SilverStrategies.com editor Sean Rakhimov says the economic crisis may go on for a generation but the market is a separate animal that will stir back to life sooner. He expects physical gold and silver to lead the parade, with base metals lagging 12-18 months behind, followed by share price recovery for the majors and on down the line. When picking stocks to buy now, he says investors have to decide for themselves whether a company will survive the washout; it may be tough going from here to there, but sticking with survivors should prove beneficial in the long run.
Part I of the interview
The Gold Report: Let's start with your take on where are we today, what has happened, and where we’re going from here.
Sean Rakhimov: Basically we’re in a situation that we’ve long expected. We all anticipated a big financial crisis, all sorts of problems, an end-of-the-world type of scenario—not literally, but the world as we know it. And I think we’re there. This is the big one and it’s for real. Where we go from here is largely a function of what the powers-that-be will do. We have some idea of what they will do; they will do all the things that will make it worse. I go by the theory that they will always do the right thing, but only after they exhaust all other options.
TGR: When you say the big one, how much further are you expecting both the markets and the international financials to erode?
SR: The markets are a separate story. Don’t confuse what the markets will do with the general crisis or economic situation. Markets are a different animal; they can do all kinds of things that do not fit into your thinking or should not have happened given the economy or the political situation, or what-have-you. I want to be clear on that so that people don’t assume that if I say, “Oh, this is going to last a while, that automatically means the market is going to not recover for a long time.” The economic crisis, I think, is going to last for a generation. I foresee a twofold crisis here, or maybe three stages. The first one is what we're going through right now - a debt crisis.
At some point down the line we’re going to have a currency crisis, where the dollar will stop being the reserve currency of the world. I don’t know how long before that happens. It’s a matter of whoever runs first to the door, basically. I was just reading some articles. Iran is converting their foreign exchange reserves into gold. China is trying to do some of that. It only takes a few of these until there’s a domino effect and when that happens, things should play out quickly.
TGR: What do you mean “play out quickly”?
SR: This crisis, I think, has been a good example, where within three months we ended up in a completely different environment. If the dollar stops being the reserve currency of the world tomorrow, I expect things to happen quickly. It may take a decade until it gets started, but once it starts, I expect things to unravel quickly. The reason for that is we have maybe 20 to 30 major players in the world that can make a difference. I’m talking about countries and maybe some other entities such as sovereign funds. And I believe it’s going to be very difficult to bring everybody to the table and get them to agree on a plan that everybody would sign on to. Even if they did sign on, I think it’s going to be very difficult to make sure everybody sticks with it.
As soon as they break ranks, I think within six months the whole thing is going to break apart. Whatever accord they come up with, if it’s going to be Russia or China or somebody of that size, things are going to happen even quicker. If it’s going to be a smaller player like Iran or Venezuela, that may take a bit longer. The significance of it may be downplayed for a period of time. But ultimately I think most people understand the dire straits we’re in. At some point it’s going to be "everybody for themselves" and that’s when I think the current system is going to fall apart.
TGR: You’re suggesting the dollar will stop being the world currency and countries will make some attempt to come together to create the new world currency. Might that be gold or precious metals?
SR: I don’t think the adoption of gold or a derivative thereof as a reserve currency is going to come from governments, at least not voluntarily. Eventually, I think they will be forced to.
TGR: Wasn’t that the original part of the Bretton Woods agreement?
SR: Yes, it was, where the U.S. dollar was as good as gold and was convertible to gold, but we know how that ended.
TGR: You said this crisis could go on for a generation. That’s a long time.
SR: I foresee maybe several stages of this crisis unraveling and that’s why I say it’s going to take about a generation. As I said, the first one is the big debt crisis we have now. Maybe an extension of it will be some sort of a currency crisis. It’s not just a dollar that won’t be worth anything, but most other currencies as well. And then I believe what’s going to really, really change the environment and exacerbate the situation will be an oil crisis. I do expect oil to hit a new all-time high, say, by 2011. So within two to three years I would think that’s going to happen.
