By FNN: Transcription of Interview
Lelde Smits: Hello I’m Lelde Smits for Australia’s Finance News Network and joining me in Sydney to discuss his outlook for the global economy is author, lawyer, economist, investment banker and portfolio manager at West Shore Funds, Jim Rickards. Jim, wonderful to have you Down Under.
Jim Rickards: Great to be here Lelde.
Lelde Smits: What are the risks you’ll be paying the most attention to this year?
Jim Rickards: Obviously, geo-political risk. If China get’s involved, and they see what Russia did in Crimea, what if they decide to take one of these, some of these islands in the South China sea. Certainly the Middle East. And, it’s not just Syria which is obviously a disaster, but, you know, possible war with Israel and Hezbollah, and possible confrontation between Saudi Arabia and Iran. So, there are a lot of hot spots around the world, needless to say.
Probably the biggest risk is the one that none of us have thought of. That’s why you need to position your portfolio today. Inevitably something will happen that none of us have foreseen. And, then the question is how robust is your portfolio? You need to be ready now.
Lelde Smits: As you mention, the beginning of this year has also been marked by rising tensions between Russia and Ukraine. How do you see the situation playing out?
Jim Rickards: Well, we’re in what I call mutual assured financial destruction.
It’s back to the Cold War when we both had, the US and the Soviet Union at the time, but let’s say Russia had enough missiles to destroy each other. But everybody said, if I had that many I’ll shoot first and wipe out the other guy but he would have enough missiles to shoot back.
We’re in the same situation financially. The US will not escalate sanctions against Russia because Russia can fight back. They can dump US treasuries, make our interest rates go up, sink our housing market, and worse yet, they could unleash their hackers and take down the New York Stock Exchange which would be a global financial catastrophe.
So, everyone knows this. They don’t want to escalate. So, I expect the sanctions will be tame - you know maybe some oligarch doesn’t get to go to the Super Bowl. That could mean there are some good investment opportunities in Russia right now because the market has been beaten down, the sanctions are not going to escalate, so you might do a little shopping in Russia.
Lelde Smits: And Jim, are you doing any shopping in Russia?
Jim Rickards: Well, my fund doesn’t invest in Russian bonds. But, I think for global investors who want to look at that market it’s probably been, it’s probably down more than it should be given the fact – It was priced for extreme sanctions but the sanctions are not going to be extreme – so they’ll probably catch a little bounce.
Lelde Smits: And what other markets are looking attractive to you?
Jim Rickards: Well you know I’ve been a bull on Europe for a long time and I remain so. I think the Euro is – You know, two years ago when our friends Nouriel Roubini and Paul Krugman and Joe Stiglitz [Joseph Stiglitz] were running around saying it was the end of the Euro and Greece was going to quit and Spain needed to get kicked out. I was the one who said, ‘No, it’s going to hang together, they’re going to add members, the Euro is strong and is going to stay strong’. And that has played out and that will continue to play out.
Lelde Smits: Which sectors in Europe would you buy into?
Jim Rickards: I would say tourism, transportation, finance and infrastructure are all good plays.
Lelde Smits: Meanwhile Jim, the price of gold has continued to retreat this year after shedding about 30 per cent last year. What is your short term target for the gold price?
Jim Rickards: I think it will sort of grind its way higher over the course of the year. So, it’s around $US1,300 now, you know, you could see it moving towards the $US1,700 level, maybe a little but higher. $US2,000 might be a stretch.
You know ultimately, my intermediate three to five year target is more in the $US7,000 range but it’s going to take a catastrophe and some realisation that there has been a loss of confidence in paper money to get there.
But in the short run, sure, $US1,700 is a realistic target for the end of the year.
Lelde Smits: So this catastrophe that you speak of, that is what you expect will be the catalyst for the price of gold to jump from say, $US2,000 to $US7,000 or $US9,000 per ounce?
Jim Rickards: Correct. For one of two reasons. One is if you decide that paper money is not worth anything, if you’ve lost confidence in it, where do you go? Well, there are a variety of hard assets, gold isn’t the only one. I mean there is fine art, land.
I look at Warren Buffet; Warren Buffet bought the Burlington Northern Santa Fe railroad a few years ago. But what’s a railroad? It’s all hard assets. It’s land, rolling stock, rail, switches, yards, signals, mining rights, et cetera. So, I see Warren Buffet dumping paper money, getting into hard assets. It doesn’t matter what happens to the dollar. He owns a railroad.
Now, not all of us can go out and buy a railroad or a Picasso, but we can buy some gold, some physical gold for our portfolios and that will preserve wealth.
Lelde Smits: Jim you mention preserving wealth. If we can finally take a look at your investment advice. You’ve consistently advised investors to build a diversified portfolio filled with fine art, energy, precious metals and land. Which asset classes are working the best for you now?
Jim Rickards: Well, for the last four years my best performing asset has been fine art actually. And again, as I say, not everyone can spend $100 million on a Picasso, I certainly can’t, but there are some very good funds where you can invest significant amounts of money and the fund managers will pull the money, buy the art, over time sell it and distribute the proceeds. So, that has been a very good performer.
Land has done very well. Cash has a place in the portfolio. People are surprised to hear me say that. They say, ‘Hey Jim, you’re talking of The Death Of Money why would you have cash?” And, the answer is, you might not have it forever but it is a good hedge against deflation. You know I’m warning about inflation, but deflation is a danger. Cash also gives you a lot of optionality; the ability to jump into something else when you want to.
So, I would say a mix of silver and gold, land, fine art, cash and some alternatives, some hedge funds, carefully selected. That’s a good portfolio that will stand up to these kind of crises that I expect.
Lelde Smits: Jim Rickards, thank you for joining us here in Sydney and as always for your insights.
Jim Rickards: Thank you Lelde.
Ends
Transcription of Finance News Network Interview with James G. Rickards – author of The Death Of Money, economist, lawyer, investment banker and portfolio manager at West Shore Funds
Source/video
Lelde Smits: Hello I’m Lelde Smits for Australia’s Finance News Network and joining me in Sydney to discuss his outlook for the global economy is author, lawyer, economist, investment banker and portfolio manager at West Shore Funds, Jim Rickards. Jim, wonderful to have you Down Under.
Jim Rickards: Great to be here Lelde.
Lelde Smits: What are the risks you’ll be paying the most attention to this year?
Jim Rickards: Obviously, geo-political risk. If China get’s involved, and they see what Russia did in Crimea, what if they decide to take one of these, some of these islands in the South China sea. Certainly the Middle East. And, it’s not just Syria which is obviously a disaster, but, you know, possible war with Israel and Hezbollah, and possible confrontation between Saudi Arabia and Iran. So, there are a lot of hot spots around the world, needless to say.Probably the biggest risk is the one that none of us have thought of. That’s why you need to position your portfolio today. Inevitably something will happen that none of us have foreseen. And, then the question is how robust is your portfolio? You need to be ready now.
Lelde Smits: As you mention, the beginning of this year has also been marked by rising tensions between Russia and Ukraine. How do you see the situation playing out?
Jim Rickards: Well, we’re in what I call mutual assured financial destruction.
It’s back to the Cold War when we both had, the US and the Soviet Union at the time, but let’s say Russia had enough missiles to destroy each other. But everybody said, if I had that many I’ll shoot first and wipe out the other guy but he would have enough missiles to shoot back.
We’re in the same situation financially. The US will not escalate sanctions against Russia because Russia can fight back. They can dump US treasuries, make our interest rates go up, sink our housing market, and worse yet, they could unleash their hackers and take down the New York Stock Exchange which would be a global financial catastrophe.
So, everyone knows this. They don’t want to escalate. So, I expect the sanctions will be tame - you know maybe some oligarch doesn’t get to go to the Super Bowl. That could mean there are some good investment opportunities in Russia right now because the market has been beaten down, the sanctions are not going to escalate, so you might do a little shopping in Russia.
Lelde Smits: And Jim, are you doing any shopping in Russia?
Jim Rickards: Well, my fund doesn’t invest in Russian bonds. But, I think for global investors who want to look at that market it’s probably been, it’s probably down more than it should be given the fact – It was priced for extreme sanctions but the sanctions are not going to be extreme – so they’ll probably catch a little bounce.
Lelde Smits: And what other markets are looking attractive to you?
Jim Rickards: Well you know I’ve been a bull on Europe for a long time and I remain so. I think the Euro is – You know, two years ago when our friends Nouriel Roubini and Paul Krugman and Joe Stiglitz [Joseph Stiglitz] were running around saying it was the end of the Euro and Greece was going to quit and Spain needed to get kicked out. I was the one who said, ‘No, it’s going to hang together, they’re going to add members, the Euro is strong and is going to stay strong’. And that has played out and that will continue to play out.
Lelde Smits: Which sectors in Europe would you buy into?
Jim Rickards: I would say tourism, transportation, finance and infrastructure are all good plays.
Lelde Smits: Meanwhile Jim, the price of gold has continued to retreat this year after shedding about 30 per cent last year. What is your short term target for the gold price?
Jim Rickards: I think it will sort of grind its way higher over the course of the year. So, it’s around $US1,300 now, you know, you could see it moving towards the $US1,700 level, maybe a little but higher. $US2,000 might be a stretch.
You know ultimately, my intermediate three to five year target is more in the $US7,000 range but it’s going to take a catastrophe and some realisation that there has been a loss of confidence in paper money to get there.
But in the short run, sure, $US1,700 is a realistic target for the end of the year.
Lelde Smits: So this catastrophe that you speak of, that is what you expect will be the catalyst for the price of gold to jump from say, $US2,000 to $US7,000 or $US9,000 per ounce?
Jim Rickards: Correct. For one of two reasons. One is if you decide that paper money is not worth anything, if you’ve lost confidence in it, where do you go? Well, there are a variety of hard assets, gold isn’t the only one. I mean there is fine art, land.
I look at Warren Buffet; Warren Buffet bought the Burlington Northern Santa Fe railroad a few years ago. But what’s a railroad? It’s all hard assets. It’s land, rolling stock, rail, switches, yards, signals, mining rights, et cetera. So, I see Warren Buffet dumping paper money, getting into hard assets. It doesn’t matter what happens to the dollar. He owns a railroad.
Now, not all of us can go out and buy a railroad or a Picasso, but we can buy some gold, some physical gold for our portfolios and that will preserve wealth.
Lelde Smits: Jim you mention preserving wealth. If we can finally take a look at your investment advice. You’ve consistently advised investors to build a diversified portfolio filled with fine art, energy, precious metals and land. Which asset classes are working the best for you now?
Jim Rickards: Well, for the last four years my best performing asset has been fine art actually. And again, as I say, not everyone can spend $100 million on a Picasso, I certainly can’t, but there are some very good funds where you can invest significant amounts of money and the fund managers will pull the money, buy the art, over time sell it and distribute the proceeds. So, that has been a very good performer.
Land has done very well. Cash has a place in the portfolio. People are surprised to hear me say that. They say, ‘Hey Jim, you’re talking of The Death Of Money why would you have cash?” And, the answer is, you might not have it forever but it is a good hedge against deflation. You know I’m warning about inflation, but deflation is a danger. Cash also gives you a lot of optionality; the ability to jump into something else when you want to.
So, I would say a mix of silver and gold, land, fine art, cash and some alternatives, some hedge funds, carefully selected. That’s a good portfolio that will stand up to these kind of crises that I expect.
Lelde Smits: Jim Rickards, thank you for joining us here in Sydney and as always for your insights.
Jim Rickards: Thank you Lelde.
Ends
Transcription of Finance News Network Interview with James G. Rickards – author of The Death Of Money, economist, lawyer, investment banker and portfolio manager at West Shore Funds
Source/video
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