Why the Gold Bubble Will Burst

Transcription

1 Why the Gold Bubble Will Burst Presented by Harry S. Dent Jr, Editor of Boom & Bust Elite October 7 th, 2011 Hi. This is Harry Dent. Welcome to the Boom and Bust webinar entitled Why the Gold Bubble Will Crash. Deflation is the trend, not inflation. You can notice from our title slide that I started off in the late 80s and early 90s. My first book came out in late 1992, The Great Boom Ahead. We were very, very bullish because we looked at the Baby Boom Generation how large it was, how they we re going to earn, spend, borrow more money, buy houses, drive the economy up, and drive inflation down with their productivity. 1 P a g e

2 And of course, all of this happened over time, against most economists expectation. More recently we published The Great Depression Ahead in late 2008, in which we were much more bearish. And now we ve released The Great Crash Ahead, which came out on September 20 th. In our latest book, we re saying that the Fed has created another bubble not in lending (despite all its stimulus efforts), but in stocks, commodities, gold, silver, and everything else. Now these things are going to crash. To understand why gold will crash ahead, you re going to have to see gold and silver more as a bubble than a reaction to the debt crisis. This is NOT a case of Oh my gosh, the debt crisis is going to kill the U.S. dollar. The dollar will rise ahead. Gold will crash. Our Contrary Forecasts We agree with people who are saying the debt crisis is bigger than anybody thinks it is. And we will help illustrate that fact in this presentation. But we disagree about what you do about it. We disagree with Peter Schiff and a lot of other leading people who see inflation ahead. The deleveraging of debt always, and I m going to underline the word always, always causes deflation in prices, not inflation. Gold and silver are primarily inflation hedges. So we see big danger for people who think you re going to be safe by being in gold and silver. And by the way, we started getting people out of silver at $50 an ounce in late April. Silver has already crashed over 40%. Gold is probably next. And there s more to come. Now, I obviously have to run through some logic here again, because this is counterintuitive Everybody thinks that the Fed is creating money, that the government is stimulating the economy, and that all this printing money has got to cause inflation. What they re missing is that the private debt crisis is much bigger than anyone really understands and it is deleveraging. That causes deflation. 2 P a g e

3 Now, before I get going, I just want to go through a few simple points that most people miss about the economy how predictable it is long term. Why the Economy is Predictable in the Long Term The first slide here shows what we call the Spending Wave That little line that runs across the red graph (which is the Dow adjusted for inflation) is simply a 46-year lag on the birth index in the U.S. We adjust this to include immigrants, which we are able to do accurately using a computer model. It says we can see the booms and busts in our economy 46 years in advance. Now, how does that correlate with the stock market? It usually goes up with a booming economy and down with a not so booming economy. And as you can see, it correlates very closely with the stock market over time. This was the indicator in that had us predict that Japan was headed for a long downturn 12 to 14 year downturn while the U.S. and Europe were going to see the greatest decade in their history in the 1990s. 3 P a g e

4 The Baby Boom was just peaking in Japan, turning down in their spending cycle and in Europe and the United States they were just hitting their strongest years, as you can see in the middle of that big wave. Now, people drive our economy, especially in the last years where middle-class people have earned very substantial incomes and have a lot more influence on the economy than they did back in the good old days in the 1800s when most people were peasants or farmers. People enter the workforce at about age 20, get married at 26, have kids in their late 20s, buy their first home at age 31, trade up homes as their kids enter high school at ages 37 to 42, spend the most money at age 46, plateau their spending into their 50s while their kids are finally fully leaving the nest, and then they spend less the rest of their life while saving for retirement. We hit our peak savings rates age 54. We hit our peak net worth from continued saving at age 64. And we retire at age 63, one year before that. So, we know when people enter the workforce and retire, when they spend money, when they borrow money, when they save money. We know from cradle to grave what people do. For the economy, it s more people in a generation moving into their peak spending at age 46 and the number is that precise that drives our economy and we can see these long cycles. Now, also notice two things in this Spending Wave graph Notice how volatile the stock market can be throughout that long-term trend. Yes, the stock market does follow that long-term trend, but we had the 87 bubble crash and then we had the bubble crash, the bubble crash, and now we have another one coming. So, it s the short term that is most difficult to forecast. How high is the market going to go? When is it going to crash? When is it going to accelerate? This all has to do with news and political cycles and investors getting too bullish and too bearish and running this way, then running that way in herds. But the long term, we say, is highly predictable. Economists don t think that way. They think the short term is predictable if you carefully look at the politics. We say, the long term is predictable. And we said 20 years ago that a downturn would happen around Look at the falling part on the other side of the Baby Boom, right in the middle of that graph, that s Generation X. That s the declining number of births and the resultant people that are going to do everything in smaller numbers. 4 P a g e

5 They are going to buy homes in smaller numbers. They are going to spend in smaller numbers and borrow in smaller numbers. This is why the Federal Reserve cannot successfully stimulate the economy. Plus, the Baby Boomers still dominate the economy and they are moving into a saving mode, not borrowing, and they will never buy a bigger house. They ll only trade down. So, the economic trends point down from about 2008 to before they turn up. Then the second thing to notice about this Spending Wave is the next generation People claim all the time that the Echo Boom generation (that is, the children of the Baby Boomers) is larger than the Baby Boom one. Not in magnitude. People that say that haven t adjusted the numbers for immigration. The reality is, the Echo Boomers never got to the birth rates and they ll not have the impact. They will do everything in smaller numbers. But we will see a rising tide in the economy about a decade from now and that ll last for four decades. This Slowdown Will Be Global So again, there s a smaller generation following a larger generation. This already happened in Japan. They had a real estate bubble. They had a stock bubble. Their Baby Boom peaked earlier as we predicted in the late 80s. When they slowed down in spending, their economy slowed down as well and all those debt and credit and real estate and stock bubbles collapsed. Stocks went down by some 80%... and then never bounced much. Real estate went down 60%... and never bounced much. We can see these trends around the world in any country. Most countries are following this Baby Boom pattern. Europe, the United States, Canada, Australia, New Zealand. Japan was just early. But they all had Baby Booms peak around the same time. This means what we re seeing is a world-wide slowing. And the countries that have the worst debt problems and the slowest economies were Japan first, and now it s in Southern Europe where you have the fastest aging societies and the worst demographic trends. Now, I m going to throw up another very interesting correlation inflation. Talk about something complex. 5 P a g e

6 Commodity prices affect inflation. Oil prices affect inflation. So does monetary policy, economic growth or slowdown, import prices, currency changes and yet we have one simple indicator based on demographics that predicts inflation two and a half years ahead! We call it the inflation indicator. How We Predict Inflation This Inflation Indicator is simply workforce growth on a two and a half year lag. Now, let me give you the quick logic on this demographically. Young people cause inflation. Young people are expensive. They cost a ton of money to raise and they produce nothing at first. They re in a learning stage. They re not supposed to be producers up until they get out of high school or college and enter the workforce. They cost the economy money, they cost their parents $250,000 to raise, they cost government for education, and then for about two and a half years that s why this lag after they enter the 6 P a g e

7 workforce, they cost businesses to invest. Companies must give them office space, equipment, training before they start to produce more than they cost. So, young people are expensive. Old people the opposite. They ve peaked in their spending. They re downsizing their housing and cars and durable goods. They re saving for retirement, spending down their savings. They re winding down their lives. The economy doesn t have to invest in them and they de-vest. So, it s workforce growth, young people entering and old people leaving. Now look at this correlation. Here is workforce growth and a two and a half year lag, and with inflation being one of the most complex phenomenon around, look at the correlation with this over time. Holy smokes. I m even stunned at this over time. (I came up with this indicator in 1989, one year after the spending wave.) What the inflation indicator graph says is that because of the slowdown already starting in 2008 on a two and a half year lag, if it weren t for the strong government stimulus pushing a little inflation, this indicator was pointing down over the next two years. At the end of 2013 it says we re going to see deflation. Without massive government stimulus we would already be moving into a deflationary period and that is probably likely to happen in the next two years. Everybody is expecting inflation. We re expecting deflation. How We Forecast Inflation Now, we can make a rough forecast using this information. We take the number of 20-year-olds that enter the workforce on average in this inflation forecast graph and subtract the 63-year-olds that leave the workforce to retire on average. This way we get a longer term inflation forecast. 7 P a g e

8 You can see here the blue line in the chart That shows that peak inflation would have been around 1980, which it was. There s been disinflation ever since. But look at from about 2010 into 2023 This indicator would actually be forecasting deflation in prices because you re going to have Baby Boomers retiring at faster rates than the Echo Boomers or the younger people are entering the workforce. This says deflation between 2010 and 2023; and again long term, good correlation. Now the same lesson here. Long term we can predict the direction of inflation, disinflation, deflation. In the short term you can get big swings because of political and economic cycles. The long term is crystal clear to us. With these two simple indicators I just presented the Spending Wave and Inflation Indicator back in the late 80s, early 90s we said the 90s were going to have the greatest boom in U.S. history. We said that the boom was going to last until 8 P a g e

9 something like 2007 or a little later, then we were going to go into a deflationary slowdown like we had in the 1930s, NOT like the 1970s slowdown where gold performed so well. We said this deflationary period would be from 2008 to 2023 approximately. Two demographic indicators told us slowdown and deflation, not inflation. Now, we look at this next graph, the Federal Reserve balance sheet. This is QE1 and QE2 that you hear about. The Federal Reserve literally put about $2.1 trillion, which they created out of thin air, directly into our economy. And this is on top of the TARP and all the bailouts and all the other fiscal stimulus from the Treasury and the government. Obviously, what most people think, and it is common sense, is that this has got to be inflationary. The government is creating money out of thin air and if you create more money it is inflationary. But that s where they stop looking. They don t dig deeper and so don t look at this next graph the velocity of money. 9 P a g e

10 The velocity of money actually has been slowing since the late 80s and it dropped like a rock in the 2008 crisis. It s still dropping. Now this is also astounding to us. Despite massive government stimulus, unprecedented government stimulus at all levels, money is not being spent, it s not being leant, it s not turning over. That s what the velocity means. The Fed can create money, but if people don t use it and turn it over and spend it and lend it, it means nothing. Normally banks take in deposits, they lend it and then they get more deposits from those loans they make, and then they lend most of that out and they multiply the money supply. Now however, banks aren t lending consumers and businesses aren t borrowing, so the stimulus is not working. And that s why we re not getting massive inflation. 10 P a g e

11 Now, we look at another indicator, M3. Another Reason We re Not Seeing Inflation This is the broadest measure of money supply. When we went into our crisis and this is the first time in decades really in our lifetimes for most of us that the money supply went negative. We can see in 2009, into early 2010, the money supply went down to -6%. That s called deflation. And that was during QE1 when the government was massively stimulating and inflating. Now, with the accumulation of QE2 and a little bit of rebound in the economy, we have finally crossed back to about the 3% level and notice that s about where inflation is 3% right now. So temporarily we have inflation. 11 P a g e

12 But when you look at the M3 chart, you can see all the way back to the beginning of We have gone from very high money supply growth to very low, then negative, then slightly positive and the next round, we say, is going to be negative again. Deflation is the trend, not inflation, despite massive stimulus. Why the Banking System Went Nuts Now, if you want to know why the banking system went so nuts and that s going to be our main topic here going forward keep listening. We have the greatest real estate, debt and credit bubble in modern history (going back hundreds of years). Here s probably the poster chart for that. In the beginning of 2000 when real estate started to bubble and tech stocks started to crash, the average household could borrow 3.3 times their pre-tax income. The little red line at the bottom of the chart is the pre-tax income. 12 P a g e

13 By the top of the bubble, in early 2006, they could borrow 9.2 times. Banks basically almost tripled 2.8 times the credit they d extend to the same family, same income, same home. They just decided, Well, since real estate has no risk and interest rates are so low thanks to the Fed and all this stuff, we ll just come up with some innovative low-cost loans and just lend people a ton of money because we re banks. We make money lending money. And you know what? We don t lend against deposits anymore. We just farm out the loans to Fannie Mae and Freddie Mac at even lower interest rates and to USDA and to Mortgage Street, and the more risky loans we will sell to Wall Street and they ll package them up in nice, little, pretty packages and pretend like they re not so high-risk after all. They didn t lend against deposits. They borrowed to lend to people who borrow. We doubled the debt by doing that. Home prices bubbled to unsustainable levels. Surprise, surprise, now they re crashing. In late 2005 we predicted the real estate bubble was peaking. I was moving from Miami to Tampa in October I rented a McMansion in Tampa and it fell 50%. Who says you can t make money renting? I saved money on the rent compared to carrying the mortgage and taxes and avoided a major loss. So, home prices bubbled up just like in Japan. They more than doubled from 2000 to 2005 or 06, and then fell 33%. Most people thought, Oh my God, that s worse than the Great Depression, and it was. Most people think this has got to be over. No, it s not. The Rules With Bubbles Our rule: bubbles, when they go exponential, always burst and we re going to show this includes gold and silver, which have both gone exponential. Our second rule is bubbles go back to where they started, as the minimum. 13 P a g e

14 Real estate needs to fall 55%, maybe 65%, just to erase the crazy bubble from In five short years, housing more than doubled for no reason. And credit against housing tripled for no reason. We said back in 2005, The banks are already dead. It s just a matter of when somebody announces the funeral, and we think that s coming soon. Talk about inflation versus deflation Yeah, the government has thrown $2 trillion, $3 trillion, $4 trillion into the economy, depending on how you count it, but look at how much household net worth is. This is real money to people the value of their house, the value of their stocks and commodities and bonds. That dropped $18 trillion dollars on the first crash. And then again, what was unique about the 08 and 09 crash was that, for the first time in many decades, everything went down at the same time: real estate, U.S. stocks, international stocks, commodities, gold, silver, oil all had a massive crash. 14 P a g e

15 The only thing that went up, which we ll cover later, was the U.S. dollar and U.S. Treasury bonds the very things everybody said would fail in a banking crisis. The next time down, when we go into the next downturn, which we think is between 2012 and 2013, possibly 2014, will see at least $26 trillion dollars disappear. When money disappears, when assets go down, debts have to be written off against them, especially real estate. Debt disappears. Money disappears. Fewer dollars in the economy, tangible/intangible debt, government or private when money goes down we get deflation in prices. It s the destruction of asset values and credit that causes deflation even though the government is inflating. What we re saying is this: what s $3-$5 trillion in stimulus versus $18-$26 trillion dollars in net worth disappearing? The real picture is in this next slide U.S. debt creation. 15 P a g e

16 People think the Federal Reserve creates money The green line shows what the Federal Reserve has created. Yeah, they had about $700 billion in currency up until the crisis and then, for a rare time, the only time in decades and decades, they did QE1 and QE2. They did print money out of thin air to put into the banks to keep the banks from falling flat on their faces because the banks were melting down. So, this is all the Fed. Even after the biggest stimulus, they ve created about $2 trillion dollars above currency. Who REALLY Creates the Money in Our Economy But the Fed doesn t create most of the money. Now, the government, when they borrow money and issue bonds, that is creating money out of thin air. You just issue a bond and boom, you got money. Debt from the government that s $14 trillion and rising. 16 P a g e

17 But look at the big red line. That s private debt. THAT is the factor that everybody is missing. That is the 800-pound gorilla in the room. We went from $20 trillion to $42 trillion in debt between 2000 and 2008 under a Republican president and Congress, which is supposed to be fiscally responsible. This is the greatest debt and credit bubble in history. A lot of it was lending against housing and then creating new money through Freddie Mae and Fannie Mac, Wall Street mortgage securities that never were created before borrowing to lend $42 trillion dollars in debt. It is this massive amount of debt that started to melt down in 2008 and 09 and sink the system. It wasn t the government debt that was sinking the economy. It s not good and it s too high, but the government s debt has largely risen because we have a crisis and we re running deficits and stimulating. It was the private debt that is responsible for our current crisis, and the U.S. has the greatest private debt bubble in the world. Europe has a bigger government debt bubble. Japan had a big private and government debt problem and now has the biggest government debt problems. But it s the private debt that everybody s missing. We look at total U.S. debt 17 P a g e

18 At the top of 2008, before the private debt started to deleverage, government debt was $14 trillion. Financial debt this is Fannie Mae, Freddie Mac, mortgage securities on Wall Street borrowing to lend for the first time in history was $17 trillion. That s more than the entire government debt just in financial institutions in leverage. And you re wondering why financial institutions were melting down at the speed of light. That s the greatest leverage in that system ever; never been done before. Corporate debt $11 trillion. That s about as high, relative to the economy, as it was at the top of the roaring 20s boom, so it is bubble-like but it s not as extreme as $14 trillion in consumer debt. Since consumers, for the first time, could borrow massively against houses and even speculate beyond that, consumer debt now is twice as high as it s ever been in bubbles like the Roaring 20s in P a g e

19 What Really Changed This Time So, what really changed this time was the financial sector came up with these new financing vehicles that greatly expanded debt. It s the largest sector and consumer debt is more than double compared to income or GDP or any measure than it has ever been in history. We have the biggest private debt crisis in the world. $42 trillion private debt at the top. In total, that s $56 trillion. That s the real debt number for the U.S. Now, that doesn t count unfunded entitlements, which independent agencies like Mary Meeker estimate to be $66 trillion. The government admits to $46 trillion, but they re too rosy in their forecast. We ve always thought it was closer to $60-$70 trillion. We have massive debt. The 800-pound gorilla, long-term, is our entitlements, which are simply unsustainable. They will have to be restructured down the road. The short-term problem is this $42 trillion in private debt that will deleverage rapidly if the economy fails again as it started to do in Now, another thing people say China will save us. We say, No! China will not save us. China has the biggest bubble of anybody. Most people don t see their statistics because they don t publish them. You have to dig to get them. China has been building houses at twice the rate of household formation as we show in this next chart for the whole last decade. You just can t keep doing that. They have cities like Ordos that they ve built for a million people. There s not a soul in them. Everything s built. Streetlights, roads, apartments, shopping centers, offices, houses. There s nobody there. And guess what? Upper middle class citizens buying these condos and apartments and speculating they re going to lose money just like Americans did here. China s building everything: roads, railways way past their needs, industrial capacity, aluminum, cement, steel way beyond needs in a world that now is slowing China s got the greatest building bubble in history. It s not their consumers driving their economy, as this next graph shows declining personal consumption in China. 19 P a g e

20 In the early 60s, Chinese were like us. They drove about 70% of GDP. Now they re down to 36% to 37%. The government is driving most of the growth by simply building stuff that people don t need that s a bubble, and now their manufacturing is slowing down. They re now tipping into the beginning of a contraction in manufacturing. 20 P a g e

21 So China is not going to keep driving growth up. And you can see in this next chart, inflation has got almost as high as the last time before there was a slowdown 21 P a g e

22 So, China has been fighting inflation while the Fed here has been fighting deflation. They ve got strong demographics currently and we ve got weak demographics that s the difference. China s gets weaker in the future. But, here s the big sign. The Big Sign If you look at home-prices-to-income in emerging world s cities, you can see to the left of the middle of this graph, that Guangzhou, Hong Kong is very high times income. Go to the right side of the middle and you see Shanghai and Zhenjiang at 40 and 34 times. Look at Sydney and Vancouver, the most expensive cities in the developed western world, and it s at almost 10 times. 22 P a g e

23 China has the most expensive real estate in the world because of this building bubble because of the government encouraging all of this sort of stuff and people moving rapidly to cities. This is not sustainable. We see Europe melting down again due to government debt. We see the U.S. melting down more from private debt. North America goes down after Europe. The exports in China, which are 35% of its economy, go down and then their bubble bursts and their real estate starts falling. China is not going to save us either. Commodities Also Point to Deflation Commodities are another thing that points to deflation. Now, China is the manufacturing center of the world. They slow down and everybody who is exporting commodities and materials and energy, including Australia and Canada, and a lot of emerging countries, will also slow down. We ll end up with a world crisis and commodity prices collapse. Copper s already down 40%. We ve been saying commodities are peaking was a peak and we re getting a bounce here with all this stimulus, but commodities are going back down. There s another cycle we study like clock-like 23 P a g e

24 Just like generation cycles cause the stock market to peak every years like 1929, 68, and 2007 commodity prices peak every 20 years. In 1920 they had a major decline. In they had a double peak like now, then a lesser decline, but a decline for over a decade as usual. They peaked again in 1980 then moved sideways and declined for well over 10 years. This latest bubble hit its first peak in 2008 and its second peak in The cycle was due to peak around late 2009-early 2010, but you know you give a year or two on either side. We see this as a long-term peak and now commodity prices are going down. Notice the last time commodities peaked in That was the peak of an inflation cycle. And guess what happened after 1980? Gold and silver crashed. Disinflation caused them to crash. What do you think deflation would cause gold and silver to do if mere disinflation caused them to crash? We will have another commodity cycle probably about 2023 to 2039 or 2040, and it may be the biggest in history when emerging countries are largely driving our world economy because they re more commodity-intensive in their consumption, unlike developed countries. 24 P a g e

25 But the point is, the commodity cycle is pointing down at least for probably the next decade. Oil is going to fall to 10% to 20%. Copper, you know 50%, 60%, 70% on and on. And we say the same for gold and silver too. Here is the commodity index closer up... We had a major peak in late June of 2008 and a major crash and this was when oil went from 147 to 33. Everybody says, Oh supply/demand. We said, Boo-hoo! It s speculation. Hedge funds are buying this stuff 50 times leverage, load it up as soon as it goes down. They re forced to sell and you get a crash. We re in bubble times. Things bubble up and then they crash. Don t ever buy into a bubble in the late stages that s the rule. 25 P a g e

26 I don t care what it is. People thought tech stocks couldn t go down when they were on a forever productivity rise. They were wrong. They thought housing could never go down and we said, Haven t you looked at Japan that peaked years and years ago and never came back? People bought real estate anyway. Now everybody s running into gold and silver and commodities like they are the only real thing. Here s the gold chart. If you took the word gold off this chart and looked at it purely from a chartist s point of view, you d see that we re in the fifth wave of a fifth wave of a fifth wave. This is an exponential bubble that s going to burst! Here s our best case: I think gold s probably already peaked now. It s gone down enough at $1,934. We think stocks are going to go down into early October and we think the fourth quarter is going to be a little stronger than people think. We think stocks are going to rally. Bond yields are going to go up, killing the people that went into Treasury bonds for safety. 26 P a g e

27 There could just be a full on risk entrée where gold and silver go up as well, especially if there s further stimulus from the Fed or the government. Our best case is that gold goes up to about $2,000 in the next couple of months and then crashes at least back down to that four wave you see in 2008 and early 2009 that s like $ It may even go all the way back to where the bubble started at $250. You ve got to remember that gold was at $880 and went down to $250. And when it was at $880 people said it was going to go to $5,000. That s what they re saying today. Gold is going to go to We re saying, Gold is a bubble. When deflation sets in over the next year or so, gold is going to burst. What To Do Now Now, if you don t believe this and you re still a gold bug, fine. But at least be cautious. I would be selling gold every time we have a strong rally and I would be buying it back when there s a strong correction, so at least you hedge yourself when we suddenly get a crash and we re right about this. Regarding silver look at the silver bubble. 27 P a g e

28 We warned people in late April. We said, Start selling silver, $50, it s going to crash. It has already crashed down to as low as $27. That s over 40%. This could rally again in months ahead and then crash. We see the targets for silver as minimum $9, and possibly all the way back to $4 to $5 in the years ahead. Look at the last graph here. 28 P a g e

29 The last time silver made this sort of move in the early 70s and peaked in 1980, in the commodity price cycle, most of that move was made from into 1980 over a couple of years. Silver went from $5 to $50 and now back down. So, if you think you re safe in gold and silver, the truth is you re not. Especially in silver. Silver is one of the most volatile commodities. We re having a year commodity cycle, a long-term cycle peak just like in 1980, and it s started to burst. China is getting ready to be the biggest surprise in the global economy by not just stumbling this time. I think China is going to go down hard because of their overexpansion and the fact that their demographics are starting to age much faster than the U.S. Their workforce is going to shrink from 2015 onward for decades to come, like Japan before it and Southern Europe and most of Europe. 29 P a g e

30 Here is the U.S. we ve got $42 trillion in private debt, the greatest debt bubble in history. We can t even compare this to the Roaring 20s or any other time in history because consumers got so massively in debt and the financial institutions, as we showed, borrowed to lend instead of lending against deposits. That deleveraging says deflation. Slowing of Baby Boomers, older people retiring faster than younger people entering the workforce, that s deflationary. Everything we measure from every angle says deflation in the years and even the decade ahead. Our bet is strongly that, when people realize that the government stimulus and the government debt is not going to grow fast enough to offset the private debt deleveraging and the commodity prices collapse, gold and silver are going to crash. Gold went down, I think, 32% in the 2008 crash. Silver went down more than that and everybody thought gold and silver were supposed to protect you. Everybody Peter Schiff and all those people who have been right about the debt crisis have now said, The dollar s going to crash. Gold and silver are going to go up. We agree with them about the debt crisis 100%. We disagree with them 100% on the fate of the dollar, gold and silver. In fact, back in 2008, the opposite happened. The dollar went up 27% to 30% and silver and gold crashed. This is the very last slide we ll show here. We ve Been Debasing the Dollar 30 P a g e

31 We ve been debasing the dollar since Ronald Reagan, since the boom started. Back in 1985 the U.S. dollar index measured versus our trading partner s currencies peaked at about 167 and fell for most of the boom because we were creating private debt at almost three times the rate of economic growth. You can t do that. That s like a drug. That s like steroids. That s like taking crack over and over and over again. You wear out the system with too much stimulus and debt, but you re creating dollars. Remember debt creates dollars and private financial institutions create most of the debt. Government creates the next amount by borrowing constantly and the Fed creates almost no debt. They just make it easy to create debt or not for the private system. So, we debased the dollar in the boom. Now, when you listen to people who are into gold and silver they tend to say we re debasing the dollar with the stimulus and the Fed creating money out of thin air. 31 P a g e

32 Yes, we are, but the Fed s efforts are only $2-$3 trillion. It s not the $42 trillion we created in the boom and now are deleveraging. It s not the $18-$26 trillion that people are losing in net worth every time the markets crash. The Fed s efforts are minor. We ve got minor inflation versus major deleveraging and deflation. That s the story. The U.S. dollar bottomed in January of 2008 at 71 on this index. It went up to 92, an almost 30% gain, in the crisis when the system melted down. It came back down with the Fed creating $2 trillion, which should have made it crash. It came back down, didn t even make new lows and now it s back at 79. We ve had people buying the U.S. dollar at 73 first round and 76 here just recently because we see the U.S. dollar breaking up as Europe has more problems and as we deleverage more private debt in the next coming years. I think the U.S. dollar could go up 30% to 50% that is the safe haven for investors, not gold and silver. If you still don t believe me on gold and silver, then at least consider hedging, like we said. Only buy gold or silver when it has gone down, crashed short term and sell it when it goes up dramatically since it s in such a bubble and you can hedge it by buying the U.S. dollar (UUP is an ETF that will rise if the U.S. dollar rises). So again, we see deflation, not inflation. We see silver as the most dangerous single commodity market that s probably going to crash as much as 90% in the next several years. We see gold, since it has a little more monetary value, still probably crashing at least to $750 and maybe down to $250 per ounce. Are you willing to take that risk? We say, Take your gains in gold and silver or at least be more cautious about it. Again, thanks for listening to this webinar. I know we have a lot of contrary things. We re talking about the dollar going up; China, the great growth engine, stumbling more than anybody thinks; gold and silver crashing; deflation, not inflation. We are saying the Fed can t put Humpty Dumpty back together no matter how much they stimulate it. 32 P a g e

33 At some point the bond markets are going to penalize them like they just did Europe and raise their rates if they keep stimulating, so they re really checkmated. These are very contrary forecasts. But we have a lot of logic and evidence to support us a lot of simple human demographic logic that people can understand and some cycles you just don t want to argue with. You just don t argue with this year commodity cycle. This may be the first time it doesn t happen, but we have seen commodities bubble and especially gold and silver here recently especially silver. I would never bet against this year commodity cycle. It s the most clock-like cycle we have. Again, thanks for listening and welcome to Boom & Bust Elite. We ve got a lot more insights and a lot more investment recommendations to come to allow you to prosper in a time when most people are confused and they re running into the wrong things. They re running into treasury bonds just before the yields go up. They re running into gold and silver just as these bubble. Don t be one of those people running in the wrong directions. Best of success to you. (End of Audio) 33 P a g e