Mike "Mish" Shedlock is a registered investment advisor
representative for SitkaPacific
Capital Management. and the author of Mish's Global Economic
Trend Analysis one of the top financial blogs."
Fabrice Drouin Ristori: Mish, you write a lot of
commentaries about the European economic crisis, going from bad to worse. For
instance Portuguese Bond Yield Spiked to 8%, How do you see the European
situation evolve in the coming months Do you expect more bail-ins in the
Eurozone?
Mish: More bail-ins are 100% certain. On
August 20, German Finance Minister Wolfgang Sch�uble officially admitted
�Greece Will Need More Aid�. Rest assured it will not stop with Greece. Spain
and Portugal will need additional aid. Don�t rule out Italy. The Italian
economy is crumbling in a nightmare of regulatory nonsense and work rules.
FDR: Real estate already collapsed in Greece, Spain, Ireland
but remains near all-time high in France and Sweden. You wrote "French
real estate was massively overvalued: by 50% based on the price-to-rent
ratio, and by 35%, based on disposable income. It makes France the most
overvalued real estate market in the world based on disposable income, and
the fourth most overvalued one based on rents." With an overvalued real
estate market, bails-in an banking risks, how can investors protect
themselves in this uncertain economic environment?
Mish: The easiest way is to stay liquid, shun leverage, hold some gold and
wait for better opportunities. The stock market bubble certainly got much
bigger than I expected over the past two years. The Fed (central bankers in
general) also blew a huge bubble in bonds, especially corporates. As proof of
how silly thing have gotten, covenant-lite loans (where debt is repaid
not in cash but in debt) have made a comeback.
FDR: We have seen an important campaign against gold in the
mainstream media, with Roubini's predictions and with bearish arguments like
"The U.S. Federal Reserve could cut stimulus sooner rather than
later" or "The Dollar is strong" to name a few. Do you really
think these arguments are accurate?
Mish: I have been in a very tiny minority who likes gold while
simultaneously suggesting the US dollar would not collapse. It didn�t and it
won�t (at least any time soon). China is printing more than the US, the
crisis in Europe is far from over (I expect a disorderly breakup), Australia
is tied to a Chinese economy that is rapidly slowing, and the Bank of England
headed by Mark Carney promises more QE. On a relative basis, that makes it
tough for the dollar to collapse relative to other major fiat currencies.
However, fiat currencies in general can sink against gold. And sentiment
against gold has been massive, with Bloomberg leading the parade. For further
discussion, please see Losing
Faith in Gold at the Wrong Time; Did Paulson's Sale Mark the Bottom? Who's
Left to Sell?
FDR: What are the fundamentals that will drive the gold market in
the future ? Have these Fundamentals changed since the last all-time high in
summer 2011 when gold traded at $1900?
Mish: Mish: Most people do not really understand gold. On May 28, I
discussed sentiment in Speculative
Gold Bets at 5-Year Low; Metal Will Get �Crushed� Says Credit Suisse. As
far as fundamentals go, please see my June 26 article Plague
of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real
Long-Term Driver for Gold?
FDR: In your June 13 article "Mish
Buys a Basket of Miners" you said "gold is a far safer play
than silver" can you tell us why ?
Mish: Silver is an industrial commodity that is used up. Gold has
little industrial use. Silver can and does plunge more than gold in
pullbacks. The latest plunge in silver was far greater than the corresponding
plunge in gold. I do like silver at current prices, but one needs to be aware
of high volatility in both directions.
FDR: In May of 2012 you wrote "I'm
Swapping Some Gold for Silver". Today silver close to $23 and was
available below $20. Do you continue to swap more gold for silver?
Mish: I didn�t, but I may. The curious thing is I posted a belief for
silver to fall back to the low $20s when it was close to $50. After it
bounced twice in the mid-to-high $20s I changed my mind. I had it correct
initially, but did not wait.
FDR: How do you weight your miners compare to you precious metals
holdings in your investment portfolio?
Mish: I have more physical gold and silver than miners. The percentage
varies. My ratio may be something like 3:1 right now. It can move in either
direction.
FDR: Gold was down in June but at the same time premiums surged in
China. Do you think the spread in between the gold paper price and the price
of physical gold will continue to widen ? If so, Does that mean that the
mechanism of price discovery for gold is broken in a way?
Mish: The only spread to speak of between �paper gold� and physical gold
is a tiny commission or bid-ask spread. Those with accounts at various gold
brokers can confirm. Thus, reports of huge paper-to-physical price
differentials are nothing but hype, typically based on spreads on coins, when
coins are in short supply. I do not advise investing in coins because of
those spreads.
FDR: Anything else you wish to add?
Mish: Yes, thanks for asking. I do expect a full-blown currency crisis at
some point and I expect gold to be the beneficiary. The global spotlight has
been on Europe, and spotlights are typically a sign that problems will strike
elsewhere. Japan is a crisis-in-waiting, and the emerging markets are taking
a beating now, especially Brazil and India. I discussed India on Tuesday in Mish
Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke,
Carry Trades, Bubbles. These things have a way of spreading, so don�t be
surprised if India kicks of some sort of Asian contagion currency crisis.
Also, complacency in Europe is again on the rise, so don�t discount Europe.
One can never predict these things with perfect timing, even if the end-game
is relatively clear.
FDR: I would like to thanks again Mr. Mike Shedlock for
taking the time for this interview.
Fabrice Drouin Ristori - Founder/CEO Goldbroker.com (FDR
Capital)
ceo@goldbroker.com
Twitter : @FabriceDrouin
