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Rule:  “Everything seems to be working right now, which means I’m scared.  The equities are popping and commodities are doing reasonably well.  I was nervous about oil and gas prices as a consequence of negative economic growth in the United States....

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“But oil and gas prices remain firm.  I guess what I’m focused on right now is that everything is going so well that I’m just trying to figure out what can go wrong.” [LAUGHTER]

Eric King: “What did you observe on your travels?”

Rule: “The travels were interesting.  I’m just back from seemingly everywhere.  I was in Singapore, Hong Kong, Thailand, Canada, Africa, the Midwest of the United States, and other places.  The travels that really stuck out to me were first of all in Asia, where I met with some pretty big Asian investors.  They reinforced in my mind the need for Asia to have access to natural resources as well as the resources they need access to in order to run capital-intensive, export-oriented economies.

The second thing I want to share after coming back from Africa is a theme we have discussed before: As frontier and emerging markets gradually liberalize, when people become more free, people rapidly increase their standard of living and wealth.

This was paraphrased three decades ago by Deng Xiaoping, who said, ‘To get rich is glorious.’  That change of paradigm in China set in place a circumstance that caused the GDP per capita in China to increase a staggering 10-fold in 30 years.  China has moved from the biggest public health challenge 30 years ago -- starvation -- to obesity.

I bring this up because I was just in very poor countries -- Zimbabwe, Rwanda, and Uganda on the Congo line.  You see thousands and thousands of people who are extraordinarily poor but who are much better off materially than they were when I visited those countries two decades ago.

Four billion people at the bottom of the demographic pyramid worldwide are rapidly becoming more rich.  This may be rich from a very low standard, but from a material perspective they are consuming far more than they ever have.  You and I buy services, time, tourism, whatever.  When poor people in Rwanda get more money, they feed their kids better food, and they may replace an adobe or mud structure with a cinderblock one, or they may replace a thatched roof with steel.  They upgrade from walking to a bicycle, or from a bicycle to a motorcycle.

The important thing to remember -- and this visit really drove it home for me -- is that 4 billion people worldwide are becoming fairly rapidly more rich, albeit from a low basis.  And they aspire to the same standard of living you and I have, and that’s a material standard of living.  And this idea that this secular bull market in raw materials has somehow run its course is preposterous because it ignores mathematics and demographics, and you have to travel to see that.”

Eric King:  “Rick, what about gold and silver in this equation?”

Rule: “Gold and silver prices are doing very much what you and I suggested they would last summer.  We talked at that time about the fact that they were oversold, that the futures market was being driven by the unwinding of institutional long trades, and that gold and silver and the stocks were doing what they do at the bottom of a bear market -- moving from weak hands to strong.

Now the physical market is beginning to drive the futures markets.  When you begin to see more momentum in the physical market, you will begin to see the futures market higher.  This will happen as the momentum switches to the other side of the trade.

But right now gold, silver, and the equities are reacting exactly the way you would expect them to act in the beginning of a recovery.  This will be a saucer-shaped recover, not a dramatic recovery.  This will be a recovery that will take 12 months or even 18 months as it grinds higher.  This is also a recovery that will see the equities fall 10 percent at some point in the next 12 to 18 months, but that doesn’t matter.  That’s just the way the world works, so get ready for it and enjoy it.”

© 2014 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.

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Eric King

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