The publisher of The Gartman Letter thinks gold is becoming the world’s No. 2 reserve asset, that OPEC will outlast the euro, but that ultimately, nothing is more important than agriculture.

Dennis Gartman is the man behind The Gartman Letter, a daily newsletter discussing global capital markets. For over 20 years, The Gartman Letter has tackled the political, economic and social trends shaping the world’s markets, and Gartman himself is a frequent guest on CNBC, Bloomberg and other financial media outlets.

Recently, we sat down with Gartman to discuss his recent call to go long-gold in nondollar terms, the changing role of OPEC and whether anything’s more important than agriculture.

Hard Assets Investor (HAI): Let’s get right to the meat of it. You recently said that you were bullish on gold, but not in dollar terms; rather, euros, pounds, yen, etc. How would you actually put that trade on, since gold is generally traded in dollars?

Dennis Gartman (Gartman): Well, it’s not as difficult as it sounds. If you buy gold, by definition you have gone short of the U.S. dollar. If you buy a gold future or if you buy a gold ETF, that’s essentially the trade you made. You’ve bought gold, you’ve gone short the dollar.

Let’s say one did $100,000 worth of the gold ETF, GLD; how do you turn that into gold in euro terms? Well, you short the euro ETF, which should be easily shortable, but sometimes it’s hard to borrow. If you bought $100,000 worth of the gold ETF, you would sell $100,000 worth of the euro ETF. And essentially what you have done is construct gold in euro terms.

If you bought $75,000 worth of the gold ETF and sold $25,000 worth of the yen ETF, sold $25,000 worth of the euro ETF, sold $25,000 worth of sterling, then you’ve effectively created gold in all of those other currencies. You’ve created a gold position not in U.S. dollars.

It’s a much better trade. Gold has become a currency and it’s become the reservable asset, in competition primarily with the euro, which is now the second-most-liquid reservable asset. And given the problems that are extant in Europe at this time with Greece and Portugal, Spain, Italy, etc., I just think it’s the better trade. The more consistent trade and the less volatile trade is to be long-gold in non-U.S. dollar terms.

So you can do it most easily in the ETFs or you can do it very readily in the futures markets, which most people don’t like to trade in.

HAI: What’s the thesis for not wanting to be short the dollar? What’s wrong with being short the dollar right now?

Gartman: Well, I think it’s a bad trade. I think that the euro is now topped out dramatically. I think the problems in Europe are so severe that we’re going to wake up one day and find that the euro is no longer traded; whether that’s next week or next month or next year, I don’t know. But the problems in Europe are much worse than all the problems here in the United States, fiscally. Except for Germany.

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Economic data over the past weeks, punctuated by last week’s dismal employment reports, confirm the diminishing impact of the stimulus efforts orchestrated by the Obama Administration and the Federal Reserve. In what must be a huge disappointment to Keynesian enthusiasts, the record doses of both monetary and fiscal narcotics did not produce the desired results. In fact, the size and scope of the “recovery” of the past two years was weaker than would have been expected in a typical business cycle recovery without any stimulus whatsoever. Indeed our current recovery is the weakest on record, despite the biggest jolt of government stimulus ever administered.

But despite the gathering gloom Austan Goolsbee, the Chairman of the President’s Council of Economic Advisors, argued over the weekend that the economy is on the right track and that the recent salvo of horrific economic reports were not significant. The poor numbers, he said, resulted from external factors like the Japanese earthquake and the downgrade of European sovereign debt. I don’t know if he really expects anyone to buy his story, but admitting you have a problem is the first step toward recovery.

In a sign that Mr. Goolsbee may have been getting increasingly uncomfortable with his job of economic propagandist, he abruptly resigned this week. He will be returning to academia where I’m sure he is hoping to avoid blame for the coming economic train wreck.

Although I have made these comparisons before, the parallel between drug addiction and the reliance on economic stimulus is just too strong to ignore. And as with drug addition, an economy builds up a tolerance. Each time the government successively stimulates with printed money or deficit spending, ever larger doses are needed to achieve the same result. Lest we forget, coming into the Crash of 2008, the economy had been on the receiving end of years of over stimulus. President Bush and Alan Greenspan never fully weaned the economy of their shock treatments that followed the dot.com crash and the shock of September 11th.

This time around, the stimulus-fueled recovery is so mild that the economy is already relapsing into recession before the Fed has even begun to tighten. This puts Bernanke in a very difficult position. He either follows through on his loudly trumpeted plans to end quantitative easing this summer, or abandon those plans in favor of more stimulus. Both choices are unappealing.

Given the current economic weakness, will any additional deterioration that will surely result from a withdrawal of stimulus be politically viable? Real estate prices are already at new lows and unemployment refuses to diminish even with the punch bowl fully spiked. What would happen if it contained only cranberry juice?

To avoid these short-term consequences, the Fed can instead admit that the recovery cannot survive unaided. Bernanke would have to reverse his previously optimistic outlook, and launch QE3 even as QE2 barely pulls into port. But why would anyone believe that the “growth” that results from QE3 will be any more durable and robust than what resulted from QE1 and QE2?

Economists like the stimulus-loving Paul Krugman will surely argue that that the stimulus has been too small (like $5,000 in annual deficit spending per American is a trifling sum). But to believe that the next dose will do the trick borders on sheer insanity. When QE3 comes and goes (which I’m sure it will), the Fed will face the same choice that it faces today, yet with even greater consequences. It’s a self-perpetuating cycle that ends in disaster.

Just like a Hollywood movie, each QE sequel gets progressively more ridiculous (my apologies to Johnny Depp). The government needs to admit its mistakes and write a completely different script. This time the story line must allow for a real restructuring. Real estate prices must fall further, and many financial institutions holding bad mortgages must fail. This means investors, creditors, and depositors will lose money.

Labor and capital must be re-allocated away from services into goods production. That means jobs must be lost in government, retail sales, finance, health care, and education; and jobs must be created in technology, manufacturing, textiles, mining, energy, and agriculture. This guarantees major short-term pain. But breaking an addiction is not easy. Those who say it is are living in a fool’s paradise.

This transition does not require any positive action from government. All it needs to do is simply get out of the way. That does not mean there is nothing the government can do to help the process. It can remove as many regulations and taxes as possible that inhibit market forces from working their magic. But this requires a completely different mindset among our elected officials. They will need the courage and knowledge to level with the American people, and do what is in our nation’s economic interests, not simply what is in their own political interest.

Foreign governments too must get out of the way and let market forces work. Their support for the U.S. dollar must end. If they do, U.S. consumer prices and interest rates will rise, as they must.

If the Fed tries to combat the effects of a falling dollar with more QE the dollar will fall even further and consumer prices will rise even higher. The cycle will either end with the Fed as the only buyer of all U.S. dollar denominated debt (wiping out the value of the dollar), or a Fed engineered rate hike that brings the cycle to an end. Both scenarios are catastrophic, but the latter at least offers the possibility of redemption.

The same experts who did not see the 2008 financial crisis coming also fail to see the world in these stark terms. And while it gives me no pleasure to forecast the demise of the U.S. economy, I hope that at least the reputations of these “experts” will sink with it.

Peter Schiff is the CEO of Euro Pacific Capital.

Peter Schiff, CEO & Chief Global Strategist is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned.  He has published two best selling books,  “Crash Proof: How to Profit from the Coming Economic Collapse” and “The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down”

Farmland investment, the next big portfoilo

Many investment professionals, including the legendary Jim Rogers, believe agriculture commodities are only in the early-to-middle innings of a major “super cycle” of increasing prices.

The argument for this is fairly simple. The number of people in the world is increasing, and projected to reach nearly 9.1 billion by 2050 according to the United Nations. Meanwhile, the amount of arable farmland has been decreasing.

In addition, as with many major trends in the world today, a large reason behind the rapid run-up in food prices is China’s development. As investors we always want to be on the correct side of global macro trends, and whatever China needs or is buying lots of, we want to own as investments.

The question is what are the best ways for making money from the agricultural sector? One way is to invest directly into agriculture stocks such as farm equipment maker John Deere (DE), global seed giant Monsanto (MON) or fertilizer company Potash Corp of Saskatchewan (POT).

Another method is to invest in agricultural futures through Exchange Traded Funds (ETFs) such as AIGA on the London Stock Exchange or DBC in the US which tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs. These commodities ETFs try to track the spot price of the various commodities they include.

The advantage of these stocks or ETFs is that they are easily trade-able by anyone who has an online brokerage account. The disadvantage, however, is that they are still financial instruments, and as such can fluctuate widely in price.

One option most individual investors tend to overlook is direct investment in farmland. In many ways, a farmland investment is more secure, stable and tangible then putting money into stocks.

Farmland allows investors to still benefit from the global trends in agriculture we have discussed, whilst providing much greater stability then agriculture stocks or commodities which can fluctuate wildly.

Just to take one example, in the last 20 years farmland in the United States has never had a down year according to the National Council of Real Estate Investment Fiduciaries (NCREIF) in the US demonstrates.

Not surprisingly, many large institutional investors have been investing heavily in farmland the last several years. For example TIAA-CREF, one of the largest pension funds in the world, has recently made a large move into farmland investing.

Prices for farmland in the West – particularly in Europe – have already moved up considerably, reaching as high £17,300 per hectare in the northwest of England to take just one example.

Whilst there are considerable advantages in terms of political stability to farmland investment in Europe or the US, the real opportunities for spectacular gains lie in emerging markets, especially in Africa, which holds 60% of the world’s remaining arable land suitable for farming.

Whilst farmland investment has been dominated by larger institutions historically, in just the last two years a number of options have been developed for individuals. The most common is to pool a number of individual investors’ capital together to purchase a large parcel of land, and then divide it into individual freehold parcels.

Farmland investments for individuals generally pay a regular yearly dividend from the sale of crops, and also provide the opportunity for long-term capital gains as farmland continues to increase in value.

We are now starting to see options starting as low as £1,950/hectare for high quality farmland in Africa, making it easily accessible by individuals and a great way to diversify.

There are, of course, risks with any investment, but by doing one’s due-diligence and investing in the right structure with the right people and institution, farmland investment can be both safe and profitable for individual investors as well as large institutions.

Courtesy : EzineArticles.com

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