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A Year for Accumulation, Jeff Christian October 2019 Part 1

October 14, 2019
Video Transcript

Sean Brazney: Hello, my name is Sean Brazney, Sales Director for Monex Deposit Company. I'm here with Jeffrey Christian, Managing Partner and Founder of CPM Group and the author of our, Year for Accumulation Report. Thank you for being with us today Jeffrey.

Jeffrey Christian: It's always a pleasure to be with Monex.

Sean Brazney: As we come into the fourth quarter of our Year for Accumulation, it looks the precious metals market is still positioned for further gains to the upside. In our October report, Jeffrey, you summarized many of the reasons why. Would you be willing to summarize that for our viewers here?

Jeffrey Christian: Well, yeah briefly... I think that the report is probably much more eloquent than I could be orally, but you know, we're looking at a variety of economic, political, and financial issues. We've seen issues of short-term interest rates. Obviously, the trade wars continuing between the United States and China. The U.S. continues to brow beat other countries, including Europe, on everything from teas and wine. you still have the Brexit issue and we saw this week that Boris Johnson met with Angela Merkel and basically the EU said this isn't going to work, you guys don't have anything that we can agree upon. So, you have Brexit, you have political issues within the United States, you have the trade wars. You are seeing some people back away from recession fears on an immediate basis, but the worrisome issues related to a slowing economy remain and recession risks for 2020 and beyond remain. So, I think that there's a variety of economic, and political, and financial issues. All that probably will create an environment that will be supportive of gold prices and investment demand for gold and silver, even if you see some things looking like they're a little bit better than people thought they were three months ago.

Sean Brazney: In regards to the funding pressure in the U.S. money markets, I want to talk about that briefly, because at the beginning of the year you were real instrumental in helping our viewers understand QT, or quantitative tightening, which was essentially pulling dollars out of the system at a time when there was still great dollar demand going on around the globe. I do think that was something that was contributing to the uptrend that we're seeing in the dollar and the dollar trading at multi-year highs. Based on that quantitative tightening, do you think that that's a main contributor to the funding pressures we're seeing in the U.S. money markets?

Jeffrey Christian: I think that quantitative tightening was definitely a factor that was contributing to the problems that we saw in the overnight repo market, but there were other issues there too. The really worrisome thing that we saw in the problems, in the overnight repo market, was that a lot of the factors that came together to cause these problems were quite obvious, and quite apparent, and quite visible on the horizon. Why the Fed did not act preempt, poorly to avoid those problems, is really worrisome to us, because they should have seen these things coming and they should have taken preemptive steps, but they didn't.

Sean Brazney: Yeah agree and back in January the Fed said they'd be ending QT at the end of the year. The Fed meeting in June, they said they'd be ending that program a couple months early, which seems like that would put us right into this area now. Yesterday, Powell was on TV saying that he was ready to grow reserves and expand balance sheet again. So, if they do end QT, do you think that that will be something that will help cool off the dollar on this trend or maybe even help it go in the other direction?

Jeffrey Christian: Yes. I mean, you're looking at the Fed now... the New York Fed is pumping in about $75 million dollars a day into the overnight repo market to provide liquidity there. Powell, as you said, said yesterday that they would start selling bond... or buying bonds again to increase their balance sheet, but really it's not to increase their balance sheet that they're doing that, it's to increase dollars in circulation. So, clearly, we're moving back to quantitative easing stance from the quantitative tightening. Clearly, the Fed has concerns that there aren't enough dollars in circulation to meet the needs, even though there are too many dollars that we've printed over time, that they realize that there's some liquidity issues, that they're in a liquidity trap, that they have to be much more accommodative than they thought they would be. So, I think that all of that puts a cap on the dollar at least in the near term. I'm not sure that it drives the dollar down, but I do think that it probably removes one of the major factors that's caused the dollar to be stronger over the last six to nine months than a lot of people thought it would be.

Sean Brazney: Jeffrey, again your information and your time is extremely valuable to us. We want to thank you again for that. There's a lot more to talk about in our October Year for Accumulation video in regards to silver and palladium as well. So, give Monex a call today. Talk to one of our account representatives and ask for your free Year for Accumulation Report.

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