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ShareWhat about the fact that dollar seems to have replaced yen as a carry trade currency?
It is a new development --- as long as interest rates are low in the US. It's short-term speculation.
Would you say that all money being printed by the US government is going into speculation all over the world?
Yes. I think that is absolutely true. The concerted effort to reflate the bubble isn't just a US phenomenon. It's the case with most of the nations --- dropping rates and printing money.
Till when do you see this continuing?
At Daily Reckoning, we have been focusing heavily on balance-sheet recession. Goldman (laughs as he utters the name) Sachs just reported $3.1 billion in profit in the third quarter.But this time last year they were nearly broke. You could see another episode of balance-sheet recession among the banks. But probably what is going to happen is you are just going to see speculators in the market thinking that it is a real recovery. The rise of the stock market around the world is going to reach a stage where people are going to start selling because they will lose confidence.
Just looking at historical trends. These rallies, once they begin to sell off, often find new lows. Japan's lost decade of the 1990s had many rallies --- I think they were five rallies which were either above 30% or 50%. And each time the market fell, it reached new lows. In 2006, they were at a 27-year low.
Which is the next big bubble waiting to burst? And why? Or would you say there are lots of bubbles?
There is a danger of the next bubble being in gold and commodities ago. We just had a bust about fifteen months again. Gold is attracting a lot of attention and people who don't really talk about investing in gold are acting like it's the next big thing.
It could possibly come in the Asian stock markets too. They have a very strong sentiment in Asia -- that it's a new Asian century, and these economies, having gone through trouble in the 1990s,are better prepared to deal with the crisis that we just went through; they are going to lead the way through recovery. A good story like that would attract attention. I don't think there is a clear bubble on the horizon, but it could be any of these.
You have been a big gold bull for a long time now...We started advocating it when it was trading at $253 ounce. So is the price too much? Is that what you are asking?
Yes... I don't think so, until a lot of these tensions these trends work itself out. Gold is serving its rightful role as the anti-dollar. It's a hedge against collapse and that's the way the market is trading it right now.
Any targets?
I have gone on record to say I think it will hit around $2,500 an ounce.
You had said in Financial Day Reckoning that buying gold on dips and selling stocks on rallies would be the trade of the decade.
What is the trade of the next decade?
That's funny. I just updated that book and I was looking at that chapter and everything that we were saying when we first wrote the book still applies. The trade of the decade was a successful trade. Actually, we still have a year to close before the decade is over, but it was the right trade to make. But all of the reasons that we gave for the trade are still in place.
So what I ended up doing was updating the data, renewing the same argument and I put a parenthesis around an s at the end of it. It is now the trade of the decade(s). I think gold is still a good buy and stocks are still not driven by fundamentals, they are driven by speculation at the moment.
