In the over 30 years I’ve known him, my respect—and liking—for Frank Giustra has only grown. Not just because he’s a world-class businessman, having built Yorkton Securities into a powerhouse, and then founding Lionsgate Entertainment. More relevant to this interview, he’s a first-rate judge of the markets—one of the best I’ve ever met at seeing turning points and understanding trends.
He’s one of the few financiers in the “Master of the Universe” class that understands gold and economics. Frank knows what he’s talking about. I suggest you read this closely.
Last time around, the Fed was able to paper over the crisis and create a ten-year bull market in stocks. Is the Fed out of ammo this time?
They are, but that won’t stop them, and they’ll call it something else—helicopter money or Modern Monetary Theory (MMT).
In the last cycle, it was QE. It wasn’t printing money; it was QE because it sounded better. It was much more calming and elegant to call it that. It almost rolled off your tongue.
They will never call it money printing.
The new and popular handle is Modern Monetary Theory. But it’s the same old Ponzi scheme. It’s still plain old money printing.
MMT is designed to create demand through money printing, with the idea that you can tax that later as you reach full capacity. But it makes some very naive assumptions about the way politicians operate. It would never work, and the money printing will leave you on the same path as previous disaster stories. Math is math. It’s impervious to bullshit.
If you’re printing too much money, it’s going to influence inflation. We’ve already seen it with asset inflation over the last ten years. Inflation didn’t go into the CPI but went into various asset classes instead.
As you know, Doug Casey has been writing about this topic for 40 years. I started writing about it 20 years ago. It’s become a fascination for me.
Let’s look at how things evolved.
It all started with Alan Greenspan. He was the one who ushered in the era of pleasing markets with free money or easy money.
He was the first to bail out markets at every crisis and the markets cheered him on.
Greenspan was the one that set the stage for the 2008 crisis. Ben Bernanke set the stage for what we’re facing now.
All they’ve done is encourage debt and speculation. And to a great extent, the markets still believe the Fed can continue to fix the mess they created.
I am absolutely stunned gold is still trading at these levels. Don’t people realize where we are heading?
Do you think negative nominal interest rates are coming to the U.S.? If so, what do you think the effects will be?
So far, the Fed has been very reluctant to talk about introducing negative rates.
As hopeless as they are, I think they understand what that would mean if the U.S. went into negative rate territory.
But Trump is a bully. If he sees the economy still floundering between now and November, he’s going to push and bully.
He will likely get his way because the Fed is not truly independent. That idea went out the window long ago. It all started with Greenspan. It was gradual in the beginning, but eventually, it became clear that the separation between church and state was gone. Fiscal and monetary policy work in tandem. It’s one big happy gravy train for the markets.
I believe if the economy does what I think it will do, Trump might get his way.
Negative interest rates incentivize bad behavior. Savers will be decimated, and borrowers will be rewarded.
What do you think the effects of that would be?
It’s true what you say about the savers. Unfortunately for them, they are not the ones that influence policy. Wall Street alone has that power.
Savers will certainly get screwed in the end and eventually the speculators will also. They think this party will never end, but they are delusional. It will end.
Delusion is firmly engrained in the investor psyche.
Wall Street pushes for this continued bad behavior. They throw a hissy fit when they don’t see enough easy credit, and they always seem to get what they want.
What do you think the role of gold will be as the international monetary system evolves?
It is tough to say.
I don’t think we’ll ever go back to a a strict gold standard. That’s just not going to happen.
I believe one of two things may happen. The replacement of the U.S. dollar might end up being some kind of trading unit, a combination of a number of currencies, perhaps with some commodity basket as backing.
Or, we may end up with regional currency units that represent trading blocks. Perhaps, Asia as one and the West as another. It’s hard to say.
However this plays out, it will be messy. We live in a fractured world. There is no leadership or common ground. In this environment, it’s hard to see how there will be any consensus to replace the dollar. But, it will happen somehow, however messy. I just hope it’s peaceful.
The point you made about trading blocks in interesting.
Countries like China and Russia are buying substantial amounts of gold.
In a world where fiat currencies aren’t trusted by anybody, do you think that gold will play a role in building trust between countries?
It’s already playing a role.
They are worried about the weaponization of the U.S. dollar. This concerns not only adversaries like China and Russia, but traditional allies like Europe as well.
Their central banks have been buyers of gold for a very long time. I think they’re buying it because they have to de-dollarize. They’re worried about having too many dollars, especially China.
Gold is the only currency that’s not paper. It’s trusted globally by central banks. The mere fact that central banks hold it as part of their reserves and that many continue to buy it on a regular basis has to tell you something about its value.
Wall Street has mostly ignored gold in the past as an important component of investment portfolios. I say, watch what they do not what they say. Look at central bank behaviour.
Follow the money.
Recently, we’ve seen gold break through to multi-year highs. What do you think comes next in this gold bull market, and where do you think it’s ultimately going?
I’ve never made a prediction on the gold price. I will always say it’s going higher if I believe it’s going higher.
I think that this time, it is going a lot higher, and I will say that much. Where it goes is anybody’s guess.
But I’ll tell you one thing—and I’ve been saying this for the last 12 months.
This phase of the gold bull market—which started last year—is the third and final wave of the bull market that started in 2001, and this one’s going to be a tsunami.
This time, gold will really break out and go to a number that most investors can’t begin to imagine.
The eventual gold price is also a function of how long it will take for high or hyperinflation to kick in and what happens in the period before it does.
Will we see currency wars? A depression? We are entering scary times.
And I mean the real stuff when it comes to gold. Personally, I don’t trust gold ETFs
When the proverbial poop hits the fan, I believe governments will go to any length to protect their currency. They won’t let you find a place to hide. They will freeze bank accounts and prevent you from exchanging your dollars into other currencies or gold.
We have seen this many times before in other countries and even in the U.S.; in 1933, it became illegal for American citizens to own gold, and that law remained in place for almost 40 years. And and these type of protective measures will happen again, in some shape or form.
In essence, they will prevent you from trying to protect your savings. Sounds horrible, but it happens over and over again. That’s why you need to own some physical gold.
Again, I can’t tell you exactly how this plays out and how high gold will run. I don’t have a crystal ball. But I do have history books.
How do average people manage their risk in an environment like this?
It’s tough. I think about this question a lot.
Until the dust settles, I’d say stick with cash and gold.
Unless it’s gold stocks, I’m not in the market. I think the market is still ridiculously overpriced, given what’s happening in the real economy.
The only reason the stock market is still overpriced is because the Fed continues to print free money, which allows speculation to continue at a feverish pace.
I just don’t see where the earnings are going to come from. I think that reality is going to set in—probably in the fall or next year.
Cash is always useful to buy things; invest because there is no way to know when exactly hyperinflation will set in and you need cash to buy things if they get really cheap. Timing is everything.
I try to keep things simple.
You will never outsmart the market in the short term, but the probability that things will get very bad is pretty high up on the bell curve. Buy gold, and keep your powder dry and pray.
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(You can find Frank’s writing and insights at http://frankgiustra.com/.)
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