Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis

[MachineGhost]

Doom porner Jim Rickards has a new book coming out (as in the subject) and below is some noteworthy parts from a recent interview. Even though he doesn't understand operational reality, he may still have high level connections "behind the curtain" so he may still be worth listening to (one thing is for sure, he can't trade worth a damn):

Jim Rickards: Another development that very few people are aware of is that money market funds used to be treated as the equivalent of cash. They changed that law. Literally, it goes into effect this week. But it’s the result of a company regulatory process. Now, money market funds can suspend redemptions exactly like hedge funds, so people think they’ve got money in the money market fund: that they can just call their broker, sell their units and the money will be in their bank account tomorrow. No. In the next crisis, those money market funds are going to suspend redemptions. Now, they’ll say, “Well, we’re not stealing your money. It’s only temporary. Give us a few days to sort things out. We’ll get back to you.” But the shock is that you will not be able to get your money.

They can reprogram ATMs so you only get $300 a day for gas and groceries. They can shut the banks. By the way, all these things have happened before. I also document this in the book. How many people know that from July to November, 1914, the New York Stock Exchange was shut down? In 1933, every bank in the country was closed by executive order, and all these laws are still on the books. So the difference between the next crisis and the last two is that, the last time, they printed the money. The next time, they’re going to say, “Sorry. You can’t get your money.” And we go on in the book to say, well, what are the things that you can do today to prepare for that to preserve your wealth?

...

Marc Lichtenfeld: Yes, let’s focus on what people can do about it. How should people protect themselves from the next crisis?

Jim Rickards: Well, there’s a couple things everyone can do. I do feel that money in the bank – your money in the bank – is not money. It’s an unsecured liability: an IOU. People think they have money, but they don’t. Up to $250,000.00: That’s the insured amount. So I don’t want to alarm people. If you have $50,000 in cash in the bank and it’s FDIC insured, they’ll find a way to make that good. I’m not nearly as confident in money market funds and uninsured deposits. I think those are very much at risk. But up to $250,000, you’re okay. It’s good to have some physical cash. It’s hard to get, believe it or not, without being reported to the government. They’ll treat you like a drug dealer or terrorist; but for legitimacy, you’re entitled to some. So it’s good to have $10,000 to $20,000. It’s almost like having a flashlight and batteries. You know, I live in an area where we’re prone to get hurricanes, and we keep water and flashlight and batteries just in case.

...

Marc Lichtenfeld: One of the things I’ve read that you’ve said about gold is not to store it in a bank vault, correct?

Jim Rickards: Correct. Because if the banks are closed, what good will it do? In other words, you put your gold in a safe deposit box in a bank and then, in a panic, they close the banks. By the way, this is a good example of what I call conditional correlation, meaning, normally, you can walk into the bank anytime you want and get whatever’s in your safe deposit box. But there’s a correlation between the time you want your gold the most and the time the banks are closed.

Those two are the same thing. It’s going to be in a full-blown financial panic when they close the banks. That’s when you’re going to want your gold. So don’t put it in the bank, because you won’t be able to get it when you need it. There’s a lot of safe, non-bank storage around. There are reputable secure logistic firms: Brink’s, Loomis, Dunbar. There are also firms. Just make sure that they’re reputable: that they’ve been around, have insurance and references. You know, do your homework. But that’s a good way to store gold.

...

Marc Lichtenfeld: And you talked about how it could affect the markets. How about their policies as far as these crises you’re predicting?

Jim Rickards: Well, Hillary’s very predictable. She’s a member of this elite that I describe in the book. You know, they get together at Davos and the Aspen Ideas Festival and the Milken Institute and the IMF meeting, and they all hang out with each other. They all know each other. They make deals and private dinner parties on the sidelines of these big G20 conferences. There’s a BRICs conference going on in India right now as we’re speaking. So she’s a member of the club. By the way, all this business about Republican, Democrat, liberal, conservative? It’s all for show at the elite level. I’m not saying that’s true at the local level, but I’m just saying that it’s just a rotating elite, so it’s not really Democrat versus Republican or liberal versus conservative. It’s the elites versus everybody else.

That’s the way to understand it, and Hillary’s one of them. So I’ve got a pretty good read on her. Trump is more of a wildcard. Now, he’s certainly elite in the sense that he’s a billionaire and he lives in Palm Beach and flies around in a private jet. But he’s not really a member of the club. He doesn’t have a whole lot of friends. He seems to spend most of his time with his family and fairly close circle. He doesn’t hang out in all these places that I just described, and that’s one of the reasons they hate him so much because he’s like the guy that shows up at the club in cutoffs and flip-flops when you’re supposed to be wearing a suit or a dress. But he’s smart, and it’ll be interesting to see. I would expect he would surround himself with some fairly good advisors to fill in the blanks so to speak in the things where he’s not an expert. With Hillary, I think you get more of the same: more Janet Yellens, more money printing. It can be ineffective policy – the same bad policies we’ve had between the Bush recession and the Obama depression. Because we’ve had depressed growth for eight years, so we just expect more of the same.

[boglerdude]

He implies that restrictions on withdrawls are sinister, but panics are a real problem. People/markets will never be rational. Either you close banks/suspend redemptions until it passes or...print enough money to satisfy a 500% blip in demand?

[sophie]

Interesting point that in a bank panic, you won't be able to get to your gold if the bank decides to close. Also, I like the idea of storing at an independent facility that carries its own insurance.

Has anybody researched this, or uses one of these services now?

[stuper1]

What I tell myself to make myself comfortable with bank storage is that the gold is for re-establishing myself after the panic is over, which may be months down the road, when the banks presumably will have to re-open. The gold won't be much use during the panic itself. What you want during the panic itself is physical cash, junk silver, food, etc.

Does anyone else subscribe to this theory?

[MachineGhost]

What I tell myself to make myself comfortable with bank storage is that the gold is for re-establishing myself after the panic is over, which may be months down the road, when the banks presumably will have to re-open. The gold won't be much use during the panic itself. What you want during the panic itself is physical cash, junk silver, food, etc.

Does anyone else subscribe to this theory?

No, because you're assumign the panic will only last a few months. Hold it offshore.

[bitcoininthevp]

What I tell myself to make myself comfortable with bank storage is that the gold is for re-establishing myself after the panic is over, which may be months down the road, when the banks presumably will have to re-open. The gold won't be much use during the panic itself. What you want during the panic itself is physical cash, junk silver, food, etc.

You are assuming your gold will still be there when the dust settles.

Your assumption rests on your trust of banks and governments. The very banks and governments that are likely to be in a world of trouble if the SHTF.

This does not seem like a reasonable risk to me. Especially if there are alternative storage means.

[AnotherSwede]

If you're preparing for the apocalypse, PP should be one of the least bad methods. The cash before, the gold after, and nothing helps during.

[ochotona]

I was browsing through Rickard's book, "The New Case for Gold", and he gives his opinion on portfolio gold allocations.

For "conservative" investors (by that he means people who want to bet less on gold) he says 10%

For "more aggressive" investors, he says 15-20%

He doesn't quite get up to 25%, but interesting to see that Golden Butterfly and Desert Portfolio are all in those brackets.

[stuper1]

What does Rickards have to say about paper gold versus physical gold?

[ochotona]

What does Rickards have to say about paper gold versus physical gold?

He recommends holding the metal.

[barrett]

What does Rickards have to say about paper gold versus physical gold?

He recommends holding the metal.

A few thoughts...

It always struck me as interesting that a doom porner like Rickards only recommends a 10% or so stake in gold. Some of his investment recommendations, like "art" and, I believe, "land" are beyond the reach of the little guy because you can't own them in significant quantities and/or can't diversify unless you have tens of millions of dollars. So he's preaching to an audience of about five people.

To me, the porners are almost useless unless they also have a solution. The PP incorporates a disaster hedge (gold) into it's basic construction, but that disaster hedge can also do well in times when the economy is merely challenged, not falling apart entirely.

Another thing about gold is that a lot of people giving investment advice focus constantly on is its near-zero long-term return, and they therefore conclude that it's a waste of portfolio space to own any. Craig dealt with this very early on in the long Boglehead thread by emphasizing the need to rebalance out of gold when it's doing well in order to capture the benefits of owning it (as he himself did two or three times during the aughts, I believe). At low interest rates, I think the same holds true of long bonds... that they can deliver strong returns in any given year but that they need to be sold back down to 25% (or a bit less) because they can't really deliver good returns for an extended period of time.