-- Posted Thursday, 8 September 2011 | | Disqus

The following is a transcript of GoldSeek Radio’s interview with Dr. Stephen Leeb. 

To listen to the audio, click here, or to download the free mp3 file: Click Here 

[Music Playing]

Chris Waltzek:         On today’s GoldSeek.com segment, Dr. Stephen Leeb, author of Red Alert.

[Bells Ringing]

                             My featured guest today says that the nation is facing the greatest economic peril in decades, perhaps rivaling even The Great Depression.  Dr. Stephen Leeb has over 25 years of investment experience, ranging from growth stocks to commodities and precious metals.  He’s the author of several best selling books, including his latest, Red Alert.  That’s also a best seller on Amazon.com.  Welcome back, Dr. Leeb.

Dr. Stephen Leeb:    It’s a pleasure being with you.  Thank you.

Chris Waltzek:         First off, congratulations and a hat tip for what appears to be another seminal work, Red Alert.

Dr. Stephen Leeb:    Well, I hope it’s not, because the thesis is kind of grim.  Basically, the argument is that China is eating our lunch, you know, to use a cliché.  You know, we have really, really fallen behind.  I mean, China, basically, in many ways, controls renewable energies in the world by virtue of their monopoly on rare earth and especially heavy rare earth.  It’s almost impossible to build wind turbines on a large level.  By their willingness to subsidize their solar companies, our companies have gone belly up.  You know, most notably was -  I can’t remember the name right now – but a half a billion dollar Obama project recently declared Chapter 11 because they can’t compete with the Chinese.  And, excuse me, this story goes on and on.  You know, basically, they see what we don’t and what we should see.  You know, this is a world that’s characterized by resource shortages. 

As I’m talking to you right now, Brent Oil, which is the world benchmark for oil, is trading at $115.00.  All this in the context of virtually zero growth in the development world and that’s unimaginable.  I think that, you know, what you’re seeing, you know, today is a flight to – well, a flight to gold, a flight to precious metals.  And I think, you know, the major reason is here, you’re seeing currency wars everywhere.  And why do people want to hold currencies if all you’re doing is printing more and more and more of them?  And I think that gold speaks for itself and is sort of a, you know, is a defining characteristic of this point of inflection that we’ve passed.

Chris Waltzek:         Speaking of currency wars, I think the currency markets were simply rocked by a bombshell that the Swiss Franc is now going to be pegged the Euro.  This battle for keeping currencies low to boost exports and try to drive some economic growth seems to be a precursor for more currency volatility.  There’s a mad dash for the stable currency and then, of course, gold and silver. 

That’s a good segway into the inflation debate.  A few interesting anecdotes I’d like to pull from your work here and share with the audience before we continue.  You say, “Inflation is the most destructive force in the economic universe.  It’s been called the retiree’s worst enemy; the cruelest tax on your wealth, the notorious kryptonite of fixed income investments.”  And you say that most people, when they think of an economic hardship, well, it’s The Great Depression that comes to mind.  You say that it really wasn’t, that they should re-examine the ‘70’s; 1967 to 1982, the U. S. stock markets went through their worst 15-year period ever.  That’s five bear markets.

Dr. Stephen Leeb:    Yeah.  The point that I was driving at is that in deflationary times, and, you know, what I said, I stand by completely.  It has to be a little bit qualified.  In deflationary times, there is going to be money that’s made.  It’s going to be made by people that have a lot of cash and that’s just passive.  I mean, you know, bonds have been – or especially government bonds – recently, have been just great returners.  And that was also true in the 1930s.  But, in inflationary times, nothing wins.  Virtually, nothing wins.  The stock market goes down.  Bonds go down.  Cash goes down because real rates are negative, etc. 

So, I think that we are segwaying slowly, but inevitably, and execrably into inflationary times.  I mean, I think there’s, because of this resource scarcity that we have in the world, there is really no Goldilocks arena anymore.  The 1990’s were the Goldilocks era.  Commodity prices were flat throughout that entire decade.  Under those kinds of conditions, you didn’t need anybody, you know, special to run your central bank.  I mean, you just, you know, let the market forces, you know, take their course and you were gonna do very, very well.

Today, in world of resource scarcity with copper at $4.12 a pound; with oil, as I mentioned, at $115.00 and other critical resources, very, very sensitive to a rising demand, there’s no easy way to manage this economy.  And growth is going to be crippled by these, you know, relatively high resource prices, and we see this in the developing world – in the developed world, rather.  The developing world is doing just fine.  I mean, they’re generating growth because they’re coming from a lower base, etc., etc.  But, in the developed world, we really don’t have, you know, any real options. There’s no avenues for growth.  We’re not creating the industries that will generate growth.  I mean, China is.  The infrastructure that’s going into China is just enormous.  They’re probably spending a trillion – a trillion with a T – dollars a year on infrastructure and renewable energies.  And, you know, the developing – developed world, the U. S., Europe, etc., is frantic to try and, you know, just sort of stay where they are.  And what you’re seeing right now, and, you know, Swiss have joined the party, is a currency war, an old-fashioned currency war where everybody is trying to devalue their currency.  It’s a race to the bottom and that just won’t work.

So, you definitely are going to continue to see, you know, a return to gold.  I mean, gold’s down about $50.00 today.  I mean, I hate to make short term calls.  I’m almost never right on the short-term, but I sure would buy it. I mean, I think it’s down because you had a lot of margin calls in the Swiss Franc.  Those margin calls in the Swiss Franc, I think, has led to some selling of gold because people that were long the Swiss Franc were, no doubt, also long gold.  You know, I don’t want to get too short term about it, but, clearly, I think, you know, investments like gold – and 12 years ago was when I started, you know, really getting interested in commodities and precious metals.  Before that, I didn’t want to hear about them.  I just was a stock guy.  But, you know, you gotta look at things realistically.  And, realistically, we were just totally unprepared for the first decade of this century.  And, remarkably as it seems, we’re even less prepared today – even less prepared today.  I mean, we just don’t have a clue and I’m so upset ‘cause I want this country to do really, really well.  I want this country to wake up.  But – and I keep writing books –

[Laughter]

                             – saying the same thing, over and over again.  I wanna end up hating gold, but, you know – you know, my job is to try and protect people and, you know, gold and precious metals, I see as probably the best way of doing it and the other commodities as well.

Chris Waltzek:         Dr. Leeb, now that the global equities markets are rolling over, we are starting to hear cries of deflation once again.  And the deflationists, they argue that with the housing crisis, credit crisis, liquidity issues, double dip recession, runaway inflation is just not a likely outcome.  The inflation camp, on the other hand, argues that near zero lending rates and profligate government spending, virtually insures runaway prices.  Ultimately, who will be proven correct here and why?

Dr. Stephen Leeb:    I think the inflationists are gonna be proved correct and you can use history as a partial guide.  I mean, the 1930’s were, obviously, the, you know, the poster child for deflation.  Coming out of the 1930’s, we had a war and, after that war, I mean, right after that war in 1947, inflation hit the highest level in modern times, about 20 percent.  What we’re going to face right now, and we don’t know it, and this is, you know, the sort of the way I look at it in Red Alert, we’re fighting a war with the Chinese.  They know it; we don’t know it.  That’s why we’re getting beaten.  The war is over control of resources.  Right now, if we’re spending billions of dollars still in Afghanistan, and they don’t even want us there, the Chinese are also spending billions of dollars, except their not fighting a war.  Well, they’re fighting a different kind of war.  They’re fighting a war to obtain resources.  They’re mining copper there and mining one of the last few great copper deposits on this planet, while we’re fighting and almost protecting them while they take what we’re going to need and need desperately. 

So, what you’re going to see, in my opinion, sooner or later, we will wake up to these resource shortages, whether they be, you know, no rare earth to build out defense weaponry or other things that we’re going to need.  We’re gonna wake up to it.  And then, you’re going to see, I think, the coffers really open and you will see a tremendous amount of spending.  I mean, you know, history does show that deflationary times usually end up with inflation, and massive inflation.  So, I think the longer the deflation goes on here, the more pressure there is.  It’s like a, I don’t know what it, you know, it’s like tender that’s drying.  And in the drier it gets, the bigger the flame once you strike the match.  And we’re getting close to that point because I think we may be starting to realize, hey, these resources, you know, oil at $115.00, gas near $4.00 a gallon, and unemployment at 9.1 percent, I mean we’re being attacked by these, you know, gasoline prices and other high commodity prices, and what can we do about it?  I mean, you know, we’ve got to do something.  We’ve got to spend money. 

The Chinese, literally, I come back to the figure of spending about a trillion dollars a year.  They are eating our lunch.  There is no other way of expressing it.  They really are.  They’re taking us to the woodshed.  We just are, you know, been blinded.  I don’t know why.  We’re such a great country and have so much going for us, so much innovation, and so much, you know, freedom and spirit.  It’s just tragic to watch this kind of thing happen and I’m just praying that we will wake up.  But, until we do, you’ve got to stay with gold.  You’ve gotta stay with silver.  You’ve gotta stay with the things that are really going to be the winners and, you know, the last decade proves it.  Gold’s up, what, 11 years in a row?  That’s not a bubble.

Chris Waltzek:         Gold’s cousin metal, silver, has performed remarkably well.  It’s currently up nearly 1,000 percent, almost tenfold from those bear market lows that you alluded to.

Dr. Stephen Leeb:    Yeah.  No, I think silver is going to go to three digits.  I mean, I think there’s very little doubt of it because, you know, it’s a monetary metal with probably a longer history than gold.  And it’s also a critical, and I emphasize this.  I mean, some of the comments I’ve gotten, you know, on posts that I’ve made that silver really has no other use.  No.  Silver is critical.  Silver is the best thermal conductor in the world, the best electric conductor in the world, and one of the best of the reflectors in the world.  And, as a result, silver is a critical ingredient in solar panels.  Most solar energies require silver.  There are some thin-filmed solar applications that don’t, but they require materials that are even rarer than silver. 

So, silver is critical to making a transition to renewable energies.  It’s critical to building computers.  It’s critical in many, many areas.  So, you know, silver really has the potential to go truly exponential.  I mean, once the Chinese really start building out their solar energy, and they really haven’t up to this point, but they will, they’ll start accumulating silver.  In fact, I wouldn’t be surprised right now if they’re accumulating a lot of silver.  And my prediction is that silver will go high enough and that we recognize it’s so critical, that the government may even ban public ownership of it.  Like the government banned public ownership of gold during the depression, it could happen with silver.  But, I think silver, well over $100.00 an ounce, and I almost think that’s inevitable that silver hit three digits, to be very honest with you.  There’s just too many things going – criticality and uniqueness in the energy arena, and it’s long, long history as a monetary metal.  And the fact that the amount of silver we’re producing, you mentioned the incredible run that it’s had, despite that incredible run, we’re  not mining additional silver.  I mean, it’s another example of a very scare resource.  I mean, what we’re producing each year is growing by a smaller and smaller rate, despite the fact that silver’s been going up in price.  So, I, you know, I’m just a messenger.  You know, I’m just telling you how it is and what it is.  And everything that I am saying right now is documentable.

[Laughter]

I mean, go to Wikipedia and go anywhere you want and you’ll find, you know, this is the case.

Chris Waltzek:         I’m on board with you regarding your target of three digit silver.  However, the naysayers would point to the fact that it is an industrial metal and it’s constrained by that economic cycle, so, folks will turn to gold during a currency crisis.  Against the backdrop of those assumptions, it would seem probable that silver investors will be presented with another enticing opportunity to purchase silver at discounted prices.  What do you think?

Dr. Stephen Leeb:    I don’t think it’s going to go that much lower than where it is right now.  It’s turning around $41.00, I mean, $35.00, maybe.  I mean, I think that there’s going to be, you know, as with gold, I think you’re going to have very, very good support not too far underneath the market.  And I think a lot of that support is going to come from the Chinese, for sure in gold, because gold is very widespread among the Chinese populous, and it’s a wonderful inflation hitch.  They know it and I think they’ll protect the downside.  I mean, they certainly have the money to do it.  China, this year, will buy about half – half – of all the gold that’s produced in the world, and the other half will be purchased by India.  Two countries will take all the production of gold this year. 

                             Silver, China’s also accumulating and, I think because of that, you know, there they are a little bit, you know, they want to protect it because a lot of their population does own silver as well, but they’d also like to be able to buy it a little bit cheaper because they know they’re gonna need more than there is to build out solar energy.  And, you know, but I think that they definitely will protect the downside.  I mean, I don’t see it going any lower than $35.00.  I think silver’s in a trading range now between $35.00 and at least $100.00.

Chris Waltzek:         In 1980, gold reached a zenith of about $850.00 an ounce.  The metal has subsequently eclipsed that peak by, as you know, more than double.  A similar advance in AG would put the price of silver well above $100.00 per ounce and that’s just playing catch up.  So, I think your target is spot on.

                             And I know you’re brief on time today, so I want to get this last question in here.  You talk about in some of your work a $100,000.00 portfolio, invested in 50 percent stocks, 50 percent bonds, during the ‘70’s, was only worth about $57,000.00 by the end of that crisis.  But, a portfolio of oil, gold and other precious metals related stocks, would be worth about $170,000.00.

Dr. Stephen Leeb:    Yeah, it’s just a fact.  I mean, it’s just simple math.  A four function calculator gets you there.  Had inflation destroying bonds during the 1970’s, so if you were long bonds, you lost a lot of purchasing power.  And inflation, basically, made for virtually no gains in stocks and also made for no gains in cash, even, you know, after interest rates.  So, you know, you put it together, at the end of the decade.  At the beginning of the decade, you could have afforded to buy $100,000.00 house.  If you had followed a certified financial planner’s advice, you know, at the beginning of the 1970’s, by the end of it, for following that advice, you would have had enough money to buy a $70,000.00 house, 30 percent less room.  You know, heaven forbid you had had children.  On the other hand, if you had, you know, seen it coming, seen the craziness coming, by the end of the decade, you would have been able to afford a $170,000.00 house by investing in gold and, you know, gold-related investments. 

And let me just make one other point.  What we’re seeing now is markedly different from the 1970’s.  By and large, much of the inflation that we saw in the 1970’s was driven by political factors; OPEC, for one, the formation of OPEC, the boycotting of oil in the United States, etc.  Today, this bull market in precious metals is not driven by political factors. It’s driven by outright resource scarcity and that’s not something you’re going to correct, maybe never.  But, if you’re going to correct it, it’s gonna take a long, long time.  You know, again, in the ‘70’s, we were producing at about 70 percent capacity in terms of oil, just to take oil as an example. Today, we are producing very close to 100 percent capacity.  It’s simply not there.  And with the continued growth in these developing economies, it’s going to get tougher and tougher and tougher.  So, in one case, the 1970’s, a political problem where there were solutions; here, it’s an actual economic physical problem for which there are no obvious solutions.  And what makes it much, much worse is we don’t get it.  We don’t see it, yet another major country does see it, and that is, you know, really worrying me.

Chris Waltzek:         In this economic war that you outline here, Dr. Leeb, we are our own worst enemies.  Government regulation, the latest figures show $1.7 trillion in wasted money, over regulating.  It is so difficult to own and operate a mine profitably in this type of environment.  And forecasts show $2.8 trillion in frothy government regulation.

Dr. Stephen Leeb:    I just have to just leave with one anecdote.  I mean, totally agree.  We don’ refine anything in this country.  We finally got the idea, or investors got the idea, to open up a previous rare earth mine, which is called MolyCorp, and they mine ore in MolyCorp, but we don’t have the skill sets or the infrastructure to do the refining, the separation, the fabrication, for the ore that we get out of MolyCorp.  Guess what country we send that ore too?  Take a guess.

Chris Waltzek:         Let me guess – China.

Dr. Stephen Leeb:    You’ve got it.  Bingo.  Can you think of anything more – I mean, here’s China.  I mean, they’ve gotta be laughing sick at us.  [Crosstalk].

Chris Waltzek:         It’s reminiscent of our sending our scrap vehicles to Japan and them, remember, that recycling that very inexpensive steel and sending them back as vehicles to our country.

Dr. Stephen Leeb:    Exactly right, but the rare earth is just that we are dependent on someone who is trying to, you know, corner resources for, you know, providing resources to us.  It doesn’t make any sense and, if you look at how many resources on which we’re dependent on China, it’ll really make your head turn.  I mean, someone has to wake up here, but –

Chris Waltzek:         You’d think that our military leaders would recognize this is a strategic resource.

Dr. Stephen Leeb:    You would think.  You would think, but I don’t think anybody recognizes it.  I think people are so obsessed with getting reelected, that they just don’t realize how incredibly serious this situation is.  And, you know, all I can do, I’m just – I mean, I write books and try and wake people up, but, you know –

[Laughter]

                             – I don’t know.  I’m not – I’m, you know, having a more and more difficult time going to bed at night and sleeping.

Chris Waltzek:         What might help your insomnia is purchasing some rare earth.

Dr. Stephen Leeb:    Oh, no, it won’t because, I mean, I’m not excited about where I’m domiciled.  I hope the next conversation or a conversation I have a year from now with you, I can totally change my tune.  But, I really, really, really doubt that’s gonna happen.

Chris Waltzek:         Very good.  Well, we’d like to give you a chance to tell folks more about Red Alert and any other contact information for the listeners, please.

Dr. Stephen Leeb:    Well, Red Alert, you can just go to Amazon.  Actually, it is not yet published.  I mean, it will be published in a month, but you can buy it.  You can pre-order it at Amazon and our, you know, main website is called The Complete Investor.

Chris Waltzek:         Well, it’s always a real pleasure.  We’ll look forward to your victory speech when rare earths are soaring and gold is above $2,000.00 an ounce.

 Dr. Stephen Leeb:   Okay.  Bye bye.

[Music Playing]

[End of Audio]

-- Posted Thursday, 8 September 2011 | Digg This Article

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