The Beginning of the End of Paper Money

As someone who I frequently read and visit, I've asked John Rubino from to come and give us his insight on the current state of the economy...and a BOLD prediction for 2015. Read on and comment on the prediction!


Today the Fed announced another rate cut, which is both a foregone conclusion and a big yawn. Short term interest rates are already at zero or thereabouts, so that policy tool is pretty much a spent force. The real excitement came when Ben Bernanke explained that short term interest rates are just one of the levers he can pull, and nowhere near the most powerful one. Going forward, the Fed will engage in what is known as “quantitative easing,” an obscure term for something both simple and terrifying: The Fed will create dollars--maybe trillions of them--and buy up other assets.

At first it will buy mostly longer-dated Treasuries, in order to push down rates at the distant end of the yield curve. But because long-term Treasury rates are already at record lows, that strategy has a limited value. Pushing the 30-year yield from today’s 2.93% to, say, 2% won’t have a noticeable impact on the world’s frozen credit markets. Because the problems are with corporate bonds and asset backed securities, the Fed will have to buy increasing amounts of them.

This will have the desired effect of reliquefying the banking system--for a while. But the global financial markets aren’t stupid (okay, they are. But they do learn eventually, after being smacked in the face with enough monetary two-by-fours). This flood of dollars will send the value of the dollar down versus other currencies, and push up interest rates on the very long-term bonds that the Fed is buying with newly printed currency.

The result? The mother of all currency crises, in which a falling dollar causes other countries to devalue their own currencies in order to keep their export industries from imploding, which causes everyone to avoid bonds (which pay interest in depreciating currencies), which causes long-term rates to rise world-wide, which causes central banks to print even more currency in a futile attempt to repeal the law of supply and demand.

It’s going to get very, very ugly, and--after a series of failed experiments with capital-and-price controls--will lead to the realization that the whole concept of fiat (i.e. government controlled) currency is fatally-flawed. Along the way, older forms of money like gold and silver, which can’t be created in infinite quantities by panicked governments, will soar in value. I’ll go out on a limb and predict $5,000 gold and $100 silver by 2015.

John Rubino

Clean Tech: Complex Field, Simple Story

I'd like everyone to welcome back John Rubino from I've been a visitor to his site for a while now and it's become clear that he's passionate and knowledgeable about the subject of Clean Tech. So read his article below and ask him any questions you may have. Oh, be sure and check out his book, it's a must read!


Imagine, for a minute, that you’re Barack Obama. You’ve just spent two years running a non-stop, highly-successful presidential campaign. Now, when a normal person would be expect a well-deserved  month on some quiet beach, the world is clamoring for a plan to stop the global economy from imploding. You’re not even moved into the White House and the weight of the world is on your shoulders.

Luckily, in formulating your plan you have a couple of advantages. First, with the federal deficit already projected to top $1 trillion in 2009, no one could care less if your proposals are expensive. Conventional wisdom says they SHOULD be expensive because government spending is the only thing with a positive arc these days. So you’re free to indulge your inner FDR and talk about a “New, New Deal” without fear of right wing ridicule. Second, a new generation of clean technologies is just now coming to market with the potential to solve some festering problems. Solar, wind, smart grid and the rest can replace foreign oil with locally produced (or conserved, same thing) power. They create jobs in the U.S., while depriving rouge oil producers like Russia and Venezuela of the means to make trouble. And they potentially fix global warming.

So your grand economic plan turns out to be something you can sketch out on a napkin: Borrow trillions of dollars and invest it in clean tech. You get jobs, geopolitical advantage, a cleaner environment, and an aura of supreme coolness, all with the stroke of a pen. And that’s exactly what soon-to-be president Obama announced last week, to the apparent joy of the markets: Friday and Monday saw the biggest two-day pop since 1987.
For investors, this sudden clarity in the financial landscape comes at an extraordinarily good time, since clean tech stocks have been absolutely whacked in the general bear market. They’ve popped a bit lately but for the most part are still down more than half from their oil-crisis euphoria highs. They are, in short, an investment thesis with both short and long term appeal. What they’re not is simple. This sector contains many different industries with radically different prospects. Some work today, some will work in a couple of years, and some will never work. So even with a nice stiff government spending tailwind, some clean technologies are more timely than others. Here are three to get you started:

Over the past decade solar cell efficiency (i.e. their ability to turn a given amount of light into electricity) has risen steadily while production costs have fallen. Now the best solar panels, when bolted onto an Arizona or California roof, generate power that’s competitive with the cost of electricity delivered from distant coal fired plants. This "grid parity" will make solar an attractive addition to most sunny-clime homes and businesses over the coming decade, giving the industry all-but-guaranteed double-digit growth. The question for investors is how to play the bleeding edge boom/bust cycle: During the recent oil crisis, solar power demand soared, causing a shortage of polysilicon, the industry’s main raw material. So everyone with any connection to the business built a polysilicon plant, and now there’s a glut. This is sending prices down, which is good for the solar cell makers. At the same time, the credit crunch is slowing demand growth for solar, which will cause a lot of marginal players to fail. AND several new versions of “thin film” solar are hitting the market, with potentially decisive advantages over traditional silicon. It’s messy to say the least. So…buy the leaders, which have strong balances sheets and in-demand technology. That would be First Solar (FSLR), Energy Conversion Devices (ENER), and SunPower (SPWRA), all of which trade on U.S. exchanges, and Q-Cells, which trades on the Frankfurt exchange as QCEG.

Wind turbines have gotten so big and so efficient that they’re competitive with utility scale coal and gas fired plants. Wind farms are going up all over the world, onshore and off, and by-and-large the technology is living up to its billing. The credit crunch is causing some projects to be cancelled, but since the makers of turbines and related gear were facing three-year backlogs at the height of last year’s mania, a slowdown will have little effect, other than to shorten the backlog. The major wind companies will, as a result, continue to generate 25% or so annual growth. Most of the major turbine makers are headquartered in Europe and trade on foreign exchanges. Among them: Vestas Wind Systems (VWE.CO -- Copenhagen), Suzlon Energy (SUZL -- Bombay) and Hansen Transmissions (HSNT -- London).

Smart Grid
One of the Obama plan’s goals is to upgrade today’s aging electrical grid by installing high-capacity lines to ship power from wind farms to cities and adding gear to homes and businesses that let utilities and their customers manage and conserve power. This is known as the smart grid, and the opportunities are absolutely huge, since we’re starting with a really dumb grid. Some leaders in this field: Itron (ITRI), Echelon (ELON), American Superconductor (AMSC).

For Future Reference
Other clean technologies like biofuels, electric cars, and fuel cells are a bit further from the market right now. So don’t allocate much capital to them in the short run, but do follow their progress. Sometime in the next few years amazing news will start to filter out of these niches, both of game-changing technical results and promising stocks.

John Rubino

Golden Opportunities

Today I'd like to welcome John Rubino from Over the past few months I've come quite accustomed to checking out to get the latest breaking news on the stuff that REALLY moves the markets. John focuses on metals, the economy as whole, and yes the Dollar. Great site, take a look. He's also written a book talking directly about the collapse of the dollar, check it out here. Today I've asked John to talk about some interesting ways to take advantage of the markets recent implosion!


Golden Opportunities

The gold bugs are about to be proven right in a very big way. Most of them have placed their bets on the general proposition that the U.S. economy would implode in four distinct stages. First, the three-decade flood of easy money would cause a "crack-up" boom in which banks gave loans to pretty much anyone with a pulse and turned the resulting bad debts into toxic bonds and derivatives. Then, in Stage Two, the sheer weight of this misallocated capital would cause everything to fall apart (which happened this past month). Then (Stage Three) the world’s governments would panic, flooding the system with liquidity by lowering interest rates, bailing out banks and buying up pretty much any asset that threatened voters’ jobs or nest eggs.

With the passage of the U.S. bank bailout and similar plans in Europe, we’re clearly entering Stage Three. Now it’s time to start considering Stage Four, the credit bubble’s grand finale. This is when a critical mass of people notice that with government printing presses running flat-out, paper money is about to return to its intrinsic value--zero. The result: a global run on fiat currency, in which the dollar, euro, and yen all plunge, and the dollar price of real things like gold, silver, and oil soar.

It’s crucial to understand the role that precious metals play in this kind of currency crisis. They aren’t commodities like oil and wheat. They’re alternative forms of money that have functioned as a medium of exchange and store of value since the beginning of recorded history. After each failed experiment with fiat (i.e. government created and controlled) currency, these "sound" forms of money come back into style. Why? Because gold and silver can’t be created on a printing press. The only way to get more is to mine it from the ground, and historically we’ve found only about 2% more each year. This constrained supply means unscrupulous and/or panicked governments can’t simply legislate more money to buy votes. So gold and silver tend to hold their value. It takes about the same amount of gold to buy a bushel of wheat as it did in the Middle Ages. Today an ounce of gold buys the same ten or so gallons of oil as in the 1950s.

So as the world’s paper currencies are shredded into so much confetti, investors will swap their increasingly worthless paper for real money as fast as possible, at whatever price the market requires. Gold and silver will soar in dollar terms, and the market value of the companies that mine these metals will rise even further. Today, in short, is a once-in-a-generation chance to load up on precious metals miners. And the junior miners--the smaller companies that most people have never heard of--are especially interesting. They’ve been absolutely crushed by the recent credit troubles, as investors assume that they’ll be unable to attract the funds necessary to bring their newly-discovered reserves to market.

This is a classic case of throwing the baby out with the bathwater. Some junior miners are indeed in financial trouble, running out of cash and unlikely to find more. But many others raised capital before the credit crunch and have adequate cash to build their mines and start producing. When gold and silver take off, these stocks will go parabolic, putting up double-digit gains on a daily basis and tripling or better in a good month. There will be lots of good months. Here are three that fit the profile: Small, obscure, but with properties that have the potential to become highly-profitable mines. And more than enough cash on hand to see them through to the beginning of Stage Four, when the markets will shower them with capital.
Detour Gold (DGC.TO) is developing the Detour Lake deposit in Ontario, which contains more than 11 million ounces of gold, a huge resource by new-mine standards. On June 30, Detour had $65 million of cash and short-term investments and no debt. So it won’t need outside capital for at least the next two years. Claude Cormier, publisher of the Ormetal Report and an expert on Canadian juniors, really likes this one, and expects it to find more gold and eventually to be taken over by a senior miner for a big multiple of today’s price.
Andina Minerals (ADM.V) has a mine in Chile that Louis James, senior metals analyst with junior miner specialist Casey Research describes as “a genuine monster that is getting much bigger.” In its last financial report it listed $25 million in cash and no debt. Back in July, James referred to Andina’s $3.50 share price as “not cheap.” Since then it has fallen to around a buck.
Rubicon Minerals (RBY) in 2002 bought some land from a bankrupt miner in Canada’s Red Lake district, home to industry giant Goldcorp’s most productive mine. Since then Rubicon has found gold all over this property, both near the surface and far underground. The find looks like a true blockbuster. Rubicon has $22 million in cash and no debt, and its stock is down from a year-ago $2.25 to $1.40.
I’ll go out on a limb and predict that all three of these, plus about twenty other junior miners with similar profiles, will be ten baggers in the next few years. Golden opportunities indeed.

John Rubino runs the website and is co-author, with GoldMoney’s James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, 2007). His previous books include How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998).