Will the Next Market Meltdown Be a Flash Crash?

Greg Hunter: Hello. I’m Greg Hunter. Thank you for joining us today on USAWatchdog.com. The guest — a bit of a contrarian — is Rick Ackerman. He hails from the website Rick’s Picks. He’s a professional trader. Rick Ackerman, thank you for joining us here on USAWatchdog.com.

Rick Ackerman: Thanks for inviting me, Greg.

Greg: Rick, you’re a bit of a contrarian, as I was saying. You think the dollar could get pretty strong right in here. Tell us about your trades and why you think that way.

Rick: I like to think of myself as being on the respectable edge of the lunatic fringe. As far as the dollar is concerned, I’ve been pretty bullish for a while, with a Dollar Index target in the mid 90s. We’re down in the low 80s now, so my projection allows for quite a rally. But I’m not fundamentally bullish on the dollar — it is ultimately garbage, since every dollar is backed by debt, not metal. For now, though, the world’s hot money is clamoring for the supposed safety of the dollar. It certainly seems safer than European paper at this point. So the dollar is enjoying its status as the trader’s currency of choice.

Greg: It looks like it’s going to be some sort of, other people probably feel the same way. But where do you go if you have a meltdown? You’re saying they’re going to run into the dollar.

Rick: Exactly. The thinking is that if the financial system is hit with a real crisis, the euro is going to collapse before the dollar does. Although I tend to agree with that, I think that the time differential between the two collapses could be very short. Once the euro goes down, all who sought safety in dollars are going to discover that the whole shaky system is hard-wired together. Underthe circumstances, the dollar’s collapse could conceivably follow the euro’s by minutes or hours, not weeks, months or years.

Greg: So then, it doesn’t sound like you’re wildly bearish on gold or wildly bullish on gold. What do you think about gold?

Rick: It’s been in a prolonged corrective phase, Greg. I’m a little puzzled as to why it’s not trading higher, since there’s a lot of physical buying of gold. China has given the go-ahead to its citizens to buy gold, and tonnes of it are being imported into places like India and China, and Russia as well. But there’s also a lot of paper gold sitting on the real stuff, and the paper markets, such as Comex futures, dominate.  As you know, bullion bankers make their money by borrowing gold for little or nothing from the government.

Greg: Do you hold gold here?

Rick: Yes, and I’m glad I have.  You see, it’s very easy to jump in and out of stocks, but that’s not always a good thing. Gold, silver and platinum coins that I’ve accumulated just sit there. They’re nice to look at, and you tend keep them around.

Greg: Is that your form of… I always tell this to people, say if they want to hold gold, and I’m not a big trader.

Greg: I don’t give trading advice, but I’ve always told investors that they should hold gold as a core investment. It’s like an insurance policy that doesn’t expire. Would you agree with holding physical gold in that kind of a mindset?

Rick: Absolutely, although I don’t see any great likelihood of gold soaring into the stratosphere. In the wake of a financial collapse, the whole world would be flat broke. It’s difficult for me to imagine people exchanging thousands of dollars for Krugerrands, Maple Leafs and such. But I do think that no matter what happens – whether we have inflation, hyperinflation or deflation – that gold will hold its purchasing power relative to any other type of investable asset.

Greg: You know Rick, there are some folks out there that say cash is going to work really good for about three to six months, if we have a bank holiday or if we have a flash crash or some kind of calamity. What are your thoughts on that?

Rick: A very interesting question if you play it forward. In a severe financial crisis, the banks might not open one Monday morning. At that point, currency-in-hand would be the coin of the realm. The collapse would completely destroy the clearing network that makes “plastic” so easy to use.  It seems highly doubtful that credit cards would work. But ones, fives, tens, and twenties would. That would be the kind of money the grocer and the gas station attendant would understand.  But gold and silver — particularly the junk silver that would be so useful — would take a while to find their way into the system and realize their true value. Initially, though, if you try to pay for gas with a roll of pre-1964 quarters, they would tell you it’s worth face value, ten bucks. And you would reply that, no, the silver is worth more than the tank of gas. You’d have to settle on their terms at first, but over time gold and silver would find their true value in trade.

Greg: Do you think that this, if things, if we have a blow up in Syria? There are big forces lining up. Russia is sending ships. They’ve got marines off the coast. They’ve already sent the attack helicopters, according to published reports. The U.S. is, by all accounts, helping the rebels not only with just humanitarian aid, but with arms. This is a real flashpoint. If we have some sort of war in the Middle East — whether it be Syria or Iran or Israel attacking Iran or Iran attacking Israel or some kind of a mistake in the Mediterranean with the U.S. and Russia — what happens to the world economy, if there is a war in the Middle East? Oil supplies are constricted in the Strait of Hormuz or shut down. What’s your scenario there? You’ve got to plan for something like that.

Rick: We permabears have been wondering for a lot of years what form the black swan that brings the system town would take. A conflagration in the Middle East hardly seems unlikely. It has seemed inevitable for some time that there would be a flare up in the region. Israel has made clear that it won’t tolerate a nuclear Iran, and I think it’s more than mere brinksmanship on their part. But it would be impossible for Israel to attack Iran militarily without the United States being held complicitous.  But anything could happen. It could take nothing more than a shoulder-fired missile sinking a tanker in the Strait of Hormuz to instantly double the price of oil. In any case, an event like that, or all-out war, is obviously possible at any time.

Greg: You’re saying if we have a war in the Middle East, that you’re betting that the system would likely collapse?

Rick: It would certainly be a severe shock to a system that is already extremely fragile and presumably primed to fall.

Greg: Handicap a kind of a collapse scenario for us. Do you see that? Ray Dalio at Bridgewater was talking… beginning of this year, he thought that things would collapse at the end of ‘12 or the beginning of ‘13, basically. Other people are seeing collapse maybe possibly before the election, that we’ll be getting into a real sticky wicket with the economy from a various sundry of problems, from Europe to labor to cities going under, liquidity crisis. There is a variety of things that could cause it, who knows. What’s your handicap? Can we have a collapse before now and the end of the year or early ‘13?

Rick: I think it’s impossible to say when it’s going to happen, because nobody really knows what will precipitate the collapse. It’s probably nothing we’re even speculating on. But it seems all but certain that when it happens, it will unfold in the way that the Flash Crash did on Wall Street in May of 2010. Everything is hard-wired together, you know. For the moment, we continue to pretend that U.S. banks are somehow detached from Europe’s problems. As a supposed precaution, our commercial banks are no longer even lending to their European counterparts. But in the end, they are all tied together. Given the huge number of things that could unleash some sort of financial dreadnought, it could conceivably happen this afternoon.We really don’t know. As to those who would predict that it’s going to happen at the end of 2012 or 2013, that’s just blather. If you were to ask them for specific reasons, they couldn’t say.

Greg: What does the little guy need to do to be as ready as he can be?

Rick: They should keep some ones, fives, tens, and twenties in a shoebox; perhaps 20% to 30% of their liquid assets in physical gold and silver, particularly junk, not collectible coins. And have a vegetable garden in the back yard.

Greg: You think there is a good probability we can have a collapse? You know, now and a year or two years from now, whatever. From now to the next few years?

Rick: I’ve felt for some time that it was inevitable, although anyone who’s thought likewise is probably astounded by how long They – I use a capital ‘T’ here– have kept the game going. Credit easing on a global scale has done it. BUt as we  are seeing, it’s not really having much effect on, for one, high unemployment. The easy credit is going mostly unused, mainly because demand from borrowers is practically nil. In fact, households have been retiring debt like crazy. In Keynesian fashion, the government has been trying to make up for that. But you can see we’re not really getting much bang for the buck.

Greg: Rick Ackerman of rickackerman.com. Also known as Rick’s Picks. So Rick, thank you for being on USAWatchdog.com.

Rick: Thanks for inviting me, Greg.