More trouble first, then a big change that investors can capitalize on, that’s what Dr. Berry thinks.
That we are coming very close to a deflationary environment, a contraction and something that is structurally different and more dangerous than a recession. Berry feels the Keynesian approach followed by European and US Governments “hasn’t worked in the past four years in the US, there’s a lot of money out there but the banks are holding it. It’s not being let out, it’s not generating growth and instead we are falling in terms of growth, real output, unemployment is increasing, and so it hasn’t worked. It is a failed approach Michael.”
Dr. Berry thinks gold is sending us a signal there will come what he calls a “Minsky moment”, a moment when there is a loss of confidence in the fiat dollar and when that happens, the velocity of money will turn around and we will be into an inflation. Hopefully not a hyper-inflation, but when it occurs areas in commodity producing countries like Canada and Australia will benefit.
What do Investors Do
He thinks you’ve got to have stocks in areas that will benefit from inflation and do well enought in deflation. For example “Juneau Alaska in the great depression was one of the great gold producers in North America and where most of the gold was produced at the time, and they never had a depression there.”
As for Oil, though Dr. Berry sees slower growth everywhere in the world including Brazil and China, and that the cost of energy is going to come down during the deflationary period. That said when loss of confidence in fiat currencies occur and inflation begins we “could see $3,000, $4,000 gold and I think you will see $100, $120, $150 oil easily in the next few years.”
Currently, with the 10 year US Bond under 2% yield, he doesn’t think that pension fund managers can meet their pension obligations with the fixed income portion of their portfolios and as a result he thinks that “is going to force money somewhere and I am guessing part of that has got to be in quality stocks but obviously the thing I am sure of it’s got to force money out of that fixed income into something else”. With Fixed income so low he likes high quality dividend stocks like “Gold Corp, as they issue a monthly dividend; I think it is a safe dividend so I would recommend that part of the portfolio should have dividend paying stocks that people believe are safe in the sense that they won’t be impacted by a slowing growth of the economy as much”.
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