Once again, we bring on a very popular guest, Mr. Bill Holter. Bill is very vocal on how corrupt governments and central banks are mismanaging (or outright destroying) the Western economy before our very eyes. Bill is also highly regarded for his investment knowledge, and thousands of investors follow his writing every week on MilesFranklin.com. It was great to get Bill on once again, and to get his comments on the new political developments from Asia.
Palisade Radio Host Collin Kettell: This is Collin Kettell with Palisade Radio. Back on the show with us today is Bill Holter of milesfranklin.com. Welcome back on the program, Bill.
Financial writer Bill Holter: Good morning, Collin. My pleasure.
CK: Yesterday marks the end of the two-day Federal Reserve meeting, and the Federal Reserve has been beating around the bush for several years now. You are not a person that ever beats around the bush, so I wanted to get your opinion on what the significance of the meeting was yesterday.
BH: The only thing it did was drop the word "patient." All they can do is jab on at this point, because they have locked themselves in with zero percentages rates. They cannot go lower. There are countries in the world that have negative rates. Negative rates are ridiculous. You cannot have that with the Federal Reserve currency. Now, they have been talking about green shoots and recovery, recovery, recovery. We obviously have not seen any type of expansion, and their only option is either to keep printing more or actually tightening - and they cannot tighten. There is absolutely no way. You have got an over-leveraged system - financial system - and you have an economy, not just in U.S., you have got a global economy now that is turning down and is at recession levels. So withdrawing liquidity from the system or raising interest rates will end up in a deflationary smoking black hole.
CK: Why, at this point, does the Federal Reserve need to tighten policy? Of course, the dollar is already surging, which would make me believe if we did tighten, the dollar would continue to appreciate against the foreign basket of currencies. The Dow is in a 7-year bull market now. Why not just leave policy as is?
BH: Actually, it is from a credibility standpoint, because they been the crying wolf since early 2010 that the economy is turning in a recovery on a growth path, and every single Fed meeting, a tightening has been put off. But the credibility problem is, when? When are they going to do this? They painted themselves in a corner where you can only cry wolf for so long, and what they were saying is, "Well, we can tighten, but it won't harm the economy. It will harm the markets." That is dead wrong. They know it is dead wrong, and they cannot tighten. I am going to say that the Fed's next major program or change is going to be QE4. It is not going to be a tighten. They may tighten one time, or within two weeks you are going to see the market implode.
CK: I think that the market has acted very interestingly yesterday. Before the announcement of the Fed meeting the market was tanking, and then all of a sudden the market shut up. I guess that reflected the fact the Federal Reserve still did not give the market an answer as to when the tightening is going to happen.
BH: That is correct. If you watched afterwards, Yellen was hinting at September rather than June - so they kicked the can another three months.
CK: Now, I saw that you predicted in an article that you have written in the last couple of days that there will indeed be a QE4. This is something that a lot of people have been saying for a while. Do you have any indication or thought as to how long it is going to take before this could start up, or is it going to be in response to an emergency situation that they trip off?
BH: It is always a response. Every QE was a response to the market. If you go back and look at a chart and the timeline on the charts of the stock markets, every QE was kicked off as the markets go rolling over.
CK: I want to touch on gold real quick. We have a big topic to talk about near the end of the interview. But there have been gold bull rallies that have tried to start, and every time that they have started to get going, the Dow and the general equities have charged forward. I think that that has taken the fuel away from that bull market in gold. Do you think that we need to have stock market weakness, the Dow needs to fall off, or the dollar needs to fall off before gold can re-enter this bull market in earnest?
BH: I do not think you are going to see a bull market in earnest. I really think that you are going to see something akin to a light switch being flipped on or off. I think that switch, basically, is gold supply. I think gold will be marked up and the financial system will go into a seizure once China is not delivered on. China has taken up 80-90% of global production. It has to be coming from somewhere, and that somewhere is not a bottomless pit. Now, when the gold runs out and the Chinese are not delivered upon and they cannot exchange dollars for gold - that is it. That is your light switch.
CK: An example scenario of that, from a public point of view, might be waking up one day and China announcing that they have ended up accumulating ten thousand tons of gold. Is that kind of the idea you have in mind?
BH: You may see a few days of $50 or $100 moves upward, and then all of sudden China comes out. They may or may not say "We have not been delivered on," but I think they could step up and they could pick a number. They could use $2500, $4000, $10000 - who knows? But they could step up and say, "We will rebid $4000 an ounce on any and all gold anyone wants to sell." Now what is the price of gold? What is the new price of gold? It is $4000. It does not matter what Hallmark's fantasy land says it is. The price of gold basically would be what the Chinese say it is.
CK: On the topic of China, there is a very big piece of news that you have been talking about, but of course, the Western media has not - and that is called the China-led Asian Infrastructure Investment Bank, which we can call AIIB. The big news is that on March 12th, Britain announced that it submitted an application to become a founding member of this bank. They are also joining France, Germany, and Italy.
There were a couple curious points about this. One is that China had dictated that this was only for regional Eastern members at first, but it makes sense for them to probably accept somebody like Britain into the bank. The second interesting thing is that the United States has been expanding considerable resources, lobbying Australia, South Korea, and Britain not to join the bank. What is this bank all about, and what do you think the implications are?
BH: The implications are, our allies are switching teams - if you want to say. They are jumping on-board with the winner. Australia has applied, by the way, so they have also joined in. The U.S. threw a fit last Friday - I believe it was because of the news on Thursday that Britain applied. I think it was Friday or Saturday the announcement of Germany, France, and Italy, and I think it was Monday that Australia joined.
This is basically a competitor to the World Bank - which is, of course, if you want to call a minion of the U.S. - and the U.S. has been the main member all the way back 50 years ago. So these countries joining into an Asian bank, but a Chinese-led bank is a slap in the face to the U.S., and it is certainly a departure and will undermine the power of the World Bank. Eventually, in my opinion, it would make the World Bank an unimportant entity.
CK: This represents a paradigm shift, if it is effective - because the United States, as you mentioned, has used the World Bank as a tool to control countries around the world. There is no better way to control a country than providing them an amount of debt they can never repay, right? If China is successful in this, it could lend a lot of power to the East. I know that there have been a couple other developments I believe you have written about - one of them being the new standard that is going to compete with SWIFT, the SWIFT banking system. Russia has a system there that they are joining along with China. What is going on on that end?
HB: Backing up just a second, you mentioned SWIFT. I believe it was late last week the U.S. had been lobbying to kick Russia out of the SWIFT system. They had a vote, and SWIFT actually gave Russia a seat in one of their 25 board member seats. So not only did they not get kicked out, they have a seat on the board now. The biggest thing to all of this, to the AIIB, this new SWIFT system - the key is, they are not going to be using dollars.
CK: Anybody who reads your work knows your philosophy - your investment philosophy. But for our listeners, you are painting a pretty dire situation. There could very literally be a light switch situation. You have said in the past - either you are in the trade or you are not, because once you wake up and prices have changed dramatically, it is too late. You cannot call your broker. You cannot get a hold of that gold. What are you doing to protect yourself? Are you 100% behind gold, and how are you allocating yourself?
BH: I have enough cash to live on, and I own gold/silver miners in every way, shape, or form. I have metal stored offshore in three separate non-bank vault locations. From the miners that I have, I hold those certificates - because in my opinion, when this thing turns upside down, you are going to see market closures. You are also going to see bankruptcies amongst banks and brokers. Now your broker is holding the certificates and they go upside down, how are you going to get access to sell a certificate?
CK: Right. You have taken everything under your control. You have diversified yourself internationally with your gold storage. I am sure you are probably protected on the home front as well, but we can keep that private.
BH: I have lead for that.
CK: [Laughs] Good.
BH: Firm believer in GOTS - Get Out of The System.
CK: Yeah, and that is becoming more and more difficult to do every day. I mean we are recording this interview on Skype, and that is recording in more ways than we probably know. Bill, on that note, thanks so much for rejoining us.
BH: My pleasure, Collin. Thank you.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.