Greg Hunter’s USAWatchdog.com
Money manager Axel Merk is worried about financial risk and that it is being downplayed. Merk says, “I am very concerned. I am spooked about the equity markets. The folks that buy stocks buy them because they have to keep up with the markets. The folks that buy gold buy it because they like gold. Just recently, you have a down turn, and you don’t have this rush to sell gold right now because the folks holding it are strong hands. Whereas in the stock market, if you have a wave of sellers, who says everybody is not going to rush for that same exit at the same time.”
Merk elaborates on being “spooked on the equity markets” and explains, “I fear a crash. The reason I fear a crash is that when you have a market that goes up relentlessly, and volatility goes down and complacency is high, that means folks are buying equities that are not aware of the risks of the stock market. The moment the fear comes back to the market, for whatever reason, those guys are gone in a heartbeat. We saw that a little more than a year ago in the emerging market and fixed income market. Everybody thought they would get a free lunch and (Fed) exit talk comes up, and suddenly everybody is running for the exits and it’s a bloodbath. You saw that in the tech bubble and the housing bubble. Complacency is the best bubble indicator out there. The timing is a little bit difficult, but it is more prudent to take the chips off the table before you have the problem than after the problem.”
Merk, who has $400 million under management, likes gold and explains, “The medium to long term reason why I like gold is I don’t think we can afford real positive interest rates. . . . If you look at real interest rates, they have been negative. They have gotten more negative of late, and Janet Yellen is promising she is going to be late in raising rates. So, even as nominal rates go up, real rates are going to continue to be negative. So, I don’t buy gold because of a crisis flaring up here and there because those things can be short term. Now, Putin has a long term interest in instability in Ukraine, but I buy gold mostly because if I look 10 years out, and you think we are going back to the historic rate that we’ve paid on financing our deficit, we’ll be paying more than a trillion dollars a year to finance our national debt. We can’t afford that. So, that means the Fed is going to keep rates low, and we are not going to be paying a trillion dollars a year. Something is going to give, and gold is the purest way to play those sorts of scenarios.”
On Isis in the Middle East and crisis in Ukraine, Merk thinks there is a common denominator. Merk charges, “The Fed is at fault with everything, including ISIS and Ukraine. We have fostered an environment over the last 15 years where we are eroding the middle class by having these ultra-low monetary policies. It drives global over production. What is happening is you have commodity prices high where corporations get squeezed. You have no pricing power. You have a flood of goods, and final goods prices are low. So, what happens are real wages stagnating in that sort of environment. In the U.S., you have the rise of the Tea Party and Occupy Wall Street, but what you got in the Middle East are revolutions because people can’t feed themselves anymore. In Ukraine, the problem is they can’t balance their books. They can’t afford the natural gas. This is a common problem throughout the globe. . . . We have to get back to sound monetary policy. That is why the Great Depression ended up in World War II, and these same sorts of forces play out when people get dissatisfied.”
On worldwide geopolitical risk, Merk contends, “Political stability throughout the globe is on the decline. We see that in the U.S. You are either on the left or the right. There is no middle ground. In Europe, you have social erosion, and you have that in many places in the world. Policymakers never blame themselves for the mistakes. They blame the minority. They blame the wealthy and they blame foreigners. That’s how they fix their problems. How about some military engagement in Russia? I don’t think Merkel is going to pull it off, but the Japanese might pull it off somewhere. The good news as an investor is our policymakers are quite predictable. The place where this plays out is the precious metals market and the currency markets because those things move when major policies are affected. Of course, things happening in the Middle East might be less relevant than things happening in Russia because Russia can turn off the gas in Europe.”
Join Greg Hunter as he goes One-on-One with Axel Merk, President and founder of Merk Funds.
(There is much more in the video interview.)
After the Interview:
Axel Merk provides free investment webinars. His next one is in mid-September, and he’s calling it a “Fireside Chat with Axel Merk.” Mr. Merk will take questions and will talk about gold, the dollar and other currencies. If you would like to attend this online event, please go the registration page by clicking here. You can also get Merk’s articles by signing up to his free email subscription page by clicking here.