Jim Rickards nails it again

[verdo]

Re: Jim Rickards nails it again

Rickards predicts the windfall tax, but never answers the question of how to deal with it (as far as I know).

Well I think that is mainly because he doesn't see the tax as a problem. Correction...I think he doesn't see it as a problem worse than the one you would have if you held on to dollars instead. If they slapped a windfall on gold, it means that gold had already risen substantially precipitating a dollar crash, so at least your principal dollars were protected...which is the way I think he sees it. You certainly wouldn't want to trade that for the extreme losses others are bound to take by holding on to stocks. They aren't going to do well going forward in this stagflation we're seeing. The next large asset class would be real estate, but he knows that most people can't throw in all their cash there either. There really aren't a whole lot of other areas to put your cash at that point that are both cheap and liquid, so gold seems like the least bad. On top of all that, he still only tells people at the end of every interview to put 10% into gold (and 20% if you're aggressive). There is a whole 80 to 90 percent of your portfolio free to invest in other hard assets that are least likely to see a windfall tax slapped on to it

And in terms of what happened in 1933, it's important to remember that the confiscation option was one that actually helped solve the widespread, underlying problem (which I don't believe a windfall profits tax does at all). Since the U.S. used a gold standard at the time, they had no choice but to increase the gold supply (because the gold supply was essentially the money supply) to fight deflation. So the draconian answer actually worked to solve the underlying problem. Today though, the dollar is not backed by gold, so trying to get the gold out of Americans hands actually doesn't help solve the problem they'll be facing in any significant way

[NCR85]

Re: Jim Rickards nails it again

The last part of the interview made be raise an eyebrow: he talks about how there are winners and losers in a currency war and the winners are those that hold tangible assets whereas the losers are "everyday Americans". Real estate is included in "tangible assets". So the vast majority of people, who have most of their net worth invested in housing, on borrowed money no less, have nothing to worry about??

It seems to me that the main loser in an inflationary scenario is the counterparty to all that mortgage debt: the banking system.

[Milton Kuo]

Re: Jim Rickards nails it again

The last part of the interview made be raise an eyebrow: he talks about how there are winners and losers in a currency war and the winners are those that hold tangible assets whereas the losers are "everyday Americans". Real estate is included in "tangible assets". So the vast majority of people, who have most of their net worth invested in housing, on borrowed money no less, have nothing to worry about??

It seems to me that the main loser in an inflationary scenario is the counterparty to all that mortgage debt: the banking system.

I believe the real losers would be large holders of U.S. debt such as China. The banking system will be just fine since they create the money and have first use of it. The banks could also lend out the money against assets in a highly inflationary environment, create a money shortage causing a disinflation/deflation, and then foreclose on the collateral backing the loans. This allows the banks to acquire hard assets in what would appear to be a legitimate fashion versus printing money and directly buying hard assets.

[raja]

Re: EJ on gold tax

why would the gold price plummet though? What does a windfall profits tax do to the confidence of foreign investors holding USD outside of the US?

All governments love fiat.
Do you think it will only be the US government that tries to eliminate gold as a competitor to fiat?

Governments eventually may be forced to deal with each other using gold, but they would not let the people participate by using gold as an competitor to the dollar.

Gold would not be a profitable investment with a near-global 90% windfall tax.
If not profitable, there would be no demand . . . and the price would fall worldwide.

This would play out differently if the sheeple had the intelligence and motivation to understand what's going on, and vote in politicians who would act in the people's benefit. But how likely is that?
We shall see . . . .

But you yourself said (and i agree) that most people in the US do not own gold. So why should foreign investors worry about the tiny few in the US who would be scared into selling, when they would only make a tiny blip in the market, and they are staring at an even bigger problem, which is the US choosing to default? I would imagine that the chaos caused by the masses after the whole country defaulted would be much worse than the bitterness people would have if gold bugs got their way

I'm not sure I get your logic . . .
If you believe that US gold owners are few in number, then how will the government's buying their gold make any significant dent in paying off the trillions in US debt?

What does a windfall profits tax do? Doesn't increase foreign investor confidence in the country, and the passing of draconian taxation laws only makes foreigners more timid to even look at the US, let alone throw their investment cash in.

It helps get politicians reelected because they have enacted punitive laws against the "evil speculators".
The windfall tax will not solve the dollar problem . . . but it could destroy gold as a competing form of currency to fiat.

[raja]

Re: Jim Rickards nails it again

If they slapped a windfall on gold, it means that gold had already risen substantially precipitating a dollar crash, so at least your principal dollars were protected...which is the way I think he sees it.

If you do the math, you will see that a 90% windfall tax would cause you to lose a great deal of the principle.

Say you buy $100 of gold.
It increases in value 10x to $1000 because the dollar has gone down in value 10x.
You pay 90% tax on $900 profit, leaving you with $90 in profit, plus your $100 in principle.
So you walk away with $190.
But since the dollar has depreciated 10x, your $190 is now worth $19.

Do you think that Rickards doesn't understand this?

On top of all that, he still only tells people at the end of every interview to put 10% into gold (and 20% if you're aggressive). There is a whole 80 to 90 percent of your portfolio free to invest in other hard assets that are least likely to see a windfall tax slapped on to it

He presents a very strong case that dollar destruction is inevitable. So why only 10% invested in gold? Doesn't that seem illogical? You have to think about this more deeply to understand why he's suggesting this.
Is it because there is a huge risk from punitive government action, such as a 90% windfall profits tax, and he doesn't want his investors to be exposed to that risk?
Interestingly, he doesn't talk publicly about how to deal with this risk. For that information, I guess you need to pay his $1000 consultation fee . . . .

And in terms of what happened in 1933, it's important to remember that the confiscation option was one that actually helped solve the widespread, underlying problem (which I don't believe a windfall profits tax does at all). Since the U.S. used a gold standard at the time, they had no choice but to increase the gold supply (because the gold supply was essentially the money supply) to fight deflation. So the draconian answer actually worked to solve the underlying problem. Today though, the dollar is not backed by gold, so trying to get the gold out of Americans hands actually doesn't help solve the problem they'll be facing in any significant way

It helps solve the problem of a run on the dollar toward gold . . . .

[raja]

Re: Jim Rickards nails it again

The last part of the interview made be raise an eyebrow: he talks about how there are winners and losers in a currency war and the winners are those that hold tangible assets whereas the losers are "everyday Americans". Real estate is included in "tangible assets". So the vast majority of people, who have most of their net worth invested in housing, on borrowed money no less, have nothing to worry about??

I believe what he means is that "everyday Americans" have a large portion of their net worth in dollar-denominated stocks, 401Ks, pensions, and cash. They may "own" their house, but what many actually own is debt on their house.

It seems to me that the main loser in an inflationary scenario is the counterparty to all that mortgage debt: the banking system.

If there was justice in the world, that would be true.
But I suspect that the bankers have themselves covered, at least the smart ones.
What Milton K said, plus adjustable-rate mortgages, selling off their fix-rate loans as securitized mortgage packages, buying up tangible assets with their personal funds, government bailouts, etc. Remember, the bankers are the buddies of the politicians, and a way will be found to protect the in-crowd.

[ProdigyofZen]

Re: Jim Rickards nails it again

Rickards said in the video that there is no risk to gold. But if you read his book, or listen to him in other interviews, he predicts that the US government will inflict a 90% windfall profit tax on gold. Is that not a risk?

I questioned him about this contradiction in a personal email, and he responded that his consulting fee is $1000 an hour.

Perhaps he knows a way to avoid the 90% tax, and you can pay him $1000 to find out what that is.
I suspect his answer would be that you must sell your gold before the government institutes the 90% tax. And I guess that means you've got to hope the government does not institute a tax and make it apply to profits earned in the year that you sell. No risk?

By the way, if you're interested in buying gold, his blogsite offers a "free" gold and silver newsletter.
Regardless of your luck in avoiding the 90% windfall tax, Rickards will make his profit . . . .

Raja, you are too concerned about the big bad government making a windfall profit tax on your gold holdings.

I am rather certain about 99% certain that this won't occur. I believe the last windfall profit tax was in 1980 from the Carter admin on oil company profits. Which it wasnt even a windfall profit tax but an excise tax.

This is not going to happen to gold. Gold is not an asset that affects every aspect of American's lives like oil thus decreasing the standard of living of the politicians constituents. There will be no reason to care about gold.

[verdo]

Re: Jim Rickards nails it again

If you do the math, you will see that a 90% windfall tax would cause you to lose a great deal of the principle.

Say you buy $100 of gold.
It increases in value 10x to $1000 because the dollar has gone down in value 10x.
You pay 90% tax on $900 profit, leaving you with $90 in profit, plus your $100 in principle.
So you walk away with $190.
But since the dollar has depreciated 10x, your $190 is now worth $19.

Do you think that Rickards doesn't understand this?



He presents a very strong case that dollar destruction is inevitable. So why only 10% invested in gold? Doesn't that seem illogical? You have to think about this more deeply to understand why he's suggesting this.
Is it because there is a huge risk from punitive government action, such as a 90% windfall profits tax, and he doesn't want his investors to be exposed to that risk?
Interestingly, he doesn't talk publicly about how to deal with this risk. For that information, I guess you need to pay his $1000 consultation fee . . . .


It helps solve the problem of a run on the dollar toward gold . . . .

Would you rather him say put 50% of your portfolio into gold? It seems kinda clear why he suggests so little. if he believes a windfall profits tax is a possibility (i do not), then his recommendation is clearly for the purpose of keeping people from being totally wiped out in their position if a tax like that were implemented. If he suggests people put a large chunk into gold, and he ended up being right about the tax, then a lot of people would loose their shirts. What kinds of things would people say about the guy's "advice" then? It's pretty much a loose loose for him, because if he said 50%, you would likely be questioning why he would tell people to put so much of their cash in gold, knowing that there are risks (hes probably just trying to pump gold to make a return on his own gold holdings) and when he suggests putting in a small bit, he still doing something shady lol. The reason he suggests gold at all is because he doesn't say a windfall tax is a 100% certainty. And it really isn't. Even with the windfall, holding gold will do you better than holding a lot of stocks out there, because many of them have nowhere to go but down. Stagflation wont help them one bit. Presenting a "very strong case" doesn't mean you dump all your eggs into one asset. There are many other things out there besides gold that one can also invest in.

And I dont understand why you're making such a big deal about the fee he charges. The guy helps manage a hedge fund (unless he left recently), and I highly doubt they would appreciate him just letting loose all the secrets that probably took a lot of work to acquire. And if he works totally for himself now, why should he hold the whole world by the hand and tell them where to put 100% of their money, open his phone line for the globe to use at his expense, and let go all of the information that has likely taken him time to learn himself for free? EJ charges for his services too, because he puts time and labor into getting the knowledge he has today. So what's so wrong with that? The amount that he gives for free is more than enough to weather the storm. He does deal with high net worth individuals, and so he charges a fee that not only targets that particular market, but also properly compensates him for his experience in the markets (which is fairly strong) and time (which is limited). Is his fee too much for you and I? Yes, definitely. But he doesn't work with people like you and I.

And as i said previously, I see how the tax helps solve the problem of people running to gold in the US. How does it scare people on the outside from not buying gold, especially if the US chooses to simply not pay back its debt as you said. American citizens arent sitting on hoards of gold, so why should them selling scare me as a foreign investor? There is zero chance that I would let go of any gold if the US government were deciding to default on the debt

[shiny!]

Re: Jim Rickards nails it again

Raja, you are too concerned about the big bad government making a windfall profit tax on your gold holdings.

I am rather certain about 99% certain that this won't occur. I believe the last windfall profit tax was in 1980 from the Carter admin on oil company profits. Which it wasnt even a windfall profit tax but an excise tax.

This is not going to happen to gold. Gold is not an asset that affects every aspect of American's lives like oil thus decreasing the standard of living of the politicians constituents. There will be no reason to care about gold.

History doesn't repeat, but it rhymes. There will be no logical reason to care about gold. Just as there was no logical reason for the Germans to care about the Jews. Never underestimate the cowardice of politicians when the "have not" electorate is out for blood. Scapegoats will be needed to distract attention from their own culpability, and what better scapegoat than a minority of "haves" who can be labeled as wealthy hoarders and speculators?

I fear there will be some sort of double-standard for gold ownership. Regular citizens will be "allowed" a time window within which to bring their gold to the banks and exchange it for dollars. They will then either be taxed on their "windfall profits" or the dollar will then be devalued. At that point the banks will own the gold, and policies will be in place to make that extremely profitable for the bankers.

[Polish_Silver]

Gold has coodies!

Raja, you are too concerned about the big bad government making a windfall profit tax on your gold holdings.

I am rather certain about 99% certain that this won't occur. I believe the last windfall profit tax was in 1980 from the Carter admin on oil company profits. Which it wasnt even a windfall profit tax but an excise tax.

This is not going to happen to gold. Gold is not an asset that affects every aspect of American's lives like oil thus decreasing the standard of living of the politicians constituents. There will be no reason to care about gold.

It's a question of whether gold holders will be vilified the way that oil companies were in the 1970's, or "speculators" were in the 1930's.

The wind fall profits tax did nothing to make gasoline cheaper. It just prevented people from making a profit on an asset that had gone way up.

I think making money on gold might piss off a lot of people. ---Nothing is more maddening than
someone getting right what you got wrong.

[Polish_Silver]

Nobody cares about gold, yet!

POZ is right to point out that gold is not on people's mind the way gasoline was in 1972.

Many bugs, wisely, rarely discuss their holdings.

But if the US announces that dollars are convertible at some par value, that will give gold a higher
public profile.

[lektrode]

Re: Jim Rickards nails it again

....Gold will probably be a lot more volatile now than it has been in the past, but I doubt any of these msnbc guys will call the ups and downs with any degree of accuracy

+1
and they're most certainly NOT nearly as effective at maintaining our focus on the topic as ms daniela is most certainly....
i know eye pay very close attention to everything/everybody she interviews ;)

[verdo]

Re: Jim Rickards nails it again

+1
and they're most certainly NOT nearly as effective at maintaining our focus on the topic as ms daniela is most certainly....
i know eye pay very close attention to everything/everybody she interviews ;)

I see what you did there ^^

[metalman]

Re: EJ on gold tax

EJ has not emphasized a gold tax as a problem.

However, he tends to be over optimistic about the rationality of policy makers.

Currently, gold is a collectable, and has the highest tax rate of anything.


EJ seems to think policy makers are accountable, which is different from being fair or consistent.

Well, they are accountable to popular sentiment.

I can remember the "windfall profits tax" on oil companies.

Oil companies are not people, but gold bugs aren't either.


Sheeple have obediently bought bonds, stocks, houses, and lost their shirt every time.

And these gold bugs, the butt of jokes for so many years, are sitting on a fortune.

How do you think politicians, the general public, and FIREM interests will feel about that?

Any different than they did in 1933?

ej's 1st reference to a big gold tax was in 2006... but over years backed off.

not here but behind the paywall ej told us how come... his 'pals' at mtgs at the boston fed let on re an 'ideal' gold tax rate... he had a link on a fed paper on it... the sum of it is the tax on gold will never exceed the rate they think they can collect... & they think it's too high now... the incentive to cheat the tax too high. the optimal tax rate is the one that you can collect the most of. gov't wants the $$$. a 90% tax that sends the gold out of the country in car chassis ain't gonna do it. rickards is full of shit on this one... for $1K/hr.

[raja]

Re: Jim Rickards nails it again

Gold is not an asset that affects every aspect of American's lives like oil thus decreasing the standard of living of the politicians constituents. There will be no reason to care about gold.

From that perspective, you are right. But that's not the reason that there will be "care about gold."

Ex-Central Bank Chairman Paul Volker once said, "Gold is the enemy." HE obviously cares about it. Why would he say that if gold wasn't a serious concern?

Here's the way it's gonna go down . . . .
The government is going to continue to spend money it doesn't have. The dollar will collapse, either gradually or suddenly . . . EJ's POOM. The People will catch on that dollars are for dummies, and will seek ways to preserve their assets. One way will be gold. The world financial system, based on the dollar will collapse, either gradually or suddenly. Alternative means of exchange will start to replace the troubled dollar, including gold. The major governments (including Canada . . . sorry verdo), which have all their eggs in the dollar basket -- world reserve currency -- will gradually or suddenly lose their grip on power, because their money -- their source of power -- is losing value. (Watch Greece for a preview of how broke governments lose power.)
To hold on to their power, the governments will try to stamp out competing forms of exchange, especially enemy #1 -- gold. They will do this any way it can: high profit taxes, outlawing possession, prohibiting exportation. It's all happened before when governments came under stress (or so I read in economic history).

At the same time, the governments will attempt to scapegoat "evil speculators" in gold. They will use whatever lies and tricks they can dream up to cast blame on anyone or anything but themselves. After all, these are politicians we're talking about, right? Unfortunately, the majority of the public, addicted to the government teat, will happily buy into it. Kiss your gold profits goodbye.

not here but behind the paywall ej told us how come... his 'pals' at mtgs at the boston fed let on re an 'ideal' gold tax rate... he had a link on a fed paper on it... the sum of it is the tax on gold will never exceed the rate they think they can collect... & they think it's too high now... the incentive to cheat the tax too high. the optimal tax rate is the one that you can collect the most of. gov't wants the $$$. a 90% tax that sends the gold out of the country in car chassis ain't gonna do it.

That's all logical.
But what EJ is missing -- and I commented on it at the time I read about it -- is the fact that this might be true IF things carry on pretty much the way they always have. That's the way the guys at the Boston Fed see the future, because that's the only way they can see it. The reality of what's actually going to happen is something that the Feds even entertain, because it would mean the destruction of their very way of life. Could they imagine a global derivatives crash? Or a collapse of the dollar? Or a US default? Heck, they couldn't even imagine a housing bubble So I think it's a big mistake to base one's investment decisions on the world view of EJ's insider friends' at the Boston Fed.