Simon Caufield On Why Gold Is Perfect for Value Investors
from GoldMoneyNews
Subscribe to our newsletter at http://www.goldmoney.com/goldresearch. MoneyWeek’s Simon Caufield — who also writes the True Value investment newsletter — talks to GoldMoney’s Dominic Frisby about stock valuations, gold and economic theory.
Caufield is a value investor who tries to look at the big picture. He is quite bearish regarding the equity markets, especially US shares. Currently macro factors such as very low interest rates and easy monetary and expansionary fiscal policy are glossing over the poor earnings of many companies, but the growth rate of earnings of S&P companies is already stalling.
He points out that government deficits are leading to increased company earnings, as aggregated profits can only come from investment, exports and debt. The inevitable debt deleveraging will therefore have a negative influence on company earnings. Central banks are printing money in order to keep the debt bubble afloat, which is increasing inequality as an unintended consequence. However Caufield states that the central bank funded government deficits have not been large enough to compensate for destruction of credit in the private sector. He sees a bit more upside potential in government bonds, however he is very uncomfortable holding these debt instruments and advises against buying them.
While it is hard for a value investor to assess gold (because it has no income stream), the very solid historical connection between negative real interest rates and rising gold prices gives Caufield comfort in buying gold. It will be very interesting to see what happens when interest rates start to rise. They also talk about the relationship between the gold price and debt levels.
This podcast was recorded on 16 August 2012
2012-08-20 11:44:43
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