After discussion Bitcoin, China and even liberty at World War D, the international keynote speakers, Marc Faber, Jim Rickards, and Richard Duncan continued answering questions on delfation, inflation and interest rates.
You can read a summary of the discussion below, or go here to find out how to see video of the full discussion.
If the energy boom, technology boom, and globalisation is deflationary, asked Jim Rickards, how can the US pay its debts? ’Remember deflation increases the real burden of debt, so if you can’t pay them off today when can you?‘ The forces of deflation are powerful, the necessity for inflation is powerful, but what will happen is a near instantaneous collapse in confidence in paper money and a flight to hard assets, he said.
Faber’s diagnosis was much the same. ‘Inflation and deflation can co-exist, especially in a money printing environment.‘ For example, he argued that gold and precious metals have been in a deflationary phase, as have real wages, for the past 20 years or so. Asset prices however have been in an inflationary phase. Faber’s warning: every inflation phase will sooner or later come to an end. The question for investors is when it will happen. ‘We have a global festival of money printing,‘ he said to much laughter. ‘It’s going to end badly, we just don’t know when.‘
You can see and hear Dr Faber’s comments on video. Click here to find out how.
Richard Duncan agreed the outlook is uncertain. ‘This is being managed by the government. We don’t know who the government will be five years from now,‘ said Duncan, which means it’s difficult to predict what will happen.
To manage this risk, the panel agreed on the need for a diversified portfolio of cash, quality stocks, and gold. Richard Duncan added: ’I would borrow money at fixed interest rates to buy property. The property I would buy is land with lots of houses on them.‘ Like gold, land is scarce and as long as owners aren’t too leveraged they will always make money from rents, even in a depression.
Mark Faber also added: ‘I would choose the stock part of my portfolio very carefully. If you look hard there is always something somewhere that is depressed, and always something somewhere that is in fantasy land.‘
Jim Rickards also thinks buying up currencies is a good idea, naming the euro, Canadian dollar, Korean yuan and Singapore dollar. He has been a defender of the euro because it’s a de facto German currency. ‘The euro is the deutschmark in drag so to speak,‘ he said.
On the question of locking in fixed mortgage rates, Mark Faber argued that interest rates move in long cycles of 45-60 years – and with effective rates in the US at zero for last five years we have to assume we’re nearing the end of the interest rate downturn. Any interest rate rise will affect the value of assets. ‘I’m convinced in my life I will see the day when my asset values drops 50%,‘ he said.
Speaking on the uncertainty of data that underpins interest rate decision, John Robb argued economic conditions are much worse than central banks and governments are reporting. ‘What we’re seeing on the ground in the US is a lot more dire. Jobs are evaporating faster than they’re being replaced. That’s why so many [people] end up at retirement without any savings at all, and it’s going to get worse and worse.‘
‘I don’t find any discussion of IR [interest rates] useful unless you’re talking about real and nominal. The way I look at it IR are at an all-time high,‘ added Jim Rickards.
And that ended day one. You can catch the events from days one and two here.
Callum Denness
Roving Reporter for Money Morning at World War D
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