Towards the end of a bull market people turn to things that they think are safe and that seems to be happening now as the big gets bigger
, says commodities guru and the Author, Street Smarts:Adventures On the Road And In the Markets.
We have seen a risk-off rally in global markets. I know it is impossible to predict where markets and commodity prices are headed but is the long term thesis of buying gold and silver still intact?
Yes I stand by buying more gold and more silver when they go down. I am not good at market timing but both are having a correction now because many people have to sell their gold and silver to buy food. so I am waiting but I will be buying more gold and silver sometimes this year.
Fundamentally, what makes you bullish on gold and silver? Is it because of low interest rates or is this largely because of something else which we cannot fathom right now but the world will realise later on?
Nearly every government and nearly every central bank in the world is printing huge amounts of money and borrowing and spending huge amounts. Throughout history when currencies have been debased, people have turned to gold and silver and when people have lost confidence in governments, they have turned to gold and silver. Many people say it is the wrong thing to do it. But that does not matter. As you know I am a peasant and all of us peasants know that gold and silver are good in the end. Let the politicians talk all that they want, let the academics talk all that they want, us peasants know that we better own some gold and silver when things go wrong.
A country which you track very closely is China. The data points which are coming from China have thrown up a delightful surprise both in terms of consumption and the amount of steel and iron ore and everything they are importing. Why is it so?
That is a very good question. I do not know why they have been doing a better job, if they have been. I have learnt not to believe any government including the US government but it looks like China either may be because they have the virus first and seems to have done a less bad job than most other countries in the world. The United States has not done a good job at all.
What is the importance of this year’s US Presidential elections? Is a lot at stake?
There is always something at stake but it is mainly if Mr Trump wins, his friends will be better off and if Mr Biden wins, his friends will be better off. Things will not change that much. Of course, Mr Biden would try to raise taxes which would make a difference to the economy but fortunately or unfortunately, if the Congress sets the course, you cannot change that much in a short time in the United States. It is not like England or maybe India or some other places. It takes longer to make real change in the US.
“I am a peasant and all of us peasants know that gold and silver are good in the end. Let the politicians talk all that they want, let the academics talk all that they want, us peasants know that we better own some gold and silver when things go wrong.”
Should one wait it out to see the outcome of US Presidential elections or should one not bother because in the long term, everything will equalise?
One should only invest in what one knows a lot about. If you know a lot about something, you will know better when to buy and what to do better than I will. Stay with what you know only and you will know when to buy much better than anybody else. The idea that you can make money by listening to me or people on the internet or even ET is absurd. The way to make money is stay with what you yourself know.
Last time when we spoke, you said you were buying dollars even though you admitted that it is not a great idea. You said there was no choice but to buy dollars as the dollar index has weakened. Now it is strengthening. What should one do if one wants to invest in the dollar?
The United States is the largest debtor nation in the history of the world. It is a terrible fundamental currency but when people have trouble and turmoil, they turn to a safe haven and they think the US dollar is a safe haven. That is why I own a lot of US dollars. Markets always fluctuate. In my view when turmoil gets bad, in the next year too, the dollar will get overpriced and may turn into a bubble. That may be the time when I would have to sell my dollars. If it gets very overpriced, I will have to sell because the United States is the largest debtor nation in the history of the world. That has never been good for a currency in the long run.
What is stopping the world from changing the dollar as a reserve currency?
There are countries now looking to be a competitor to the US dollar. Russia, China, India, Brazil, Iran, there are some of the countries trying to come up with a competition for the US dollar and the world needs it because the US dollar is a monopoly but Washington abuses the monopoly. If they get angry at you, they cut you off. That is not fair, that is not how reserve currencies are supposed to be. So several countries including India are working with other countries, looking for a new competitor for the US dollar. Economic fundamentals are not good for the dollar and political changes are not good for the dollar.
Banks globally are going through a very strong chop and churn. If an investor has a 2-3-year timeframe, is it the time to bet on global banks right now because that is perhaps the only big pocket which is cheap and nobody wants to buy it?
Banks are very cheap. There are huge technological changes taking place in the banking industry. Some banks are changing fast, some are not. Be sure that if you buy a bank, even if it is cheap they are making technological changes to put banking on the internet. My children will never go to a bank when they are adults. Banks are going to disappear all over the world. So be sure that if you buy a bank, you have one that is up to date and modern.
You come from an era where value investing was important. But right now expensive stocks are getting more expensive and cheap stocks cheaper. Why are technology stocks getting more expensive and value stocks are getting cheaper?
It always happens towards the end of a bull market that people turn to things that they think are safe and then you have sort of a blow off in the market and that seems to be happening now. Apple and Google stocks never used to go down. So we seem to be having a blow off, which always happens towards the end of a bull market and that is what is happening now. It is another sign to me that this bull market is getting very old and very late.
Historically when bull markets have peaked out and bear markets have started, it has been largely because of leverage, as it was in 2008 or 1987. What is your view on the leverage in the world right now? When interest rates are zero, does leverage really matter?
It matters a huge amount. We had a big problem in 2008 because of too much debt in the world. And since 2008, everywhere debt has skyrocketed. America has a debt of trillions of dollars, even China has a lot of debt now. China had little debt 20 years ago. So debt is going to be extremely important in the next bear market and that is one of the reasons we are going to have a very bear market next time because there is so much debt. I do not like it but, you have to deal with facts.
Is there something which you think is a ticking time bomb and when it explodes it will hurt everybody?
The one thing people are ignoring is that they think that Amazon can never go down, Apple can never go down, Alibaba can never go down. History tells us they can go down and they will go down when we have a big bear market.
People write to me all the time talking about how we must buy more of these stocks because they will never go down. I say to myself please, please, read some history. They can go down and they will go down when we have a bear market and we will have more bear markets. Some people think we will never have bear markets again. We will.
Here, people write to us asking how can they stay rich when interest rates are low, when fixed deposits or bank deposits are giving you no returns? What is the option out for them to maintain their lifestyle and stay and preserve their capital?
Look, I have the same problem, everybody in the world has this problem now. It is a time that has never existed in world history when major interest rates have been zero or even negative. It is very difficult for everybody but my answer is do not get too confident, do not try to reach for something because it is better to earn 1% a year than to lose 3 or 4% a year and if you start investing in things you do not know about, you are going to lose money and you are going to suffer.
I do not like it either. None of my friends like it but be very careful because when it ends and it will end someday, many people are going to suffer badly.
Could low interest rates fuel a very strong comeback in commodities that will stroke inflation and that is how the low interest rate regime will get challenged? Is this the biggest risk in the next 12 to 24 months that inflation could come back and surprise us?
I do not know if it will be that fast. It would not come back right now. The world economy is suffering badly and prices cannot go up. I mean nobody is buying anything but there will come a time when that will lead to reduced supply and with lots of printing of money, you will have inflation again. I do not know when, whether it is in the next few months or not, I would suspect it will take a little longer but it has always throughout history led to higher inflation and it will again. These are simple things. If you read history, it is not magic, I am not so smart but I read history and I know it has always happened when you debase currencies inflation comes back