Central Bank Bubbles & Gold’s Fundamentals (Video)

In a long interview with Gordon T. Long, Managing Director of the Lindsey Group Peter Boockvar warns that the Federal Reserve has been creating artificial bubbles for years. In fact, we’re now facing the third bubble in 15 years. The mainstream news claims we’re not in a bubble because “things are different this time.” But Boockvar echoes exactly what Peter Schiff has been saying — of course this bubble looks different. All of the others looked different too until they popped. He also shares some fundamental gold investment advice: watching short-term price movements is useless. Once people stop placing trust in the Fed, gold has the potential to skyrocket in value.

Highlights from Boockvar’s interview:

“When you think about Central Banks and what they do, they’re not creating anything new. They’re just trying to pressure you to act today in some activity that you may have done tomorrow. They want you to buy a car today, not tomorrow. They want you to buy a house today, not tomorrow. They want you to buy that stock today, not tomorrow. So it just pull forward activity. When that initially begins, activity in the short-term obviously accelerates both in terms of economic activity and higher asset prices. But at some point you reach a wall where you’ve pulled forward so much activity that you’ve reached the wall of diminishing returns. You’ve certainly seen that in this economy over the past five or six years in this recovery. But on the other hand, the inflation and asset prices have pulled forward a lot of future returns, but that hasn’t stopped asset prices from continuing higher. That’s what it does. There’s a short-term high to it, but in this process, there’s malinvestment. In the late 90’s, for example, we laid a lot of fiber optic copper wires and so forth. While that would have happened ordinarily, you bunched a lot of activity in a very short period of time. Housing — a lot of these houses over a period of time, would have been built. But the Fed’s artificial suppression of interest rates caused a lot of that building to happen all at once. We saw it in the oil patch. A lot of these new hydrolic fracking wells would have been drilled, but the low cost of financing, cheap money caused it all to be drilled all at once. That’s what happens. It’s a short-term benefit but at major long-term costs that you pay the price for for a long time…

“I don’t want to say there’s broad deflation because in the US, services ex energy is persistently up two and a half percent year over year every month. So deflation in commodities prices is predominantly what we’ve seen…

“We know that central bankers have basically mucked up the entire concept of supply and demand and price discovery and has caused all these different inputs to be completely out of whack relative to where they would be historically… we have to remember that central bankers, particularly in the Fed, are academics who follow econometric models…

“I am even more bearish on the US stock market and think that a major correction is potentially just beginning… At some point they [the Fed] are going to lose control of the stock market and they’ll lose control of the bond market. We know they lost control of commodities prices… certainly not from a lack of trying, but they will at some point, and that’s when we have to get worried. I don’t know when that point is going to be. I hope it doesn’t necessarily happen, because we don’t want to see another repeat of 2008, 2001 or 2002. But we all have to remember that this is the third bubble in the past 15 years. This obviously has different characteristics than the previous one, so we’re not exactly sure how it plays out, but it’s still a bubble nonetheless, and we know how bubbles end. We just don’t know from what level and how bad it gets…

“No question [that this is a global bubble] and it’s mostly manifested itself in the fixed income market, but everything else will not be immune from it when this bubble pops… there are no bubbles left… this is the final phase of the central bank activism that we’ve seen…
I think we’re beginning to see the beginnings of that [central banks losing control]… we’re seeing major signs of instability here. So we’ve had central bankers in their attempt to create two percent inflation and what they call “price stability” has, in front of our eyes, caused major monetary, financial, and now foreign currency instability. So to me they’re already beginning to lose some control of the narrative… To me, central banks and them losing the faith of the markets is the biggest concern. I expect it to happen, but it will be on a methodical pace, but one that I think we’ve already embarked on…

“I think from a fundamental standpoint, anything that you’d want as a bull on gold is taking place in front of our eyes. I think the only thing that’s keeping gold back is this idea that it’s just an anti-dollar trade when it’s really just an anti-fiat currency trade. I think that the last roadblock to a resumption of the gold and silver bull market is that first rate hike from the Fed. Once that is out of the way and people realize this is not some long, extended tightening cycle, because the Fed’s just not going to be able to pull it off… that’s when the gold and silver bull market will resume… gold has pretty much stopped going back. I think from a technical standpoint, that says a lot… people should not ignore that divergence…

“I think people have to take a step back and see what these central bankers are going. There’s literally monetary madness going on, and don’t just trade gold because you see the dollar goes up and you want to sell gold, and vice-versa. Gold is not just a replacement of the dollar. It is a form of money for 5,000 years and it’s replaced all forms of fiat currency. So once we shake and disconnect from this dollar trade, gold and silver have the potential of going dramatically higher over the next couple of years. Try to put aside the short-term gyrations… and know that the risk to the downside is nothing like the potential upside from here…”