Ask The Expert - Willem Middelkoop - September 2016

Transcript:

Announcer: You're listening to "Ask the Expert" on Sprott Money News.

Craig: Well, hello again everyone and welcome to the September edition of "Ask the Expert" here on Sprott Money News. I'm your host, Craig Hemke, and joining us this month is Willem Middelkoop. Willem is a Dutch citizen, where he is a precious metals fund manager based in Amsterdam, but he's also widely known as an author and speaker. His book, which came out in 2013 and was revised again in 2015, is called "The Big Reset." It is a global, worldwide bestseller and Willem has agreed to join us today and it's really great to have him here for "Ask the Expert." So Willem, thank you very much for taking a few minutes to spend with us here at Sprott Money News.

Willem: Well, thanks for the invite and great to catch up on all these, well, wonderful topics.

Craig: Well, let's just dive right in, my friend. As you know, we've got a handful of questions that are submitted by Sprott Money customers. We do this every month. They get a chance to email the questions for the guest and I think we'll just dive right in with number one. It goes right into your expertise as it pertains to the global financial system. First question is, do you expect China to ever announce their true gold holdings and maybe even back the yuan with gold?

Willem: No, because the Chinese have not too much to gain by being totally honest on these kind of subjects. People should not forget that China is working together with the IMF, with the United States, to change the system step by step. It's not China's wish to make the yuan a full competitor for the U.S. dollar and so I think China would like to see the yuan added to the currency basket of the IMF, the SDR. We will see actually the renminbi will be added October 1st this year. China has been pressing the IMF and the U.S. for years to be added to the currency basket because it's China's wish to see the SDR be upgraded as a world reserve currency which could compete with the dollar in the future. And if we go back to the first question, will China ever be really honest about their true gold holdings? I think China has much to gain by being a little secretive about their true gold holdings, so I don't expect them to show their full hand of cards in the near future.

Craig: That's at least within the current system. Could you envision a scenario I guess where the current system collapses again, as it did in 2008, and perhaps they would?

Willem: Because we were close to a full system collapse at the end of 2008, many people think this might happen again and this could happen soon. I think the risk for a full system collapse is not that high because central bankers worldwide are cooperating in trying to avoid every large crisis and when you can print as much money as you like and if you can use the balance sheets of all central banks and even use the balance sheets of the IMF, you can create as much money as needed, even to initialize the Deutsche Bank and Credit Suisse. You can solve any crisis. There's only one point in time when the music stops and that's when people lose confidence in fiat money. But I only see people from our groups of gold investors, hard asset investors, placing question marks about fiat money, but I think the masses, they're still okay with the system, they're still fine with the system. So I don't see any real problems on the horizon very soon.

Craig: Fair enough. All right, well, let's move on to the second question. You touched on it briefly in your previous answer and that is the inclusion coming October 1st, the inclusion of the Chinese yuan, the renminbi, within the IMF's basket of currencies, the SDR. The second question is, once that happens, do you think perhaps gold will ever be included within the SDR basket?

Willem: That's a great question because in the research for my book, I found a few academic papers who really studied this topic and I think it was also China who was pushing the IMF and the West to study this subject. Because I found a study done by Chatham House in London about the future of the worldwide monetary system and in the first study, gold was not part of the plan for the new face of the global monetary system. But then I found another study and it was done, I think it was one year later, and in the introduction it said that it was on the request of the Chinese that gold was added to the study. And I know about another study by a female professor in Scotland, who also has studied the idea of adding gold to the SDR. I'm on the advisory board of the OMFIF. The OMFIF is a monetary think tank in London and our chairman gave a presentation in Dubai almost two years ago and he said in that speech...and IMF had talked about the subject within...but he said during this speech that he expects gold to be added to the SDR in the future. And I think it's also...it would be a logic step because at one point, the people could lose trust in the fiat money system, especially in an SDR because they don't know the SDR so they don't have any real trust in the SDR. So by adding gold to the SDR as a sixth currency, it would be a great idea to give the SDR a very solid foundation and make the SDR the most wanted world reserve currency at one point.

Craig: Very interesting, yeah. All right, the next question, Will, goes kind of to your idea of the big reset, meaning this change to the next global financial paradigm. A lot of folks think that when that happens, it will come kind of from the top down, kind of enforced whether voluntarily or involuntarily by the central banks and the big banks and the governments. But this question really is, could it possibly come from the bottom up? Then specifically what can millions of hard money individuals do to promote alternative gold currencies, physical, electronic gold-based money, maybe the growing use of denationalized honest exchange in expanding free markets for labor and goods? Is there anything that could force this reset from the bottom up?

Willem: This is another great question, but if you study monetary history and I'm a student of monetary history, then you will find all kind of financial monetary resets in the past. And monetary resets can be accomplished after careful planning. 1944, the Bretton Woods Conference was a great example. The Bretton Woods Conference had been planned for years and the U.S. presented a plan in which the dollar would be the new anchor for the worldwide international monetary system. But you can also have a monetary reset after a crisis occurred. The Weimar hyperinflation is a great example. The Germans came up with a new Deutsche Mark after the value of the old Deutsche Mark collapsed in 1923. But a monetary system can only be proposed and changed top down. This can only come from government or central bankers. But of course, when too many people are voting with their feet and buying gold with the fiat money, this will help to bring a crisis to the system in which the government and central bankers need to respond. But you can never have a reset as a grassroots movement.

Craig: All right, on to our fourth question. We're about halfway done. There has been this tremendous rally in 2016 in the mining shares. A lot of national banks, Swiss National Bank, I think it was the Norwegian National Bank, had been buying mining shares. A lot of folks felt kind of left behind, especially on an institution level, because the shares went up so fast. Do you feel that institutional investors are using or will be using this current correction to buy or maybe add to their mining share positions?

Willem: Well, I'm a fund manager myself, so we're fully loaded up on mining shares for years now. We're up over 100% this year, so we enjoy it really quite a bit. And I always tell our investors that this was just the first phase of a new generational boom market and I expect a strong move up and the next leg up start very soon. It may even have started today because we see all mining-related equities going up 2% or 3%, especially precious metals-related equities. And this is because the reason you gave, some institutional investors are really showing up in the market. They are really starting to invest in gold- and silver-related equities. We haven't seen this in the past. And I think it's another very positive sign is that Bill Gross, who is the founder of PIMCO...PIMCO's the largest U.S. Treasury bond dealer...and Bill Gross, who made $200 million in profits personally during his life by selling bonds, he now says in interviews that he doesn't believe in bonds anymore as a serious investment and he was actually advising investors to start investing in hard assets now, like gold. And I think this is a very important change for the investor sentiment because institutional investors like pension funds, they do listen to Bill Gross. They do not listen to Willem Middelkoop, so I think this might bring our markets to the next level, to the next phase in which real institutional money is pouring into our kind of markets and I think we've seen that in the last few months.

Craig: All right, let's move on to the next question then, Will. You mentioned this earlier, about how the central banks now are just allowed, I mean, nobody seems to complain that they print as much as they want and they've been able to keep the system together over the last eight years through quantitative easing and now negative interest rates. The question essentially is, can this game go on forever? Can the global central banks just keep the plates spinning almost indefinitely through negative interest rates and quantitative easing?

Willem: At some point, they can't continue, but we haven't reached that point yet and I think in the toolbox of central bankers are still quite some interesting instruments they can use. We haven't seen real helicopter money. We haven't seen the use of the balance sheet of the IMF. The IMF can create billions and trillions of SDR out of thin air to support the current system and you should well understand that the Chinese, the Japanese, the Europeans and the Americans, they all want the same solution now. They all have the same problems. They all have too much debt. They all need to buy more time to come up with some serious solutions. The SDR, which will only include the renminbi from October 1st, it has taken six, seven years to make the SDR ready. I think central bankers and planners, they would like to kick the can down the road a few more times and from my study of monetary history, I learned that these monetary changes often take much longer than you could envision at first.

Craig: Well, what's to stop it from going on just indefinitely and the central banks just buying everything?

Willem: It's about the trust of the general public. When the trust of the general public into fiat currency, when the trust evaporates, then they should act and I think central bankers know this very well. But as long as there's no sign of hyperinflation in broader markets, there can be hyperinflation in small other markets. But if there's the risk of hyperinflation within the major markets, then they have to act, then they have to move. And then they will move and then they can revalue gold, they can create a gold backing for the SDR. They can do many things and I think central bankers know this very well. I'm a student of monetary history, but central bankers are as well. So they all know this and that's why I don't expect hyperinflation to occur because central bankers will act before it will occur.

Craig: Fair enough. All right, well, last question, my friend. This one kind of on a personal level, I guess. You've got a couple of teenage sons. And this question is just basically what would be the best investment advice that you could give them?

Willem: That's the same advice I give to friends and I give to the staff working at my company: buy physical silver. Physical silver is so cheap. It's 70 times cheaper than gold. I think we'll see silver shortages before we see gold shortages. I expect silver to go well north of $100 and you can buy it around $20 now, so if you want to make some money for the next 5, 10 to 15 years, you buy physical silver, you put it in a vault or you put it in your garden and you bury it and you forget about it. In a few years' time, you'll be very happy.

Craig: A lot of folks here at Sprott feel the same way, no doubt about it. Will, that was just tremendous and I want to thank you so much for your time. It has been a pleasure to visit with you. Tell everybody, again, about "The Big Reset" and the recent update and where they can find the book.

Willem: Yeah, I just published a revised edition of "The Big Reset" last year. It's for sale on Amazon, but be sure you buy the revised edition. And we also published for free a new chapter just one month ago and I'm sure Sprott will publish a link and I think this will really help people to understand the changes occurring within our financial system.

Craig: We'll be sure to do that. Again, Willem Middelkoop, author of the bestselling book, "The Big Reset." Willem, thank you so much for taking some time to join us here at Sprott Money News.

Willem: Okay, it was a pleasure. Thanks.

Craig: And to everyone out there, thank you for listening and we'll look forward to speaking with you again next month.