We Are In Uncharted Waters – The Debate Is Not Addressing The Truth

Frank Giustra is a very successful entrepreneur and investor. He succeeded in various role, from the gold mining sector to the fim industry. Very recently, he spoke  at the World Outlook Financial Conference where he was interviewed by Michael Campbell, Business Columnist and Host of Money Talks. They addressed a couple of big themes. The interview is extremely insightful, accurate and actual.

We are in uncharted waters

Some of the greatest minds in the investment world are confused and opinions are extremely diverse because we are in uncharted waters. Frank Giustra says the following:

What we are witnessing today is something that almost no one has witnessed before. To analyze what’s going on requires understanding history and the natural evolution of nations, certain patterns of human behavior especially with respect to politicians. I study a lot and look at the trends, how we’ve seen the evolution of fiscal and monetary policy the last twenty years, how we’ve seen sort of the breakdown and deteriorating issues of the political system in the US. Then I look at how the public is educated to accept certain things through the media and other special interest groups. Through that, I formulate a range of probable predictions. The problem is that there is no absolute outcome to this because there’s so many variables. Just like in quantum physics you know there are no absolute everything is measured probabilities so I look at the range of probabilities of the things that are going to happen. They go from anywhere from just modeling through this next few years with anemic growth (deteriorating middle class for a number of years) all the way to the other extreme which  with social unrest, complete mayhem and collapse, and everything in between.

The outlook does not bode well. Frank Giustra studies a lot and gets in touch with a lot of people from all classes. He is convinced that we will see some sort of painful outcome given the “mess” the world is.

Most have their own agenda and the ongoing debate is not addressing the truth

Frank Giustra points to the ongoing debate that is not addressing the truth. The reality is that the true fix will require pain, but no one is willing to suffer, whether it is the cutting back on services, or increasing taxes. The IMF has suggested that, in order to get out of this fiscal mess, the US has to raise taxes by 35% and cut costs 85% percent across the board. It is like everybody is on the titanic right now and they can see the iceberg on the horizon.

There are only two ways to get out of this mess: either you are going to cut costs dramatically which is a very difficult pill to swallow (especially as we have very slow growth), or you have to write off the debt (which will never happen), or you inflate it away (which will happen).

High quantity but low quality of information

The amount of information that is being thrown to the average investor is impossible to follow. People are bombarded with information, which is made available today because of the internet. The quality of that information is really poor. The mainstream media is doing a great disservice to the average investor in many different ways. A lot of the media is driven by opinions; they quote opinions that have an agenda. The bank analysts know how to comment on QE because most of the banks are benefiting from QE . For the average investor the actual information is just terrible.

Inflation will hit

During the interview, Frank Giustra says that we haven’t seen inflation yet because the velocity of money is at a complete  stance. Velocity of money has been brought to a halt; it hasn’t been this slow since the records back in 1959. Monetary inflation has manifested itself into asset bubbles.

The point with classic inflation (measured by the CPI) is that we haven’t seen the dramatic part of it yet, but in fact we in my opinion we’re witnessing inflation is just not reported. The Boston Commission back in the late in the late 90’s recommended the removal of energy and food items from the basket [that measures inflation, being the CPI] because they were too volatile. Do you really think inflation is running a two percent? It is not but that’s what they are wanting you to believe.

At the end of the interview, Giustra explains that inflation is caused by the fear of inflation. In fact, he says inflation is a self-fulfilling prophecy (every central bank of the world knows it). Your expectations for inflation will push up prices; it is the central banks primary job to manage those expectations. Bernanke gave a great speech in 2007 where he talked exactly about this; it was a speech talking about anchoring expectations.

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing