Monday, October 22, 2012

Money Show - David Franklin

David Franklin's talk was called Managing Wealth in Uncertain times. He is CEO and market strategist at Sprott Private Wealth, LP. He thinks that uncertainty is going to continue. One thing he thinks is certain is that currency debasement will continue in US, Europe, China and Japan.

He says we are in a bubble of fear. People are lining up to buy negative return bonds. Both Switzerland and Denmark are selling them. He says that currently we have negative real interest rates. That is interest rates less inflation gives us negative real rates.

There is no country that can afford to raise their interest rates. In a negative yield environment, we should be buying gold as it is a safe haven. Also we should buy real assets. Stocks may also be a good thing to buy.

At 2% inflation, which is our current inflation rate, we will have our money devalued by 30% over 20 years. The QE's will not save us and stocks will be devalued overtime.

There are problems with investors going for yield. Investors paid 61% more for BP Prudhoe Bay Royalty Trust (TSX-BPT) than all its future cash flow are likely to be worth. In connection with PIMCO, people traded up this ETF to a premium to net assets of more than 75%. Their distributions included return on capital. He said that for Cornerstone investors got a 22% return, but 90% of that return was return on capital. When the fund runs down, they raise more capital. These are reasons he thinks that there is a bubble in income investments.

As far as the gold market is concerned, China is the gold market. They are purchasing 400 tons of gold each year and this is one half of the gold produced worldwide today. No one is quite sure why China is purchasing all this gold. China is also buying gold mines in Canada and South Africa. One reason they may be buying gold is because gold is a currency.

Volatility is going up. Resource stocks are at historical lows. Stocks are going to be overbought and oversold. What is overbought, including by Hedge Funds, are Utilities, Parma, Tech and Discretionary Staples. What is oversold are materials and energy.

Central Banks are going to expand their balance sheets. The US$ will be devalued. Negative interest rates are going to persist. There is a bubble in liquidity. The QEs will do us little good. China will continue to buy gold. Volatility will continue.

There are some unexpected consequences. One is that Canadian farm land. There is lots of it and it is cheap. We are getting foreign buyers of our farm land.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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