Money manager Axel Merk says you simply must own physical gold in this risky environment. Merk explains, “Many people say why invest in a brick that doesn’t pay interest? When you look at cash paying negative interest rates on a real basis, after inflation, then a brick suddenly doesn’t look so bad anymore. . . . I would allege the Fed is all but promising to be behind the curve. Even if the Fed is trying to raise rates, emphasis on trying, they will be behind inflation. Yes, they will raise rates, but net inflation, real interest rates are going to continue to be negative. If I look out a decade from now, I don’t see how the U.S., Europe, Japan, or any other country can afford positive real interest rates.”
Merk thinks stocks are “expensive and way overdue for a bear market” even with the recent rally that we are in and thinks the market can “crash.” Merk contends, “What the central banks have been achieving in recent years is they have been breeding complacency. . . . When volatility is low and prices are rising, what could possibly go wrong you buy stocks? What has happened is instead of buying the dips, people are now going to sell the rallies. We’ve had these amazing rallies, and that is exactly what happens in a bear market. . . . With rates going back away from the zero level, risk premiums have to rise. That means fear has to come back into the market, and volatility has to go up. With the economy, if you base the recovery on asset price inflation, you have a big problem on your hands.”
One of the very bad signs Merk sees is banks are not wanting to take any risk. Merk explains, “Liquidity is drying up . . . . If you look at earning in the banking sector, they are shutting down their trading. Banks are no longer risk takers. All the risk is moving to the corporate sector. We see that on the commodities with Glencore. These are now risky institutions that are not regulated by the Fed. Maybe we don’t have to bail them out, but ultimately, the bank is the counter-party to many of them. So, the next crisis is going to be different. I happen to think that, yes, there are going to be very sharp moves in the stock market. A 1,000 point down move is something that is going to become more common. Central banks can provide liquidity. They cannot provide solvency. We are going to have risk flare-up in pocket that we don’t even know about yet.”
On the U.S. dollar, Merk says, “The dollar is supposed to rise when the world is in crisis, but what happened over the last year and a half or so is whenever there was good news, the dollar was rallying, and every time we had a sell-off, the dollar was plunging. The dollar rally has pretty much evaporated, and people aren’t aware of it yet. The dollar isn’t as healthy as it used to be. The story line was rates were going to go through the roof because everything is fantastic in the U.S. The dollar, just like the stock market, is way over extended. . . . The environment is very supportive for the price of gold right now.
Join Greg Hunter as he goes One-on-One with Axel Merk, founder of Merk Funds.
(There is much more in the video interview.)
After the Interview:
Axel Merk has two websites: MerkInvestments.com and Merkfunds.com. There is free information on both sites. You can also sign up for the free quarterly webinar for an economic update on October 22 (Thursday) that Axel Merk gives by clicking here.
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Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.