Rules and regulations

In this article the outlook for the economy is discussed. This outlook is my opinion and is probably worth no more than what it costs you.
For those easily depressed, read no further. There is little positive that follows regarding the economic future. For the adventuresome, however, volatile and potentially dangerous times present opportunities to make large amounts of money. Of course they also present opportunities to lose lots as well.
Unfortunately traditional investors are apt to be seriously harmed by following traditional investing rules. The tragedy is that most of us, whether it be due to risk aversion, age or other responsibilities, do not want to be “gunslinging” hedge fund type investors. We would prefer challenges more boring with a future more certain.
That kind of investing scenario, at least for the next decade and perhaps more, is not likely to be available. To be forewarned is to be forearmed. Wouldn’t your investment strategy this century be different from last?

Anticipated retirement amount has been reduced

… your $200,000 ten years ago has been halved in terms of purchasing power. However, in terms of planning purposes, your anticipated retirement amount has been reduced by 75%. Given these outcomes, who will be able to retire? And for those already retired, how many will “unretire?”

Confused and desperate over the economic debacle

In my next investing article, the continued weakness, if not the collapse of the dollar will be a crucial element. If you believe that is a likely outcome, then you should begin to think in terms of protecting yourself against it.

Hat Tip to the Freeman for the following post:

The Dollar Meltdown: Surviving the Impending Currency Crisis with Gold, Oil, and Other Unconventional Investments

by George C. Leef

Imagine an ice cube on an asphalt roadway in the mid-summer heat, quickly melting away to nothing. That’s a good way of thinking about what government policy has been doing to the value of our money. In The Dollar Meltdown, investment adviser and former radio talk-show host Charles Goyette explains why the dollar is melting away and offers sound advice for people who prefer that their wealth avoid the fate of that ice cube.
Goyette begins by noting that while the federal government has been going through money like a drunken sailor for decades, the last ten years have been simply devastating. In 2004 Congress had to raise the government’s debt ceiling to over $8 trillion. The increase in federal debt just in the first three years of the Bush II presidency was two and a half times greater than the total debt the government had accumulated from 1776 to 1980. Gold, which Goyette calls the canary in the coal mine, rose to $442 per ounce with that increase. Of course, the politicians could not restrain their appetite for spending and in 2006 Congress once again had to raise the debt ceiling (not much of a ceiling!) to $9 trillion. Gold had risen to $554 by then.

All the toxic paper still in the banks

Ian McAvity is an excellent analyst. In this interview he talks about the economy, the stock market and precious metals.

Anyone interested in these subjects should read this material from Goldseek.

Be Careful What You Wish for

The Gold Report caught up with Deliberations on World Markets Writer Ian McAvity between sessions at the 36th New Orleans Investment Conference, held October 27–30. In fact, Ian was among the experts featured on the conference agenda, graphically updating his big-picture expectations for stocks, gold and the dollar. He continues here in that vein in this Gold Report exclusive.

The Gold Report: Over time, Ian, you have accurately predicted the bull market in the ’80s, the housing bubble and the credit crisis. So the obvious question: what are your key predictions going forward?

Ian McAvity: Despite people thinking that with all of the bailouts and everything else in the last year somehow the crisis is over, I think basically that the crash of 2007 through 2009 was only the first half of a much larger problem. I don’t want to say the worst is yet to come, but the second half may not be any more pleasant. The housing, banking and financial industry situations have not changed at all. The accountants changed the reporting rules so you just don’t see all the toxic paper still in the banks, and they don’t have to report it.

This inflationary road was made long ago

Since 2007, we at Barnes Capital have been making predictions about what will happen in the New Year. Thinking about the future and what could happen is crucial for us in our role as a steward of people’s finances.  History has shown the importance of a diverse portfolio, particularly in times of great change. Although we are not negative about the future, worst-case scenarios are something we think about.
We positioned all of our portfolios for the continued debasement of fiat currencies (those currencies not backed by hard assets).  We did this mainly though investing in Gold and Silver bullion and some mining stocks.
The political headwinds of what many perceive – with merit –as a bankrupt economy propelled political and fiscal policy in 2010.  We believe that the Quantitative Easing II compromise struck by Obama in late November, means that the dominant themes that we’ve believed to be most likely, including high deficits, government bailouts, higher commodity prices and the debasement of currencies, will continue into and beyond 2011.
Economic activity is made up of government spending, corporate spending and consumer spending. Consumer and corporate spending have declined dramatically since 2007.  Government spending is trying to make up for the decline with increased spending of its own.  This government spending will be financed by the existing monetary system, which enables the debt to be issued by the Treasury department and purchased by the Federal Reserve.  This system is strongly supported by the creditor nations of the world, including China, Japan, and the European Core.  Ultimately, it is an inflationary path, and we are currently overspending governmental tax receipts by between one and two trillion dollars annually.
The choice and path down this inflationary road was made long ago.  And it’s not a terrible path; at its core, debt and currency erosion is populist in nature.  In the medium- and long-term, it harms creditors and help debtors.  That means that those most willing to spend (debtors) have greater means to do so, and those most able to have the purchasing power of their assets erode (creditors), pay the price for offering of excess credit — their own profligate ways (and the country’s).

2010 PREDICTIONS RECAP:

We got a lot of things really right in our 2010 predictions.
First, we predicted that Obamacare would become law, and that it would pale in comparison to the unemployment problem in 2010 and that did happen.
Real estate did have a tough year, as we predicted, but higher long-term mortgage rates didn’t materialize.  Gold did indeed mark its 10th straight year of upswings, as we predicted, but it was less volatile than we expected. It did indeed close the year strong at $1421, which is close to our $1450 prediction.  Municipal bonds performed better than we had predicted before weakening at the end of the year, and they delivered expected returns. Oil prices did indeed stay within our projected band of $65-$95.
Of our more unlikely predictions, the yield curve did become extraordinarily steep, but 30-year bonds failed to make it back to even 5%, let alone the 6% that we predicted.
The European sovereign debt crisis abated fears of a dollar meltdown, but nonetheless the dollar finished at a very low level of 79 on the U.S. $ index for the year.  A culture of thrift continued to exert itself, requiring another $600 billion in Quantitative Easing Part 2 in November as the jobless recovery continued and corporate profits continued to record the highest margins ever.
Amazon did do well, as we predicted, but Apple continued to be the beacon of fashion and success across all ages of consumers – and we predicted that that company might have problems within a culture of thrift.  That sure didn’t happen.
Democrats did lose the house as we anticipated, but Obama hasn’t got much veneer left, let alone Teflon. Finally, high uncertainty continues to reign, but risk assets, namely stocks, rallied through the last six months of the year to end at their highest levels.
The Federal Reserve continues to effectively print extra trillions of dollars each year to support the recovery. Stocks are more immune to this governmental Ponzi scheme of money printing; consequently, they are rising.
In many ways, 2010 was our Brian Downing year. Downing, a baseball player, was a career .275 hitter. On the 1979 division-winning California Angels squad, Downing hit .326  – and he never hit .300 again. We don’t expect to ever top our 2010 predictions in terms of accuracy. Nonetheless, here’s what we imagine for 2011:

2011 PREDICTIONS

1)     Municipal bonds are cheap, again.  We expect that they’ll decline in volatility and deliver solid after-tax returns for investors in the 25% tax bracket and higher. We are delighted to buy California General Obligation bonds, which deliver 4%-7% tax-free yields on coupon-bearing and zero coupon issues.  For a typical California investor in the 40% marginal tax rate, our 5% bonds are yielding an equity-like 8.33% return on an after tax basis.
2)     Gold.  Gold is real money. That’s not really anything new; we’re in the late innings of the ballgame on this one. But the biggest money in any bull market is made in the final, speculative 3rdpart of the cycle.  We may be approaching that third and final phase, which we imagine will last for 3-plus years.  Gold will climb again in 2011 and finish above $1600/oz.
The following is a list of the spot price of Gold on the last day of the year for 12 years.
1999 — $288
2000 — $271                     -6%
2001 — $278                      2%
2002 — $348                      25%
2003 — $415                      20%
2004 — $437                      5%
2005 — $516                      18%
2006 — $634                      23%
2007 — $833                      31%
2008 — $881                      6%
2009 — $1096                    24%
2010 –$1421                       30%
3)     Oil will break out to more than $100 a barrel, and this will reduce global growth as it did in 2008, stalling the economic recovery, again.
4)     Real estate will continue to bottom. Corporate real estate will fall between 5 to 10 percent and residential prices are likely to remain flat or go down as well, as low mortgage rates and higher dividend and capital gains rates support many current market prices in real estate.
5)    Stocks will actually perform decently and with less volatility than the last several years.  The current policies of Federal Reserve, however, are leading to trouble. It won’t happen this year, however. That Armageddon is destined for a Judgment Day in 2012 or perhaps during the ironic 2013 centennial of Ponzi banking system of the Federal Reserve.
Unlikely to Happen: but it wouldn’t surprise us if . . .
6)     Equities become the rage du jour, and stocks start to party like it’s 1999.  Why? Because perceived safe bonds pay paltry interest rates (10-year taxable treasury is 3.4%), whereas many blue-chips stocks are paying 3-4%, and stocks offer inflation protection, which bonds do not.  The Dow Jones delivers an 18% return to finish within shouting distance of 2007 levels.
7)     Some states seek the political cover of economic receivership due to budgetary impasse.  Without this cover, existing contracts cannot be renegotiated.  This roils the markets for a number of weeks, but like the European sovereign debt problem, it doesn’t de-rail the strong year for equities.
8)     The foreclosure problem hasn’t been solved.  Many homeowners continue to be unable to afford their homes.  Meanwhile, four out of five economics professors predict that Orange Countyhousing prices will rise 2-7% in 2011.  The fifth says it’s falling 9%.  Since housing declines tend to last a decade, and this one started in 2006, our money is with the minority forecaster.  A number of different issues could bring another 10% decline real estate in 2011.
9)     The Simpson Bowles plan manages to stay on life support throughout 2011.  This was the ambitious plan to reduce the national debt with real cuts in Medicare, Social Security, and other large entitlement programs.  This plan is currently DOA following the QE2 issuance and other Obama compromises, which affectively drove a stake through the heart of the Simpson Bowles austerity proposal.  America has no appetite for austerity.  Thrift perhaps, austerity – “Nein! Danke”
10)   Gold fever turns speculative.  Gold flirts with $2000/oz prices and gold stocks double with the Joe Public finally buying his pieces of gold.  Like any bull market, the most money is always made (and lost) during the speculative phase.  When the speculative phase in precious metals arrives, we expect it to last for multiple years, and as with the Internet, the dot-coms, and real estate, it will go on for far longer, higher and further than anybody believes possible.  QE 3 next autumn might kick off gold’s speculative phase.

IN CONCLUSION

The year 2011 shows signs of a cyclical rebound driven by government spending, government-subsidized low interest rates, large corporate balance sheets and an increase in risk appetites.  There’s a chance that the balanced money manager (me) could be underinvested in risky assets this year. After strong performances in 2009 and 2010, we enter 2010 underweighted in risk assets and we will not be surprised if we underperform market returns in 2011.
Today’s values in stocks and bonds are not overly compelling.  We see modest returns over the next five years in the mid-single digits.  Therefore, we will not increase our risk exposure substantially this year, in order to achieve a pyrrhic one-year victory.  Our clients’ primary needs are wealth preservation.  We believe that real wealth preservation in inflation-adjusted terms is going to be difficult to achieve this decade and our investment strategy is focused on safe returns, not optimal returns.  We remain believers in the solid returns of strong dividend-paying stocks, covered call writing, and municipal bonds, including California General Obligation bonds and Gold and Silver allocations.
A cataclysmic meltdown seem unlikely this year, there is simply too much money being printed by the policies of Ben Bernanke with the Federal Reserve for things to fall apart.   Austerity, it isn’t. But, to employ an overused cliché, we’re just kicking the can down the road.  Let the next president preside over structural change; this one’s just muddling through as best he can.

Scouting investment opportunities for after the collapse

The Daily Bell produced this interview with an interesting man who apparently has had great success marching to his own drumbeat. Hardly conventional in lifestyle or life-path, Fitzroy McLean is an entertaining interview and offers many opinions on various investing opportunities.

Fitzroy McLean on Freedom, International Investing and How to Improve ‘the Space Between One’s Ears’

Fitzroy Mclean
The Daily Bell is pleased to present an exclusive interview with Fitzroy McLean: (left).
Introduction: Fitzroy McLean is a West Point graduate and former Army Ranger and Special Operations Officer who served throughout Europe, Africa, and the Middle East – until he was struck with an epiphany: he didn’t believe in government at all, at least not the intrusive form of government that is commonplace throughout the western world. Fitz went on to earn a graduate degree from Oxford, then headed off for the emerging markets of Africa, Eastern Europe, South America, and the Middle East, first as an entrepreneur and later as a fund manager. His emerging-market fund earned over 30% annually before being absorbed by one of the world’s largest sovereign wealth funds. Fitz, proud of his political incorrectness, is a self-described Libertarian with anarchist and hedonist tendencies. He’s not an angry expat, “America Basher,” or any kind of basher at all. He still loves the idea of America, if not its government, and firmly believes in the ideas advanced by the US founding fathers. While scouring the globe for profitable investments, he is always in search of a small, isolated place where he can found Fitzmcleanastan. Without Borders readers will be first to know when passports are available.
Daily Bell: Thank you for taking time to be with us today.
Fitzroy McLean: It is my pleasure. I always enjoy the Daily Bell for its unique insight and analysis.
Daily Bell: What is Without Borders? A newsletter? A web site? An approach to life?
Fitzroy McLean: It is definitely not a website. I’m a complete techno Luddite and more than a few people tease me about how underutilized pr sub optimal is. Without Borders is an ethos and idea that centers on freedom and self-reliance. Without Borders, the publication, is a newsletter that is little more than a running account of my travels and what our roving band of intrepid capitalists are doing with our time and money. As a going concern, Without Borders is a mediocre enterprise but as a community of like-minded freedom seeking individuals it has been a tremendous success. We have subscribers in twenty-three countries and the one unifying characteristic amongst them all is the desire to live an extraordinary life unbound by convention or the artificial constraints of geography. Our group includes retirees with multi million dollar self managed investment portfolios as well as members of the “have laptop will travel” crowd who work their way around the globe as consultants or free lance programmers, writers or any number of trades. Everyone is welcome. The fact that our portfolio has returned more than 40% annually since inception is a by-product of our outlook on life and the world in general and the markets in particular. We are a select but growing group of people and I enjoy meeting with them and sharing ideas whenever our paths cross.
Daily Bell: Give us some background. Where did you grow up?
Fitzroy McLean: I grew up in New England. Both my parents were Ivy League educators with a very traditional elitist East Coast view of the world. They were of the generation and class that thought that success was defined by your formal education and your job security – hence an Ivy League education and tenure was the height of conforming to the ideal. I come form a long line of socialists. They would call themselves ¨liberals¨ but when you scratch the surface you get collectivists and socialists of varying degrees. As a Libertarian (although I didn’t know the term then) I was always the intellectual black sheep. I must be one of the only people to have gone to West Point as an act of societal rebellion. I didn’t even tell them I applied. My entire family thought I was going to Dartmouth in the fall. I applied to West Point in secret – even going through the Congressional appointment process without telling anyone and forging my parents’ signature on the application forms. Then six days after High School graduation, I sent them a post card from West Point after I had already been sworn in.
Daily Bell: Tell us about your army experience?
Fitzroy McLean: Although I was on academic probation or conduct probation or both for seven of the eight semesters at West Point, I loved the Army. I didn’t do well with the “leadership by shiny shoes” crowd but I loved the leadership challenges and physical challenges. I spent most of my career deployed outside of the US. I had a variety of positions in Airborne and Ranger Units as well as other Special Operations positions, which were as close to being a pro athlete as anyone with my genetics could manage. I also served as an Aide de Camp to a commanding general of US forces in Europe, which was a spectacular experience for two reasons. First my boss was one of the most brilliant and honorable men imaginable and he taught me a tremendous amount. He taught me to question everything but to do it in a respectful and thoughtful manner. Secondly, I learned that after Captain an Army Officer’s life is spent wearing plastic shoes and polyester pants for at least ten years until you are eligible to do the fun stuff again. As a result I can say I loved every day I spent in uniform but one more day would have been one day too many.
Daily Bell: You were a paratrooper? What was that like? What did you learn?
Fitzroy McLean: The Army is a great way for a young person to learn about themselves and human nature. Despite what many people think, the armed forces are a microcosm of society. You have all races and socio economic backgrounds. There are a proportionate number of MENSA members as there are high school dropouts. You have WASPY Yale graduates serving next to inner city black kids who grew up on the streets and had to struggle to pass the GED. What you learn most in the army is that there are no points for your background in combat. All that matters is how you handle today. Are you a stand up guy? Will you do what you say you will do? There are plenty of solar powered heroes who fall apart after two days without sleep and cold rain running down the crack of their ass. More than anything else, the army taught me to value people for their abilities and attitude rather than their background or their formal qualifications. Subsequently that same lesson helped me understand that individual traits transcend nationality and culture. In fact nationality is as arbitrary as skin color, hair color or eye color. It is completely irrelevant.
Daily Bell: When did you leave the army and why?
Fitzroy McLean: Because I was recruited into the paramilitary division of the Ciaos clandestine service. It seemed like a lot of fun. It was a lot of fun. What young man with an excess of testosterone wouldn’t want to run around the globe in alias breaking laws with the sanction of his government. It wasn’t until much later I started to question the morality and nobility of the work. As a product of the Cold War era, I believed I was a freedom fighter. My life’s mission was to liberate the oppressed. It actually said so in Latin on my unit crest. Images of young boys being shot as they tried to cross “neimandsland” in Berlin motivated me. My righteousness was unwavering because I believed my government stood for the individual above the collective. We were fighting to bring down governments that restricted the freedoms of their people. It only started to dawn on me later that those days were over. Somewhere along the line we gave up the idea of freedom in lieu of democracy and democracy is mob rule by the easily persuaded. After the Berlin Wall fell, America stepped up its long march towards being just another nation state. America was an idea and sadly I feel that America is no more. Now there is just The United States which is sadly just another government monstrosity plodding towards irrelevance. History shows that the death rattle of a nation state can be very painful for the citizenry. It pains me that there is no place left for those who truly want to be free.
Daily Bell: What did you do during your further career before starting your current venture?
Fitzroy McLean: If we are being accurate and honest then the answer is I failed often and quickly at several ventures and then I succeeded at a couple of others. It was one home run logistics business in Africa that changed my financial life dramatically. I sold a business to a public company and put enough in the bank to serve as a comfortable grubstake for anything I wanted to do in the future. I also went to graduate school at Oxford and although I didn’t learn much of practical use it did open some doors and put me in touch with some great people whom I still work with on a regular basis. An MBA taught me that formal business education was a total waste of time and was designed to perpetuate conventional mediocrity. It also heightened my distain for conventional wisdom. I was fortunate to go there once I was already financially independent so I could pick fights with the faculty. However, Oxford was helpful because their system is designed to force students to teach themselves as opposed to the US method, which is more to be taught and then regurgitate what someone else thinks. I am much better for the experience because of the rolodex and the attitude if not the subject matter expertise.
Daily Bell: How did you get interested in investing?
Fitzroy McLean: After my time as an entrepreneur, a banker friend convinced me to go into Private Equity. He was forming a private equity fund focused on emerging markets and although he and the others were brilliant financial minds they hadn’t spent that much time in places without five star hotels. I joined the team as the operational and political risk expert but soon learned the financial part of the business. What we all learned is that conventional financial wisdom is almost always wrong. When we started the fund it was just after the Asian crisis and Mexico’s bailout. Everyone thought we were nuts. We had to guarantee investors money with our vital organs to get them to invest. When we sold out, Goldman Sacs and the Carlyle Group were paying over the odds for opaque state run banks in China. We invested in and helped grow some great companies but our success was at least 50% timing the opinion cycle and riding that wave.
Daily Bell: Why do you believe that international investing is a great opportunity?
Fitzroy McLean: I am geographically agnostic. At the moment the best investment opportunities are outside of the US and Western Europe because those countries are fiscally and demographically doomed. I like to place capital in parts of the world where the cost of capital is high because we buy more for less. We focus on companies that operate in parts of the world where the demographics and regulations are favorable and where we can buy things cheaply. At the moment not much is cheap anywhere but you can still find bargains. As we tell our readers, patience is a crucial part of investing and speculating. Sometimes the best thing to do is nothing. Our preferred public market investments are companies working in the developing world that are listed on a transparent and liquid exchange. There are lots of great little companies operating in weird and wonderful parts of the world that are listed in New York, Toronto, London and Hong Kong. You can buy them from the comfort of your couch and get exposure to places most people would never venture for themselves. For instance last summer we recommended a company called Perseus Mining that is listed in Toronto but operates in West Africa. The shares have doubled in less than six months and not one mainstream analyst covers the stock even though anyone with an online brokerage account can buy and sell the shares. We still find lots of these types of stories in many different sectors. You just need to look where nobody else is looking.
Daily Bell: You believe in South American investments? You live there now.
Fitzroy McLean: I live in Punta del Este Uruguay because it offers the best quality of life for our family. I play polo and the entire family loves horses. We live on a farm just a few minutes away from South America’s premier beach resort. Our kids speak three languages fluently and are working on their fourth. It is a wonderful place to live far away from the maddening financial noise of Wall Street or The City of London. I believe in some South American investments. We have made a lot of money in resource companies operating in South America. We made a lot of money betting on the Brazilian consumer but now we are net short Brazil because it is way overpriced and the new government will almost certainly hurt the economy and investors.
Daily Bell: What are the best investment opportunities in South America?
Fitzroy McLean: Peru is exciting. Colombia is also attractive. If they go through with an announced plan to merge the Colombian, Peruvian and Chilean stock exchanges that will be very exciting. Bolivia is a nightmare as is Venezuela but someday they will present extraordinary opportunities. We really like certain Paraguayan two-year corporate bonds that yield 12% and are a thousand times safer than Treasuries. By far our favorite investment is farmland in Uruguay and Paraguay. We like these two countries because we believe that food prices will skyrocket as the dollar and euro lose purchasing power. Many governments will then introduce price and export controls thereby driving prices higher. Uruguay and Paraguay both produce foodstuffs that are several hundred times what their populace could consume and they will be free to price their exports in whatever currency is most favorable to the producers. We have just introduced our readers to a company that is soon to go public which will own and operate agricultural and cattle lands in these countries. Some are even able to invest at the pre IPO price.
Daily Bell: Where else have you traveled?
Fitzroy McLean: Wow. Tough question. At last count I have been to 140 some odd nations if you count Taiwan and Hong Kong as separate countries and Kosovo and Montenegro although they were not sovereign when I was there. The number doesn’t matter much I just like to experience different cultures.
Daily Bell: What other countries are promising?
Fitzroy McLean: Wow an even tougher question. If you want to pack your bags and move somewhere to make your fortune then Burma (ok Myanmar but Myanmar Joe just sounds silly), Zimbabwe and Angola would top my list. These three countries will produce many billionaires over the next decades as they bounce off of an absolute bottom. If you want a place you can invest passively from afar then Ghana is a good place to start. Indonesia has gotten too pricey of late but holds promise when the next correction comes. I think Brazil and Argentina are both heading for another crisis and then will present great opportunities. One place I am very bullish on right now is Mongolia and I am investing in a company soon to be listed in Canada that will be the best way for foreigners to play that story.
Daily Bell: What do you think of Russia?
Fitzroy McLean:Russia is the country in the world with the most potential and always will be. I majored in Soviet Studies at West Point. I learned the language and knew where every ethnic group was located and the makeup of every motorized rifle regiment. I knew that satellites disproved the stated wheat harvests near Kiev. I assumed that I would some day jump behind enemy lines and link up with my sexy nuclear physicist and concert violinist contact somewhere near Stalingrad. Together we would stop nuclear Armageddon. Since that didn’t come to fruition I have been seeking a way to invest there for over 20 years and I am still seeking. Russia is a disaster and not a friend of capital.
Daily Bell: How about China?
Fitzroy McLean: I am very bullish on China and we have a lot of exposure to China. There will be blips along the way but it is an exciting opportunity. The problem is the Chinese capital markets are like casinos without the cheap drinks and scantily clad waitresses. Our preferred way to play China is through small growing companies that list on western exchanges. If you know what you are doing you can make a fortune buying into Chinese companies when they list on a junior exchange before they move to the Nasdaq, NYSE or LSE. We have done very well indeed by buying into private placements in cement companies and other industrial companies that are not tied to exporting.
Daily Bell: Where does India fit in?
Fitzroy McLean: India is a tough place to invest but the economy is growing rapidly. It is impossible for foreigners to invest directly in their stock market and it is hard to get capital in and out. The key to India is having the right partners. We own Eredene (LSE:ERE), a company that invests in port infrastructure and logistics companies in India. They have partnered with some of the best operators in India and the shares are presently trading at a significant discount to their intrinsic value.
Daily Bell: What about the EU? Is the euro going to collapse?
Fitzroy McLean: The EU is a political entity not an economic zone. Its predecessor, the EC, was a brilliant idea because it only dealt with the movement of people, goods and services. The EU is a bureaucracy run by socially pleasant but economically ignorant technocrats. The EU was doomed from day one and will soon collapse. The Euro will not survive.
Daily Bell: What about the PIGS – what will be their fate?
Fitzroy McLean: I just returned from my PIIGS tour. (Extra I for Italy.) I am still writing it up and will publish it in January but the short answer is that not one of those states should even try to fight default. They all have unsustainable economic and social policies that are completely ingrained in the populace. On this trip I felt I was on a demonstration and protest tour. If it is Wednesday it must be a student riot in Italy. Unlike the social unrest of the 60s and 70s these are not peace protests or demonstrations for equal rights. These are entitlement riots. The participants are indignant that they may not be able to count on the largess of others to subsidize their lifestyle. The entitlement system is so deeply ingrained in the European psyche that many cannot contemplate a life of self-reliance. The system is doomed to destruction and it can’t come soon enough. We are already scouting investment opportunities for after the collapse. It will be fun to live in a castle. Jean Claude Trichet would make an outstanding valet.
Daily Bell: Is austerity going to lead to civil unrest and a toppling of governments?
Fitzroy McLean: Actually it may not be the case because I think politically adroit cowards run all democratic governments. Therefore, they will cave to popular opinion and try to paper over their problems long before the austerity measures work. The election cycles are too short to allow the austerity to reverse fifty years of stupidity. What will likely happen is that there will be an economic collapse, which will usher in new governments. The real concern should be for what comes next. History favors a strongman to ´fix´ these problems and that almost never ends well if you value your freedom. Did I mention I live in Uruguay? I prefer to watch my riots from afar.
Daily Bell: Why is the West imploding? Didn’t the elites see what was going to happen?
Fitzroy McLean: Ironically, I don’t think the so-called elites have any power at all. In democracies, the dim-witted masses have the power and an opportunistic succession of temporary elites use that to their benefit for a while. Thankfully, the masses have fickle tastes and the elites keep changing. I view the west as a sad social sloth that is plodding along in search of immediate food and shelter. The world is now run by a passing parade of powerless politicians who pander to the easily persuaded ignorant masses. If you have ever watched the first episode of each season of American Idol or X Factor, you understand who votes.
Now if by elite you mean the intelligentsia, that is a different question. Those so-called elites in the opinion maker circles are so heavily influenced by academic rhetoric and hypothesis held out as fact that they have no exposure to the real world. They have lived their entire life confusing correlation with causality that they are several standard deviations from understanding the way the world works. Those that think they know have been operating under a false theory with so many Greek letters substituting volatility for risk that they haven’t any idea how to cope. The others are just group think parrots that perpetuate the fallacy because to do anything else would risk their position in their social and professional society. Take a look at the recent list of Nobel Piece Prize winners and ask yourself if you would let any of them watch your dog for the weekend.
Daily Bell: We think we will see a new currency emerging in the wake of a global meltdown. Agree?
Fitzroy McLean: Absolutely. I’m not sure what it will look like but eventually it will have to be tied to precious metals or a basket of commodities. I suspect we will see a series of forcibly enforced failed currencies before we get to that stage.
Daily Bell: We think the current monetary system is finished and that something else must inevitably take its place. Agree?
Fitzroy McLean: Absolutely. What is amazing is how long a failed system can continue after the evidence of its failure is intuitively obvious to the casual observer.
Daily Bell: What do you think about commodity-backed money?
Fitzroy McLean: It is the only workable solution but it will be a while.
Daily Bell: Are you a free-market person? Is that a big part of your investment criteria?
Fitzroy McLean: Freedom is at the heart of everything I do. I am a freedom zealot. I would rather be destitute and free than comfortable and constrained. It is quite possibly a genetic defect. Sometimes I wish I could think otherwise. Life would be simpler and I would not drive my friends and family crazy with my rants about how the US government ignored thousands of years of common law and contract law in the way they handled the Chrysler bankruptcy and why it was a moral outrage. Freedom is sacrosanct.
However, I have long given up the idea that there are any free markets out there today. We just have a choice between generally freeish and completely controlled. Let me correct that. The only free market is the black market and that is the most legitimate market in existence today. In the very near future the only truly admirable and moral profession will be a smuggler. There will be genuine heroes that ply that trade moving goods and people in service of humanity, although it will be illegal. This goes to the death rattle of the nation state, which will almost certainly be violent and oppressive. The US and Europe will have an underground railway and covert information highway. But that is a topic for another day.
When it comes to investing, I decide based on the prevailing political and market conditions and reserve the right to change my mind when the political winds change. We coined the term Politiconomy two years ago because governments have continually rewritten the laws of economics or rather attempted to do so. While these attempts will always fail eventually, it can cause severe short-term pain for those who allocated capital based on the old rules or the ¨right way to do things.” We must remain flexible.
Daily Bell: Is what is happening in the world today somehow planned to build a new world order?
Fitzroy McLean: Not at all. This situation is where the laws of unintended consequences meet the laws of large numbers. This doesn’t mean there are not people looking for a NWO but if working for the CIA and other clandestine outfits taught me anything it is that no group comprised of type A personalities can keep a secret. What we have are skilled opportunists maneuvering to maximize their benefit from a system in flux. You don’t have to believe in an organized conspiracy to believe that there will be a collapse. My experience with so-called elites is that they couldn’t organize anything more difficult than a scotch and soda without the help of a professional party planner. They could never pull the strings necessary to organize this mess. See American Idol for a more likely cause of our woes.
Daily Bell: Is there a small monetary elite that is maneuvering behind the scenes to create a more global governance?
Fitzroy McLean: I doubt it very much.
Daily Bell: What are the best investments? Gold? Silver?
Fitzroy McLean: Precious metals, farmland, and select stocks and bonds for the time being are very good investments. The best investment by far is improving the space between ones own ears. Money spent on increasing your self-reliance and your analytical capabilities are the best use of funds today. So many of the so-called educated class are mere sheeple and they will not be able to cope with what is in store for them if it gets ugly. I wonder how that sociology degree will help when the home invasions start. I hope I am wrong but I don’t think I am.
Daily Bell: The West turning increasingly authoritarian? Where should people go?
Fitzroy McLean: That is a personal decision based on cultural affinity and ones own skill set. Uruguay is a very European place where my family and I can blend in comfortably. If you went to a restaurant where we were dining you would not be able to pick us out as foreigners unless you heard my heavily accented Spanish. Small countries with limited resources are the best because very few other nations care about them. Just don’t be the guy who escaped war torn Europe for his own tropical island paradise of Guadalcanal. If you are an American don’t think an apartment in Paris will be much of a refuge.
Daily Bell: What books and articles have you participated in that people should read?
Fitzroy McLean: Without Borders and Global Speculations are good places to start.
Daily Bell: Any other resources you want to point out to people interested in international travel and investing?
Fitzroy McLean: There are many good places to start. Most of what I read is long out of print. Jim Rogers’ books are great. Doug Casey’s books are by far the best out there but they are hard to find. You can find them on Amazon from time to time. Crisis Investing For The Rest Of The 90s is my favorite and The International Man, although dated, is still a classic. Rory Stewart wrote a great book entitled The Places In Between which is great but offers no investment insight. Simon Blacks blog The Sovereign Man is definitely worth reading as is Peter McFarlanes’ Q Wealth Report. I love the books written by the gentlemen merchant adventures of long ago. Sir Richard Burton and the original Fitzroy MacLean are essential reading. The novels Tai Pan and Noble House are instructive. I could go on for days….
Daily Bell: Any last thoughts? Anything you want to emphasize that we have not covered?
Fitzroy McLean: Not now but if I think of anything maybe we can do this again.
Daily Bell: Thank you for your time.
Fitzroy McLean: It’s been a pleasure.

Analysts and financial writers

A survey of more than 100 analysts show bullishness on gold.

More and more economists, analysts and financial writers, 122 in fact, have taken the bold step of projecting the price at which gold will achieve its parabolic peak with 6 individuals claiming that the peak price will be realized sometime in 2011. Some have adjusted their previous prognostications higher given gold’s strong advance again in 2010 while others have jumped aboard what has become a bandwagon of optimism. The majority (84) maintain that $5,000 or more for gold is possible.