16 Investment Insights – Money, Markets, And Metals In 2015

This is a summary of the key investment insights from 6 top fund or money managers, as well as top traders, including Jim Rickards and Ronald Stoeferle (well known in the precious metals community worldwide), during the quarterly Incrementum Advisory Board.

The main topic of the discussion during the last Advisory Board was the increasing deflationary pressure and its consequences on markets and central bank policy. We discussed the consequences of collapsing oil prices, a potential case for new all-time highs in treasury bonds, the impeding currency wars and the consequences for gold. As readers of the previous Advisory Board transcripts may remember, the possibility of another round of quantitative easing in the US was discussed in October. It seems, as if the odds of such an event have increased since then, but generally still are considered as a highly improbable event by most market participants.

Forecasts from Heinz Blasnik:

  • Falling oil prices are more of a symptom than a cause of deflation. I believe it is clearly a symptom of declining money supply growth worldwide.
  • The effects of the collapse in oil are both positive and negative, because what consumers are gaining, producers are losing. The only problem is, about 1/7 of the junk bond market is related to energy, 10% of the earnings in the S&P500 are related to energy and a lot of capital expenditure and job growth was related to energy. It goes without saying that this collapse will cause some disruption. It comes down to the sequence of events; we will first see the disruptions and only later the positive effects.
  • I believe that we are going to see new all-time lows in treasury bond yields.
  • The decline in inflation expectations and yields is negative for stock markets. It has not reacted negatively yet, but volatility is already much higher since October. This shows that opinions are becoming more divided. So if we assume that economic activity is slowing down, it’s going to be more and more difficult to rationalize a very highly valued stock market. It is one of the most overvalued markets ever.

Economic and market outlook by Frank Shostak:

  • It would not surprise me at all to see economic activity start falling quite soon. So from my point of view, we are heading for difficult times in the US and this weakness may last well into 2016, based on my models. So I am expecting weaker growth and the stock market should start to mirror that. After the first quarter of this year, I expect the emergence of a downtrend in the S&P 500.
  • I also expect a continuation of the downtrend in treasury yields. This may last, based on our model, until the second half of 2015.
  • With respect to commodity markets, our model forecasts the underlying downtrend in oil will continue. It would not surprise me to see oil prices below USD 30. This would obviously be disastrous for various energy producers like Russia. Bear in mind that oil producing nations require foreign reserves. They will thus raise the volume of their supplies to generate some cash flow and try to survive.

Market expectations by Zac Bharucha:

  • I observe that the dramatic collapse of crude oil is not isolated. Copper prices have tumbled and that is noteworthy because it’s a commodity sensitive to industrial demand. The price has broken important levels and seems poised to go much lower. Copper looks like an excellent short trade at the moment. Note also that sovereign bond prices are rising; I think they will remain well bid.
  • I think we can say that there has been a topping out process underway in stocks and I am more bearish than at our last conference.
  • My stance regarding gold is: be careful right now as it is overbought and hitting the 200d MA soon. However, on dips, in the broad range between 1,100 and 1,200, gold should be accumulated, especially if you have a bearish view on the stock market. If you think the multi-year bull market in equities will end soon, it might be wise to accumulate gold.

Investment insights from Jim Rickards:

  • Analysts, investors and mainstream media are starting to wake up to things like currency wars, the safe haven nature of gold, etc. I think the reason for that is that until you reach the zero rate bound, you can pretend it it’s a normal cycle. Once you hit zero that pretence is gone and the currency war becomes more explicit.
  • The US has a strong currency based on the view that the US has a strong economy and we can afford to let Europe and Japan to devalue. The problem with that logic is that, the US economy is not that strong.
  • The FED will not raise rates. That will be a shock. Right now everyone is on one side of the boat. The whole world is set up for a rate increase.
  • Why would anybody buy gold during a Deflation? The answer is, deflation is a pretty good leading indicator of inflation. Gold is also an interesting facet of the currency wars. If you think of gold as money gold can’t fight back.

Ronald Stoeferle believes that gold is holding up extremely well. We are experiencing a major rally in the USD and gold traded basically sideways with a minus of only 2% in 2014. In every other major currency, price action looks constructive. On the other hand, the mainstream seems to think that the gold price actually got completely trashed last year, although it was only a sideways trend. So there’s a major divergence between what the market says and what market participants say.

Mark Valek really likes Jeffrey Gundlach’s statement that “all hell will break loose” as soon as oil reaches USD 40. This corresponds with the concept of “hyperdeflation” that he wrote about in his book on Austrian Investing. What will happen if the inverse monetary pyramid implodes and central bankers don’t start printing early enough?

The transcript of the full conversation between these gentlemen is below.

Incrementum Advisory Board January 2015


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