We have in the West rumors of Gold market and Silver market manipulation by most likely the Central banks that want to depress the price. And on the other hand the Asian sovereign funds, central banks, individuals are buying Gold. And so you have to ask yourself what exactly is the motivation of Western central banks to depress gold prices. Because their interest would be to sell Gold at high prices at possible to the Asians but that is not the case. But I think in general we have had over the last 10 - 20 years specially following the Asian crisis of 1997 - 1998 a huge increase in wealth in Asia, in Central Bank reserves, in Sovereign Funds, in Private Wealth, and if you have a billion dollars what is it for you to put $10m, $20m, $30m, $50m in Gold. So the increase in demand for Gold from Asia comes from a population that has become increasingly affluent.
The central banks will continue to print money. When I compare the price of gold in the late 1990's, it was below $300 an ounce. Now it is above $1,300 an ounce. But when I compare the expansion of central banks' balance sheets, the global economy, the quantity of money and credit in the world, then I can make a case that actually gold today is cheaper than in the 1990's when I compare it with all the other monetary aggregates. I think people should still own gold.
I don't think the Fed will move on rates this year. The employment figures are very questionable on whether there was much of an improvement because government jobs went up and seasonal adjustments took place. The economy is not particularly strong and the Fed is also concerned that $12-trillion worth of sovereign bonds in Europe are having a negative yield. If they increase interest rates in the US, then the dollar will become too strong for the liking. The BoE (Bank of England), Fed, ECB (European Central Bank) and the BoJ (Bank of Japan) are still buying a monthly $180-billion worth of bonds. There is large monetization. It is larger actually than when QE1 (quantitative easing) started in the US. This will go on. Not much will happen before the election in terms of moving up rates or initiating new programs in the US. But next year, it is quite likely that we will have further monetary easing or the so called helicopter money.
Watch the Marc Faber video above or click here to play I think we can easily give back five years of capital gains, which would take the market down to around 1,100. The excess liquidity that have been generated by central banks will lead to a great deal of volatility. I've seen, repeatedly in my life, markets drop 40 or 50 percent, and in some cases I've seen a market like the Dow Jones drop 21 percent in one day. So many things can happen. The fact is, the market hasn’t really been driven by genuine buying, but by stock buybacks, takeovers and acquisitions, and market leadership has been narrowing. It’s not that many stocks that have been making new highs. It’s quite a narrow growth of stocks that have been very strong
In 2000, we had the NASDAQ bubbling. In 2007, we had the housing bubble and the stock market bubble, but not all stocks were very expensive. But now, we have high real estate prices. We have high stock prices in the U.S., not necessarily elsewhere in the world. And we have, by historical standards, the most expensive funds markets in the world in 5,000 years of history with negative interest rates on more than $12 trillion worth of bonds… So if you tell me, something is not fixed, something is not very unusual. I don’t understand the world anymore. We are all on the Titanic. We all need life saving boats which is precious metals., Gold, Silver, Platinum... physical stored in a safe place, not necessarily in ETF's.... some equities, some fixed interest securities and some real estate geographically diversified.
Previously, I had expressed a view that in the next 5-10 years the Indian market would outperform the S&P 500. I still maintain that. We do not know exactly how far the market will move. The Indian market is also dependent on the exchange rate. If the rupee weakens significantly, then the Indian market adjusts upwards. If the Indian rupee would strengthen against the dollar, then the market is less attractive in rupee terms. So, these are all factors, but in general, the Indian economy [will outperform] -- and we can debate, will really grow at 6 percent per annum for the next five years or only at 4 percent, it does not really matter. Compared to the US, that has 1 percent growth, at probably best, maybe even less. And to Europe that has no growth, the Indian economy is performing reasonably well and that equities are reasonably attractive.
I think money printing in the one or the other form will continue. Now increasingly central banks and fund managers and treasury departments are talking about helicopter money. Helicopter money you don't just buy securities that are traded in the public market like treasuries or sovereign bonds and equities, but you essentially distribute money to each individual. Distributing money is like a tax cut but whereas the tax cut only flows to people that actually pay tax, pay federal tax in the US and roughly half of Americans do not pay Federal tax. So, that tax cut is not taxing everybody but if I send a cheque to every man, woman and child for $10,000 then he gets that money and he can then go and spend that money, for a month or two that obviously boosts economic activity unquestionably but then comes the question, who finances this? So, what can happen in this helicopter money is that the treasury issues bonds that investors would buy or the treasury just gets the money from the Federal Reserve, so that is another form of money printing.
Jeff Gundlach in the US expressed the view that you should sell everything including your children because there is nothing to buy. Philosophically, I agree with his view except the following, let us say you have $10 million and you sell everything, your shares, your property, your bonds, your gold and commodities, what will you do with the money? You can put it in a bank but what if that bank goes bankrupt? Because if you are really bearish about equities and bonds then the chances that there will be a financial crisis is high. Say if you have your money with Credit Suisse or Deutsche Bank or any European bank for that matter, there is a risk, including all the US banks. So, I say to myself the madness of central banks can go on for long time. The US treasury and Federal Reserve have stopped with their quantitative easing (QE) for now. However it has been replaced by the ECB and the Bank of Japan, they essentially bought assets worth $180 billion every month and I am quite sure that QE4 in the US will follow some time when the economy weakens in the one or the form because the treasury departments of countries and the central banks they of course work together. So, in this environment I still want to own some precious metals. This year silver has outperformed gold and in the last couple of weeks platinum has outperformed gold and of course the best performing shares were gold and silver shares this year. No group comes even close to it. I would hold some precious metals, I would hold some real estate. I think there are some problems associated with real estate like real estate taxes and so on but in India there is still plenty of opportunities in real estate especially in terms of families owning second home in resort areas. Then I would own some equities. When it comes to bonds and cash I agree with people who say US treasuries are unattractive, yes that is correct but what would you rather own? A 10- year Japanese government bonds at negative interest rate or a 30 year Swiss franc bond at negative interest rate or a 10 year treasury at the yield of over 1.55 percent? Treasury is not attractive but relative to other sovereign bonds and $12 trillion worth of bonds trading at a negative yield, relative to these bonds I would say treasuries are reasonably attractive.
We should always think realistically. We shouldn’t hope. The fact is, simply, when I look at these people in central banks, and they’re monitoring things, and believe me they will never admit that they’ve been wrong. They’ve printed money like crazy, and the global economy basically is stagnating. And I’ve written about this. The more money you print, the more REAL wages go down. That is the problem.
When People begin to fear the Government and its Tentacles, Tyranny is not far away Today, I want to share with my readers an article which shows that there are problems in a social system to which there are no clear cut answers. The article describes a “silly” dispute between Barronelle Stutzman and Rob Ingersoll. Silly, because it would have been easy for the parties to settle the dispute amicably through the acceptance of each party’s point of view – in simple English through some tolerance. But no, the state attorney general’s office and the ACLU had to get involved in what I consider to be a witch-hunt against Mrs. Stutzman, and accusing her of discrimination. Remember that already Montesquieu observed in The Spirit of the Laws that, “There is no greater tyranny than that which is perpetrated under the shield of the law and in the name of justice.” I am sure the majority of my readers will disagree with my view but I shall explain my opinion as clearly as I can.
Capitalism and free markets are not fair (in fact, capitalism is a cruel system in numerous ways), but it is a far fairer system (not crony capitalism) than all the other forms of organizing economic and social life, and in particular vastly superior to socialism, communism, and the arbitrary command economy. Western democracies had (like socialism and communism) the noble idea of creating a fair society [Albert Camus: “The welfare of the people has always been the alibi of tyrants”], but it is now ending up with system that is characterized by far more injustices and abuses by bureaucrats, powerful corporations and government officials. I understand if some of my readers may not have the time to peruse the article and the issues involved. Fine, but I can assure my readers that sooner or later they will be confronted with similar problems as Mrs. Stutzman encountered.
