Tuesday, November 18, 2014

Rick Rule agrees with me

CEO.ca - Rick Rule thinks global boom will fuel demand for gold. I guess Rick Rule has sense enough to realize that the doomer goldbug narrative just makes people look stupid nowadays, and so he's started to talk some sense:

Well, my own experience goes back to the early 1970s, so sadly, that experience is long indeed. Confidence in resource markets can be as broad as confidence in the ascent of man—the longest running bull market in history. Despite the ups and downs, society over time increases its standard of material well-being, and simultaneously, increases its size. We’re at 7 billion and counting, there’s more people being born every day, and they all want to eat, Tekoa. That’s the broadest set of circumstances we’re in.

It’s odd to me that resource investors, perhaps because of the hard money origins of many of them, believe a catastrophic decline will be the best possible outcome for the resource business. That’s wrong. The best possible outcome for the resource business would be a boom, which increases utilization of commodities, and secondly, increases savings in gold which is an important part of the savings matrix of many people on earth.

Hence, the more wealth that’s generated, the more demand we’ll see for gold as part of the savings matrix. I believe the set of circumstances that’s in front of us is severe but survivable.[...]

OK, then he speaks like a doomer for a bit. The circumstances in front of us are awesome and amazing, Rick. Unless you're talking about the gold juniors, but even then if you truly are a "buy low sell high" guy you must also think the forward outlook for the juniors is great.

Anyway, he eventually shrugs off the brain parasite and gets back to sense:

The outcome is that the laws of supply and demand, and the laws of the market will ultimately prevail over the headlines.

The truth is that the material goods humans require will always do well. People will always need to eat, and they’ll always want access to electricity which requires coal, nuclear, and copper. As people (particularly people in frontier and emerging markets) acquire more wealth, they’ll require more savings products.

Again, an important part of the savings matrix in places like China, South Asia, India, and Pakistan, is gold. So ironically, an increase in living standards would probably be better for gold investors than a decrease in living standards. While I expect the time ahead of us will be turbulent, I also suspect that resource investors will do very well[...]

Now okay, maybe he hasn't learned this from me. John Kaiser's been saying the same thing, and Adrian Day also has an EM modernization-driven commodity bull market thesis beneath all his hard-money wharrgarbl.

Still, I guess in a way it's nice that Rule is speaking some sense to the market.

And as for USTs:

The best case value proposition offered up by the U.S. 10 yr. treasury is (if you believe their numbers) that you give them $100,000, and in 10 years they give you back $100,000. In other words—you make no money.

The mid case scenario is you give them $100,000, and given the decline in purchasing power of the basket of goods and services that you and I consume (not the CPI), they give you back $50,000. Now think about that. The promise is they deprive you of half of your purchasing power over 10 years.

So if the fight then is between gold and the U.S. 10 yr. treasury, I don’t see how over 5 years we can possibly lose that fight.

From a Summers/Krugman/Piketty standpoint, he's right: if there is going to be an extended period of ultra-low interest rates, then yes: there is going to be no reason to own USTs.

Then again, you'll get more return from the US stock market if we're in a secular bull.

Then again then again, gold is insurance. But yes it's also a luxury consumer good, and so you'll want to see growth in luxury consumer buying power.

Anyway, good to see at least one hard-money Ayn Rand worshipping loon is able to talk a bit of economic sense when it comes to the market fundamentals for gold. I guess Rick doesn't really believe all that Ayn Rand crap after all, eh?

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