He has formed a band called The Refusers, whose debut album is “Too Big to Fail” with the signature song, "The Gold's All Gone."
Washington, DC -- (SBWIRE) -- 09/25/2014 -- Nationally Syndicated Financial Myth Busting Radio Show with Host Dawn Bennett, CEO of Bennett Group Financial Services, LLC, on September 14, 2014, interviewed Michael Belkin, publisher of the Belkin Report, who has formed a band called The Refusers, whose debut album is “Too Big to Fail” with the signature song, "The Gold's All Gone."
Here is the interview with Michael Belkin:
Q: So, the gold's all gone, is that right? I didn't realize you were a budding rock star.
A: Yeah, my alter ego is a musician. Before I worked on Wall Street, and was at Salomon Brothers back in the '80s and '90s. Before that I was a professional musician in LA. Anyway, I thought I would put the Belkin Report to music. So I have an album coming out called "Too Big to Fail." The first song is "The Gold's All Gone." It's about the David Stockman message, we went off the gold standard and the Fed printed money till it was blue in the face, and now we have a huge credit bubble and everything. So that's what that song's about. People can listen to it and download it for free on Google "The Gold's All Gone" by The Refusers.
Q: One of the key lyrics in your song is, "The gold is all gone," and we know the Federal Reserve bristles at the suggestion that they should be audited. So, what do you think? Are you suggesting, in this song, that the gold is, indeed, all gone?
A: Well, yes. That was the original inspiration for the song. Jim Rickards has been really good at this, too. He's another newsletter writer and portfolio manager, and friend of mine. If you look at the amo unt of credit that's been created since we went off the gold standard and the increase in the money supply without any backing, we basically have a system, the lyrics to the chorus are, "This is a funny money government standard. The gold's all gone." So, in order to equate where the rubber meets the road, we have to get back to a solid money system, the number of gold to make it work, Jim Rickards says, is something like $9,000 an ounce. That's how much the credit system is out of whack, how much money they've printed with no backing.
Q: But if the U.S. inflates and devalues the dollar, will gold go up in price? Is that what Rickards is saying?
A: Right now I'm actually bullish on the dollar against other currencies.
Q: Is that short-term?
A: Yes. What's going on internationally, the dollar's actually a defensive asset, believe it or not. It sounds crazy, given what I just said before but other places are actually worse.
For instance, the Euro is going like gangbusters despite having negative intere st rates there. You put your money in the bank and lose money. It's not that much different here, but there, it's getting more extreme. They would prefer to be in dollars rather than Euros. The world is a messed up place at the moment. The dollar is a defensive asset as money is seeking safety, believe or not.
Q: Right, but when serious problems for the dollar surface, and they will, and the U.S. has little to no gold to fall back on, it seems to me that the U.S., with its back to the wall, may become a dangerous entity in the world. I'm just wondering if it would be possible for those runni ng the U.S. to lose their heads in response to a desperate economic situation?
A: Absolutely. This morning the headlines from the BIS, which is the central bank's central bank said,"Central banks inflating 'elevated' asset prices. By fostering risk-taking and search for yield, accommodative monetary policies contribute to an environment of elevated asset price valuations and exceptionally subdued volatility." They have a bunch of warnings, this club of central banks, you know? I mean, this is the Fed and all these other guys get together, and they are saying this. They are warning in vestors that there's a bubble. Elevated asset prices are the definition of a bubble.
Q: I did read that there was some committee they're putting together to help to get through this time period, the Federal Reserve. Did you read about that?
A: Yes, a bubble-bursting committee put together to help figure out how to exit out of this because I think, to your point, they're extremely concerned. But in main line media, the headlines don't seem to get that point across.
Q: No, not yet. Sentiment hasn't changed. I'm very skeptical about that committee.
A: My experience with government, people that work for the government is that they are more interested in covering their rear end than anything.
I think that’s what the Fed is trying to do. It realizes things are out of control, and there's going to be a liquidation, a deleveraging. What they've done is leverage up the system.
My clients are big hedge funds. I walk around Manhattan and I go up and down the elevators and I see hundreds, if not thousands, of hedge funds that are doing things on leverage, you know, doing all kinds of arcane strategies.
It’s 2007, 2008 all over again. This time, it's subprime auto loans and collateralized debt obligations. It's some of the same stuff, but it's different. They've leveraged it up, and when you po p the bubble, the air comes out and you go into a forced liquidation mode. I think that's what we're on the brink of.
Q: Let's talk about the U.S. stock market since you were talking about inflating asset prices. September is historically the most difficult month of the year for equities. So, what's your take on September so far?
A: The main thing that's going on that I seem to be talking about, nobody else in the media is, is a lot of stocks are down and sectors are down. An example is year-to-date, utilities have outperformed the index by 5 percent while industrials have underperformed by 5 percent.
That's huge. The cyclical stuff is being sold. Now, for instance, the Dow is up about 2 percent on the year, the Russell is down on the year and the NASDAQ is up 13 percent on the year. So, people have been squeezed into a smal ler and smaller number of stocks.
Just to give you an idea of what I'm working on this weekend for next week's report, which comes out Monday, I have 88 names on my sell list that are down, on average, 21 percent from their 2013, 2014 highs, the most we topped out earlier this year. These are names like GM, down 19 percent, Federal-Mogul down 20 percent, Freeport-McMoRan down 12 percent, Eaton down 15 percent, Micron's down 7 percent. Casinos: Wynn down 26 percent, Caesar down 52 percent. Carl Icahn's biggest holdings, RIG down 38 percent, NUAN minus 34 percent, Hertz down 10 percent, Herbalife down 44 perce nt.
I could go on and on but we don't have all day, so the point is stocks are going down beneath the surface of this market, and portfolio managers are underperforming. Goldman Sachs just reported that 77 percent of large cap portfolio managers have underperformed the S&P 500 this year. So they're being squeezed. Their stocks are going down while there's this kind of weird, strange bid by high-frequency trading and who kno ws who else.
Q: In your September 8th Belkin Report, you asked a very important question, “What are the implications of this extreme divergence of sector performance in the face of the relentless bid and stock index futures?
A: I'm thinking my title for next week's report will be "The Bride of Frankenstein", the Boris Korloff movie, the first one. He creates Frankenstein and he says, "It's alive, it's alive! In the name of God! Now, I know what it feels like to be God." That's like Bernanke and Greenspan, you know? Making the tech bubble and the housing bubble. Now, we've got Yellen in there and this is like the Bride of Frankenstein or rather "The Grandmother of Frankenstein." The plot of that movie was she brings the monster back to life.
They've resurrected this crazy mental ity of investors to buy the gifts, you know? The GDX is up 13 percent year-to-date.That's the gold mining stock ETF. Even after a sell-off recently in the last week or two, the GDXJ, which is the junior gold mining ETF, is up 21 percent. Viewed in a long-term time frame, the XAU gold stock index is at the same level it was 30 years ago.
So no progress even though we're up on the year. This stuff was really slammed over the last two or three years. So, we have an everything bubble of everything else, and portfolio managers are being punished. Their stocks have been down 20, 30 percent from their peak, most 77 percent, people like Carl Icahn. Yes, 77 percent of money managers are underperforming. So I think it's like a huge torture chamber.
All we're waiting for is the outflows from public investors to start. When people start calling and redeeming and saying sell, then the market starts going down. I think that should happen as we go into year-end. The Dow's up two percent, the S&P's up seven, but I think we're set up for a deleveraging.
I counsel my clients, which are mostly big institutional investors, be careful out there. The main thing would be trying not to lose money. Look at buying gold stocks on dips.
Q: With the looming end of QE3 program in October, the U.S. stock market's going have to pass an important test, right? Wouldn't you say that? How do you think it' s going to fare? Is that going to be the instigator to a down market?
A: We sure got a bit of a preview of that in the last week, we have fictitious asset values. We've had five, almost six years of zero interest rates and QE now, and people have come to take this all for granted.
The bond prices, junk bond prices, emerging markets, equities, everything, except for gold stocks basically. I think it's sent a shudder through the market this week with just the idea of a 25 basis point interest rate increases coming.
Oh, my God, the bond sold off my points. It gives you an idea how vulnerable these fictitious asset prices are based on nothing but a central bank policy that's being criticized by their own central bank of central banks.
I can't believe that we've gone on for five or six years with this kind of craziness found pushing up asset prices.
Q: I would say I would hope that with the end of QE3 that investors will come back and focus more on the fundamentals, like revenues and earnings and profit margins. I'm just wondering though, Michael, what shape do you think C orporate America is in today? Is it really going to inspire people to invest in them?
A: Good point. A lot of the growth has come internationally in the revenues and profits now. China slows down, and now we've got a war in Europe, and sanctions.
The global PMI index has fallen huge in August. Switzerland, Sweden, down three, four points, Australia, down three points, Indonesia, down three points. Basically two to six-point drops around the globe. We have a slowdown in China, a slowdown in Europe now, where those were big growth areas. Russia and now the oil companies. I think it's going to be negative growth, to answer your question.
For U.S. corporations, it's going to take a while for that idea to filter through to people, and the market needs a good shakeup. It's not like it's the end of the world. The best investo rs I know, over the long term, they buy low. They wait for bargains. They wait for things that are sold that are down.
Q: A lot of us have been waiting for four or five years, though.
A: Wow. Well, the gold stocks have already done that. So, you know, the GDX fell almost 70 percent from peak to trough 2011.
Q: But you think it has another 25, 35 percent rise to go?
A: I think if the bear market is over in gold stocks, I think you should buy the dips. Let m e preface that with saying there's a problem with materials having the weakest sector performance forecast right now.
I have a forecasting model. I think in people's heads they group gold stocks and gold in with things like steel and related materials. As the economy slows down, a lot of materials slow down.
I'm not bullish on copper or things like that, or base metals, or base metal miners, or anything like that. So, it's strictly gold and if you get back to the song. I think gold is a defensive asset that will become attractive as investors realize everything else is overinflated and going into liquidation.
Q: What do you make of gold mining and manufacturing gold bullions' sudden ignorance of geopolitical risk?
A: I think it's an opportunity. A lot of the noise that you see in the daily trading is these high-frequency trading computer bots. As far as I'm concerned, they're not that sophisticated at this point in their evolution about what is really going on, and they only can affect things in illiquid markets.
All you need on the part of large institutional investors who began to sniff a problem with safety and a problem in the financial system again with European banks, and something that can't be papered over. I think that will ignite a bid under gold and gold mining stocks.
Q: You meet with hedge funds and institutional clients. Are they talking like that? Are they seeing it? I think they are caught up. I call it the Stockholm Syndrome where the captives identify with their captors, butI went around New York and met a lot of people a couple months ago. I got the sense that they're playing along with the FED and they're just sitting on the edge of their chairs , waiting to push the sell button. Some as soon as some technical levels break.
Everybody knows it's a bubble but they're participating in it. They're playing along with it, but they know it's wrong. They are prepared to go the other direction in a big way.
Q: The U.S. seems to that the U.S. dollar is here to stay worldwide, and that de-dollarization isn't happening worldwide, and gold is kind of like a passing fancy. Do you think this is just classic hubris, or is it just simple arrogance?
A: The dollar is definitely getting replaced as a global reserve currency, slowly but surely, and we're almost encouraging that with all these sanctions. It's been an oil-backed currency essentially since we went off the gold standard. If you wanted to buy oil, you had to pay for it in U.S. dollars, and now that is changing. Ultimatel y, it’s bearish for the dollar, but I’m bullish for a deleveraging trade on the dollar just for a trade at the moment. I don't think now is the time to think of dollar collapse. I think that's further down the road.
Q: Isn't the rising price of gold a huge embarrassment to the U.S. government, because it actually devalues the dollar?
A: Absolutely. When you watch the way things trade, and whenever gold begins to break out, somebody comes in and sells billions of dollars at the open. Gold has always been a managed asset, where they try to suppress it
because it provokes a loss of confidence in the dollar.
There is a problem right now. So, if the dollar is rallying short-term for defensive reasons because other currencies are worse, like the Euro, then a lot of people would say, "Oh, then that's bad for gold." So, that's part of the psychology that's been knocking gold the last few weeks, but I think gold is more of a defensive asset than the dollar. I'm not super bullish on the dollar. I think gold will surpass the dollar.
Q: Please give us your thoughts on gold and Fed Chair Janet Yellen and a grade.
A: I came out of the University of California at Berkeley, Haas Business School, which is where Janet Yellen taught before she became Vice Chairman of the FED and Chairman. She was never my economics professor when I was there but I had to sit through her lectures in the Alumni Association, and you asked me to grade her.
I would give her an A+ as a sedative o r a sleeping aid. Literally, people were falling asleep in the room, and this is sort of like crËme de la crËme of Silicon Valley. Stanford and Berkeley are where all the tech people from Facebook and Google came from and they were literally falling asleep. It's like there's no there-there in her speeches, and and in terms of actual reality about what she does, I would give her an F. The motto of the Haas Business School is "Challenge the status quo." That's the first principle, and, Janet Yellen is the status quo.
The status quo at the moment is corporate socialism. She's replacing market forces with this idea of planning and management. If you study history, this is not really that much different than what FDR tried to do or what Hitler tried to do, replacing competition and market prices with this phony baloney academic idea of managing things, and ultimately hoping it sticks together for a while. Ultimately, however, a huge collapse happens. They can't suppress the market forces forever. I think that's what she's done. She's suppressed market forces, suppressed interest rates, created artificial credit, and she's sent all these phony signals to investors to invest in these assets that are overvalued and to corporations to buy back their own shares. The whole thing is just one huge speculative bubble.
Q: In one of your Belkin Reports you wrote how Yellen's quantitative easing policies are destroying the market's discounting mechanisms. What does that exactly mean?
A: When interest rates should go up and down, very simple concept. I used to teach Ron legislative assistants there about how the FED works and market forces. I mean, what is the matter with interest rates going up and down to reflect supply and demand? Do we live in a capitalist system or a com munist system? Basically by capping interest rates at zero for five years now that is the phoniest signal of all time. If you've taken that signal, you have done non-economic, non-rational things as an investor.
As for companies these kind of things end badly. We have short experiences like this with Greenspan and Bernanke, where they kept interest rates at 2 percent, or something, and it created a big bubble, but it only lasted a year or two. We are coming out of the biggest experience of manipulating credit conditions with bad consequences for investors.
It's all a huge speculative bubble and investors need to be ahead of the pack and not get trampled when the sentiment changes. The only thing that's keeping this us right now is this phony baloney sentiment that everything's okay, and once that sentiment changes, the world's going to look like a very different place.
Q: Where can investors get your report, if they can afford it, and also your music that's coming out?
A: They can Google "The Belkin Report," and then the band is The Refusers. We’ve opened for The Black Keys.
We've played the Washington state festival. The idea of doing the band is that people are going to be looking for answers. I think the world's going to change.& nbsp; I think we're living in a kind of a phony baloney period and I want to point people in the right direction.
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted Nugent, as well as Steve Forbes and Grover Norquist. The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses investing.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org