There are many great reasons to go to the San Francisco Hard Assets Investment Conference: Keynote speakers, expert opinions, workshops, company presentations, and opportunities to meet companies and network with the metals gurus. But one highlight is the panel discussions in which experts get together and debate the issues. This year's panel discussion – chaired by Rick Rule – offered up a lively debate on a number of topics. The discussion went over-time in spite of Mr. Rule's best efforts, simply because the subject matter was so engrossing.
In this article, we've summarized the discussion to give readers a sense of the insight shared from the panel, which consisted of Adrian Day, Paul van Eeden, Ian Gordon, and Jim Dines. Note: Quotations are direct quotations, although some quotations have been edited for grammar or tangents. Due to space, we are providing a summary of panel answers and not always the entire answer.
Rick Rule opened by asking the panel experts about Black Swans – unexpected events that could dramatically change the course of the global economy.
Adrian Day spoke first and said, "By their nature, black swans are unexpected. I think we're approaching the end of the Bretton Woods fiat currency arrangement… It's going to be volatile, and how it ends is going to be uncertain. I think we're going to have a lot of social problems."
Next, Paul van Eeden suggested that the Black Swan event could come out of China: "The event that would cause the most damage would be [if] something in China fractures the confidence that people have in the Chinese growth story, whether that is a banking crisis in China or whether it's social unrest because of the tremendous income inequality. Later in the discussion, Mr. van Eeden said he didn't think Europe would be a Black Swan event: "The reason is because all eyes are on Europe – everyone is thinking about Europe and worrying about Europe. Because of all the attention focused on it, I don't think it is going to develop into a major crisis. I think crises occur when things happen unexpectedly; when they catch us by surprise… Because everybody is so focused on it, I don't think it's going to be a major problem."
Jim Dines added his response to Mr. Rule's question: "I'm looking for the emergence of resource imperialism. It's begun with China and rare earths but I think more and more people are going to get out of paper [currency and investments] and into resources." Then he added China is vulnerable to a crash but India is awakening and Africa is coming onto the global scene, too. "There's a flock of black swans!" he exclaimed to the audience.
Ian Gordon's belief is that the Black Swan event will be in Europe. He said: "Never in modern financial history have we ever had a situation where the second most important currency on the planet faces the possibility of being ruled out of existence overnight. 27% of the world's foreign exchange reserves are denominated in the Euro and it's unfolding." Then he said something surprising: "The Black Swan may come from a different direction: I wonder if Germany will pull out of the Euro and issue some marginally gold-backed bonds." And after describing that, he said: "I have zero confidence that we'll get out of this without a little blood on the floor."
The discussion turned from a Black Swan event and briefly focused on Europe and what many people feel is an inevitable change. Here's what the panel had to say:
Jim Dines said that bailouts are not the right answer; capitalism should accept failure: "Part of the problem is that the Euro zone is trying to bail Greece out. Failure is a possibility, just as death is. We should allow companies to go broke. I do not comprehend why citizens need to bail out banks." And Paul van Eeden agreed: "I like Jim's position to allowing failure. Our whole world would be much better if we allow failure." Adrian Day added: "The Euro cannot work. It doesn't make sense as a currency."
Next, moderator Rick Rule said that most of the panelists were seasoned participators but Paul van Eeden was new and should be welcomed. In welcoming him, he referenced a talk by Mr. van Eeden earlier in the conference when Mr. van Eeden said "gold was toast" and would drop to about $850.
Mr. Rule invited participants to offer their feedback to Mr. van Eeden's position. Mr. van Eeden was allowed to respond to them after. This was the liveliest part of the debate and we've tried to capture the main points here, summarizing from several moments when the conversation went back-and-forth between panelists.
Ian Gordon provided the first feedback to Mr. van Eeden's position: "The notion of gold being worth $850 is something I think is structurally wrong beyond belief.”[Other countries] don't trust the US dollar or the Euro and they will substantially increase their gold resources. I don't think we will see gold under $1600 at this point. I think we've had a good bottom in place and a year from now, I'll be surprised if we're not at least at $2400."
Jim Dines was next in line to give feedback to Mr. van Eeden's claim of $850 gold. He said: "There's no price of gold. Gold is money and it represents different amounts of paper [currency] in different countries… Gold is going to be the ultimate repository of cash-seeking safety… Gold does not go down. Paper currencies are collapsing."
Adrian Day added his feedback: "Gold is money and we are very rapidly realizing that the era of fiat money (paper money with nothing backing it) is coming to an end. Individuals don't trust money; they want gold. So the era of paper money is coming to the end, and gold is the obvious and clear beneficiary of that. The reasons that people are buying gold in the last few years have not changed. They are buying it to hold the value of money."
Then, Mr. van Eeden was given a chance to respond. Although he responded to each panelist individually, we have summarized his points here (because some of his points applied to all panelists).
"You're comparing gold to money. The big question I have is: 'what is money?' Money is a medium of exchange and gold is not currently a medium of exchange. Gold is a financial asset with a monetary component but not necessarily a medium of exchange… If we want to create a value relationship between gold and the US dollar, we need to not only define gold but we need to also define the US dollar. If we were alive in 1913, we'd all agree that paper money would come to an end. But here we are in 2011 – paper money has lost a lot of value but it hasn't come to an end." He then described how the "average person" doesn't understand fiat currency. "Paper money is devaluing and ultimately will come to an end but it's not going to be that soon."
He also addressed Mr. Dines who said that gold is in an uptrend: "Gold is in an up-trend. I agree. But he said it will remain in an up-trend until the up-trend is broken. I agree with that, too. Now here are two interesting comments: If you wait for the up-trend to be broken, it's probably too late because you may be down 20% or 30% or 40% from where you got in before being convinced that the up-trend is down. I never try to pick tops or bottoms because I don't know how to. I don't want to capture the whole trend; I just want to capture a piece of the trend."
With the panel running out of time, Rick Rule invited each panelist to give what he called a "White Swan" – a positive, optimistic event that would keep the global economy from falling apart.
Adrian Day said: "Congress could get together and decide on a few trillion dollars in budget cuts." Then Paul van Eeden added: "In spite of all the problems, the truth is that we are human and very, very ingenious at creating solutions. If you look at our economic history, our advances in technology and enhancements in productivity have caused tremendous wealth creation. We could see technological innovation and productivity enhancements that could drag us out of this mess." Jim Dines had a less-optimistic/more-realistic possibility: "In the 1970's, we had a similar situation. The way we got out of it then was that they ran the printing press. We had inflation… but prices didn't gone up near as much [as was thought]. I think [the government] will do that again." And Ian Gordon added jokingly that the White Swan event would be "An outbreak of fiscal integrity in Washington."
Panel discussions don't always get exciting. But these discussions were quite lively and panelists and attendees alike enjoyed the debate and the insight shared.
San Francisco Hard Assets Investment Conference: http://www.hardassetssf.com/
Rick Rule: http://www.gril.net/
Adrian Day: www.adriandayassetmanagement.com/
Paul van Eeden: http://www.paulvaneeden.com/
Jim Dines: www.dinesletter.com/
Ian Gordon: www.thelongwaveanalyst.ca/