Palisades Gold Radio, Released on 2/13/21
Tom welcomes macro money manager, bond king, and financial planner Steven Van Metre back to the show.
0:00 – Intro
1:06 – Trends and Timelines
8:04 – Fed & Liquidity
17:00 – Fed & Inflation
23:15 – Fed & Higher Rates
26:12 – Bonds & Short Risks
36:10 – Preserving Capital
38:22 – GDX vs. Equities
40:12 – Long-term bullish gold
43:49 – Wrap Up
Talking Points From This Episode:
– His contrarian macro thesis.
– Fed actions, rates, and inflation.
– Coming liquidity crunch and opportunity.
He discusses why his macro thesis can be wrong in the short to intermediate-term but believes it will play out as interest rates collapse to zero. Those that are bullish on gold miners should also be bullish on bonds. He expects the GDX to fall and explains the relationship between it and the TLT. He believes bonds will rally, GDX will drop much lower, and then he can flip his portfolio into the junior miners.
Falling mining equities often are a leading indicator of a coming liquidity event and a move lower by the broader equities.
Steven discusses the broad money supply and why people thought it was signaling inflation. However, most of the stimulus money in April just went into people’s bank accounts. He believes that we are in a liquidity trap with too much liquidity and that the demand for money is outpacing the money supply. Low-interest rates have reduced consumer’s options for investing.
He believes the Fed needs to do the opposite to generate inflation. If the Fed flooded the economy with bonds from their balance sheet, that would drive up interest rates and get consumers to chase those returns.
He argues that the U.S. government can service its debt by merely raising the debt ceiling. He is anticipating a slowdown and a debt contraction. If the Fed raises rates, we will see consumers reduce their borrowing. In debt-based economies such as ours, it requires ever-increasing amounts of debt issuance. The Fed, therefore, is unable to raise rates because that will crash the economy.
He believes there is a risk of a massive short squeeze in bonds because many investors are short. The Fed will inadvertently create a short squeeze in bonds. The long-end of bonds will be driven to zero, and many may have to sell their equities to cover their bonds. He expects a crunch is coming unlike any we’ve ever seen before. If you want to find inflation, you need to watch the short end of the yield curve. If the two-year yields break overnight, he says, “you will see the definition of risk.”
Once you understand these relationships, you know exactly what to look for in the markets, and if you have a high conviction, you can make that bet.
From 2008 to 2011, GDX moved 300 percent, and that type of move could be a generational opportunity.