Translation of the interview for Oroyfinanzas.com
Fabrice Drouin Ristori: I would answer in two parts:
First, in nominal terms (measured in paper currencies), stock markets have effectively been growing these last years, but evaluating an asset in a devaluating currency (dollar or euro) does not lead to a clear vision of its performance. In order to get a clear idea of its performance, I think it is best to eliminate the monetary factor and compare an asset against other real assets, such as gold or oil, for example. And if we use this method over a long period, we realise that the stock markets do not really perform highly. This performance is an illusion due to the depreciation of paper currencies.
Secondly, stock markets are not the free markets they once were. We now know that central banks intervene massively in those markets, distorting their value by creating demand coming directly from liquidity injections into the system. So as long as central banks keep monetising the stock markets, we will continue to see a high performance in nominal terms, but not in real terms.
Thus, if central banks continue to intervene in the stock markets, they can continue rising in nominal terms.
Fabrice Drouin Ristori: No. The price-to-earnings ratios are approaching levels of over-valuation like the ones of the last speculative bubble of the 2000’s. As I was stating above, the current valuation of the stock markets has strictly nothing to do with fundamentals, and everything to do with central banks’ interventions. Or else, for instance, how could one explain that trading volumes on stock markets have been plunging these last few years, while stock prices are rising? It doesn’t make any sense, unless one factors in central bank interventions.
Fabrice Drouin Ristori: The majority of investors keep an eye on the stock markets’ performance. A rising stock market may provide the illusion of economic health and comfort for the masses. And this is what governments and central bankers have been trying to sell us since 2008, while the fundamentals of the real economy keep on deteriorating.
This is the reason why central banks, certainly at the behest of governments, intervene in those markets. This is, notably, the role of the Plunge Protection Team in the United States.
So there is a direct relationship. Without monetary stimulus we wouldn’t have witnessed such a stock market performance these last few years.
Fabrice Drouin Ristori: No, it is not tenable. Monetary creation has never succeeded in putting back an economy on track or to develop its structure. If it were the case Zimbabwe would now be the foremost economic powerhouse.
Take a look at Japan, for instance, that just got into a recession while they announced their 9th QE plan. The Japanese economy is drowning in liquidity and, still, it is not improving. Monetary printing does not work.
Contrary to what the Fed says, I think its role is, above all, to protect and save the current financial/banking system by injecting the necessary liquidity to prevent the sector from collapsing, rather than supporting the real economy.
In so doing, the Fed contributes to the dollar’s devaluation, notably for boosting exports, but this doesn’t work either because all countries are participating in this currency war. I don’t see how the Fed can avoid another QE, since the BoJ and the ECB are continuing the competitive devaluation game.
One has to understand that all currencies are falling – albeit at different speeds – and they are all falling together. We can foresee a total loss of faith in paper currencies.
Fabrice Drouin Ristori: The relative strength of the dollar recently has more to do, in my opinion, with the “fear trade”, leading investors to take refuge in the dollar, than with any other fundamental explanation.
Of course, when the Fed announced the end of QE, the dollar rose against the euro but again, as I was saying above, the Fed will not be able to go without a new QE plan. It will need one to keep supporting the stock markets and to continue its competitive devaluation policy in an attempt to boost exports.
So the performance of the dollar against other currencies is only temporary.
Furthermore, on a geopolitical level, the BRICS are slowly tapering the use of US dollars in international trade settlements, which does not bode well for the dollar on the long term.
Fabrice Drouin Ristori: Yes, absolutely, and this has everything to do with the petrodollar status being questioned.
The new world powers do not want the United States to continue with this exorbitant privilege of being able to freely issue the world’s reserve currency at will.
On the one hand the Fed, with its exponential monetary creation policy, is destroying the dollar’s purchasing power and, thus, the value of the monetary reserves of every country on the planet.
On the other hand, this privilege of issuing money lets the United States finance wars and aggressions against the new world powers (Russia, China).
All of the events of these last few years leading to the use of a different currency than the dollar for the settlement of bi-lateral commercial trades (commodities, oil, gas, commercial goods etc.) are to be analysed in the context of a progressive calling into question of the US dollar being the international reserve currency. China and Russia are the pillars of this trend toward rejecting the dollar.
As Charles de Gaulle was saying:
“The time has come to establish the international monetary system on an unquestionable basis that does not bear the stamp of any country in particular. On what basis? Truly, it is hard to imagine that it could be any other standard than gold.”
This is the new system toward which we are rapidly moving.
Fabrice Drouin Ristori: As long as the gold market will continue to be disconnected from the reality of the physical gold market, the price of gold will keep going down.
I’m one of those who consider that the price is being manipulated, or influenced, to the downside with the help of this virtual supply of paper gold.
I just wrote an article on the influence of paper gold in which I brought up the following question, which investors should ask as well: If the price is not being manipulated or influenced, how is it possible, given the law of supply and demand, that the price is going down while there has been a record demand for physical gold and silver in the last few years?
It’s a simple question that all investors interested in gold must ask before taking their investment decisions.
In that article, I give the answer to that question.
I would simply add that the price of gold and silver will go back up as we witness tensions on the physical market getting more and more acute. Said tensions will be sending a clear message to investors: If the gold or the silver is not available, it just means that there is not as much physical gold and silver as there are paper gold contracts outstanding.
That will be the time when we see an acceleration of the rush toward physical and, conversely, a strong rise in the price of precious metals.
One should note that the BRICS and the central banks do not buy paper gold or silver; they only buy physical metals.
Fabrice Drouin Ristori: I would advise investors to focus primarily on analysing global demand for physical gold and silver and stop listening to the Western financial media, which do not correctly analyse the precious metals markets.
Thus they will realise that there is an anomaly in the price fixing mechanism for precious metals and that they must take advantage of the extreme under-valuation of precious metals to acquire some before the physical market gets really perturbed and that more important scarcity problems occur.
I have been personally investing in physical gold and mainly silver since 2008, and I buy more every time there are engineered dips.
I am doing what central banks do, namely those of the BRICS, that all own physical gold. I am my own central bank, which means also that I do not store my physical gold or silver in the banking system.
The company I founded, Goldbroker.com, has put in place an investment solution that lets investors own physical gold and silver directly in their name, without any intermediaries, and store it outside of the banking system. Each investor can thus become his/her own central bank with our solution.
My final recommendation for investors is this: Become your own central bank... invest only in physical gold.