Bill Holter: Russia & China Intend to Drain the West of Its Gold

Mike Gleason: It is my privilege now to be joined by Bill Holter of JS Mineset and the Holter-inclair Collaboration. Since leaving Wall Street more than a decade ago, Bill has made a name for himself as an astute and highly respected market commentator and writer. And has teamed up with Jim Sinclair to help others discover the inherent dangers of our debt-based economy and how to protect yourself against it.

Bill, it's a real honor to have you back on, and thanks for the time today. Welcome.

Bill Holter: Thanks for having me, Mike.

Mike Gleason: Well, Bill, here we are in the middle of another price correction in metals. The year got off to a good start for gold and silver, but, as has happened so many times during this eight-year bear cycle in metals, the forward momentum has stalled. It's discouraging for bullion investors. And we've seen a whole lot of selling over the last two-and-a-half years. While we're grateful when clients come back to sell metal, now is not a great time to be selling in our view. We understand the frustration with regards to prices, but metals are really one of the only cheap asset classes at a time when it seems more critical than ever to reduce exposure to paper and to the U.S. dollar. But we suppose it's just hard to stay objective about that when the signals on debt don't seem to matter. After all, the U.S. economy is great of course, just look at the stock market. And the dollar seems to be getting stronger not weaker. What are you saying to people who wonder if they should dump metals and focus on conventional assets instead here, Bill?

Bill Holter: Well, that's foolish. First off, you called this a correction, the recent weakness in pricing. And basically, it's not really a correction, it's a forced correction by paper contracts that are backed by nothing being sold. So, understand that not just the metals markets are manipulated, but at this point basically all markets are manipulated and controlled. Metals have been pushed down. Think of them like a beach ball being pushed under water. The longer they're held under water and the further under water they are, the higher the ball is going to pop up once markets start to trade freely.

As for selling at these levels, there was an article today on ZeroHedge regarding 2024 being they call it the Minsky Moment where basically all treasury-borrowed funds at that point will be used to pay interest. So, it's mathematics at this point. There's more debt outstanding than can ever be repaid.

Mike Gleason: Bill, we both know these markets are so incredibly managed, you just alluded to that. And I want to ask you kind of a pointed question here. Is the stock market really going to be allowed to correct? Because as we know, they have so much influence at the Fed and the Plunge Protection Team and things seem relatively easy to control for them given the activity and the high-frequency trading that drives so much of what happens in markets. So not only do they have the incentive to keep things propped up, it seems as though the central planners may also have the tools to be able to do it as well. Comment on that if you would.

Bill Holter: Well, understand that stocks are extremely rich at these levels. Now you asked will a correction occur or can a correction occur? Can a bear market occur? In normal times, yeah, we're at peak everything. Peak PE. (Peak) trough as far as dividend yield. Peak price to book. And in normal times an astute person would be looking to short the market. But that's dangerous where we stand now because of the potential of hyperinflation. And if you are a student of hyperinflations, generally what you see is you'll see a market collapse like 30, 40, 50% or even more, and then all of a sudden start going higher and not go back down. That's a function of the currency being destroyed. Look at, what was it, last year or the year before, the Venezuelan stock market was the best stock market in the world based in the bolívar. Again, that's a function of the bolívar collapsing in value.

So, to answer your question, in normal times you definitely would see equity markets drop. Will we see it this time? It's hard to say, simply because fiat currencies globally are way overvalued and you could see a meltdown in the currency market, which would cause a melt-up, if you will, but to a lesser extent in stocks, real estate, things like that.

Mike Gleason: Looking at the inflation side of things, the federal government is back to running trillion-dollar deficits, only this time there seems to be fewer conservatives in Washington who are willing to make issue of it. Let's face it, the Republican leadership has been a complete failure when it comes to enforcing any kind of fiscal discipline, much to our dismay. And it's been that way for decades in Washington. But it looks like politicians are moving beyond even the pretense of controlling spending. And that seems significant, like we might be entering a new phase where deficits could double or triple in the years ahead. If the U.S. economy hits a rough patch and Congress responds with stimulus, it isn't that hard to imagine. So, what do you make of the federal borrowing? And is there even a limit anymore?

Bill Holter: Yeah, there's a quasi-limit. But at this point, there can't be any fiscal restraint. I mean, look at what happened from a monetary standpoint. Look at what happened back in November and December. They raised rates, what, two times or three times, and the world about ended in December. This car only has a gas pedal; there's no brake on it.

Mike Gleason: Speaking of that, that's obviously an important question, what did you make of some of what the Fed is saying here this week? As we're talking on Wednesday, Jerome Powell came out and had some comments. Where do you see Fed policy going, moving forward? Do you think it's just going to be back to more stimulus? It seems like rate hikes are probably off the table at this point.

Bill Holter: Well, yeah, you're saying that rate hikes are off the table. I agree with that because they can't do it. But the point being in one breath they tell you the economy's great, inflation is low, unemployment is low. Why can't they raise rates at all? Why can't they not be accommodative? And the answer is the debt bubble's too big, and they have to be accommodative otherwise the debt bubble blows up and you're looking at basically a credit implosion.

Mike Gleason: As a metals investor I think it's to understand why the powers that be don't want to see gold and silver do well. Talk about that if you would. Why are governments and central banks so happy to see metals prices suppressed, Bill?

Bill Holter: Because gold and silver are direct competitors to every fiat currency on the planet. They want to be able to point to gold, they want to be able to point to silver and say, "See, gold and silver are bad. Dollars, euros, yen, yuan, et cetera, et cetera are good." So, by making gold and silver look bad, it supports fiat currency and thus supports the issuance of new credit. It's one big game.

Mike Gleason: Yeah, it's really just confidence. That's all that the currencies have. They're not backed by anything anymore.

Bill Holter: 100%. Exactly. That's what it's all about. It's to promote confidence in fiat currencies.

Mike Gleason: Yeah, and obviously we see what happens when confidence gets lost, for instance, some of these South American currencies over the last few years. It gets ugly quick.

Bill Holter: Yeah, exactly.

Mike Gleason: What about China? They have a lot of exposure to U.S. debt, obviously, and that's one of several reasons they've been probably backing up the truck the last few years and getting as much gold as they can get their hands on. So, they're very aggressive accumulators, as is Russia. And for anyone looking to buy something, of course you'd rather the price be low than high. So, they probably don't mind seeing the metals suppression schemes being done by the West. Comment on that, Bill. And what do you make of the situation there?

Bill Holter: Well yeah, of course, they want a lower price because they get more ounces per dollar. China, Russia, they fully understand the math that the debt from the U.S., the debt from the West is ultimately unpayable and ultimately goes to zero, it becomes worthless. So, how do they protect themselves? What they're doing is they're buying gold. They're stockpiling gold. And when this event occurs, the price of gold will be marked up to levels probably none of your listeners have even thought of before. And that's the only way central banks are going to be able to fill up the black holes that are created by worthless treasuries, worthless credit.

Mike Gleason: Obviously currency wars are a real thing, and one of the tools or weapons a government can use in that is gold. So, do you believe the likes of Russia and China are positioning themselves for some kind of end game and maybe that's part of their strategy to get as much gold out of the West as they can get their hands on?

Bill Holter: Yeah, the plan has been to drain the West of their gold, simple as that. And that's gone on for many years. There's been an outflow from West to East probably 25 years or longer. Because they understand that gold is real money and paper currencies, the dollars, the euros, et cetera, are basically poker chips that can't be cashed in, or won't be able to be cashed in in the end game.

Mike Gleason: Speaking of the end game, at some point does China just say, "Okay, we've amassed enough gold. Let's go ahead and start dumping all these U.S. treasuries. Let's put something into effect here that helps strengthen our position in the global economy," maybe take down the dollar as a reserve currency? I mean, obviously there's a few ways this could play out. What are your theories as to how it might shake out?

Bill Holter: No, I don't think they're going to decide now's the time to start dumping dollars. I think their decision will be made once delivery is no longer made to them on gold that they're purchasing. So, the credit event, the currency event, more than likely will be preceded by a failure-to-deliver event.

Mike Gleason: And obviously there's got to be some kind of finite amount. I guess we're always asking ourselves, "Okay, how much gold does the West have? Where is that breaking point where all of a sudden there isn't any left?" Is that something you're sort of watching and looking for as a potential market event down the line? How much gold is actually left to go from West to East?

Bill Holter: Yeah, absolutely. And once you get close to the bottom of the barrel, then the deliveries cease. The old saying of “he who has the gold makes the rules,” that's what this is all about. If you go back to, I'm thinking it was 1989 or 1990, I knew six months ahead of time the Soviet Union was going to implode. And the telltale sign was there was czar-stamped 90% gold showing up all over the world. And that told you that the Soviet Union was at the bottom of the barrel. That they had no more or very little gold left as hard currency. And it'll be the same thing here. I don't know exactly what the signs will be. But once you hear that there's difficulties in delivery, that's game over.

Mike Gleason: You obviously follow the mining industry as well. And certainly, some of the primary silver producers are probably having a hard time at these price levels. It's been going on for quite some time. Ultimately do you think we're going to start to see some real supply shortages and maybe even peak gold, peak silver? Any comments there in terms of the supply fundamentals?

Bill Holter: Yeah, if they keep prices where they are now, supply has already peaked. If you look at both gold and silver, the industries themselves, there haven't been any large discoveries in the last 10 years. There's been very little exploration done. So, it's like a double whammy. You could see delivery not being made any longer from the West, so supply is shrunk from that. And natural supply from digging it out via mining, that's shrinking and has no hope of increasing over, I don't know, the next five to seven years because it takes that long to bring a mine into production once you find the metal.

Mike Gleason: Obviously it's been a pretty rough patch for the miners going back several years now. So, you know they probably haven't been investing in a whole lot of exploration, say, three, four years ago. There's a long timeframe, as you mentioned, to get things going.

Any thoughts on where we might be looking to see metals go here in, say, the short to intermediate term, maybe the rest of the year? What are you anticipating for metals prices?

Bill Holter: The only thing I'll say is we're going to have another test at, call it $1,360 level. And I use the $1,400 level. I've said this for a year now… once you see a 14 handle on gold, within probably a couple weeks or a month's time, it will be unbuyable. In other words, once it breaks out, and you've got $1,400 or higher, the supply, whether it be institutional supply or retail supply, I think it's going to dry up really quickly.

Mike Gleason: Yeah, lots of fireworks potentially brewing here that could trigger some kind of a buying frenzy in metals. And I think we're just all sort of waiting for that to happen. There's certainly a lot of black swans circling about.

Bill Holter: But be careful, I just want to say be careful what you hope for. Because when you see $2,000, $2,500, $3,000, and higher gold, yes, your net worth will be rising, but that means the credit edifice will be collapsing, and the entire world runs on credit. So, what good is it to be part of the 1% or .1% if the whole system's come down because credit stops. You just got to understand that everything runs on credit. Goods don't show up on Walmart shelves. There's not elves in the backroom making stuff.

Mike Gleason: And that kind of gets back to precious metals primary role as really insurance against collapse in the paper market. It seems like that's one of the main reasons why you'd want to own it. If we've got a completely credit-driven debt-based market and things collapse in the paper derivatives world, then you're going to want to have something physical.

Bill Holter: Well yeah, you want to hold your real wealth in gold. The gold will carry your wealth or purchasing power from the current system to whatever the next system looks like. And owning silver will allow you to trade. It’ll allow you to trade for gasoline if it's available. It'll allow you to trade for eggs with a local farmer if it's available. So, what I'm talking about as far as gasoline, eggs, stuff like that, gold and silver aren't going to get you through all by themselves. You got to do some smart things. Be able to purify your own water. Have some food stocked back. And even have an alternative as far as electricity is concerned. You might want to do some solar or something like that. So, gold and silver are very important from a financial standpoint, but if you only have gold and silver, it's not going to work. You got to live. You got to live to be able to spend your money.

Mike Gleason: Absolutely. Yeah, hopefully we don't see these days.

Bill Holter: They're coming. They're mathematically coming.

Mike Gleason: Yeah, we would agree. Boy Scout method, it's better to have it and not need it than need it and not have it, as they say.

As we begin to close here, Bill, anything else that you'd like to share with our audience today? Anything else that we haven't maybe hit on that you think people ought to be thinking about?

Bill Holter: I would just say use common sense, follow your gut. If you've been investing in gold and silver, you did it for a reason. That reason more than likely is you understood or felt that something's wrong. And yeah, something is definitely wrong, so follow your gut.

Mike Gleason: Good advice. The reasons to own this stuff five, six, eight years ago have certainly not changed one bit.

Bill Holter: No, they have changed. They're more severe now.

Mike Gleason: Yeah, fair enough. I agree with you on that. Well, wonderful insights, Bill. I really enjoyed talking with you today. Hope we can do it before too much longer. We appreciate the time, take care.

Bill Holter: My pleasure.

Mike Gleason: Well, that will do it for this week. Thanks again to Bill Holter. The site is JSmineset.com, be sure to check out that for the great commentary Bill and Jim put out on a regular basis. You will not be disappointed.