Resource Scarcity Trends July 2013 Resource Tendencies ...

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Resource Scarcity Trends


J
uly 2013


1


R
ESOURCE
T
ENDENCIES

Analyzing Resource Opportunities Around the World




July Newsletter, 2013 Issue 6 RST examines global
money tendencies

via Internet analysis
.
$US149.00




T.O.C.

AFRICA RISING

………………………………………. 2

GOLD SELL
-
OFF
……………………………
………….9

RST INTERVIEW: JUAN
FEDERICO FISCHER…………
.16




What are Tendencies As We Use the Term?

Resource Tendencies Report exist
s

on the cusp of an argument having to do with investing itself: What are
the best resource investments and why?


But this is no
ordinary analysis. Resource Tendencies attempts to cover the modern argument between
those who promote scarcity and wish to provide regulatory solutions and laissez
-
faire oriented "tendency
-
trackers" who see the business environment as a struggle between t
he marketplace itself and market
manipulators.


In some cases, understanding scarcity promotions in the news can be tremendously rewarding. Those
creating or taking advantage of scarcity, bottlenecks and manipulated lack of supplies can generate vast
profi
ts. At other times, scarcity promotions can founder and fail. In this case, those invested in the
promotions can find their financial positions failing as well.


The writers and editors of Resource Tendencies have decades of experience covering economics a
nd
investing for top Western media. They have also published successful investment
-
oriented books and
regularly travel around the globe analyzing elite tendencies and promotions.




Resource Tendencies is published monthly at
http://www.myworldresource.com/

©All rights reserved.

Resource Scarcity Trends


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uly 2013


2

TENDENCY: ‘AFRICA RI
SING

TENDENCY
-
TRACKING STATISTICS









“Africa Rising” has been used in various forms in various media over 15,000 in a single
month. These are not obscure
publications, as the above
tendency
-
tracking

shows. The
phrase has been used in the headlines of Forbes, the Financial Post, Atlantic.com, the
Harvard Business Review and thousands of others mainstream publications and videos.
The popularity of the phrase
and its repetition is a good example of how the mainstream
media creates and popularizes specific

tendencies

within a promotional context. What we
seek to examine in this newsletter is not the how


which is fairly obvious


but the why.


Tendency
-
Tracking

Summary


In our lead article, we examine the

tendency
encapsulated b
y the phrase “Africa Rising.” In the
1980s, the West


specifically the US


and

J
apan created an industrial pact.

J
apanese officials
pumped money into the economy via the Bank of

J
apan a
nd this money was then used to
purchase US Treasuries and fund the ballooning US debt.


In return, US officials reconfigured tariffs and trade agreements to ensure that US consumers had
favorable access to

J
apanese products. Purchases of

J
apanese products

expanded

J
apanese
industry, further Westernizing it and creating a more globalized footprint as well. The process
continued until monetary inflation overwhelmed the

J
apanese economy, causing a two
-
decade
slump that continues to this day. Western powers th
en apparently approached China and
replicated the same program.

Today, China’s economy verges on a

J
apanese
-
style implosion though China’s vast population
and size may mitigate some of the difficulties that have affected

J
apan. In any event, it seems that

Africa has been selected as the next “China/Japan” by Western powers.

There are differences of course as Africa is not a single country. But a pan
-
African central bank is
being created and it is fairly easy to identify certain countries that have been s
ingled out to
participate in this

tendency

including The Ivory Coast, Nigeria, South Africa and Keyna

Tendency
-
Tracking Article Samples … “Africa Rising”

Resource Scarcity Trends


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uly 2013


3

Now
let’s start by analyzing a
n OECD White Paper, entitled “Fragile states 2013:
Resource flows

and t
rends in a shifting world.


This
gives us a perspective on how internationalism is reconfiguring countr
ies and
regions on a regular basis and provides us with important clues regarding our focus for
this month’s newsletter, “Africa Rising.”


The Organiz
at
ion for Economic Co
-
operation and Development is one of the world’s
older post
-
war international facilities, developed out of the Marshall Plan itself and now
comprising a core of Western states as well as developing ones.

W
hat are the global challenges t
hat the OECD foresees?

High fertility and population growth rates,

a large proportion of young people,
stretched health and other social services, as well as a lack of socioeconomic and
political opportunities will all be among the challenges facing fragi
le states in the
coming years.

Climate change

and
environmental degradation

will also affect fragile states more
directly and severely than other countries. These two challenges are expected to act as
“threat multipliers”, combining with other factors to
catalyse crisis. Initiatives to
mitigate the impact of climate change may themselves fuel instability, if not adequately
designed and implemented.

The diffusion of technological innovation may prove to be one of the most consequential
changes affecting fr
agile states in the decade ahead.

There is n
o doubt that the current

environment will see governments and NGOs facilities
taking aim at various
African problems

such as those mentioned above, mainly climate
change and environmental degradation.

There are

plenty of studies questioning climate change and environmental degradation is
often in the eye of the beholder.

What is more important than the reality of these
tendencies

is their constant appearance within analyses provided by powerful globalist
authori
ties.

Again, from the OECD:

At a minimum, [demographic] trends suggest that most fragile states will continue to face
significant demand for


and most likely shortages of


health and other social services,

as well as a dearth of other socioeconomic and
political opportunities such as

j
obs and
political participation, etc.

From a profit standpoint in this most cynical of ages, we are not interested so much
in the reality of a particular situation as whether or not it has popular appeal within
mainstream
parameters.

We note

mobile phone

use as well, another area that has been focused on for developing
countries. OECD explains mobile phone use is growing in developing countries at an
impressive rate of almost six
-
fold in five years.

Resource Scarcity Trends


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uly 2013


4


Mobile phones are be
ing used to share agricultural market information, transfer money,
reduce corruption and provide early warnings for crises. They also facilitate Internet
access, which can change the balance of power between state and civil society by
facilitating communic
ation and collective action.”


Here’s more:

Mobile phones have a host of applications that are directly relevant to fragile states.
They are used for example to seek or share information on agricultural markets, store or
transfer money, monitor supply chai
ns to reduce stock loss and corruption, and provide
telemedicine (clinical health care at a distance).

In Kenya, the mobile money platform
M
-
Pesa,

introduced in 2007, had over 9 million
users by 2010; financial transactions transiting over M
-
Pesa represen
ted 10% of
Kenya’s GDP. The same platform was used by
Roshan,
the leading mobile phone
company in Afghanistan, to roll out M
-
Paisa, which facilitates microfinance programmes
and remittance payments.

Well
-
known economist and book author Dambisa Moyo sees ma
ny of the same trends as
the OECD

regarding resource scarcity
.

In an interview with the
Christian Science Monitor,

she states that “
the world needs a
new institution to manage increasingly scarce resources, one that treats all countries as
equal and doesn
’t take for granted that Western
-
style democracy is going to be the
dominant paradigm of the future.”

Moyo has written a new book,
“Winner Take All
,


that argues commodity supply
-
and
-
demand is going to form the basis of 21
st

century economies around the wo
rld and
especially for developing countries.

On the demand side we have a rapidly increasing population, from 7 billion today to 10
billion by 2100; an unprecedented rate of economic development and global wealth
whereby the emerging markets will deliver 3

billion new people into the middle class;
and finally, a massive rate of urbanization. These three factors are [straining] and will
continue to strain commodity resources. On the supply side, there simply is not enough
land, water, energy, and minerals

to

support these trends.

Devex Blog

reiterates Moyo’s perspective.
Demand for food

is going to double in
coming decades and “climate change” will make food production more challenging.

According to
Devex,

an

upcoming G
-
8 summit, we will help launch a new
alliance “to lift
50 million out of poverty over the next ten years, using private sector investment to help
people achieve the food security we all take for granted in the U.K.”

One in three Africans still go hungry today, in a world of plenty, so it is v
ital we help the
poorest people access the food that is available. The simple reality is that people go
hungry because they are poor. Perversely, poverty is deepest and most extensive among
rural populations dependent on
agriculture, livestock, fisheries a
nd forests

for their
livelihoods and food security.

Resource Scarcity Trends


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uly 2013


5

What is the key that
Devex

indicates is most important?

On the biggest scale, it is a combination of public and private involvement. “When the
public and private sectors work together, from the smallh
older farmer to the large
-
scale
agribusiness, trade and investment can take off.”


That is why the U.K. Department for International Development is supporting, for
example,
Aid for Trade in Africa
, challenge funds that support innovative agricultural
enter
prise development and partnership, and land reform in Rwanda enabling women

to
own the land they farm.


The leftist
Nation
magazine

expands on

Devex’s

issues in an article entitled “How
Resource Scarcity and Climate Change Could Produce a Global Explosi
on

in the Coming
D
ecades.”

The article goes on to describe what is upcoming as scarcity affecting all parts of the
human (natural) environment including energy, water, land, food and critical minerals.


In “How to Play Resource Scarcity,”

at
CompleteInvestor
.com,

we learn that while crop
yields are decreasing, along with phosphorous


a critical element in fertilizer


the diet
of many people in developing countries is growing more meat intensive, putting further
stresses on agriculture. “Even now, the Chines
e eat 47% of the world’s pigs.”

The article focuses on
phosphorous

as a viable investment opportunity, especially as
85% of the world’s high
-
grade, cheap phosphorus is in Morocco and the west Saharan
region generally … while the rest is fragmented througho
ut the world. It is a supply that
may last on 25 or 50 years.
Potash

is another component of fertilizer to watch.

Lloyd’s of London has issued a resource
-
oriented report as well, partnering with the
International Institute of Strategic Studies (IISS). Uns
urprisingly, the report discovers the
same sorts of issues as others in the field:

• Severity and timing of climate change is unknown, so companies must build their
strategy based on planning and reviews.

• Major changes will occur


in how cities operat
e, how buildings are designed, etc.


but this should not stop well
-
run organizations from succeeding. Good operational
planning, contingent upon climate change, will be a key factor.

• Water will become a scarce commodity commercially and strategically,

and this will
present supply chain and operational challenges for businesses, and additional risks for
insurers.

• Food production will increasingly fail to meet demand; global food markets could
change substantially and the development of bio
-
fuels cou
ld put further pressure on
scarce arable land.

• Energy markets will likely become more volatile and unpredictable; rapid shifts in
supply and demand will prompt businesses to develop flexible strategies to mitigate loss
and risk.

Resource Scarcity Trends


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uly 2013


6



Africa Rising’ Trends Promoted


African
problems:
These are being portrayed as mostly climate change, resource scarcity
and environmental degradation. While these problems may or may not be real, the proposed
“solutions” may provide us with considerable investing opportunities.


Demand for food:

“May double in coming decades and climate change will make food
production more challenging.”


Climate change

and
environmental degradation:
There is plenty of conflicting evidence
over what constitutes real climate change (AKA global warming). Environme
ntal degradation
is a vague term that often is seen applied to developing countries.


Water:

A long
-
standing scarcity theme that is becoming even more urgent in the 21
st

century.



Investment Tendencies …


Mobile Phones:
An

investment opportunity for co
urageous investors.



M
-
Pesa:

“Introduced in 2007, M
-
Pesa had over 9 million users by 2010; financial
transactions transiting over M
-
Pesa represented 10% of Kenya’s GDP.”


Roshan:

The leading mobile phone company in Afghanistan has rolled out M
-
Pesa, “whic
h
facilitates microfinance programmes and remittance payments.”


Phosphorous:

An element of fertilizer that we are told is increasingly short supply.


Potash
: Another “scarce” component of fertilizer.


• Mass migration from

the developing to the developed world may occur as temperatures
rise, making certain geographical areas much less hospitable then before.





Resource Scarcity Trends


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uly 2013


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Featured Charts


































Resource Scarcity Trends


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uly 2013


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Africa Rising Summary


We can see from this trend analysis that Africa is much in the news. And also th
at
many of the
expected trends being enunciated are oriented around scarcity. This is important because
globalist promotions feature scarcity in order to justify big government solutions


the bigger
the better.


Our perspective, analyzing such trends is
that Africa is being prepped to be the next China or
Japan, though whether that actually happens is problematic. Africa is not a unified entity and
thus those that want to open up Africa will have to do so via certain countries that can act as
“drivers.”


We’ve identified some of those countries already as being South Africa, Nigeria, The Ivory
Coast and Keyna. There will probably be others as well. It is even possible that some of the
wars that have swept the region are in some sense aimed at a further str
ategy of producing a
consumerist and industrialist Africa.



We’ve also seen in our analysis that certain industries are likely to lead the way in Africa and
that they may produce success stories that will be profitable for risk
-
taking investors. Among
the
se industries will be those specializing in Mobile phones and those oriented around
fertilizer.


Interestingly, when we checked into
M
-
Pesa
, we found it was not really a Kenyan company at
all but a British one. This is in line with our expectations that “A
frica Rising” is really a
Western production, even specifically a British one. At least two of the countries that we
believe are in the vanguard of “Africa Rising” are Kenya and South Africa that have
extensive histories of Western involvement.


K
enya’s political system is British, its banking industry has British linkages and as it turned
out


as we just mentioned


one of its leading industries, mobile
-
phone cash payments is
British as well. M
-
Pesa accounts for more than

31 percent of Kenya’s GD
P in transactions

but
it is the brainchild of a British intrapreneur, its intellectual property rights are reportedly
British and it was initially funded by the
British Government.


The company with ownership is the
Vodafone Group Plc (Vodafone)
, described

as “
a mobile
communications company operating across the globe providing a range of communications
services. It offers a range of products and services, including voice, messaging, data and
fixed
-
line solutions and devices to assist customers in meeting t
heir total communications
needs. It has a global presence, with equity interests in over 30 countries and over 40 partner
markets worldwide.



Conceivably, one could make an African play by investing in Vodafone


or other Western
companies with Africa
n exposure. Investing in companies that produce phosphorous or
potash is another idea. Potash Corp. is one such company (see chart).

Resource Scarcity Trends


J
uly 2013


9

TENDENCY: ‘GOLD SELL
-
OFF’


Tendency
-
Tracking Sta
tistics










Tendency
-
Tracking Summary

While the latest “gold sell
-
off” started months ago, we can see from the above
statistics that even in the past month, cites are running around 3,000 as measured in
a variety of search engines. Mainstream media i
s fully on
-
board with nearly 2,500
cites and the Guru
-
Quote Index is well represented.

But w
hile

the

tendency

is obviously negative for gold accrual, we need to point out
that
this may be one that

is not all
-
encompassing. Paper gold is not physical gold.

What

we are seeing here is not a sell
-
off in gold so much as a sell off in paper gold,
that is forcing the price of physical gold down as well. Today, one can buy many
kinds of paper gold including ETFs, gold mining bonds, futures and options.

All of the a
bove have headed down hard, but that does not mean the actual, tangible,
physical metal is similarly situated.

In fact, some of our RST sources claim physical gold


gold that one can take
possession of


is selling at an astounding 30 percent over the no
minal spot price.
This is an admission of a huge price manipulation, and one that many in the
investment business believe exists.

The bankers doing the manipulations worldwide have a variety of justifications for
it, but most has to do with keeping the val
ue of currencies stable, especially the US
dollar.

The US dollar is the world’s reserve currency because of a deal made back in the
early 1970s between the US and Saudi Arabia where it was agreed that Saudi Arabia
Resource Scarcity Trends


J
uly 2013


10

would only accept dollars for oil. This ma
de it possible for US officials to print
almost unlimited amounts of dollars, secure that other nations would have to hold
them.

At the same time as Saudi Arabia agreed to a new dollar reserve system, various
attempts were apparently made at further restri
cting oil and gas exploration around
the world. This sort of enforced scarcity was enhanced by a growing Green
movement that used environmental concerns to concentrate discoveries in the
Middle East while reducing them elsewhere.

Things have changed since
the beginning of the dollar reserve system. Now
technology is making it easy to unlock energy from shale, and the resultant
resources may help topple the dollar
-
reserve system.

Question why shale gas and shale oil technology is being implemented now and t
he
answer seems obvious: The dollar is being destabilized in favor of a basket of
currencies. As increasing amounts of oil and gas make their way to the market from
the US, Britain and elsewhere, the power of Middle Eastern energy production will
be reduc
ed along with the clout of the dollar.

The idea it seems is to make a transition to the kind of currency now offered by the
International Monetary Fund


so
-
called Special Depository Receipts. SDRs are
already comprised of a basket of currencies, and have
been suggested as a substitute
for the dollar reserve currency over time.

But that time may be coming sooner rather than later, and, if so, it makes sense that
gold too is being attacked


for gold would also be a challenge to a basket
-
currency
such as the

SDR.

It may be that gold is going to be included in a basket of currencies, but even so it
would have to be involved within a certain price range, and perhaps the
manipulation of gold has to do with bringing it into that range.

Cert
ainly, we can see clear
ly that the price of gold is being tampered with at top
levels. Not long ago, 10,000 individuals gathered in China one morning to buy
supplies of physical gold. In India too physical gold remains a sought after
commodity.

And then there are reports, as we
have mentioned, that deliverable gold


the real
thing


is being sold for up to 30 percent over spot price of so
-
called paper gold.

Within this context, we can see the struggle to control the price and demand for gold
being played out. There are few other

ways to interpret what is going on except as a
kind of deliberate manipulation


especially since the price of gold is “set” in
London, and is not dependent on actual market conditions.



Resource Scarcity Trends


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uly 2013


11

Tendency
-
Tracking Article Samples

Bloomberg
carries an article enti
tled “
SocGen Bearish on Gold Sees Commodity
Super Cycle Persisting
,” which shows us clearly how the Wall Street crowd probably
views the near
-
term future of gold relative to the dollar.

Here’s how Bloomberg puts it:


… Gold will probably extend its decline

through 2014, even as the commodity super
cycle that’s brought longer
-
than
-
average rising prices may persist for a further two
decades, according to Societe Generale SA.

Bullion may average $1,150 an ounce next year,

said the head of commodities
research
, Michael Haigh, who in April correctly predicted the metal’s rout. That would
be the lowest annual average since 2009, data compiled by Bloomberg show.

What is interesting about the article

however is that it states that

the firm

expects
the

decade
-
long
bull market in commodities to extend for a further 15 to 20
years,

driven by rapid urbanization and growing population in countries including
China and India.



This

far
-
extends our own view that the current bull market in metals would be over
around 2015.

We based this on the past metal markets’ bull that lasted about 10
years through the 1970s.

We suspected the economy was about half
-
again as distorted, and that central
bankers would take longer to let bankrupt companies fail this time around.

But we did
n’t figure on the Great Recession or what central bankers would do in
response, which is to dump something like US$25
-
50 trillion into the market in a
series of years. The bankers are STILL printing.

And what is the result? The indebtedness of even core We
stern countries like the US
and Britain is basically incurable from what we can tell. If interests nudge up
suddenly for either country


or much of the rest of the West for that matter


then
the carrying cost of Sovereign debt apparently becomes mathemat
ically unfeasible.

This severely limits central bank options and seems to indicate to us that we are in
for a prolonged period of slow growth and no growth. If central banks do stimulate
their economies hard enough to gain considerable growth, the results
wouldn’t just
be unpredictable, they’d be intolerable.

So we would tend to agree with part of the conclusion of the Bloomberg article as
follows:

“It would take something dreadful to happen to make the
super cycle

suddenly end,”
said Haigh, citing risks in
cluding a sharp slowdown in China, a scenario the bank
doesn’t expect.


Resource Scarcity Trends


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uly 2013


12

The part we don’t agree with
is the idea that the current super cycle is commodity driven.
We see the cycle as almost purely monetary, a viewpoint advanced by Austrian, free
-
market eco
nomists such as Ludwig von Mises.

In our view, the super
-
cycle plays itself as economies gradually undistort and people feel
freer to invest with the certainty that the companies in which they are placing funds don’t
contain any surprises.

But most compani
es still remain exposed, don’t they? When Ben Bernanke reportedly
printed some US$16 trillion in short
-
term loans, apparently in 2009, and sent the money
around the world to prop up the economic, he virtually guaranteed continued economic
uncertainty.

It’
s not just Wall Street that’s been propped up. The US Fed propped up the entire world
What’s even more trouble is that much of those loans were never reportedly repaid
(nobody seems to know) and this presumably has added to the uncertainty.

It is certainly

for this reason


continued uncertainty about the West’s economic future
and dollar reserve currency


that gold continued to climb through the late first
-
decade of
the 2000s, eventually reaching nearly US$2,000 before re
-
tracking a good bit of progress
i
n the past two years.

But the fundamentals haven’t changed from what we can tell. In the US, some 100
million are deriving some kind of government assistance including food stamps
according to the latest research, and unemployment or temporary employment i
s now the
fate of up to 100 million.

And that is just the US. Spain has something like 30 percent unemployment and 50
percent youth unemployment. Greece and Portugal are severely troubled, and no doubt
the rot shall spread more fully to France over time an
d even Germany and the Northern
European countries.

Within this context, we are not surprised to see the headline over at
Seeking Alpha
:

Gold
Miners Are Poised For A Rebound.

The article mentions two innovative investments
that some see as poised to move h
igher.

Here’s an excerpt from the Seeking Alpha article:

While Gold (GLD) has been one of the worst performing commodities of the year, the
Gold Miners (GDX) have fared even worse
. As the "risk
-
on" trade has powered
markets this year, with little inflation

many have removed Gold from their portfolios as
it is viewed as a protector of wealth in both inflationary environments and in economic
downturns.

Of course as the markets have performed very well, this sort of hedge has
underperformed rather significant
ly; the SPDR Gold Trust is down over 27% YTD while
the Market Vectors Gold Miners ETF is down more than 49% YTD.

Resource Scarcity Trends


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13


‘Gold
’ Trends Promoted


Paper g
old versus physical:

A distinction not often made.

Bullion
:

M
ay av
erage $1,150 an ounce next year.

B
ull
M
arket in
C
ommodities
:

Will

extend for a further 15 to 20 years,
.

Chin
a/
India
:

P
opulation
s

seek precious metals for cultural and historical reasons.


Go
ld Investment Tendencies




GDX:

ETF bet on gold miners outproducing mining costs.



SIL:
ETF bet on silver miners outproducing mining costs.


Physical gold:
A
n alternative to paper that does not allow delivery.


Physical silver:

Trades in a 15
-
to
-
1 ration

to gold
. Ratio is much wider currently.


The underperformance of the gold miners is to be expected, given the dismal
performance of the commodity in addition to the additional risks w
ith holding the
mining companies. Many of the gold mining companies are trading at multi
-
year lows
with reasonable valuations, strong dividend yields and breakeven production prices
below the current Gold price.

GDX
and another Exchange Traded Fund, SIL,
which tracks silver miners, receive
revenue on behalf of shareholders unless expenses climb higher than the value of
the gold or silver being extracts. Seeking Alpha is not alone in speculating that both
ETFs may be “buys” if the prices of spot gold and si
lver begin to climb higher.

Of course, some are suggesting that gold in particular could move below $US1,000.
Were that the case, GDX and probably SIL, would lose even more value, significantly
more.

On the other hand, no one is suggesting that gold and s
ilver are going to reach
anything near their original 2002 bottoms of around US$150 and US$3.00
respectively.

Is now a good time to buy paper gold and silver, given the extraordinary volatility


and seeming market manipulation


to which these elements h
ave been subject? If it
is not now, perhaps it may be soon enough as this
tendency plays

out.



Resource Scarcity Trends


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uly 2013


14

Featured Charts











































Resource Scarcity Trends


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uly 2013


15


Gold Sell
-
Off
Summary


We can see from
our trend analysis that a great surge in gold prices relative to the dollar is not
being anticipated via the mainstream media. This is important because our paradigm involve
s
analysis of the mainstream to help us anticipate future sociopolitical and economic trends.


In this case, we would tend to conclude that sentiment remains bearish on a full
-
fledged
counter
-
attack by gold bulls. It is fairly obvious to anyone who wants t
o peer beneath the
surface that gold


and silver as a result


was subject to a significant manipulation, which
was accomplished via the tool of paper gold in a variety of formats.


Paper gold is different from physical gold because one can trade it witho
ut taking delivery,
and people ordinarily do not. Thus one can assemble a short position in excess of what the
market would actually offer were delivery contemplated


and in this way, negative price
pressure can be brought to bear.


While there have been

plenty of reports in the alternative ‘Net media about those who might
have had a financial interest in generating such price raids, there is no definitive smoking gun
that we know of. However, the price action of gold itself seems to reveal some sort of
o
rchestrated effort. This would not in fact be unusual. Throughout history, financial
professionals have orchestrated these sorts of manipulations and to discount them now would
be at least naïve and perhaps unrealistic.


Another oddity when it comes to the

gold price is the widely reported near panic in China
where something like 10,000 people lined up to buy gold after the yellow metal had come
down sharply in price. This indicates there is a lot of pent
-
up demand for precious metals,
especially at current

prices, and the demand is certainly not just restricted to China. Asia,
generally, shows an affinity for precious metals, as does India.


While the Indian government and presumably various Asian governments as well have taken
action to slow demand for gol
d, we’d argue that at some price, the purchase of precious
metals becomes fairly irresistible given its recent price history. Even if gold does not travel up
against the greenback, one might well decide that the worst of the carnage is over. In this
case,
the purchase of ETFs that draw profits from junior gold miners


both silver and gold


might be one to participate in the metals trend (see charts).


But more generally, we want to offer the idea that one does not hold gold and silver
necessarily to “make

a profit” but as a surety against civil insurrection and other kinds of
social and economic chaos. While many might wish to propose that “it can’t happen here,”
the increasing unsettled nature of numerous countries around the world coupled with growing
in
surrections would tend to provide a cautionary note.


If one has been waiting to purchase physical gold or silver, now might not be a bad time to
act.

Resource Scarcity Trends


J
uly 2013


16

SPECIAL RST INTERVIE
W: JUAN FEDERICO FIS
CHER

Juan Federico Fischer

is managing partner of Fischer & Schickendantz
, one of
Uruguay’s leading law firms. Over the past 15 years, he has worked mostly on advising
foreign investors in Uruguay about businesses, privatizations and acquisitions of local
companies. He’s led his firm’s advisory team on farmland investment, assi
sting investors
of all sizes, on purchasing land, setting up operations and the different angles of the
business.

How did you get into your field?

Juan Federico Fischer
:

With the global growth of interest in farm land investment and
Uruguay’s intrinsic con
ditions our firm saw the opportunity to create a specialized unit to
advice on land investments. This unit is called Uruguay Farms (www.uruguayfarm.com)

What is Uruguay famous for and why?

Juan Federico Fischer
:

Uruguay
is

renowned for stability, respect f
or private contracts,
sound economic policies, and this has si
ngled it out in many instances … f
rom its
dubbing as the

Switzerland of South America


almost a century ago to the record
foreign direct investment it has seen in the past decade.

In term of fa
rming, Uruguay has some of the most productive land of the worl
d, abundant
water resources, it
s land is not degraded and it has a very friendly investment planet. It’s
the
6
th

exporter of soybeans in the world, 4
th

export of dairy products, 4
th

export of r
ice,
and 5% of all global beef exports come from Uruguay.

What is the history of Uruguay?

Juan Federico Fischer
:

Uruguay was created as a buffer state between Argentina and
Brazil 200 years ago, the same way that Belgium originated as a buffer between Fran
ce
and Germany. It has found its competitive advantage in having stable laws and an open
economy and sound economic policies, avoiding the swings that many other Latin
American countries occasionally undergo.

Uruguay, along with Chile, consistently tops La
tin American rankings on stability, safety,
rule of law, low corruption, GTP per capita and related matters.

Uruguay has a wide
-
spread middle class which reflects in good education overall, lower crime rates, mature
political class and a homogeneous societ
y (it’s a country of immigrants, mostly of
European origin).

Why doesn’t the government intervene in farming, or is it starting to?

Juan Federico Fischer
:

Farming is a very significant part of Uruguay’s economy and
the government recognizes that it shouldn
’t interfere with the market forces in a
competitive industry and risk creating distortions. Thus, taxation is low, prices are
Resource Scarcity Trends


J
uly 2013


17

untouched, and things trade at global spot prices in global currencies (mostly US dollars).

Uruguay has a mature political class
and it is expected that there won’t be any
intervention in the farming sector. The only thing in the works is a likely limitation of
ownership of land by foreign governments (not individuals or companies) which is a
positive thing.

What kind of crops are g
rown and exported?

Juan Federico Fischer
:

Mainly row crops. The crop that is most produced is soybeans,
followed by wheat, corn and rice. A portion of the wheat and the corn plus others such as
barley and sorghum for cattle feed stay in Uruguay. The bigges
t cash crop is soybeans.

Why is that agro
-
chemicals and pharmaceutical products haven’t taken hold in Uruguay?
Do Uruguayan farmers use Monsanto crops?

Juan Federico Fischer
:

Chemicals are used in Uruguay as in all the countries that
produce row crops. The
y are simply not used to the extent and the quantities that one is
used to seeing in the US.

Meanwhile, land productivity is verifiable.
The whole country
is mapped and this map is available on line (
www.pre
nadet.com.uy/coneat
). One can
simply plug in a plugs number and the province where it is located and the web site will
show the types of soil that the plot has, the percentage of each type of soil it contains and
the productivity index, both of each soil
type and the weighted average of the whole plot.
This allows for verification of the land’s productivity potential and uses. It allows anyone
to compare properties, and it makes it a very transparent market for any investor.

How about water? Does Uruguay h
ave water shortages?

Juan Federico Fischer
:

Uruguay has almost an equal abundance of water. Looking at a
map of the country one can visualize ubiquitous blue lines
,
which represent the
innumerable rivers, creaks and lakes. On top of that, Uruguay and its n
eighboring
countries sit on top of the Guarani aquifer, the world’s largest untapped water reserve.

What are the factors that help Uruguay farm its famous meat products?

Juan Federico Fischer
:

Uruguay has quality natural pastures as well as the right weat
her
conditions and soils for enhancement of those pastures. 85% of Uruguay’s livestock is
grass
-
fed. Uruguay has a high sanitary status, and it’s the only country in the world with
complete and perfect traceability of cattle. So, it has excellent meat and
reliability
,

which
has gained Uruguay access to premium markets. Of all global beef exports, 5% come
from Uruguay. Uruguay exports beef to over a 170 countries.

I should mention forestry as well.

Uruguay has excellent conditions for the growth of
trees (eu
calyptus and pine grow at twice the speed they do, for example in the Northern
hemisphere). Seeing this, Uruguay promoted investment in forestry with a law in 1996
which granted income tax breaks for forestry investments. This has paid off and Uruguay
toda
y has widespread plantations of softwood for pulp and the two biggest (and most
Resource Scarcity Trends


J
uly 2013


18

technologically advanced) paper mills in the world. One is owned by UPM from Finland
and the other by Stora Enso from Sweden.

Are there tax factors that make Uruguay an attract
ive destination?

Juan Federico Fischer
:

Yes. Uruguay has an attractive investment promotion law that
provides for tax breaks on income tax, property taxes and VAT. This law is widely used
by foreign investors of different size. It’s important to point out
that Uruguay’s
investment laws specifically grant equal treatment to foreign and local investors.

The
Uruguayan peso has appreciated against the dollar over the past decade and part driven
by the increasing influx of capital into Uruguay.

How is the Argen
tine situation influencing Uruguay from a farmland standpoint?
Banking?

Juan Federico Fischer
:

Uruguay’s farming sector runs by global forces. It is a
consolidated sector with investors from all over the world, a final product (beef,
soybeans, etc.) which
is exported to markets worldwide (especially Asia) so the sector is
unaffected by the Argentine situation. Uruguay has historically benefited from the
cyclical down terms in the Argentine economy thanks to Uruguay’s stability and safe
haven reputation. As
for banking, deposits from Argentines in Uruguay are very reduced
(less than 10% of the total as opposed to 2002 when the number was about 30%) so
Uruguay’s banking sector is not exposed to Argentina’s situation.

If Argentina

devalues the peso, what impact

will that have on Uruguayan finances and
farming?

Juan Federico Fischer
:

The implicit devaluation of Argentina’s currency
,

which is in
place today has already been factored in and it doesn’t affect farming in Uruguay at all.
Uruguay exports its farm produ
ce to markets all over the world and they don’t include
Argentina.

Do you think
Uruguay will devalue the

peso? What impact will that have on farming?

Juan Federico Fischer
:

It is not foreseen but should it happen it would only benefit
farming in Uruguay si
nce it would reduce internal costs, salaries, etc.

Farmland will
likely continue appreciating at a stable annual rate of about 8 to 10% annually in dollar
terms with the current commodity demand conditions. Farmland in Uruguay is still priced
below compara
ble land in other countries.

Do you have to be a commercial farmer, ideally, to buy farmland in Uruguay?

Juan Federico Fischer
:

No. The ease of buying farming in Uruguay plus the widespread
expertise (management firms) or availability of tenancy make it ve
ry attractive for the
non
-
farmer to invest in this asset class.

In my opinion farmland as an asset class has great
prospects in the medium and long term so getting in now is a good recommendation.

Resource Scarcity Trends


J
uly 2013


19

Do you expect prices to fall?

Juan Federico Fischer
:

No. I
expect a long term, steady, early appreciation.

What plans does UY have for improving access to cheaper energy?

Juan Federico Fischer
:

In the last three years Uruguay has made a great push towards
alternative energy sources, especially wind power, and the

government is keen on
maintaining that path. In addition, it granted a French conglomerate the concession to
build and operate a re
-
gasification plant in the port of Montevideo and will start
importing cheaper natural gas.

Uruguay also has 4 large hydroel
ectric plants
that

provide
energy to much of the north of Uruguay.

Anything else you want to mention or point out?

Juan Federico Fischer
:

I think that covers it. T
hanks for the interview.



Roving editor Douglass Bell conducted this interview. See h
is webs
ite here,
www.grasslands
uy.

com