Erik: Let's move on to precious metals. Even in the face of rising inflation expectations gold hasn't done too well since we spoke in September and of course a lot of people think the reason is that Treasury yields are on the rise and that's the competitor to gold. It seems like the Fed is signalling more rate hikes in 2017 and of course Mr Trump is encouraging them not to artificially lower rates the way they have in the past – although I'm not quite sure how, it seems like that's totally at odds with his dollar is too high statements – where do you see precious metals going from here, what's your outlook?
Raoul: So I think precious metals just did the [inaudible 00:16:44] the dollar for the time been until we get to the point that you kind of alluded to before where if the central banks have to do something about the strong dollar or economic weakness comes through which has not happened yet, every time it comes, the economy's bounce again.
But if pervasive economic weakness comes through then the market will have to forward price bond quantitative easing or fiscal stimulus financed by the central banks themselves to come and if that's the case then gold rises and the dollar rises.
So that was one of the core theses of mine, the gold and dollar. I mean-- as a trade as a pair using a basket of 27 against gold has been relatively flat. You know it was hugely positive for a while but really that trade moves in a situation where we've got economic weakness and the central banks have to do something and the chances are the dollar rises and gold rises.
Erik: You said that for now you would expect the dollar to rise and you're expecting gold to move in the opposite direction. So is it time to be in that pairs trade, long dollar and long gold at the same time or is it time to wait for maybe a better opportunity to add gold to your existing long dollars position?
Raoul: It depends on how you do it if you put the trade on as a trade it has to be in reduced size because it’s a trade you want to hold on for few years. It's not a trading position it’s an investment position.
If you want to trade gold now, yeah, you know I’d look for a lower entry point. Whether that entry point gets down towards a thousand or whether we just retest the recent low to level 25 I don't know, I don't have a strong view yet. I'm just kind of watching the price action, watching the chart more, looking at the economic conditions and waiting for a real opportunity as opposed to just a trade.
Erik: Another risk factor that we discussed last time was the whole clearing and custody system. Euroclear in Europe having as much as 30 times hypothecation of collateral that is all being passed back and forth in this big fancy electronic system but at the end of the day who finally antes up and covers the bill if there is a default.
And you described this basically as creating this too big to fail problem for the entire European Union where if any one sovereign fails and defaults on its treasury obligations. Basically the whole European Union blows up at that point.
It seems like we've got heightened risk of maybe one of those countries failing at some point. So is there any improvement or any in any attention being paid to this issue that you described last time?
Raoul: Well something at the margin happened I thought was very interesting something I've been talking about for maybe three or four years now which is the move by the D.T.C.C. so that's the U.S. version of Euroclear towards using block chain technology for the custody of and clearing of I believe it was some derivatives or stock contracts I’m not entirely sure I can’t quite remember but I have a feeling that the entire system will go on to block chain technology which allows you to know who owns what in the event of a bankruptcy, it also allows you to reduce the amount of leverage in the system.