For those who prefer to read rather than watch interviews, here is a transcript of Rick’s interview with Kerry Lutz of The Financial Survival Network. The video was posted yesterday. As a service to our readers, going forward we will be making every effort to post transcripts of Rick’s media appearances.
Kerry Lutz: 1490 WGCH. This is Kerry Lutz. You’re listening to the Financial Survival Network.
If you are wondering how long these markets can continue on their merry way to higher highs and higher lows… while the long term trend may be obvious to most, it’s in the short term where you make or you lose money. As in right now. Rick Ackerman, whose short term calls have been nothing but astounding and uncanny since I’ve been following him… he’s with us now to tell you where he thinks the dollar and the Euro and the metals are heading. Rick, welcome back to the Financial Survival Network.
Rick Ackerman: Thanks for having me Kerry.
Kerry: Well, it’s always a pleasure. I’ve been reading a lot of your work lately. So you seem to be of the opinion that the dollar is going higher again.
Rick: Yeah. I’ve been very bullish on the dollar for a while. This morning, I had an analysis out on the dollar, that we used to chart, that called the dollar an unworthy recipient of this huge flow of money.
But the fact is that every time Europe gets nervous or investors get nervous about the financial condition of Europe, all the money comes thundering into the dollar and treasuries, but also at this point, German bonds.
I think that it’s obviously is not so much a healthy dollar. The dollar has been merely the recipient of this hot cash flow.
So I think the dollar index will go well up into the 90s. It’s trading around 80 now. 80 has been an important technical threshold. The Bollinger Bands and the Dollar Index tend to be psychologically big numbers.
Kerry: Uh hm. And this is in the process of happening now, I assume, probably because of what’s going on in Spain and Italy, right?
Rick: Well, yeah. The latest reports we had at the end of last week suggested that German… yields on sovereign debt from Spain were up in the 6% threshold. I would call 2% the catastrophic threshold. But of course, Europe has kind of worked its way around that.
But if you kind of look at your own portfolio or your own investment alternatives, you realize that it’s very, very hard these days to make money on your money. Most investors have to be content with the so-called safety of treasuries, 2% yield on 10-year now.
So if you look at all of the debt of a country and it’s been happening, it’s being subject to interest rates of 6%. That’s the kind of deflationary force that will eat a country up. It’s really why I don’t think the European countries can possibly grow their way back servicing debt at that rate.
Kerry: So I guess, does it have to lead to eventual repudiation of the debt, which really is largely what happened in Greece, except that the banks were made whole… compliments of all the European or Euro currency holders, right?
Rick: Right. And that’s the crux of the argument between inflation and deflation, whether the end game will be one where debt is repudiated, or one where… debt can either be liquidated or it can be discharged through inflation. Of course, the US government will never get to some point where they’re going to say, “We are defaulting on this debt.” So the mechanism of inflation is there.
I’ve questioned whether we can inflate in the same way that people think we can inflate. They usually think of the Weimar hyperinflation, which had a wage component to it. But we don’t really have the mechanism for that kind of inflation. Although in a kind of back and forth with the inflation is, I came around to seeing the logic of the hyperinflation that would follow the simple, very simple idea that the dollar is worthless.
And hyperinflation at that point doesn’t come because wages go up or because your home increases in value to a quadrillion dollars. It goes up simply because people realize that if they hold cash, it’s going to be worthless, and they begin to exchange it for things.
But there is a logistical problem there. Because we could have a calamitous collapse of the financial system that would make it impossible for you to get at that cash that you would presumably exchange for something of real value.
Kerry: You’re talking an almost existential event where you go to your ATM in the morning, and you stick the card in, and oops, “Due to technical difficulties, we cannot give you any cash, or we can only give you $100. Call this number for additional information.” Of course you call the number, and you can’t get through. So that’s kind of what you’re talking about, right?
Rick: Right. Exactly. I do think that day will come. I think the odds are very strong that we’ll have some sort of event that will necessitate closing the banks for more than just a few days. You can probably understand that if that day came, all of the plastic sources of money, credit cards, would not function. The credit card system really functions really on a basis of trust that exists, of the network that allows us to make charges. So I think the irony there would be, that actual cash dollars, ones, fives, tens, and twenties…
Kerry: Paper.
Rick: Would come to be the coin of the realm, because when you come right down to it, the gas station attendant is really not going to know what to do on day one, if you hand him a gold balloon or a silver coin. He’ll know about fives and tens. Of course, at the real level – when the rubber hits the road – there’s not much cash in circulation. So this dollar that has been an infinite supply by way of credit would be in very short supply in its physical form.
Kerry: I wanted to just tell you an anecdote. We haven’t spoken in about two months. We had a similar conversation last time we spoke.
What happens when the frickin’ ATM stops working? What will you do then? And we talked about currency, what little currency there is in circulation, will all of a sudden take on huge value.
I went to Citibank – I guess I could say that. They’ve been my bank for 30-something years, because they’ve always had the best ATMs. In New York, that’s a big deal. Or was a big deal, before you had PayPal and transfer money. But I go there, and I wanted to take out $3,000 in cash. I’ve done this many, many times in the past. You know, for various things. Somebody, a contractor wanted to be paid in cash… who am I to argue, especially if he’s going to give me a discount?
So I go there, I stick my card in, and it gives me $1,000, and says that’s all you can have. I’m like, I’ve been $2,000, $3,000 for years and years. Now all of a sudden, I can only take out $1,000? I call them up. They say, “Well, it’s fraud prevention. But we can temporarily lift your limit today.” And I’m like, it’s already started. Exactly what Rick and I were saying. It’s already started. They are pulling back on the reins.
That led me to realize that you need to have a certain component of paper money in your financial survival toolkit, because you know what, it could happen tomorrow. There could be cyber warfare. There could be just a huge thing that takes the grid down, the internet down, and then where are you going to be?
Like you said, the gas station owner, he isn’t going to know from a 1964 Kennedy half-dollar. To him, that’s worth 50 cents. That will buy you 1/10 of a gallon of gas, at the rate we’re heading. So there’s a lot of wisdom in what you’re saying, in that initially, whenever this thing shakes out, if it does. It might never happen, but you have to live your life like it’s not going to happen, but prepare as if it did. But if it does happen, boy, there’s going to be pandemonium.
Rick: Very true. I mean, you have to be prepared for the worst. But I think you also have to think it through as best you can logistically.
A lot of my subscribers are a little bit abstracted on the idea of collecting, hoarding gold. The ideal situation in many gold hoarders’ minds is that they’re somehow going to be able to exchange gold for I guess, farmland would be the top of my pyramid. It seems to me that it’s not going to be very easy to get out of gold at the top, and put it in some form, if not gold, that a farmer will accept as payment for land.
Kerry: Yeah. Yeah. I mean, there are logistical problems here. But I think there’s going to have to be a new monetary system instituted. Maybe it’ll hit there before the ATM shutdown, that will be tied to gold, that will at least proclaim to be tied to gold, to restore confidence. Because really, the monetary system dies when confidence is lost. That’s really what we’re talking about. But that’s just going to have to shake out in the months ahead.
But what’s your feeling about the dollar going up to perhaps 90? What effect is that going to have on the gold and silver prices?
Rick: Well, it’s definitely going to put gold and silver under pressure. You can see that now. Every time the money comes out of risk, we’ve got gold moving very much in sympathy with stocks.
I’m a little concerned, really, because gold is, today, a little weaker than stocks. Even the S&P’s. The S&P 500 has come back a little bit. But gold hasn’t come back quite as well. But it’s… commodity complex is under pressure. And it’s really a function of this reflexive move of money out of… into dollars and treasuries and things that are perceived as “safe.”
Kerry: Right.
Rick: And also, we’ve been sort of nibbling at some of the gold mining vehicles – GDXJ, for one. That’s an index that tracks junior miners. GDX is one that tracks the larger mining companies.
It’s been… you talked earlier about working at staying in the market. But we’ve worked pretty hard to keep a position in GDXJ. I’m wary enough about one more leg down in gold, or maybe two legs even, that I watched some of these things that we held were pretty tight stocks.
So I’d rather keep getting in and out, than to ride it down with that idea that these are quality stocks and they’ll eventually come back.
Kerry: What about platinum and copper? Those have been pretty volatile lately. We’ve seen copper go below the price of gold. Then it went back above it for a little while. Now it’s below again. What’s the pivot point for those metals?
Rick: Well, copper has been coming down a little harder even than gold and silver. Of course, there’s more of that, the economic situation, including Europe slipping into a recession, and the US obviously very vulnerable to statistical recession.
I consider us as having been in the Great Recession for years. I think most people would look around them, there’s sort of a disconnect. You see in the newspapers that we’re in this fragile recovery, or sometimes it’s not so fragile. Sometimes, at the Feds’ convenience, it will become a robust enough recovery, that they’re worried about inflation. They’ll alter money policy accordingly.
But in any case, copper is connected up to the real world of industrial production. Obviously, China is a huge consumer. And China’s experiencing a slowdown, too. So copper’s very vulnerable.
Platinum is hooked more to the auto industry more than anything else, in terms of the real use of the metal. It’s obviously participated in the rising fortunes of the automakers. But to the extent that auto sales may have had their little flurry, I would say platinum is vulnerable for some of the same reasons that copper is.
Kerry: Right. Copper is really interesting. They call it Dr. Copper. It really gives you that insight into the true economy.
I totally agree with you. I don’t believe we’ve ever come out of this recession. I think it’s propaganda. A lot of trying to control people’s perceptions, their perspective, because there are people that believe that perception is everything. And if you can make people believe that everything is good, then they’ll spend… inflation, assets will get inflated again, and everything is going to be fine.
But in point of fact, like you said, there is a real economy where things really get produced and consumed, and that real economy in the US, with double digit unemployment way, way higher than the official numbers, labor force participation rate so depressed at 58.5% – which is a record low – that you know that we never really came out of this thing, right?
Rick: Yeah, that’s right. I think the actual unemployment number with people factored in who gave up looking for a job, is over 11%. Of course, you may know, John Williams puts out figures that suggest the real number’s close to 20%.
Also, it’s not even people who’ve dropped out that make it so easy for the Fed to jiggle the numbers. It’s also, if you’re unemployed, but you get any kind of work at all – even part-time – you’re no longer unemployed. So in that sense, there’s an underemployment component there…
Kerry: Huge.
Rick: That’s not explicitly stated, but it’s obviously very important to the US economy.
But I think, probably the most obvious place where people can see that things are not exactly the way the government would have us believe they are, is just in the retail landscape.
Whatever the banks are doing, maybe their stocks are doing fine, even though they got hit a bit last week on mild disappointment. But if you look around, if this country is really two-thirds retail… I’ve heard the figure that 70% of our GDP is attributable to sales, to retail.
If you look around at the strip malls and the bigger and bigger box stores that are closing, leaving bigger and bigger spaces, you understand that this key area of the economy is really very sick, and there’s enough retail space out there to create an overhang of real estate for the next 50 years.
Kerry: Oh yeah. It’s quite obvious. Like you said, underemployment. You have engineers flipping burgers at McDonald’s. So don’t try to tell that guy that he’s fully employed and he’s a fully participating member of the labor force, because he’s not able to find the job that he can be the most productive in. I see that all over the place. People just take jobs because they’ve got to eat.
Of course, the government never takes those statistics, takes that into account. But it’s a huge number. There’s no question about it.
So finally, we’re in this economic crisis, your opinion, my opinion, it hasn’t really improved, only the illusion and the short-term statistics. You think we’re safe for the next couple of months or are we entering a new phase of it?
Rick: Interesting question. I think it’s undeniable that we’ve had an uptick in manufacturing. Companies like Boeing and Caterpillar are… Caterpillar is going like crazy. There was just a good story in the Wall Street Journal the other day, about Caterpillar going up against GM in the construction of locomotives. So there is an uptick in manufacturing.
But if you compare the size of our manufacturing economy to the economy that created the false prosperity that preceded the banking collapse of 2008, if you compare manufacturing to the paper economy, the financial economy, we can have as much strength as you can imagine in manufacturing, and it wouldn’t begin to compensate for all of the, I’m going to call it imagined wealth, that came with the paper shuffling economy.
Kerry: Yeah. Along with that fake paper economy, is the college, academic, educational establishment. That looks like it’s headed for a crash, big time. That’s something that produces all of these people that manipulate these statistics and that go into the financial sector. That portion’s been pretty steady, along with medicine, healthcare, but it looks like it’s in for a major crash. We’ll see about what people are saying at that point, when that one crashes.
Rick: Well, I’ve referred to government, healthcare, and college education tuition as the three intractable engines of inflation. Of course, the government’s piece of that is shrinking, because at a local level, there have been a lot of cutbacks. You really have an outright deflation in state and local government.
On the healthcare side, who knows? We’ve passed the point where the average middle class guy – especially the self-employed one – can afford healthcare. So it’s sort of priced itself out of reach. It should be interesting to see how things evolve when Obamacare goes down in flames, which it will. But the education part of it, the whole idea that parents would beg, borrow or steal to put their kids through college, I think we’re in transition there in a big way, in the way that people view colleges. For one, it’s becoming clearer and clearer that most college students, other than the ones that are not in the hard sciences, are coming out of college without even a chance of making what a good plumber or heating and air guys are going to make.
Kerry: Auto mechanic.
Rick: Well, I’m not sure about auto mechanic. That’s kind of a different business. I know Porsche mechanics who make $25 an hour, even with the dealer billing out $150. It’s mainly because the diagnostic equipment needed to keep on top of the trade have priced themselves out of the reach of the independent shop.
But as far as borrowing, begging or stealing to put your kid through college, one of the ways we borrowed was against the equity in our homes. That’s no longer there. So I think push has come to shove for the colleges.
My prediction – this is something I’ve written about – was that colleges will become more and more… they’re going to sell themselves online, and they’ll sort themselves out as to price. It may cost you $20,000 or $30,000 to get yourself an online degree from Harvard or Yale. It would cost a lot less, let’s say, to go to a state college. But I think they’re going to compete online for at-home, stay-at-home students.
Kerry: For market share. And wouldn’t it be interesting when there really aren’t any criteria, admission criteria. It’s strictly going to be whether or not you can afford to pay. And that’s going to determine whether you get admitted to Harvard or to… like in New York now, in New York State. Every state school in online, both community colleges and the higher education classes, all online now. You can do your whole education online. That’s the trend. There’s no question about it.
So that part of the economy and this lifetime guarantee college jobs, and the brick-and-mortar, just like everything else the internet has touched, higher ed. Even the primary and grade school, all going to be dramatically reformed and deconstructed by the force of the internet.
Rick: Uh huh. I think that a positive trend in schooling is that it’s possible to take one really good instructor and make his skills available to thousands and thousands of students.
Bill Gates has thrown quite a bit of money at the problem of schools, how do we make better schools. It’s funny. After tens and tens of millions of dollars spent in research, it was finally decided that it’s a combination of things. It’s very difficult to simply… to create simply by throwing money at the problem.
Kerry: Oh yeah, we’ve proven that. We’ve proven that over the past 30 years.
Rick: But it comes down to the serendipity of that good instructor, the good teacher who can really make a difference. Of course, we can get his lectures out there so that students all over the country could hear it. Over the… you think the gun lobby is tough, you try to get that way of teaching through the teachers’ union.
It’s going to be difficult. But I think that because the parents will be on board, they’ll recognize the value in it, it’s going to happen.
Kerry: No question. Just as a further point to that. I’m a big audio book guy, because I drive so much. I was like, I should take some courses online. I found this series called the Modern Scholar series. So the first course I took was on World War I. There’s a guy at Oxford University who probably knows more about World War I than any ten professors from any other school. This was about a 12-hour course. And I said, World War I is important. I never really figured out why it happened. I never quite understood who really won or who lost, and what the repercussions were. So I took this guy’s course.
I had my option. I could have downloaded the final exam. But I didn’t really want to humiliate myself. So I just said, well, I’ve learned enough. But he was the top guy in the world. I listened to his lectures and I learned so much. Then I started doing some other courses, and that’s available to everybody on the planet now.
Once the educational aristocracy, once their monopoly is broken, then it’s, forget it. Katy, bar the door! Because nobody is going to buy into failing schools – at any level of education – when a successful educational model is just a mouse click away.
Rick: Yeah, I think the whole home schooling model has changed so much, that it has become more than a theoretical possibility for the parent to do it in a way that really benefits the child. I think it’s going to happen over time, but again, it will be over the kicking, screaming bodies of the teachers union stalwarts.
Kerry: It will. You’ve made a great point, that it’s going to happen over time.
I’m writing an article – I’m going to release it shortly – called “The Golden Age of Municipal Bankruptcy.” What it’s going to enable towns and cities to do, is when they go bankrupt – and they will do it, because they want to get rid of those bonds, and they want to get rid of the union contracts – they will effectively be able to disband their school systems and just pass out vouchers to everybody in town.
There are a couple of test cases that have to be put through the courts now. But it’s pretty firmly established that a bankruptcy judge’s decisions and orders trump local law. They trump state law. Now it’s just a question of – do they trump state constitutions?
Once that comes through, and I believe that it will, because we’re all in this whole federal power grab, and the courts just automatically defer to the federal courts on the relationship. Once that happens, forget it. You’re going to have towns going bankrupt, just to reform this stuff, because the unions won’t allow it. And it’s going to be a whole trend that nobody sees coming. But it’s going to be big.
Rick: Have you followed the situation in Flint, Michigan?
Kerry: I followed Flint a little bit. I haven’t heard the latest developments.
Rick: Well, it’s interesting. I think as Flint goes, so goes the bankruptcy nation. Flint had a thriving auto industry at one point.
Kerry: Sure.
Rick: But the whole town is going down in flames, almost literally. Flint was essentially put in the hands of a conservator…
Kerry: Right.
Rick: Whose powers were absolute. There wasn’t really… whatever he said was law. The unions were operating with the realization that the money just wasn’t there.
But to give you some idea of the numbers that are driving Flint’s situation – and which may come to bear in many other cities – at a fiscal level, they’re dealing with a structural deficit of about, I think it’s $14 million a year.
You can probably understand that in a relatively small or shrunken town like Flint, it takes a lot to wring $14 million of savings from the annual budget. But the larger problem which arises out of promises to Flint workers over the years, their retirement benefits and healthcare, comes to, it’s more like $700 million.
So it’s kind of an oddity. They’re chipping away at something that has dollar consequences right now of $14 million a year. But the long-term problem there aggregates to close to a billion dollars, which obviously Flint will never have. But it’s also, Flint is being closely watched by all of Michigan, because it will probably be the model that serves to deal with Detroit’s similar – but much larger – fiscal problems.
Kerry: Yup. So their failed cities, failed towns, and the relationship to the unions, and the promises that are made, is just burying everybody. But that is going to come to an end, because the system is broken. It can’t be fixed.
Finally, Rick, if people want to find out more about you, the Hidden Pivot System, where should they go?
Rick: rickackerman.com is the place. If you go to Rick’s Picks… I come up I think number two in a Google search, just behind a New York pickle and relish vendor.
I give a webinar about every five or so weeks that teaches the Hidden Pivot Method, most particularly a camouflage method of trading that allows you to get in and out of things with relatively little risk. So this is something that anyone can learn, a housewife, an English major, a gardener.
I invite anyone to take a free seven-day trial to Rick’s Picks just by going to rickackerman.com and clicking on the trial subscription link. You’ll be able to come into the chat room and ask traders themselves, ask my subscribers how they’ve done with the Hidden Pivot Method.
Kerry: Just as a note of reminder. The last time we talked, you called the dollar, I mean it was in the, I think the low 70s. You called it, you nailed it. I expect that when you say getting close to 90, I think it’s highly likely that that’s going to occur. I’d willingly bet money on that one.
Anyway Rick, thanks again for being on. We will talk to you again in another six, eight weeks, and see where the dollar is heading then.
Rick: Thank you, Kerry. It’s been a pleasure.
Kerry: Likewise.