Jayant Bhandari – Emerging Markets, Buyer Beware

Jayant Bhandari the host of the highly acclaimed Capitalism and Morality and world renowned adviser to institutional investors sits down with Maurice Jackson of Proven and Probable to discuss a neglected topic in the financial world, which is Emerging Markets.

Mr. Bhandari addresses the Emerging Markets by geographical region to provide investors the best value propositions. Also, included in this discusses are Mr. Bhandari’s views on the stewardship of precious metals, which metals have his attention and why. In addition, Jayant shares how junior mining companies should be utilized in ones portfolio. In closing, Mr. Bhandari discusses the upcoming annual Capitalism and Morality conveying this years all-star series of speakers and how listeners can participate.

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Maurice:  Welcome to Proven & Probable where we focus on metals, mining and more. I’m your host, Maurice Jackson. Joining us for a conversation is the host of the highly acclaimed Capitalism & Morality and an adviser to institutional investors, Mr. Jayant Bhandari. Jayant, it’s always a pleasure to have you on our show.

Jayant:  Thank you very much for having me here, Maurice. 

Maurice:  Jayant, you’re a world traveller, maybe second I believe to Jim Rickards, and I wanted our audience to gain a better perspective on the conditions of emerging markets which you believe investors need to pay more attention to.

Jayant:  Maurice, what’s being happening is that a lot of countries came to be known as what are now called emerging markets, and these are primarily countries outside of western worlds which are pretty much all the countries outside Europe, North America, Australia and New Zealand, Japan and Singapore and Hong Kong, of course. These emerging markets grew up at a very nice economic rate over the last 40 years. And it has come to be believed that there is something very special about these countries and these are the countries that are the prime mover of the world’s economy.

Now, the reality, Maurice, is that if you look closely at what’s been driving the economic growth of these countries, you’ll realize that virtually all of the economic growth happened because of one reason and that was internet. Internet allowed rapid import of western technology from the west to these emerging markets. In my view, the low-hanging fruit have been plugged and these—virtually all these emerging markets and I’ll continue to make an exception for China here. Except for China, all of these emerging markets are starting to stagnate because, Maurice, they have not fundamentally changed one thing about them. They have failed to become rational societies. They have failed to become non-tribal, non-superstitious society and the have failed to develop creative thinking of their own.

Maurice:  You know, for our audience, let’s begin our discussion in Asia and in particular in India where you are today as many listeners value your insights into the ongoing developments there and then expand the narrative to the surrounding countries.

Jayant:  What happened 70 years back in India is that the British left the country. They left their institution. They left the Indian railways, Indian post office. They left a whole institutional mechanism, the government, the code system in the country. Now these institutions were formed using certain European values, a way of listening and thinking that existed in Europe those days.

Now, why as long as the British who ran these institutions, these institutions ran very well or at least they ran? What has happened over the last 70 years is that because Europeans no longer run both institutions, the new people who have come to run them don’t really understand why those institutions actually were constructed in the first place, and these have become hollow structures. So, as a result, what you see is that there’s almost no—nothing to distinguish judiciary, legislature and executive from each other. Laws are now applied based on expediency rather than what is written in the law. The spirit of the law no longer matters. What politicians say is the final law these days.

The result is that the institutions are now completely hallway-structured and why I keep saying this about India, the reality is that every single country in South Asia, virtually all countries in the Middle East and I might make an exception for Dubai and Bahrain and a couple of more smaller countries—Oman in the Middle East but they are very, very small countries. Virtually, all countries in Africa. There are 3 or 4 very small countries in Africa and virtually all countries in Latin America. The situation is pretty much the same. These emerging markets are economically starting to stagnate and their institutions do not work the way they were supposed to be because these are fundamentally tribal, superstitious and irrational societies and these countries are sort of imploding and reverting back to their tribal past.

Maurice:  Interesting. Now before we leave India, share with us the latest developments with Prime Minister Modi.

Jayant:  Well, Modi is almost a magician. He keeps coming up with new problems for this country and another great thing that he has achieved is that he has his grasp on the heart of most of the so-called educated Indians. Now, Modi’s demonetization, pain of which continues even today. He removed 86% of monetary value of currency in circulation in November 2016 and the country continues to suffer pain because of that. Small businesses lack access to cash. The result is that they are failing. Old people probably cannot find jobs anymore. Food is very cheap because old people can no longer buy. The vicious cycle has set in in the economy. Businesses are extremely scared of rapacious and extraordinary corrupt tax authorities.

The end-result is that economically, India is stagnating for reasons other than what I have mentioned so far. But, also, one of the prime reasons why Modi wanted to go for demonetization was to improve the problems in Kashmir. Kashmir as you know has been fighting for independence. In my view, it should be an independent country for all these 70 years. But now, in the last 3 months, the problems in Kashmir have escalated hugely so much so that it seems that the whole province is in revolt collectively against the country. Indian army has been doing human rights abuses in that province and this has escalated in the last few months.

The latest video that came out of Kashmir was in which Indian army put a guy on the bonnet of a car on the theft so that people would not throw stones on the jeep. The reality, Maurice, is that this is not considered the right way to fight a war, totally not a right way to treat your citizens and this is, of course, my view. Indian attorney generals  who is supposed to be one of the key guardians of the constitution and the law responded that there was absolutely nothing wrong with what the army did. These kinds of things do happen.

The reality, Maurice, is that this proves and this shows what I was saying earlier the spirit of the law is now gone. The institutions are mere hollow structures because these people, Indians do not understand what this rule of the law means in essence.

Maurice:  You know, it’s truly disparaging, Jayant. Leaving India, let’s get a little bit more specific on Africa.

Jayant:  Right. So, let’s zoom in on Africa, what is Africa? It’s 54 countries, but there’s one defining characteristic of Africa. It’s a pain of disease, drudgery, poverty, tyranny, everything worse you can imagine about the world is in Africa. Just going back to India, India on average is more poor than Africa, although in the western world, the narrative has changed because of the lobby’s  that exists in the US. But let’s stay on Africa, which is slightly richer than India is.

But, there is virtually nothing in Africa that pleases your eye. 3 or 4 very small countries—Mauritius, Namibia, Botswana, maybe Tunisia are countries that look reasonably okay but they are insignificant in terms of population for the continent. South Africa which at one point of time was seen as a first-world nation. It’s probably getting degraded faster than any nation in Africa and probably any nation in the world. So, Africa—this is a problem.

Now, if you talk with the World Bank and IMF, they will tell you very rosie economic growth figures of Africa and they actually look quite good until you look closer. And the reality is, Maurice, that Africans as a continent has not understood the concept of savings. Africans earn their money and they drink it away the same evening. That is pretty much the culture of Africa.

Now, what is happening is that economic growth has picked up but most of this economic growth can be attributed to increased consumption. So, they have increased their private and public debts and they have increased their consumption. What is sustainable about it? They have to improve their capital and their competencies. 

Maurice:  And they certainly have to be prudent enough to allocate towards saving. Let’s go to the Americas. Are there any differences between the Central and South Americas?

Jayant:  Indeed. I think the more north you go from Argentina and Chile things deteriorate and in Latin America. Central America is very lawless and I know a lot of people advertise Panama and Costa Rica as the places to be, and these are places of immense—natural for the beauty, Maurice. You’ll love these places. The reality, however, is that they are also extremely crime-prone. An American friend of mine whose family moved to Panama because they were just not happy with the welfare/warfare economy of the US and the continued deterioration in the US, left for Panama about 10 years back. Last year, they moved back to America because things in Central America are not good. It’s a very crime-prone area. It’s very poor and backward part of the world. 

Maurice:  Well, I tell you, it truly is frustrating to hear this because again the perception is that the emerging markets are going to take the lead here. Are you concerned that the mainstream media is not discussing these developments?

Jayant:  No, they are not, Maurice, and I’m not necessarily saying they aren’t doing it because they want to tell a lie. The reality is that people who live in the western world simply fail to have the eyes to understand the realities of these emerging markets. And in a way, it is very true that the western world is getting deteriorated and it is very rapidly, but the reality is that the problems of the emerging markets are starting to surface very rapidly in my view except that the world is failing to recognize it for two reasons, because they don’t—western people fail to understand that these emerging markets are basically tribal, superstitious and irrational and these concepts have failed to get any traction in these countries despite the so-called education. Education cannot transmit the concept of rationality and critical thinking to these people.

And as a result, these people are not becoming rational and the western people are completely failing to understand that this is not happening in the emerging market. And in my view, the problems of emerging markets that it starts to suffer sooner rather than later.

Maurice:  So, Jayant, just to summarize here. Based on your assessments, is it fair to state that the economies worldwide, in particular, the emerging markets, will continue to amass debt and stagnate?

Jayant:  Absolutely. I see no hope for most of the emerging markets except again for China and the Chinese-related countries—Singapore, Hong Kong, Korea, and Japan. But most of these emerging markets will stagnate. Most of these countries will implode. Venezuela is already known to be imploding. Brazil I think will implode. India will implode. But virtually all these countries will implode. South Africa will implode. These are the headline countries. In my view, western world will continue to deteriorate but will do better, much better than emerging markets. So for me, the place to think about in terms of living is still the western world.

Maurice:  All right. Jayant, you’ve shared the problem. Let’s provide the listeners with the solutions. Now based on the circumstances, should investors stay away—and this is generally speaking—from capital markets in these countries and instead deploy capital towards precious metals?

Jayant:  Not necessarily. I would deploy my money in China, Hong Kong, Singapore, Japan, Korea. Australia and New Zealand can be very good places to invest your money in. And even in emerging markets, you can always find individual companies. However, as stock markets or as general places to invest in, I’d stay away from emerging markets except for China. Now, gold is, Maurice, a very important part of anyone’s portfolio and gold becomes important when economic stagnation takes place, which I think is the future of emerging markets and the future of most of the western world.

But also, even more important than that is the political instability that is becoming the routine today. North Korea is becoming a problem. Middle East is on fire right now. There will be huge chaos in Syria and many other countries in the Middle East. The end-result will be that political instability if it happens even on top of economic growth will mean that people will be interested in buying gold and gold will become a place to preserve your wealth.

Maurice:  Now, with regards to physical metals, you’ve touched on gold. How about silver, platinum and palladium?

Jayant:  It’s the same. It’s pretty much the same story with other 3 metals as well, Maurice. I don’t follow, keep a very close eye on these two particular metals—platinum and palladium—because the story of these two metals is extremely complex. The price that you buy these metals for is less than the cost of making these two metals, which is a very strange situation. But the reality is that the market can stay—what Keynes said, market can stay irrational longer than you can stay solvent.

So, despite that these commodities sell for lower than what they are—what it costs them to produce, I don’t know whether I would be able to exploit it. I don’t really understand the dynamics behind what keeps these commodities to produce such a high cost and be sold at a low price. So I’m less sure about these two commodities. Also, there’s a huge influence of industrial consumption of these two commodities. So, given that, I prefer to focus on mostly gold and silver.

Maurice:  All right. Now, where do mining companies fit into this discussion?

Jayant:  Mining companies are completely, totally different than these commodities are. A lot of people mix the two things and they usually make a loss. Actually, they always make a loss. Many who are interested in that commodity invest in that commodity. If you invest in a company, do a valuation of those companies based on the spot price of the commodities. Now, if you want some extra icing on the cake, yes, you might want to look at valuations of gold companies if you think gold will do better. I do not bill them higher price of gold in your valuation but almost always lose. And the reason is that when the gold price goes up, the cost of making gold usually goes up as much or even faster sometimes. So, any leverage that you think exists in gold mining companies is a myth and usually the leverage gets compressed when the gold price goes up and that has been the history over the last 20 years. 

Maurice:  Yeah. Thank you for your words of wisdom there. Jayant, for the first-time listeners, should they first procure precious metals or the mining stocks?

Jayant:  Absolutely—again, these are two different things. If they want to invest for commodities, they should just invest in commodities. Investing in mining is a long, tough job because you have to learn valuation of these companies. A lot of people take knee jerk decisions on investing in these mining companies mostly based on some gambling kind of instincts that they have. They then want to rationalize their decision and they want to latch on to certain companies because now suddenly for them ounces in the gournd of these companies is very cheap. I think you have to be very careful when investing in mining companies. You have to learn to do analysis, spend a lot of time trying to understand them before you invest in these companies.

Maurice:  And switching gears to Capitalism & Morality, Jayant, each year you host the highly acclaimed Capitalism & Morality featuring all-star casts of guests. Who will be speaking this year?

Jayant:  We have the next Capitalism & Morality on the 29th of July in the downtown campus of Simon Fraser University in Vancouver, Canada. This will be a very long day, 8:00 o’clock in the morning to 6:00 o’clock in the evening with almost no breaks except for a short lunch break. We have about 15 speakers during that day and some of the top names that you hear of, some of the finest names—Ian Plimer, Rakesh Wadhwa, Adrian Day, Rick Rule, Doug Casey, Albert Lu. The list goes on. Some very good speakers. It will be a fun day, Maurice.

Maurice:  It truly is. This—ladies and gentlemen, if you’re not aware of it, you can visit Jayant Bhandari’s website and click on Capitalism & Morality and see past presentations, but this is a truly spectacular intellectual forum combining the reasoning, argumentation and liberty. What is price of admission and where can we reserve a seat?

Jayant:  I have done it for the last 8 years, Maurice, and I do it on breakeven basis. Mostly, I have made a loss in the last 7 years and this is still very cheap, $140 Canadian dollars per person and this is Canadian which becomes almost just over $100 American for attendance. And, as I was discussing with you before we started recording, I will be very happy to offer a 20% discount to your audience and they can use coupon code JACKSON which is your last name and get a 20% off that’s $140 Canadian dollar price. But this is valid only up to the end of April, 30th of April.

Maurice:  Well, Jayant, on behalf of our valued subscribers, we want to thank you. Last question, what did I forget to ask?

Jayant:  We have covered a fair bit, Maurice. I think people should recognize that their countries are becoming extremely unstable all over the world. They should understand that their governments are becoming very rapacious. This rise of nationalists around the world is not a solution to the problem. It is the problem. People should be afraid of their government. They should diversify their wealth as much as possible around the world because ironically in a country where you are a tourist, you are respected. So, diversify yourself. Buy gold. Keep it outside your own country. Protect your future.

Maurice:  Very well said and thank you for those words of wisdom again. Jayant, please give us your website and contact information.

Jayant:  My contact information and everything that I do is on my website, which is jayantbhandari.com. 

Maurice:  Thank you. And last but not least, please visit our website, www.provenandprobable.com. Through Miles Franklin Precious Metals Investments, we offer gold, silver, platinum and palladium offshore storage, precious metal IRAs and safe deposit boxes which are fully insured and secured by Brinks. The website again is www.provenandprobable.com. You may reach us at contact@provenandprobable.com. Jayant Bhandari, the host of the highly acclaimed Capitalism & Morality. Thank you for joining us today on Proven & Probable.

Proven & Probable

Maurice Jackson

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