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Monthly Wrap Up

Gold, Silver, and Time | Monthly Wrap Up With Special Guest Rick Rule

Gold, Silver, and Time | Monthly Wrap Up With Special Guest Rick Rule

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In this episode of "Monthly Wrap Up" hosted by Craig Hemke, guest Rick Rule discusses the events of September and the broader economic landscape. They touch on the recent Fed decisions, potential impacts of higher interest rates, the state of the U.S. economy, and inflation. Rick Rule emphasizes the importance of a long-term investment perspective, particularly regarding gold as a safeguard against currency depreciation and economic uncertainty.

Watch or listen to the full podcast below. 

Craig: Well, hello again, everyone. We've now reached the late part of September. We're about ready to wrap up the month, and wrap up the third quarter of 2023. Holy smokes, where does the time go? It is time to wrap up September. This is your "Monthly Wrap-Up," from Sprott Money. I'm your host, Craig Hemke, and joining us this month is our old friend Rick Rule. Rick, nice to see you.

Rick: Craig, always a pleasure. Thank you for having me back.

Craig: It's always great to have you on. Everybody remembers, now, I mean, you're just a just a retiree at this point, sitting on your front porch and drinking lemonade. I know that. But everybody remembers you from your days of working with Eric and Sprott, Inc., and we're gonna talk a little bit about some of the your current projects here as we go through this "Monthly Wrap-Up". Before we get started, though, always just a reminder, these are brought to you by Sprott Money, and sprottmoney.com. You need to keep them in mind whenever you're in the market, buying the dip, as they say, because we're currently in a dip. Who doesn't like saving a little cash? Convert some cash into physical metal, and now's the time to do it, with the fall bullion sale, annual sale that Sprott Money puts on. Great deals on bullion, and heck, you can store it with them as well. Go to sprottmoney.com, or of course, you can always just pick up the phone, talk to a live human being, at 888-861-0775.

Okay. Rick, this has been a doozy of a month. We had a couple little head fakes, looked like the metals maybe had put in a low, and then maybe started to move up toward maybe breaking that downtrend from May. And then the Fed, man, they gave us a cold slap in the face last week at the FOMC, and cut their amount of rate cuts that they're projecting for next year, and it's been nothing but trouble since. What do you make of all this, Rick?

Rick: To be honest with you, not much. I've learned, after 50 years in the investment business, not to care very much about stuff week-to-week. My sad experience has been that money is made over years and decades, not over weeks and months. That might speak to the fact that I'm a speculator and an investor, rather than a trader. But I suspect that people, as they reflect on their own investment career, will learn that nothing matters so much as time and compounding. I don't own gold because I'm hoping for a move from $1925 to $2015. I own gold because I'm afraid of a move from $1925 to $6000. The consequence of that is that a $10 or $15 move, or the violation of some technical support, or the acquisition of some technical support, doesn't matter to me a whit. I'm completely disinterested in it. I own gold because I personally am afraid about the maintenance of purchasing power in my own savings, relative to fiat-denominated investment products. That isn't to say that I have all of my net worth in gold. I don't. I own gold as an insurance product.

I remember well the decade of the '70s, and I'm too old to earn it back. That's why I own gold. I own some silver too, because in the latter stages of a gold bull market, silver seems to outperform gold. So I own that as a more speculative asset class. But the truth is that Fed-watching is not really an endeavor that I pay attention to. I don't pay attention, either, to what they say. My belief is that the political class, you can tell when the political class is lying, when their lips are moving. What I look at is the rate at which they are creating credit and money, which is to say quantitative easing. I look at the level of debt and deficits, and I look at whether I am being compensated as a saver by the interest rate they pay me, relative to the deterioration of the purchasing power of the currency. Sorry for that long-winded answer. But I think it's necessary.

You know, if you listen to the big thinkers, or if you listen to their mouthpieces, CNBC, CBC, and the like, you will be told that the rate of inflation is best stated by the CPI, the Consumer Price Index. But that's not a cost-of-living index. It's a construct. The CPI, as an example, is hedonistically adjusted, which is to say, if they decide I'm getting better value for something, they adjust it in the index. If you trust them, I guess, that's okay. But probably more importantly, the CPI, Craig, doesn't include tax. Now, if I didn't have to pay the tax, I wouldn't bitch quite so much about the index. But my own belief is that the deterioration of the purchasing power of U.S. dollars is cruising along at about 7%, the way I calculate the basket of goods and services that I consume. So, the idea that they're paying me 5.25% on a Treasury, in a currency that's depreciating by 7% compounded, means that I'm losing 1.75% a year. Some people don't prefer to do the type of arithmetic that I do around savings and investment, but I'm, I suspect that as my form of accounting becomes more broad-spread, which it was, by the way, in the decade of the '70s, when people experienced it firsthand, I believe that gold and silver will become much more popular investment classes.

Craig: You know, you've laid out and articulated the perfect case as to why we all own physical metal, and again, should not get so frustrated and upset by the, you know, by the ups and the downs, but we're all bombarded by the ups and the downs. You know, you see it on CNBC and the like every day. You know, and there's this, seems to be driven at this point, all markets, really, by the Fed, which really, aside from creating some alphabet soup, you know, new organization, you know, little pots where banks can put their money to, you know, like the near-term funding, or the, whatever they call that new thing they cooked up in March, all they can really do is spin their little dial on Fed funds. Now, they look at it, Rick, and they're trying to tell us this month that everything's just hunky-dory and dandy, and soft landing, and no landing, and buzz the field. What do you make of all this? What do you make of where the U.S. economy is at this point?

Rick: I see the U.S. economy as being really remarkably strong, compared to where I thought it would be after this many interest rate rises. I don't think credit for that is due to the Fed. I think it's due to the American people. I think the American people, by and large, are industrious, kind, and hard-working. I don't think it was the Fed that assembled a group of young people around a garage in Sunnyvale, California, that created Apple, or created Google, or created all those other wonderful engines of the U.S. economy. But I'm impressed by the relative strength of the U.S. economy. It's doing much better than I thought it would.

My fear, of course, is that the impact of higher interest rates, and the impact of tighter credit markets, is a lagging effect, and that we'll feel it later rather than sooner. But that's an editorial. You asked me about the strength of the economy, and I need to say that the economy is in much better shape than I had anticipated it being in as a consequence of the increase in interest rates. I note, as an example, that new home sales, and even sales of existing homes in some markets, have slowed down, as affordability around the 30-year fixed mortgage has decreased. The sellers apparently believe their house is worth what it was worth when the interest rates were less high. The buyers don't seem to be able to afford, at higher interest rates, those prices. So, what you're seeing, rather than a move in price, is a move in volume, down. Those moves in volume down, in markets in my own experience, do result in a change in pricing, usually lower. We'll see if that occurs.

I think a bigger problem, Craig, that we need to be concerned about, both as investors, but also as consumers, is the increasing unavailability and unaffordability of credit to below-investment-grade borrowers, private businesses in the country, real estate developers, even public companies that have to access the junk bond market. If we see a real disintermediation in credit, a risk-off in credit, then I think perhaps you see the type of outcome that we've all been afraid of. I'm not saying it's going to occur, but when I look at things that keep me awake at night, the increasing illiquidity in credit markets below investment grade probably is at the top of the list.

Craig: Yeah. Again, you're kind of getting into the lagging effects a little bit. You know, those things have to kind of ripple through for a while?

Rick: Maybe. I need to disclaim for your audience. I'm not an economist or a political scientist. I'm a credit analyst. I'm a green eyeshade guy. And so, I look at things from the point of view of the price and availability of credit, nothing else. It's what I do, it's where my expertise is. So, I'm not making a political forecast or an economic forecast. I am noting that the availability of credit below investment grade seems to be drying up. And I note, too, the increasing levels of consumer debt, at credit card revolving interest rates, which is to say, when you talk about a prime rate in the six-plus range, most people are borrowing at the 20% range.

Craig: Yeah. Right.

Rick: And I think that probably becomes increasingly unaffordable. I note, too, this is either good or bad, depending on who you are, that workers that have economic clout, which is to say, workers that have the skills or the organization to demand higher wages, are beginning to become fairly intractable. Many of them haven't gotten a real pay raise, that is to say, a pay raise in real terms, for 20 years, and no pay raise at all for four years. And if you've received no pay raise at all for four years, if you believe, like I believe, that the real rate of the deterioration of your purchasing power is at 7%-plus compounding, what you're doing is seeing your living standards decline in real time. The first half of the decade of the '70s was what you might call demand-pull inflation. The second half was cost-push inflation, which was a consequence of the higher wage settlements that occurred in the time period 1976 to 1981. And I look as an example at the job action by the United Auto Workers. But more particularly, by what you see in the economy, where skilled workers, or workers whose utility is high, are demanding and getting much better wages than they have in the past. I'm not saying this is a bad thing, but I am saying that it will manifest itself, it will likely manifest itself, in consumer price levels for the next couple of years.

Craig: Rick, I want to ask you one last question I don't think I've ever asked you before, but you prompted me to think of it. You know, as a credit analyst, and you talk about non-investment-grade debt issues, how about investment-grade? You know, it seemed to be, at this higher rate level, especially out farther on the curve, the Fed is trying to work this teeter-totter of equilibrium, where they want higher rates, but at the same time, we're adding $100 billion a week, at this point, in new debt. You know, there's $24 trillion that has to be refunded and rolled over, of the existing debt, in the next three years. How does the Fed manage that if rates are gonna be maintained at 5% and 6%?

Rick: Oh, I don't suspect that rates will be able to be maintained at 5% or 6%. I suspect you'll have a situation where either economic activity slows down and demand for credit slows down, or, the rates go up. Remember, not too long ago, rates were set by the market. I remember President Clinton saying that in the afterlife, he wanted to come back as the bond market, which had more power than any other entity on Earth. There was a fear, in the early days of the Clinton administration, that the Fed would give a Treasury auction, and nobody would show up. The Fed would have to buy their own auction. I don't think we're at that level yet. And I need to say that the biggest and best companies in the American economy, while I believe them to be at least fully priced in terms of their equity prices, are very stout, very solvent businesses. And I suspect, in an environment where there is a concern about credit quality, that you will see continued disintermediation from the non-investment-grade companies to the investment-grade companies.

I don't think that you are going to see economic difficulties among the Schering-Ploughs, and the Procter & Gambles, and the McDonald's, and the ExxonMobils, in U.S. markets. You might see the share prices decline. But I don't think that you're gonna see a decline in credit quality or credit availability to those companies. If you want an event that keeps me awake at night, Craig, and I hate making audiences scared, but the economic event that really keeps me awake at night is the proliferation of high-yield junk debt ETFs, where investors who aren't willing or able to do the arithmetic, as well as some of us, chase yields, and they buy these extremely liquid ETFs which invest the proceeds in very illiquid high-yield bonds.

If you have a reduction in the confidence of investors, and they begin to redeem those high-yield ETFs because of their concerns over credit quality, the redemptions trigger the liquidation of an illiquid asset class beneath the very liquid asset class. I've made jokes in recent interviews stemming from my youth, when I talk about illiquid assets...illiquid markets in high-yield bonds as generating an asset class called Owl bonds. An Owl bond is where the portfolio manager calls the broker to sell some bonds, and the broker says, "To who? To who?" The result of that, because there's several trillion dollars in that asset class, could be a bank run on an unregulated and illiquid bank, and if you really want to see something on the horizon that to me feels like a potential black swan, that's the ugliest one that I see out there. I wanna hasten to say, I'm a credit analyst. I'm not saying this is going to happen. But the thing that really makes me keep my portfolio highly liquid is the possibility that that could happen, and the consequence of its aftermath.

Craig: Yeah. Yeah. Yeah, the Fed has bought high yield in corporate bonds before. Maybe they've laid the groundwork for that. Rick, in our last little segment here, I mentioned the work you're doing as a retiree. You and your team, Rule Investment Media?

Rick: Correct.

Craig: Is that the company name? Okay. You put on these boot camps, three or four times a year. One of the first that I saw dealt with uranium, and opened my eyes, a couple years ago, to the remarkable fundamentals of that sector. And I always remind people, I mean, this is not, you know, you talk about people wanting to, you know, [inaudible 00:18:01] traders. You know, I remember, you know, if you could double your money in, like, 6 or 7 years, that used to be a good deal, because you're making 10%. Now, if you don't double your money in a couple of months, you know, you're... And uranium's one of those deals. Uranium's just been going great. It's one of the few parts of my portfolio that have kind of kept things afloat in the last couple of months. What are your thoughts currently on the uranium market?

Rick: I think the uranium market, the uranium equities, have a long way to go. The price of uranium itself has, of course, as you suggest, done very well. At the boot camp, the spot price was $48 to $50. Substantially below the incentive price for new production. As we speak, the spot price is above $70, and the term price is higher. So, people who did as we asked them to do, which was, among other things, to buy the spot physical uranium trust, have done well, in the lowest-risk part of the market. The equities have begun to move too, led by the bellwether, Cameco. What we'll see now, with the strength in the term market, is that the developers will be beginning to be able to finance their projects to production, through the forward sale of material into the term market at prices that are reassuring to the lenders. And this is where you see a real step change in the price of the high-quality juniors. Make no mistake. The best move in the second and third-tier equities is to come. It isn't behind us. It's in front of us. We were able, as you suggest, at the uranium boot camp, two years ago, remarkably well timed, by the way, accidentally, at the bottom of the uranium market, to give people an 8.5-hour-long overview of the uranium market, teach them the structure of the market, teach them the difference between the spot market and the term market, and why the term market was more important for the equities, teach them the difference between uranium beta, which is to say the extent to which the uranium market outpaced the general market, but also uranium alpha, the extent to which individual uranium stocks outpaced the uranium market itself.

We did a wonderful job, I think, for the 3300 people who attended that boot camp, and we look forward, every three months, to covering a new topic. We've done silver. Of course of interest to Sprott investors. We did battery and electric transition metals. The upcoming one is royalty and streaming companies, which is probably the lowest-risk way for people to construct a natural resource portfolio. But every three months, we'll do another themed, specific, 8 or 8.5-hour boot camp. It's important to note that anybody who attends the boot camp will have access to the tapes of the boot camp for 12 months. That's important, because it's impossible to absorb, in 8.5 hours of the camp, all the material that's necessary to become a competent investor or speculator. But between the attendance at the boot camp, and the refreshing of one's memory, from the tapes, we really can improve investors' performance. By the way, people who pay to attend the boot camp, like any other educational product of Rule Investment Media, enjoy an absolutely gold-plated, money-back guarantee. If you don't think you got your money's worth, email me. I give you your money back, no questions asked.

Craig: Well, let's close with that, Rick, because you mentioned this next one that's coming up in a few weeks. I, like everyone else, man, my juniors and my miners and my exploration companies are, "Ohh, gosh darn it." But, over time, I mean, the one stocks that they could keep on going up, it seems, and doing well, are my royalty companies. And a lot of folks don't understand how those work. So, if you're in the mining sector, you like owning the mining shares, and you're a masochist like me, you like owning the mining shares, there's really a place for a royalty and streaming company. So, if you can just kind of just give everybody a brief overview of what this next boot camp's gonna entail.

Rick: Well, we're gonna take people through the basics of both royalty and streaming. Royalties being an interest in a mineral deposit, that pays you a piece of the gross proceeds of the deposit without you getting a bill for capital expenditures or operating expenditures. A stream is a prepaid right to receive a certain amount of product, often gold or silver, at a fixed price, over the life of the contract. They're different instruments, but they're both financial instruments. They're both very, very, very high-margin, lower-risk instruments. It's ironic that because they're the finest instruments in the mining business, in a rip-snorting bull market, they perform less well than the gamier speculations. But certainly, over the course of a decade, owning a better business is a better business proposition. And these companies, the royalty and streaming companies, have the most durable, the most stable, and the lowest risk revenue streams of any entrant in the market, which means if you are a long-term investor in natural resources, a case can be made that your entire portfolio can be constructed from royalty and streaming businesses, in precious metals, in base metals and industrial materials, and in oil and gas. You can in fact construct an entire natural resource portfolio from royalty and streaming companies, and de-risk, to a substantial amount, your participation, at least in the beta part of what I see as upcoming bull markets in both precious metals and industrial materials.

Craig: Well, it would certainly seem to be a valuable use of your time to check it out. We'll try to, we'll ask the Sprott Money folks to maybe put a link on this YouTube page, or in their write-up, so people can go to Rule Investment Media, check it out. Like I said, comes with a money-back guarantee if you don't like it.

Rick: Absolute gold-plated money-back guarantee.

Craig: You don't have a lot of downside [crosstalk 00:03:15]

Rick: I would like it, if you decide you take your money back, if you told me how I could serve you better. But that's not a requirement. It's an absolute gold-plated money-back guarantee. You didn't get your money's worth, email me, I send you your money back. The financial risk is all mine.

Craig: And one other thing that you do, Rick, I always like to tell, because I just, it's just so invaluable. If people email you a handful of their mining shares that they're in, you'll get back to them with what, you know, kind of rank them for them, won't you?

Rick: Yeah. We...I love discussing with the Sprott family [crosstalk 00:24:54] resource investments.

Craig: I know you do. Yeah.

Rick: All people have to do is go to my website, ruleinvestmentmedia.com, list your natural resource stocks. Please, no crypto. Please, no tech stocks. Please, no pot stocks. Your natural resource stocks, and I'll rank them personally, 1 to 10, 1 being best, 10 being worst. Any companies that I have a comment on, that I think is worth commenting on, I'll comment on the individual issues. One other thing, Craig, for the Sprott family, owners of physical gold and silver, many of them know, in retirement, I'm starting a new bank, called Battle Bank. And one of the activities of Battle Bank is that we will lend money or establish credit lines against your holdings of physical precious metals, in segregated accounts. If you think that your bank should pay you highest-quartile deposit interest rates, including on a checking account, check out Battle Bank. If you think that you should be able to save in 22 currencies, not just the U.S. dollar or the Canadian dollar, check out Battle Bank. If you're a Canadian, and you would like a Canadian dollar checking account or CD that's Trudeau-proof, check out Battle Bank. And if you think that oil...that gold and silver are good asset classes, either to lend against or borrow against, check out Battle Bank, at battlebank.com, or at Rule Investment Media, where I've ranked your natural resource portfolio. In the question or comment section, just write "bank," and we'll put you on the list for Battle Bank when it opens.

Craig: Fantastic. Fantastic. And Rick, as usual, fantastic information. It's always so much fun to visit with you, and I'm always so grateful for you to volunteer to spend some time with us, as we need to check in every once in a while with these "Monthly Wrap-Up" segments. I mean, that's gonna be a rather interesting fourth quarter, and flip into '24, so we may have to do this again soon.

Rick: I look forward to it. Always a pleasure to talk to the greater Sprott family.

Craig: It is always great to visit with you, my friend. And just a reminder on your way out. Hey, hit the like or subscribe button on whatever media you've been enjoying this content. That helps Sprott Money spread the word, and again, stop by sprottmoney.com for the fall bullion sale. Hey, take advantage of the dip, and you can buy more ounces for your dollars at this point than you could a week ago, and that's always a good thing. Again, thank you, Rick Rule for joining us this month, and from all of us here at Sprott Money News and sprottmoney.com, thanks for watching, and we'll have more content for you as we get into October and the rest of the year.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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