Jim Puplava Interviews Gold Expert Eric Sprott and Neil Howe, Author of The Fourth Turning

Jim Puplava recently sat down with Eric Sprott, one of Canada's top fund managers, to talk about the global economy and gold, at Casey Research's recent investment conference.  Here's a link to the interview below...

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Looking at the out-of-control printing of fiat money and the irresponsibility of central banks and treasuries, Eric Sprott tells Jim Puplava of Financial Sense Newshour, it is obvious to smart investors that gold is the asset to own. Listen to Eric, one of Canada’s most highly regarded asset managers, explain the dire straits the global economy is in and how to protect yourself.

The crisis we’re in today has been absolutely foreseeable, says Neil Howe, co-author of the famous book The Fourth Turning, in the second half of this interview. These recurring “turnings” are driven, he states, by generational aging and are a manifestation of the prevailing social mood. Hear his predictions about what’s yet to come and how long the current “fourth turning” will last.

You can listen to both interviews here.

Eric and Neil are just two of dozens of experts who presented their views, insights, and top stock picks at Casey’s Gold & Resource Summit in October. You can hear all their invaluable advice in 17 hours of audio on CD… details here.

Ed. Note: I am a Casey Research affiliate and subscriber.

Links to Two More (Excellent) Marc Faber Interviews

Here's a good one with Marc Faber and Jim Puplava on the Financial Sense Newshour: http://www.netcastdaily.com/broadcast/fsn2009-0919-3b.mp3

The topic is - surprise, surprise - inflation/deflation. Faber used to be a deflationist - his book Tomorrow's Gold is written in that perspective - and at some point, he found Fed Religion.

I think Faber is fantastic, and I try to listen to everything I can by him. His newsletter is a tad rich for my blood ($700/year) - though I did get my hands on a copy once, and thought it was great.

Faber believes the Fed will be able to inflate because it can, and because it has too. Of note in the context of our inflation/deflation coverage, he believes the potential lynch pin of the argument is the dollar. To have inflation, the dollar must weaken. So if we see a strong dollar, that could be a sign that inflation is not happening.

Another good one, this interview a video, is Faber on Yahoo Tech Ticker. This is classic Faber. In the first part, he lays out a very thorough argument for inflation and possible financial scenarios. Then he drops the hammer in the second part - as he casually transitions into talk of global wars and social instability. They don't call him Dr. Doom for nothing!

(Thanks to our friend and past guest author Jonathan Lederer for forwarding that 2nd link along).

Other recent Faber coverage:

• Faber thinks there's too much enthusiasm for gold right now
• China's not growing as fast as everyone thinks, says Faber

So Long, Cotton...I'm Just Too Wary of Deflation

I have to admit - I think the Great Deleveraging permanently seared my psyche. I haven't been the same since.

It's for the best. Until you live, and invest, through an event like that, I don't think you can appreciate the awesomeness of the destruction. A history book just doesn't do it justice.

When it came time to roll my cotton position last Friday, I reflected on whether or not I wanted to keep the position. That's one nice thing about trading futures - when it's time to roll, you have a check point of sorts that forces you to reflect, even if for only a second.

My plan with cotton has been to hold as long as it stays above it's lower resistance points (which is has...but just barely), and sell if I was fortunate enough to see it hit its upper resistance.

Well, I got lucky and cotton broke $0.62 - and with some serious resistance here, I was happy to sell my position.

Cotton has been doing the range trading thing.

(Source: Barchart.com)

Why not wait for a potential breakout? After all, cotton has traded north of 90 cents in the past two years - perhaps a decisive break above 63 could send it on a moonshot?

Perhaps. But like I mentioned before, I'm still gunshy. I fear that the deflation monster is still lurking in the shadows. Last time I stayed stubbornly long - big mistake. I hope that next time, I can at least make a new set of mistakes, rather than repeating the same old ones!

Remember what happened last time deflation took hold of the markets - it took hold of all of them. All assets traded together - correlation went to 1. So much for diversification...it doesn't really help to have your eggs in a few different baskets when ALL of the baskets hit the ground, and ALL of the eggs crack in half!

I guess I can't see why things would be different if we see another wave of deleveraging. The dollar would rally. Treasuries may as well. And everything else would get slammed.

At the very least, I think we're due for a correction in most assets. Optimism is quite high on, well, just about everything. Gold is everyone's darling, stocks are in the midst of a rally for the ages, and the Fed is being heralded as the saviors of the financial universe.

I'm just not completely sold on this story, at least just yet.

So, for the meantime, I'll be mostly in cash. And that means even a commodity with favorable fundamentals - such as cotton - is something I'll be casting a skeptical eye on at these prices.

Popular Posts for the Week Ahead

In case you missed them - here are the most popular posts from the past week:

• Natural Gas - In a Death Spiral?

• A Great Inflation Debate: Prechter vs. Puplava

• Marc Faber: There's Too Much Enthusiasm for Gold Right Now (Free Audio)

Positions Update - Still Like the Buck

We bid cotton a farewell, at least for now. My favorite trade is still the US dollar - I think it's due for a massive rally, at least in the short to medium term, if for no other reason than the fact that absolute everyone is bearish on the buck.

I outlined my hypothesis for going long the buck a few weeks ago, and I don't think the story has changed. Sentiment still appears to be overwhelmingly negative, and I am still not (yet) a believer in the inflation story.

If the facts appear to change - or, more importantly, if the chart proves me wrong - I'll definitely reevaluate this position.

The dollar still sits well above its 2007 lows - at least for now.

(Source: Barchart.com)

Open positions:

Thanks for reading!

Current Account Value: $25,119.83

Cashed out: $20,000.00
Total value: $45,119.83
Weekly return: 6.6%
2009 YTD return: -50.6% (Yikes!)

Prior yearly returns:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial trading stake: $2,000

Holding Gold and Cash, Nonconfirming Indicators, and Cheap(er) Toilet Paper

On Tuesday evening, we had our monthly meeting of local Casey Research subscribers. Really sharp investment minds in the group - it's a real pleasure and treat to chat about a wide variety of finance and investing related issues.

The general consensus of the group (fairly contrarian in nature) is that gold and cash are the places to be right now. Gold because it's a store of value, not because it's going to $1,500 tomorrow. In fact, there was some trepidation that gold is due for a pullback from here. But everyone agrees that holding physical bullion is a good thing.

Short term market outlook is very cautious on the whole, to say the least. We are all expecting a pullback of sorts, and believe that if/when that happens, we could again see asset deflation across the board. So while most of us are long term believers in gold and energy plays, caution is being exercised right now.

Consumer Credit Plummets in July

I noticed a big time deflation headline on the USA Today earlier this week: Consumers Cut Outstanding Credit By Record $21.5 Billion.

As much as the Fed may be running the printing presses, it doesn't matter if the American consumer is choking on debt. Remember that shrinking credit is really the cornerstone of the deflationary hypothesis.

Because we have a credit based monetary system, credit can shrink faster than the Fed can print. At least in the short term - say the next 2-3 years. Of course, we could see inflation, or hyperinflation after that - but possibly after a huge wipe out in asset prices.

If the Fed can reinflate the credit bubble one more time, soon, then yes, all bets are off. But there doesn't seem to be any indications of this actually working - yet. Though perhaps $1,000 is an early warning signal. We shall see!

Wages Continue to Drop

Nice article by Rob Parenteau in Wednesday's Daily Reckoning about labor costs entitled Unlabor Day. I like his stuff - it's quite thorough and balanced.

According to Rob, the recession is doing it's job, and America's businesses are becoming more productive. I believe that 100%, and it's something I wrestle with when thinking about where our economy is heading. A lot of excesses are in fact being wiped out - which is exactly what should happen. Unfortunately, the government may be creating enough distortions to nullify all the positive that's happening.

Anyway back to his article - labor costs are typically an important component of inflation (or the lack thereof). It's hard to see rising prices without rising wages. Thus for now, Rob believes inflation is on hold until we see the government's inflationary actions start to take hold:

The question remains what lies ahead after the massive quantitative easing operations of the Federal Reserve have lapsed and the bulk of the fiscal stimulus is behind us. In the very near term, we can surely expect auto sales to wilt following the end of the cash for clunkers program, but we remain impressed by what supply managers in the most cyclical part of the economy, namely manufacturing, have to say about new orders, production and export conditions. Policymakers panicked and adopted a “whatever it takes” stance, one that has proven to be the most radical outside of major wartime conditions. Looks like something took – and not surprisingly, gold is taking out the $1,000 per ounce mark at the same time.

It's Even DE-flation in Toilet Paper

Procter & Gamble announced last week that it will be cutting prices across nearly 10% of its household brands. It looks like we're at least seeing deflation in laundry detergent!

That reminds me of an interesting point Bob Prechter made in the interview we linked to last week (inflation/deflation debate with Prechter and Jim Puplava - highly recommended).

When Puplava said that he didn't see prices coming down in his neighborhood, Prechter countered and said that we're seeing rising prices in a lot of sectors that have high government involvement. Like medical care - highly regulated industries. And these price increases are due to the inherent inefficiencies of government meddling, and nothing more.

In mostly privatized industries, he says we're seeing more deflation across the board. An interesting though to ponder.

If It's a New Bull Market, Who Forgot to Tell China?

It seems ominous that China, the posterchild of this rally and lone economic hope for the world, has turned south. Remember that China turned south ahead of the US markets tanking last time. Maybe they get the news faster in the Far East thanks to the time difference?

Sure China could break out from here. But I can't help but think that the five-year chart shows a classic Fibonacci retracement since March, and nothing more.

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Positions Update

Rolled over my dollar index position to the December contract. I love getting the Friday morning call from my broker that I need to be out of a position, haha. Haven't had that one in awhile. My wife always jokes that if I got hit by a truck, my lasting curse to her would be a delivery of cotton and soybeans to our front lawn!

Still holding these (dogs) of positions for now. I'll repeat what I said about China for cotton - if it's a new bull market, why doesn't cotton know?

Cotton continues to range trade.

(Source: Barchart.com)

Open positions:

Thanks for reading!

Current Account Value: $23,557.10

Cashed out: $20,000.00
Total value: $43,557.10
Weekly return: -3.4%
2009 YTD return: -53.6% (Yikes!)

Prior yearly returns:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial trading stake: $2,000

Robert Prechter and Jim Puplava: A Great Inflation / Deflation Debate (Free Audio)

I hope you had a good, long holiday weekend. I sure did...I mentioned at the end of the week that I'd be blogging when I wasn't drinking beer. As you can probably infer from my lack of posts, I managed to put back a few with some good friends!

Back in the saddle now, I listened (twice, actually) to a fantastic interview and inflation/deflation debate as Jim Puplava chatted with Robert Prechter on his Financial Sense Newshour. Here's the link to the interview: http://www.financialsense.com/fsn/main.html

Note: It's the September 5, 2009 post that you want to look for. And as a bonus, he also interviewed Neil Howe, author of The Fourth Turning! I've got that one next on my iPod, and will do a post on that afterwards.

Despite gold approaching $1,000, and the equity markets rallying north of 50% over the past few months, Prechter is holding strong to his deflationary stance. In fact, he goes as far as to say he can't see a hole in the deflationary argument!

Listening to Prechter's answers, I have to say it's real tough to poke a hole in his line of reasoning, which is always very thorough, and usually contrary to popular opinion.

Here were a few of the highlights for me:

• Prechter actually called the Fed's actions "fairly conservative" - not quite as conservative as the 30's, but conservative nonetheless.

• He believes that the Fed can do NOTHING to prevent deflation. Basically, because we have a credit bubble. And as that credit goes away to money heaven, even if the Fed were to print the money to replace it, at best that would be a wash.

• The core of his argument is that most debt outstanding will go unpaid. The lenders are carrying the value of this debt on their books at values that are not realistic. He says in 2007, the world woke up to the fact that these debts will go unpaid, triggering the onset of deflation.

• He's not at all concerned with the current rally - in fact, he predicted it (I can vouch for that - I've been a subscriber of his since the spring).

• Prechter is not quite as bearish on gold as he's been in the past. In fact, he admitted it will likely strike a new high during this move. He also now thinks that gold will hold up better than most assets, and even recommends a GoldMoney account for diversification purposes.

• He's looking at 2010 to be a huge year for deflation.

• When Puplava asked for a historical example of a fiat currency of a debtor nation that did not suffer from inflation or hyperinflation, Prechter cited four examples of credit bubbles in history, saying that everytime a credit bubble ends, it results in deflation (with Japan being the most recent example).

• Prechter posits the question: if inflation is a threat and a repeat of the 70's, why aren't interest rates at 5, 10, 15%?

• He also says that social mood has permanently turned towards a deflationary mindset. Thus, the Fed is "pushing on a string", and zero interest rates will not reinflate anything (a la Japan). (Brett note: I read a similar social mood comment about the Great Depression, that inflation "did not take" despite the Fed's best efforts, because of investor's mindsets).

I'd highly recommend you set aside an hour of your time to listen to this interview. Puplava's a super sharp investor, and also currently in the inflation camp - so he tosses a lot of good questions towards Prechter.

As you probably know, I've been in the deflationary camp for the past couple of months - though I am always rechecking my assumptions.

Side note: If you're interested in reading a recent newsletter from Prechter, they are actually giving out the July issue for free until this Wednesday - you can check that offer out here.

It really feels like this whole inflation/deflation debate is going to come to a head soon. Prechter believes the next wave down will be more powerful than the first, and also that it will be quite soon...as soon as now.

On the other side of the fence, we've got gold making a solid run at $1,000 (and I'm wiping the egg off my face right now from selling out in June). And some really sharp gurus predicting hyperinflation and insisting that the rally has been driven by printed money - as evidenced by the fact that bank stocks have led the charge, and they are usually the first to lead in inflationary wave.

Actually I find it interesting that since March, Prechter's script has been identical to that of the inflationist point of view. The inflationists say the rally is being led by the banks, which is typical. It will then spill over into other areas (gold, etc), and away we go. Prechter and his guys, on the other hand, say that this rally was due to happen, but it's a false hope, being driven by crap (banks, etc), and it's about run it's course.

So we seem to be at a fork in the road of sorts. The next turn may be the game decider! We'll stay tuned in for more clues here.

Sugar Money Looking For a Home?

I got a ring on Thursday from my commodity broker in Chicago - I have an IRA managed by his firm, that's separate from the one featured in this blog. I asked him what he thought of cotton - he still likes the trade, citing the fact that cotton traded up towards 90 cents fairly recently.

He also mentioned that the sugar trade is looking a bit long in the tooth, and that fund money may flee sugar soon looking for the next big ag trade - which could be cotton. Check out the money running for the sugar exits already!

Sugar traders are stampeding for the exits!

(Source: Barchart.com)

Recent sugar reading: Sugar Prices Hit 28-Year High: How's Jim Rogers Playing It?

Positions Update

No new trades. I still like the buck. And still holding cotton to see what happens from here.

While I am currently in the deflation camp, I also realize it's very possible that I'm wrong! So we'll keep an eye on the charts.

As always, thanks for reading!

Cotton continues to range trade.

(Source: Barchart.com)

Open positions:

Current Account Value: $24,386.64

Cashed out: $20,000.00
Total value: $44,386.64
Weekly return: 2.1%
2009 YTD return: -52.1% (Yikes!)

Prior yearly returns:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial trading stake: $2,000