Now, most of you know Dave as the famous author of the “Breakfast with Dave” newsletter. He’s actually branched out and got some really exciting new products and services that he is starting to explore in his own new firm. So we’re going to talk about that at the end of the interview.
But, David, obviously we’ve got to start with, wow, these are amazing times that we’re in. I gotta tell you, I am just dumbfounded. It seems like maybe a little bit of common sense in the last couple of days has hit the stock market. But until then, it seemed like most people thought, okay, it’s all over now. We’re past peak infections. It’s time for new all-time highs in the stock market.
I think it’s crazy. But what do you see here? What’s the big picture? Is this really ending? Or is it only just beginning?
Dave: Well, look, I think that when you’re taking a look at the extreme daily moves that we’re seeing in the stock market, it is completely characteristic of a fundamental bear market, not the onset of a new bull market. I mean, we’ve had, just in the past 20 sessions, 18 of those the DOW moved in either direction by at least 200 points. It’s almost like we’ve become numb.
Today, if the DOW moves 400 points up or down, it’s completely ho-hum. But these are dramatic daily swings. It’s showing a market that is completely confused and I think caught in this tug of war between – I wouldn’t say a V-shaped recovery – really caught between knowing that we have a very deep and sharp recession on our hands but also the Fed coming in and doing what no other Fed has done before.
Erik: Joining me now is Artemis Capital founder, Chris Cole, who regular listeners will recognize. Chris just recently was on the program, we had another interview just a few weeks ago. We’ve got a link to that in the Research Roundup and on our homepage on the description of today’s interview. I highly encourage anyone who didn’t listen to that interview to listen to it first, because today’s interview is basically a follow-up.
Chris, for anyone who didn’t have time to listen to that full first interview, let’s just do a quick recap. The dragon portfolio is something you designed. Basically, it is the optimized portfolio to last 100 years. Tell us a quick review of what it is, what it’s designed to do, what does it try to accomplish.
Chris: Absolutely. Well, I wrote a research paper that came out this January called the “Allegory of the Hawk and Serpent.”
And I posed this question to the reader: Imagine you have the opportunity to grant your family great wealth and prosperity over 100 years, but it’s subject to one final choice. You have to decide what assets to invest in, and maintain that allocation for an entire century.
Eric, I guess obviously the question that’s on everybody’s mind is this coronavirus crisis and how long it’s going to last and so forth. Was the coronavirus the cause of this market dislocation? Or is it more the case that the virus was the pin that popped a bubble that was already ready to pop? And, either way, how do you see this crisis unfolding from here?
Eric: Hey, Erik, nice to be back. Thanks for having me again. Always good, particularly in really interesting periods for markets like this.
Clearly this virus is the catalyst for this move. And that’s obvious. But in terms of the move itself and the market structure, I would say that we’ve been building into the market structure a lot of fragility over many years that were, largely speaking, just underappreciated.
Erik: Joining me now is Josh Crumb, who formerly was the head of precious metals research for Goldman Sachs, went on to found GoldMoney, and has since gone on to found Abaxx Technologies. We’ll talk about that at the end of the interview.
But first, Josh, it’s great to have you back on the show. So much to talk about with so much going on in the gold market.
Josh, help me navigate the current opportunities in the gold market. And I’ll just start by telling you how I see it.
On one hand, I really think, first of all, when there’s a panic, people rush into gold. We’ve kind of seen what’s looking like a blow-off top. It’s starting to correct lower.
I think there’s a really good argument that says that the stock market is not done with the downside from the COVID-19 crisis yet.
What we saw in 2008, it seems like there’s a lot of good reason to think it’s coming back, which is correlations go to one in a crisis. Everything sells off. Even though the fundamentals for gold are improving, people are selling it to raise cash. And the price ends up going down, even when you would hope it would go up under those circumstances.
Simon, there is an old saying in finance that sometimes nothing happens for decades and then there are weeks during which decades happen. I think this is one of those weeks.
Monday morning just after 8am this week, we got news that the Federal Reserve made what I think was the biggest monetary intervention announcement in recorded history, announcing unlimited quantitative easing to react to the coronavirus crisis.
It was very, very controversial when QE2 was introduced several years ago. That was a spending program of $500 billion over the course of about eight months. And it was very controversial. A lot of people thought that was just too much and they shouldn’t do it.
What the Fed announced this week is, first, they’re going to spend more than that this week alone. And they’re going to continue spending at that rate indefinitely.
The thing that I think is even more – we could do a whole show about that announcement, but what I think is even more newsworthy is the market’s reaction. Of course, asset markets had to jerk higher on the news. That lasted, Simon, less than two hours before the move up in asset prices had fully retraced. Which really speaks volumes, in my mind.
It says that the Fed put has finally expired worthless. Please give us your interpretation of these events. And what are the knock-on effects and consequences as you expect them to play out in financial markets?