Transcript for Turd Ferguson: The Inexorable March Higher For Precious Metals

Below is the transcript for the podcast with Turd Ferguson: The Inexorable March Higher For Precious Metals

Chris Martenson:  Hi. Welcome to another podcast. I am, of course, your host, Chris Martenson. And today, we're speaking with Turd Ferguson, founder and proprietor of the precious metals weblog, Turd was a licensed securities professional for nearly 20 years until leaving the profession in 2008 — disillusioned, apparently, — to become a self-described serial entrepreneur. Since then, he's become one of the more popular, and for sure, one of the most colorful voices advocating for gold and silver ownership by the average investor. Every month, hundreds of thousands of readers visit his weblog eager for his analysis, as well as his very specific short-term price predictions for where the metals are headed. Two-thousand-eleven has been characterized by tremendous price volatility, both gold and silver experiencing that. And at the time of this recording, it looks like both are starting to show maybe some breakout potential here.

Turd, I'm thrilled to have you on this week [to] help make sense of all this volatility and drama in the precious metals. Welcome.

Turd Ferguson:  Thank you, Chris. It is my pleasure, and it's a real honor to get a chance to visit with you. So, fire away.

Chris Martenson:  Oh, the pleasure's ours. So, listen, you dedicate your website to, and quoting here, "the end of the great Keynesian experiment." So we can already infer a lot about your level of confidence in the economic status quo here, as well as why you're so focused on precious metals — by the way, the same reason I focused on them awhile back. Before we dive into the details here, can you give us a little more background about your macroeconomic worldview, your expertise in the direction at which you come at this material?

Turd Ferguson:  Well, I guess we come at it from a number of different directions. I guess in the end, it's almost just a real-world experience. The numbers are what they are. The facts are what they are. And to the extent that the media or the shady powers that be that we all talk about would want to convince you otherwise. And I think we are rapidly approaching the endgame. And it is an endgame of an exponential growth of debt that cannot possibly be serviced and can't possibly be grown out of, as they say. 

And so knowing that that moment is coming, I guess it kind of falls upon all of us to – if we've seen, if we've had a vision of that future, we're not supposed to just keep that candle under a bushel basket. We're supposed to go out and try to tell as many people as we can to warn them, and that's what we try to do at TF Metals Report.

Chris Martenson:  So the exponential accumulation of debt can't go on forever, you say?

Turd Ferguson:  No. I guess if you ask Paul Krugman, he probably would tell you that it could. 

Chris Martenson:  Yes.

Turd Ferguson:  But at some point, no. With the average maturity now on Federal debt has actually crept up some, it's closer to five years. But the average, I guess, interest rate on that debt that the Federal government's paying is somewhere in the neighborhood of four percent, and it equates to $300 to $350 billion dollars a year of interest debt service alone in the budget. 

Those rates, as everyone knows, are historically low, and certainly aren't reflective of economic conditions or ongoing inflation. If rates were ever to – well, let me step back. If the Fed were to exit the interest rate market and rates were allowed to seek their own natural equilibrium of buyers and sellers for bonds, interest rates could go to 10 percent, could go to 15, whatever you would think that buyers of fixed income would demand for the risks that they are taking, especially inflation risk. And then again, if you triple the interest rate that the Federal government is paying on its debt, well, then the debt service is going to triple, and then you have to borrow more money to try to fund the ongoing operations. And the whole thing rapidly spins out of control, and that is where I think we're quickly headed.

They always say as a credit card holder, you're supposed to pay off your interest, at least your interest, every month, because you don't want that law of compounding interest working against you. And, well, unfortunately, it is working against all of us at the present time.

Chris Martenson:  Yeah. I've written about that great endgame debt spiral as well. It's just a natural one. It's the one Greece finds itself in, in what? Two-hundred-twenty percent plus for one-year paper. And it's a very simple spiral to understand. The more your interest rates go up, the more you need to borrow to cover the interest rates. And the more you borrow, the more your interest rates go up, and we just spiral around that. Off we go. So I…

Turd Ferguson:  Exactly.

Chris Martenson:  I see that as kind of an endgame. And so if the Keynesian experiment is approaching its end, which means that we can't just constantly inflate our way out of every difficulty – and by the way, we tried to inflate our way out of good times too. It didn't matter. Right? Good times, bad times, money was created well – and by money, I mean credit – well in excess of underlying nominal GDP growth, and it really was independent of whether it was a crisis or a good moment. And so here we are, addicted to this grand credit experiment coming to an end, which in your view also means the collapse of the U.S. dollar's purchasing power as we know it.

Other analysts, myself included, have also been advocating that investors gain a lot of exposure to gold. Silver, a less extent in my case, has some defense against this outcome. I like both metals, but for actually entirely different reasons. How do you think of gold? And when you look towards the future, what do you predict there? And the same questions for silver when you're done with that.

Turd Ferguson: Well, let me stop you for a second, Chris. You mean in terms of price?

Chris Martenson: Yeah. Yeah.

Turd Ferguson: Or trend?

Chris Martenson: Or purchasing power preservation, however you want to look at that.

Turd Ferguson: Okay. Well, and again, I try not to make it too complicated. You mentioned earlier that the 20 years I spent in, we'll call it the financial services industry, in securities industry. I found that so many of these topics really get confusing to people very quickly. And not to make it sound like we dumb it down or anything, but I think to get people to really understand, you got to keep it on a rather simple level when you're approaching the masses. And so the way I put it for gold and silver so that people understand why you would buy them, the gold protects your wealth. It is the only currency that doesn't have – well, then here's a term for you and I. For everybody, it doesn't have counterparty risk. It is what it is, and it has been money for thousands of years. And so if you want to protect your wealth versus some wealth destructive event, you own gold. If you want to protect your purchasing power, a similar precious metal that functions as money is silver.

Purchasing power of anything, just because it's less in price. You can't walk around with one gold coin worth $1,600, or $2,600, or $4,600 in your pocket and expect any barter with it. But in terms of if the day ever came that you did need to, for whatever apocalyptic reason, you needed a store of money that you could trade with, silver accomplishes that. And again, because they are money, they can't be devalued. And as the U.S. dollar and other fiat currencies are devalued, you continue to see the value of gold and silver go up. 

Where do they go from here? Gosh, that sure is hard to say. And it's hard to say exactly how fast they will go, but if anything, I know they're not going to be going down over long periods of time. People have given me a lot of credit for being able to help people control their emotions when we get into corrective cycles, which invariably come in any bull market. You get short-term corrections. And the reason I'm always so confident that a correction is going to turn is, well, because the fundamentals are so strong. 

Prices may go down reflecting a short-term change in trading sentiment, but the long-term fundamentals are so strong because of that debt spiral that you and I just talked about and the devaluation of fiat currency. Therefore, as long as those fundamentals stay the same, gold and silver are going to keep going higher. How fast is going to depend on – and how far – is going to depend upon how quickly the spiral continues to play out.

So I have my targets for 2012, and frankly, they are targets because they are a continuation of the trend that we've seen from early part of this century. Gold has averaged about 20, maybe 25 percent a year. It allowed me a year ago at this time to project $1,750. We certainly have seen that and beyond, and we're trading as we talk near $1,800. 

Let's take the closing price on December 31st and add 25 percent to it. And don't be surprised to see it trade somewhere near there in 2012. That's for sure – $2,300, something like that.

Chris Martenson: Yeah. I asked about prices and targets because a lot of people expect to see it. I actually switched off the targets a while ago. I'm more in the view of – Eric Sprott gave a nice presentation at the KC Summit, and he said, "Look. Who cares about price? Let's look at the ratios that matter. How many barrels of oil can an ounce of gold buy? How many ounces of gold does it take to buy a house, a car?"

Turd Ferguson: Yeah.

Chris Martenson: Other things. And so when you look at many of these things that you care about, because that's what I care about. I care about I earn money. I save it. And when I get to the future, I'd like to be able to obtain the things I hope to obtain. So what I really care about, how are the trends out there? And right now, all of those key trends in terms of houses, oil, food, stocks, anything I care about, when you measure it in gold, you find you're just really in a very, very powerful bull market at this point in time with fewer corrections in it than you see with the dollar price. So instead of worrying about the dollar price of gold, I'm worrying about the gold price of other things. And it's been a useful sort of flip for me.

Turd Ferguson: Right. And, well, and along those lines, it really gets back. On my side, it gets back to are you stacking it? And why are you holding it in the first place? If you're going to get all upset because the fiat price of gold went down a couple hundred dollars in September, well, why are you holding it in the first place? Because I can assure you by next year at this time, or two years at this time, it's going to be higher than it is today. So if you're going to be upset about a drop, it's only probably because you are trading futures, or ETFs, or something, and it caught you in a downdraft. But if you're buying it simply as protection, if you're buying it because you know what's going on in the world and you can see how this is all going to end, hey, take advantage of those drops and use it to accumulate more physical while you can.

Chris Martenson: Yep. Yeah. If you can, do it.

Turd Ferguson: Yeah.

Chris Martenson: So, well, where do you fall on the heated topic of price manipulation? I mean, if you're a big believer and the trend says it's going to be higher next year, then clearly, if there is manipulation, you don't view it as being successful. Where do you fall on that for gold and silver?

Turd Ferguson: Well, it is successful, actually. It's successful in keeping it in check. It's probably part of the reason why it's been such a consistent trend higher. I mean, every year almost. It's not like it's 50 percent and it's – or 25 percent and it's 50 percent one year and zero the next. It's just pretty consistently 20 or 25 percent a year. And it's because of that presence of what we call the cartel, the bullion bank cartel, or on my site, we refer to them as the evil empire. It is their suppressive tactics that keep price in check. We can hope that one day they will exit the market and leave gold and silver free to trade, and actually find a true valuation, but unfortunately, that isn't coming anytime soon. 

And I stress, and I've been very open and forthright about this ever since I've had a Web site. People wondered how it is I'm able to – well, you mentioned earlier, Chris, the short-term price targets with some relatively high degree of accuracy. I can do that because the markets are manipulated. The gold and silver markets are manipulated. What I do does not – believe me. If you looked at my trading account and looked at my success chart to trade gold, or not gold, but corn, or soybeans, or crude, or something like that. I make choices just as badly as the average guy. The reason why I am successful in forecasting gold and silver is because they are manipulated. Because once you understand that the bullion banks, particularly JPMorgan in silver, are in there trying to stack the deck in their favor, then you use some simple technical analysis. And you begin to see where they're going to act, where they're going to place some sell orders to try to start a cascading waterfall selling by tripping stocks. It's not real hard. I mean, its pretty basic stuff. But once you, again, like I said, once you admit to yourself that if this does take place, it makes forecasting where price is going pretty easy.

Chris Martenson: Mm hmm.

Turd Ferguson: I'm in the camp – it's funny. I haven't really ever met Bill Murphy of GATA. We talked once on one of my podcasts. And I've not really read a lot of his work, or Chris Powell's work. It's not like I read that stuff, and a light went off, and I said, aha, yeah, these guys. But I respect what they do, but it's not like I'm just simply parroting what they've said. I've come to all these conclusions myself just in years of following gold and silver. What my experience has been just jives what their experience is and their data show. And so, to me it's a quite clear case of what takes place.

Chris Martenson: I traded pretty actively for a while and I saw manipulation all over the place, not in just gold and silver. I mean, all kinds of markets. So part of my market philosophy is that they're rigged. And one of the ways I know they're rigged is when you see the four biggest banks turning 100 percent trading win ratios off their prop desks. Right?

Turd Ferguson: Yeah.

Chris Martenson: Obviously, they're not trading because trading involves risk. So they're doing something else. Right?

Turd Ferguson: Yeah.

Chris Martenson: And when I was very actively short homebuilders in 2006, '07, and '08, I would watch them absolutely go the wrong direction on earnings reports that were absolutely in line with what I was expecting, and very painful short moments to sort of ride out. And I realized through that experience that there is very, very asymmetrical information. That's part one. So I had access to the information at the retail level that was very much different from the books that the rest of the world could see, I guess.

And the second thing I learned was that if the price moves went in the direction that I'm going to call the powers that be would favor, there was really no inquiry. There was no looking into those things. They were just sort of left unexplained and that people would throw their hands up and say, those are markets, I guess. Right?

Turd Ferguson: Uh huh.

Chris Martenson: And so, a simple example. I would notice that when there were big down days in the markets, the systems would get pulled. Right? They somehow didn't work when computers had to put a minus symbol in front of stuff. You know? 

Turd Ferguson: Right. 

Chris Martenson: And on big up days, there was never any sort of like circuit breaking, or systems going down, or rule 48s, or any of this other stuff. It was just I noticed this asymmetry that as long as things were going in "the right direction" – I've got air quotes up, "the right direction." Once I developed that view, I actually became a better trader because I stopped trading on technicals and fundamentals and I started trading like a criminal.

Turd Ferguson: Yeah.

Chris Martenson: I would just ask, where do I think somebody might want these prices to go? And often, that was a better, more useful sort of a trading position for me than all of the technical and fundamental analyses put together.

Turd Ferguson: Right. No. And absolutely correct. I agree with you 100 percent. And you can see it. I just wrote this afternoon, before we started visiting. I finished up a post to my site about the events of just today in gold and silver. We see this quite often where the prices of gold and silver – they decline rather sharply after hours, after COMEX trading hours on the GLOBEX.

Chris Martenson: Yeah.

Turd Ferguson: It's akin to – because volume is so thin there.  A little bit of money thrown at the market – any new paper shorts can have a rather dramatic impact in that, and fundamentally, I guess, your readers probably know how this works, or your listeners probably know how this works. But at any given price, there's an equal number of buyers and sellers. 

In a thinly traded afterhours market, there is just a few on each side. Well, if you come in there with 1,000 contracts of silver to sell, it might fill 100 at $35, and it might fill another 50 at $34.95, and it might fill another 100 at $34.90. And the price just keeps getting marked down until there's enough bidders found to satisfy that whole order. Well, by the time that's done, it might be $34.50 or $34.25. And in the afterhours market when no one is there, when the volume isn't there to absorb those big orders, you can take a dollar out. You can take 75 cents out really quickly. You start – well, it just happened two hours ago. And that's money you don't get back. It's not like their going to reset tomorrow morning when the COMEX opens back up to where it was when the COMEX closed the day before. So if they can come in and raid the price of silver for 50 or 75 cents when nobody's around, hey, well, that's the new price.

Chris Martenson: I know it. We saw that in that big rundown from when it lost 25 percent, from 50 down into the 30s. Right?

Turd Ferguson: Exactly. When that… 

Chris Martenson: And where did that start? That started Sunday night at 1:30 in the morning, Monday morning. Right? 

Turd Ferguson: Yeah.

Chris Martenson: And who's trading then? It's like they were trading cattle in Hawaii, and all of a sudden, cattle get sold like crazy in Hawaii. And Oklahoma wakes up and finds out it's 25 percent poorer. I mean, how does that work?

Turd Ferguson: Exactly. Exactly. And then, that is where the manipulation has a lasting impact. And you can't get that money back. You take a dollar out and it's a dollar gone. And it takes a whole bunch of new buy orders, a whole bunch of new speculative longs and commercial longs to come in and bid it back up to where it was before that raid. And so, they're always going to be in there. Again, I guess the ultimate question is at who's behest are they doing this? But, nonetheless, they're in there controlling price, managing the assent, if you will, to create this illusion that there's still confidence in the dollar, that they're still – that everything's – all is well. And that it's okay to go buy a new car. 

Chris Martenson: Yeah.

Turd Ferguson:  And that the economy is still humming along. It's an active part of maintaining that illusion. And one day that will all – the whole – the house of cards will fall in on itself. But it's hard to tell when that's going to be.

Chris Martenson: I don't know this for sure, but I have very strong suspicion – I'd put money on this – that if the reverse were true and Sunday night at 1:30 in the morning, all of a sudden, silver vaulted up 25 percent. You'd wake up and they would undo a bunch of trades. They would close COMEX. They would launch an inquiry.

Turd Ferguson: Right.

Chris Martenson: They would – all kinds of things would happen. They'd look for who was responsible. They would say that was unacceptable. But when it went down 25 percent, they were just like, oh, well, you know markets. That's markets. Right?

Turd Ferguson: Yeah.

Chris Martenson:  We're not going to look into that, really. So that's what I mean by an asymmetry. I just believe that as long as things are moving in the right direction, and I believe you're right, the down is "the right direction" for precious metals because of the signaling event. I mean, come one. When Ben Bernanke writes an op-ed in the Wall Street Journal and says, "Listen. We're very pleased with where stocks are and we're very happy with our support to the markets that enables stocks to be higher because higher stock markets signals the right things to the people." Right? He didn't say anything about stocks should have a correct price for the risk involved and for the opportunities that are looking forward.

He said that it's an important signalling device, and that's how they look at these things. And, of course, if you don't believe the Fed has thought about gold as a signalling device, you need to go back and study history starting with the '69 Gold Pool, and Ruben's Strong Dollar Policy, with Taylor's Paradox, all that stuff. Right? So they've been focused on it a long time.

Turd Ferguson: Oh. Absolutely. And they'll continue to. I mean, if gold was trading at $5,000 an ounce tonight, what would that tell you about the global level of confidence? Yeah. And when it was getting ready to go to $2,000 just 60 days ago, what does that tell the world about the level of confidence in fiat money? Or somebody needs to perform this exercise. Take a look at the U.S. Dollar Index for the last five years. It's essentially flat. Again, the dollar index is, I guess, a picture of the U.S. dollar versus a basket of global currency, so in relation to other fiat currencies, the dollar is about the same as it was five years ago.

Chris Martenson: Yeah.

Turd Ferguson: But gold has gone from $400 to $1,800 tonight.

Chris Martenson: Yep.

Turd Ferguson: It's lost, what? If you want to look at it that way, well, it lost 75 percent of its value versus gold. Is that the right math? So they have to maintain this illusion. And most importantly, and I guess I kind of touched upon it earlier, if the true measure of inflation was actually out there – not this CPI nonsense at two percent.

But an actual of real goods that have impacted a real, in this case, American family in the pocketbook. If you had that true measure of inflation premium, what it really is – 10, 12, maybe 15 percent – you can't. There is no way. There would be no bids for treasury notes at two percent. Why would you guarantee yourself an annualized loss of 13 percent net real interest rate. Nobody would do that, so rates would have to go higher. And as we discussed earlier, rates moving above these historically low levels just rapidly – just increases the speed of which the Ponzi unravels. And so they can't have it, and so they'll continue to maintain this charade of the kind of economic normality. And one of the elements of that charade is suppressing the price of metals as best they can.

Chris Martenson: Well, I think it's a great thing because I get to accumulate more at a better subsidized price.

Turd Ferguson: Yeah.

Chris Martenson: I think that's incredible. But history is very clear on this. Negative real rates of interest are just an incredible time to hold gold. Just on that one thing, if you want to keep it simple. I know you said you like to keep it simple.

Turd Ferguson: Yeah.

Chris Martenson: Right there. For somebody who doesn't want to talk about monetary policy, or potential manipulation, or how markets work, or any of that, if you hold gold during negative real rates of interest, historically, that's a very good thing to do. Simple.

Turd Ferguson: Yes. Exactly.

Chris Martenson: Very simple.

Turd Ferguson: Exactly. And that's where we are right now and will – well, that's not going to stop next week.

Chris Martenson: No.

Turd Ferguson:  It's going to be like that quite a ways into the future. So…

Chris Martenson: If it does, I'll be very surprised. It's like, whoa, Paul Volcker came back. That's crazy.

Turd Ferguson: Yeah.

Chris Martenson: Yeah.

Turd Ferguson: And he pulled that off 30 years ago at a time when – I mean, he couldn't pull that off today. Let's put it that way.

Chris Martenson: Oh. I know. I know. I know. We had too many things to list. We were a net positive trade export nation.

Turd Ferguson: Yeah.

Chris Martenson: We were a net creditor to the world, you name it. There was much less leverage in the system, everything. Yeah.

Turd Ferguson: Yeah.

Chris Martenson: It wouldn't work out.

Turd Ferguson: But someone hoping for that type of miracle 30 years on. I mean, it's just not going to happen.

Chris Martenson: I know. I know. So here we are. So the great experiment, it's going to reach its conclusion here at some point. Here's an interesting question for me is what indicators are you going to be looking at to determine that it's time to get out of this metal?  And the PM bull market is more or less over, and it's time to get capital out of PMs into something else. What's the exit strategy? 

Turd Ferguson: Well, for me, the ultimate exit strategy is you are converting your paper money into physical money now. And I guess what I'm planning for is that someday there will be a new currency regime, a new global and maybe a regional reserve currency, like a North American currency, a Eastern Pacific currency, and some type of newly formed Euro. And then those will have to be asset-backed once we've all learned our lessons about the dangers and the fallacy of fiat money. 

So if you transfer your money out of fiat into hard assets now, into physical metal, then at some date in the future, you'll convert your physical metal back into whatever the new money is. Or you'll take your physical metal and you'll trade it for some other hard asset like land, something like that. So I don't see a time, Chris, where, okay, hey. All the problems are fixed, so let's trade out. I'm going to sell all my gold and silver and convert it all back into Federal Reserve notes. Again, I mean, I'm just Turd. I mean, what do I know? But that's the way I'm planning it. I just don't see that happening. I think only you'll convert your hard metals back into a hard asset base, hard asset-backed currency, or into some other hard asset.

Chris Martenson: That's what I'm looking to do. I've had a ratio that I've been telling my subscribers about for, oh, probably five or six years now, which is that when – and this was the original ratio at which I moved into gold. I said that when I could trade an ounce of gold for an acre of productive land, I would start making that trade because that's a ratio that goes back centuries.

And I thought, well, that's a decent starting place. And, of course, people were laughing at me because that was during the run up in the whole real estate thing, when I was holding that view. That was crazy talk. I'm starting to – I'm looking around. I can actually start to make that trade this year for certain pieces of land. So…

Turd Ferguson: Yeah. Yeah. It depends on if you're in Iowa, or Nebraska, and places like that. Yeah. It's getting pretty close.

Then that would probably be, like you said, the historical – there's a reason why there's a historical relationship there.

Chris Martenson: Yep.

Turd Ferguson: Because it's been that way for a long time.

Chris Martenson: