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Bob Chapman: Preserve Your Capital with Gold, Silver
Source: Brian Sylvester of The Gold Report (9/15/10)
International Forecaster Editor Bob Chapman believes the world is headed for a single governing structure where gold and silver are commonly traded currencies. In this exclusive interview with The Gold Report, Bob tells you why he thinks gold could still hit $1,600 this year despite the government's efforts to smother the gold price. He also offers a handful of equities he believes are worthwhile investments in such a price environment.
Bob Chapman: The International Forecaster has been in production for over 20 years. It came about because I retired at 52 and being a "Type A" personality I found I couldn't live life without doing something with my mind. Playing golf and tennis everyday was a bore, so I started The International Forecaster.
I had spent 28 years as a broker and owned my own firm for many years. I was probably the largest gold/silver stockbroker in the United States, perhaps even the world. We had 6,000 clients when we sold the company.
I really enjoy writing and doing radio. Occasionally I'll do television. It really fits me. I should've been in journalism. But then again, what would've happened is that I wouldn't have had the background to be a good journalist.
TGR: But why do you still write these columns?
BC: First of all, I found as a broker that a lot of people don't know how to properly invest or trade. Often brokers would have them trade; however it's not something average people normally do because they're not professionally trained. There are not a lot of people who can effectively trade and make money in the market. Perhaps 5% are successful.
But I ran into a lot of people who wanted to trade, and I discouraged them unless they had years of experience. I said you've got to pick a trend. For example, we are now in a long-term bull market in gold and silver. I tell people to get in with a trend and stay with it as long as possible. People were losing money in the market because they weren't doing that. Consequently, I've been helping people set long-term investment goals.
TGR: In a number of your columns you tell your readers that they should not believe the data and public policies presented by government or other authorities. This is a bit of a tough question, but with all due respect, why should our readers and your readers believe you?
BC: Number one: I spent three years in counterintelligence for the United States government and worked with the National Security Agency as well as an adjunct agency to the Central Intelligence Agency in army counterintelligence against the Russians in Europe. The first thing I learned was that the Japanese diplomatic code had been broken in 1937. That was declassified in 1968. I found out that the United States government knew everything that the Japanese were doing. I wasn't very happy with that, so I started to think outside the box. I started to look jaundiced at things that were being done, especially because I was spying on the Russians.
After I left government service, I maintained the same kind of attitude toward what government had to say. And it wasn't just the U.S. government. It's all governments. I had a different perspective than I had prior to being engaged in counterintelligence work.
As far as the statistics that I think you're referring to, like the CPI (consumer price index) and the unemployment figures, John Williams (www.shadowstats.com) is another economist who does what I do and his figures come out the same as mine. Real unemployment is not 9.8%. If you put all of U6 together (the Bureau of Labor Statistics measures six types of unemployment, U1-U6) and removed the birth/death ratio, you're talking about 21.5% unemployment. So why doesn't the government tell the public all about U6? It's a good question. But the figures are all bogus.
TGR: Where do you get your figures from? What calculations are you making that are different from those of the government?
BC: Well, that's very complex. I go to a number of places. But I think the easy way to answer that is to go to John Williams' site and the numbers are all there. He does the same thing that I do. I don't have a monopoly on questioning things. I think you would find that people who are involved in economic analysis often vehemently argue with each other over different interpretations of data. It's certainly being reflected in part with the ascendency of gold and silver prices.
TGR: Correct. But where you would likely part ways with someone like John Williams is the idea that the U.S. dollar is being dumped as part of a larger conspiracy that's taking us down the path toward one world government. That's a very radical perspective. Do you think that you risk not being taken seriously with perspectives like that? Or is this just a matter of you trying to educate people because they're not hearing about those kinds of ideas elsewhere?
BC: It's more education than anything else. We add a tremendous number of subscribers every month. Just in the last few years we've probably quadrupled our base, which is in the thousands. Obviously there are people listening who are receptive and believe that it could or it does exist.
TGR: You mean the notion of the destruction of the American economy to further the idea of a universal world government?
BC: Correct. It's not only the American economy. Look at what just happened in Europe. The Europeans have an austerity program. They raise taxes. We've taken the opposite direction. Quantitative easing, Part 2—or QE2—is in the works. They're going at it through the Federal Reserve by creating more money and credit in the hope that it leads to an economic recovery, which hasn't happened yet.
TGR: But a skeptic might suggest that you have a core constituency and you're delivering what that audience wants. How would you respond to that?
BC: Well, that's a good question. But it's wrong. The reason it's wrong is that I'm doing 30 hours of programming a week. I'm doing it on AM, FM, satellite and shortwave radio and on the Internet. I'm reaching all kinds of audiences all over the world. That is not a core constituency. That is the global population. We have subscribers everywhere, including some important people, whom I'll not mention. One of the reasons that we keep the cost of the publication at the low level we do is because we want people to be able to access alternative information. People will only go so far in trying to discover what's going on. There are steps that you can take by putting the mosaic together. In over 20 years, our record in all aspects in the publication has been superlative.
Two months ago I said in The International Forecaster as well as on radio that I believed the Fed was going to go to the second stage of quantitative easing. I explained the reasons why, and lo and behold it happened. How did I come to that conclusion? The first thing was that the stock market started to rally. Then I saw information generally available saying that the economy was looking better when in fact it wasn't. There had to be another reason for major Wall Street firms going long on the market in a very big way.
TGR: You talk there about predicting some things correctly. This is a quote from your newsletter: "Here we are three years later back to square one. Now we not only have a new subprime crisis on the way due to the actions of government via Fannie, Freddie, Ginnie and FHA, but we still have the euro zone crisis to contend with. The financial environment is still one of Ponzi finance; little has changed." Please take us through the next two or three years as you see them.
BC: Well, we had an $868 billion stimulus package. The Federal Reserve then created enough money and credit to bring that package assistance up to somewhere between $2.3 and $2.5 trillion. For that, we had approximately 16 months of attempted recovery. During that period of time, five quarters averaged growth between 3% and 3.25%. I feel that was a very, very high price to pay for a relatively sideways movement in the economy. Now we're back to square one. The recovery is not continuing. The Federal Reserve is talking about more quantitative easing. They're talking about buying back the toxic securities they bought from banks at a price they won't disclose. That move essentially cleared up the banks' books but at the same time encumbered the Fed's books, which they're now going to unburden by selling the bonds back to the same people they bought them from. Now, we don't know what the loss factor is because they won't tell us, so we have to ballpark it. Out of this money that's coming and going they have to come up with a figure somewhere in the vicinity of $1.2 trillion. That's what they're going to use for this quantitative easing.
TGR: But what do you see happening in the economy as QE2, as you put it, gets rolled out?
BC: Well, that's a good question. I'm sorry to tell you that it's going to be inflation because this money was not in the economy. It was sterilized. Now it's going to be monetized. As these funds get monetized and go into the system, they create inflation. Inflation is going to be higher. Official inflation right now is 1.6%. The real figures are higher than that.
TGR: How much higher?
BC: Anywhere between 5% and 8.25%. I would say around 7%.
This went on 2.5 years ago when the government said that inflation was 5.5%, when in fact it was over 14%. It's two different worlds. The proof of that is when you see gold and silver run up like they did 2.5 years ago before deleveraging took place. These days gold and silver are again poking around new highs. That's a reflection of what buyers of gold and silver see coming. They're anticipating that there will be inflation, which is problematic because it steals purchasing power from the public.
TGR: Do you have some projections for gold and silver in a quickly rising inflationary environment?
BC: I think that this year gold will be anywhere from $1,450 to $1,650. It's very doable without some terrible event happening, which would cause it to go even higher. If you look at the official inflation figures since 1980, gold should be selling at $2,400 an ounce. If you take John Williams' figures, it's $7,600 an ounce. Gold and silver are both underpriced.
TGR: What about in 2011?
BC: Next year I believe it'll be higher. It has been the official policy of the United States government and the Federal Reserve and other Central Banks to suppress the price of gold and silver.
TGR: How do they do that?
BC: They do it through the President's Working Group on Financial Markets, which was instituted in August of 1988. They are using that to interfere in the market. Look at the markets from day to day. I used to be a tape reader and I was a trader for 25 years. You get rhythms from markets. You can see the Fed in there along with the Treasury department making the market do things that they want it to do.
TGR: That's a little difficult to believe.
BC: It would all be settled if the United States government told us what the Working Group on Financial Markets was doing in the markets, but it's all a secret. They leave themselves open to this.
TGR: At one point during The Great Depression, the American government outlawed owning gold. If there is massive inflation and serous economic troubles, could that policy be invoked again?
BC: Absolutely. The government can really do anything it wants, whether it's through executive order or through the legislature. The president could say tomorrow morning that the economy is broken, declare martial law and demand that if you've got gold and silver that you have to turn them in because the country is broke. That's essentially what President Franklin Delano Roosevelt said. After he did that and collected supposedly all of America's gold and silver, he then doubled the price of gold. It was a laughable exercise.
TGR: This is another quote from another column that you wrote in The International Forecaster: "If you have wealth, the only way you can protect it is with gold and silver assets. There is no other choice." How are you protecting yourself with gold and silver?
BC: While I do recommend a few gold stocks, I do not buy stocks. I have no accounts. My family has no accounts. Period. I buy bullion and coins and I do it frequently. I'm a big believer in both. I do not recommend exchange-traded funds (ETFs) because I do not believe they have gold and silver in the amounts close to 100% of what they're supposed to be holding. Neither do any of the hedge fund managers because most of them are not getting involved in that area. I think it's going to end up being a scandal.
TGR: But not everyone wants to be exposed to holding physical gold and silver. In some cases there's a security risk. In other cases it's just an inconvenience. What are some other ways that people can protect themselves?
BC: Well, I tell people with gold and silver to always take delivery unless it's impossible to do so. Then they should have it segregated in an account that they can access, whether it's in the United States or another country. Most people are happy to take delivery of gold and silver.
Shares speak for themselves. They're traded on exchanges. The earnings for these companies are what they are.
TGR: What are some other ways that people can protect themselves?
BC: I think that on the U.S. Dollar Index (USDX), the dollar could go down to the 45 mark. On the other hand it's about 82 right now, down from 89 and up from 74, six or seven months ago. If you think the dollar is going to go down in value, as I do, in order to hedge against that one could buy Treasury Securities denominated in Swiss francs or Canadian dollars. I think those two currencies will do well versus the dollar.
If you look at the figures for the last seven years, you'll find that every currency in the world went down versus gold. In the first six months of 2010, most of the major currencies went down 12% or 13%. The final arbiter here is gold. The question is who's going to win? Is gold going to become the ultimate currency or is it the dollar or will it be another currency? It's hard for another currency to compete with gold with all the debt out there and all the problems the world's got when you have a fiat currency that's backed by nothing. The only currency out there that has a backing of gold is the euro; it used to be that 15% of the currency was backed by gold, but now it's about 7%.
TGR: But for people who want exposure to gold and silver through equities, what do you think investors should do?
BC: Well, I recommend four stocks, Agnico-Eagle Mines Ltd. (NYSE:AEM; TSX:AEM), Goldcorp Inc. (NYSE:GG; TSX:G), Silver Standard Resources Inc. (TSX:SSO; NASDAQ:SSRI) and Minefinders Corporation (TSX:MFL; NYSE:MFN). That's it. If people want to speculate, that's fine.
TGR: But what do you like about Agnico-Eagle?
BC: First of all, I know the company quite well. I've known the president of the company, Sean Boyd, for about 18 years. I consider him a good friend.
The subscribers to my publication own a lot of this stock; same thing for Goldcorp. These are fine companies with excellent management. The same is true for Silver Standard, which is more in the silver vein. Minefinders is a smaller company producing gold and silver.
TGR: Yes, much smaller.
BC: But I've known Bob Quartermain, who just left Silver Standard, for maybe 25 years. I've known Mark Bailey at Minefinders probably for about 18 years. I don't know the present management of Goldcorp, but I did know Robert McEwen, the founder and former Chairman and CEO, very well. I don't speak to him often, but the structure of the company is there and it's terrific.
TGR: In terms of a company like Minefinders, do you like it because it is producing both gold and silver?
BC: This group illustrates one of the things that's important in these mining companies. The only one out of that group that has a large float is Goldcorp, and there's a good reason for that. But I look for companies that have small share floats because there's more leverage in them. AEM only has 157 million shares outstanding and for what they've got that's astronomically low. With Silver Standard, the figure is about 78 million and it's about 65 million at Minefinders. It shows that the management really did a fantastic job developing the company by not watering it down with lots of equity.
TGR: What are some catalysts for these companies to grow?
BC: I think the bigger companies, Agnico-Eagle and Goldcorp, will buy other juniors that are coming along. It's easier for them to do that.
Silver Standard has been selling some properties to fund other acquisitions.
Minefinders continues to develop new properties. They have one called La Bolsa in Mexico near the border with Arizona that they're developing right now. And they just found a good mineralized extension on their producing Dolores mine in Mexico.
TGR: Do you have some parting thoughts that you would like to impart to our readers?
BC: I think the most important thing is the preservation of capital. How do you do that? My way to do that is in gold- and silver-related assets. It doesn't mean I'm right, but I think that's the best answer. For people who have lots of money and don't want it all in gold and silver, I recommend the Treasuries denominated in Swiss francs and Canadian dollars.
Some people want income. You have oil and gas trusts. There's nothing wrong with them. They pay very well, about 7% a month. That's a fit for some people. But getting in the general market I think is too dangerous, like buying a 10-year Treasury note and getting a 2.42% yield when I think inflation is much higher than that.
TGR: What do you say to people who claim that gold only appreciates on fear and that it doesn't have any real intrinsic value?
BC: I tell them to go and find a better investment. I give advice to people and it doesn't cost them anything, so I think that if people disagree with me, that's all right. But if they can find a better investment than gold, please let me know.
TGR: Thanks, Bob, for sharing your thoughts with us today. Much appreciated.
International Forecaster Editor Bob Chapman was born in Boston, Mass., attended Northeastern University, majoring in business management, and spent three years in the U.S. Army Counterintelligence, mostly in Europe. He lived in Europe for six years, off and on, three years in Africa, a year in Canada and a year in the Bahamas.
Mr. Chapman became a stockbroker in 1960 and retired in 1988. For 18 of those years he owned his own brokerage firm and was probably the largest gold and silver stockbroker in the world. Bob had over 6,000 clients when he retired. From 1962 through 1976, he specialized in South African gold shares and was an expert on the South African mining industry.
In 1967 Mr. Chapman began writing articles on business, finance, economics and politics. His articles have been printed and reprinted in over 200 publications. He owned and wrote the Gary Allen Report, which had 30,000 subscribers. He currently is owner and editor of The International Forecaster (started in 1991), a compendium of information on business, finance, economics and social and political issues worldwide, which reaches 10,000 investors and brokers directly every month. Parts of his publication are picked up by 60 different websites weekly, exposing his ideas to over 10 million investors a week. From 1976 to the present he has spoken and given workshops at over 200 business conferences worldwide, and has frequently been on radio and TV.
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1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Goldcorp and Minefinders.
3) Bob Chapman: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None.