Dawn Bennett, radio show host of "Financial Myth Busting," recently interviewed Michael Belkin, research analyst and publisher of the Belkin Report. Michael Belkin is also a consultant to hedge funds, institutions and sovereign entities worldwide.
Wasington, D.C. -- (ReleaseWire) -- 01/22/2015 --Michael Belkin is a research analyst. He is the publisher of the Belkin Report and a consultant to hedge funds, institutions and sovereign entities worldwide.
BENNETT: Michael, going into January 2015 I have the sense that the 2008 crash was just a warm up, but it seems like many investors think that 2008 was a once in a hundred years episode. Given what you've seen during the first part of January, what's your take?
BELKIN: Well, everything's starting to work, things that I've been looking for a long time. Now the financials are starting to sell off big time. JP Morgan, Bank of America, Citi Bank, they were all down 6, 7, 8 percent last week. The gold stocks are flying. I've been recommending gold stocks for a while, and last week I have stocks, up 10, 20, 30 percent. Gold mining stocks in Australia, in Europe and in the US. The reason that gold is significant is, it represents a thumbs down on central banks. So. having the Swiss Central Bank abandon the peg to the Euro last week was a significant event in terms of loss of central bank power. And as far as I'm concerned, these markets have been living in Alice in Wonderland for a while, with all the investors who have been juiced on the central bank punch bowl and there's really been little else holding up the market. Corporations are borrowing money like crazy at zero interest rates to buy back their own shares. This is something that was made illegal, I thought, after the '29 crash. So it got about something like one to two billion dollar buy program every day of corporations buying back their own shares. So I think it's all coming together. The only thing that has me worried is the European Central Bank is going to be starting its QE Program.
BELKIN: ...and I have bruises...
BENNETT: Don't we all?
BELKIN: Yeah, from thinking that QE wouldn't help the markets, but it looks like the global economy is so far deteriorated at this point that I'm sticking to my guns. I don't really think European QE is going to help. It certainly will not going to help the European banks which are in as much trouble as the US banks are at the moment.
BENNETT: Greece was downgraded Friday by Fitch to negative outlook from stable, and there have been runs on some of their major banks. What's your take on the next move by Greece? And to your point about the European Central Bank and their quantitative easing program, where do you think they are going to be putting those funds?
BELKIN: Well that's the big question mark. There was a legal ruling saying that they could go ahead and do this. The Germans are not in favor of it, so they are kicking and screaming. It seems likely that they will allow the local country central banks to buy back their own debt. But, I mean, Dawn, the interest rates are already negative in government debt all across Europe, and what are they are going to? They are going to drive interest rates more negative? I mean, there are negative consequences to negative interest rates. Banks don't make money. You can't make money on a yield curve spread, on a carry trade, when interest rates are negative. Japan is already at that point where negative interest rates are depressing, so the insurance companies are screaming in Japan that QE is hurting them. They are going to have to start raising their premiums because they can't provide a rate of return with negative interest rates to their policy holders that they are legally obligated to do.
So we're in this weird Alice in Wonderland world again where everything's turned upside down and I think that the Swiss Central Bank was really a significant move upon where other central bank policies that have been out there for a while will begin to fail.
BENNETT: This past week, because of the Swiss Central Bank's actions, the dollar had a good week, but it actually lost approximately 18.5 percent against the Swiss franc. What's your short term and long term outlook on the tricky dollar we have here?
BELKIN: Okay, I've been, long on the dollar for a while, you know, holding my nose, everything's based on this forecasting model, and it keeps me, certainly not perfect. I wouldn't try to land a space shuttle if is not 99.99 percent, but I have sort of a long term upward forecast for the dollar but it's more against the Euro and against emerging market currencies, not so much against the Swiss Franc and Yen. But it's very strange, because at the same time I also have an upward forecast for gold. Usually those two things are usually exclusive, but...
BENNETT: ...but now gold and the US dollar are correlated, right?
BELKIN: Right. So the dollar rallying is actually a margin call on global markets. So money went out, and when there is de-leveraging, the dollar tends to rally and that's the environment I think we are in, in global markets, de-leveraging. Now, Yellen and her friends, tried to leverage up the system and they certainly accomplished that. Margin debt is completely over the roof. But now we're in an environment where if you borrowed money and you buy an asset, you are vulnerable. We recently saw that in the dollar and Swiss franc, but I think we'll see that in a lot of other things and usually that tends to be bullish overall for the dollar in a perverse way -- it's not like the U.S. is so great or anything, but it's just in a de-leveraging environment, the dollar tends to rally for a while.
And again, it's more, from my perspective it's more against the Mexican peso, Brazil real, Malaysian ringgit, oil related currencies, emerging market currencies. So I think it's a de-stabilizing event. But for individual investors, I just had a long time last night looking at gold stocks and they really look terrific, as far as I'm concerned, having stocks that have a 20 to 30 percent move off the bottom that really, really depressed and I think a little bit of money flow into the gold mining share space, I think it's going to become a momentum play ultimately. We are a long way from that at the moment but as it begins to attract attention from hedge funds and a lot of their other stuff isn't working, they are going to say, 'Aha, here's something, here's a game to play, let's buy gold stocks.'
BENNET: How much upside do you see for gold mining and manufacturing stocks for 2015?
BELKIN: Well, when they go up 20, 30 percent in a week, you get an idea, I mean, a lot of the little ones are severely depressed and triples, quadruples over a period of a year or two, certainly not out of the question.
I'm not saying, go out and buy small cap junior mining. You know, individual gold mining stocks still have risk, I think for individual investors, something like GDX, which is an ETF or GDXJ which is a junior mining ETF. I think those have less risk and a double is certainly achievable, so just to get up to the 200-week average for instance is up 84 percent, and that's just to have a bounce in the downtrend for gold mining shares is almost up 100 percent, and I think that I could easily double that this year.
BENNETT: With recent weak market closes, there seems to have been some buying panic. That suggests trouble for stocks as a whole, so how can these mining and manufacturing stocks do well when the rest of the trend is negative?
BELKIN: Well, mining -- let me make it clear. Gold mining are the only shares. The other miners, like steel miners and things like that, are doing the Bataan Death March, they are the ones who are leading the market down. It's only gold stocks that are going up. So, that's the really nice thing about gold mining assets, is they're negatively correlated to the market. They're supposed to go up when the market goes down and they're certainly gone down while the markets have been going up for the last couple of years. They peaked in 2011. As to the weak market closes, we've had huge inflows for no reason, like the last move up in the market starting last year during the end of October, November and December. It was led by inflows into ETFs, stock market ETFs, not gold mining ETFs. So, we have ten – the last week of December, we had 24 billion inflows into ETFs and before that, it was like 5 billion, 8 billion, 12 billion, 15 billion, and 9 billion. So every week, they were having 5 to 10 billion dollars. But, that's changed. The first week, it was 6 billion positive and since it's been negative, so a week before last, minus 9 billion, last week, minus 4 billion. So, we're starting to see outflows, and that's what's responsible for end of the day weak closes. So money managers, at the end of the day, mutual funds whatever, hedge funds -- at the end of the day, the market is not going up, they start unloading. So, that is a preview of coming attraction, that's what this year is supposed to be like as far as I'm concerned.
BENNETT: We talked earlier about the Swiss detaching the franc from the peg they had to the Euro. A few FX brokers closed down, some hedge funds blew up, even Goldman Sachs had exposure to it. What's your takeaway here, for the typical American investor, as opposed to the institutional investors?
BELKIN: It's sort of like the cattle on the way to the slaughter house. They hear the cry and they start getting nervous. I make a joke out of it but...
BENNETT: ...but it's hard to hear, right?
BELKIN: The central banks have made us, made the individual investors into pawns on this chess board and that's exactly – I mean if you're an individual investor out there and you own stocks and you think there's nowhere else to put your money, you are a victim of central bank policy. You are a pawn being moved around. So, is this the Year of the Sheep or the year where the sheep wake up and smell the coffee? So, I think it's a shot across the bow of market psychology which has been – if you get into behavioral economics, it's herd behavior.
BENNETT: Isn't that herd thinking counting on the central bank to bail us out?
BELKIN: Absolutely. So, you can only get away with that until the economy really – the economic cycle begins to turn south and it's been turning south in spades for ages, right? So, what happened last week, the banks disappointed, the banks said we've missed our revenues, our trading was worse, blah, blah, blah. Everything was worse than expected. So, that's what's supposed to happen. The companies – earning expectations are too high, you get into a down cycle, the company started laying off people, missing revenue and earnings, and I think what's really vulnerable out there are tech companies. The last week, I don't think people realized this, but last week, all the names that I've been saying to short were down. NCR down 8 percent in a week. Apple down 5 percent, Yahoo! down 7 percent.
BENNETT: Michael, thank you so much for being on.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org