We are not returning to normal; why hedge fund manager is heavily invested in gold stocks (Pt. 1/2)

by birtanpublished on September 1, 2020

Gold traders took profits this week as the bullion saw the largest single day drop in years on tuesday but how are hedge funds an institutional investor's position for the long term joining me today is sean feiler cio of

Equinox partners a value-oriented gold equities fund focused primarily on the junior mining space shaun welcome to kikko news it's a pleasure thank you david thank you for having me

Uh i wanted to start with talking about price activity this week you've maintained a bullish stance over the long term but we saw tremendous selling activity the most in years on tuesday what can

You make of this uh sell-off that we saw i think it's characteristic of a bull market you tend to get gradual increases and punctuated by rapid sell-offs

I also think there were some margin changes on the comics on on monday that aggravated some of that decline okay the last major sell-off we saw in gold was in march

And uh at that time all assets saw a sell-off investors were rushing to safety and raising cash was that the case this week you think no i mean gold's up almost 30 on the

Year the gdxga is up 35 on the year so uh we are you know well into a bull market in gold and gold and silver miners okay was there anything uh fundamental in the markets uh macro wise that

May have triggered this besides uh just a technical correction no i think it's just it's the way bull markets work sometimes the stocks go down so long term you have uh you are bullish on

The metal tell us about your macro thesis for for gold so what we're seeing both in fiscal policy wise and monetary policy-wise so much of it's unprecedented

And i don't think we're in for uh you know just a short-term pop in gold and silver and a trading opportunity i think we're we're in for a long-term bull market and the valuation the ratio of

Gold and silver and in particular gold and silver miners in relationship to other financial assets uh is just coming off the the lows and so i think we have whether it's three years five years ten

Years i think we are really in for a a nice long bull market both in gold and silver and in particular in the golden silver mining companies uh let's touch on two of the primary drivers of gold over the long

Term the dollar in inflation where do you see inflation headed over the next 12 months hard to say i think over the next couple years higher i mean the fed's been pretty explicit about

Wanting higher inflation rates in a year out from today we're going to talk about be talking about powell's replacement and regardless of when the wins the election this november i think we're likely to see

More pressure to politicize the fed and lose your monetary policy in the united states all of which is going to be good for gold and silver do you see any risk for our deflationary pressures sean

No very no i think you know we have monetary authorities so intent on preventing any kind of deflation i think they're they're more likely to air on the other side

Than they are to allow any deflation and there's just not really a viable sound money contingent politically in dc uh the fight over shelton's confirmation is really uh a sign of the division there still

Exists even within the republican party on that issue shelton has written an op-ed a few years ago saying that she she she's a proponent of the gold standard

Do you see any chance of us returning to a gold standard sean in our lifetimes uh it it doesn't seem like the most likely password but i think we're going to see uh a lot of disruption in the existing

Monetary system over the next five to ten years so i think um a lot of things that currently seem difficult to impossible may become more probable and uh in a more volatile situation okay and

What about the us dollar we have seen the dxy the dollar index trending downwards over the last three to four months uh can this downward trajectory continue and so we we're back in an environment

Where every country wants a slightly weaker currency of not immediately weaker currency um it's hard for all the fiat money to depreciate against each other it's just impossible

So i think that's why we can be confident in a bull market in gold and silver the relationship of the dollar to the euro or the yen i think is as political as it is economic and so it's really

Hard to put a fine point on that over time sean is it really in the best interest of the us federal reserve to maintain a negative real interest rate environment no no it's not um i think

Uh the us should pursue responsible monetary policy and the vet would pursue responsible monetary policy and that means not ending the business cycle and not trying in the business cycle but trying

To preserve the purchasing power of the currency over time that's just not where we are politically and that's not where the fed is institutionally right the fed is is enamored of this

Idea that they can smooth and take away the the business cycle right janet yellen shortly after leaving office talked about the idea that we'd never see another financial crisis in her lifetime

And um i think just the the center of gravity of where the fed is is just at odds with financial reality and i think that's going to be a difficult reckoning as it happens over the coming years

I actually saw jenna yellen give a speech in montreal in 2018 at a conference and uh i'm paraphrasing here but she said that economic expansions don't die of old age they die

They're killed off by one or two things financial imbalances or the fed implying that bad monetary policy is one of the reasons why recessions happen and in her defense nobody at the federal reserve this year

Saw the coronavirus hitting the world actually nobody did really but my question now is do you think that powell would have taken a substantially different direction this year had coveted 19 not happened

Uh given the financial and economic conditions pre-covered well i mean i think the whole idea that everything was fine prior to the covet-19 crisis is just wrong so we had

400 billion dollars added to the fed's balance sheet because the repo market blew up starting last fall and that's all pre-covet 19. so we had a system that was

Over levered very fragile despite having extraordinarily low rates and a bloated fed balance sheet prior to this crisis you know this crisis has taken our fiscal deficits to unprecedented levels

Merged monetary and fiscal policy in a way that the academy has long argued should never happen and given the fed a free reign a license to go back to um very aggressive policies it was pursuing

Over much of the last decade so it's not normal and it doesn't look to be going back to normal anytime soon okay so just going back to questions here you were about negative real interest rates you said that

Uh we're not politically ready to get out of this situation are you implying that there is some sort of political incentive to maintain low rates right now now so i mean

If you if you look at um the debate in congress about sound money if you look if you watch judy shelton's confirmation hearings you see radical opposition to sound money from

Democrats across the board in a very organized fashion and you see division amongst the republicans when it comes to sound money um the idea that you can't have one voice on the federal reserve that's in

Favor of um orthodox monetary policy is shocking but that's where we are and you've now seen senators romney and collins come out publicly against judy shelton's

Confirmation as an effort i presume in an effort to try to derail a full vote in the senate for her for her confirmation you

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