Going forward, investors should look at stocks that have languished or are very depressed and there will be value in commodity-related stocks, says the author of Gloom, Boom & Doom report.


What a fabulous recovery we have seen not just for the developed markets but for emerging markets and India as well from the March lows! It seems like the doom is over, but is this the gloom or is it the boom which has played out?
Economically it is not over yet. As you know the economy fell off a cliff and whereas it has kind of recovered somewhat from the low point in April, they are far from where they were say a year ago. So to say that everything is hunky-dory is a wrong statement. The markets have recovered and if you had an index of mom-and-pop stores or small businesses, it would look disastrous, a complete collapse.

There are many small businesses in the western world that will not re-open, there are many businesses in emerging markets they will never re-open, maybe a new crop of businesses will come up. But if you say that everything is fine, it is sticking your head in the sand. The reality asset markets have done well and the Federal Reserve has said repeatedly that they will address one of their concerns of wealth inequality. Well, so far that they have been very successful at making the rich people richer and the poor people essentially poorer.

In the near term, are you saying that the best has played out in terms of the recovery from March and now we need to maintain extra caution? Is this as good as it is going to get in the near term?
It is difficult to tell because we have had a recovery but if you look at the recovery in equity prices in the US, it has been mostly concentrated in FAANG and FAANG related stocks. The New York stock exchange FAANG Index is at all-time high but there are just 10 stocks in that index and one of them is Tesla. That is not representative of the entire stock market.

Some stocks have made new highs although the semiconductor stocks and some other stocks have languished. Going forward, investors should look at stocks that have languished or are very depressed. Since you are talking so positively about stocks, let me just point out to you that no stock market in the world has outperformed gold and silver. This year gold is up 28% and silver 53%. So instead of talking and telling me that stocks are doing so well, you should be pointing out that gold and silver have done much better than any equities.

Do you see a similarity between what you said in 2002 and 2020 that one should buy commodities, gold, silver, metals, copper, palladium, sugar, coco, orange juice?
Yes. Let me point out some differences and similarities. In 1999 and 2002 and 2003, commodities had been in a bear market essentially since the 70s and in the case of precious metals, since 1980. In other words a 20-year bear market. Now we were in the bull market until 2008 for oil and for gold and silver until 2011 and for agricultural commodities a little bit differently. But basically after 2011, commodities did not perform well. So we have been in a bear market until in the case of precious metals since December 2015.

After 2015 gold and silver have done well but they just made the new highs in the case of gold and in the case of silver, it has not made a new high yet. So I can say precious metals are relatively inexpensive. What is really very depressed are agricultural commodities and industrial commodities. Lumber for example is some kind of an industrial commodity and that has gone ballistic recently. It has got up a lot but to answer your general question, if the Federal Reserve and other central banks are printing money, the value of money will diminish and that is not difficult to see.

You print money and you print money and so the value of this excess liquidity, makes paper money lose it purchasing power. In other words, certain things go up more than cash currencies and the question is what will go up the most? Between 2009 and recently, the US stocks have performed fantastically well. But now that they are more than 50% of the world’s stock market capitalisation, will this outperformance of America vis-à-vis the rest of the world continue? I do not think so.

I think emerging markets will begin to outperform including India and at the same time, there will be value in otherwise more commodity related stocks whether you talk about BHP, Rio Tinto, Glencore or the major oils which have grossly underperformed indices or the S&P 500. They look quite attractive and also banks which have grossly underperformed look quite attractive as well.

Where is the dollar index headed considering that the US Fed is running a printing machine which is working now 24 hours a day?
I like the expression printing machine. They are not running a printing machine, they are running a factory with thousands of printing machines to keep up with the demand. But the problem is really it is not just the Fed that is printing money, the other central banks are doing the same. So it is not a crystal clear case that the US dollar will collapse against all currencies. It may collapse against some currencies, but not against others.

The most likely place or currency it will collapse against is gold, silver, platinum and also bitcoins currencies of which the supply can be increased a little but not that much. But to answer your question about the dollar, quite frankly if you look at the team Biden-Kamala Harris and Trump-Pence, I do not think anyone can have a lot of confidence in the US.

If you look at the response to all the riots in the US, if you look at the financial condition of cities and states and the Federal government, I don’t think you can have much confidence in the US dollar. My view is very negative about the US dollar but the others are not much better but may be some are a little better. I want to point out in Europe we achieved high degree of socialism in the last few years and we have now a pushback and in Europe, the peak socialism has been reached will move more to the right politically. But in America, I believe that we are moving straight into socialism and that this will be very negative for the US dollar.

There is a complete rhetoric to avoid Chinese manufacturing. In America it is America first, in India it is Atmanirbhar first. What will happen to demand for Chinese products and if China slows down, could that backfire for commodities?
Yes, this is correct. It is actually amusing to think that everybody wants to be first in the world when it is fairly clearly established that actually foreign trade has boosted the standards of living of people around the world incredibly. I just like to remind you the world has never been richer in terms of low poverty rate, in terms of standards of living. This system has some drawbacks and the capitalistic system is better at creating wealth than at distributing wealth. That is an observation that Schumpeter had already made.

But the alternatives are so much worse that you understand if you go back to socialism, you will see what happens in India. India is still half socialist but at least it has made a step into the right direction into opening up the economy and freeing up the economy and introducing market based principles and the capitalistic system. Yes there are some very wealthy people in India but there have always been in India a lot of wealthy people, the only difference is before there were a lot of wealthy people and everybody else was very poor. Now you have immensely wealthy people but at least a lot of Indians have seized the opportunity that the capitalistic system offers and they have improved their standard of living and also the lowest classes’ standard of living.

In China, not everything is fair and not everything has succeeded but we have to acknowledge that the poverty rates are down and that the prosperity we experience today in India is a relative prosperity. It is the highest for sure in the last hundred years or so. So I would say if China slows down because of trade restrictions and also because of their credit bubble, it will have an impact on commodity prices but commodity prices have actually discounted a slowdown in China.

I think that commodity prices will react in future more to the money printing.

I have been on the board of several mining companies I can tell you from the time you and I would decide to develop a mine until we would produce it would take at least 15 years in a sense and the supply is very limited. You cannot just turn it on and off . Increasing the supply of copper is a very tedious job and not many people have the expertise to do that. It takes a long time and so if you print money like we have printed, a reasonable bet would be to buy some commodity related stocks, especially as I mentioned agriculture is very depressed.

Would a Joe Biden-Kamala Harris combo be detrimental for the equity markets though if at all that combo does work?
I did not say it would be detrimental for the equity markets. I want to point this out because under Biden-Harris or under Trump-Pence the Fed will continue to print money they have actually no option. They have to do that in the long run so equity markets may stay elevated but it would be wrong to think that money printing will create prosperity because if money printing creates prosperity, every country would just print money and nobody would manufacture anything.

Why make anything if you can just print money? We have to go back to simple economic not the economics of some academics that have never worked in our lives but to real economics where people actually produce things and as a result of the production of goods or the production of services prosperity then follows.