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Rule:  “As you know, Eric, history doesn’t repeat, but it rhymes.  And we are now to a place in global markets that is eerily similar to what we have seen in the past.  But at the same time we are also now at a place that we have never been before....

Continue reading the Rick Rule interview below...


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“We haven’t had structural problems in the economy, while at the same time carrying such a staggering amount of debt.  I guess what that means is that the end game -- what we have to go through to work this out -- is stickier than anything we’ve ever been through before.

We haven’t been in a place before where, as an example, aggregate on balance sheet liabilities of the US government have exceeded the Gross Domestic Product.  We haven’t been in a place before where the baby boomers were becoming a drag on the economy, as opposed to being contributers to the economy.  That is manifested by the fact that we have, according to the Congressional Budget Office, somewhere between $65 trillion and $75 trillion in off balance sheet liabilities.

Eric, I’m talking to you as a 60 year old, as somebody who is supposedly going to be receiving social security, medicare, medicaid, etc.  But the reality is the nation can’t afford these promises to people like me.  So, as I said, we have never been in a position like this as a country, and I will be interested to see how we work all of this out.

The reality is that in the United States as well as most of the Western world, we need to find a way to liquidate or default on some of our obligations.  All kinds of promises have been made to all kinds of people and countries, but, again, we just can’t afford it.

In my opinion, politicians and the public will choose to default dishonestly by kicking the can down the road.  This means significant inflation.  This is what we did in the 1970s.  The problem today is, can you inflate, but not just inflate, but do it in such a way that you don’t bring the entire financial system crashing down? 

It sounds easy -- just inflate.  Well, how many trillions of dollars of derivatives are tied to low interest rates, and what happens when those ticking time bombs are detonated?  Answer:  It ripples through the entire financial system.  The truth is there might not be an easy way out of this at all.  I’m not saying it can’t be done, I’m just saying I’m really glad nobody elected me to do it.

If the Fed in fact loses control of the bond market, if the Treasury has an auction and nobody shows up to buy, and the interest rates, despite manipulation, moves higher, if that happens the 25-year bond bubble would deflate and all hell would literally break loose.”

Rule added:  “With regards to the junior market specifically, we are on the cusp of the year 2000.  As you know, Eric, fortunes were made by investing in high quality, select juniors during that time period. 

But my suspicion with regards to commodities markets is we are more like the year 1976.  We are in the beginnings of a recovery in what I believe was a cyclical decline in a secular bull market. I’m reasonably attracted to the entire commodities complex because we are coming out of a cyclical trough.  So, I feel pretty good about resources and resource equities. 

But coming back to the junior equities being like the year 2000, something interesting happened at that point.  The junior equities markets truly bifurcated.  Meaning, that the best 10% or 20% of the juniors found a bottom and began to move higher, and in some cases very dramatically.

This took place while the rest of the lesser quality or junk juniors struggled or went to zero.  That’s where I think we are.  I think we are coming into a stock pickers market.  Many quality juniors have already found a bottom and moved up smartly in the last 3 months.  That should continue.

We are at the mid-point of a great battle between seller exhaustion and buyer exhaustion.  We are nearing the point where the people who had something to sell in fact have nothing left to sell anymore.  From a technical perspective this leaves a ‘long tail.’  This is where you have low volume, low price volatility, in a sideways move.

So, the better companies begin to find a bid, and you get some fairly dramatic up-moves because there are no ‘asks,’ or offers on the tape.  And I think we are coming into that phase right now.  In fact, I think we are 3 months into that phase already.”

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© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The audio interviews with John Hathaway, Bill Fleckenstein, James Turk, Andrew Maguire, William Kaye, Gerald Celente, Dr. Paul Craig Roberts, Eric Sprott, Grant Williams, Rob Arnott, David Stockman and Jim Grant are available now. Other recent KWN interviews include Marc Faber and Felix Zulauf to listen CLICKING HERE.

Eric King

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