Rick appeared on The Financial Survival Network the other day where he and Kerry Lutz discussed some of the places where Rick believes investment opportunities can be found in today’s market. The audio for the 25-minute interview can be found here. A transcript of the interview is reproduced below.
Kerry Lutz: We’ve been in full-scale overdrive this week, interviewing as many knowledgeable people as we can to try to get an idea of whether the markets have bottomed or whether they’re heading higher. Finally, we got hold of Rick Ackerman of rickackerman.com. Using his Hidden Pivot Method, he’s uncannily on the money. I’ve been watching him now for years. He’s been right way more — way, way more — than he’s been wrong.
Rick, how are you?
Rick Ackerman: Good, Kerry. I’m good. A little far from home at the moment, but thanks for inviting me on.
Kerry: Hey well, we’ve got to get you guys when you can. Let’s face it: August is vacation season. Everybody but me is away right now. So hey, I hope you’re having a good vacation. That’s why the markets are kind of showing their true colors now, aren’t they?
Rick: Whenever I go away, all hell usually breaks loose. This time, though, it’s more like purgatory. There’s not too much happening in the markets. From my perspective, subscriber interest is way down. No one’s paying attention, and that’s when surprises happen.
Kerry: Exactly. And you get a true indication of the trend. You’re away, and I don’t know if you’ve been watching the gold price action today. But it took a $7-$8 hit this morning when I woke up. I said, “Ah, the boys are at it again.” Now I’m looking at it, it’s up $470. It looks like it’s going to be one of those sawtooth days: up-down, up-down. But it looks to me, and I’m not the technical guy, but it looks to me like a bottom. If it isn’t in, it’s very close to being in. Am I correct?
Rick: I don’t see that at all. I see a lot of weight on gold since May, when this decline began in earnest. I’m willing to buy a turnaround in gold, but I have to see certain things technically, basis the September COMEX contract. I’d like to see it pop up to $1687 before I turn bullish. Otherwise, there are larger down patterns that could take gold as low as $1300 to $1400.
Kerry: How likely do you think that is though, in light of the macroeconomic background, what’s going on in Europe, with the euro? The euro looked like it was about to start making new highs, and now it got slammed. It’s back under 123. Are the cycles that strong against gold that it could push it back further down?
Rick: On one side, there’s the theory and the news, Kerry. In gold, the idea is that a global monetary blowout is bullish for gold. But the reality — and this is regardless of whatever vibes are coming from Draghi and the European Central Bank — is that the deflationary pressures from Europe are overwhelming. The austerity regimen means, simply, that there is less money to spend publicly and privately. At this point, Europe is in a liquidity trap with no way out. Draghi can talk about inflating, but it’s going to be even more difficult for Europe than it has been for the U.S. to monetize, simply because they are flat broke and their economy is dying. Even Germany is barely staying afloat, because its customers are all sinking. As for monetization, they might be able to create a pop in financial assets, but no real movement in the economy — certainly not enough inflation to push gold up, even though a hyperinflation may arrive at some point.
Kerry: We’ve talked about this before where the world financial system is really a house of cards, and every day, it becomes more and more obvious. Just the amount of energy we talked about — these complex systems and their decay, the amount of energy needed to sustain the system — it’s like that Star Trek episode where this thing was eating up universes, would just suck the life out of the universe and chew it up and then spit it out. That’s what the financial system looks like it’s doing to the real economy. You know?
Rick: There are arguments about inflation versus deflation, or hyperinflation versus deflation. Some of them are rooted in the simplistic idea that inflation is an increase in the money supply, deflation a decrease. But in order to recognize deflation for what it is, and to sense its power, you should think of deflation as an increase in the real burden of debt. Technically, that’s a symptom of deflation. But as long as you stay focused on that aspect of it, you’ll understand deflation. Europe is most definitely in a deflationary vise. Deepening recession has made it impossible for Europe to grow out of its debt problems. One thing I’d like to mention is that, even though I sometimes sound like a “sky-is-falling” kind of guy, my technical stock forecast right now is pretty bullish. In fact, I’ve projected a Dow blowoff to above 14,000.
Kerry: Yeah, it’s really interesting that the financial economy can be so divorced from the real economy. I don’t know why that would surprise me. I don’t know why I should be surprised, because it’s what we’ve seen over the past three decades, where the real economy has taken a backseat to the financial economy. There really is nothing that’s changed that, nothing that’s happened, until the financial economy really gets rationalized, all this debt gets written off, and then we kind of go back to the basics, right?
Rick: Think of it this way: There has been a stimulus globally of trillions and trillions of dollars. Since corporate borrowing demand is soft, and because households are no longer borrowers – they’re savers – mortgage borrowing has slumped. Even with 3% rates now, mortgage borrowing is barely starting to revive. So think of all those trillions of dollars out there with no economic purpose. They have to go somewhere. Many get “recycled” by institutional buyers of Treasury paper, creating a closed loop where Treasury gets funded and dealers make risk-free money on the spread. But even if just a trickle of those trillions find their way into stocks, it can easily trigger off rallies of 200 or 300 points routinely. So it’s a question of all that surplus funny money having nowhere else to go.
Kerry: Yeah, they’re really liquidity-driven markets, because where else do you put the money? You can’t get any return in any of the traditional savings vehicles. I guess you can join the repo market and you could be loaning Fed funds and make 25 basis points. Or you start just sinking it into assets, especially if they pay any kind of dividend that looks secure. You put it there and you look like you’re a genius, because you’re getting a 2% return in a market where negative returns seem to be the return du jour.
Rick: That’s the flip side of “stimulus.” You reduce interest rates to the point where people are coaxed out of safety and into increasingly risky investments. You can’t just sit on money. Even the big players are earning negative interest these days, though. They’re paying the central banks to park money overnight. That pushes money into riskier investments, and we all know it won’t end well.
Kerry: Yeah, the only thing I would tell people – and this is for Joe Six-Pack who isn’t in the markets – is if you’ve got a business or you have the ability to go into a business where you can make at least what you would get paid in the private sector… and God knows right now, there’s a lot of people who can’t get jobs. They won’t get paid anything. Right? Sometimes, the best investment is to invest in your own business. That’s where I’ve gotten the biggest returns of any investments I’ve ever made.
Rick: I agree. People I know who are sitting on cash ask, “What do I do with it?” The best advice I could give them is to stick with what they know. And if you’ve got a business of your own, what do you know better than that?
Kerry: Yeah. Also Rick, you’re a big internet online business. Effectively, that’s where your business has evolved to. That means need for fewer employees. You get to project an image all over the world, because that’s what I do. I mean, we’ve got people, Rick, all over the world — places I’d never even heard of — who are listening to the show. I’m not bragging, although I’d like to. But I’m not really bragging. The point is that the internet business model is so powerful and it’s so cheap to get into it, and if you have a passion, if you have a skill, that – Charles Hugh Smith, we talked about this — this is where you need to be focusing your investment dollars, and you don’t have to invest a lot. Once it starts going, boy, money can just roll in as you’re sleeping. Is there anything better than that, Rick, when you wake up in the morning and you see 50 people subscribed to the Hidden Pivot System? Is there anything better than that?
Rick: Actually, I’m not growing my business now — this summer has been the pits. Summer’s have always been slow, but this one is even worse because the markets have been screwing the pooch since May. Even so, I’m laying the foundation for a new web-based business with my trading partners. We think it’ll compete nicely against eBay. I’m also expanding Rick’s Picks with some extra marketing and the imminent launch of some new products. Anyway, you’ve got to stick with what you know.
Kerry: Yeah, and especially now. You can go into another business, but — and I’m a serial entrepreneur; we never really talked about it — but I can’t even tell you how many businesses I’ve started. A lot of them have failed. The good thing is, with the exception of one failure, I’ve really never lost any significant money in the failures. They’ve been really learning experiences. It’s like Edison said. They said, “You used over 1,000 different materials in trying to find the right one for the filament for the light bulb. Wasn’t it frustrating?” And he said, “No, because every time I failed, I knew I was getting one step closer to finding what would work.” The companies I’ve done best on are ones that I knew about and that I put in generally not a lot of money. Overcapitalizing a new business is as bad as undercapitalizing one, because when you have too much money, you’re not as sharp and smart as you need to be. I’ve been at this thing now for a year and a half, and I’m not telling you I’m ready to retire on it, but I’ve had more fun talking with guys like you, the David Morgans of the world and so many others. It’s a passion. So really, yeah, should you have some money, if you’ve got surplus funds in the market, use a very disciplined approach like you do Rick. But if you’re sitting at home and you’ve got nothing to do, now’s the time to start your own business and really, really get going.
Rick: There are always opportunities, Kerry. Even during the Great Depression, people launched businesses that did well. On Van Ness Avenue in San Francisco, there’s a collection of phenomenal Depression-era luxury cars that could only have been owned by the super-rich. Even then, people were creating businesses and starting fortunes. Incidentally, regarding your statement that it’s dangerous to be overcapitalized, there’s a very interesting feature in a recent issued of Wired concerning how some people put out ideas on the web for crowd-funding.
Kerry: Right. Sure.
Rick: Turns out a few of them drew such a huge response that they became over funded. You’d be surprised at what a curse this can be. [Laughter.]
Kerry: Yeah. That really is, because in so many things, if you don’t have the money, you do it yourself, and you know it gets done right. When you have the money, you just say, “Oh, I’ll let somebody else handle that.” It really dulls your game. As far as investing goes, and as far as where you put whatever is left of your wealth, right now, where do you think the best opportunities are, both for return on capital and return of capital?
Rick: I think you need a mix of assets — a portfolio with, for one, bonds issued by companies that you know will be in business five or ten years from now. IBM, for instance. They’ve got service contracts all over the world. Another, Safeway, is a purveyor of food and other necessities. Not that their bonds have been overlooked. Procter & Gamble is another firm that will always have things to sell that everyone uses. But they are also finding it difficult to grow themselves into new markets around the world. In any case, I like the bonds of companies that we can all understand. Also, and obviously, you want to keep perhaps 15% to 30% of your money in physical gold and silver. Although I’ve traded in and out of mining stocks, all of the gold, silver, and platinum coins that I’ve accumulated over the years are still there. It’s a very constructive kind of hoarding that you tend to do when you possess physical metal. But as for stocks, you should jump on companies that seem to be doing everything right. Canon, for example, supports its printers so well that I would always buy or recommend a Canon printer. Their help desk answers the phone — an actual human on the other end — and so you know they’re doing something right. So buy stock in Canon. You have to trust your own instincts. If someone is out there doing strong business the right way, then why not invest in them?
Kerry: That’s kind of the Peter Lynch, “One Up On Wall Street” thing. The beauty there is when you buy these stocks, you don’t have to compete with the traders. You buy for the long haul, because you’re convinced that you’re buying a piece of a business, not a piece of paper, a stock certificate — digital stock certificate now — but actually a piece of a company that produces something of value and that executes a plan and really connects with their customers and turns a profit consistently and the kind of thing where people seek them out, because their reputation is so strong. I’ve had exactly the same experience with Canon — with their cameras and with other products that they sell — that you’re describing with their printers. That’s just a good example. I’m not recommending Canon to purchase. I don’t know anything about the stock. But I do know, as a consumer and having purchased a number of Canon products over the years, that I’ve had nothing but good things in my dealings with them. On that note, Rick, we’ve got to get going. To find out more about you and Hidden Pivot, where should we go?
Rick: rickackerman.com. If you Google Rick’s Picks — which is the name of my service — I come up, believe it or not, number two behind a pickle and relish vendor in New York called Rick’s Picks. You can find me either way. Rick Ackerman, just Google that, or rickackerman.com. I put out a fresh commentary several times a week, and also three to five actionable trading ideas each day. We’ve got a chat room that goes round-the-clock, drawing traders from all over the world. Some of these guys are really good. You can get a free seven-day trial to the newsletter just by going to rickackerman.com and clicking on the free trial link.
Kerry: Hey, that sounds great. I’m going to go to Rick’s Pickles in New York one of these days. I’m going to pick up a bottle of pickles when I come out to finally meet you in Denver. I’m going to bring a bottle of them with me, okay?
Rick: [Laughter] Thanks. Rick’s Picks pickles has been the bane of my Google searchability.
Kerry: So if you’re looking for pickles, you don’t want to go to Rick’s Picks. But if you’re looking for the Hidden Pivot System, go to Rick’s Picks [laughter]. All right, Rick. It’s been a pleasure. Enjoy the rest of your vacation. I have a feeling that come Labor Day, these markets are going to be heating up and are going to be scorching. But that remains to be seen. All right.
Rick: Interesting times, for sure. Take care there, Kerry. Thanks for having me on.
Kerry: Always a pleasure.