Six months ago, at the Prosperity Dispatch, we had the opportunity to sit down with John Embry, the chief investment strategist at Sprott Asset Management. He is one of the world's leading gold experts.
That was March though and not too many investors were interested in buying anything. But Embry said to look past the short-term and focus on the big picture.
At the time, Embry predicted:
I think the major development is going to be ongoing issues of currency debasement. The value of paper money against real tangible assets is going to fall considerably. Right now, we are going through this deflationary scare. It won't last. It will change into a hyperinflationary environment in the not too distant future.
Since then, gold and silver have climbed 9% and 25% respectively. They've done well, but the big gains have been in gold and silver stocks, where Embry pointed us to last time. The Philly Gold and Silver Sector Index (XAU) has climbed 51% and many gold and silver stocks have done much better.
The prediction has proved nearly prophetic. So I've invited him back to learn what he expects to happen in the short- and long-term and the opportunities he is seeing now.
In our most recent conversation, Embry reveals:
- the catalyst for an explosion in the price of gold over the next two months
- assets for which demand is exploding
- China's interesting problem
- the sector where short-term sentiment is hiding a huge rally
- hidden impact of 10% official unemployment
That's just for starters. There's a lot more on silver, farmland, uranium, and plenty of other high-potential sectors.
Read on below for a full transcript of the exclusive conversation.
Chief Investment Strategist, Q1 Publishing
John Embry and Andrew Mickey
Andrew Mickey: Thanks for joining us today John. A lot has happened since we last talked in February. Basically, it looks like almost everything we looked at last time - gold, silver, agriculture, and other hard assets - continue to be out of favor. There have been gold shoots, but nothing really sustainable.
That's why, today, I want to get into a few more specific topics with you. And one thing that's really hot right now is what's going on in China with the real debt explosion. To me, it seems similar to the Greenspan Solution - cut interest rates so low they're actually negative so its cost prohibitive not to borrow money, sit back, and watch an asset bubble form.
Do you see any problems in China? What are your thoughts on this?
John Embry: Actually, I have some fairly strong views on this subject. I don't think that you can do what they have done and end up without a problem.
To put it simply, they have force fed an enormous amount of credit into their economy through their banking system quickly. And the numbers, for such a short period of time, are quite staggering. But it seems to me that the kinds of loans that are being made are going to be hard to service. I think there are going to be a lot of loans made to people that are going to have to do uneconomic things, and I think we are seeing it also show up in the areas of speculation in stocks and commodities.
I don't think China is going to have a smooth ride. It just seems to me that people think China has got the magic solution and they are just going to continue to grow at 7% to 10% a year, forever. I believe they will have a huge hiccup at some point, and maybe sooner rather than later.
So yeah, I think that they sort of got a short term bail out with all this money they jammed into the system, but we will see how it works out in the longer term.
Andrew Mickey: The other thing that I wanted to talk to you about is agriculture, which has really fallen out of favor. It's tough to imagine expectations getting much lower.
I know we're both big on agriculture over the medium- and long-term, but what do you see happening right now. What's going on with this year's crop? What do you see happening in the near term and also more longer term?
John Embry: I think that crops are coming in better than what most expected. For example, if you have a longer term point of view, you are going to go through some bumpy spots for the simple reason that no one can predict what any individual growing season is going to be like. But the fact is, in my opinion, the long term view is still very intact. There are too many people on earth and more of them are becoming better off to the extent that they can eat better.
I suspect the climate is going to be an issue going forward; consequently, there will eventually be food shortages. In the short term, we appear to have gotten bailed out by an exceptional crop. Consequently as the crop actually starts rolling in, prices can be very volatile and perhaps move to the downside.
As I said in the short term, we cannot predict crops on an annual basis up here or anywhere. The industry is very large and a lot depends on unpredictable variables like weather.
However, at Sprott Resources, we are putting together a potential million-acre farm in Western Canada called One Earth Farms. We are putting our money where our mouth is. We think there is a huge opportunity over the full food cycle.
Andrew Mickey: I have heard a little bit about that. Is that going to be part of Sprott Resource Corp?
John Embry: At Sprott Resource Corp we have a joint venture with the First Nations in Western Canada. I think it's a hell of a concept. We are going to give them a fair shake because they haven't been given a fair shake, in the past. They have some great land and we think that, if farmed efficiently, it's going to be a very successful economic venture.
Andrew Mickey: Where is this located?
John Embry: It's in Alberta and Saskatchewan.
Andrew Mickey: So there has been a mutual agreement over the use of their land reached? I know that can be a problem for a lot of mining and energy companies in those parts.
John Embry: Yes it is. In the past, I think the natives were not treated fairly and in this instance we won their confidence and now things are going pretty well. We are putting it all together and getting it started, but it will take years to play out to its full extent, but things have gone smoothly to date.
Andrew Mickey: That's an excellent idea. One thing that's tough to do, from a retail investor's perspective is to get exposure to farmland. You really may have something there.
What about uranium?
Just a few days ago, I saw that Southern Company (NYSE:SO) announced they are building a nuclear facility in the United States. Is this something that China is still going after? Do you think the cap and trade is beneficiary?
John Embry: My attitude is very simple on energy. We are going to have shortages, and alternative energy isn't going to come fast enough.
One of the more efficient ways to combat this problem will be, or seems to be, uranium. And again, right now we have been going through a challenging period in the commodity cycle, and clearly uranium has been hit, but I don't think the longer-term picture is impacted too much.
Andrew Mickey: Let's get into global infrastructure for a moment. Every country seems to believe building something will be the way out of this situation. The US has a couple of show projects. India has some very big aspirations. And infrastructure looks to be China's continued focus of its efforts. Do you see more opportunity in infrastructure?
John Embry: A lot has gone into that. China has got an interesting problem. It's clear they grew off the back of the international demand for their manufactured products. This occurred in a sort of bubble-type atmosphere where the entire western world was over stimulating their economies and their consumer sectors. It provided a tremendous stimulus to China.
Now, China has to deal with the collateral damage from getting a significant proportion of their wealth from exports. They are going to have to develop their domestic demand and they as part of this have put a lot of money into their domestic infrastructure.
My concern is in the short run. China may have gotten into a significant overcapacity situation in a number of areas. That's certainly the case on the manufacturing side. They can build roads and bridges and all sorts of things, including electrical plants because they need these and they have the money to do it. So I think infrastructure spending in China will continue to remain a very significant economic stimulus.
Ironically, in the United States where they are bailing out all the banksters, what the United States really needs is an infrastructure build out.
I don't know where the money is going to come from but there's an awful lot of stuff that has been just kind of ignored for the last 20-30 years; roads, bridges and all the real structures. If it were up to me, I would be focusing significantly on that.
Andrew Mickey: Let's switch our gears for a moment here to gold and silver...right at this point, everyone is focusing on the long, long term, say 10 years, 15 years out.