Posts Tagged currencies
July 19, 2012
We’ve known for 2,500 years that prolonged war bankrupts an economy.
We’ve known for 1,900 years that rampant inequality destroys societies.
We’ve known for thousands of years that debasing currencies leads to economic collapse.
We’ve known for hundreds of years that the failure to punish financial fraud destroys economies, as it destroys all trust in the financial system.
We’ve known for hundreds of years that monopolies and the political influence which accompanies too much power in too few hands is dangerous for free markets.
We’ve known for centuries that companies will try to pawn their debts off on governments, and that it is a huge mistake for governments to allow corporate debt to be backstopped by government.
We’ve known for 200 years that allowing private banks to control credit creation eventually destroys the nation’s prosperity.
We’ve known for 200 years that a fiat money system – where the money supply is not pegged to anything real – is harmful in the long-run.
We’ve known for 80 years that inflation is a hidden tax.
By: Ron Hera
June 29, 2012
At Royal Bank, Mr. Embry was named Vice-President, Equities and Portfolio Manager at RBC Global Investment Management, a $33 billion organization where he oversaw $5 billion in assets, including the flagship $2.9 billion Royal Canadian Equity Fund and the $250 million Royal Precious Metals Fund, which was the #1 ranked fund in Canada for its 2002 net performance of 153%. Hera Research Newsletter (HRN): Thank you for joining us today. Let’s talk about gold stocks.
John Embry: Gold stocks represent a tremendous value in relation to the price of gold and to the fundamentals of the sector. There has been tremendous shorting activity by hedge funds and, as a result, dedicated gold funds have experienced redemptions. Retail investors, who are natural buyers of these stocks, have been annihilated by the price action. This has created one of the finest opportunities, if not the finest opportunity, that I have ever seen.
HRN: Do you have a short term price target?
John Embry: I don’t look at short term price charts for gold. In a market as heavily interfered with as this one, charts can be made to look any way you want in the short run. As I see it, if you don’t like gold at these prices, then you must like currencies. My partner Eric Sprott often says, the U.S. dollar is the best looking horse in the glue factory. If the U.S. dollar is the world’s strongest currency, that’s the best endorsement for gold that I can think of.
HRN: Do you believe that currencies are losing value?
John Embry: The fact is that economies are slowly melting down. The problem is excessive debt in almost every corner of the world. The only way to deal with the debt is through aggressive growth, but fabricating growth through more debt won’t work. The idea that you can get the economy to move forward by creating even more debt just doesn’t wash. We can’t service the existing debt, even at artificially low interest rates. I don’t see any easy way out. We have to get the excessive debt out of the financial system. Either policy makers are going to create mounting inflation or there will be a deflationary debt collapse.
HRN: Europe seems to be a case in point. Do you think the Euro will break up?
India is looking to shoot the messenger. It wants to ban the sale of gold coins via the banking system. India’s currency, the rupee, is falling fast against the US dollar and a range of other currencies. As a result, Indians buy gold to protect themselves against the falling rupee.
The US Dollar Rising Against Indian Rupee
This increases India’s imports, which worsens its current account deficit and puts more pressure on the currency. So the Indian government, in their wisdom, look to remedy the situation by trying to discourage gold imports. Genius.
India’s problem is that it’s no longer the ‘hot’ economy it was just a few years ago. The ‘emerging markets‘ are now emerging slower than many had hoped. The two big ones, India and China, are not emerging much at all. The hot money that previously flowed into these economies is now lukewarm at best.
So the Indian rupee is under pressure, and apparently it’s gold’s fault.
The interesting thing about this is that India’s private stash of gold is massive. According to the World Gold Council, its citizens hold around 18,000 tonnes of gold. At a US$1,600 gold price, that equates to around US$1 trillion dollars.