With a sea of red across virtually all markets, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management.
Leeb told KWN that global financial markets are in an extraordinarily
unstable situation. Leeb also said investors should expect to see more
“tumutuous events” ahead. But first, here is what Leeb had to say about
the derivatives crisis the world faces today: “When you start
talking about quadrillions (of dollars), you are talking about numbers
that are 1,000 times larger than $1 trillion. GDP is measured in
trillions, and when you start talking quadrillions, you are talking
about numbers that dwarf worldwide GDP.”
Stephen Leeb continues:
“So, of course it’s
extraordinarily destabilizing. Importantly, it’s beyond any human being
to understand all of the interrelationships between all of these paper
derivatives various entities possess. Everything is hedging everything
else and it becomes so complex that there is virtually no easy way out.
When you hear numbers like quadrillions, it’s so detached, relative to
the size of the world’s economy.
We are in a real mess and
it cannot be sorted out in any meaningful way. It’s a matter of when
people wake up and start fleeing towards gold. I assure you that five
years from now, when you look at this period (in gold), it won’t look
like anything on the chart. But living through this kind of pain is
very difficult because you see how it’s going to work out, but you don’t
see the exact timing....
“You may see a situation where gold is at
$1,400, and then two months later it’s at $2,500. That’s just one of
many possible scenarios. We don’t know the bottom for sure right now,
but one thing is certain, you are going to see new highs in gold.
Investors just need to hang in there.
So you are going to have a
massive move in real assets, there is no doubt about that. Will the
Greek election be a catalyst? Has the failure of Greece to form a new
government been a catalyst? Regardless, people are starting to realize
that the euro, as it currently exists, doesn’t make any sense. It just
doesn’t.
What they are doing right
now is putting salt on the wound with austerity, etc.. The election
results, throughout Europe, are supporting this. It will be every
country for itself as the euro is dissolved.”
Leeb also added:
“History shows that given the choice between inflation and austerity,
people are going to choose inflation every time. Germany is a great
example. It’s true you had incredible inflation in the 1920s and you
had awful things taking place, especially to the poor people in Germany.
But overall, despite the
horror of people starving and children being sold, the German economy
did not perform that bad. There were just such great disparities
between people being poor and others becoming extremely wealthy.
What crushed Germany in the
1930s was 25% unemployment. During the 1920s, unemployment never got
above 10%. Hitler came about in the 1930s because of 25% unemployment.
Nobody wants to see worldwide depression and massive unemployment.
You already have massive
protests in Spain. People are leaving Spain because they know there is
no chance of a job there. It’s tragic. The current status quo is
something that is not tolerable. These are going to be very tumultuous
events. I mean the euro is not just going to walk away. Everyone will
be using their various currencies again, but it’s going to happen in
stages.
If investors step back and
look at this from a longer-term perspective, they will realize that
politicians feel the only way out of this mess is to print more money.
After the money printing will come the inflation. It will be higher
inflation than anything we’ve seen in the post-World War II period and
it will send gold, silver and all commodities skyrocketing. But I can’t
deny it, this is an incredibly painful transition.”
