Saxo Bank CIO and chief economist Steen Jakobsen pinged me via email with some of his thoughts on who to believe and which assets to hold.
Steen says “gold long, weak US growth, FED is lost, and negative interest rates make no sense”.
Email from Steen
I have been doing this job for close to 30 years now. Through that time I have worked with some of the best talents in trading in the world, I have also had the pleasure of meeting many great business people, but in my world there is two or three people who I:
- ALWAYS listen to
- ALWAYS respect
- ALWAYS need to check my world view against
Some of these are private, but the most public one, and the only person I am a “fan” of is Stanley Druckenmiller.
He is not only is he one of modern history’s best fund managers, but he analysis is crisp, clear and open minded. He is far more diplomatic than me – and better – in expressing those views, but tonight’s speech by Druckenmiller at Sohn Conference confirms to me long held view:
- Gold is the superior asset in present part of cycle
- Fed is lost – totally lost and nothing they say match their action
- Negative interest is worst policy mistake ever
- Debt is and remains the elephant in the room
Here is quick note from Druckenmiller’s speech:
Stanley Druckenmiller warned on Wednesday that the Federal Reserve’s low-rate policy is creating vast long-run risks for the US economy.
Mr Druckenmiller, a billionaire former hedge fund manager, said at the Sohn Conference in New York that Fed policymakers are “raising the odds of the economic tail risk they are trying to avoid”, such as spurring credit bubbles, by keeping interest rates near historic lows.
Mr Druckenmiller reckons current economic conditions suggest the Fed’s benchmark interest rate should be closer to 3 per cent. “This is the least data-dependent Fed in history,” he said.
Mr Druckenmiller said the “longest period ever of easy monetary policies” has caused groups to borrow at a quick clip and then use the funds in ways that are not economically productive. For instance, he noted that “most of the debt today has been used for financial engineering,” in the form of stock buybacks and other methods that provide a boon to corporate profits and are often cheered by investors.
He said that contrasts with other periods, such as the 1990s when debt was used to craft the building blocks of the Internet.
Stanley Druckenmiller: Corporate America, China And The Fed Are Stuck – Buy Gold
“I have argued that the myopic policy makers have no endgame,” billionaire Stanley Druckenmiller said towards the end of a scathing twenty minute romp through all of the world’s economic problems.
The U.S. debt is out of control, China is even worse and the worst offender is the Federal Reserve, Druckenmiller said. Corporations in the United States are stuck in the mud, forelorn of growth, unwilling to invest and addicted to share buybacks to gin up their stocks. It is a sentiment Druckenmiller has had for years, but at the Sohn conference the famed hedge fund manager indicated he means it this time.
Eleven years ago, Druckenmiller warned the Sohn audience of then Federal Reserve chair Alan Greenspan’s blunders in inflating an epic mortgage bubble that was sure to crash. On Wednesday, he said the bubble inflated by former chair Ben Bernanke and current chairwoman Janet Yellen is many magnitudes worse. The Fed, Druckenmiller said, is using low interest rates to ease borrowing costs and smooth over problems in the global economy.
This radical Central Bank accommodation is leading to unproductive investment, and is an issue that is even worse in China, an engine of global demand. Whether it is S&P 500 Index corporations, U.S. households or the state-managed economy in China, Druckenmiller believes cheap money is borrowing from future growth, and will backfire spectacularly.
“While policy makers have no endgame, markets do,” he said. Druckenmiller is increasingly nervous about risk assets and recommended investors take refuge in gold.
Bull Market Exhausting Itself
ZeroHedge offers this commentary A Very Bearish Stanley Druckenmiller Blows Up At The Fed; Reveals His Biggest “Currency” Position
The Fed “causes reckless behavior” said Druckenmiller, adding “the Fed has no endgame and the end objective seems to be preventing the S&P from having a 20% decline.”
“Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation” he said, without naming the metal.
We know what he was talking about. Gold.
Mike “Mish” Shedlock
Why Gold. Isn’t the intrinsic value as relative as treasuries or the dollar. For centuries it was a currency standard but now it is only the memory of that standard that gives it any value. It is nothing more than another commodity. Why not platinum, silver or rare earths? I have lost my faith in gold as some type haven.
Gold (or silver) became monetary standards because they were well-suited to that purpose – like cotton is good for cloth. The dollar only gained that status because it was a receipt for gold. If the bankers in charge of the dollar weren’t nuts, you wouldn’t need gold. OTOH …
Gold is money. Unlike all other forms of money, gold is no one’s liability. Ever wonder why Central Banks like it?
The key is real interest rates. When they fall gold becomes more attractive.
What do you need to know? Forget the philosophy or arguments about Gold standards. How about as simple as it is the best performing asset of 2016 and the best performing asset of the last decade. In addition to all of the very sound reasons we Gold enthusiasts are enthusiastic about Gold.
charles coryn said:
Another reason is that it takes actual physical work to produce gold, the work being proportional to the amount of the metal mined, but paper money and treasuries can be printed as fast as the press can run, whether it be producing $10’s or $100’s, or Treasury Bills and Bonds.
Physical Gold only?
I do not know what Drunckenmiller proposed but I suppose so.
I am in gold and miners
i understand there is only a small amount of physical gold backing up a lot of “Paper Gold” in the futures market. What happens if a few of those buy contracts request delivery? Will they actually get gold or “Cash Equivalent (Fed IOUs)”?
That’s a good question but the same applies to wheat, silver, platinum, crude, cattle and damn near everything else.
My guess on gold is there is enough – silver not likely
There will always be enough gold. The only question is, at what price?
Old Guy said:
Mish I am in physical gold myself. Hopped in last Oct. or Nov. Very happy right now myself. Still have many ounces I bought back for 250.00.
Per Desteen said:
Everyone knows the color of Gold.
Ever tried to differentiate between silver, platinum, and palladium?
Ever tried to trade with them?
But everyone knows Gold.
We are not in the middle ages anymore. There are plenty of cheap scanners that can do it for you.
The crux , the root of the American problem and the Democratic system is that people want to be Right more than they want the truth. It’s that simple. Whether it’s global warming, religion, regulations, finance, politics…… Anything. For my conservative friends I’d say there’s more to freedom than pulling a trigger and fighting for it and for my Liberal friends I’d say there’s more to democracy than casting a vote. It’s a process.
I believe the best example of this shows up in George Orwells 1984. It shows up when people hold two opposing ideas as both valid and true.
We want less government except when it comes to what you put in your body, what you do with your body, who you marry, and etc.
Hillary is a champion of the middle/lower class and minorities except she is beholden to giving million dollar speeches to huge banks and the well off.
So many examples but I’ll make this short. You have to want the truth more than you want to believe something.
The old “There are a thousand who hack at the branches of evil to the one who strikes at the root.”
Here’s a clue Sev: If you believe in global warming you’re socially clueless and technically without any skill. Check yourself against that and get back to me. It saves me a lot of time to know a person’s position on that. If they do I move on to the next person’s opinion.
Stuki Moi said:
Global warming is not a question of faith. Talking about it in that sense, makes about as much sense as a person who, upon learning I was a mathematician by education, asked me if I really “believed in numbers”, because she apparently didn’t.
The crux of the problem with America is this: most people want to believe something more than they want the truth. It shows up as George Orwell predicted in that people will accept two opposite ideas as being both valid and true. The GOP says we want smaller government except when it comes to what you do to your body, what you put in your body and who you marry. The Dems say Hillary is a champion for the middle/lower class and minorities except when she gets paid a million dollars for Goldman Sachs speeches and sells out to the ruling class every single time!!! The finance people say invest and save except when we make it impossible by making negative interest rates and inflating away your savings and deregulating banks to the point that they’re casinos. Anyone who pays attention knows this! I can go on and on but really, check your beliefs against common sense first. And even then have someone take the other side to see what you’re missing. Don’t be afraid to be wrong. Be afraid to not look deeper for the truth.
PS- I’ve been following your blog Mish since 07. You’re not to afraid to admit when you’re wrong and that you don’t know everything. That’s why I listen to you. I don’t agree with everything you say but you’re doing our world a service. Thank You.
Old Guy said:
I hand been hanging out here since 2010. Had other names but when site changed my name changed. I come here first daily.
I’ll second that.
A bit of a newbie in the metals area (and in general). I am interested in buying gold.
Any guidance/recommendations on where to do so, or in what form? Specific stocks, ETFs, etc? A vanguard metals ETF?
Thanks for your time and consideration,