Publisher of The Gartman Letter gives his latest take on gold and oil.
Dennis Gartman is the man behind The Gartman Letter, a daily newsletter discussing global capital markets. For more than 20 years, The Gartman Letter has tackled the political, economic and social trends shaping the world's markets, and Gartman himself is a frequent guest on CNBC, Bloomberg and other financial media outlets. HardAssetsInvestor Managing Editor Sumit Roy recently caught up with Gartman to discuss the latest outlook on financial markets and commodities, including gold and oil.
HardAssetsInvestor: What do you think about the recent concerns in the U.S. regarding the Fed potentially winding down QE later this year, and the consequent spike in long-term interest rates?
Dennis Gartman: The economy absolutely can continue to grow with somewhat tighter monetary conditions. In fact, I think the economy can grow a lot better without the Fed’s help. The Fed’s help back in 2008 was to be lauded; it was fantastic. They did exactly the right thing. In 2009 and ’10, the first rounds of QE were probably still to be lauded. They probably did the right thing; however, they overstayed their welcome. They’ve created a bit of confusion. And confusion breeds contempt, as I like to say.
The Fed understands it has to get itself out of the box that it has put itself in. The way to do that is slowly, over time. I find it amusing that people are already responding as if the Fed has already begun to tighten. We have to remember, the Fed is going to continuously add reserves to the system until middle of 2014. It will just be that they are adding at a lesser pace. It’s not as if they have taken anything out of the system. I think the markets have overreacted.
HAI: Interbank lending rates in China have recently spiked to record highs, and there's a lot of talk about a credit squeeze in that country. Is the situation in China something to be worried about?
Gartman: The rise in what is now referred to as SHIBOR—the Shanghai Interbank Offered Rate—is a shot across the bow by the People’s Bank of China and by the new administration in China to say to real estate developers, real estate speculators, even stock market speculators, “Hey, we’re not always going to be here to bail you out.” Historically, the People’s Bank of China has always allowed interest rates to rise in the day or two before any major holiday. It’s not unusual for this to occur.
What is unusual is that the bank didn’t come in after the holiday to re-liquefy the system. I think this was a brilliant move on the Bank of China’s part to tell the markets, “Look, we’re not going to be here to backstop you. You probably have got yourself overextended. Better get your house in order.” It got everybody’s attention. And my guess is that those who are a bit overextended are going to do what they can to become underextended.
HAI: Given all these current fears in the market, gold hasn’t been responding. It’s completely lost its safe-haven status. And prices have plummeted all throughout the year. What’s driving gold, and do you see more downside to come?
Gartman: One, I do see more downside to come. Two, I never thought gold was a safe haven. Safe havens are something where you could put your money and the price of that asset won't move more than 1 or 2 percent. And you may actually earn something on it.
Gold was never that way. And why it was ever seen as a safe haven is really quite beyond me. It’s now proving—even to those who thought it might have been a safe haven—that it isn't, because the losses have been substantive thus far. And I fear the losses may become even more substantive in the days, weeks and months ahead.
Gold, to me, was never a safe-haven asset. One should be hard-pressed to even call it an asset. Assets should earn you something, or assets should pay you a dividend. Gold doesn’t. Gold was a fear phenomenon, not a safe-haven phenomenon. I think there's a difference.