Courtesy of Mish.
Here is an interview I did with Fabrice Drouin Ristori at GoldBroker regarding gold, France, and other topics that I would like to share.
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 Schäuble 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: 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.
…
