The World According to Rick Rule

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This week I’m down in Boca Raton, Florida with Jim Rickards and Byron King at Rick Rule’s annual investment conference.

Rick is a legend in the natural resource investing space. This conference is a bit like Mecca for gold, silver, and hard asset investors.

Rick gave a keynote speech yesterday to kick off the conference. And it was one for the record books.

According to Rick, America’s financial math isn’t adding up.

Americans have roughly $141 trillion in total net worth. This number has climbed sharply in recent years, as stock markets and home prices have soared.

On the other side of the equation, we have $36.6 trillion in outstanding debt. That’s 123% of GDP.

Now tack on another roughly $100 trillion in federal unfunded liabilities. These are costs like Medicare, Medicaid, federal pensions, social security and the like.

These unfunded liabilities are money we have promised, but not paid for. They will come due over the coming years and decades.

So we are already almost at a 1:1 ratio in terms of net worth and liabilities. $141 trillion in net worth and $136.6 billion in liabilities. In other words, we can’t tax our way out of this one.

Additionally, our debt is increasing by at least $2 trillion per year. Unfunded liabilities are also annually adding another $2 trillion to the liability side of the equation. These costs will continue to grow as baby boomers retire and healthcare inflation rises.

And by some measures, our total unfunded liabilities may be $200 trillion or more over the long-term. Entitlement spending has grown completely out of control.

We’re approaching the tipping point. And Rick Rule says we’re destined to print money and devalue the dollar to make up the difference.

Next, Rick laid out how he is preparing for the chaos ahead.

Running The 1970s Playbook

Rick Rule says we’re headed into a period similar to the 1970s.

Over that decade, the dollar’s purchasing power fell by around 75%. Inflation raged as high as 15%.

In real terms (after inflation) the S&P 500 index lost money over the decade. The broad stock market offered no shelter.

Vast sums of wealth were wiped out. Savers and bond owners were hit especially hard.

However, some investors thrived during the ‘70s. They did so by buying gold, silver, miners, oil, and other natural resources. This is how Jim Rogers and George Soros made their fortunes.

Rick strongly believes that this is the best path to preserving and even growing wealth during this tumultuous period.

Gold and silver miners. Base metals like iron and copper, too. Oil and gas companies.

These are sectors that stand to benefit from sustained inflation. For example, gold miners with large existing operations will have an inherent advantage over newer entrants. They have all the infrastructure already in place, and thus maintain a far lower cost basis.

New mines will face steep startup costs in an inflationary environment, while existing producers benefit from past investment. Rick stressed that companies with existing capacity rise in value in such a scenario.

Additionally, in an inflationary or even stagflationary environment, investors tend to rush into hard assets. Precious metals and other natural resources. These companies benefit from this rotation, and their valuations are “re-rated” higher as investors flood into the sector.

Junior miners, exploration companies, and small producers can run like crazy, and it’s good to have some exposure to these small-cap stocks as well.

Hard Assets: Still a Contrarian Bet

Today hard asset companies remain largely out of favor. Gold and silver miners have just recently started to wake up, but we believe they have much further to run.

Silver miners, in particular, are cheap. Both Rick and I love “poor man’s gold”, and the companies that produce it. When silver inevitably breaks out, the small number of miners with significant exposure can absolutely explode (more on that here).

Gold and silver bullion are also excellent assets to own going forward. They have a bit less potential upside than miners, but will be less volatile. Everyone should own some physical metal, or proxies such as the Sprott Gold Trust (PHYS) and Sprott Silver Trust (PSLV).

Platinum has been on fire over the past few months. Since we published Is It Finally Time to Buy Platinum? back in May, the price has risen from $982 to $1,386 per ounce. This unique precious metal has often traded at par or even a premium to gold, so it could still have a lot of catching up to do.

Oil and gas stocks have been hit hard by fears of slowing global growth. Rick says the energy (oil and gas) sector remains extremely undervalued (more on that here).

Base metal miners like Brazilian giant Vale (VALE) have been beaten down by a prolonged bear market in iron ore. I own that one, and have a full writeup on it here.

More to Come

Rick Rule strongly believes that investing in hard assets will be key to thriving over the next decade. So do we.

Today is only the first full day of Rick’s Investment Symposium. I’ve already learned a ton and met many promising mineral companies.

My friend Jim Rickards spoke on a fascinating panel yesterday, and will present on Wednesday. We’ll fill you in with all the juicy details throughout the week. Stay tuned.

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