According to Bob Moriarty, the force behind 321gold, the "fact that everyone hated gold in December is a good reason for rational people to love it now." While he recommends physical gold as an essential insurance policy in any portfolio, tax selloffs, low equity prices and low gold prices mean many companies, now selling for "peanuts," are the place to put investment dollars. And, as he tells The Gold Report, all you need to pick a winner is a blindfold and a dart.
The Gold Report: Bob, in the last few weeks, Argentina and Venezuela have devalued their currencies and the central banks in Turkey and South Africa hiked interest rates. The U.S. Federal Reserve cut its monthly bond buying by another $10 billion ($10B). What do you make of all this happening in such a short timeframe?
Bob Moriarty: In a way, I will take credit for having predicted it. The world is bankrupt, and not one government is talking about reducing expenses. They talk about austerity, but austerity means living within one's means. Governments refuse to do that.
The Fed has three options: It can continue to taper, maintain the status quo or increase its bond buying. I think there's a good chance it will take that third option. We need a big crash first.
TGR: What message does that send to the general market?
BM: It says we've run out of bullets, head for your bunker.
TGR: That can't be the message the Fed wants to send.
BM: The message it intends to send is one thing; the message it actually sends is something else.
Events in 2008 were only the opening act. The financial instability and the pressures in the markets are far worse today than they were in 2008. We had the chance to fix things back then, but Ben Bernanke, Alan Greenspan and Tim Geithner panicked and made the situation far worse.
TGR: You sent me an article by James Gruber titled, "Welcome to Phase Three of the Global Financial Crisis." In it, he writes, "The system broke down in 2008 and again in Europe in 2011 and now in the emerging markets in 2013 and 2014. The market reaction to the latest events has been abrupt and violent, particularly in the currency world. In my experience, markets generally cope well when there is one crisis but when there are multiple spot fires like last week, most markets don't cope well." Is there more to come?
BM: Of course things will keep getting worse until somebody understands that the real issue is debt. There are $694 trillion in derivatives. That is financial debt that can never be paid off. The world has been a giant casino for the last 20 years, and it's all coming to a head.
TGR: How does devaluing their currencies help Argentina and Venezuela?
BM: It doesn't. Every government in the world is spending money it doesn't have. The only solution is to stop spending money. Everyone refuses to do that because governments gain power by spending money. They will spend money until they've bankrupted all of their citizens.
TGR: In Greece and in Spain, the European Union (EU) has implemented mandatory austerity programs to pay off their bonds. Shouldn't Greece and Spain be seeing economic improvement now that they've implemented those severe austerity programs?
BM: There is no economic improvement. It's all smoke and mirrors. It's similar to climbing to the top of a 50-story building and jumping off. Once you've jumped, it doesn't matter what you do on the drop down. You're going to hit the ground. They need to crash so they can rebuild on a solid foundation.
Calling it austerity is using semantics to play with the citizenry. If one honest politician stood up and said, "We're spending more money than we have. We need to stop," that would put us on the way to curing the problem. But the politicians keep pretending there are other solutions.
President Obama's charade in the State of the Union message was interesting. He was a Constitutional law professor before going into politics, yet in his speech he said the president of the U.S. can unilaterally change the minimum wage. Did he ever read the Constitution?
TGR: Apparently, he does have the ability to change it, but only in upcoming, new federal contracts.
BM: There are three separate branches in the American political system: the executive, the legislative and the judicial. The president of the U.S. does not make laws; he enforces them. His ability to do something is not the same thing as it being legal. All federal financial bills have to start in Congress. The president of the U.S. simply cannot change the minimum wage. It's not part of his job.
TGR: Wages earned by low-wage workers aren't increasing at the same rate as inflation. As a result, the minimum wage today doesn't give the same amount of purchasing power as it did when it was first implemented. Should the minimum wage be hitched to inflation or should it just be abolished?
BM: If you make the minimum wage $10.10/hour, people who are gainfully employed at $8.50 have lost their jobs. All minimum wage laws do is eliminate jobs.
If minimum wage laws worked and helped people, we should pay everybody $100/hour. But as soon as you say $100/hour, everybody says, nobody can afford that, which is true. There are people who cannot afford $10.10/hour. There are workers not worth $10/hour.
In the EU, seven countries do not have minimum wage laws, 20 do. In the seven countries without minimum wage laws, the unemployment rate is just over 8%. In the 20 countries with minimum wage laws, the rate is over 11%. Minimum wage laws, no matter how well intentioned, cost an economy jobs.
The economic stability of any country is based on the number of people in its middle class. There are rich and poor people in every society. That is as true as it is meaningless. The key to economic and political stability is the size of the middle class.
The policies of George Bush, which have been compounded by Barack Obama, have destroyed the middle class.
TGR: How have they done that?
BM: First, people can't save money. If you save money at 0.25%, you're insane; inflation robs you of your real wealth. Second, taxes have increased. There are something like 48 separate taxes in Obamacare that have nothing to do with healthcare.
The Affordable Care Act, Obamacare, is the nail in the coffin of the middle class. It is a giant payoff to the insurance companies. The insurance companies are protected under law. They are allowed to collude and do things no other industry can. As a result, the U.S. has one of the least effective healthcare systems in the world and the most expensive. We need to burn the healthcare system down and start all over again. The insurance companies have the American public's throats in a death grip and they're killing us.
TGR: Following on the general topic of insurance, you've talked about using precious metals as an insurance policy in a crisis. Do you mean the metal, the equities or a combination of both?
BM: I see the physical metal as an insurance policy. Once investors have that policy in place, the equities are what they do with their investments. There are some wonderful companies selling for peanuts now that will do well no matter what happens—inflation or deflation.
TGR: How much of a portfolio needs to be in precious metals to have a good underlying insurance policy?
BM: That depends on the person and the amount of money available. Everybody has a different level.
If my total worldly assets were $1,000, I would put all of it into silver or gold coins. If I had $100,000, I'd probably put half of it into silver and gold. If I had $1 million ($1M), the percentage would be 5–10%.
I was recommending metals even when gold was $268/ounce ($268/oz) and silver was $4/oz. All investments go up and down, and investors have to be prepared for that, but that doesn't change the fact that metals are the best insurance policy.
TGR: I have my insurance policy; I have my gold and silver coins. Where should I look for precious metals stocks?
BM: You need two things: a blindfold and a dart.
Next page: Why a blindfold?