-- Posted Tuesday, 27 March 2012 | | Disqus

Jeff Berwick, chief editor and founder of The Dollar Vigilante and avowed anarchist, holds precious metals for safety and holds their equities for profits. In this exclusive Gold Report interview, he counsels geopolitical diversity and paying close attention to precious metal stocks.

The Gold Report: Your newsletter, The Dollar Vigilante, is the closest thing the newsletter industry has to a comic book superhero. Why the name?

Jeff Berwick: In 2007 a headline, "Where are the bond vigilantes?" started me thinking that you really cannot have bond vigilantes when the central banks can buy as many bonds as they want. There is no point in being a bond vigilante if you cannot influence governments and central banks by selling bonds. I realized that the only way you could do that was by selling dollars.

A dollar vigilante is a free market individual who protests the government monopoly and financial policies, such as fractional reserve banking and unbacked fiat currencies, by selling those same fiat currencies in favor of other assets, including gold and precious metals. We are dollar vigilantes to protect ourselves from what we see is the coming demise of the fiat currency system and the collapse of the socialist, Western nation base as we know it.

TGR: Are you really an anarchist?

JB: Yes, I am 100% anarchist. Anarchy to me is a belief that all transactions, all activity, should be voluntary. It is a peaceful philosophy of not forcing anyone to do anything and not allowing anyone else to force you to do anything. By its nature, governments and taxes are not voluntary. Government actions are violent and coercive, and theft as well. We are against those things.

TGR: In the February issue of The Dollar Vigilante your partner Ed Bugos wrote that 2012 will be the "last hurrah for equity bulls." Can you explain the rationale behind that?

JB: Ed was reflecting on when he might turn bearish on the stock market in general, after having remained bullish since 2009. He sees 2012 as a "buy everything" kind of year, when bears will be throwing in the towel and trying to call the next "black swan" event.

The bears' capitulation here, the expanding bullish froth and the withdrawal of the monetary stimulus and other phenomena will set us up for the next wave of the financial crisis, which we believe will likely be in 2013.

TGR: Here's a statement from Mr. Bugos that sounds positive for the companies our readers are looking for: "The downgrade of our short-term outlook for the U.S. dollar and Treasury bonds. . .falls into line with the rest of our view, the return of the reflation trade disguised as a recovery trade or 'return to risk.'" How will that happen?

JB: We have been proposing that narrative since we upgraded our stock market outlook in September 2011 to bullish. Our forecast for a sideways gold price looking out 12 months rested on a return of bullish sentiment and stocks in the economy, especially in the U.S., which will result in people liquidating the safe haven assets they ran to last year: U.S. dollars, Japanese yen, Swiss francs, Treasury bonds and gold.

Last year people bought gold and gold stocks expecting a financial calamity, even while the Fed was increasing the money supply by double digits. February 2012 marked the 38th consecutive month in which the annualized money supply in the U.S. grew by more than 10%—an all-time record.

Now, people are beginning to sell gold, again for the wrong reasons; they think the crisis has passed and we are moving on to growth again. But that is a mirage. Instead of growth, this increase in money supply diverts resources to wealth-destructive activities. The central banks have created another boom and investors are falling for it. A good 80% of the recovery in earnings since 2008 is the result of monetary debasement. That is why price/earnings ratios remain so low.

TGR: Should people hold both precious metals and precious metals equities, or lean more toward one or the other?

JB: Personally, I hold both: precious metals for safety and stocks for profit.

The next few years will be dangerous times for investors. During the last inflationary near-collapse of the monetary system in the late 1970s, there was less debt and interest rates could rise to their natural market levels, which turned out to be close to 18%. Today, a 15% interest rate would mean all of the U.S. government's revenue would be needed just to pay the interest on its debt, guaranteeing a monetary system collapse. So, I own gold and silver to protect my wealth.

TGR: Last month The Dollar Vigilante downgraded its outlook on precious metals equities to "neutral." What is your outlook on precious metals equities for the rest of 2012?

JB: Ed believes the December 2012 lows will be the low on average, especially for the juniors. He sees gold producers and juniors as quite separate. He is quite bullish on the juniors, but not as much on the producers. Our 2012 gold price outlook predicts a 2-in-3 chance of being range bound between $1,500/ounce (oz) and $1,800/oz and maybe 1-in-5 chance of gold declining to $1,350/oz. In any case, he expects a year-end rally to new highs.

We expect the equities that are most sensitive to the gold price in the short term to be at their worst in the next few months. However, we see explorers and emerging juniors recovering and trading higher, after being beaten down last year on what turned out to be a bum call for the deflation trade.

The worst is over for nonproducing juniors, but gold price-sensitive plays, which would include explorers with proved-up ounces at the lower-grade end of the spectrum, might be treading water until June, as gold prices retreat to the lower end of our expected range for 2012.

TGR: You follow companies with resources in different parts of the world. Can you describe what you are looking for in these regions?

JB: One of our strategies is to diversify our gold stocks geopolitically. This is because we believe the world's financial monetary system is going to collapse and that governments will be the biggest risk to our capital over the next few years.

We want to own gold stocks in many different places because we never know which government will tax or nationalize gold equities.

As we speak there is news of a "coup" in Mali. As an anarchist, I am always in favor of governments being overthrown—I just wish they'd stop replacing them with other governments! But in this particular case we have already been in communication with our sources on the ground in Mali. From what we hear it seems, so far, very much a case of "business as usual." One source is telling us that this is very much the military being unhappy about its inability to counter the insurgency's firepower in the far north of Mali, at the Libyan border, and we are getting the same feedback from our Malian associates.

Obviously, we are monitoring the situation but for now we are not doing anything precipitous in the market on the sell side. In fact, we are looking at this at the moment as a buy opportunity. We don't expect any kind of uprising that would in any way affect foreign business interests adversely.

But, this again points out the importance of geopolitical diversification and not placing all your eggs in one statist basket. Governments are the biggest threat to our liberties and wealth at this time.

TGR: Do you have any parting thoughts for our readers?

JB: We believe these are dangerous times for investors. In no more than five years, the U.S. dollar will be in a state of collapse and it will take down all fiat currencies with it. It is more important than ever to be prepared. That means diversifying your gold equities geopolitically.

Diversify your physical gold as well. In 1933, the U.S. government confiscated gold; it could do it again or it could tax it at a high rate. Try to put your physical gold holdings in different jurisdictions. I hold precious metals in more than a dozen countries to limit the political risk.

My overall message is that this is a highly dangerous time. People who are investing in gold and gold stocks are in the right area, but you have to go beyond that. It is more important than ever to do your own research.

If we can get rid of this system controlled by the central banks and move on to a more free market system—which I hope would include gold as money—the world would be a much safer, more prosperous, better place.

TGR: Jeff, thank you for your time.

Jeff Berwick is the chief editor of The Dollar Viligante newsletter. His background in the financial markets dates back to his founding of Canada's largest financial website, Stockhouse.com, in 1994. He served as CEO from 1994 until 2002, when he sold the company, and continued on as a director until 2007. To this day more than a million investors use Stockhouse.com for investment information every month. Berwick is also the host of Anarchast, an anarcho-capitalist video podcast; a frequent contributor to numerous financial and precious metal websites; and a speaker at hard-money investment and freedom conferences.

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-- Posted Tuesday, 27 March 2012 | Digg This Article | Source: GoldSeek.com

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