2013 was a brutal year for precious metals investors. Santiago Capital's Brent Johnson begins his excellent presentation "#$1%!k##!!***#$$" with a mea culpa for the worst year in a dozen even as Santiago topped the list of precious metals funds. But crucially, Brent points out, "it is only half-time" in this fight and "if gold investors will stick with the fundamentals - which is very hard to do sometimes - the second half could be very rewarding." Simply put, he notes, the only reason the level of water in our economic bucket has increased slightly is not because the holes are fixed... but because we are pumping dollars in quicker than they are leaking out. "Excess Reserves are a ticking time bomb," Johnson adds, and the second half of this monetary game will be very different from the first.
Part 1 - "The First Half Of This Monetary Game" -
Fund performance, Mea Culpa...
What the Fed has done so far, holes in our economic bucket..."the only reason the level of water in our economic bucket has increased slightly is not because the holes are fixed... but because we are pumping dollars in quicker than they are leaking out"
money printing, the housing 'recovery', and stocks vs the real economy... "if you spend $8 trillion and can't throw a good party, you should be thrown in jail"
Part 2 - "How The Second Half Will Play Out"
Where has all the QE money gone? Why inflation has remained tame... "excess reseves are a ticking time bomb"
Fed reassuranes are bullshit. How reverse repo will work and how the second half of non-expanding monetary base will be a problem. Simply put, if the Fed cannot get monetary velocty to pick back up then they will not be able to continue tapering... and velocity increasing is inflationary.
They can't rase rates as they are now in extreme forward guidance mode that they will keep interest rates low for an extraordinary period of time...
This will end badly - its a matter of "if" not "when"... but as Johnson goes on, there are still challenges (e.g. India) but selling gold now is concentrating assets not diversifying them... and we are going to win in the end.