09/30/2016 - The Roundtable Insight: Macleod, Stoeferle, Boockvar, Townsend On Central Bank Effects
Hedge Fund manager Erik Townsend of Macro Voices is joined by Alasdair Macleod, Ronald Stoeferle, and Peter Boockvar in discussing the effects of central bank policy on global markets, along with debating the option of investing in gold versus mining stocks.
Alasdair Macleod writes for Goldmoney. He has been a celebrated stockbroker and Member of the London Stock Exchange for over four decades. His experience encompasses equity and bond markets, fund management, corporate finance and investment strategy.
Ronald is a managing partner and investment manager of Incrementum AG. Together with Mark Valek, he manages a global macro fund which is based on the principles of the Austrian School of Economics. Previously he worked seven years for Vienna-based Erste Group Bank where he began writing extensive reports on gold and oil. His benchmark reports called ‘In GOLD we TRUST’ drew international coverage on CNBC, Bloomberg, the Wall Street Journal and the Financial Times. Next to his work at Incrementum he is a lecturing member of the Institute of Value based Economics and lecturer at the Academy of the Vienna Stock Exchange.
Prior to joining The Lindsey Group, Peter spent a brief time at Omega Advisors, a New York based hedge fund, as a macro analyst and portfolio manager. Before this, he was an employee and partner at Miller Tabak + Co for 18 years where he was recently the equity strategist and a portfolio manager with Miller Tabak Advisors. He joined Donaldson, Lufkin and Jenrette in 1992 in their corporate bond research department as a junior analyst. He is also president of OCLI, LLC and OCLI2, LLC, farmland real estate investment funds. He is a CNBC contributor and appears regularly on their network. Peter graduated Magna Cum Laude with a B.B.A. in Finance from George Washington University.
EFFECT OF US PRESIDENCY ON GLOBAL MARKETS
Trump has managed to appeal to the disaffected masses, so we have very little clue how he’ll perform if elected president. The possibility he’ll win is higher than the polls and media discount, as the public seems to be disgusted with the political establishment and want change. But regardless of who the next president is, in the early part of their term they’re going to preside over a recession. Both will face the same challenges. Central banks have manhandled markets over the past eight years, and will still be the deciding factor.
Trump has set up a situation where if it looks like he’s going to be elected, markets will tank. And Hilary will keep things at the status quo, where the government and policies are still for sale to Wall Street through bribe money in the form of political campaign contributions.
FED POLICY AND A BEAR MARKET IN BONDS
Increasingly the central banks are trying to stop a bear market in bonds from materializing. If you look at central banks in Europe, some of them are overloaded with sovereign debt. If you get a substantial bear market in sovereign debt, those banks basically go under. 2017 is going to see an acceleration in price inflation, to the point where the Fed and other central banks are going to have to raise interest rates, but they can’t do that without breaking the system.
Price inflation will be a concern going forward. Gold is a good signal regarding future price inflation, and the price is rising in every currency now. Most people forget that in 2011 in the US had CPI rates at 4.5%, and last year oil prices started to collapse. Therefore the base effect will be kicking in in the next four months.
Four months ago the 40-year JGB yield touched 7 basis points. Within two months that was 67 basis points. The Bank of Japan acknowledged that they were doing major damage to their banking system and therefore needed a steeper yield curve. For the first time a central bank is acknowledging the limits of their policy, and a bond market is fighting against that. This is all combining for a possible mix that’ll be negative for global bond markets, and any asset that is priced off low interest rates, particularly equities.
US Dollar LIBOR has been ticking up, well above the Fed rates. If you look at the LIBOR rate and tie it in with the increase in bank lending, that tells us that interest rates should rise, and very soon. The market as a whole will begin to understand that the rate that matters is the free market rate measured by LIBOR.
This is getting beyond the Fed’s control. The potential for a bond market crash is very large. A banking crisis similar to 2008 would definitely be deflationary. If the US implements negative rates, then this crazy bull market in bonds could accelerate. We’re seeing a lot of recession signal right now, and if we fall into recession it’s possible that we can see even lower yields.
The game of negative interest rates is over. It’s proven to be awful policy that central banks will be embarrassed to quickly backtrack on, and for that reason the US is unlikely to go to negative interest rates.
BULLION VS MINING SHARES
If you regard gold as insurance or money, owning mines is a speculation. Anyone investing in gold mines has to understand that there are risks you don’t have in bullion itself. Overall the bear market was pretty positive for the sector. It’s a highly volatile sector, so it might not be suitable for every investor – you have to live with the volatility and enormous political risk.
The gold bull market in the beginning part of the bull market should outperform the underlying, but as the gold bull market matures and prices get higher, it’s probably best to switch from mining to bullion. But for now, miners should outperform the underlying.
Abstract by: Annie Zhou <a2zhou@ryerson.ca>
LINK HERE to listen to or to download the MP3
