David Smith: Pending Trifecta of Love Trade, Fear Trade and Inflation Will Make Today’s Metals Prices Look Like Bargain

Wednesday, October 24, 2018
By Paul Martin

By: Mike Gleason
Wednesday, 24 October 2018

Mike Gleason: It is my privilege now to welcome back David Smith, Senior Analyst at The Morgan Report and regular contributor to MoneyMetals.com. David, it’s been too long. How are you my friend?

David Smith: I’m very good. It’s been a while since we’ve spoken Mike, and I’m really looking forward to chatting with you again.

Mike Gleason: Well, David, the volatility in the stock markets is dominating the financial news over the past few days and week or so. Lots of metals investors are wondering when we might get the next big correction in stock prices. They’ve been waiting for a few years now. We’ve had some significant selloffs and each time we start wondering if the bears might have the upper hand, but markets seem to recover quickly. What do you make of the recent action in stocks? Are the equity markets in real jeopardy here or this is just another bump in the road?

David Smith: I subscribe to the view that has been very clearly articulated, I think more than by anyone else, by Steve Sjuggerud of Stansberry Research, and this is the way I’m going to play it, even though I have most of my investment money in the resource sector. But his view is that we are going to see a much higher, high before this lengthy bull market is over. And even though we’re going to see a lot of volatility and we can see sharply lower prices from where we are here, over the next few weeks or so, but at some point there will be a bottom and then we’re going to see new all-time high prices in the Dow and the S&P and the triple Q’s. And that will lead to something like a (year) 2000 moment where we really get speculation and people all jumping in because they don’t want to miss out, and we’ll have a bull market top at some point, perhaps some time next year. Maybe 2020, but very probably I would think, next year.

There will be a high in the market that will last for a number of years, maybe a decade and we’ll see a number of years of sub-par performance like we did after 2000, where the markets degrade by several percentage points every year for 8 or 10 years and that will affect a time, accounts and everything else. But before we get to that point there will be a blow off top and if you are a droid enough to get on and then get out in time, you can make quite a bit of money as we go to new all times highs, so that’s the view that I’ve subscribed to in terms of the general market condition.

Mike Gleason: I also wanted to get your take on what we should expect from the Fed in the months ahead. Now they’ve been getting a lot of criticism here recently, especially from the President. We know that our nation’s central bank is anything but altruistic or independent but we don’t know whether the officials there will bow to the pressure that is beginning to mount on multiple fronts. It is starting to look like the next few hikes are going to be a lot tougher than the last few.

Markets look ready to start rebelling and that may not be good for Jerome Powell’s job security. There is another argument which says the Fed is an integral part of the deep state and if Trump is truly at war with the deep state the official there might be willing to finally let markets correct and see if they can stick the blame on the President. So, we would not be shocked to see the Fed start capitulating pretty soon on rate hikes and try to keep markets juiced nor will we be surprised to see officials stay the course on tightening. How about you care to guess on which way Fed policy might be headed?

David Smith: I think all the above are kind of elements in a mix, which in a lot of ways is a toxic sewage, because the Fed has let rates drop to the point of the last decade or so that has become almost, in some cases, negative interest rates. So they’re now draining the punch bowl so to speak and they’re pulling money out on a monthly basis. And so that means there is less money sloshing around for investments and speculation and this type of a thing and getting mortgages at 1 or 2 percent and now they are up to 4 or 5 percent. I think this draining of money each month from the Fed is a function, indirectly of rising interest rates, because by definition there is less money to loan out. All those things are going to create warps and weaves.

The Rest…HERE

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