David Hunter: 1970s Style Inflation Will Set Gold on Fire
Tom welcomes back experienced investment professional David Hunter of Contrarian Macro Advisors.
David discusses the origins of the current secular bull market and how we are now nearing the end stage. In the final stage of bull markets, they can go parabolic. He expects a deflationary bust and involuntary debt liquidation cycle to begin in the first half of 2021.
The economy needs a stimulus package despite the soon to be released GDP numbers that will likely show an unprecedented annualized increase of 30-35%. Congress doesn’t share the same level of urgency as many Americans who no longer have jobs. Parts of the economy, like housing and technology, are doing well, but other sectors like the hospitality industry, have been hit hard. The damage to many small businesses has been massive and unprecedented.
David uses the term “bust” to differentiate from a depression. What is coming will be more dramatic than 2008-2009 but won’t be drawn out like a depression. U.S. banks are relatively more healthy than European banks.
The coming deflationary downturn will be widespread and catch most people by surprise. Prices will be hit across the board, but the declines won’t be long-lasting due to the amount of injected liquidity. He expects the Fed’s balance shee t to balloon above twenty trillion by the end of next year. The government’s initial reaction will likely be too slow, and it will take a couple of years to get back to positive inflation.
Inflation will begin to take off around 2025 to 2026 when the economy overheats due to the excess money creation. We will then enter a period worse than the 1970s as double-digit inflation kicks in, which will take most people by surprise.
He discusses the outlook for the housing markets and mortgage rates over the next couple of years, along with some targets for oil, gold, silver, GDX, GDXJ, SIL, and SILJ.
For the remainder of the year, the dollar will remain under pressure, but next year there will likely be a flight to safety, which will bid the dollar higher, possibly much higher.
Time Stamp References:
0:00 – Introduction
0:40 – End of a 38 year bull market.
4:30 – Election and stimulus package
8:05 – Bust vs. Depression
10:20 – Deflationary bust implications
15:00 – Treasury cash and Fed holding back
20:25 – Potential for a banking crisis
22:35 – Real estate and mortgages
29:40 – Metals and miners outlook
32:00 – Dollar weakness vs. gold strength
35:40 – Oil outlook
40:25 – Metals ETF’s predictions
42:10 – Aggregating data and making predictions
Talking Points From This Episode
• The coming melt-up before a bust.
• Stimulus necessary and pandemic damage.
• Defining a widespread deflationary downturn.
• Targets for the dollar, oil, ETF’s and metals.
David is Chief Macro Strategist with Contrarian Macro Advisors. He is an investment professional with 25 years of investment management experience and 20 years as a sell-side strategist with strong macroeconomic analysis and portfolio management expertise. His strong macro capabilities, combined with a contrarian philosophy, have allowed him to forecast economic cycles and spot market trends well ahead of the consensus. Intellectually honest, independent thinker comfortable with charting a course apart from the crowd. Accomplished stock picker and value-oriented portfolio manager.