5 Topics that are Making the Financial World Go Round
[Ed. Note: Jim Rickards recently appeared on Bloomberg TV to discuss a variety of different topics — from Islamic state finance, to oil prices to the rise of M&A activity. Below, you’ll find each interview, complete with Jim’s unique insights… (Note: The transcript that follows each video was automatically generated and may not be 100% accurate…)]
Prayers go out to the dems of these attacks.
People call them isis — i call them islamic state because that’s what they call themselves.
That is how they think of themselves stop it’s not a surprise to see them thinking about a currency.
They are obviously not going to be the payment system anytime soon but what is interesting is they are doing a arbel strategy.
They’ve got gold, which is the oldest form of money, but i was at an air force base at the special operations command and we were working on intraday and that because they are using crypto currency.
We actually can use the internet to move money.
You can move money through the internet, heavily encrypted and very hard to trace.
They were using the oldest kind of money, which is gold and the u.s. — and the newest kind of money, which is crypto.
First of all, it is less volatile.
I’m holding a lot of bitcoin.
It used to be worth a lot and now they are not worth much at all.
Of course, if i give you gold for something, you can walk away and no one has any idea a transaction even occurred.
With bitcoin, you’ve got the block chain and you can look in there and see money is moving . you can see it but you can’t tell who didn’t necessarily, so that is the challenge.
What i found interesting when i heard they were going to mint coins and i doubt it would be gold, silver and copper — they won’t be able to continually run a printing press ring out digital money.
They have to have actual gold to back up the gold coins their minting.
They’ve got a lot of gold in bothell.
They rated the banks there and got a lot of gold and they do steal gold from victims will stop there are people running for their lives who leave behind jewelry, so they have ways of getting gold.
Somebody said this is silly because gold is volatile, but it depends on how you count.
If you counted dollars, gold looks volatile, but the low dollar price of gold means we have a strong dollar.
You will see the dollar price of gold go up.
To them, when you do intelligence analysis, you have to of lead mirror imaging.
You’ve got to put yourself at issue.
They want a currency that is permitted and gold is whole all — gold is h alal.
But they must put their own kind of value on it rather than saying this is a gold coin that weighs half an ounce . let’s say a car cost $40,000. that’s about 35 ounces at today’s price.
If a car cost 35 ounces, maybe tomorrow it costs 35. we privilege the dollar as a way of counting.
What islamic state.
Putin and others are saying don’t privilege the dollar.
They will just transact in gold.
So much silver for a week’s groceries.
You can just take the dollar out of the occasion.
You did say wheat and knotweed, right — and not we ed, right?
Old right now is worth about $1100 and that means the dollar is worth a lot compared to where you think it should be.
What does the future look like?
That’s exactly right of stop it tells me the dollar is strong.
If you think of gold as the consist are of value, the fed cannot have a strong dollar.
They formally say to them half percent.
I’ve heard reserve bank presidents say they would like to see three a half percent.
We want much higher inflation.
Low dollar gold price for strong dollar, the fed is going to find a way to cheapen the dollar, so this time next year, i expect the dollar to be down in gold be up.
When we come back, we are going to talk about distractions, president clinton lost related archer — despite those distractions, g-20 nations
The g-20 decided this weekend and i can’t quite yet my head around how they plan on doing it will stop we would all like to see another $2 trillion floating around the global economy.
They say keep the gas pedal of monetary easing, so don’t stop easing to quickly, do some structural reform.
Mario draghi has talked about that quite a bit of stop but the new thing is infrastructure.
This is what obama did in 2000 9 — you remember shovel ready?
He tried to.
They spent 900 billion dollars of taxpayer money and said it was going to stimulate the economy.
Most of that money went to prop up government jobs that probably should have been cut back, so they sold it as shovel ready projects.
Only less than a 10th of that was supposed to go to shovel ready projects which of course were not shovel ready and then i don’t think a lot of people saw the results in the roads and ridges they use every day.
If you want infrastructure, reduce taxes and expenditures.
The private sector can do infrastructure and, but capital is on strike.
There’s too much regulation, too many taxes.
The g-20 is not helping in those kinds of things.
They have these final communiques, but there’s a five-page annex of other documents which is thousands of pages.
They are looking for ways to tax global is — to tax companies globally.
All in all, it was pretty meaningless.
I would say bad.
What is your take on pure infrastructure spending?
If the government would actually do it, take the tax dollars and really spend on infrastructure, is it bad?
It’s not, so long as it subject to a few conditions.
He have to do some things the dividends are greater than the cost.
The second test is can you afford it?
The third test is making sure the private sector cannot do it themselves.
Interstate highway system is a classic example.
That met all three test.
The problem is the projects that don’t meet those tests.
If anybody has had a drive down the highway on the east side, you will know what i’m talking about.
A connected issue — falling into a recession.
They may try to boost taxes.
Due to the inventory adjustment, which is a conservative move from japanese companies.
The structure is what has to come in first and then we have investments and then we have after the wage rise.
We have seen a nominal rise in wages, but this is a problem.
The only people flourishing are exporters.
The investment going through two other sectors is the biggest problem we face right now.
At the same time they are dealing with those problems, someone decided it’s a good idea to raise sales taxes?
In what world does that make any sense at all?
This is one country where you have to put the accelerating break at the same time.
Look at the conditions.
We have two do something or at least seem to have to be doing something and the government has to show to the world — we really don’t have any problems like southern europe will stop it is still a big amount.
We need to be seen to be doing something along with a lot of qualitative measures.
Also government exchanges, these things have to be concurrently done.
It does not seem to be from the outside like it’s working terribly well.
I guess they are considering the possibility of another tax increase?
It goes into a controlled skid.
The whole recession, expansion is not the way to think about it.
Japan is in a depression and has been in a depression since 1990. the world has been a depression since 2007. that’s different from normal business cycles.
You cannot solve a structural problem with a liquidity solution.
There’s nothing central banks can do.
Japan went the opposite direction and raise taxes.
They should be cutting them and bringing women into the workforce is a good idea, but that’s going to take a long time.
The administration sees — there are a lot of things they could do that they are not doing.
Monetary policy doesn’t work in the depression and fiscal policy is moving in the wrong direction.
It’s not a surprise that it is failing.
Is a strong statement to say they are in a depression.
We are not looking at the kind of world we saw in the u.s. the 1930’s. you don’t see you redlines and 30% unemployment.
The bread lines are at whole foods because now we’ve got food stamps will stop their 51 million americans on food stamps.
I’m not against helping people in need, but the bread lives are at the checkout counter at whole foods.
How does it look in japan?
The japanese numbers are worse than they appear.
Not only did real gdp go down, but applies — the price deflator was negative, so nominal gdp was even lower.
I like to think in real space.
The one thing about nominal spaces the a to gdp ratio.
The debt to gdp ratio is going up.
In washington, everyone is high-fiving because the budget deficit has come down, but our debt to gdp is going up.
Is japan really in a recession that is not being helped by any of the three arrows?
I would say in six months, we should see it come back, but the bigger problem is the deflation pressure that is still on.
The consumption tax increase put us in a deflationary state.
We’ve been trying to get out of this for 15 years and we’ve been trying to put a lot of financial policies.
Not only from the top down basis at the bottom of aces.
The structure is such a japan that the company don’t have enough incentive to make a transitional change yet.
Going back to it we said a few minutes ago, replacing the external sector — that’s not really enough.
You need a autumn of structural change to take place and that hasn’t happened yet.
Will shenzhen on a ask the next tax increase?
How can he let it go through?
I think it’s pretty rock — i think it’s pretty wise to let it go through.
You’ve waited 15 years to get out of deflation.
Why can’t you wait 18 months?
This is not something where we can expect something to have on a six-month term basis, especially considering we might be seeing changes in consumption behavior in japan which is pretty rare.
You have to see social strata changes because the nikkei has been on fire.
Even if that country is doing poorly, it sounds the milley are.
The stock market has been on a tear over the last month.
That’s with bank of japan is trying to do.
What they are trying to do is reflate the economy.
The government changes we were talking about attracts foreign investors.
It’s what they are trying to do in the short run.
You have to get the longitudinal policies going on.
The thing is, you’ve got to take the yen to 140. what cross rate would give you even 2% inflation?
The yen has to go a lot lower.
That’s three have to go to get the kind of inflation you want.
Thank you so much for joining us.
Jim is going to stick with us.
Coming up, japan’s week gdp data dragging down crude.
We will talk about that relationship adding more pressure on opec to act.
Question of the day and oil markets simply don’t know.
It’s obviously really important from the perspective of alan thing their budget.
Most adulation’s show roughly $90 a barrel.
We are obviously way below that.
The question of the day , the last couple of months, the question is what is the balancing mission going to be?
It might not be us.
We might let the get the balancing recognition to go below the cost.
In a way, they are — other oil producing companies — oil producing countries are desperate to have a higher price.
They don’t really need to do it, right?
It is simple.
They have a lot of money in the bank, so they can draw down those reserves, they can issue on’s, they can cut their budget if need be, but they probably don’t want to do that with the arab spring and social programs.
They can tolerate a lot of pain , probably more than anyone else outside of the uae or kuwait.
What do you expect from the opec meeting?
I have it marked on my calendar for the first time in 10 years, i have read opec meeting marked on my calendar because i’m so excited.
While prices move on three vectors — normal industrial supply and demand.
The other is inflation and deflation.
It looks like deflation is another one holding it down.
Who suffers most from oil prices?
Is not the saudi’s, it’s the russians.
I don’t want to say there’s a smoking gun, but there is a motivation to put pressure on putin because we know of those ventures in ukraine.
I was intimating that but did not want to say it will stop all three vectors are pushing the price down.
I would not expect to see it go up right away.
What do you expect us to hear at the meeting?
What are the headlines you are watching or?
The first day is will the saudi’s knock some heads together?
Will they put pressure on other members and say we need to come up with an agreement where everybody shares ad will they try to do something?
And we all have to stick to it.
We have to stick to it or the agreement is going to fall apart.
The other extreme is the saudi’s do nothing at all and do exactly what they have been saying and let the market take care of it?
I think prices are going to break if we get a clean signal . it’s hard for me to see us down thing around where we are now.
We are going to 65 were going to 90? i just picked those numbers out of a hat.
We think there’s a 60/40 chance and are forecast is $90 brand.
The other extreme, we go to 65, that’s going to slow down u.s. reduction growth.
There is some gray area there.
You don’t know which way it’s going, but you could do some option strategies where you win both ways.
You lose and it stays constant, but that’s not likely.
Staying at 75 is not a likely scenario.
Unless you believe the market has priced in the bear case already — i don’t believe that is the case will stop take you for joining us.
When we come back, the energy sector is taking a beating this quarter, but could the laggards oh from worst to first as we head into the final month of the year?
Is a happy man today.
He did pretty darn well.
I don’t think bill is happy.
He was a big investor in allergan and was pushing for a tie up with valeant and they came out today and said we can’t even justify that price to our shareholders.
Like they said they were going to look at it but basically they said they are out.
One of the things about this deal is number two and number three tying up and everybody said that must mean it has major antitrust issues will stop at number one is pretty big in this space will stop from a lawyer’s point of view, you got to look at the facts and not necessarily assume just that there are going to be issues.
Halliburton says it wasn’t well advised as far as regulatory issues on its takeover of baker hughes.
Do you think they will have any problems there?
Anytime they’ve got two big people in a space that’s relatively sensitive — talking about fracking, deepwater and all of the stuff behind this deal, the government will look at it but i’m positive they’ve got good advisors and agreed to healthy commitments in the agreements.
A reverse breakup fee if the deal doesn’t happen and a commitment to unload half a billion in revenues if need be.
One thing i think is great to talk to jim about here is that financing has become so cheap.
Central banks have pushed people out to look anywhere they can for yield and they will buy a bond for almost anyone and it makes these deals more plentiful.
I talked to one of the biggest private equity investors in europe and he said the banks are throwing money at him.
They have removed a lot of the clauses that were onerous and his clients are pushing him to do deals.
The banks are throwing money at him and he says some of the deals don’t make sense but he has to do them anyway.
That is what is expected.
This is what the fed refers to as a channel affect.
The problem is when you get an asset bubble, it could crash sooner or later, but for right now, it feels good.
I’m sure your firm would advise against any clients — do you see it happening with other advisors?
You are right will stop obviously money is not only cheap, in a lot of cases, it is covenant zero in terms of terms.
That’s what got companies in trouble in 2006 and 2007 full — and 2007. the arithmetic still works.
It is a volatile world.
There’s no question and the day is back, but in october, there’s a blip when the equity markets model, but they have high multiples but nobody is doing them because they have to spend money.
In the case of halliburton, when the price of oil comes down this low, you expect to see these kinds of deals.
Ge would be smart to bid for national oil and there’s a lot of other targets that become vulnerable.
Acre hughes — it’s a great premium.
It’s just like the actavis situation.
Baker hughes stock is taking a bit of a beating today.
But i don’t think they are just invested what has happened to crude oil prices in the last couple of days.
A much longer-term proposition.
The whole dialogue has changed from three years ago, we are running out of oil and had to go into the synthetics will stop now the argument is do we have to much oil?
When you see this kind of thing happen and you see a bubble here, do you look to get on board for a little while before it were, or do you steer clear benchmark dax is not just, day.
You go around the world and the prices — we hear the same thing in vancouver, sydney and his temple.
You don’t see any commodities.
It’s a different story there because of the strong dollar.
In terms of stock, and the day and takeovers, i would prefer to let others enjoy it and stick to hard assets and cash.
Is there another way to manage it other than sticking to hard assets and cash?
They go out and make a $6 billion purchase on the stock jumps 5.5% even after a rival says we are not willing to pay that much — they did not use the word crazy.
Like the jump bond market rolled over last summer.
There is an etf you can buy that is inverse to the junk bond, but as they go down, you make money.
We put it our fund because it’s way too short the junk bond market.
We hope this continues.
For our sake, it would need best if it continues unfettered.
There’s no question that when the availability of credit contracts a little, which it always does when rates go up, which they always do.
The question is when.
Part of what is driving it is if you are sitting on a lot of cash or credit capacity, your shareholders are saying to something with it.
That is why buyers are typically rewarded on the buy side when they announced a big deal.
Finally, you’re doing something with the balance sheet because equity valuations are no longer about etf’s, it’s about smart uses of — smart uses of capital.
If i see mortgage rates at 3%, i think right now is the time for me to pick up a house and i’m sure buyers are probably thinking the same thing instead of talking about $6 are talking about $66 billion.
Especially when gdp struggles to be positive.
We had the news about japan today that took everybody by surprise, but why?
We have barely been pushing 2% that we are feeling good about it.
If you are a gdp-based company, you cannot do that much to push your revenue and earnings and how much can you squeeze costs out of your business?
Every company for a long time has been trying to do it.
You’ve got this cash combined and synergize will stop thank you so much for joining us.
I’m sure the recession in japan is not something that took you by surprise will stop when we come back, islamic state makes over a million dollars a day from sales of stolen oil that we