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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Hold on to Gold, U.S. Government and Banks are Lying on Unemployment and Mortgage Fraud

Commodities / Gold and Silver 2010 Oct 23, 2010 - 05:47 AM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticlePredicting ongoing waves of mortgage delinquency, illiquidity and bank insolvency, 321gold's Bob Moriarty envisions a temporary financial holiday followed by a return to the gold standard. While he finds several solid investment opportunities among mining equities, he says the safest strategy is having "a $20 U.S. gold piece in your right hand and a 1 oz. gold bar in your left." In this exclusive interview with The Gold Report, Bob explains how the U.S. government "is lying" about unemployment figures and banks "are lying" about supposed mortgage reviews that find no fraud involved and recommends investors have "a triangle of investments"—the most important of which are physical precious metals.

The Gold Report: Bob, give us your perspective on what's happened since we last talked with you in July. First off is the announcement last month that the U.S. 'officially' emerged from the recession in August 2009.

Bob Moriarty: My one-word answer to that is "rubbish." If the government had said we emerged from the recession in August 2009 and went into an official depression, I would have to agree. If you read John William's, the real unemployment rate in the U.S. today is 22.5%. You cannot have the end of a recession with 22% unemployment.

TGR: Do you think it's because the government is using different definitions for what causes a recession?

BM: Exactly. Another term for it is "lying."

TGR: But economists are the ones that made the announcement.

BM: So? They're lying. The government changed the definition to make the numbers go down in the same way that it provided no cost of living adjustment (COLA) for Social Security. Anybody who's been to a grocery store knows we have price inflation. Prices are going up—period. According to the government, they're not.

TGR: But if the government is manipulating this, why did it come out with no COLA increase right before an election? Manipulation again?

BM: The government's not manipulating; it is lying. It used to be the government lied on occasion; now, it's lying about everything. We absolutely do have price inflation. Those who don't realize it haven't bought food or gasoline in the last year; anyone who has bought food and gas knows we have inflation. But the government has some vested interest in paying out as little as possible for Social Security, so it can say, 'Oh, we've got no inflation.' The government is lying.

TGR: Let's move on to another interesting bit of information. Several banks have declared a moratorium on housing foreclosures because, on reviewing their documentation, they found they lacked proper authorization.

BM: It's not true. They did not review the documentation to find out there was fraud involved. People took them to court and got others to admit—and this goes back almost a year—that the banks had people signing 10,000 documents a month, swearing that they'd reviewed foreclosure documents and determined they were all accurate.

There are two separate issues here. One is that there was fraud in virtually every mortgage issued in the U.S. over the last 10 years, since the Management Information Retrieval System (MIRS) was set up. When you go to a bank and borrow money on a house, you sign a document with a 'wet' signature; that is, your physical signature—not a copy of a signature, but your physical signature. Whoever holds the mortgage is supposed to go down to the local town hall and record it every time there is a change of ownership in the mortgage. It used to be that you would have a stack of paper half an inch thick for everyone who had a mortgage. MIRS put all that it into electronic format and threw away the paper. A 'wet' signature is required to repossess a house in 23 states. You have to be able to prove there was an agreement between the person taking the mortgage out and the person holding the mortgage. Those papers no longer exist. You get into so much fraud here. The banks had people, public notaries, signing that they'd witnessed people reviewing these documents and it was fraud. People were being foreclosed on that didn't even have a mortgage.

The second issue is that 45% of the mortgages in Florida are under water. What are those people going to do? Bank of America comes out and says it's going to stop foreclosures over the whole country and 45% of mortgage-holding Floridians just decided not to pay their mortgages. If these mortgages aren't repaid—and they won't be—the banks can't sell the houses. They are stuck. When you slice and dice the mortgage, who owns the house? People who went through foreclosure two years ago still have the legal right to sue those who foreclosed on their houses because they were committing fraud. There will be cases like that where people will no longer be able to buy or sell a house because they won't be able to get title insurance and, without title insurance, they can't get a mortgage. There is no simple answer. The mortgage situation is far worse than anybody imagines. There is no simple solution; the government can't buy its way out.

TGR: Extrapolating from there, you've said the banks will wind up having to close in a sort of "financial holiday."

BM: If everybody goes without paying their mortgages, how can the banks stay open? But if banks forgive the mortgages, we still have people living in houses they can't afford. A depression or recession should be a cleansing event; ultimately, what happens is the government gets involved and does what is politically popular. The government, literally, is bribed by all these big banks—Goldman Sachs, JP Morgan, Bank of America, etc.—their campaign contributions are bribes for votes to benefit them. Instead of the banks paying for their stupidity, the cost is transferred to the taxpayers.

TGR: Let's play this out. People can't pay their mortgages and the banks are either illiquid or insolvent. Do the banks go under, or does the government do another bailout?

BM: The government bails them out, the same way Zimbabwe did—by printing money. Certainly, you see it in the price of gold. At $1,323, the gold price is patently absurd. That's not the price of gold—it's the price of the dollar. Everybody believes the Fed is going to print more money, move into quantitative easing 2 (QE2) and destroy the dollar. Well, we're so close to hyperinflation, riots in the street and banks closing that it's crazy.

TGR: That brings us to gold. Central banks (CBs) in many countries are now buying and storing gold rather than selling it.

BM: Gold is money. You have a choice of holding your assets in yen, Swiss francs, euros, dollars or gold. Banks are doing what makes sense. They are called "reserves" for a reason. If you really need them, you fall back on your reserves. Countries are realizing they're holding all this paper and, once they take a sniff of the paper, they realize it smells terrible. So, they want to hold some gold; it makes a lot of sense.

TGR: But is that just portfolio rebalancing, or do countries really want to get out of fiat currencies?

BM: They really want out of fiat currency. I have used the analogy of musical chairs for years; the banks and everybody else are playing musical chairs. The flaw is that the music is still playing, and they all think they'll get a chair; but, if you look around the room, there are no chairs.

China is stuck with all this money. We have a currency war going on right now with China, Japan, Brazil and even the Swiss. Everyone's trying to destroy their own currency so they can get a competitive advantage. When all currencies are destroyed, the only thing left is gold.

TGR: You are on record saying that, at some point, we will revert to the gold standard.

BM: The probability of the world going back to the gold standard is not 99%—it is 100%. When every fiat currency in the world has been destroyed, someone will pick up a $20 gold piece and say: "Hey, why don't we use this?" We have $1,323 gold and $23.12 silver. We're not at the top. Gold and silver are going much higher and fiat currencies are going much lower.

TGR: Some recent forecasts differ radically as to where gold is going. Kaiser Bottom-Fish Writer John Kaiser sees the gold price reaching well into the thousands, while Freemarket Gold & Money Report Publisher James Turk says $8,000 gold.

BM: You can't forecast the price of gold in dollars because what you're really doing is forecasting the price of the dollar. The chance of the dollar adding 3 zeros is about the same as adding 6, 9 or 12 zeros. The USD is going the way of the Zimbabwe dollar—and you can't quote gold in Zimbabwe dollars because it approaches infinity.

Gold is going to retain its value. Gold will still be money when pieces of paper are something to slap on the wall or throw in the furnace to heat your house. Fiat currencies are going down. Let's go back to the game of musical chairs. Everybody realizes there are no chairs, but they believe someone will bring a chair in and that they'll be able to find it when the music stops. The music is stopping. The mortgage issue is not a minor financial issue—it is a catastrophic issue because there is no solution.

TGR: How does this situation play out in places like the U.S., Europe and Japan?

BM: The middle class is being destroyed in the U.S. There will always be rich and there will always be poor, but the middle class is being destroyed; and the middle class gives stability to a country. If you want to see what's going to happen in the U.S., turn on the news from Spain, Greece, France or Japan. The truly interesting thing is—the government workers are the ones screaming about entitlements. And they're going to be attacked by other government workers with bigger guns. This is the biggest financial problem in world history. The tulip-bulb mania, the South Sea India craze, the Florida land boom during the 1920s—those were all local. This is global. It affects everybody. . .and every bank in the world could close its doors.

You simply have to match income to outgo. We have two-and-a-half wars going on right now, and Obama and American Israel Public Affairs Committee (AIPAC) would love to start another. We can't afford them; we stand to gain nothing. These wars are destroying the U.S. financially, which results in one bailout after another. Every great empire that has ever collapsed did so because it got involved in military adventurism. The wars, the military adventures the U.S. is involved in, are going to destroy the U.S. financially.

TGR: Given that you foresee a time when the financial system will shut down entirely, what's your view on equity investing today?

BM: Investors should have a triangle of investments. To start with, the single most-important thing that investors should invest in would be something solid, tangible that they can hold in their hands. Of course, that would be physical gold, silver, platinum or palladium. Second, investors can choose between gold stocks, silver stocks, ETFs or other things. And third, once they get down to money in the bank, buying mortgages or something like that—those are very risky investments. The safest thing you can possibly have now is a U.S. $20 gold piece in your right hand and a 1 oz. gold bar in your left hand.

TGR: Are you advocating that people start selling equities and move into gold, or are precious metals-focused equities still a viable investment strategy?

BM: I still think it's viable. Once you have enough gold and silver to cover you for a few months, you have to figure out what to do with the rest of your money. Equities—gold mines and particularly producers—will be a very good place to invest. You just might not be able to buy or sell a stock for six months. I'm not telling people to sell equities at all. The crash could come tomorrow, next month or three years from now. I don't know when the crash is going happen; I just know there will be a crash. I wouldn't go buy a house, and I wouldn't keep money in a bank.

TGR: Then let's talk about gold equities. I've been reading a lot about the Carlin Trend, the Yukon and even New Guinea as hot spots for gold exploration. What's your opinion on these locations?

BM: I don't trust anything that involves groupthink. There are some excellent players in the Carlin Trend. I think they'll do really well. There are also excellent plays in the Yukon, so it depends on the individual companies. The one thing I've learned over the last nine years is that quality of management is, by far, the most important factor. I have seen $1 billion projects destroyed by people who, basically, are idiots.

TGR: Who, in your opinion, are the best managers out there? In July, you mentioned some specific companies. Can you give us an update on them?

BM: It's been a real honor for me, over the last nine years, to have met a lot of guys in the industry, and I've come up with a pretty fair idea of who's good and who's not. I wrote about NovaGold Resources Inc. (NYSE.A:NG; TSX.V:NG) in August 2001 when it had a market cap of about $23 million. I wrote, "these guys are really unusual in the mining business—they have vision." Nine years later, I can say I nailed it.

Another one is Premium Exploration Inc. (TSX.V:PEM), which is moving forward up there in Idaho. I'm very pleased with the company. Premium has some really good projects.

Rio Alto Mining Limited (TSX.V:RIO; BVL:RIO; OTCQX:RIOAF) will be in production in a month or two. When I wrote about it, shares were $0.44; I think it's trading at $1.35 now. Rio Alto will just be throwing cash off.

Kiska Metals Corp. (TSX.V:KSK) has some low-grade deposits in Alaska—an entire district, in fact. With these kinds of prices for gold and copper, Kiska's projects will be very attractive and it could be a real buyout candidate.

Northern Dynasty Minerals Ltd. (NYSE.A:NAK; TSX:NDM) got into a joint venture a year ago; I think the project will be put into production. The company's moving forward, but I don't see a lot of movement in the stock. There are too many shares outstanding and it has too big a market cap, but it's a good solid stock.

When I wrote about Evolving Gold Corp. (TSX.V:EVG; Fkft:EV7) two years ago, it had $0.22/share in cash, and Quinton Hennigh was president of the company. I think that guy is absolutely brilliant. The stock went up to $1.94; I think it's trading around $0.79 now. Goldcorp Inc. (NYSE:GG; TSX:G) has taken an interest, and made a big investment, in the company. Evolving Gold is going to be a home run.

Revett Minerals Inc. (TSX:RVM;OTCBB:RVMIF) is a copper/silver play in Montana. Its big deposit has been tied up in legal issues for about 10 years, but it has a silver/copper mine that is in production now. At these prices for copper and silver, the company's just making money hand over fist. Revett's very good and has very solid management.

Richfield Ventures Corp. (TSX.V:RVC) is sitting on a giant gold deposit up in Northern British Columbia. Every time Richfield comes out with another drill hole, it expands the resource.

TGR: Given what the equity markets have done in the last three months, do these companies represent good investments today?

BM: Yes, these are all very good companies. They're all solid. But, remember, we're in a situation that is a silver story. People need to remember that in November 1979 silver was about $13.50/oz. So the price of silver today, in real terms, is higher than it's been in 99 of the last 100 years.

TGR: Earlier, you mentioned the triangle of investing. Is it too late to buy tangible silver?

BM: That's a very good question. In December 2001, I was trying to encourage people to buy silver. I talked about companies that were perpetual calls, such as Silver Standard Resources Inc. (TSX:SSO; NASDAQ:SSRI), which was $0.75/share; silver was $4/oz. I own a bunch of silver, and I don't think I've ever paid more than $10–$11 an ounce for it. I would be a lot happier if we had a correction now and silver and gold came down. So, I can't say buy silver today because I think there's a good chance it will go lower a month from now. But silver is not as high as it's going to be, and gold is not as high as it's going to be.

TGR: You point out that, in absolute dollar terms, silver is more expensive than it was in 1979; but many of those following the precious metals sector expect silver to outperform, and they're pointing toward the traditional gold:silver ratio.

BM: Yeah, but they're wrong. No commodity has as much nonsense written about it as silver. The only thing that's going to cause a substantial increase in the demand, use and price of silver is going back to a gold standard. When we start using silver as coins, its value will increase substantially. Pure demand for silver as an investment today is not going to make it 17:1. Silver is not money; silver is a commodity.

TGR: Any other companies you're following that you'd like to share with our readers?

BM: One that I am writing about is Gold Canyon Resources Inc. (TSX.V:GCU). The person I mentioned earlier, Quinton Hennigh, is probably the most-talented technical person I know in the industry. The president of Gold Canyon is using Hennigh exactly the way he should be used. Hennigh goes in and gets a feel for the project, figures out the potential, and then figures out how to move it forward.

Gold Canyon has had a deposit in Ontario for 21 years and never did anything with it. Hennigh came in, spent 18 months having someone looking at all the data and came up with a totally different approach. Hennigh realized that all the previous drilling had been a waste of time because they were losing a lot of the core. So, they came up with a new approach and the company is going to end up with a 5 million-ounce deposit. The stock is up 300% in the last three months—that's a fourfold increase. It's going to be a home run.

TGR: Bob, always good to talk with you. Thanks for your time today.

Convinced that gold and silver were at a bottom and wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought to the Internet almost 10 years ago. They later added to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on the current events affecting both sectors. Before his Internet career, Bob was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. A Captain at age 22, he was one of the most highly decorated pilots in the war and the youngest Naval Aviator in Vietnam. He holds 14 international aviation records and once flew an airplane through the Eiffel Tower's pillars "just for fun."

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.
1) Brian Sylvester and Karen Roche of The Energy Report conducted this interview. They personally and/or their families own shares of the companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: None.
3) Greg Gordon: See Morgan Stanley disclosure that follows.*

*The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. Incorporated, Morgan Stanley C.T.V.M. S.A. and their affiliates as necessary.

For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.

The ENERGY Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The ENERGY Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

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