study of the world’s major oil fields. Nobody had done that prior to Matt. Basically, people just made assumptions and just assumed those assumptions would play out.

What Matt found astounded him. The vast majority of our oil production comes from a small number of oil fields that are now very old and are in decline. Basically, John, if you take the world’s oil fields, 120 oil fields account for almost 50% of the world’s daily oil production; 36 of these oil fields were discovered over 45 years ago. And these giant oil fields make up nearly the bulk of our production; 14 of these fields –as I made comments earlier – account for 20% of our production. The problem is we stopped finding these giants decades ago.

The only giant that we’ve found recently in the last two decades is Kashagan in the Caspian which was found in the late 90s, and yet as of this date is still not in production even though that was roughly about 10 years ago.

Put this another way: 120 oil fields produce 47% of our oil. The other 4,000 oil fields produce the other 53%. [4:44]

JOHN: So basically the reason that we’re not replacing these reserves (which quite frequently we’ve noticed the levels never seem to go down on the official books but in reality they are) is first of all, we really just not finding enough oil. That’s all there is to it. And second of all, what we are discovering today really is smaller by comparison to these giant fields that were discovered almost half a century ago.

JIM: That pretty much sums up our predicament. I mean there is a relation in terms of the connection between why we’re not replacing what it is we consume and that is because the major oil fields were discovered half a century ago. No new fields discovered in the last decade will have production that exceeds 250,000 barrels a day. By contrast, if you take the top 19 older, giant oil fields they’re still producing an average of over 500,000 barrels per day despite the average age of those 19 fields being 70 years old. Some of them go back to the 19^th Century like the oil fields that were discovered in Kern county, California which still produce a good bulk of California’s oil.

And you know, here’s one to think about. Chances are the oil or the gasoline in your tank came from an oil field discovered 70 years ago. Now think about that for a moment; we know eventually all oil fields go into decline, it doesn’t matter if it’s the North Sea or the North Slope. The problem is when a giant goes into decline like Ghawar, Burgan, Cantarell, North Slope, North Sea, it takes hundreds –literally hundreds – of new oil fields to make up for the decline. And we’re simply not discovering hundreds of new oil fields each year to replace what it is we’re losing to depletion. [6:35]

JOHN: You might expect that a few smart people would be looking into this. I mean as important as it’s going to be for the world economic security this is not discussed very often – at least not in public.

JIM: No. The problem is most of these fields are in the Middle East where production rates and declines are kept secret. And this is a point Matt has made continuously and other experts – virtually no analysis has been on what the production rates of all these giant oil fields might be and especially as the future unfolds because every report that you look at “well, based on current trends, China’s demand is going to be x amount of barrels a day, India’s demand, the emerging world...” – you know, here is where the demand is – and we make these assumptions that the supply is going to be there. Now, realistically, you have the IEA that is looking into this saying: “Wait a minute, we look at these numbers. Each year the Middle East produces x amount of barrels of oil and their reserves never change.” I was watching a documentary last night on oil. One oil expert said “doesn’t anybody question this?” And he goes “if you talk to the people in the Middle East they’ll say that ‘well we produce x amount of oil last year and that’s exactly what we found to replace it, so our reserves never go down because we simply find or replace what it is that we produce’ yet there has been no evidence that there have been major oil finds.” So you know, we’ve got all kinds of problems here that we’re simply not talking about.

In fact, I read recently, one astute investment firm is doing the same thing that Matt Simmons did many years ago; they’re compiling their own survey of the top 250 oil fields which account basically for the majority of the world’s production. But for all practical purposes here, here’s the scary part: We’re flying blind. And I think if we got verifiable data out of OPEC I think it would shatter the current myth that there is plentiful supplies of cheap oil in the Middle East. [8:43]

JOHN: Well, you know, it would seem that if that is the case, if what you’re talking about is true which I’m assuming it is, it would seem that the giant oil fields that have been discovered are going to really have to run faster and faster just to stay even with the demand load. I mean never mind the fact that the demand for oil is expanding in the developing world and actually within the OPEC countries themselves, so they’re beginning to consume more of the product that they used to export.

JIM: That’s the problem that we face that hasn’t gotten much traction. We’re all focused right now on global warming, which may or may not occur 40 years from now. Peak oil, in my opinion, is now on the front-door step. Most of the world’s true giant oil fields were found four decades ago. In the past two decades, most of the oil and gas discoveries have been quite small. Today, a major would be a 100,000 barrel a day field and we’re not finding very many of those. The last million plus oil field that we found was Mexico’s Cantarell field which discovered back 76. And before Cantarell it was Alaska Prudhoe Bay in 1968, and then the following year with the North Sea. All three of these fields are now in precipitous decline, especially Cantarell. The North Slope produces less than a third of what we were producing before the peak in 1988. [10:06]

JOHN: This is really a remarkable story because what you’re basically saying is that the fate of the world is now resting on a relatively small number of oil fields, so our basic supply of oil is concentrated in a small number of fields and the majority of them are old and many of them – just like Cantarell – are in decline. Well, to sound cliché-ish, “Houston, we’ve got a problem.”

JIM: A big problem, yet even though these fields, many of which have gone into decline, yet older fields are still producing far higher volumes of oil than the new giant fields that we have found. In other words, if you look at this, we are finding oil fields but what we’re finding is smaller fields with smaller production. [10:52]

JOHN: Any way to sort of quantify that because basically what we’re saying here is alarming and especially if none of our politicians is focused on this issue of peak oil which looks like it’s either here or going to be here very quickly. Now this is very troubling because, like any disaster, the time to begin sewing a parachute is not after you jump out of the airplane. You should have been working on this a long time ago because once you leave the airplane the clock is ticking. And that’s where we are right now, the clock is ticking before the impact.

JIM: You know, Matt Simmons produced a white paper that he did back in 2001 and he sort of quantified this but this will give you a picture. If you take the oil fields that we discovered pre-1950 –you know, that was like Burgan, the Kern county oil fields in California – those oil fields are still producing 550,000 barrels a day. The oil fields that we discovered in the 1950s are producing about [330,000 barrels] a day; the oil fields that we discovered in the 60s are producing 240,000 barrels a day. The oil fields that we discovered in the 70s on average are producing 230,000 barrels and day. In the 80s, the oil fields discovered in that decade are roughly producing 175,000 barrels a day; and in the 1990s the fields that we have discovered are producing 125,000 barrels a day. So you can see the progression of the decline by decade, which only goes to highlight the importance of the supergiant oil fields.

Now, think about this one for a moment: 36 giant oil fields contribute over 80% of the daily Middle East oil production. I think that pretty much dispels the myth that you hear so often that the world’s oil supply is diversified. [12:56]

JOHN: Is there any other data that would drive home this point?

JIM: Well, some of what we know now is dated. It’s not like we get audited field reports from the Middle East each year. I mean a standard thing that you see in the BP Statistical Review is OPEC’s reserves never change. Whatever they find the assumption is made that they replace. But we do know that the large oil fields – Ghawar, Burgan, Cantarell, China’s Daqing – have now all peaked. For example, we know that Ghawar produced 6.3 million barrels a day; the last known report that we have on Ghawar, its production had dropped to roughly about 4.5 barrels a day. We know, for example, Prudhoe Bay produced 1.6 million barrels at its peak. It’s production is now roughly around 400,000 barrels a day.

If you think about our top 10 oil fields declining by 4 million barrels a day and with average discoveries that we’re making today in the 25 to 50,000 barrel a day range, once declines begin the volume of daily production lost will require an exponential number of new, smaller fields to replace them. And if you think about this, the smaller fields tend to peak fast and then they decline at much more rapid rates because they’re smaller oil fields. So you can see we’re on this never-ending, ascending treadmill that keeps rotating faster and faster. I think this is a point that very few analysts have ever thought about. If you take a look at the CERA folks, “well, we’ll just find it.” And this really drives home the fact we’ve been talking about here is we need to step up exploration and push aside all of this bureaucratic red tape that denies access to where the oil is to our energy companies. And it’s not just oil, it’s natural gas.

And I just don’t see how we’re going to be able to avoid at this point an energy crisis. I mean if you look at Kashagan – the last giant that was discovered in the late 90s – here it is 2008, 10 years later, and it is still not in production. They’re talking about it may be the year 2011 before it comes online. So I just don’t see how we’re going to avoid an energy crisis that’s going to involve either, one, shortages, higher prices which we’re seeing today. I mean oil was down earlier in the day. Now, it’s at $116 a barrel as you and I are talking – and so higher prices and accompanying economic pain. And this crisis, when it erupts at least will give a taste of things to come this fall when world demand is expected to rise to roughly around 87 million barrels a day and supply is going to be stuck around 85 million barrels a day. There is nothing coming online this year that is going to be able to bump that supply up to meet demand especially in the fourth quarter. [16:00]]

JOHN: It’s interesting that you’re talking about this, Jim, because if you’re looking at the situation in South Africa – post-apartheid – the government was in a certain amount of shifting chaos. They opted for a socialist model by the way is what they did, rather than one that would be on a capitalist basis. And they were given similar warnings by experts about what their energy situation was going to be and they ignored those warnings; didn’t they?

JIM: They basically ignored them until 2004 and now they’re paying a terrible price for it.

And it goes beyond that because our energy producing industry – whether you’re talking about the oil companies or our public utilities – are saying we need to bring more power plants online. But state governments are stopping clean-coal technology. We should be bringing online clean-coal technology power plants and nuclear power plants and we should be starting right now with almost the equivalent of a Manhattan Project to bring these online. Because, John, you’ve seen this – remember a couple of years ago when they got that heat wave in the Midwest and the grid system failed; anytime in California that we get heat waves during the summer we have rolling blackouts. Think of what’s going to happen five or six years from now when demand increases and think about if we’re trying to come up with a solution –whether it’s plug-in hybrids – I mean if that’s where we’re going with automobiles, well, we’re going to need more power because when you pull your car into the garage at night and plug your car in to charge at night, you are now adding additional load on to the grid system that wasn’t there before.

And even more important, with the shortages and power outages in South Africa even more alarming is neighboring states around South Africa, ESCOM is telling them “we’re going to be cutting our production that we sell to you over the next two years because we need it for ourselves.” Well, think about the United States that now imports 70% of our energy needs. We’re putting ourselves in a very vulnerable situation here, not only in terms of imported oil and oil refined products such as gasoline, diesel and jet fuel, but also power plants. So I mean there’s a lesson here from South Africa – that very same thing is going to come to the United States because we’re not building the power plants that we need, we’re not finding the oil that we need, which makes us each year we have to import more and more oil and refined products from areas of the world that are growing increasingly unstable. [18:30]

JOHN: You know, Jim, what it sort of reminds me, don’t you, what politicians are doing with this: Pull the rip cord now! Right after they hit.

JIM: Yeah, many of these guys will be retired collecting their generous pensions when this crisis unfolds. And that’s why there’s absolutely no accountability. But I mean there’s all kinds of red flags that are going around us and we’re putting ourselves in a very vulnerable position. [19:00]

JOHN: I don’t know if you read the piece by Michael Klare, it appeared in the Asia Times, on April 17^th, it’s still there on their website called The Rise of the New Energy World Order. It’s a rather lengthy piece and he comes up with a very sobering analysis of what this is going to mean geopolitically because very few providing countries are going to control all of the oil. And he said you’re going to see wealth transfer to those countries as well as political power transfer. Then he began to look at the alternatives and said they are not on the horizon and he looked at global warming and he said, there’s not a prayer’s chance in heck we’re going to make any kind of reduction in greenhouse gases the way we’re currently structured; we’re just barely thinking about getting a conversion made. So the analysis is pretty sobering. And like you say in your analysis here, it’s pretty frightening.

JIM: Yeah, and the thing is here we have this storm which is heading in our direction, we’ve got all kinds of signs, we’re looking at oil prices at 116. And you remember, John, in January everybody was telling us that the price of oil was going to go lower because the US economy was heading into a recession. In fact, Bubblevision this week had a thing about the next bubble and they were talking about oil and yet here we are at $116 a barrel, you know, we’re less than $9 away from our prediction of $125 a barrel. And think what’s going to happen this fall when demand rises to 87 million barrels a day, and supply capability is only going to be 85 million barrels a day. This is what I think is going to get us to that $125 oil figure that we’ve been predicting here on the program since January. [20:33]

JOHN: Now that I feel like jumping out of an airplane without a parachute just because of what we’ve said, is there really any hope of finding any more of these giants. How are we going to deal with this situation short of chaos because sooner or later somebody is going to wake up?

There was a talk earlier, for example, Petrobras may have discovered a giant. But is that true or are we just going to see this fizzle?

JIM: If you take a look when that story first came out they were thinking this oil find may be as large as 30 billion or 33 billion; you remember this was very similar to the Jack discovery in the Gulf of Mexico – they said it had similar characteristics. But if you look at more recent statements by the company, officials are backing off the initial estimates. And at this point they simply don’t know until they do more drilling. And despite hope, the exploratory efforts that we have seen here made in the last three or four decades have seldom found new fields that come close to the size of the earlier giants, which those giant oil fields discovered 50 to 70 years ago still underpin almost all Middle East oil supply today.

And even if you look at what is going on in the kingdom, almost half of all drilling done by the Saudis is occurring in its giant Ghawar field which only postpones if anything the further decline rates of Ghawar, which has gone from roughly 6 ½ million barrels to last reported it was 4 ½ million. Who knows if that 4 ½ million is a good figure. [22:06]

JOHN: So if we begin to summarize all of this, oil is still the world’s most important energy source. It is almost the sole source right now of liquid fuels required for transportation of all types, and there is not much of that changing in the near future. Ethanol is not doing it. We have already seen the ravages of ethanol on the world food market right now. That’s impacting things globally. The oil accounts for about 95% of our ability to transport goods and people. Let’s face it, you can’t – well, you could run trains. Like I’ve said, Europe and other places of the world have run electric trains – they do work. But you have to have power plants generating a lot of power to do that; correct? Correct. So for the rest of the world we’re stuck with liquid fuels, of one form or another. Very few energy substitutes, very little viable right now, even if we did have something in the laboratory. Like Michael Klare said this week in his article, it’s not moving from the laboratory to commercial production. The oil fields that we have were discovered 50 to 70 years ago and we aren’t finding enough of crude oil each year to replace what we consume because basically the majority of big oil fields were discovered decades ago. We’ve finally arrived at the point where demand has caught up with supply and so it’s like a bank account where you keep overdrawing by a thousand dollars a month. Over 24 months suddenly you have really quite a deficit and that’s what we’re going to face, is an energy crisis that will involve shortages and higher prices.

We mention also the geopolitical ramifications of this. Whole new power centers around the world with nations that were formerly dominant becoming beggars in this whole thing.

Have I left anything out?

JIM: No, that pretty much sums it up.

JOHN: That’ll be $5 please!

I think I’ll be joining you for a few bottles of wine and a cigar this weekend and we’ll ask our friends over and we’ll sit and bemoan the loss of civilization as we have known it. We’re going to cover more on this topic in the next few weeks and months. You know, really if we look at it, Jim, is there a point in telling people about all of this? I mean, what can the individual person do that might be listening to this show? How will this impact them?

JIM: Number one, if you haven’t thought of getting a hybrid or a fuel-efficient car or rearranging your schedule so you don’t live and have to travel that far to get to work. Gosh, I hope if you’ve been listening to this program for the last 7 years you own energy stocks by now, and you don’t get panicky like, for example, in January and February when the energy stocks corrected as a result of large financial institutions deleveraging their balance sheets.

And for goodness sakes, I hope you’re not believing the nonsense that – John, I am so tired of hearing every time the price goes up, “oh, it’s a bubble…It’s a bubble” If it is a bubble, show me where the new discoveries that are going to come online that are going to replace and supply all this oil. If it’s a bubble in commodities, show me the warehouses that are full of rice, food, corn; our grain stocks are down to levels that we haven’t seen for almost half a century. In a bubble you see more supply come online and eventually so much supply comes online that eventually the prices fall. We’re not seeing that. And so that’s why I think that you have take with a grain of salt when they’re telling you “oh this is a bubble, you ought to get out of it.” Number one, the sector never got overpriced and we’ll be covering more about these issues on energy. In fact, next week we’re going to take a closer look at the industry and companies.

Oil will become a more important topic here on the program, especially as we head into that crisis window that you and I are talking about that begins to open up towards the end of this year where I believe we’re going to be looking at oil prices at $125 a barrel and gasoline – John, I don’t know what gasoline is like, last weekend we crossed over $4 here a gallon and I think we’ll be roughly $4.50 to high 4’s for gasoline; diesel is up $4.30. I’ve gone sailing over the last two weeks and one of the guys next to me on the dock has a boat and he has 600 gallons – it’s a motorboat – and he was bemoaning he just got back, he wanted to fill his tank and here on the bay in San Diego, you’re paying over $5 for diesel. So you can imagine it cost him over 3 grand to fill his tank. And I agree with Bill Powers that natural gas prices are going to be heading higher, along with heating oil as we head into the fall. [26:41]

JOHN: It’s interesting when economists talk about the oil situation, it almost resembles what we talk about. Remember, a static world, taxation. It’s almost like static world, oil. Their assumption is that the widgets – or the oil – is always going to be out there and that we just apply normal economic ideas to figure out where the oil prices are going to be without looking at the supply or the effect if there is any counterbalancing effect – that’s the whole issue of taxation too, is that assumption that if you just keep raising the rates more tax money comes in. Right? It’s got to be that way.

JIM: Yeah, they’re linear extrapolations; demand rises by x amount, so supply will rise by x amount. Now I do believe there are a couple of people, I’ve read a major brokerage investment bank is now compiling field-by-field study of the world’s top 250 oil fields. You’ve got the IEA which is now beginning to question some of the assumptions about supply. Remember the report that they released last summer. Also, the IEA is going to be releasing a report later on this year, they are conducting their own review of the world’s large oil fields; and when that report is released we’ll be doing a special on that. So there are people who are beginning to wake up. It’s still a small minority but the two most compelling reasons that should get people’s attention is number one, we have not been discovering on an annual basis what it is that we consume.

And related to that is because most of our oil comes to us is highly concentrated in a small handful of oil fields, so contrary to popular opinions that our fuel base and our oil base is widely dispersed, well, that’s true when you consider when there are over 4,000 oil fields, but those 4,000 oil fields that account for 53% of our supply are very, very small oil fields. So in that sense, it’s dispersed; but 47% of our supply comes from 120 fields. And when you have a Ghawar go from 6.3 million or 6 ½ million barrels a day down to 4 million barrels a day, a Cantarell go from 2 ½ down to maybe 1 ½ or below a day, that is a significant impact. In other words, if four oil fields have seen their production decline by 4 million barrels a day, think how many hundreds of oil fields it’s going to take just to replace that to stay even. That’s the topic that people aren’t talking about here. [29:19]

JOHN: You know, you have to look at the history of this whole thing because I think, Jim, for as long as you and I have been doing this program we’ve been telling people that this is the oil situation, this is why prices are going to go up, this is why investing in energy is going to be a good area. And at the same time most of the talking heads out there have been saying, “no, it’s not going to go anywhere, it’s going to go back down.” I’m still waiting for that 40 to $50 a barrel which they were predicting a few years ago. And that’s why I’m assuming you started an energy account as a matter of fact and you own so much oil for your clients. I mean I’m glad we put that into energy because I guess I feel a little better when I fill up at the pump because of that. It takes the pain away from the shock of it. I’m just flabbergasted at how fast the digits go around. You know what I keep right here? I have a charge slip from when I was in college in 1968 at San Francisco state. I filled my car up for 3 bucks, haw haw haw.

JIM: Yeah, when I was in college I had a VW bug and thank God I did, John, because remember when the oil embargo hit, the crisis hit – I forget what my Bug had; 10, 12 gallons – well, the price eventually went up to 50 cents but it went up to 5 bucks instead of 3 bucks, and thank goodness I got good gas mileage because you remember the big cars back then with the big muscle cars, the camaros, the GTOs, you remember the 440.

JOHN: The LTDs, the Cadillacs – the really big stuff that was around at the time and that everybody liked to drive, especially retirees – remember that?

JIM: We’re really giving away our age, aren’t we?

JOHN: Dating ourselves. Speak for yourself, Kemo Sabe. I was a perpetual college student so I don’t have to give away my age. Anyway. But people can still get into that energy jump line, right? We can still climb on to that bandwagon because it’s nowhere near the top of where it’s going to go.

JIM: No. I mean if you’re looking at $125 oil by the end of the year, next year we’re going to be over 150 and as we hit the crisis window we’re going to be at $200 and above. The crisis hasn’t even hit yet and we’re looking at 116. Imagine where prices are going to hit when the crisis hits.

JOHN: And then of course, the politicians are going to jump in there and that’s going to distort a lot of what happens. But ultimately reality will come crashing through and when it does, politicians panic.

You’re listening to the Financial Sense Newshour at www.financialsense.com, online all the time.

MCCAIN: All these tax increases are under the fine print of the slogan of ‘hope.’ They are going to raise your taxes by thousands of dollars and they have the audacity to hope you don’t mind.

GEORGE STEPHANOPOULOS: Senator Clinton, two part question. Can you make an absolute read my lips pledge that there will be no tax increases of any kind for anyone earning under $200,000 a year; and if the economy is as weak a year from now as it is today, will you persist in your plans to roll back President Bush’s tax cuts for wealthier Americans?

HILLARY CLINTON: Well, George, I have made a commitment that I will let the taxes on people making more than $250,000 a year go back to the rates that they were paying in the 1990s.

GEORGE: Even if the economy is weak.

CLINTON: Yes, and here is why. I do not believe that it will detrimentally affect the economy by doing that. As I recall, we used that tool during the 1990s to very good effect, and I think we can do so again. I am absolutely commited to not raising a single tax on middle class Americans, people making less than $250,000 a year. In fact, I have a very specific plan of $100 billion in tax cuts that would go to help people afford healthcare, security retirement plans, you know, make it possible for people to get long term care insurance and care for their parents and grandparents who they are trying to support, making college affordable and so much else.

GEORGE: An absolute commitment, no new middle class tax increases of any kind.

CLINTON: No, that is right, that is my commitment.

Other Voices: Peter Sepp, National Taxpayers Union

JIM: Well, this year another report on Congress and fiscal spending and believe me the report card doesn’t look good. Joining me on the program on Other Voices this week is Peter Sepp from the National Taxpayers Union.

Congress’ fiscal ratings dropped closer to an all time low, Peter. What’s going on?

PETER SEPP: Unfortunately, they are dropping to an all time low. The absolute worst score on our annual rating of Congress (which is based on every single rollcall vote affecting federal spending – taxes, debt, anything fiscal) was in 1988 when the typical member of Congress scored a near 27% in the House and 28% in the Senate. Now, this year we’re looking at 37% in the Senate and 35% in the House, so we are definitely heading into danger territory. The scores were sliding during the last years of Republican control of Congress, now they’re in a freefall. [34:46]

JIM: One thing that I’ve noticed, and I’ve seen your reports every year. It was thought when Congress was taken over by the Republicans we would get fiscal discipline. We got just the opposite.

PETER: Yes, unfortunately when they first took over in 95 and 96 we definitely saw some hope emerging from Congress. The typical pro-taxpayer score was nearly 60%, but since then, unfortunately, it’s been all downhill and getting worse under Democrats. The absolute worst score actually was reached this year with a near 1% rating; that was Alcee Hastings, Congressman from Florida. Truly a disastrous performance. In order to score something that low you have to vote against virtually every piece of pro-taxpayer legislation and vote for every piece of anti-taxpayer legislation. It’s a good thing there weren’t any more one percents in Congress, although I must point out that there were over 200 single digit scores in the House of Representatives which is also a horrible thing. [35:55]

JIM: When the government issued its annual report for last fiscal year, there were tens of billions of dollars they couldn’t even account for; and then recently, last week, we found out about government employees with credit cards. You know, nobody was monitoring that from $14,000 dinners at Ruth’s Chris, one guy paying for a mistress, Ipods, digital cameras, laptops. Don’t they have any auditors within the government that can maybe police the various agencies to make sure they’re living within their requirements?

PETER: Unfortunately, far too few auditors. The problem with credit cards that have been issued to federal employees has been a very thorny one for the better part of a decade. Actually it was first discovered I believe back in 1995 or 1997, there were more credit cards than there were federal employees at many of the issuing agencies. That was problem number one. Problem number two is a lot of the transactions that were supposed to be authorized by a manager simply weren’t, or they were given a rubber stamp. Number three, being there was no follow-up when many of the employees submitted their statements for reimbursement, nobody bothered to question purchases from places like lingerie stores or liquor stores. And so it’s multi-faceted difficulty. [37:25]

JIM: It’s amazing too and I wonder if we might get into the topic of earmarks. We’re setting just record levels. I wonder if you might explain for our listeners what earmarks are and why they’re just basically largesse.

PETER: An earmark is a piece of Congressionally directed spending toward to a specific entity or person, as opposed to a general appropriation for an overall federal program. Earmarking represents the worst instincts of Congressmen, unfortunately. They use these as tools to reward political contributors. If, for example, someone wants a road built in the Congressman’s district and if not a priority with either the state or federal department of transportation, why, the member of Congress simply earmarks two or three million dollars for that project. And lo and behold, the person that wanted it is satisfied. He writes a nice fat check to the Congressman’s reelection and everybody is happy except taxpayers. [38:28]

JIM: And I can’t think of the one Congressman who has set up between him and his brother a construction company and he’s directing all these projects to his own construction company. I mean, my goodness, this reminds me of the last days of Rome when basically everybody was out for themselves.

I want to move on to another issue because taxes are once again on the agenda. If the Bush tax cuts expire you’ll see the largest tax increase in history since World War II. And a lot of people think that this is only going to affect the rich people. And what they don’t understand is rich people got the lowest tax percentage decrease, the largest decrease occurred for the poor and middle class; and you’re talking about a massive increase for poor and middle class people.

PETER: Oh yes, absolutely. The Democrats in Congress keep paying lip service to renewing some of the middle class and working class tax cuts like the double child tax credit that was once $500, it’s now $1000; or the new 10% tax bracket or there’s currently a zero percent tax rate on capital gains and dividends for people below a certain income level. And even though the Democrats say “we’ll get around to renewing those, we’re just going to let all the other ones expire for those rich people over there,” we are not seeing any major effort from the House or Senate on the Democratic side to make good on those pledges. There’s no legislation I know of that’s advanced far enough to provide such a guarantee. [40:10]

JIM: Now I also understand Rangel is working on a tax commission –to start, let’s say, if the Democrats take the White House – that would impose a surtax two different levels of surtax based on a person’s income. So not only would they let expire President Bush’s tax cuts, but there would also be surtaxes on income.

PETER: Yes, absolutely. People need to understand too if these tax rates are allowed to expire and go back to their Clinton era levels and you end up getting surtaxes much more than millionaires will be affected by it. The top two tax brackets in this country cover people in the single category with incomes of say 140-, 150,000 and above. That’s not a huge income the way it might have been 20 years ago. That’s a lot of professionals, a lot of people who might be at the high earning point of their career and they have to face just gigantic tax increases. Right now the top rate is 35%. Imagine if it goes back 39.6, plus 4-, 4 ½% surtax. That will be absolutely devastating to all the small businesses who pay taxes and file for taxes using the 1040 form and the Schedule C. I mean they are all very high income folks, or at least they are to high taxers and they’re going to get hit badly. [41:40]

JIM: Speaking of small businesses, another onerous tax that could come in is the reduction in the estate tax exemption from I think it’s over 2 million today, due to rise, but then it would drop down to 600,000, the estate tax rate would go up. I mean you’re talking, you know, $600,000 today, I mean that is not even a middle class home in Southern California.

PETER: Yeah, absolutely. And I think that people are deluding themselves if they don’t believe people aren’t also spending tons of time and money trying to avoid these taxes. We like to think that, “oh, well, if tax rates go up everybody will just pay them and go along their merry way.” The estate tax probably causes more costs to the economy in terms of people spending money planning to avoid it than it actually raises. I believe the Joint Economic Committee of Congress studied this matter and said it’s quite possible that the tax costs more to the economy than it delivers in the form of revenues. [42:26]

JIM: You know, it’s amazing because here we are in an election year and you’ve got some of the candidates literally proposing trillions of dollars. It’s almost like every single week they’re on the campaign trail, it’s a new spending program. I mean where in the heck – I mean we can’t even manage and account for the money that we’re spending now. Where in the heck are they going to get the money to pay for these trillions of dollars in new programs?

PETER: Yeah, they certainly aren’t going to be able get it from those ‘rich people behind the tree’ as many of them like to say. In fact, even if the top two tax brackets were allowed to go back to their 1993 or 2000 rates we would barely be raising 50 or 60 billion dollars, if that, after you work in all of the avoidance costs. [43:34]

JIM: You know, Peter, one thing that you just hit upon is I’ve been involved in this financial industry for over 30 years and every single time tax rates go up, you know what wealthy people do – they avoid it. They can hire the legal team, they can hire the accountants, they can go into tax-free income, they can do all kinds of things to minimize their taxes, which has proven when you raise taxes the rate of income to the government drops, where when you lower taxes the rate of taxes coming into the government income rises. You remember when Bush cut his taxes in 2001 and 2002 they said that taxes would go down, instead they went up.

PETER: Yeah, it was actually quite a jump in revenue and the only reason why they didn’t end up balancing our budget was that Congress and the president couldn’t control spending to the degree that they needed to. In fact, if you take a look at the way budget deficit reductions are supposed to occur between now and the year 2011, about three-quarters of all of the deficit reduction is supposed to come from more revenues coming into Washington because of economic growth rather than spending restraint. So when politicians say we are going to reduce the deficit they really mean taxpayers are going to work harder to reduce the deficit – Washington certainly isn’t. [44:59]

JIM: And this is something that is very critical because right now it is widely believed –and I’m one of them – that the US economy is in a recession and the last thing that you do in a recession is raise people’s taxes because that cuts out on the amount of money that they have; and especially raising taxes on small businesses that create most of the jobs in this country. You’ve seen it before and I’ve seen it with my own clients – many of them are small businesses – they stop expanding, they lay off workers, or they cut back and they go “why should I work and expand when they’re going to raise my taxes.”

PETER: That’s exactly what’s going to happen. It doesn’t even take a Bill Clinton to see these kinds of effects when taxes went up in 1993. When they went up under George H.W. Bush, when the third tax bracket was created at 31% and there were clawbacks of personal exemptions and deductions. We saw the economy start to slow – at least we saw the economy not get out of the recession it was in faster – and I think people need to realize that there is an optimal level of taxation in this country and if we exceed it people are going to find it more worth their while to either avoid the taxes through fancy strategies or moving their money offshore, or as you said, they simply won’t work as hard because there is no reward in it. I think this is a natural reaction and for us to deny that wealthy people wouldn’t behave this way is crazy. I mean after all lots of us might, for example, fill up our gas tank at a place that we know where the gas taxes are cheaper, you know, fill up in the suburbs instead of in the city where there’s an add-on charge. That’s tax avoidance just the same way that wealthy people set up a legal tax shelters. [46:57]

JIM: I’m absolutely amazed – that Charles Adams the great tax historian wrote a book For Good and Evil and he also wrote a book called Fight, Flight and Fraud and he tells exactly what happens when you raise taxes. There’s something immoral when the government takes more of your paycheck than what a person earning it gets.

Well, listen Peter, if our listeners would like to find out more about tax issues why don’t you give out your website which has excellent information on tax related issues to the average voter.

PETER: Yes, they can visit us at ww.ntu.org – initials for National Taxpayers Union – where they will find our ratings, a chart on the distribution on the federal tax burdens and lots of other interesting information on how the government’s wasting our money and what can be done about it. [47:46]

JIM: All right, Peter, appreciate you joining us on the program. I wish you could give us a happy report but every year I take a look at your report the numbers keep dropping and getting worse. And you know, the latest stories about credit cards is just one more illustration of that example. Thank you so much.

PETER: My pleasure.

The Catalyst

CHARLIE GIBSON: You have however said you would favor an increase in the capital gains tax. As a matter of fact you said on CNBC and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28%. It’s now 15%. That’s almost doubling if you went to 28%. But actually Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20% and George Bush has taken it down to 15%. And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28%, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

BARACK OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gain tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year. $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair. And what I want is not oppressive taxation, I want businesses to thrive and I want people to be rewarded for their success. But I also want to make sure is that our tax system is fair.

JOHN: Well, all of the currencies of the world are now in an inflationary position. I think John Williams was saying our supply was what? 16% a year is what we’re looking at.

JIM: Actually, in the 17 to 18% range.

JOHN: That’s incredible when you really think about it.

JIM: Probably the fastest money supply growth in the history that we’ve seen. You’d probably have to go back even to – gosh, I don’t even know – the 70s and I think we’re even exceeding those levels. [50:42]

JOHN: No wonder why prices are rocketing up. And of course, this has a double effect because as energy pushes prices up to simply because everything we do, make or consume in this culture is oil related; at the same time we have inflation pushing us up, so that really a double demon there. You know we’ve been talking about the global money supply and rising inflation since 2004, as a matter of fact when you wrote a piece I remember called The Great Inflation. Back then the chitter chatter was worry about deflation and some people are still worried about that. Definitely I don’t think we could brand anybody on this show in that camp and this probably goes back to its basic fundamentals in Austrian economic values and views.

JIM: We’ve talked, I’ve written about this, we’ve spoken frequently here on the program that governments and their central banks can postpone or mitigate the effects of a recession by pumping more money, expanding the money supply. However, this comes at a cost and that cost is a higher rate of inflation which is really what we’re starting to see now. I mean the PPI numbers and the CPI numbers – the PPI number is up 7% year-over-year; the CPI numbers are up over 4% year-over-year. So we’re starting to see that, but the blame is often off-loaded to, well, it’s higher oil prices, or gee, it’s higher food prices. Well, what’s causing higher oil prices, what’s causing higher food prices. So they always talk about inflation in terms of the symptoms and never acknowledge its root cause. [52:19]

JOHN: You’ve often explained the steps by which they postpone the process – and by the way, the off-loading of the cause ultimately prevents you from effectively dealing with it. That’s important to recognize as a phenomenon of political life even though we can figure out what’s wrong, if you can’t get the right answer you can never solve the problem. Perhaps we should review the steps by which politicians largely, and the banking establishment (the Federal Reserve here in this country) try to postpone the process. But that’s all it is: a postponement of the inevitable.

JIM: If you take a look at this, when you have a bust and you have an economic recession you can postpone or mitigate some of the effects of the recession but it involves more money printing. You’ve got to expand credit, you’ve got to do so and accelerate the credit expansion and money supply. High powered money is growing at close to over 17% a year. Governments have three choices in terms of avoiding or mitigating. You have people now admitting that we are in a recession but they’re saying that well, it’s going to be a mild recession because of the stimulus programs and because of the steps that government is taking. However, you can postpone the crisis but the strategy of increasing credit expansion in order to postpone the crisis or mitigate cannot be indefinitely pursued.

And sooner or later, the crisis will be provoked by a number of factors which brings you in to another crisis which also eventually gives you the recession or in a worse case a depression. And there are a number of ways that can happen. One, the rate at which credit expansion accelerates either slows down or stops due to fear experienced by bankers and economic authorities. What are we seeing today? Bankers saying: “You know what, I don’t trust other banks, I don’t want to loan to other banks, I’m tightening credit, I want more money down, I’m not willing to talk to certain people unless they have a certain credit score.” The moment that credit expansion ceases to increase at a growing rate or even begins to increase at just a steady rate or is completely halted then the day of reckoning begins to take root.

A second way that this problem can eventually bring you back to another crisis is credit expansion is maintained at a rate of growth which nevertheless does not accelerate fast enough to prevent the effects of a reversion back to normal. In other words, lenders get more cautious or you even have an ordinary growth rate of credit instead of an expanding rate of credit. So the sharp rise – and then there’s another problem that kicks in here and thus when the crisis and the economic recession hits, which is where we’re at now, you could see a sharp rise in the price of consumer goods and a simultaneous increase in inflation and hence higher rates of unemployment. And we’ve got all three of those. We’re in a recession, we’ve got higher rates of inflation and you’ve got rising unemployment. So all the authorities can do with these artificial interventions is postpone the day of reckoning. And finally you can get to a moment –and I think this is the crisis window that you and I have been talking about – where individuals finally realize that the rate of inflation is certain to continue to grow. That’s why you see the Fed always talk about inflation expectations. It’s like, okay, they’re abandoning tracking money supply, you’ve had Fed governors who have said the quantity of money created is no longer important, what is more important is can we keep the people fooled. That’s why they always refer to the inflation expectations. And once people wake up and say, “hey, inflation is likely to increase or get even higher,” then there is a widespread flight towards real assets along with an astronomical jump in the prices of goods and services. And finally, you’re going to get a collapse of the monetary system – an event which will ensue when a hyperinflationary process destroys the purchasing power of the monetary unit – the dollar here. I mean since 2001, the dollar has lost 40% of its purchasing power.

And I think the next crisis that we’re going to see unfold here is a dollar crisis. I mean you’ve got gold getting whacked on Friday by over $25 – I think it was like $27 an ounce – on the fact that the dollar index was up a fraction. I think it was up about 40 basis points and they go, “oh, a dollar rally,” back up to a little over 72. “oh, I’ll dump gold.” But if you look at all the factors, we know that for example our trade deficit, even though it’s been coming down, remains persistently high because almost half our trade deficit is now going for imported oil. We’re going to transfer over $400 billion to overseas oil producers this year. And that number gets bigger each year, and gets bigger each month, especially as the price of energy rises for both natural gas and for oil.

We’re also still running a trade deficit. We’re running a budget deficit.

And most people don’t realize how close we came to the precipice in mid-March with the bailout of Bear Stearns. A lot of people who are looking deeper into the issue speculate that one of the reasons JP Morgan was brought into the question is because JP Morgan was the counterparty on a lot of Bear Stearns derivatives. So you’ve got the government getting ready to come out with a $400 billion bailout. The idea is, well, if we can bailout Wall Street, why not bailout Main street. So you’ve got fiscal stimulus kicking in, you’ve got monetary stimulus kicking in, you’ve got rising inflation levels kicking in, and you’ve got a surfeit of dollars flooding the globe right now either through our balance of payments or our budget deficits. And all of this, John, is putting ultimate pressure on the dollar. [58:50]

JOHN: I would think by the way, that if we raised capital gain rates again as I think Barack Obama and Hillary are talking about right now, that also wars against protecting themselves in precious metals because obviously the taxation on that is so high. But if we look at the foreign investment in the dollar, you know, it’s almost like a shell game. It always reminds me of musical chairs. People need to stay in dollars right now because it’s sort of the language currency of the world – the default currency. But they’re also looking over their shoulders, don’t you think, at any indication that maybe it’s going to stop being that currency at which point there will be this rush to get out of them. Everybody tries to get out before everybody else gets out.

JIM: You don’t even need to have foreigners dump Treasuries for you to have a dollar crisis. Just the fact that they buy less Treasuries. Ultimately, if this crisis continues... there was an editorial in the Wall Street Journal a little over a week ago that said “look if the Fed doesn’t start monetizing, with the way the crisis is developing you’re going to have the government ending up nationalizing a good portion of the mortgage industry.” In fact, if you look at the Dodd or the Frank plan, you’ve got the government under the Frank plan owning 5% of your mortgage if it’s refinanced through Fannie and Freddie. A couple of years ago they were going after Fannie and Freddie for accounting problems and capital inadequacy. Now they’re lowering the capital requirements for Fannie and Freddie and they want them to expand going out and buying mortgages as a way of sopping up some of these mortgages that are under right now.

So with all of this is the environment for the gold market in my mind has never, ever been better. You’ve got a lot misperceptions out there, just like you’ve got people telling you, “well, you shouldn’t own gold.” You’ve got Treasury rates that are half the stated official inflation rate. You’ve got headline inflation running over 4%, you’ve got Treasury yields at 2%. Even Treasury notes which have been backing up lately, you’ve got the 10 year note at a little over 3 ¼% that’s still below the inflation rate, and we know the inflation rate is understated. And you cannot have the type of monetary and fiscal stimulus that is occurring now in the United States with the fragile financial system that is going to take even larger bailouts, it’s going to take fiscal bailouts to put the market at rest.

And it’s not just what is occurring here as we had Jeff Christian on a while back with his Gold Book where he talked about we have got record gold buying for almost eight consecutive years. This year 2008 could be another record year and I mean they tried to take gold down today and it came back toward the end of the day and it’s still down for the day, but we’re right at where we started the week. And anytime they take it down, buying just comes in and gets stronger. I mean everywhere I look money supply growth rates in Russia are 44%, in India they’re 24%, in Denmark they’re 22, 22% in Australia, 17% in China, 17% in Brazil, 13% in Mexico. And Mexico could have a real problem if the decline rates continue at 20% on Cantarell. You’ve got UK money supply growing at 12%; Korea 11%. In Europe it’s 11%. You have even M2 in the United States is closer to 7% now. The environment for gold has never been better and I would just look at days like we had on a Friday, I was like a kid in a candy shop all week this week whether it was buying bullion or buying my favorite juniors. [62:45]

JOHN: Well, you know, last time we hit right around a thousand on gold, and then of course it pulled back and I think people had wondered how high it was going to go. Obviously the perception of the general market is not that gold is the way to go, but there will come a point when the attention of the public at large turns towards that and then you see the next take off in the bull market as everyone else jumps into that. What is it going to take to get us there?

JIM: I think you’re going to see a mini dollar crisis here. I mean the dollar is not about to be replaced as the world’s reserve currency, the euro is in no shape to replace the dollar nor is the Japanese yen or the yuan. But what you are seeing is central banks and institutions are diversifying more and more out of the dollar. They own dollars but not all of their portfolio is in dollars. But I think you could see a situation here where you have the dollar begin to break down and when that happens you could see the euro go from roughly a $1.58 to maybe $1.75 or even $2, and at that point you’re going to see the European central bank change its tune and cut rates. And if that happens, because even if they try to intervene in the dollar right now to prop it up, I mean with the interest rate disparities by so much higher interest rates in Europe and other place on the globe, then what we’re having here –and also considering the Fed will be cutting interest rates probably about another quarter point at the end of the month – that disparity in interest rates is going to widen which even weakens the dollar even further. Which is maybe one reason why they’re trying to hammer it right now ahead of what’s coming because they’re real paranoid right now of gold going over 1000.

But a currency crisis can overwhelm and I think what we're going to do is face a currency crisis. With that currency crisis you see the central banks begin to cut interest rates; we’ve got Canada and the UK already joining with the US. And that currency crisis produces a massive flood and then what you’re going to see accompany that is massive monetary injections and with that you’re going to see a boom in the stock market and all asset classes and gold stocks rising with general stocks and we get to that creamy filling. The only thing difference is this time is as nominal values are going up in the stock market, you’ll also be seeing the gold stocks rise with that. So I think the next catalyst to come to the gold market to ignite it is going to be a currency crisis. [65:24]

JOHN: What would trigger that and then sort of how would it appear to the public, how will it be different from the subprime mortgage from the public perception?

JIM: I think you could see more financial fall out, more losses, it could be a hedge fund, it could be further losses within the brokerage or banking industry because remember every week you’ve got the pundits telling us that all right this is a bottom in the financial crisis just like they did last February in 2007. Remember when we got the blip in February and March, they go “that’s it, crisis over.” Well, guess what? Six months later in August we were facing a bigger crisis. So we still know that for example in California things are actually worsening on the mortgage front. And California is one of the epicenters for the credit bubble and the housing bubble. It’s one of many, I mean it’s not just California; it’s Florida, Nevada, place like that where you saw this huge influx buying of homes at ridiculous prices with no money down. So it could be a governmental crisis. I mean what are people going to do when they have the stimulus program, depending on how that’s structured. So maybe the Fed cuts again in May and you get some kind of currency crisis. But I think we’re headed for a currency crisis here. We’ve got a rising trade deficit because of higher energy prices. We’ve got rising budget deficits. I mean think of the stimulus program. And they’re coming up with new stimulus program on top of that; I mean they’re not done with this yet.

JOHN: It’s also interesting too, if you hear in the debates politicians are sort of caught between a rock and a hard place: they want to keep jacking taxes because they talk about their own deficit, but the welfare of the government side of the deficit doesn’t really necessarily impact the taxpayers welfare; does it? They’re almost warring against each other, right now. And that’s what the discussion is, and that blurs back and forth if you’ve noticed that. There’s a blurred area in people’s minds about need to balance budget versus the need to stabilize the economy.

JIM: Yeah, and at this point monetary policy cannot handle this. It’s not capable of pulling it out and that’s why we saw the fiscal stimulus bill, the helicopter drop that’s coming next month, now they’re working on stimulus 2 and stimulus 3. And stimulus 2 is going to be a mortgage bailout for Main Street.

It was interesting, I was reading a report to shareholders by a very well known fund manager in the fixed income area and he said what they’re doing with contract law with this new program –where the government wants mortgage companies or banks to write down mortgages – in exchange for writing down the mortgages they would then have those mortgages refinanced by Fannie and Freddie. He said now they’re changing contract law and the validity of contracts are going to be less secure. He said “we in the future will demand higher rates of interest as a result.” And remember, one of the provisions in the mortgage bailout was to leave it up to bankruptcy judges to decide artificially what a person’s new mortgage and interest rate is. So when you start violating contract law and property rights like that, those who then make the loans or the creditors in this case, in order to protect themselves are going to demand higher rates of interest, which I think this gets back to my Oreo Theory that at the end of the year the hard, outer darker shell after the creamy filling is going to be higher inflation rates with higher rates of inflation.

In fact, one of the next big plays that may be coming is shorting the Treasury market because if there’s a bubble out there it’s not in commodities, it’s in the credit markets. When you have bond yields that don’t even cover the rate of inflation. In fact, one of the plays right now that is working out well, we’ve seen Treasury yields back up tremendously. I mean even on this Friday we’ve got the yield on the 2 year note at 2.16, so if the Fed cuts to 2% you could have a mini crisis here. [69:24]

JOHN: So I guess what we’re seeing here generally then is what is going to shove gold prices contrary to efforts to hammer it down is going to be some kind of a currency crisis. What are we going to see it? The early part of next year?

JIM: No, I think we’ll see it by summer.

JOHN: Oh really, that early!

JIM: John, you can’t be doing the kinds of things that we’re doing. I mean we’re spending money with stimulus programs like drunken sailors; our trade deficit, even though it’s been going down because we’re exporting more than we’re importing the other problem is half the trade deficit is what we’re importing in energy and we’re not done with this crisis. We’ve seen a good portion of it but there’s still more to come. [70:03]

JOHN: So basically what we're seeing is we’re seeing a catalyst in a currency crisis which will cause the next round of runs in the gold market and what we need to do in the next segment coming up is look for a way people can profit from this run.

You’re listening to the Financial Sense Newshour at www.financialsense.com, online all the time.

[52:48]

Part 2

Last call

JOHN: Have to sink back into that one. Welcome back to the next hour of the Big Picture. Just be thankful, Jim, we don't sing too much on the program here. That would drive off most of the listeners

JIM: Maybe we can hum together.

JOHN: I like that idea. Well, in the last part of the Big Picture, in the last hour, we talked about the fact that we are expecting more catalysts to drive gold prices even higher. Obviously, energy prices are going to keep going up. We're talking about that $125 a barrel here real shortly. We were just looking at 115 right at the end of the week. So given the fact that these markets are moving in that direction, where can we capitalize our investments in this?

JIM: Well, you know, basically, John, if you take a look at what's happened in the gold market – and especially last August when gold took off from the 650 range and went all of the way up to over $1000 – in the last probably since May of 2007, the gold stocks have been consolidating. Last year the major gold stocks underperformed bullion. I think bullion was up over 30% and the HUI was up only 20%. And then underperforming the major gold stocks were the junior stocks. I mean a lot of juniors had negative years last year. It's pretty much the same story this year. You've got a lot of juniors not doing that well this year overall.

And money has gone back into the gold market, but once again it's going into the large cap stocks, so as a result, you've seen a disparity between, let's say, what is happening with the large cap stocks, you know, the big stocks like a Goldcorp, Yamana, a Barrick, let's say an Agnico, who are seeing their stock prices even on the day that you and I are talking, a day when gold was hit pretty hard, you know, you're still looking at Agnico's stock is up roughly 32% this year. If you look at Yamana, Yamana is up 11 ½% this year. If you look at Goldcorp, Goldcorp is up 22%. If you look at Kinross, Kinross is up roughly almost 30%.

So, once again, the money is going in the big, liquid stocks. And as a result, the juniors have been sort of lagging, and I think there is a little bit of a caution in the market because people are saying, “boy, I'm worried about liquidity,” so they are piling up into the large cap stocks. But by the same token, because a lot of these smaller producers are selling at incredible prices, I think you're going to see consolidation in this industry. [2:44]

JOHN: Are there any examples so far that would show us this is already happening something under way?

JIM: Well, absolutely. I think more recently, you've seen a three-way merger between Metallica, New Gold and Peak Gold. And, you know, you're talking about a veteran in the mining industry, Pierre Lassonde sort of put together a plan to combine all three of these companies, so what you're seeing is three junior firms being put together that will create a mid-size gold producer. I mean Lassonde owns 5% of Metallica and 2% of New Gold and of Peak. But basically in an interview, he said he was fed up with the poor valuations the market was affording. And he said each of the companies on their own, the combined entity will have a market value of roughly about 1.6 billion. It will become an intermediate producer and their combination they'll be sitting on a half billion dollars in cash.

So this is just a harbinger of things to come because one of the things that you're seeing right now is not only are the juniors grossly undervalued, but it even applies more so when you look at the silver sector. I propose a thesis that you can take the three or four junior silver producers, companies that are producing somewhere in the neighborhood of two to three million ounces of silver and combine them together, and, you know, you take a look at a company like Pan American Silver that has a market cap of 3.1 billion, and you put together three or four of these silver companies, they would produce the same amount of ounces, but unfortunately, a lot of these junior silver producers have market caps of 70, 80 million. John, I mean the whole sector has just been so beaten down that it's creating incredible values. And you've got veterans like Lassonde who is value-oriented who are saying, “you know what, this doesn't make sense and here is a way to create value.” And I think this is just the beginning of – you'll see more of this as the price of gold goes up.

I mean if gold goes over 1000, which I think it's going to do here this year and maybe hit as high as 1200 or more, who knows, but then, that will be the catalyst that will bring more of this kind of merger combinations or takeovers. I mean what was it, a little over a couple of weeks ago, Sean Boyd at Agnico was interviewed and he was saying, “look, we made three quarters of a billion dollar in acquisitions in the last couple of years that added 9 million ounces to our balance sheet, and this year we're looking at somewhere in the neighborhood of 1.6 billion.” [5:23]

JOHN: What is genuinely out there that would drive this type of phenomenon? What can we ascribe it to? The disparity in prices or something?

JIM: Yeah. Because you have a market that's nervous and basically since May of last year, you've got people trading in and out of the market, they go in, they go out, so you know, you don't have a lot of long term holds in here. So much of what you see today in this sector is momentum based. You know, something is going up, people jump on board, they ride it, when it starts to go down, they jump off the ship. And so you have a lot of this kind of momentum trading that's taking place.

Also, with the credit crisis, you've got a lot of people saying: “You know what, I don't know what the heck is out there, I'm a little frightened at what I see. We've got rising inflation, we've got credit problems, so, okay I’ll go in the gold sector. But in case I have to get out, I want to parachute.” So that's why they are going into the large liquid stocks, but as a result, you've seen a large disparity where you've got, you know, large cap companies like Agnico that are selling over $600 an ounce. You've got companies like Goldcorp that are selling at almost $730 an ounce. You've got companies like Yamana that are selling at close to $730 an ounce.

And one way to create value, and I think this is what Sean Boyd was referring to: If I have paper that's selling for over $700 an ounce or $600 an ounce, how can I create value? Well, I can create value by going out and buying a company that's a late stage development play much like Agnico bought Cumberland, and you can buy ounces in the ground at a much, much cheaper price. And especially today, John, when you have got, you know, gold prices that are still holding up over $900 an ounce. At $900 an ounce, you know, gold mining companies, I think, are going to surprise a lot of people that they are going to make a lot of money in this kind of environment. At $900 when the average cost has risen to $400, you're making $500 an ounce of what you mine. That's a good profit margin here. [7:34]

JOHN: You know, if we compare the junior sector when a gold mining company goes out and tries to bring in a gold mine, it looks like a lot like the oil situation, as a matter of fact, out there because when you go out, you find something. First of all, you have to deal with national issues if you are in a particular country and always the risk of nationalization or whatever else happens to exist in that environment. And speaking of environment, environment is the next thing: What does it take to get your mine up and running and complying with all of the laws and things related to that? It takes about 7 to 10 years to do this. It's a much longer process.

JIM: Yeah. And that's exactly why, like late stage development plays, you know, you pick up a mine, you can pick it up for, let's say, a late stage development play for 100 bucks an ounce. Maybe it's going to cost you a couple of hundred dollars in capital expenditures. It may cost you $300 to mine, and your total cost is somewhere in the 4- to $500 range. With gold selling at 900, it's very profitable to go out and buy these companies; and more so in the fact that you can basically shortcut the development process from a 7 to 10 year period to, let's say, a three or four year period. In the case of Agnico’s purchase of Cumberland, they are going to bring Cumberland into production within a three-year period. So instead of 10 years, John, you're looking at three years and that makes a heck of a lot more sense for a mining company because, you know, who knows the risk. You know if you discover something today, where the gold market will be 10 years from now it's much easier to take a look at there is strong demand now, if I buy something the economics are in my favor, so something that I can bring into production in two to three years makes a heck of a lot more sense than trying to go out and discover something and bring something into production 10 years from now. 10 years from now if I'm the CEO of a company, I may be heading into retirement, so there is a lot more pay back in terms of share price of growing your production now versus growing it 10 years from now. [9:40]

JIM: If they are going to unfold and develop in the way that you think they are going to, what particular characteristics here would make this attractive to investors?

JIM: Well, there are a number of things that are going to make it attractive. Number one, you want to make acquisitions were you know there is a prolific gold belt, where, you know, there are similar deposits so you're going to buy a company that is in a known gold and silver belt. That's very important.

Secondly, you're going to want to make acquisitions in a mining friendly area. John, just look at a map of the world today. You've got nationalism on the rise in Latin America. You've got nationalism on the rise in the Middle East and Africa. You've got nationalism on the rise in the former Soviet Republics, so there are very few safe areas. Mining companies are facing the same problems that the large oil companies are facing. A lot of the places where there are deposits, you may not want to go to because they are not in mining-friendly jurisdictions. Even if you find something, you never know what a rapacious government is going to do.

So you're going to want a prolific mining belt. Secondly, you're going to want to be in a mining friendly jurisdiction of the world and three, you're going to want to buy a company that -- I would say the threshold today with the acquisitions are companies that have about 2 million ounces or more with large property development, so that the land package is large enough that if, let's say, you pay 100 bucks or 200 bucks an ounce to buy two million ounces, there is the possibility that there is blue sky potential that you can find another million or two ounces on the project, so you can add value through exploration. And also if you buy two million ounces and you find another two, you just dropped your acquisition cost in half.

So mining friendly jurisdiction, prolific gold and silver belt. I think blue sky potential is very, very important. And I think size. I think what a two million ounce deposit gives you roughly 200,000 ounces of production and, you know, over a 10 year life span in this kind of gold market, that is very, very attractive in this kind of market. [11:56]

JOHN: And just in this topic here, anything else you think would be important?

JIM: You want something that you can control your cost. One of the things that you don't want is have your cost of mining in an area of the world whose currency is appreciating against the dollar because that's going to raise your mining cost because you're selling your gold and silver or base metals in dollars. And if the dollar is going down but your cost of mining is going up in local currency, that squeezes your profit margins. [12:32]

JOHN: Are there some areas that you would say are attractive, that fit these characteristics? And I know you don't get into mentioning individual companies, but give us general description of where you'd be looking.

JIM: I have a couple of areas right now. My favorite place right now would be Mexico. Because number one, Mexico, the Sierra Madre gold belt is a very prolific silver and gold belt. They have been mining there for well over 1000 years, John. Secondly, the cost of production in Mexico is cheaper. The average cost for a mining company today has risen to about $400 an ounce. You can mine gold in Mexico for about $300 an ounce, so the cost of production is cheaper.

Secondly, the peso isn't rising that much against the dollar so your costs of mining are lower, so your profit margins are much, much higher in Mexico, and that's why I think you've seen this merger that you've seen recently with Metallica and some of the others and I think you're going to see many more of those in the months ahead.

Another area that I like is Canada because remember, you want to be doing this in an area where they respect property rights, they have a mining culture. In Mexico and Canada, they have a mining culture. So you know, I love the Canada, especially the Yellowknife area where you just had recently – speaking of Pierre Lassonde – Newmont bought Miramar in the northern district of the Yellowknife. So the Yellowknife district looks very attractive. You've got another area that looks attractive here is also the state of Nevada. That's where the United States produces a lot of its gold. That area looks very attractive, so there is three areas within North America that are very attractive politically: they have property rights, they have a strong mining culture, a history of mining.

And I think, you know, John, I think in the years ahead and especially in the next decade as we get this global race to acquire resources, you're going to see a situation here, John, where there are going to be very few areas that are going to be considered safe because mining in itself is risky. I mean you never know what the good Lord put underneath the earth, what you're going to find. So you've got the risk of mining itself. That is a major area that you have to work through, but then you add political risk. And John, you know, the political risks are much more difficult to gauge. How do you know you're not going to run into another Chavez or somebody like that, or a Putin in Russia. You know, look what Putin did to the major oil companies. They came in and spent billions of dollars developing and then Putin basically changed the deal terms on major oil companies. So even companies as big as Exxon, BP and Shell. So that's why I think a mining friendly jurisdiction, and I think, more so today because there is this growing disparity where you can buy ounces in the ground at 30, 40 and $50 an ounce and a lot of these juniors are, you know, getting up to the size now where they are getting up to 2 million ounces or working their way to 3 million ounces and so they continue to add ounces to the balance sheet, they are working on metallurgy. All of these things are going to be attractive, John.

And that's what you do. If you have expensive paper that's going at $600 an ounce, $700 an ounce, or I've even see some companies going for almost $1000 an ounce in the ground, you know what? A way to bring value and a way to increase your production, expand your balance sheet is going the acquisition trail. And I think you're going to see more than that, and I think the catalyst will be higher gold prices. But when this thing takes off, you're going to see a lot of these juniors light up like Christmas trees. And John, when it happens, you wake up one day and the next thing you know the stock is up 40, 50% and all of a sudden – all it does is take one company to go into a district, go into the Sierra Madre belt, make an acquisition and then all of a sudden it gets other people thinking, and then you have one company making an acquisition and, you know, it just sets off a chain reaction and I think that's going to come next. [16:45]

JOHN: Well, you know there is always the complaint that the juniors aren't doing well and we even get emails and Q-line calls about what gives, but I think you believe that this is really going to change really shortly here.

JIM: I mean we have the FSO Junior Mining Index and if you take a look at the junior mining index, it's been within a narrow channel and it’s been consolidating since the beginning of last year. Every time it hits the lower end of its channel, it holds and that's what you're seeing in the junior area. This week we had a gold rally one day, it was explosive. It's very important that they knock it down because you've got more rate cuts coming. But you know, the juniors are within a narrow range, you're seeing them trade that narrow range and I don't care if you look at the producer index which is in a channel, you take a look at our development companies are breaking out and also some of the exploration companies are held within narrow channels. So even if you're just looking at charts –forget the fundamentals that we've been talking about here and just look at our FSO junior mining index it's telling the story that there is a break out coming. And lo and behold, Katie bar the doors when this break out comes, it's going to be big. [17:56]

JOHN: Yeah. But Jim, look on the day that we're talking right now, gold got hit pretty hard. Let's face it, they are hammering it down and that doesn't really bother you; right?

JIM: Oh, goodness no. In fact, I've been shopping all week long buying shares of my favorite juniors and I'm going to continue doing that. I'm like a kid in a candy shop. I love it when things like this happen, John, because I don't pretend to be a technician. I know how to read charts but that's not my expertise. I just know that all of the stars are lined up, the fundamentals are there, and when you see people like Pierre Lassonde putting together a merger, or you see a Sean Boyd say that “we're going to make 1.6 billion in acquisitions,” there are a lot of smart people in the mining industry and they see this very same thing. And if you have people like Lassonde doing this or Ian Telfer you can bet there are going to be other people doing the same thing. So I think we're on the cusp of this, so I hope they keep doing this because like I said, I've been on a shopping free an I'm going to be shopping and continue to shop buying more of what I like. [19:01]

JOHN: Why don’t you open up a store and call it Gold Mart or Wall Gold. How’s that? Or Junior Mart. There you are. Well, it's no secret that you love juniors, I guess we've swallowed that one so far, but if you were to tell people who were interested in this, any helps on how to buy these, what to look for?

JIM: You know, don't buy the juniors on days that they take off or there is a major gold rally because you're chasing it. Find a junior that you believe in, research the story, go to the website, talk to the company CEOs and try to find one that has the characteristics that we're talking about in a mining-friendly jurisdiction, on the way to 2 million ounces, three million ounces, all of the characteristics that we talk that make juniors attractive. So pick out on your shopping list -- you know, that's what I do. We have juniors that we have that we like that meet that criteria. There could be a selloff.

I also like companies where there is liquidity coming in because there is a lot of short selling that has been occurring in the junior space, and you know, the best thing to do is to use that to your advantage. So when you see that they are increasing a short position, they are trying to drive the price down, let them bring the price down to you. And as they bring the price down –and especially on days that there is selloff – that's were you want to go in and make your bids. The last thing that you want to do is go chasing something because, you know, some newsletter writer or analyst has written a recommendation and all of a sudden everybody is jumping on bore the stock driving it up. I like to do my buying when there has been big selloffs. There is big problems that are occurring. People are panicking, jumping out windows or short sellers are coming in because short sellers are creating a lot of liquidity because they are trying to drive the price down.

What you do is, I'm going to just use a simple example. Let's take that you found a stock say, it's a dollar a share, you're seeing that the gold market corrects, the shares drop to 90 cents and all of a sudden, the price of the shares are going lower during the day. Then you know what you do, you go in and drop your bid, so maybe you're going to buy 10,000 shares, put in a bid for 2500, pick up shares, if they drive the price lower, lower your bid. In other words, make the sellers come to you. Use the selling action to your advantage. What happens unfortunately is most people end up chasing gold stocks. They go in, they buy it when it's ramping up on a day instead of buying it when things are going down. So on a day like Friday, I was in buying on Friday, I was buying earlier in the week; and especially one of the stocks I love, the stock went through a major correction, they took the price of the stock down 20, 25% and I just kept lowering my bids, lowering my bids and just picked up shares. So you can use these opportunities to buy shares at a lower price. But once again, using the marketplace to your advantage rather than chasing things, watch for the price to drop. So on days like we've had on Friday where you had the HUI selloff, it was down 3%, the XAU is down. You know, some of my favorite juniors were down 5 and 6%; I was in there buying. That's the way you want to buy these stocks. But with the caveat, John, number one you've done your homework, you know what it is that you're buying, so you believe in it so you're not going to get shaken out if something happens. You know, you have a selloff in the gold market, you're jumping out window. And so instead of selling your shares, you add to your positions and you build those positions during the downdrafts.

I hate it when the markets really take off and prices go up because once again, you know, I think we're in the early phases of a bull market and the only thing I'm interested in is how many shares will I own when this gold market peaks out. And more shares that I can accumulate, the better off I'm going to be and the more shares I can accumulate, I do that when things are correcting, not when they are going up. [23:07]

JOHN: So I can assume that on a day like today, and we're doing this on Friday, which we always do, gold is down $27, the junior sector is down, but I would guess you've probably been in there buying today.

JIM: Buying all day long, John, and I don't know how many times that I can pound the table, but it's my opinion this is going to be the last call, the last time that you're going to have this opportunity to buy juniors at an incredibly depressed price because whenever things get depressed so depressed nobody likes them, they are shorting them, they are selling them, we know what eventually happens, the bargain hunters, the smart money goes in, they buy stuff when it's cheap, when it’s being thrown away, given away. What's the old adage in the market, “buy low, sell high.”

And I believe that as bull markets develop, they begin with pessimism, they move to skepticism –which is where we are now – then they move to optimism and they end in euphoria. And we're in the skepticism phase. And as we move out of this skepticism phase, we will next move into the optimism phase and I can tell you then during the optimism phase, you're not going to be able to buy gold in the ground at 30 bucks an ounce, $40 an ounce or $50 an ounce. The most discouraging thing that I see is whenever gold, remember, John, a month back or six weeks back when gold was over 1000, our phones were ringing off the hook. When things become cheaper, people do just the opposite. They don't want to buy, they want to sell. And I can tell you, we are moving in this next phase of this bull market. We're going to be moving from the skepticism –nobody believes it just like in the oil phase – and we're going to be moving to optimism as the price of bullion heads higher as you see more mergers like the Metallica merger put together by Pierre Lassonde. As more of these deals unfold, it's going to change the whole psychology. And you and I know, as long as we've been doing this show how quickly public sentiment and psychology can change from one of negativity and jumping out the window to one of euphoria. We're a long ways off from the euphoria stage, but I do believe we're going to be gradually moving here from skepticism to optimism. [25:33]

JOHN: I didn't think a smart guy like you would buy into that, you know, “buy low, sell high” nonsense, you know, everybody else knows you want to buy high and sell low. That's what everybody else does; right?

JIM: Yeah. I don't think you make money that way.

JOHN: You don't? Bummer. Oh, well, Financial Sense hour continues at www.financialsense.com.

FSN Humor: Andy Looney

I'm Andy Looney. I was listening to the Democratic debate this week. It was really scary. The question of taxes came up and they asked the candidates to take the ‘Read My Lips’ pledge. You know, no tax increases on the middle class. Of course they both said that taxing the middle class was not in their plan. Funny. I thought they wanted to let the Bush tax cuts expire. Doesn't that mean the middle class will have higher taxes? I think so. Don't you? Aren't these the same guys that said they should raise the cap on my Social Security payments. And didn't they say we need to put higher taxes on oil companies. Didn't they want to keep me from emitting C02 by raising my gasoline taxes? You know, I'm in the middle class, and I pay a lot of different kind of taxes, not just income taxes. Do they think I'm stupid or just gullible? I don't get it. I don't think I can afford all of these higher taxes. Can you? I can't. So why taxes? Cut it out. Can't Congress just balance their budget by cutting their own spending like those $300 hammers they used to talk about, or the foreign aid to OPEC countries that are rolling in high revenues. Why are they cutting my spending? Washington doesn't have a revenue problem. It has a spending problem. I don't have a spending problem. I have a tax problem. My uncle Freddie says he'd like to take the Washington politicians over his knee and give them a good spanking. Ouch! I don't know if that would help, but I'm sure he can get TV time on some strange reality program: “Welcome to another episode of Spank Your Politician.” I don't know. What do you think? I'm Andy Looney for Financial Sense. [28:02]

Planning for Retirement - Part 4

JOHN: Over the last couple of weeks we have been talking about planning for retirement. This is a four part series here on the program. In the first week we looked at the necessity of planning some kind of retirement budget, breaking it up into things like fixed and variable expenses and also accounting for what inflation is going to do over the next 10 or 20 or 30 years in which you plan to retire here. And that's somewhat of a variable because you can't guess what the Fed and the government are going to do. You can only make certain baseline assumptions based on today.

The second week we looked at what will your circumstances be when you retire. Are you going to relocate to a cheaper part of the world or the country; are you going to move into a smaller house so the upkeep is going to be less? What about working during retirement? Some people are workaholics. My wife tells me I'll stop with a microphone, Jim, when they pry it out of my cold, dead hands. I've been talking into microphones for almost 50 years now. Okay?

And then coming up on the third week, which we did last week, we talked about understanding the investment environment growth running up to and during the time of retirement.

Now here we are in the fourth week. It's interesting to note that within five years they are estimating that about one in five people in this country will be over 65. It's another type of bubble, the baby boom bubble. We are not the only people experiencing here in North America. Europe is experiencing that as well as in Japan and that's at 20% of the population. So think what's going to be required first of all in the area of Social Security to support that. And I don't think it's ultimately supportable. I think the government will be in retrograde steps of failing to fulfill its commitment, so to speak, of backing out of its commitments providing means testing and other things of that area.

What is interesting is there is a report that came out recently that said that the healthcare establishment is not ready to deal with this surge of people because as people get older, they begin developing health problems, let's face it. And they are not ready for this surge right now. And having been through this already now with my mother and her health care issues over the last five years, I'm thinking, my, what is this going to be like when we get into that age bracket, Jim? [30:34]

JIM: Yeah. This article that you were making reference to in the Wall Street Journal, John, was talking about that not only is the population of the country aging –that's putting more stress and demand on the health care system – they are talking about that for example, on average, those over age 75 have three chronic conditions, may take four or five medications on a regular basis. And just one doctor specializes in geriatrics for every 2500 Americans over age 65. So we may not have enough specialists to handle the healthcare system and especially with the approaching boomers.

So two the of the issues we had talked earlier in previous episodes of this series on planning for retirement, we talked about some of the blunders that can ruin retirement plans, we talked about first of all not even having a plan; number two, underestimating your life expectancy. We made a reference that the probability of living longer is a reality with improvements in health care –of course the government can muck that up. We talked about low balling spending and expenses, especially now with inflation and failure to plan for unexpected expenses. For example, what happens this one spouse has a stroke and ends up in a long term care facility.

And then some of the issues that we're going to be dealing more and more with in retirement is overlooking rising healthcare expenses. And, John, you're already seeing some wiggle room coming from government. Now, I believe you will see means testing for Social Security in the next decade and already one of the candidates, John McCain, has already talked about that one of the ways to cut expenses to make those who are wealthier to pay more of their drug prescription bills under Medicare. And my doctors are telling me there are more and more things that Medicare just simply isn't covering, certain operations they'll only pay so much. And in some cases, the doctors are saying: “You know what, if Medicare isn't going to reimburse me, I'm not going to do that. We're not going to perform that. We're only going to accept cash.” And you're going to see more and more of that happen.

And the other thing is the likelihood that they push –as the strain hits the Medicare and Social Security system – is not only means testing, but pushing back the retirement age to collect social security and Medicare because remember, when they put that in place at the age of 62 in 65, the average person was expected to live maybe three or four years in retirement, especially when you’re making reference to the average male. And now the life expectancy of a male is in the mid 70 s with the probability of making it to the 80s. [33:17]

JOHN: How are we going to handle some of these issues because you can't control what healthcare is doing; our national healthcare debate is anywhere from being resolved and it's very much like trying to anticipate what inflation is going to be. I can think of things for example long term care insurance might be one way to deal with it because, you're right, if something catastrophic happens, how are you going to deal with this?

JIM: Let's talk about just general medical expenses. If you're old enough to qualify for Medicare, you're going to want to get a good Medicare supplement bill, an insurance policy that picks up the costs that Medicare will not cover. And especially as the government gets to more and more areas, you've got government bureaucrats saying we’re not going to pay for that, or we'll only pay x amount of dollars for that. So a good supplemental Medicare supplemental policy, and if you're not old enough for Medicare then you're obviously going to want a private insurance program. So that would be the first step.

A second thing that you have to deal with is long term incapacity because people are living longer, the odds of one spouse ending up in a retirement home are much greater where the costs are on the low side, probably the high 3000s to 4- or 5000. And the greatest risk for long term care is when both spouses are living because if one spouse gets incapacitated and has to go into a long term care facility, in essence you're maintaining two households. You're maintaining the household of the well spouse and then you end up forking over money for the long term care facility. So there are policies out there, a long term care facility, especially if you don't have the income. So having a good supplemental Medicare insurance and then also a long term care facility if your budget cannot handle it.

And one way to take a look at that is take a look at what your budget is today and then compare that to your income and then say “all right, what happens if one of us ends up in a long term care facility. What would that cost us?” And if you don't have the money to pay for that, then that's where you're going to need to pick up a long term care policy. And obviously, if you can do that when you're younger, it is much more affordable than waiting for, example, until you get into your 70s because it's just like life insurance, the older you get, the odds are greater of dying and also of ending up in a long term care facility. So what you don't want to do is get these policies or wait until you're in your 70s and seriously ill, or even run the risk where you may not even be insurable. So adequately handling health care expenses with supplemental policies or long term care facility, John, these are absolute musts because if you don't factor those in, then what you're going to have is a situation where all of a sudden what was a good and prosperous retirement turns out to be a retirement plan that is ruined. [36:20]

JOHN: Some of these long care plans –and I was pricing them very recently, I had an agent over here – they can get to be pretty pricey in of themselves though. This is not cheap insurance.

JIM: One of the ways you can bring the cost down is to have a high deductible where maybe you cover the first three to six months. In other words you have enough cash reserves because sometimes, John, you know, you can have an illness, an operation and it's temporary care that's needed that may last for only a short period of time. And so, by raising that deductible or timeframe saying that the policy doesn't kick in until after six months or three months, you can go a long way towards bringing those costs down. So there are ways that you can deal with that, assuming that you have a cushion or you can build up a cash balance or you can cover those costs in the short term. [37:09]

JOHN: What else should I be looking out for?

JIM: The other thing that I think you have to deal with is an estate plan. To me, especially with the idea that they are going to raise death taxes and lower the exemption. If the Bush tax cuts don't expire, the exemption goes back down to $600,000 from today's 2 million. So with a living trust, you get to double that exemption. In other words, if the exemption drops down to 600,000 with a living trust, you can double that between a husband and wife and get 1.2 million. So that's an issue you're going to have to deal with because the government wants to raise the death taxes because they know that the population is aging, meaning more people are going to be dying as we get older and that means they want to get their hands on some of those assets. So the minimum if you do have assets subject to possibly estate tax, you're going to want to have a living trust.

Also, you deal with issues such as probate or incapacity, and those are issues that you want not only a trust but also you want health care provisions, durable powers of attorney that allow you – the spouse that is well – to carry on the functions of running the family and paying the bills. The last thing you want to have happen is have one spouse incapacitated without the legal documents that allow you to take care of that spouse and then have the courts come in and start administering the estate. So an estate plan is very important, not only for avoiding issues like incapacity of a spouse, but also handling issues such as estate taxes and also handling issues such as probate.

So, I mean, if you look at building a house, in retirement the plan becomes the foundation, the roof on the house is the estate plan. That’s what ties everything together. And maybe you may be fortunate enough to have a large pension plan. Remember, there are ways that you can minimize the taxation of your pension plans on the death of one spouse or two spouses so they don't all become subject to the income tax in the year of death – and trust tax rates are much higher.

So there are issues in dealing with distributions of a pension plan when the last spouse passes away; there are issues of estate taxes. Maybe you have a large enough estate where you're going to be subject to the government is going to take 55% of it away in the way of estate taxes. They may be taking more of it away in capital gains taxes and maybe you have an appreciated asset and you might be able to benefit from, let's say, a charitable remainder trust that would allow you to transfer an asset that's appreciated into a charitable remainder trust, get income for the rest of your life and get a tax deduction up front and have that asset go to your favorite charity. So there are even income tax and estate tax issues that have to be dealt with here and especially now that we're looking at repealing all of the favorable estate tax laws that have been put into place under Reagan and Bush that may go by the wayside next year. [40:21]

JOHN: Ultimately we have a collision course because if you look, the government is talking about that reneging – and it's literally what it is, it's reneging more and more – on what it promised all of these baby boomers. Plus, it wants to get its hands into the retirement money, plus these people are going to be really hard pressed to keep going given the environment that we're talking about that. So this is really requiring a lot more strategic planning than, I think, our parents had to do.

JIM: Yeah. It's become more complicated because we've lived in a peacetime economy for so long is there hasn't been the destruction of wealth that we saw come into play with World War I and World War Two, and we've had this tremendous amount of economic growth since the end of World War Two that has built wealth and savings in the economy, and some of that has been passed on. And without taking steps to protect it from either income taxes or estate taxes or catastrophic illness, you can see a lot of estates wiped out. I can remember back in – this was back in the 80s when the exemption was only $600,000, but I can remember the heirs of an estate coming in – they weren't my clients – but they came in and they were devastated. This was an estate that was valued at $5 million and at that time a good third of the estate, close to two million or actually almost 40% of the estate was in a retirement plan or an IRA. He was a gentlemen that had his own business and had a lot of money in a pension plan and all of that pension plan was subject to not only estate taxes but income taxes on the date of death. And then on top of that, the higher tax rates, it was just devastating to the children to find out how much the government got of this estate. And unfortunately John, we're going back to that kind of era because the governments are becoming rapacious – or even desperate – in terms of looking for ways to get more income. And especially at a time when you're seeing increasing spending costs and governments are incapable of controlling their spending. They only know one thing, raise taxes spend more money or print more money. [42:39]

JOHN: So in this kind of environment then, what does an individual need to do? We talked about estate planning, we talked somewhat about taxes. Anything else we need to tie up here.

JIM: Yeah. I think depending on your budget you have to make sure that you’ve covered your medical expenses with a supplemental policy if you're receiving Medicare. We talked about long term care if you're in a situation where your budget cannot handle a long term care facility for a spouse. And then also we just talked about estate planning and that's where I think it's very important that you see a qualified estate planning attorney, somebody that's been practicing estate planning law specifically. There are specialists in the area. A couple of years ago, you had something called ‘trust mills’ where they were cranking out these estate plans. Everybody, no matter what their circumstances were, the size of their assets or their particular circumstances, everybody got the same estate plan. They called them trust mills. .And it was like fill in the blanks. I had one client that got an estate plan from one of these trust mills and I thought that it was rather interesting the part about the husband getting pregnant. You know, it was obviously somebody just took a word processor and filled in the names. So you want to go to a qualified – an estate planning attorney, get some references from their clients to make sure that they check their bar references that they are qualified, so that you do get some counseling in terms of your estate and get a plan that's suited and designed to take care of your particular needs that you will have during retirement.

So I think all of these things are the loose ends, John, that you sort of have to tie up and so it's not just “okay, I'm retired, I got my retirement check, I'm getting my monthly income now it's time to go play golf.” There are all kinds of things that you have to put into a plan, and that's why I think some of the biggest mistakes made in retirement is having no plan whatsoever. And you don't want to leave your spouse or your children having to deal with a crisis because you didn’t want to deal with it. And here is an interesting thing, John, and I think you found this out, too, taking care of your mother before she passed on is as individuals age, they are sometimes not as sharp as when they were younger and sometimes they are resistant to any kind of change (like “oh, we're doing this trust, what's that?”); and they become paranoid and so their best way of dealing with it is they don't want to deal with it, and so they don't deal with the issue and you end up no wills, no trust and then all of a sudden you're dealing with a big mess. [45:15]

JOHN: I've actually found and other people who have cared for elderly that as your parent's age or people you're caring for, that sometimes they actually become silly in their decision making. That's important to understand. And that's not a derogatory thing. That's what happens is there are changes in mental capacity, so they are not only just a little slower, they are actually making very bad decisions from a certain point onwards and they really need someone in there from the family taking care of that need, you know, to help them make those decisions.

JIM: Yeah. I mean last year we were dealing with a client whose mother was passing on due to a blood disease. And going through the papers, one of her children found out that the home which was worth quite a bit of money was not in the trust and also her husband had passed on earlier and she had set up various brokerage companies with different brokers and none of those brokerage accounts were in the name of the trust. And so when the daughter came in and said, “Mom, you've got to sign these papers, we've got to changes the name over to the trust, so none of this is going to go through probate” because the assets in the home were sizable. And all of a sudden mom thought the daughters were trying to get their hands on the money and do it. And so it took several weeks of the attorney coming to the house and saying, “look, you've got to do this. You're in a very vulnerable situation here given your health circumstances.” And so these are the kind of circumstance that you deal with, and it's much easier to deal with them in advance or ahead of it rather than have a crisis sprung upon you, or God forbid someone passes on suddenly, and these issues aren't taken care of. [46:53]

JOHN: I've seen cases, Jim, where a person, say for example, had been cared for by certain members of the family and for a while there they were the only ones that received it; and all of a sudden at the last year or so before the person passes on, they make really weird decisions and begin dividing up all of the income among family members that nobody ever even knew existed and this and that. Like I said, the important thing is to do it early on, something that will be enduring so that when the time of need kicks in, that everything is stable. I know what really worked for us was the fact that we did have a trust and everyone one of the trustees were designated, how things were to be disbursed, distributed, it really streamlined everything in the long run. And then bringing a CPA in on it was important as well, an attorney and a CPA to make sure that the assets were properly handled, the taxes were properly paid and a few jots and tittles that had to be taken care of in the whole process. But it's a lot easier on the surviving family when you do it that way. Other than that, they are on their own.

And believe me, most families, it's a mine field. It's literally what it is. Health care, Jim, is a mine field. You have to have advisors at certain times to tell you who the best doctor is, where to go for what types of care, what to watch out for, who’s doing Medicare in your area because not all doctors are doing it, who are the good doctors, what doctors to avoid. I'm sorry but that's just really what the state of medicine is today here in this country and sometimes talking to nurses, believe it or not, is the best way to find out who the best healthcare providers are in your area because the doctors won't do that. There is no referral service or rating service among physicians today other than nurses and they are very good at it. [48:35]

JIM: Yeah. And the more important thing is when you've taken care of all of these issues, then if one spouse passes on, then you can go through the grieving process, you can go through the celebration of that person's life; or if it's the final spouse to pass on, you can deal emotionally with those issues and go through the grieving process. The last thing you want to be doing is grieving over a spouse and then dealing with lawyers, courts, family squabbles. And you'd be surprised what will happen sometimes between even family members and it is just an easier way to handle something. So that's why, John, once again, when we talked about all of these mistakes that you make in a retirement, a lot of these can be avoided. [49:29]

JOHN: Something else that a lot of people don't think about this even if you're middle aged or young, everybody needs to have a DPA (“durable power of attorney”) healthcare to someone, or someones, you know and trust that make the decisions for you. We found out quite often in taking care of the elderly that you have to be an advocate for them, that the health care system does make a lot of mistakes and you have to have that authority given to you in writing. And that person needs to do it when they are competent so to speak, when they are capable of doing it and it's very clear what your wishes are as far as health care. If you become disabled, what happens if you're terminal and unable respond. All of those issues need to be somewhat worked out in advance.

And we personally prefer to have someone rather than coming up with, let's say, a living will, there are alternatives to that as well in which you can come in and say, “no, I want these people to have choice in what is going to happen to me. I don't want to predetermine anything.” I want them to make serious wishes and guardian fid -- It's like a medical fiduciary is literally what it is in this case. But people don't think about that and these are very simple to fill out and keep on file, or even file with your local hospital and your local healthcare provider. In these days it's just very important to do that. [50:45]

JIM: Absolutely.

JOHN: All right, Jim, this pretty well wraps up our four part series on retirement. Can we go back, I was actually trying to do it, can we go back and itemize everything that you need to do. You know what we should do is we should post this checklist on our website.

JIM: You know, that's a good idea.

JOHN: I always have good ideas.

JIM: Yeah. But unfortunately, this is late Friday.

JOHN: We can do it next week, you know.

JIM: Yeah. We'll do it next week, but you look at the checklist for retirement, you start off, number one, have yourself a retirement plan that deals with the various issues in terms of what you're going to need. Understand things like life expectancy, maybe you have a history of people living into their eighties and nineties in your family. Also having a budget and also to plan on the unexpected expenses – a health issue, a house issue, something you're dealing with and your kids. We talked about today about having a healthcare plan and estate plan. And then remember what we talked about investing, we talked about understanding the investment environment, we even talked about options that your expenses and your income don't match you could talk about relocation, down sizing, working part-time. And in transitioning into retirement, you need to have a plan to protect your retirement savings, you know, reduce your debt, have a cash emergency fund. We talked about having adequate medical insurance, long term care insurance if you need it, a plan for your income during your retirement years. You want to know when to apply for Medicare; should you do it at age 62 or 65; when to apply for Social Security benefits, various options you should understand about your 401(k) distribution plans. And then finally as we talked about today, review your estate plan including wills, trusts, powers of attorney and also your beneficiaries. So those are sort of brief checklists of things that we've covered here over the last month. [52:52]

JOHN: You're listening to the Financial Sense Newshour at www.financialsense.com and coming up next we'll be taking your calls from the Q-lines that we recorded earlier in the week. The Big Picture continues right after this.

Part 3

Q-Calls

JOHN: Time to do what I call my Q-line shtick, which means it's time to take your calls that have been recording all week long on our Q-line, the question line. It is toll free from the US and Canada, 1800-794-6480. Toll free from the US and Canada. From other parts of the world, it works but you have to pay for it.

And as we take your questions, please remember that the content here on the program is for information and educational purposes only. You should not consider it as a solicitation or offer to purchase or sell securities or other investments. Our responses to your inquiries are based on the personal opinions of Jim Puplava. Because of the fact we don't know enough about you, these are sort of generic answers. We can't take into account your suitability, your objectives or even your risk tolerance and because of that we will not be liable to anyone for financial losses that result from investing in things that we profile here on the Financial Sense Newshour. Always consult a qualified, preferably Austrian, advisor. He doesn't have to come from Austria, but he has to believe in the Austrian school.

JIM: Or simply go to Austria.

JOHN: There we are. Either way, consult a qualified advisor before you do something like buy a car, invest in stocks, go sky-diving. Here we go. First call is from Mike in Washington, DC.

Hello. This is Mike from Washington. I've noticed in the last several programs that you have outlined a strategy for buying dividend-paying equity. I invest a little bit, mainly in the ETF arena and identified several of the dividend appreciation funds. I was impressed that most of them ended last month have had significant drops, anywhere from 10 through 25%. Can you please explain a little better your strategy for investment in dividend-paying stocks. As always, thank you very much for a fantastic show. God bless.

JIM: You know, Mike, I prefer the individual stocks where I can cherry pick the businesses, buying companies that have a good business model, which have a history of raising their dividends year after year, so that's what I prefer to do. Now, in an ETF, part of the explanation might be as we did have a pull back in the markets for example in April where you had a big selloff in the stock market – and I'm trying to think what date that was from the second week of April all of the way down to mid-month, we had a selloff in the stock market where the Dow actually went from a high of roughly about 12,650 and got all of the way down to 12,300, so that might explain part of it. Also, with the ETFs, a lot of the ETFs will have a lot of financial stocks like the banks. And so the financial sector got hit hard, so that might explain some of the downturn.

But once again, we prefer choosing individual stocks and we have a couple of programs, by the way – I'm just trying to think here – at the end of this month or maybe it's next month we have a program, a couple of authors that have written books on dividends that you might want to listen to. Let me just go to our schedule here. Josh Peters on May 17th, The Ultimate Dividend Play Book. You might want to listen to that. Also this week, we had Richard Lehmann, Income Investing who talks a lot about fixed income, but he also talks about dividend paying stocks as well. [3:42]

Hi Jim. This is Phil from Spencerport, New York. I would like to know if you can answer this question for me. How come when oil was $10 a barrel, gasoline was about a dollar a gallon; now that oil is $110 a barrel, gasoline is only about $3 a gallon? Shouldn't gasoline have gone up 10 times like the price of oil has? Can you please explain that to me if you can? Thanks a lot. Great show.

JIM: You know, Phil, a lot of times it has to do with the crack spread, how much the refiners are making. If you take a look at, for example, looking at crude prices, we've seen oil prices are up 20 percent this year, but it's only recently in the last week or two that we're seeing gasoline prices move up. So, remember, it still costs money to refine this stuff and if the refiners can't make money, they are not going to produce it. And also you have one of the ways that we have had tremendous gains from a barrel of oil, we have what we call refiner gains where they are able to get more output per barrel of oil. You might look at that as oil productivity or production productivity. [4:51]

Hi Jim and John, this is Frederick, the Swedish guy in India. I have two questions for you. First one, I'm looking to get into juniors from my Swedish account, but should I go into US assets with the weakening US dollar. My question is basically can juniors go up more than the US dollar weakening. Second question, here in India, the inflation is now spiking up, so it's running at 7% right now, and the growth is decelerating down to 8%. How should I interpret that? Does that mean that the net growth is only 1%, or am I missing the point somewhere? Anyway, thanks. Great show, and John, I really love your guru impersonation. Thanks. Bye.

JIM: Frederick, you know, if you want to buy juniors, the best juniors are Canadian companies and they are listed on the Canadian exchange and the Canadian dollar has been strengthening against the US dollar. In fact, let me just take a look here. The Canadian dollar is worth just slightly over a US dollar, so I’d look at Canadian juniors as a way to play that. And with economic growth at 8% in India with 7% inflation rate, real economic growth is 1%. [6:07]

JOHN: Actually, one of the prettiest forms of English is English spoken by people from the Indian subcontinent. It just has a ring and a music to it that's really pretty.

Hi Jim and John, this is Peter calling from Seattle. I had a question about the junior mining companies. And with earnings coming out soon, I was just wondering what you were expecting if there was maybe a turn coming up or also if the high cost of energy might actually still kind of eat into their earnings. So I'm just curious if you think we're close to a bottom with juniors. And my other question is if you do purchase juniors through a small broker like E*TRADE, that I use, the ticker symbol is like a five letter thing like for Strathmore Minerals it’s like STHJF yet on the Toronto exchange it's just STM. And I'm wondering what is it that I'm actually purchasing? Do I really own Canadian shares. It's not a pink sheet or anything, I don't think, it's not a PK. So if you can just tell me what it is, what happens when we buy Canadian stocks on a small scale, thank you so much.

JIM: You know, Peter, when you have the five tickers that you put in to purchase, you're buying it on the pink sheets here in the US. The three syllable ticker is actually what would happen if you were buying it on the Canadian exchange. And that's probably one of the best ways to buy it. A lot of these juniors are more liquid on the Canadian exchanges. Further more, you can look at Level Two and take a look at the bid and the offers on a stock and know exactly where the strength is. Are there more bidders coming into the stock or more sellers coming into its stock? Where you go in the pink sheets, the spreads that are in the pink sheets tend to be wider, so that's the difference between the two. [7:48]

Hola, Jim and John. This is Richard calling from Buenos Aires, Argentina. Jim, can you imagine any circumstances where, on the average, share prices of gold juniors might rise while gold prices fall?

JIM: You know, I can. There are a couple of times in this bull market in this decade where the gold price was just languishing, but the stock market started to take off as it did in 2002, and juniors were extremely strong rising at much, much faster rates than the rate of bullion. And the way you can see this, Richard, is go take a look at a long term chart of gold and then take a look at a long term chart of the HUI and you can see that especially between 2001 and the spring of 2004, juniors were going up right along with the stock market, more so than the price of bullion. [8:42]

Hi, this is Ruby calling from Eureka, California and I had a question about inflation. I'm trying to understand the difference between the increase in the money supply inflation and inflation caused by tight supply. And if we have two kinds of inflation there, rising prices from increasing money supply and rising prices because of tight supplies, how do you see one affect the other? Is monetary inflation always more important than tight supply inflation? For instance, oil, how would we separate monetary inflation and the tight supply? Thanks for your answer. I love the program.

JIM: Ruby, you know, there isn't a direct, immediate impact from the rise in money supply and the price of goods and services. And what you're talking about is, okay, if there is a tight supply for something like oil, the price goes up. But remember, a lot of times in economics, if you have one good commodity that's rising and people have to pay more for it, that means they spend less on other goods and services. So in other words, just take a look at what's happening to consumers right now because of rising energy prices, they are cutting back on the purchase of other good like discretionary consumer items. So, in a real world, tight supply may cause a commodity to rise but that isn't really inflation as to what causes inflation. What causes inflation is money and credit expanding above the rate of good production and that's where inflation comes in to. And it can show itself up in many ways. First of all, there could be a lag effect, so just because the money supply jumps in a quarter doesn't mean that it immediately carries over into rising prices. And also you can have when inflation appears it has two outlets. It can go into assets like it did in stocks in the 90s, real estate in this decade or commodities in this decade. So the real cause of inflation is an increase in the supply of money and credit and the things that we talk about are inflationary like rising oil prices are merely a symptom of rising money and credit. So we tend more to refer to inflation by its symptoms rather than its cause which is expanding money and credit. [11:20]

Jim and John, this is Lenny from Chicago. Regarding your April 12 show with Bill Powers, energy specialist, who suggested that natural gas would now go from $10 to $15 by August. In order to take advantage of that position, I'm in a 457(B) plan and I'm pretty much limited to mutual funds. Would you suggest to play the sector just natural gas or natural gas service sector?

JIM: Boy, I'll tell you, that's a hard one. You've got a lot of the natural gas stocks would who been doing very, very well this year, a lot of the natural gas stocks are up 30%. I think right now some of the better plays are in the service stocks. If you take some of the big oil service companies, they have gone through a major correction here, and I think that some of these companies offer better value than the natural gas stocks. But you might want to divided the money between both. Either way, I think you'll do well. [12:18]

Hi, Jim and John, this is Phillip from Santa Clara. I have a question about gold bullion coin, I've been looking to buy some coins and I noticed that on many of the online websites the premium for the gold bullion coins, the Eagles and Buffalos and Maple Leafs for a one ounce coin it is anywhere between 30 to $45, but for a South African Krugerrand it’s just $5, $10. So I would like to know if the Krugerrand is inferior in any way, or is it less liquid gold. I notice that it is 22 carat gold, but I do see that there are other coins like the Maple Leaf it is probably 22 carat gold also. So I would like to know why the premium on the Krugerrand is lower, and would I be at a disadvantage if I were to buy Krugerrand in anyway, please let me know. Thanks very much.

JIM: You know, Phillip, I'm not an expert in coins, but two things that stand out, I know the US government charges a premium on US minted coins whether it's silver Eagles, gold Eagles or gold Buffalo, so that's part of it. Secondly, I've been hearing now more and more from suppliers that they are in short supply, so part of it is from the premium that the government charges on US minted coins, so that would be one of them. I would go where your money buys the most for its money at this point, which would be Krugerrands. [13:41]

My name is Thomas, I'm from Washington state, and I just want to say I listen to you weekly and I agree with you on a whole lot of things, but there are some things I really disagree with, starting out with what is it that makes you think that corporate executives are entitled to great growth in their earnings where they are earning four times a much as they were in 2000 as today, when wages have been basically kept at the basic same rate. Is this going to be fair? Is it going to be a healthy economy where people who are wage earners are not able to purchase the goods that societies is able to produce. Is there something you have that I don't know about that is going to make this economy work without balance where all of the wealthy are getting wealthier and the people that are working are not getting compensated in proportion. Do you know really something about this that I don't know? I'm trying to find the answer because I don't see how it's going to work. I think the economy is in doodoo because of this problem that we have the wealth accumulating in the hands of the few at the expense of the working mass. Now, if you have something, tell me I don't know and I'm missing. I want you to please tell me what it is because I don't see it. Okay? Thank you. Good night.

JIM: Thomas, the difference between a working wages and the disparity up at the top, number one, it takes talent to run a corporation, so a person at the top, obviously, is going to get paid more than employees. But what causes this disparity between people in the top and people at the bottom is inflation created by government because when you have inflation, wages lag the rate of inflation. If you see in a short term period of time that your cost of living goes up 10%, you can't go up to your boss in three months and say, hey, my gasoline bill has gone up, my utility bills have gone up. And what happens is wages always lag the inflation rate, but you've got to understand that the difference in terms of what happens in a period of inflation, those who get the money first that the government prints, the first to get it is the government, the second is the bankers and third is Wall Street. And those that have larger amounts of income have discretionary income they can invest and profit from inflation, whereas a wage earner doesn't. But you're getting at your missing the root cause of this disparity and it's created by inflation which is created by the government, which then comes in and wants to put in either wage and prices controls to control the price of inflation that is being created by its own policies. I think you need to study the impact of inflation and learn more about its roots, what causes it and its side-effects and then I think you'll understand this situation. [16:43]

JOHN: Maybe there are two issues here too, Jim. One would be executive salaries versus what the other employees make and the other is the disparity. Those are two different issues and I think they are mixed here. The first one, though, if you talk about executive salaries, that's set by the board, isn't it? The board of directors of the corporation.

JIM: Yeah. And it's set by the board but by the same token, John, I mean why should if we want to take it to extremes, let's go to Hollywood and say why does Tom Cruise get $20 million a picture versus some of the other actors in the movies? Is that fair or some of the other people that work on the movie set; or why should some of these NBA All Stars or All Star football players get contracts of 20, 30 million a year when the rest of the team doesn't get that much? [17:30]

JOHN: I think that's my point and what I'm saying is that the level is set by the board, so if you say I don't like that, then the next question is who is going to come in and establish exactly what board members may get paid. And then we talk about what is the very next thing that you hear is governments are going to come in and set that. We know that never works in long run, but the flip side is that the disparity between the haves and the have-nots is really being driven by several things, inflation. It's also caused, Jim, and Lenin knew this by the way, a heavy progressive taxation system. Eastern states of Europe, countries of Europe, Russia, and now even Western Europe are looking at scrapping –they either have or talking about scrapping – their progressive taxation systems because they result in this disparity because the rich can afford to absorb it. The middle class is always what's taken out and Lenin actually knew that.

JIM: You do bring up a point and that's why you see a lot of these billionaires...You know, if you make a billion dollars a year and they take half of it and you pay half a billion in taxes, you still have 500 million. But when you have a progressive tax rate, for example, the repeal the Bush tax cuts where everybody making $26,000 is going to immediately jump up to the 28% bracket. John, 28% of your income for federal taxes add 7.65 in social security, you're at 35% before talking state taxes. [18:55]

JOHN: Right, and as soon as basically you start to move up, say you become you're industrious, you work, you go hey, wow, I made x amount of dollars more this year and the government says, “oh no, you didn't and they take back what you just made” because of the progressive system. In other words it's not fair because it's not a flat even system. It becomes distorted the more you go up, but the people that are already rich, it doesn't affect them, but those that are trying to pull themselves out of poverty or lower levels of income, they are directly impacted by that type of a policy.

JIM: Yeah, you know, it's amazing, I got in this industry 30 years ago and the two things that were right at the top when I got in were taxes and inflation, and John, you just summed it up. Taxes and inflation are what creates these disparities. [19:39]

Hi. My name is from Hugh from Virginia. My question is: Why do these politicians running for president keep reacting about the change but can't offer anything. Americans don't want change. We want all of our money back. Thank you.

JIM: Hugh, you hit it on -- you know, the change that they are talking about that is what's going to be left in your pocket book after they are done with their tax and spend policy, so – [20:13]

JOHN: But you know, he brings up an interesting point based on what we just talked about is if you listen to the presidential debates which we have done ad nauseam here there is a blurring in the minds of the American people and it's deliberately done this way to blur together the welfare of the government itself and its own budgetary issues and welfare of the American people. They are not one and the same thing. And that's important to understand. But when you hear them talked about in the debates, that little fine line is blurred. It’s like if we tax all of these other people you'll be better off. Really? How will I been better off? Will I get that money back? Are you going to transfer the wealth? And generally, no, because say we were to tax much more of the rich like we heard Mrs. Clinton and Senator Obama talking about last night on the debate, they don't cut back their spending, they just spend more. And that's the big problem.

JIM: And that's one of the big debates because they are talking about multiple trillion dollars of new spending programs and we're running a bunch of deficits as it is, so who is going to pay for it? You know what, you and I are going to pay for this through taxes and inflation. [21:18]

Hi, this is Bob from New York. One of your guests you have on frequently in your first hour said in a recent newsletter that Paul Volcker met Barack Obama in the upcoming election and if Obama gets elected, sell your gold and silver in your vaults. Listening to you, I believe you disagree with that and I'd like to hear your reasons why. Thank you. Appreciate the show.

JIM: You know, when a central banker tells you to sell all of your gold and silver, I don't know if Volcker said that, or some commentator that we've had on the program. I disagree with that entirely. Number one, we're never going to see the kind of interest rates hikes by the Fed that you saw with Paul Volcker where he took interest rates from 4 and 5% and took them all of the way up to double -- high double digits. If they did that today with the amount of debt, and remember the amount of debt to GDP is at the highest in this country’s history, you would simply collapse the economy. There's no way they could pay for all of the spending programs that are already in place, all of the unfunded entitlements that will have to be paid for, they’re going to print their way out of this and it's going to mean higher inflation and that's going to mean higher gold prices. [22:34]

Hi John and Jim. This is Roger from Belize, one of your addicted ,dedicated listeners, really enjoy the show. Since I trade in Chinese building materials my assets are tied up in US dollars, working capital and inventory, shipping in a container on a ship somewhere around the world. The concern is the loss of value due to depreciation. Do you see another practical trading currency arising before the US dollar completely tanks. I have a possibility of buying gold certificates placing them in an offshore bank as collateral and then borrowing US dollars. Would this be a prudent way to protect against devaluation? What would be the best gold certificates to use for this? Thank you.

JIM: You know, Roger, that's not a bad idea as a way of protecting yourself against devaluation. A lot of people recommend in your kind of business, you might want to go into some of the hard currencies, the Asian currencies might be another way to protect, the Swiss franc is another way; also asset-backed currencies that are backed by resources such as the Brazilian real, the Canadian loonie and the Australian dollar are other currencies that you might want to consider. As far as gold certificates, you know, I'm not as familiar with which one is better than the others, so I couldn't really advise you on that, but thinking of gold and strong currencies might be one way for you to hedge yourself. [23:55]

Hi. This is John from Minneapolis. How do you see the United States solving our water needs over the next couple of decades. Will we need to dig anymore wells? Is there more water in these aquifers? Will we need to build bigger, higher capacity pipes? Will we need desalination plants right here in the US? I know each aircraft carrier has desalination capabilities so I'm sure it's possible at a price. And if there is really a water shortage, isn’t any commodity available at a price, and if that price of water even doubles or triples will it really have an economic impact at all since it's probably a small percentage of the cost of everything? And lastly, do you expect the municipalities to bungle the whole thing and keep creating water bans and water conservation without building anymore capacity until it just gets crazy? Love your comments on those topics? Thanks a lot.

JIM: You know, over the next couple of decades and especially populated areas that have access to like ocean water, desalination, California is already considering it because we're running out of places to tap into, so I definitely see that. Will municipalities deal with this issue? I would suspect you're going to see more privatization because municipalities have done such a poor job of maintaining the water system. So just as they are doing with a lot of infrastructure in this country, municipalities are turning it over to private companies. I think that's another trend that will continue, John. You know, we might have to go to aqueducts to get water from places where there is plenty of it to other places where there is not much of it, and in some places we'll just have to drill deeper wells. [25:42]

Kenmore from Dallas, Texas, and I wondered if you had ever discussed the possibility of selling stocks this year while the capital gains rate is 15% in lieu of taking the chance that Congress changing the rate next year. Thank you.

JIM: You know, Jim, depending on what polls are showing, if there is a wide disparity with –we don't know who the democratic candidate is going to be, it would be actually worse with Barack Obama – he wants to raise the capital gains rates to 28%. The only thing I would consider selling are things that I've got profits in that I don't want to hold long term. In terms of natural resources like energy, gold, base metals and water, things that I think that are long term in nature, I wouldn't sell because I think they are going higher. [26:28]

This is Phil from Arizona. I have a quick question. I saw a report on TV a couple of weeks ago about the oil spills in Western Pennsylvania, Oil City, where they originally found a hundred years ago, and they was saying most of the oil came from shallow wells and actually 60% of the oil was still there. I was wondering if you knew – he didn’t say how many barrels they were projecting there. Have you heard about this or had Matt Simmons speculated how much oil there is in Western Pennsylvania that could be gotten by going deep? Look forward to your answer. Enjoy your show. Thank you.

JIM: Phil, I couldn't say with any degree of confidence how much oil is there. I do know as the prices go higher, a lot of these oil wells are smaller wells and I suppose if the price goes high enough, you might have with technology ways of getting more of that oil out of the ground and it may become worthwhile as prices head higher. But in terms of the total quantities that exists there, I don't have that at my finger tips. [27:29]

Hi. Jim and John. Terry from Phoenix, Arizona. I don't have a question, but I do have a recommendation on an excellent book I just read, Invest Like a Shark by James DePorre. It’s right up there with Reminiscences of a Stock Operator. And Excellent book. I highly recommend it. Thanks. Great show. I've listened to you guys for years and you're miles ahead of everybody else. Thanks and have a good day.

JIM: Well, Terry, thanks for bringing that book to our attention. We'll have to look into it. Perhaps I'll order a copy myself. [27:57]

Hi Jim and John. Reg from Bruce Pine, freezing Bruce Pine. What if China and India were to convert their dollars into commodities including gold right after the Olympics? Would this not make the yuan the world's reserve currency practically overnight and plunge the US into the inflationary depression you’ve been talking about, like no one can imagine. Just to mention a few, 280,000 US troops stranded all over the world, famine at home, no gold left at Fort Knox to buy gas at $15. Think about it. Thank you.

JIM: Boy, Reg, maybe in the end, that's in the crisis window, we see something like that because I do expect currency turmoil. First, a dollar crisis, probably heading into close to this summer. And then next, the euro coming apart sometime by the end of next year as countries opt to get out of the euro because of economic difficulties. And any country that would like to move to that place or strengthen – especially an emerging country would be actually doing something like that...backing in. And China and India has a greater affinity for gold, especially given its history, so I think that is something that we may see some day. [29:19]

This is Roger in Houston and I was wondering what portion of the 60 trillion unfunded debt that we have for Social Security and Medicare is due in the next decade and how much of it is presently due in the next decade. Thank you very much.

JIM: Roger, that number gets bigger each year because it's accrued and especially as the baby boomers retire over the next two decades, so the figure gets larger. I do know that the surplus of Social Security revenues that comes in each year and over what is paid out and is spent by the government, I think that surplus narrows in the first part of the next decade, so you actually get into the next decade where the government is actually paying more in benefits than what they are taking in, which is why they are talking about Social Security reform because the jig is up in the next decade. But in terms of the portion that comes accrued in the next decade, I would suspect that somewhere in the neighborhood of a third to 40% of that, because a good portion of the baby boomers are going to retire in the next decade. I suspect what they'll do to delay it would be to raise the retirement age. [30:39]

Hi. This is Linda from Portland, Oregon. I have two questions. Number one, do you think the tax rate could climb high enough in the somewhat near future that it would make sense soon,, before they go way up to withdraw some money from my IRA to take the sure bet and pay off the last six years of my mortgage. I'm 49 and will have to pay a 10% early withdrawal penalty. I like the idea of being totally 100 percent debt free considering the unsure nature of things to come.

Number two, I'm heavily invested in gold, agriculture and oil ETFs. Assuming a hyperinflationary depression and the possible destabilizing of our financial system, how safe are those ETFs? Should I be buying gold coins instead or maybe nitrogen-packed pinto beans? Is it going to get that bad? Thanks a lot. Love your show.

JIM: If that is a goal of yours to be debt free I do believe that tax rates are going to be much higher and more punitive in the years ahead, if that's a goal that you can realize today at a much lower tax bracket, it's something you may want to consider. In terms of the oil ETFs and some of the commodity ETFs, I think they are okay. In terms of bullion, I think you always start with bullion first and you own it directly, and that means the actual bullion, the coins and the bars, so if you were going to own the bullion, that's the way I would own it. [32:05]

Good day, Jim and John. This is Kevin in Knoxville, Tennessee. Jim, my question is if I understand correctly, you think that interest rates will start to go back up sometime later in the year, perhaps after the election. And would that not be quite negative for gold and silver because, you know, back in the 80s, Paul Volcker pretty much broke the back of gold and silver with his rate increases which brought the price back down. Will that not happen again? I mean we realize they are debasing the currency and it has less and less value, will that keep people positioned in gold and silver where as in the 80s it did not do that? Anyway, guys, thanks for everything you do for us guys out here in the trenches who get the subsidized Wall Street and the mortgage industry. Thank you.

JIM: Not necessarily. I mean if you take a look at what happened to interest rates through out the 70s, I mean, interest rates fell in the first part of the 70s and then they climbed. You can see in a chart or a graph from roughly about 1972 all of the way up until they hit a peak roughly in 1981 when you had like the 10 year Treasury note got up to nearly 16%. During that whole period of time that interest rates were rising, and especially during the blow off phase when you saw interest rates on Treasuries go from 9% in the summer of 1979 all of the way to almost 16% in 1981. That was also the period that gold prices spiked up. So interest rates rose throughout the 70s along with the price of bullion. [33:51]

Hi Jim and John, Brian from the land of the midnight sun. Two quick questions, number one, for John, how many languages are you fluent in? Just curious.

And Jim, you had a comment last week on the unions and the companies bringing in manufacturing in the United States not being union. And you made a comment that kind of piqued my interest of the union shops were inefficient. Did you happen to agree and would you expand on that what you meant by that? I'd appreciate that. Just so I get a little bit more understanding on that concept. Thanks, guys. Just a beautiful job you guys do.

JIM: Brian, what I was referring to is you just take a look at the US auto companies that are plagued with unions where you have work rules that just can't bring [down] the cost of the price of a car and yet you have got a foreign manufacturer like Toyota or you have Nissan or you have Honda that comes over here has a non-union shop and they can produce an automobile at a lower cost, so you've got a lot of these legacy costs that go in what lot of these union shops. And I can remember, my dad was actually a card carrying union member. And I've had people that have told me there were times that they worked on the assembly line if there wasn't work to do on that day, they still got paid for it anyway. I mean you can't run a business that way, so that's what I was referring to. Sometimes the inefficiency in terms of prices of union shops where wages may be raised artificially above productivity. [35:23]

JOHN: And in answer to the other question, Brian, I do have a degree in foreign linguistics, but that would be giving away my trade secrets to tell you how many languages are included in that one. Besides I can keep you guessing, monsieur.

Hi guys. I'm John from Chicago. We are a married couple in our mid 70s and because of the earned income tax rates, we'll be jumping up after the 08 tax year. I want to take distribution of all of the accumulated savings in our IRAs, but maybe have half into precious metal coins and the rest in precious metal stocks in our trust accounts. Doing so would place us in the highest earned income tax category of 35%. I reason that in the long run we would be better off even though our earned income will have dropped to around 50,000 in 09 and thereafter. We have most of our saving in precious metals stocks and precious metal coins and some energy stocks at present. Is my reasoning sound or am I off the rails? Thanks to you guys and your organization for all you do. I would be in deep doodoo if it weren't for you and Sinclair. Take care. Bye.

JIM: John, I don't know if I would want to push myself in the 35% tax bracket even if they repealed Bush's tax cuts, the top tax rate is only going to go from 35 to 39.6. I would get as much as you can out this year without pushing yourself beyond, let's say, the 31% bracket. But to push yourself up into the 35, I'd try to keep your bracket in the minimum in the 20% range, which is probably from what you're describing what your income would be in 2009, you might want to space it out over a couple of years and continue the program of what you're doing. But pushing yourself up to 39%, I don't think that would be wise. [37:21]

Hi Jim and John. This is GP from Seattle. What happens to coinage during hyperinflation? January you said that you can use the paper bills for toilet paper, but should I start buying toilet paper with my coins while I can or has it in the past been melted into scrap metal? Thanks.

JIM: What happens to coinage, they get hoarded. What is that saying, John, good money chases bad money out?

JOHN: Right, Gresham’s law. Bad money chases out good money because the first thing that happens is people begin hoarding the good stuff. Yeah.

JIM: Yeah. The rest is toilet paper.

JOHN: I have a hard time visualizing coins in that position, but that's all right. Anyway.

Hey Jim and John, this is Brian in Tennessee. Listen, I've heard a lot of people say, obviously, have gold and silver on hand for when the collapse of the dollar comes. I've even heard people say you should have other currencies on hand just in case you need to make a move and you don't have time to sell gold and silver. I wanted to know what you recommended in other currencies to have, you know, equivalent of a few grand in on hand. I heard that the Euro was -- would be one to have, but I just heard on your QA calls on last week's show that the decline of the euro is pretty much imminent. So I realize everything’s fiat currency out there, but is there any you would recommend to have on hand in case you needed to do something in an emergency situation with the collapse of the dollar? Thanks. Love the show.

JIM: If I was looking at currencies, I would look at some of the resource strong currencies, the Canadian dollar, the Brazilian Real, the Australian dollar and the Swiss Frank. [38:57]

JOHN: I have a question, Jim. You know people talk about the collapse of the dollar. I think ultimately the dollar will die, but if it does, the question is: Is it going to be chaotic or will it be a planned event meaning that they will see it coming and something else like the amero will be standing in the wings to role it over into? Does that make sense?

JIM: No. I think eventually you'll have a crisis and it will start becoming more chaotic. They will try to patch it together and eventually all currencies are going to be in trouble including the Euro. [39:32]

Mr. Puplava, this is Richard calling from Tucson, Arizona. I've got the bulk of my fixed income component of my portfolio in preferred stocks. I don't think I've ever heard you mention preferred stocks in the years I've been listening, probably for a good reason. Most of these preferred stocks are large financial institutions but I'm getting kind of uneasy about them with this credit mess and the possibility of a hyperinflationary depression down the road. But I'm particularly uneasy about a clause that most of them have giving them the right to delay payments for 20 consecutive quarters – that's five years – at any time at their discretion. Would you consider it a prudent time to exit from these financial preferred stocks and how do you feel about preferred stocks in general?

JIM: Preferred stocks of strong corporations are a nice choice and I like those. I like the convertibles much better because a convertible preferred, you get some of the upside if the stock goes up. I'm uneasy about a lot of the preferreds that are being issued by a lot of these financial institutions. They are trying not to over-dilute their shareholders which is why they are issuing more preferreds, but this whole financial situation is going to take years for it to work itself off and I think you're going to see a lot more casualties and a lot more problems down the road because there is so much opaqueness to this structured finance with derivatives. You don't know what is on the balance sheet of a lot of these financial institutions. And very few of the larger institutions are run on a sound basis, so I wouldn't be very comfortable with some of the preferreds and especially with those clauses in there that give them the right to suspend payment up to five years. [41:19]

Hi Jim and John. Kevin from just outside the Beltway in Washington, DC. First off, thanks for a great service that you're providing for us Americans out here. Just want to help you out with correcting a little bit of the information that came out on the estate tax situation. If Congress takes no action and we get a sunset in 2011, the exemption drops back to one million, not $600,000. And we don't leave this stuff up in crawl spaces at this point. That is factored into the current bill which again will sunset in 2011. Again, thanks for the great job that you guys do and I'll be listening. Bye now.

JIM: Kevin, I was referring to a proposal that is in Congress right now to drop that exemption back down to $600,000, and where did I read that? I think it was in BusinessWeek. [42:02]

JOHN: The Coming Tax Bomb is the article by John F Cogan and R. Glenn Hubbard, and let me quote the line from it here: “The estate tax will roar back from extinction at the same time with a top rate of 55% and an exempt amount of only $600,000.” And that's what the Wall Street Journal said on April 8th in their article on the coming tax bomb. So I guess we can check it out.

Hi Jim, Paul calling from Canada, Ontario. I'm just wondering if you can tell me why gold goes up in Europe and always in the morning goes down. I mean I'm looking at it right now and it's about, well, 7:30 in the morning and gold has just tanked. It was up to about $950 -- what was it? 954, and now it's down to 945.50 and this happens every single morning practically. I was wondering if you can give me your opinion about it. Thank you very much and great show.

JIM: Paul, I'd highly recommend that you go to a site called GATA (www.gata.org) and that's called the PM fix and that's mainly the gold cartel knocking the price of gold down. You're right. You'll see it up in Asia, you'll see it up in Europe and by the time our markets open here, they hammer it. But go to GATA, www.gata.org and read some of their research papers and they'll explain this whole process to you. [43:19]

Hello, Jim and John, this is Jim from Denver and I'd like to get your take on seasonality this year in relation to the gold stocks. Thank you very much. Bye.

JIM: You know, every summer, it's like go away in May and come back after Labor Day and usually seasonality...there is less buying coming from India, the wedding season is over, and that's typically what happens during the summer. But if we have rising equity markets, which is a result of intervention and stimulus of both fiscal and monetary stimulus, I think you could see a possibility that the gold stocks rise along with regular stocks. Another factor that we're also looking at is a possibility of a currency crisis hitting and in that case I think as bullion headed higher it would spill over into the stocks so anything can happen this summer. All I can tell you is the price -- now, if you own the majors, the majors have gotten quite expensive because that's where all of the money has been going, but if you own a junior, sit back, relax, hold on and if they do drop, buy more. I wouldn't be worrying about seasonalities and try to play this because I think we can get a lot of surprises this summer. [44:28]

Hi Jim, this is John from Las Vegas again. I continue to enjoy your show. I just want to pass on some information and get a comment from you. I was listening to CNBC news listening to the oil and gas inventory reports every Wednesday and Thursday morning. I was on after the gas inventory reports one day they interviewed one of the traders as they always do and he was asked what he thought about oil prices and he had a list he that he sort of ticked off that sounded kind of like Matt Simmons. He mentioned that Russian oil, Russian suppliers looked like they are in decline, he mentioned Mexico going into decline, talked about Nigeria production going down and not able to go up, talked about China and India demand more than offsetting the lower demand in the United States. And also in his final lines he said the market is going to have to show us they can increase supply if you think that he sees the price of oil gets below $100. I thought that was interesting because it appears to me that maybe the traders are finally getting it and I just wanted your comment on it.

JIM: Yeah, John, I think they are getting it because these lines “well, it’ll go down if the US economy weakens.” Well, the US economy has been weakening since the first quarter of last year and yet the price of oil has gone up. I mean look what happened last year. It went from 50 to almost 100. Here we are talking at almost $117 a barrel, and I think a lot more of these traders are looking at some of the fundamentals and saying, “you know what, the fundamentals are telling us the price is going higher.” And I think it's now a ‘show me’ type attitude that the traders are taking that yeah, OPEC can increase their production. Well, show me, and I think that's where the traders are right now. [46:06]

Jim and John, love your show. Anyway, this is John in Renton, Washington, and I'm calling to see if you've heard of a movie named Zeitgeist. It has something to do with the Federal Reserve. It's quite fascinating. I urge all of your listener to take a look at it. You'll find it on the internet by doing a Google search. Thank you.

JIM: John, just found it on the internet. Thanks for bringing that to our attention. I haven't watched it, so it looks like a DVD that you can order and we'll take a look at it. Thanks.

Hello, Jim and John. This is Ricardo from San Diego, California. Long time listener. Thank you for all of the hard work you guys do. I have two questions for you guys. First one is you know the old saying, sell in May and go away for the precious metals. I just wanted to find out what you guys think of it, if it's going to apply, and the precious metals market do you think they are going to perform slow this summer.

And the second question was I recently traveled to South America – Ecuador and Bolivia – and I found in some Bolivian towns, the smaller towns were selling silver bars at regular convenience stores. Would that silver be good and valuable, the same as all of the other bars that are sold in the United States? Thank you for your feedback and I'm looking forward to your answers. Thanks again for all of your hard work.

JIM: Ricardo, listen to how I answered sell in May and go away. I'll tell you, my gut feeling just tells me that we could see some fire works this summer, and if you take a look at gold stocks outside the majors, the juniors have been beaten up upon so badly they are so incredibly cheap right now that I wouldn't be selling them if that's what you own. So anything can happen. In terms of these silver bars that you saw in Ecuador and Bolivia, in terms of their certification they might be worth less because you don't know how pure the content is, so it depends on some kind of certification because that's what you want to see in silver and I'm not sure what you're finding in those stores. [48:13]

Hi Jim and John, it's Rick from Saskatchewan, Canada. I look forward to your broadcast every week. Your statement last week about a world wide financial collapse really had me going, so I hope you don't find this too dumb a question. My portfolio is all small cap resource stocks and you predict they are going to the moon at some point and that we should sell at the mania stage. Here is the hard part. We are going to sell our stocks for dollars that are also becoming worthless. Am I missing something here? Thanks.

JIM: Eventually, they are going to have some currency, who knows, it will be the amigo which will be the emergence of the three currencies, and eventually they are going to have to stabilize this currency, otherwise we'll have complete chaos or even worse, we could have war because that's what happens. What is it, John, I'm trying to think if it was Frederick Bastiat who said when goods don't cross borders, armies do. But in terms of selling your assets, at that point, eventually, all hyperinflations, all inflations come to an end and when that happens, you have deflation, which means that at that point, you would want to get into whatever the financial paper is going to end up being. And I assume, after a complete hyperinflation when the debt is wiped out, that they'll come up with some kind of currency regime or something that will create some kind of stability; just like the Rentenmark in Germany where they backed it by the assets and the real estate of the country and the government agreed to stop inflating. So that's how inflations come to an end, and when they do, you're going to want to move into paper. [49:49]

JOHN: Well, that's wrapping down the program for this week. Happy Passover to all of our Jewish listeners which begins Saturday evening. People will be celebrating that around the world and next Sunday is going to be Orthodox, not just Greek Orthodox but Orthodox Easter, but in-between then, Jim, what are we doing?

JIM: Next week my guest will be Pat Dorsy, he's a Morning Star analyst, he's written a book, called The Little Book that Builds Wealth. Also, Eric King will be joining us on the program in other Voices. May 3rd, I'm going out to sea. May 10th, Shayne McGuire Buy Gold Now, a new book. And also for a lot of you have been emailing us questions on dividends, May 17th, Josh Peters another Morning Star analyst, he writes their dividend newsletter. He's written a book called The Ultimate Dividend Playbook, excellent book by its way, recommend you pick up a copy and read. May 24, Charles Morris Trillion Dollar Meltdown, first book on the credit crisis. May 31st, Jeff Christian will be back here on the program with the CPM Silver Year Book 2008, so a lot of more things coming up in the weeks ahead, John.

In the meantime, on behalf of John Loeffler and myself, we'd like to thank you for joining us here on Financial Sense news hour. Until you and I talk again, we hope you have a pleasant weekend.