The
BIG Picture Transcript
October 27,
2007
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Part
1
An
Unexpected Emergency
Part
2
Q-Calls
JOHN: And now, live from Qualcomm Stadium in San Diego, it's Jim Puplava.
JIM: Not quite that. Not quite that. But – what a week!
JOHN: I was impressed this week at how well they did at handling what happened. You and I were communicating all week long with this thing. But it's one thing to report the news, isn't it, Jim? It's another thing to be in the middle of the news.
JIM: The thing that struck me and this is something that Mary and I talked about. We got back to our house late Thursday night when the power was finally turned on, but when we were driving back, one of the thoughts that was going through my mind – John, now, I've always been sort of a news junky – but for 25 years whether it was a tsunami, an earthquake, a terrorist attack, a hurricane, a volcanic eruption, that was news that always happened someplace else to somebody else on the other side of the planet. And this – I mean we had a fire in San Diego, and I think you remember the 2003 fire because that affected you personally with your mother. And so we sort of had a warm up to this and seeing the city ablaze in 2003, but it was nothing like this. But you always watch this stuff, John, on television, as many of us do, and you think, “gosh, thank God I'm not there,” or, “it's not happening here.” Well, guess what this time it happened here. [1:35]
JOHN: You were talking about how surreal it is when you get outside of the San Diego area, people are sitting in restaurants eating and everything is going on right across the bay. There is this disaster in progress. It gets a little weird at times.
JIM: Yeah. One of the things that happened to us, we were in Coronado. We have a place there on the beach, and that was sort of back up Plan C. And if you looked across the bay, across the skyline and you looked at the sky, you could see the smoke. And one area that was very close by, which was Chula Vista, that actually – they had fires there in that area. I think there were like 13 or 16 fires – I quit counting – all across the county. In fact, there are some new ones that have erupted that are still going on as we speak.
But in Coronado, we went out to our favorite restaurant because everybody was just so exhausted at the end of the day Monday. So I went to pick up some food at a restaurant, and it's an Italian restaurant (across from the Hotel Del) – one of our favorite places. And people were sitting on the sidewalk. I assume a lot of them were there for a business convention. But you would have no idea that across the bay the city was burning. And it was amazing – people were just having conversations and having a good time. And across the bay, the city was in a crisis. It's absolutely amazing. [2:53]
JOHN: Well, you've always talked about emergency preparations. This was a first class test run, so to speak – hopefully for nothing worse. But how well did you find your emergency preps worked? Because we talk about that kind of thinking here on the program.
JIM: Well, you know, we have our own clearing firm and so we have alternative measures if something happens – you know, your power goes down, which is a reality here in Southern California. So we've always had a backup plan with our clearing firm. But personally, as a business and especially after I saw the events of 9/11, John, we've had multiple backup plans. And there is one recommendation I'm going to make in this broadcast, is always have more than one backup plan because if you just have Plan B, what happens if Plan B doesn't work?
In this case, we've had two backup plans. One is my own house, we've set up as an alternative office. We have a T1 line that comes into our home, we have multiple computers, multiple lap tops for that very purpose if something happens. We have fax machines, business supplies and even different internet connections. We have two internet-type connections that we use. So we even have a backup plan at the house, we have computers there for staff; we even have a guest cottage that can serve as an office. And it was always with that in mind, that the house would be the backup plan if the power went out to the building that we occupy – well, we could set up shop at the house. So that was backup Plan B.
And then the third backup plan was our place on the beach because as most people know, I take the month of August off as kind of a time of rest and sort of a working type vacation. So I set up my facilities in our second home as an alternative office that I could run the business there if I had to. I have a Bloomberg there, I have laptops, we have once again two types of internet connections, office supplies, fax machines, and things of that nature. And, John, this was one occasion where initially we had to get to backup Plan C .
Back up Plan B, which was my personal residence – in the end, the fires came within a couple of hundred yards of our home, so we had to evacuate because the air quality and the fires were approaching and we had to leave. [5:22]
JOHN: So you had to drop B and go to C then?
JIM: Absolutely.
JOHN: We've both been through big fires now, and they are pretty much the same. So why don't we go through this because there is an old expression I think Hock Hochheim used to say in his Knives To Guns seminars: Everybody has got a plan and then somebody throws a punch. And at that point, the plan unravels. You see what I'm saying? In this case, the punch was a disaster. And those fires moved rapidly. You don't know which way they are going to go and you don't know whether they are heading for you. But once they are heading for you, the amount of notice you get is somewhere between 10 and 30 minutes – something like that.
JIM: The amazing thing is we had just completed our annual client meeting on Saturday, so I was looking forward to a couple of days off. I was planning on going sailing. My wife was taking off to Vegas to meet up with her sisters there, and she was looking for a little R&R. So Sunday, you know, I had just made my weekly trip to the bookstore and I was coming home and I noticed I was smelling like something burning. So I was looking up all around me as I was driving home and I didn't see any smoke in the hills. And we have a lot of brush in Southern California, so it's into the unusual when times heat up or even arson that we do get these brush fires or these fires that come in from the Santa Anas.
Now, I was looking around, didn't see anything, so I made the mistake of going to the grocery story. And I'm thinking, you know, we've been eating beef, I'm going to get a lot of fish. So I picked up salmon, I picked up some halibut and picked up some shrimp and we had a nice dinner Sunday evening. But the winds were picking up to levels that I hadn't seen in quite some time. We knew there was a Santa Ana coming in. And it got so bad that we couldn't sit out on our back porch because the wind was blowing so strong and so we went inside. So the last thing Sunday evening, it's about 11:00, I let the dogs out to do their thing before we headed to bed. And John, the entire sky was crystal clear. One of the clearest that I'd seen with all of the strong winds which blows the smog out. The stars were crisp. We were almost a full moon.
It was a crisp night and I thought nothing of it, went to bed and the next thing I know, it's 4:00 in the morning and my son is calling me, my oldest son, and he said, “Dad, you need to get out of there, get mom, get the dogs, there is a major fire.” And I was kind of groggy and hate to say this, I hung up on him. Yeah. Yeah.
JOHN: Yeah. Right. Okay. Right.
JIM: You're not thinking. It's 4:00 in the morning.
JOHN: And the punch line is; right?
JIM: You've got a fire going and the next thing and I think he sensed that dad is too sleepy, so I get a call again. “Dad, take me seriously. Go outside and look.” Well, I looked outside, the only thing you could do, you couldn't see – it was still dark outside – you could just smell the air. You could just smell the smoke in the air. And so the first thing we did is we turned on the radio and turned on the television and it was like, “holy smokes, this thing is real.”
So we have always had, and this is something I would recommend to those of you who are listening, we call it our “get out of town basket.” It's sort of like a milk carton type of crate, or plastic crate, and we have all of our important papers: our wills, our trusts, our insurance policies, very important financial papers, brokerage statements and our passports, things like that. So if something ever happened in a emergency, we had to evacuate. We have this all in this kind of crate because, you know, when things happen, they happen very quickly as especially a lot of people know here the fires spread very rapidly –especially that first day when we had 70 knot gale force winds.
So you start thinking. We immediately located the crate with all of our papers and so we had everything there, and then we kept watching the news. And we were thinking because we live in what is called a fire-protected area, so one of the things I did as the news kept saying, “boy, this is really serious,” then we began making the decision do we evacuate. So what we had to do is I had to put Mary in the car. She took three dogs. And for those who know us, we have three big dogs, two of them are rescue dogs because you’ve got to think of animals now.
And so Mary loaded up the car, brought some extra laptops and some basic things and then she headed down to our condo down on the beach and I was left behind. And I said, you know what, I'm going to stay here for a while. I want to see this. I don't want to panic but I wanted to get everybody out. And then I went over and conferred with my next-door neighbor and we were making decisions too. He was getting his family out. And initially we were going to stay behind just to make sure if it wasn’t really bad – what happens is, as you know, John, when you get 70 knot winds a lot of times it's so intermittent, the wind changes directions and blows the embers into one area, and all of a sudden one house out of a neighborhood gets picked. And in fact, if you look at some of the photos of what occurred here, you would go in one street and you can see this now in the area that I live in, in this community of Rancho Bernardo, which was one of the hardest hit communities, you can go on one street and it looks like nothing ever happened. You go on the next street and the whole cul-de-sac is all burned out. And so initially we were thinking of that.
But, you know, our initial plan has always been if something happens and we're – you know, John, we're thinking of, okay, we have a power outage, which happens frequently here in California; if we had a serious power outage like a power line go under or something happens to a plant and they had to shut down, we would have a backup plan at our house. Well, that was Plan B.
Plan B quickly got tossed out because it looked like the fires were going to head into our area. And so we had to rapidly go to Plan C, which was get down to Coronado. And the air quality – one of the reasons I just gave up and I said, “boy I've got to leave,” and I went over to my next door neighbor. You could barely breathe. If you were outside you would cough and you would choke because the air was just filled with all of this, I don't know what I call it, the particulates or whatever it was, the ashes.
But you know the funny thing about this is even before both Mary left and I left, it's at that kind of moment, you kind of sit down and Mary and I sat down at the table and we said all right, “regarding the office, what are the things we haven't thought of, regarding us personally, what are things we haven't thought of.” And at that moment when you have to evacuate, you really come down to what are the things that are important to you? And the thing we came to a conclusion is the house could burn, the contents could burn, the most important thing to us was our family, our pets and if we got out, then we made it through. That was the most important thing. You look at these kind of decisions in those kind of moments, that's the kind of decision that you have to make: What's important to you?
JOHN: When were describing that, we went through a fire with family in the Panorama fire of 1980 in San Bernardino just like the one you went through in San Diego; right? And I realized we were going to have to evacuate. It just became very clear. The fire came over the top of the ridge. So I turned to my parents – and my father was terminally ill with cancer at the time – and I said okay, I want to keep this thing under control. What is it we have to take and did the same thing, okay, we need the important papers and the photos. I said good, we're not going to take anything else; right? That's it. We had a lot of antiques we brought back from Europe from living there and everybody was agreed. Then our friends began showing up and every time, I kid you not, every time a car of friends came up to help us more junk went out the door. It was all junk. It was in such disarray. It was crazy. And my father was gasping because he was having lung issues and my wife finally said to me: “We've got to get your father out of here. He's going to die right in front of us here if we don't do something.” But it was amazing how fast the plan unraveled when you don't have a checklist or something like that. [13:32]
JIM: Yeah. And that is something that we were fortunate, and I took this to heart, John, after 9/11 when something like that happened. We have a first-aid kit and we took our valuable papers, obviously we had to take some dog food for the pets. But you know about the only thing else that we took on top of that were pictures, pictures of our wedding, pictures of our kids, things that meant a lot to us personally and family mementos.
And it was amazing because there was a scene from the local television station where they had shown this neighborhood where part of the house was burning but not all of it; and the policeman went in there and they took down some family photos and they were loading the family photos into the back trunk of a police car. It's been really incredible to see in this event – and I think that's one thing that I would have to say regarding this tragedy – is that government has probably come a long way in terms of we've had enough tragedies from 9/11 to Katrina and Rita that there has been some learning experience. And first and foremost, I think, is I'll take my hats off to the Governor. He was down here immediately. He never left. He stayed here the whole time. He was trying to unravel things any time there was a bureaucratic bottleneck. We had national guard troops in our area guarding the two main roads into the area so there wouldn't be any looting as occurred in other tragedies. And I would have to say that things functioned very well at Qualcomm Stadium. They were taking care of people; people were getting fed; they had cots there. And overall, I think most people here would admit that our public officials did a good job in terms of getting the information out, making sure people were informed, making sure there were multiple location facilities that people could go to.
You know the incredible thing about this, and this is remarkable when you think about it, is I think the figure, the official figure was 513,000 people were evacuated. Virtually almost 20% of the population of the entire city was evacuated. In fact, one of the last things that we did – and here is something I would always recommend to anybody listening to the program – in addition to valuable papers: we had a first-aid kit, we always keep a lot of bottled water for that very reason. In fact, one city lost the power station that pumps water, which was the city of Ramona, and so one of my employees live in that area, they have to boil the water out there. So we always keep plenty of bottled water, canned goods, power bars things like that. So in addition to loading the car up with stuff, blankets, things like that, I took a first aid kit, I must have had at least a couple of cases of water and power bars.
The other thing we were hearing from the news is at least the whole area that we lived in, that entire area was being evacuated and there were only a couple of exit routes. So we knew, in fact, I knew because my wife had left ahead of time, she said to better allow yourself some time because the freeways were just jammed as everybody was trying to exits the areas that were in danger. So that was another remarkable thing to see that when you consider 513,000 people were evacuated and there weren't any, at least as far as I know, any major mishaps. I mean that's a remarkable feat in itself. It was one of the largest evacuations. I think there were over a million people that had been evacuated all along Southern California. A remarkable feat – probably one of the largest evacuations in US history. [17:21]
JOHN: How about cell service? Did that go south as people jammed it or what happened there?
JIM: Officials were telling everyone to try to keep their phone lines limited because they wanted to use it for emergencies. We had good cell coverage. I kept multiple cell phones with me for that very reason with two different carriers and it was amazing but we never had a problem. But it's remarkable when something like this hits how rapidly it unfolds. That was the other thing that really struck my. It was, like, okay, the fire is over there; but, John, you're a pilot and you know what – you take gale force winds, the winds were blowing in our area over 40 knots when we would get gusts of 70 knots. We had what's called a vanishing edge pool where the water goes over – [18:08]
JOHN: That's about 120 kilometers per hour for people in other countries that don't know how to convert knots into kilometers per hour.
JIM: That's pretty serious stuff when you add heat and fire and have those kind of winds. It was so strong, Monday morning, John, we have this vanishing edge pool that backs up to a golf course – you've seen it – and the winds were so strong it was blowing literally sheets of water in the air against the house. That's how strong. I've lived in San Diego now for about 25 years. It's probably the second time in a 25 year period I have ever seen gale force winds like that. I mean it was just...I think 1987 we got a storm here with winds as high as that – but this is the second time and boy, when you mix those kind of winds, it's one thing if it's a winter storm and 70 mile an hour winds, but when you get 70 mile an hour winds with fire, that is really a major hazard. [19:00]
JOHN: It’s a combination of three things. You had gale force winds, you had fire and then you're at the end of summer, which if you've been in semi-arid terrain, you have all of that brush which was totally bone-dry. This would have been different had it been, say, early spring or something like that when you had winter rains. That would have changed it. But it was the combination of the three that just made it go.
JOHN: They were calling it here the “perfect fire storm,” which it was. You had drought, you had winds and then you had the fires, which – what an explosive combination. It was amazing. I don't know what the tally is right now. I think it's over 2000 homes. I know just in the surrounding area where we live in the community of Rancho Santa Fe and then also where the office is in Rancho Bernardo, I think there was 4 or 500 homes that had been burnt. I'm not sure of the count. But I mean, it's been substantial as I'm sure many people have seen the coverage on the national news. [19:55]
JOHN: I was looking at the different types of possible tragedies and disasters, and some you can get some warning on: the fire you have some, flood you can get some warning, volcanic eruption – they usually know ahead of time it's going to go bang – and a hurricane. In the middle of that is tornadoes because sometimes you get warning and sometimes you don't depending where they move. And some things you have no warning on is earthquake and terrorism. There may be some others but those are the categories, so that makes a difference too. Oh, gasoline. I tell people there is no excuse for letting your gas go below half a tank when you're in town because it costs just as much to fill from half to full as it does from empty to half. So when it get to half, just fill it up. I've seen people in the middle of a crisis, Jim, run out of fuel. So I've trained my kids. Everybody knows that when the tank gets to half, we fill up. That's what the family does with our little fleet here.
JIM: The other thing besides that, John, is I would recommend to everybody listening is once again, I can't over emphasize having a first-aid kit, have portable supplies of food, having plenty of water because you can't go a long time without water. You may be able to go without food for 48 hours, but 48 hours without water doesn't work very well. And those are the kind of things that I would prepare in advance because the other thing that you don't know is sometimes when a tragedy occurs, the first thing that people could do is they panic, and they think, “I need water.” But you go to the grocery store, and the next thing you know, the grocery store is clean out of water.
We had a situation in the summer of 2006 where we had an E. Coli break-out and I remember walking into a grocery store. We had been down at the beach, so I hadn't heard about it in North County. I walked into a grocery store and the entire grocery store, the bottled water had been cleared out. So when those kind of things occur, people rush for flashlights, all of the kind of things you want to have in an emergency; all of a sudden when the emergency occurs, people start thinking about that. And if there is a store they can get to, the first thing that happens is the store’s shelves are cleaned out very rapidly as people panic. What you don't want to do is get yourself in a situation and having to be thinking of those things. You want to have all of that stuff prepared for in a location in advance.
About the only thing we were left doing, once Mary had taken off with the animals and it was just my son and I, the thing we had to do too until we could set up shop in our second alternative location, I can remember just before we were leaving and it was getting pretty scary at that point and Mary was talking to my middle son Chris, on a cell phone, telling Chris how to program our web page. And we had already made arrangements early in the morning with our clearing firm to route trades – if there were trades or anything that had to be done – to our San Francisco clearing firm’s office so that they could be executed until we could set everything up. And so here it is, the fires are enveloping the area, the sky is pitch dark and we're programming the website to put that message that we put on the website Monday morning to let people know or at least to let clients know that if you had to do something, we were being evacuated but we could take care of that. [23:06]
JOHN: Obviously, the best plans of mice and men go oft astray and they did here. Plan B was really to fall back to your house to use it for an ops center. You couldn't do that because it was under jeopardy just like the office was and the studio there. And so you went to the condo. That was Plan C. And then you got into this real interesting situation. And if you've ever seen this condo, you have to imagine this picture. But go ahead. I want you to describe this.
JIM: It's a two story condo, and it over looks the ocean and it really – it's almost a one bedroom condo because John, you've seen the guest bedroom. It's so small it's just big enough for a Murphy bed, and we've got a secretary in there that functions as a desk. But one of the things we had to make sure of is: Number one, where were our kids, we all agreed that the kids were going to make their way to the condo because they live close by to the office. They were being evacuated from their area. [23:58]
JOHN: Kids and spouses; right?
JIM: Yeah. Kids and spouses. And then my eldest son is getting married, so his fiancé, her place was being evacuated; my middle son's girlfriend, she was being evacuated. So everybody agreed that we would meet up at the condo. And then the next thing we had to worry about is where are our employees. So we were touching base with all of our employees to find out where they were. My operations manager had a motor home, so he got his family out, so that became his kind of Plan B.
And so we got to the condo, and then our best friends called us and they were being evacuated and had no place to go. They were thinking of going to Qualcomm Stadium. I said absolutely not, you're coming to our place. So picture this, John. We had Mary and I, three children, a fiancé, girlfriend, our best friends and they had to bring their pet. We brought our three dogs, my son has a rottweiler and you've seen our dogs, John, we have some pretty good sized dogs. So inside of the condo we had 10 people. We had four big dogs, two of them rottweilers, a Shepherd, a dobie. We had two lap dogs and we had two cats. Oh, and then, one of our employees, we hired this gal that came to work for us in January and she didn’t have any family out here, she had no place to go. I said there is no way I'm going to allow that. So she came over, but she said I have a cat. I said I've already got one cat here, might as well bring another one. So we had – what did this end up being, we had six dogs and two cats by the end of the day on the first day.
JOHN: And how many people?
JIM: And 10 people. And you know, it's not a large place and it was beginning to feel that it was kind of a cross between, you know, a petting zoo and Noah's Ark. And the amazing thing too is the animals were sensitive, they knew something was up. Obviously, they could smell the smoke and things in the air. And what was surprising, John, is of all the animals I never thought I'd see a rottweiler and a cat get along, but they did. And it was just absolutely amazing. [26:04]
JOHN: Sometimes animals sense that. They are insecure, so they just go with the flow rather than fighting it at that point. They are not guarding territory is what I'm saying.
JIM: I tell you – you've seen my two big dogs – I couldn't even go to the restroom without them wanting to follow me. It's like: “we don't know what's going on, but we're following you.” [26:24]
JOHN: By the way, if you listen to the second hour of this show, Jim was at the condo when he did the interview earlier in the week and Buddy made his radio debut with a big woof, woof.
Any thoughts that are important for people? Because obviously, we didn't have time to work on much of a Big Picture – we're going to do request lines here shortly – becaues things were so chaotic for you this week that sort of got precluded.
JIM: I would say if there is one thing I would get a message to anybody is have more than one backup plan. And if you don't have a backup plan, start one because, John, as we look at world that we live in today and remember a good portion, at least in the United States, the bulk of the population is on both coasts, the eastern seaboard and the west coast, and coast lines are subject to weather. Not saying inland valleys aren't subject to weather too, I mean you have tornadoes in the Midwest. And we've seen it – whether it's hurricanes, whether it's tornadoes, whether it's a terrorist attack, whether it a tsunami, who knows, a volcanic eruption – but you have seen these things happen more and more today. And if you live in a large area, I mean who would have thought for example in New York city you would have seen something like 9/11. So we're seeing things today where we live in an age where there is terrorism and it's growing around the globe, so you've got to think of these kind of things. So have a backup plan, at least one backup plan. Even better, a multiple backup plan because you'd better have Plan B and C. We've got Plan B, C and D. We went through Plan B, ended up at Plan C; and one of the meetings that we had on Friday is we're working on plan D. So we're going to have three backup plans.
The one amazing thing about this is even though we were being evacuated, we still had a business to run. So the great thing about it is within two hours of the market's close on Monday, we had a backup plan running. We had a Bloomberg up and running at the condo, the second bedroom was turned into an operations center. I had employees there, because in a span of three days over last weekend, one of my client's husband passed away, so on Monday we were dealing with some of the issues that she had to deal with. One of my clients of almost over 20 years – in fact he's been with me 25 years – is getting ready to retire, his home burned down in Rancho Bernardo. I had two clients that lost their home. And so they understand the situation that the city was in and that our area was being evacuated. But when somebody loses their home or somebody loses their spouse, they may understand that there is a tragedy going on in your neck of the woods, but they want to talk to somebody. And so the idea that we have this backup plan and we were able to deal with a widow who had just lost her husband and tell her what needed to be done, and advise her. We were also dealing with two clients that lost their homes. This is something that business still goes on.
And I’d make this recommendation to anybody that has a business that they run where your customers are really counting on you: You have this kind of backup plan because if somebody gets into a terrible need or something like that, you want to be able to be there to service your client needs, and go beyond. And I think it was a good thing, John, that we were focusing on operating and running the business rather than dwelling on the idea of just totally focusing on the news as we saw the fires creep further and further towards where we lived and is our house going to be one of the victims. So it got us away from thinking about that and thinking about other people. You could end up becoming a worry wart if you just watch the television, especially as they are doing close-up shots as the fire spread well into Rancho Bernardo and then it was catching and moving its way towards Rancho Santa Fe and the coast that you think, “oh my goodness, we're next.” And so that was another good thing that I think saw us through.
I was really touched by the amount of emails, the people that left messages on our answering machine, people were praying for us. And all I can say folks, is your prayers were answered because our office was untouched, there was no looting in the area; our homes were untouched. One employee had a fire come all of the way up to his backyard and the firemen were able to stop the fire at that point, so it didn't get to his house in this neighborhood. Nobody got hurt and we came through unscathed. It's been a good experience because right now, like I say, we are going to – we are working on developing plan D because what would have happened if the fire spread to Chula Vista. And – well, the condo over looks, the beach, so if the fire got that far, I guess I could go surfing. [31:26]
JOHN: No, just a bottle of wine on the boat and off you go into the distance with your GPS unit.
JIM: Well, one of my friends said, “I see you went through Plan B and are on plan C. What would have happened with plan D.” I said, “if you had to take the boats out in the water, that would have been a bad day.”
JOHN: I was going to ask you one more question, Jim, about this too: What about identification? because you know, when they try to prevent looting, I made a mistake of riding over to our property on my bicycle and of course I had tights on. I wasn't wearing a backpack or anything and I didn't have any ID and the cops threw me off of my own property.
JIM: Yeah, you know, you bring up a good point. That was one thing that we did, is we made sure we had our wallets with our driver's license and also our passports were in that plastic crate that I talk about with valuable documents, for that very reason. [32:11]
JOHN: Two things, I think. First of all, sum up what I think you've learned out of this thing. And second thing is we should post some of this on the website, start putting together a check list for people, think about this, think about that. That would help.
JIM: We've thought about that and next week we're meeting here in our offices and we're coming up with contingency plans for Plan D. Because you know what, if you only had Plan B – and in our case it was a bac up office in our home, that didn't work – so then you could panic and say, “oh my God, we don’t have Plan B.”
That's a good idea, John.
And I'm just going to summarize here some things that I found helpful in this. And number one, once again, is have multiple backup plans. Don't just have Plan B. Have Plan B and Plan C because sometimes the best laid plans don't always work out that way. So have multiple backup plans.
Number two, have easy and accessible in one location where everybody in the family knows: all of your important papers, your estate plan, insurance policies, brokerage statements, passports, things of that nature, so if you had to get out of town fast and had to move quickly, it's right there. You don't have to think about it, you pick it up, put it in the car or on a bicycle, whatever your exit plan is. But have your important papers in an accessible location that everybody knows.
A third thing, always keep a large amount of bottled water, you know, maybe small bottled water, spare food. It could be anything as simple as a power bar. I knew with the city being evacuated, I could spend two hours in a car, so I had made sure I had water. Have food available. Have communications devices available, make sure that your cell phone is charged and that you have a charger or even something that you can put in your car to charge your phone. [34:02]
JOHN: I always say have at least one five gallon can, you know, proper container of gasoline so that if you really are low on gas, don't rely on the tank stations at that time, just pour the gas in your car yourself and get out of there. That type of thing.
JIM: Sure. Good point. Backup gasoline because the last thing you want to think of is okay, you've got to get out, and you go to get in your car – as you mentioned, John, what you've taught your children – your gas tank is down to a half tank, it's time to fill it up again because you don't want to be thinking about those kind of things in an emergency.
And then also, I think this is something that is very important too, you communicate this to your children. Now, we're empty nesters, all three of my children are on their own. But we had a backup plan and they knew what backup plan was so that they, in fact, the one that alerted us, they got alerted first and woke us up. But make sure that your children know what the backup plan is to so that when this happens, if a tragedy, whatever – a tornado, terrorist attack, a weather related tragedy, whatever it is – you don't have time to do a lot of thinking. You want to be able to respond immediately and you don't want to panic. When you have a plan and you have prepared for these kind of things, it's much easier, you know exactly what you need to do: “Okay, there are the valuable papers, there is the water, there is the spare food, there are the communication devices, the kids have all called in, they know where to meet.” And those are the kind of things that you put into place.
And especially also, and I would say this to people that run their own business, think of this. If you run your own business, what would your backup plan be? How would you serve your customers, what things could you do? That’s because sometimes, even though you may be going through a personal tragedy, or you may be in a situation like that, your customers – imagine this lady who just lost her husband over the last weekend had she not been able to talk to anybody not knowing what to do. And I think it was reassuring to her that, gee, somebody was there to answer her calls, tell her what to do, tell her the steps that she would need to take. So having a back up plan for your business I think is very, very important as well.
And then also I think of being able to think of what you might be able to do to help others that are in need, that may be you’re fortunate. I consider ourselves blessed. We had a second home that we could go to. We didn't have to spend a night in a football stadium. I'm glad we had those facilities, but it's nice when you have your own place that you can go to. It was actually kind of a fun experience with ten people in a place like that with eight pets in the place at the same time. And it was just amazing. I think it was sort of a comic relief for everybody that it got us focused on things other than, “oh my God, is my place burned down,” because you don't want to dwell on that. And we had no idea. There were rumors at the time on the station that the area that we lived in that there were a couple of homes in the area that had burned. It turned out not to be true, but when you hear that, “you say, oh, my goodness, is that us? Are we one of the unfortunate ones.” So in addition to thinking of yourself, think also of what you might be able to do to help others. And we saw a lot of that here in San Diego. And I think that made a world of difference to how this tragedy unfolded. It's unfortunate that there has been a loss of life. It's unfortunate that there has been so much destruction of property. But on the good side is one client who sent me an email. He said, “you know what, Jim, if you've got yourself, your family, your kids and you're safe, then you've got the world.” And that really is so true. [37:45]
FSN Comic Relief: Andy Looney
I'm Andy Looney. Have you been listening to the presidential candidates lately? Boy, do they really have great ideas for the future and I get goose bumps just listening to them. Do you get goose bumps? I did.
But after the goose bumps go down, how are they going to pay for it? My friend Charles says Congress doesn't know how they'll pay for baby boomer Medicare. And Alan Greenspan says Congress is broke.
Now, think about it. If they can't afford the promises they've already made, what makes them think that they can take on more? I don't understand it. Do you understand it? I don't think they do either.
Take health care for example. The Democrats think universal health care is the wave of the future. But in other countries, the wave of the future is washing out to sea. My Aunt Fannie says she went to a new doctor last year, but he wouldn't even take her Medicare. It was too much hassle dealing with the government. So what's the point of health care that no doctors want to accept, especially if you've got a bad case of goose bumps? Oh well, only an idealist thinks government does something better than you or I.
I guess if you want to get elected, you just make wild promises and hope nobody remembers what they were. Don't try this with my family. They never forget a promise I’ve made. I'm Andy Looney for Financial Sense.
JOHN: And you're listening to the Financial Sense Newshour at www.financialsense.com. Now taking a deep breath after a week of fires, et cetera, et cetera, et cetera. We're going to go to the Q-line here. The Q-line is open to record your calls 24-hours a day. It is toll free in the US and Canada. (800)794-6480. It does work from the rest of the world, but you have to pay for the call.
And we should mention that since we are basically just providing general advisory information here, radio show content during the Q-section is for informational and educational purposes only and should not be considered as a solicitation or an offer to purchase or sell securities or to do anything else for that matter.
Responses to your inquiries are based on the personal opinions of James Puplava and don't take into account listener's suitability, objectives or risk tolerance because we don't know enough about you so we can't do that. These are just sort of generic answers. And as such we won't be liable to any person for financial losses that result from investing in companies we profile or other situations here. So let's hit the Q-line and that is – the first one is from Lani in Washington state.
Hello, Jim and John, this is Lani in Washington state. I really enjoyed your series on the death of money and I want to thank you for that. I'm curious now about stagflation. I've heard it described as getting inflation in the things that people consume and deflation in the things that people own. But from your perspective, keeping the dying of money in mind, how would you describe stagflation, and do you think that we're going to experience it or are we experiencing it now? And while I'm at it, let me ask another question, was the depression in 1930 linked to inflation? Did we have hyperinflation and then a depression or was the Depression independent of hyperinflation? Thanks.
JIM: If you take a look at stagflation, it is really a period where you have price inflation, but it's combined with slow growth in the economy or no output growth. So that's why they call it “stag.” The economy is actually slowing down. It's stagnant. And yet you have rising prices. That's stagflation.
In answer to the Great Depression, we had inflation in the 20s. It was manifesting itself in expanding money and credit, which was reflected in rising stock prices. But the Great Depression itself was deflationary, you had contracting money. [4:09]
Hey, Jim and John, Frank from Brazil again. Thanks again for great content. The question was (if you hadn't heard about it) about the proposal for basically an SIV – a structured investment vehicle – supposedly called an MLEC or Master-Liquidity Enhancement Conduit. And the powers behind it are the US Treasury and Hank Paulson, Citibank, and Bank of America and JP Morgan Chase and it's being dubbed “SivieMae'”. What are your opinions on this paper, and how it will work and affect inflation, and the housing market, gold, et cetera? And who would potentially buy it? Today, Thursday we began to see continuing surfacing of the underlying problems in the financial market with Bank of America's profit declining 32%; real estate continuing to get worse; and the consumer continues to get pinched. I was wondering if this continued to get worse how would it affect the Financial Sense quote-unquote ETF portfolio of metals, mining, gold, silver, the BRICs and emerging markets. Thanks.
JIM: You know, Frank, this is a situation that's basically going to bail out some of the larger institutions, some say it's a bailout of Citigroup. What they are trying to forestall or stop is get this paper into this conduit rather than have people dump it in to the open market and drive prices down even further which would exacerbate the whole issue. And in terms of what impact is this going to have? Well, we're going to reinflate and as we reinflate, the dollar is going to go lower and the price of general things that you need and especially commodities like energy and gold are only going to go higher which is what we're seeing. [5:54]
Hey, Jim and John. This is John from Florida. Just a couple of things. One, in regard to your question about the construction numbers could be decreased but the pay go up. One thing you might want to consider. I’ve worked in the construction business for electrical utilities for the last 39 years, we’ve never seen a busier time than what it is right now. In fact, we're trying to find more people that will work in that business. It is a specialized trade in terms of compared to the housing industry and the housing industry certainly has a lot more people that work for it. If you think about it, if you had substantial decrease in your work force in the housing construction business that your commercial construction numbers were at their all time peak with a higher wage, that would result in a higher pay even though the numbers went down, so something to consider.
The second thing is I know you're in the financial business, but you may want to think about leveraging all your listeners: we had a big scare back in the spring when they tried to put that kibosh in the grass roots movement; and I was just wondering if you ever thought about doing something like some of the other websites where you could issue an email and help educate our congressman about economics through your website. It is basically put in a person’s zip code and that would bring you up to your congressman. And you could direct them to particular issues that they have discussed at Financial Sense. I think the majority of your listeners would be more than glad to help get them educated. Just something to think about. Thanks.
JIM: John, thanks for the suggestion. You know, we've thought of an idea of creating a web page on our site called No Congressman Left Behind where we would post well written articles on economics or analysis on the economic front. That's something that is still in the works and is going to be considered for next year. [7:59]
Hey, guys, this is Alex in Chicago. Love your show and look forward to it every week. I know you've been trying to get Ron Paul on your show, so I tried to help you out today. I work for a major IT company that sells equipment to the Ron Paul campaign and in an effort to save them some money. Not surprisingly, their IT guy also listens to your show. So I asked him to see what he could do. He says that he had brought it up to the people in the chain. But obviously, Ron Paul is very busy and has a lot of engagements going on. But he said he would redouble his efforts, so hopefully you'll be getting a call soon. Thanks guys. Have a good one.
JIM: Thanks Alex, and I'm sure we're going to get Ron Paul. You know the problem right now is we have so many ideas and so many guests that we've got scheduled. In fact, at this point, if I was to get Ron Paul, it would almost – we would probably do a double-hour guest segment on the program because if I do get Ron on the program, it's going to be a rather extensive interview. And boy, I could talk to him for probably over an hour and probably go even beyond that. [9:13]
Hi, Jim and John. It's Michael from Canada. A few questions. You've mentioned the Central Fund of Canada. I've checked their website and there is a premium or discount relative to their net asset value that's currently sitting around 5 or 6%. I was wondering if there might be a similar premium or discount on other ETF mechanisms of buying gold and silver and other things.
The second thing is I went to a recent mutual fund unit holder meeting and talked to them about central banks and all of the things you've been talking about. And one of their comments to me was that central banks don't really fully control money supply. There are other things in play like sovereign funds and so on. And I was wondering if there is another source of money that you're aware of and if any of that makes some sense to you? And third and hopefully briefly for gold, it's roughly tripled over the last four years or so and you were talking about it being real money in the fiat world. I was wondering, does approximate tripling of gold value mean that currency is devalued like the US dollar by that much, or was it potentially undervalued a few years ago or overvalued a few years ago? Any general comments along those lines I'd appreciate it. Thanks.
JIM: You know, Michael, I would say it's a combination of both. I mean the dollar has lost roughly about 30% of it's purchasing power compared to most currencies; and then on the other fact is gold was extremely undervalued when it was down to 255. And it was being kept artificially low over the last decade by a combination of events: central banks selling and leasing gold which kept the price down because there was a large supply coming into the market which reduced the supply at a time there wasn't as much demand; and then I think another thing that was also coming into play here is gold was simply ignored as an asset class as an investment. I mean most people didn't want to own gold in the 90s because people didn't recognize that rising stock prices were just another manifestation or an outlet for inflation. So we had rising inflation in the 90s, but it chose to manifest itself in the stock market. So gold was an under owned and under appreciated asset and so now it's just playing catch up. [11:21]
Hi, Jim and John. This is Howard speaking from Laval, Quebec, which is just north of Montreal. I'm a very long time listener and I'd like to thank you for the best financial show on any air waves, TV, radio, internet, anywhere – And that includes John's light moments as well.
Last week, the Q-line included a quick discussion about the Central Exchange Fund with respect to Canadian investors. Jim, I think your response was a bit too quick. Myself and surely other Canadian residents invested in gold and silver bullion, including the central exchange fund and the Millennium Bullion funds have been disappointed and frustrated since the call has been right. In other words, gold and silver prices are up by about 20% in the last 12 months in US dollars. Yet over the same 12 month period, the Central Exchange Fund and the Millennium Bullion Fund are only up about 2 to 4%. And these funds, of course, are in Canadian dollars. Worse yet, year to date both of these two funds are down in Canadian dollars, which begs the question whether these investments should be held or added to for Canadian residents?
Another example, as I speak this Friday morning, gold is up $3 in US dollars and yet down $3 in Canadian dollars as the loonie just keeps going up. If the loonie keeps going at this rate, Canadian investors in bullion will not be big winners. But I think investing in the metal stocks, the mid size and the juniors holds a lot more promise for Canadian investors. It's frustrating to be on the right side of the call but not making any money. In fact, losing some money. Looking forward to your comments, thanks a lot.
JIM: You know, Howard, you bring up an issue in the gold industry itself and that is in terms of gold in Canadian dollars, it is not going up as much as it is, let's say, in American dollars. And so what you have is the currency working against your gold holdings. And that's something that also works not just against you as an investor, it also works against individuals that have the mining companies. For example, you may have a mining company that has their costs are going up much faster in their own currency, but it's not going up against the dollar or, you know, the gold sales. So miners have very much the same problem that you have. And I agree with you, probably a better place, if you're in, you want to be in the gold sector and you're in a country that has a very strong and appreciating currency where the currency is going up, I mean take a look at what he has happened to your currency in the past 12 to 18 months, then you're probably better off playing the equities. I agree with you 100% on that. [13:58]
JOHN: Jim, the next two questions are short and they are about the same subject, so I'm going to run them back to back here.
Hi, Jim and John, this is Peter from Seattle. I have a question about silver for this week. One, I was just wondering why you think it maybe lagging a little behind gold there. What would cause a break out of silver, like what would cause it to finally start out performing? And lastly, in terms of the election coming up and unknowns in politics and everything, with maybe Democrats getting in next year, is there any party in particular that you think is – I think I know your answer – better for gold or metals or worse? I mean are the Democrats going to try to spend even more. I'm not sure how they could because we seem pretty spent already here. But I'm just curious if you think any one particular party will be a bigger catalyst for metals than the other. Thanks.
This is Harold in Nebraska. Just a quick question: Should be we be selling silver and buying gold since silver just isn't doing very well? Sure appreciate your show. Thanks so much.
JIM: You know, Peter and Harold, I recommend you listen to the first hour where Dave Morgan and I addressed this issue. But I think one of the reasons gold is going up right now, it's being looked upon as a safe haven now with all of the credit problems that you're seeing in the housing sector, the banking sector and financial sector. It's being looked as real money and a safe haven. And I think that's why gold right now is outperforming silver, but just give it some time and certainly the ratio between gold and silver right now would argue that I'd probably be buying silver over gold. [15:39]
Hi, this is Kurt calling from London, Ontario. I was just wondering, two weeks ago you talked about a sector rotation coming about. I see the small caps are about to rally soon. I was wondering what would cause the sector rotation? How do you tell that one is about to come about and is there any sign that we could use to tell what’s going to be happening and when? Thanks
JIM: You know, Kurt a lot of this has to do with the business cycle. When you go into an economic downturn, there is usually a flight to safety, markets become more volatile, people become more risk adverse. And also, if you take a look at where we are right now, those companies that are doing well are companies that have a strong presence overseas. In other words they are more international. So the one area of the world that is still doing very well are the international markets. And if you look at third quarter earnings with companies reporting so far, those companies that are beating estimates, those companies that are doing well, are companies that have a large international presence. They are not only making money in that sector because growth is stronger overseas than it is in the US, but they are also picking up gains on the currency sector. So it depends on the phase you are in the business cycle. And as you get down to economic downturns or slow downs, you start seeing larger cap stocks do well and you also see a rotation in the sector from let's say, value-type stock to growth stocks. [17:11]
This is Robert from Olympia and I have been listening to your show for about the last four years and I never miss a show. I really appreciated your last show where you brought in some guest experts to talk about bonds and the extensive discussion about dividends. My current retirement portfolio – first of all, I'm in my mid-thirties, my current retirement portfolio is fairly aggressive, but I do have about 5% of that in a Roth IRA in US mutual fund and US REITs and a mutual index fund. And I wanted to know what your thoughts were about trying to get in on the international REIT market using an ETF, given the downturn in the US REIT cycle? I do have obviously, a few decades at least that I can be in a slightly more aggressive retirement portfolio and I want to know what your thoughts are for the next 20 to 30 years in having a relatively small portion of the retirement portfolio in international REITs. And my other question is would you consider having in the near future a guest speaker to come in to talk about REITs, both domestic and international? Thanks.
JIM: You know, Robert, if I was to have some money right now that I think is going to do very well, I would make sure you're covered in the commodity sector, energy and precious metals – especially, because I think those are the top performing sectors. I mean, if I look at just the S&P 500 sector year-to-date, where are the top performers in the sector? Number one is energy, which is up 29% for the year, second is materials, which is up 23%; and third place would be technology. So I would look at those two sectors. In terms of international REITs, I just think you're going to get more bang for your buck out of energy and out of precious metals.
Hi. My name is Bob, and I'm calling from Philadelphia Pennsylvania. And I've been listening for about 8 months and I find the show very informative. Keep it up.
I've got a question or comment here for you. I hear a lot lately spoken on the show about bubbles in the economy. And it is something that I've been wondering about for a few years now in my little neck of the woods. And I guess I was wondering if this could be considered a bubble in the economy: In my line of work supplying restaurants, I have noticed over the last four or five years an explosion in the number of restaurants opening up and being remodeled with shiny new kitchens and brand new dining rooms. Most of these establishments seem to be mostly manned in the kitchens by Latin American workers, maybe even some of these illegal Latin American workers I hear tell about. I'm not quite sure about it. But I would imagine some are so. I wonder if it would even be possible for all of these establishments to be opening and putting in all of these new kitchens and new dining rooms without the availability of these workers. So I was just wondering if in my little neck of the woods this explosion happened and if it's happening all over the country? I'm kind of wondering if that's a potential bubble where some of this inflationary money from the Fed has been going into. And not only into the money being loaned to these places to open up these establishments but also to all of these workers who might be coming into the country and sending this money home. And basically, that's my question. I’ve been wondering where this explosion had come from for the last four or five years and I look forward to an answer. Thank you.
JIM: You know, Bob, I think with rising food costs and restaurants trying control their costs, I think having these workers is what makes it possible to earn a profit because the margins can sometimes be thin. Especially when your food costs rise into the double digits as we've seen here over the 12 months. You know what? One of the risks that I see here is as inflation heats up, as it gets harder for many families to make ends meet, I think discretionary spending is going to be curtailed and one area of discretionary spending is entertainment. Maybe families don't go out as much to eat because they are trying to make ends meet, they are trying to pay for the extra cost of gasoline, you know, insurance, food and things of that nature. It becomes cost prohibitive. So that, I think, is the real risk. But in answer to your question, those workers are necessary for those restaurants to make their bottom line workout. [22:00]
Hello, this is Freddie from Switzerland. Gentlemen, I am very impressed by your show. I have one question or two. You hear a lot about the possibility of a merger between Mexico, the US and Canada and the creation of the Amero. How will the Canadian dollar react if there is a new currency? And how will the Amero react versus the Euro and versus gold? Thanks.
JIM: You know, Fred, I think how the Canadian dollar will react, well, the purpose of the Amero is to merge the three currencies together, the US, Canada and Mexico. I think it would be a very strong currency bloc because you would have technology in the United States, raw materials and natural resources of Canada and the labor force of Mexico, which I think is one of the reasons that they are doing it. And I think it would be a very effective competition to the Euro. [22:55]
Hi, Jim, this is Brian from Gold Creek, Montana, and I listen every week. The problem I see is that never before has a society sacrificed so little collectively – meaning the United States currently – and expected to receive so much in the future. You look at the debt we’re packing up, our consumption of natural resources. How does this service economy that we have somehow created and had funded by the rest of the world, how is this service economy going to have millions of people retire and no longer contribute anything – anything productive? I don’t see how it can resolve itself painlessly. There is a dependence on equity market returns for example.
This idea out there that this is just going to fund everyone’s retirement as long as you put x percent of your wealth into the US and foreign stocks you'll retire comfortably. There is no sense of sacrifice anymore. What happened to conservative ideals like saving and sacrificing so that you can enjoy it later. Instead it’s “spend more than you have now and everything will just work itself out in the future.” So I guess it's not really a question so much as a comment that I am interested in your thoughts on that and how are we going to survive this pain if this illusion gets shattered? And I have real fears about this. History hasn't been kind in previous social transitions like that and I just don’t know how to prepare for it. I think about this all of the time. Anyways, would appreciate your thoughts and I'll always keep listening. Thanks.
JIM: You know, Brian, you hit upon some key things and you're right. This isn't something that can carry on forever. There is going to be a day of reckoning. What we've been good at in the United States is postponing that day of reckoning because just as we're inflating, believe it or not, some of the conditions in Europe could be even worse. So the only difference is we're all on a fiat system, so it's disguised a little bit more today. But in the end, you know, one thing that I think is going to have to change, I think when the dollar becomes toast, maybe who knows what emerges from the Amero. Yeah, I think with the currency differentials, in other words, lower dollar.
And I also think the combination of peak oil, you put those two and as Matt Simmons talks about, this international global economy works when you have oil at low prices. When oil goes to 150 to $200, you've got to think about outsourcing, you know, you get the raw materials from Latin America, you ship them to various Asian countries where the different assembly parts are put together, then you ship all of the various parts to China where it's put together as a box; and from China you ship it across the ocean to Long Beach and it's put on a train and then it goes across the country and put on a truck and it’s delivered to the various cities. That works well when you have inexpensive energy. I don't think it works out well when you don't.
And the only way that in the end we're going to have to come back and start making things; saving and investing. That's what creates real wealth. Artificial paper gains as you're referring to in the stock market isn't real wealth. It's artificial wealth and the problem is that we haven't been able to distinguish between the two. [26:12]
JOHN: You're listening to the Financial Sense Newshour and our Q-Line segment at www.financialsense.com. And Jim, the Fed's open mouth committee is supposed to meet, what, Tuesday?
JIM: Tuesday. And I think when they do, they are going to give us a rate cut. I think they'll probably go as high as 50 basis points because, John – I'm looking at my Bloomberg – these are just top stories right here: Moody's cuts ratings on CDOs linked to 33 billion in subprime debt issues; US home ownership rate falls again, longest streak of decline since 1981; California mortgage defaults more than double to the highest level in decades; Merrill's chief O’Neal stands to lose millions in unvested stock if he's removed. You just take a look at the headlines.
And you know, this is one of the reasons why we have felt that the Fed was going to continue to lower interest rates. And everybody felt that when the market responded as quickly as it did with the last rate cut that that was it: the problem solved. And then there was the talk with the unemployment numbers coming in with hypothetical jobs being higher than unexpected. You know, the probability of a rate cut went down to, like, 20 or 30 percent. Well, it's right back up there because every day these headlines are becoming more and more frequent. And so it's obvious that this thing is not over yet and we still have a long way to go, which means I think they are going to still continue to cut. [27:38]
JOHN: Do you think they are going to try to off load the reason? Maybe use the wild fire saying well, “we need to encourage growth recoveries” – something along those lines, what?
JIM: You know, if you take a look at rising food prices, we're seeing that come in as a result of taking up so much of our – I think it's 25% of our corn crop and moving it towards corn based ethanol, which is really a dumb idea. Well, there is a good example of a political solution to energy that does nothing. I think they'll continue to offload it and say, “hey, look, there is nothing we can do about energy. The Fed doesn't cause energy, they just create the stimulus that drives the economy and demand which increases our energy usage.” But sure, they will probably offload it and a lot of the commentators will refer to it: “The Fed has nothing to do with rising energy prices, the Fed can't control corn prices or wheat prices.” So, yeah, they'll probably tend to either offload it and then minimize it or marginalize it in terms of, “Well, we have no effect and you shouldn't worry about that because the core rate of inflation, which doesn't affect anybody, is down to a comfortable level.” [28:49]
Hello, Jim and John, this is Ike from Nebraska calling. I have a question about mutual fund investments. I'm following your advice and investing in precious metals, energy, technology and infrastructure, large cap and health care related mutual funds and I'm enjoying very nice returns. Thank you very much. However, as we also discussed Friday, all of them with the exception of bonds and maybe precious metals appeared to significantly drop when the market enters a lackluster period. If possible, please give to your listeners that are mutual fund investors some advice on how to react when funds drop like that over several days or long periods of time. Should we move most of our money to money market, bonds and precious metal funds or just ride the wave? Also, what do you think of bear market funds? Are they a good investment in a recession period like the one we're entering? As always, your comments are greatly appreciated.
JIM: You know, Ike, my advice is during the selloffs, and you've got to understand on a day like last Friday where the market was down like 360 points, when people panic or something starts to unfold like that, and especially today when you have a lot of institutional trading that is behind this, what you don't want to do is panic like they do. I mean if you would have sold on Friday because you thought oh my goodness, the market is down, take a look at what's happened to the markets the rest of this week. Take a look at where gold prices are and where oil prices are. So my advice would be to ride these things out because these are long term trends. You can see that, Ike, if you look at a chart of energy; or go look at a chart of Exxon over the last five or six years, or go look at a chart of a gold stock like Agnico-Eagle or a gold fund. And so I think you need to be longer term investor in your thinking and what I would do is whenever you see these pull backs or panic periods, I would just simply add to your positions. I don't particularly like the bear funds right now because I don't think we're going to be in a bear market. I think we're going to inflate. And the best example I can give you is when the Fed cut interest rates 50 basis points, you add a thousand point movement in the Dow Industrials and we hit a new record.
So if you've been listening to my Dying of Money series, any time you get these inflations, one outlet for money or relief valve has always been the stock market. So I'm not in favor of the bear funds. [31:30]
Hello, Jim and John, this is Kate calling. I have a question about investment priorities. I have $100,000 in savings and I was wondering what was the best way to invest them. The options are to pay a large part of my mortgage and own two-thirds of my house; or keep the money in mutual funds, focused mainly on precious metals and energy. In your opinion, which option is most wise. Thank you.
JIM: Kate, I think if you invest in precious metals and energy, you're going to have more than enough money to pay off your house entirely, but I want to just caution you. Instead of taking your money and throwing it all into precious metal and energy and it sounds like – I don't know how experienced you are – I'd probably recommend using an energy no-load energy mutual fund, a no-load precious metals fund. You also might want to use a large cap international fund because I think international stocks are going to do well. But rather than throw your money in all at once, you might just want to dollar-cost average. Let's say you have $100,000 to invest, you put $10,000 into these funds next month over the next ten months. But you've got to understand, you've got to be able to ride through some volatility just like we saw last week and especially on Friday. And you've got to think of this long term, so you can't be frightened if, you know, you can't handle volatility. In other words, if your fund goes down one week or it goes down one month you can't worry about that. Just take a look at the price of oil and think about that more so than panicking whether your energy fund is down this week or down next month.
And my final caveat is if that kind of volatility, if that is something that you cannot handle personally on a risk or personal level if you can't handle some of that volatility, then maybe the better choice might be to just pay off your house, because you've got to be able to ride through these ups and downs because we are going to be seeing more volatile markets and I'm just worried that you be made aware of, that it’s something emotionally that you can handle. [33:51]
Hola, Jim and John. This is Richard calling from Buenos Aires, Argentina. John, I'm not sure that you're getting the praise you deserve for your excellent contributions to Financial Sense news. I want you to know that we here in Argentina think that you are fabuloso. Your recent Andy Looney and EF Mutton segments were actually pure genius. John, keep up the great work.
JOHN: I think what you're trying to say, Richard, is that I'm Juan in a million. I've been watching your elections down there too in Argentina, and – I was going to mention, I think some credit goes here to a couple of other people too, my wife Carol helps write some of these Andy Looney scripts. And the voice of Andy Looney is Richard Hawkins who's a loan officer for a local bank here. [34:46]
JIM: Hey, Richard. You've got a second career here.
JOHN: But really, the whole Andy Looney started one day he was over here voicing something.
I don't remember what he was voicing for because he's a really talented actor and musician when he performs, not in his line of work and stuff, and he started to do this Andy Rooney imitation on CBS news, you know. And it was so good, we looked at it and we said what could we do if we did something for Financial Sense. And just suddenly the name Andy Looney popped out, you know, and he just did this voice and we were just rolling around on the floor screaming. He was ad-libbing about loans and points and everything, and that's how Andy Looney got started for the show here. But you know what it's like, Jim. You don't sit in the studio and think of these things. In the evenings you're over a cup of coffee or something, you're talking about this and that's where these things come out. That's where they've always come out.
JIM: Absolutely. Saturday night over a glass of wine, I called you up. We were thinking of starting two segments and we'd just like to see your input to the listener. One would be a Hollywood Advisor Help-Line and it would be for Hollywood advisors calling in and how to help their stars. For example, if Lindsay Lohan is in rehab and you're a broker, should you take her call to buy stocks. We come up with these silly ideas. The other one would be what is the one we had earlier in the week, Studs Blitzer Reporter who asked the tough questions – so we get these kind of goofy ideas. Sometimes they work and sometimes who knows. [36:26]
JOHN: I remember back in television directing in college, they always tried to get me doing serious documentaries or things as class projects. And I always wanted to do the commodities. It was so much more fun spoofing something than it was doing serious radio or TV. So it still lives on, but anyway, we enjoy doing it here.
Hi, Jim and John, this is Dilip from Santa Clara again. I have a question this time about a 401K. My friends and I, the 401(K)s that we have, we are holding cash because we are afraid of possible downturns in the stock market. But our cash option is a so-called stable value fund or a bond fund. We don't have a Treasury money market fund. So we are kind of afraid of the cash option as well because of the possible mortgage debts that could be in these stable value funds and in the bond funds. We do have an S&P 500 index fund and a couple of large cap and mid cap value funds; plus a small cap fund which is probably becoming a mid cap fund because of high interest; and an international large cap fund. So we really don't know what to do about this because our choices are limited. And I'd like to get your advice on how to proceed in this case. Thank you very much.
JIM: Dilip, it doesn't sound like you really have much choices. That's really not a good situation to be in in this kind of market. I would probably say the large cap fund would probably be the best because that's the part that we're in in this time of the investment cycle and business cycle. I think that's where your best returns are going to be because I do think large cap stocks are going to out perform small caps. And you don't even have a Treasury fund.
The one thing I would do is make some inquiries in terms of what kind of investments your cash fund is investing in, because some of these cash funds have been at risk too because they've been buying some of this junk paper that was sold out there in the commercial paper market. So Dilip, I would make some inquiries into some other options that you have. And I don't know if you work for a large company and you have a large bureaucracy in the pension fund where you have few choices, but you might want to make some suggestions to your employer that they come up with a few more options, because in your case, you have a cash fund that's not a Treasury fund, so who knows how safe that is and you do question these things these days. It doesn't sound like you have a lot of options. But out of what you mentioned, the large cap fund would probably be my favorite pick. [38:58]
Hey, Jim, this is Daniel from Phoenix and with the fires going on all over San Diego and county just wishing that you and your family are safe. Bye.
JIM: Daniel, thank you for that. I mean, the out pouring that we saw this week with emails, voicemails was really touching and a lot of people are sending us that they were praying for us. Let me just tell you, if you were praying for us, your prayers were answered because all of us were safe. Our homes were safe, our office was safe, all of our employees was safe and we were one of the fortunate ones. [39:34]
Hi, Jim and John, Donald here in the UK, again, enjoying your show, listening to your show as always, listened to your series there on dying of money. That was all interesting stuff.
I know you guys aren’t deflationists but for the sake of argument, hypothetically, maybe we’ll have a bit of deflation maybe even a recession. Maybe even, folks are talking about a global depression here and there. Singapore is on a bit of a tear. Who knows, but just for the sake of argument, I've been looking and I can't really find any detailed information about what happened. What does happen to the precious metals in a depression, say Argentina, Russia? I don’t think Weimar Germany or even the Great American Depression is much of an example because things are a bit different then. But more recent examples if you know, if you have any take on, they would be much appreciated. Thanks.
JIM: Well, in Argentina and Russia and Weimar Republic, it was all inflationary. So obviously, gold did very well, but if you look at even in a deflation and in a deflation it might be associated with a depression in a creditor-type of economy. And in that kind of situation where you have financial institutions that come under risk, as we had in this country with so many banks failing in the 30s, gold did very well and so did precious metals in the 30s. So gold does well in a depression as well because it functions as real money in a flight to safety at a time when financial institutions are failing. [41:19]
Hello, John and Jim, this is Rob from Raleigh, North Carolina. And I had a question about the future currency, the Amero, I know it's not a done deal, but it sounds like it could be. My question would be how are we going to get to this currency? Is the United States dollars going to purposely crashed to drive the people into it? And if that's the case, how would a person protect themselves from that? What's going to happen to people's savings, their IRAs, 401Ks and would what would be the advantage? I know what the advantage would be to the bankers, but what would the advantage be to the people? And what's basically going to happen to people who hold a lot of American dollars. Personally, I'm going to try to mitigate myself and try to come out of this thing whole. And I think a lot of people have that question. If you could address that, that would be great. Thanks.
JIM: Rob, what's going to drive this is going to be a depreciating currency. And it's going to be the dollar. And I do suspect you will see Canada try to devalue if their currency keeps getting stronger. They will take some kind of attempts to weaken it because nobody wants a strong currency. But the whole argument will probably be made when they thrust it upon the public that this is one way of solving a crisis in currencies and they'll merge the three. Given that it will probably come about out of a crisis. The way to protect yourself will be as money is depreciating or it is losing its value is being into tangible type investments: gold silver, energies, tangible-type goods. That’s because essentially what's driving this is money is losing its value. [43:06]
Hi, Jim and John, this is Steve calling from London. I’ve been listening to the show now for a couple of years. You've taught me a lot and I really appreciate what you guys do. My question is: what's your long term economic forecast for the UK? Thanks, Jim.
JIM: You know, I think you guys are going to experience something similar to the United States. In fact, your debt levels are actually higher and also you have housing-related problems there. I know your central bank has been reluctant to – your central bank president has been reluctant to lower interest rates or bail out. But look what happened with the reversal at Northern Rock. So I think like many governments they are going to try to inflate their way out of it, and what you may get is a staginflationary-type environment. Which is what happens when governments do that when you have a lot of these malinvestments in the economy such as you have in your country with real estate, as we do in ours. [44:00]
Hi, Jim and John, this is John from Utah. I have a comment and a question. My first comment is I've been slightly disappointed with the last couple of guests you've had, Jim. Two weeks ago you had a couple arguing that bonds are better investments than stocks. Their argument is not based on some hidden return in bonds but based on the fact that we really don't understand how little we're making in stocks. Are they really suggesting that we retire on a negative 2 to 3% real return? And last week you had your guest argued basically for a fiat money standard that was linked to gold. He said that gold wasn't important because it was hard to mine and because it was scarce; but it was important because it was solid in value. Well, it's only stable in value because it's hard to mine and it's scarce. He said that we should target our money supply by the price of gold rather than an interest rate. But I want a gold standard where gold is exchangeable. The US dollar is not money. It is a money derivative. It derives it's value from gold or silver. I want an exchange rate between those two that sticks. I'm sure your guest this week will be terrific, Doug Casey, I'm sure, will be great.
The second little disagreement we have is that John Maynard Keynes said that in the end we're all dead. And Jim, it sounds like you interpreted that in the end our goose is cooked. I think what he meant by that is in the end it doesn't matter what happens because we'll all be dead. That's a subtle difference, but that's a little bit of a difference.
Now, here is my question, Jim, what other place can we go for good recommendations for those who are fairly small investors. Good recommendations on stocks for gold and silver, natural resources, infrastructure and energy and energy services. In conjunction with that, would it be possible for you to start a newsletter? I think that would be another source of income for you and I think it would be good for us that can't afford the $50,000 minimum that you require. Thanks for your show, guys, you're wonderful.
JIM: John, a couple of things, disappointment in the guests – One of the things that we always try to do on the program is have different points of view. So we talk about stocks, which I believe are far superior to bonds, but we've had requests: “Why don't you ever have somebody on bonds?” So I got somebody who is considered to be one of the bond gurus or experts. In fact, Bill Gross, I think, wrote the forward to their book. So we try to get different perspectives here, even guests on the show that I don't necessarily agree with. But, you know, if you're a bond investor, let's say you don't like stocks and you strictly want to be in bonds, I think they've written a good book on bond investing. I wouldn't be in bonds given what I consider to be inflation. The guy that I interviewed that wrote the book on gold, I agree that the gold standard would be much better. So try to understand that we try to get multiple views, even when those views don't could coincide with those that we share between either myself or John. So we try to do that just to be open to give you a different perspective.
I can't write a newsletter because I am a broker-dealer in an RIA. It would be a conflict of interest. And so unfortunately, I can't do that. But what we will do and periodically we do shows on what we call okay: What do you do it you're a small investor. And I think we've mentioned here ETFs or for example no-load funds in energy or gold or various sector funds. A couple of books out there on ETFs that are coming out and we are in contact with the publishing company and we will have them on the show. So hopefully if we have those kind of guests they will be helpful to you. And also I think, John, always reminds me when we talk about subjects, bring it down to investing. And he also reminds me, okay, for the big guy and the little guy. So John, keep reminding me. [48:03]
Hi, this is Cheryl from Sarasota. First I want to thank you for a wonderful show. You're real life-savers. My question relates to Colleen and Charles Smith's blog today where he talks about a global recession could lead to a steep drop in oil prices. Do you see this as a possibility? Any comments you have on the subject will be greatly appreciated. Thanks.
JIM: Well, Cheryl, if there was a global recession, that would reduce demand. But, you know, the IEA when they issued their midterm report this summer took a look at that in terms of this energy crisis that they see coming, and one of their comments is even if we were in a recession and global demand has dropped dramatically, it would just postpone the crisis by a year or two. Something I would agree is if there was news, for example, that the global economy was heading into a recession, the first thing that would happen is all of the traders, hedge funds, anybody that was long would immediately sell off oil and the price of oil would take a steep drop. But then, I think it would quickly recover because I think what would happen is the supply and demand dynamics. Remember, conventional crude oil peaked in 2005 and OPEC production has really not increased and their exports have peaked. So I think the reality of the oil market would come back. It would be very similar to what we saw, I think, in January of this year when warm weather was on the East Coast and Goldman Sachs changed their commodity index, which forced selling of energy; and oil got down to $50 and they were talking about oil going down to 40 or 30. I mean oil did drop from 70 to 50, but take a look at where it is today, we’re over 90. So if there was a steep drop and initial market selloff, it wouldn't be long before the prices would be climbing again. [50:10]
Good morning, gentlemen. My name is Mark. I'm calling from Colorado. I guess it's more of a response than a question. It actually is prompted by your question rhetorically to Alan Greenspan last week saying the once famous article about gold that he did for The Objectivist magazine, and it was what changed your opinion about gold, Al?
And I used to be a talk show host here in the American Freedom Network a long time ago and had Dr. Paul as a frequent guest. And typically, that would be after Alan Greenspan had appeared before the house banking committee. And I would have the opportunity to talk to Dr. Paul about some of those things. It was always very interesting and he was one of my very favorite guests. And he related at one time to me, a story which I would encourage you, if you ever have a chance to get him on to get him to tell you about how on his very first time at the House Banking Committee when he got to interview Chairman Greenspan, he produced a copy of the original Objectivist magazine that Dr. Paul was a subscriber to back then, and asked him to autograph it after the session and in the process of doing that Alan Greenspan remarked to him that he would not have changed a single world from that article.
And over the years after that, I would frequently respond to that and ask Dr. Paul do you get the impression that he was lying to you or not. And it was an always very interesting because neither one of us were absolutely sure exactly where Alan was coming from. Maybe deep down inside he didn't have some twinges about this or even perhaps an agenda to show just how bad the system was. Who knows? And I don't think he'll be telling us. But anyway, I wanted to pass that along to you, and again, if you get a chance to interview Dr. Paul, I would encourage you to do that. He's a very fascinating fellow. Thank you very much and I enjoy the show greatly.
JIM: Mark, I've heard that response to Ron Paul, but there was an interview, and I can't recall who it was with, and that very same question was brought to him. And he made sort of a similar comment that he wouldn't change his thinking on gold. But he then went on to say, “well, the world has moved on from that period of time. It's more of a global economy.” And so basically central banks have adapted more easily to a growing global economy. So he was basically saying “yeah, I believe in gold, but given where the world is today, a global interconnected economy, the concept of central banks and how they have adapted has worked out much better.” And that – that was a conversation I remember very well because the question was asked to him and it wasn't just would I change it, he said he wouldn't have changed it. But he did say that the world adapted and central banks moved on, so that's basically what's happened, but I do recall those comments. [52:54]
Hey, Jim and John, this is Jim from Maryland. I have two questions. One regarding market cap for ounces in the ground – I've been crunching some numbers here and I've been wondering, it really seems low. I was wondering if you could generally speak on, like for example, Silver Standard. I'm coming up with they've got about 2 dollars an ounce of silver in the ground and Pan American is around 3 dollars an ounce. Does that sound correct to you? And by comparison, we have our Goldcorp and Kinross at around out $250s an ounce for gold. I was just wondering if these numbers sound correct to you.
And my second question is regarding exchanging a portfolio of mutual funds for ETFs. My concern is – well, I want to know what you think about that generally, and specifically, I have a mutual fund and I like the companies that are in the mutual fund even though the fees on this particular mutual fund are a bit high. Now, the ETF – my understanding is the fees are much lower, so on principle, it's a good idea to switch from a mutual fund to the ETF. But I don't like the companies in the ETF quite as much.
So I was wondering what's your thoughts on that were and if there is a gold mining ETF that you would recommend, or if there is a couple, because I know there are several hundred of these ETFs. And I was hoping to get a little bit of advice on picking a decent ETF that would represent the unhedged gold and silver miners. Thank you very much.
JIM: Jim, one of the first things that you might want to think about if you're switching from a mutual fund: first of all, if you like the companies that are in your mutual fund, why switch? So that's number one. Number two, you've got to think of the tax consequences if you switch too, unless it's held in some kind of a pension fund where you don't pay taxes. So those are two issues that have come up.
The thing that you've talked about in terms of ounces in the ground. Some of the conditions that you've mentioned, Silver Standard’s market cap or ounce in the ground is $21.47, at least as of last month. That's probably a little higher now because Silver Standard stock is almost at a new record. Remember, Silver Standard is primarily silver, so it's being analyzed from silver ounces in the ground. If you look at Kinross, their market cap for ounce in the ground is roughly about 196 bucks, or close to 200. [55:30]
Hi, I'm Thomas in Washington state and I listen to you, Jim and John, every week and really enjoy your program and profit from it. I wanted to say that this morning on C-Span they had the price of Toyota Camrys, or their equivalents throughout the world. And the cheapest place to buy one in terms of our dollar currency, is in Tokyo. And for example, in Brazil the tax alone is $80,000 to get one. And in Europe, they are higher, everywhere they are higher. But in Tokyo including other states. And this to me means that the Japanese currency has a valued currency that they sell those cars in. So therefore it appears to me that the Yen will appreciate more against the dollar than any other currency based on that logic? Do you have any comment, or would you like to make a speculation on that issue? Thank you, and I look forward to your answer.
Thomas, one of the reasons the Camry is cheaper in Japan is the Japanese currency is being artificially kept low through its own central banks suppression. So in that currency it's probably cheaper, meaning your currency would buy that car at a cheaper price because of a depreciating currency. [56:48]
JOHN: Well, Jim, it's been a very, very, very strange week and that's why we didn't do as much as we normally do on the Big Picture. But hopefully we'll get back on track with next week's program, which is going to be about what?
JIM: Well, next week, my guest will be Bjorn Lomborg. He's written a new book called Cool It. So if you're interested about global warming or have some questions about it, he's a well-respected scientist. He wrote The Skeptical Environmentalist. He'll be my guest. On November 10th Louis Navellier will be my guest. He's written a book called The Little Book That Makes You Rich. And on November 17th, Kenneth Fisher will be on the program. He'll either be talking about a book that his father wrote, which was very influential in Warren Buffett's career or Ken's new book. So don't know which one it's going to be.
And then also, the following week, we're going to have our annual gold show. I’m still debating whether I'm going to go to the San Francisco gold show. I think if I do this time, it’ll be as a spectator – go there incognito. But we do have a special gold show that we do every Thanksgiving weekend where we interview executives. We've got a couple of major companies that we're talking to and some companies that are turning into super fast growth companies on the large scale size. We'll have some late stage development companies, some exploration plays. Also we'll do something in the area of uranium and a couple of other companies. And so all of that is coming up on Thanksgiving weekend. And so I hope you'll be there too list seven.
In the meantime, we're going to call this quits on what has certainly been an interesting week for the Puplava household. And of course, as many of you are aware of the news that we had down here in San Diego. So anyway, I just want to say thank you to all who told us that they were praying for us and wished us well. Those comments and prayers were much appreciated and we can't tell you how much that means to us. But we'll return to our normal broadcasting format next week with special guest experts and the expanded edition of the Big Picture. All of that coming up next week.
In the meantime, well, we've run out of time and on behalf of John Loeffler and myself, we'd like to thank you for joining us here on the Financial Sense Newshour. Until you and I talk again, we hope you have a pleasant weekend.
© 2007 James J. Puplava, Financial Sense ® Newshour