HardAssetsInvestor

Mike Norman (Norman): Hello everybody; welcome back. It’s Mike Norman. And here we are for the second part of my interview with the ‘mercenary geologist,’ Mickey Fulp. Mickey, we’ve seen a lot of increase in food prices, and it’s starting to have a disruptive effect. You could almost tie what we [saw] happening in Egypt to the increases in food prices.

I mean, it’s one thing when gas prices go up. It’s another thing when people can’t afford to feed themselves and their families. You see it as potentially very, very disruptive if something like that happens in China. Why?

Mickey Fulp, MercenaryGeologist.com: Absolutely. Well, to reiterate what you said, we saw that happen in Tunisia [recently].

Norman: Right.

Fulp: A government came down that was in power for 23 years, basically, because of food price riots. Certainly that is a big factor in [what went] on in Egypt. If that happens in East Asia … and I would expand that and say, if that happens in China or India, because most Chinese and Indians spend something, the rural people will spend something; about 50 percent of their net income on a yearly basis is spent to feed their families.

If that goes to 60 or 70 percent, we could see food riots in India or China. If that happens, then those countries are going to have to cool off their economy immediately by raising interest rates. We see that happening now in China. They’re very concerned, although they very slowly raise their interest rates, incrementally.

Norman: It’s not having much of an effect if, you know, if China is engineering a soft landing. And a lot of times, those soft landings end up to be a crash. If we start to see these riots spread throughout the world, isn’t that bullish for gold, like a flight to quality?

Fulp: It most certainly, I think, would be bullish for gold. But it’s going to be very negative, very bearish for industrial metals and other commodities.

Norman: Because it’ll cause economies to contract sharply?

Fulp: Absolutely. So if we started seeing this,  industrial commodities, which is really what’s driving the commodities sector … I mean, we all talk about gold. But it’s a really minor part of the entire commodities sector. The biggies out there are oil, coal, iron, aluminum, copper. And the demand for those could essentially collapse because of the demands being driven by China and India, for the most part, with food riots. If they can’t engineer, as you say, a soft landing and it becomes a hard landing, that’s very bullish for industrial commodities, in my opinion.