An Exclusive Webcast by Sprott US Media – Transcript (edited for readability)
Albert: Hello and welcome to the webcast. My name is Albert Lu and I’m the CEO of Sprott US Media. I’ll be your moderator for this afternoon’s discussion. The topic today is “Will Gold Trump Politics in 2017?” and I’m very pleased to be joined by 3 experts today. James Rickards is a New York Times bestselling author of Currency Wars, The Death of Money, The New Case for Gold, and most recently, The Road to Ruin. He’s also the chief investment strategist of Meraglim Incorporated.
Trey Reik is a senior portfolio manager at Sprott Asset Management who has dedicated the past 14 years to comprehensive analysis of publicly traded gold mining companies. And Rick Rule is the CEO of Sprott US Holdings. Rick has dedicated his entire adult life to many aspects of the natural resource securities investing field and is particularly active in private placement markets having originated and participated in hundreds of debt and equity transactions with private pre-public and public companies.
Gentlemen, welcome to the round table. Today, I want to address 4 specific questions and I like to get each of your thoughts. I’m going to direct the first question to James Rickards for comment and I’d like to invite the other two also to participate. It’s the question that we led with in the title and that is will Trumponomics be bullish or bearish for gold? James, what is Trumponomics? And do you think it’ll be bullish or bearish for gold?
James: Well, the answer to the first question, Albert, is no one knows what Trumponomics is including President Trump. In other words, he has shown himself through the campaign, through the inauguration speech. He’s addressed to joint session congress, has executive orders to be, I would say, pragmatic, flexible but also a little unpredictable. Let me give you some concrete examples. During the campaign, we heard Trump label China as a currency manipulator, said “On my first day in office, I’m going to give an order branding China a currency manipulator, etc.” And if you took that literally, if you took that at face value, you would say, “Well, if he thinks China is keeping its currency too cheap and he’s going to do something about it, that means the dollar is going to get cheaper” which is usually a tailwind for gold. In a lot of ways, the dollar price of gold is simply the inverse of the strength of the dollar, So, weak dollar usually means a higher dollar price for gold. Not always but there’s a pretty strong correlation there.
No one knows what Trumponomics is including President Trump.
So, that’s kind of one way of analysis. But, in fact, Trump has done nothing of the kind. He did not brand China a currency manipulator on his first day in office. So, I mean his job particularly—I mean you can say what you want, but that designation to the extent it has any legal impact comes from the Treasury department. It comes in an annual report. That report actually is scheduled for later in April, So, it’s coming up pretty soon. But I haven’t seen any indications that the Treasury is actually going to do that. Of course, President Trump and President Xi of China had this meeting in Mar-a-Lago and does seem to be at least getting off on a fairly cordial basis, but we will see what happens.
So, the whole analysis that somehow Trump was going to brand China currency manipulator and etc. has disappeared. Now, it might come back; it might not. Looks like the Trump Administration has decided to pursue the economic agenda with China not so much through the currency wars as the trade wars. They have a group—Peter Navarro, Robert Lighthizer, the US Trade representative—I’m not sure it’s confirmed yet, but certainly he’s there. He’s selected. He should be confirmed if he’s not already, and Wilbur Ross, the Secretary of Commerce. So, they seem to be more willing to go after China on the trade front with tariffs and countervailing duties and attacking subsidies, etc., maybe even providing new subsidies of our own rather than the currency front.
So, I give that as an example of how the Trump economic agenda is, let’s say, pragmatic and flexible. Maybe it’s all the art of the deal. You put some stakes on the ground. You lay down some markers and then you give ground in exchange for something else. By the way, we have been getting some help from China in a completely different arena which is North Korea and this is a good example of how the politics of the global capital market aspect and the geopolitics and the strategic considerations have all merged. So, maybe if we’re going easy on China on the currency front, they’ve cut off coal imports from North Korea. I know North Korean coal exports to China had been cut off and China at least acquiesced in what we call the de-SWIFT’ing of North Korea basically kicking them out of SWIFT which is the international payment system. So, we’re back putting sanctions on North Korea.
So, the point is it’s a little bit difficult to say what Trumponomics is, number 1, even from a policy point of view and then from actually getting things done. I think the whole thing has been thrown into doubt by the failure of the healthcare reform based on the actions of the House of Freedom caucus without getting in the weeds on the pros and cons of that debate. I think people can argue any way they want, but the way I look at it, as an analyst, is to say, “Well you’ve got a group of Republicans who want to support you and none of the Democrats will help out. So, basically Trump can’t get anything done. If he can’t get—if he can’t round up a Republican caucus and the Democrats are not willing to throw a lifeline and I don’t see any indication that they are, that puts the tax reform into doubt. That puts infrastructure spending into doubt. It could mean the stock market is way, way out on its skis.
It was interesting to watch the stock market after the election. Of course, it was down in the early hours of the day after election but ended up flat at the open and then rallied and then we had one of the strongest rallies in history over the following 3 months. But the stock market went up in November on the prospect of Trump tax cuts, then it went up again in December on the prospect of Trump tax cuts and then when he gave the State of the Union and a speech to the joint session of Congress in January, it was early February, it went up again on Trump tax cuts. So, I watched the stock market rally 3 times on the same tax cuts. This is almost the definition of a bubble, meaning it’s not as if Trump was going to cut taxes 3 times. He was only going to cut them once, if at all, but the stock market found 3 reasons to rally on the same news.
So, that’s kind of bubble behavior and now there’s some doubt about whether anything significant will happen on the tax front. I mean you think healthcare is difficult. The last time they did a major overhaul of the Internal Revenue Code was 1986 when Ronald Reagan was president. So, that’s 40 years ago and—or sorry, 30 years ago and so it just shows the difficulty of getting these things done.
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