HAI: Right, because it comes off the table in terms of the interest people collect, and yet there's nobody actually loaning anybody any more money, which they could then go spend. So we're in this sort of dead zone.
Trader Vic: Exactly. If you lower rates and you don't get the effect of the multiplier effect - people borrowing and redepositing, and borrowing and redepositing - you have a de-stimulus by lowering rates. So it's not as easy as people seem to make it.
But to get back to the specifics of your question, you will have inflation once GDP starts to turn up. You will start to get accelerating price movements. And gold will anticipate that. And gold is $2,000 at that. I'm not saying a straight line. But it's very easy for it to go there.
HAI: So if the money's not getting loaned, that immediately makes me think about the ags. We're told all the time that the agricultural markets really rely on liquidity from the banking sector to fund fertilizer, to fund production. Do you think that that means we see continued problems with production in things like corn and soybeans?
Trader Vic: Absolutely. Everything is affected. Not only that, of course, the government is going to stop subsidizing the ... according to Obama. So a lot of big farmers won't get subsidies. So it will make it harder. So that'll mean higher prices.
HAI: What about the energy markets?
Trader Vic: I am a major bull on oil, and I have been. In this case, I'm in print because I send out letters - I virtually caught the low here. When Benjamin Netanyahu became the prime minister of Israel, which was several weeks ago, oil - the oil I have right now is April oil - was $40. The low on April oil was about $37. Right now that same oil's $51.
The reason is really simple. This is the Barry Goldwater of Israel. Barry Goldwater was not somebody you messed with. Neither is Netanyahu. He doesn't care about collateral damage. He doesn't care about anything. If he believes that you're a threat, he will take you out. And that means Iran. And if he believes Iran has a nuclear weapons and the U.S. refuses to do anything about it, he really won't care. He'll go in and take them out and he'll create an unbelievable problem in the world. But he won't care about that either, because his main goal is the survival of Israel. And that's what it should be.
[Oil] is a geopolitical position, not necessarily a short-term supply/demand phenomenon. Because that's all he has to say ... is one small indication that he will be aggressive. And of course the counter by Iran is they'll sink a ship in the Strait of Hormuz, and that will cause oil to pop to $110, $120 - name the price.
The bottom line is ... there is only one position in oil now, and that's long. Now, should you have 50% of your assets in oil? Absolutely not. I think if you have 5-10% of your assets in oil, and 5-10% - depending on how bullish you are - in gold. I think the rally in equities is a bear market rally. So I wouldn't be long equities here. That's my judgment for now.
And I think that that is the place to be: very liquid cash, and basically gold, some oil. I'm not necessarily recommending anything other than that at the moment. But that's a play where any one of many things can happen - Pakistan can erupt. It's basically a play on a problem in the world that's not being anticipated, and isn't a problem today, but may be a problem tomorrow.
HAI: And you're on record as being kind of an oil bull on the long term, just based on fundamentals ...
Trader Vic: Exactly. But, to be fair to the readers of this, we go out of oil at $130. And we have not touched it except for minor little scalp trades. This is the first bullish position. And we write letters once a month. So I wrote the bullish position at the beginning of March. Netanyahu was nominated, the lows were in February. So when it was $40 - which was on the 24th, the 25th, in there - we were bullish.
HAI: Well Victor, thanks for the time. Food for thought.
Trader Vic: You're welcome.
