Interview With Analyst Florian Grummes

February 16, 2015

Florian Grummes from Munich has been studying and trading the gold market since 2003. In 2008 he started publishing a bi-weekly extensive gold analysis containing technical chart-analysis as well as fundamental and sentiment analysis. Since 2011 the pro aurum group, one of europe´s largest gold and silver retailer, is publishing his research exclusively in german. Parallel to his trading business he is also a very creative and successful composer, songwriter and music producer.

GOLD-EAGLE had the great pleasure and honor of interviewing analyst Florian Grummes recently. 

GOLD-EAGLE:  What is your overall Investment Outlook for 2015?

Grummes: I think until summer the rosy times will somehow continue. Later this year I think the markets will realize that expectations for corporate profits went too high and if the FED should indeed begin to raise interest rates equities could begin to struggle. We might see the stock market actually topping out while Gold could finally find its bottom this year. It all could happen in summer 2015. Another view would be that the FED will not start raising interest rates due to the strong dollar. This would be extremely bullish for Gold.              

GOLD-EAGLE:  What asset classes are grossly over-valued?  

Grummes: Probably most of the western stock markets and the US-Dollar. Also certain real estate markets (for example California, Texas, Canada, Hongkong, Belgium...) and to some extent art and collectibles. But on top of all are the bond-markets. The interest rates that you get here are artificially  and ridiculously low. This is not sustainable over a period of 10+ years. But it is always very difficult to generalize and even in an overvalued asset class you might find a great bargain and good opportunities.

Overall you need to understand that we are in a so called “Crack-Up Boom”. Most of the central banks on this planet are desperately pumping liquidity like crazy into the markets. The Americans have done it with QE, the Japanese with Abenomics, the British and now the Europeans are doing the same. And about China we do not have reliable numbers, but we know that they have a huge real estate bubble in many parts of their country and a shadow banking system that has given out way too many loans. After many years of explosive growth the Chinese government had tried to tighten the sector…but as it looks now the craziness continues (especially driven by Shanghai stock market which has risen 60% in the last 6 months and which has created even more demand for speculative money…).

My thesis is that markets all over the world are extremely distorted and it is quite difficult to figure out their true value in this kind of environment.

GOLD-EAGLE:  What assets classes are considered today very inexpensive relative to historical standards and current global economic conditions?

Grummes: Agriculture, precious metals and mining stocks, Cuba, Russia, the oil & energy sector (although the final capitulation is missing here). All these sectors are unloved at the moment and provide a great opportunity over the next couple of years for a longer-term investor.

GOLD-EAGLE:  In light of the US Fed fueling US stocks via the levitating action of Quantitative Easing (QE), do you foresee an imminent crash in the S&P500 Index during 2015?  And If so, what percent do you expect US equities to crash?

Grummes: Without a doubt, the air is getting thinner…but so far there is no sign of an immediate burst of the US stock market bubble. Instead we could still see some type of final mania phase. You have to be careful, central bankers can buy more time than you can stay solvent! Also let me remind you that trends are lasting much longer than anybody can imagine. Looking at the famous DowJones/Gold Ratio, the DowJones could still rise to maybe 20,000 points, while Gold still could fall to around $1,000-$1,050. They would then meet at a ratio of about 20, which is pretty much in the middle of the 200-year trading channel. From here things should change again and the precious metals bull market should return, while the stock markets should go down. This would be similar scenario like in the 1970ies. Remember, over a long period of time (years and decades), Gold and stocks are two different diametric asset classes… meaning when Gold goes down, stocks are up and vice versa.

So to come back to your question over the next couple of months I don’t see a stock market crash -- rather I expect a final bull market rally and a final sellout in gold. This should bring the Dow/Gold-Ratio to around 20 and should mark the end of the artificial recovery in stocks and also end the bear market in gold. Over the next 5-10 of years I see Gold and Dow meeting at around 1:1. Depending on the amount of worldwide artificially created liquidity, this could mean that they will meet at 5,000, 8,900 or even 15,000 to 20,000. Here’s a 200 year chart which should galvanize the interest of Gold-Eagle’s readership.

GOLD-EAGLE:  And if indeed US stocks commence a new secular Bear Market, where might prudent investors seek safe haven?

Grummes: Without a question they will switch into Gold and Silver. But we are not there yet…

GOLD-EAGLE:  What is your forecast for gold and silver during these troubling and volatile times?

Grummes: I am still convinced that this bear-market in gold and silver is not over yet. We are in the final stage. Maybe in summer 2015 at a maximum in summer 2016 we should see Gold finding its final bottom at around $1.035-1.050, maybe with an intraday dip towards or below $1,000. My worst case scenario would be $980. I don’t think that gold will fall below $975 ever again.

GOLD-EAGLE:  As you well know, The Peoples Bank of China and Japan’s Central Bank are the world’s largest holders of US Treasuries. They own $1.3 TRILLION and $1.2 TRILLION, respectively. In your estimation do you feel the Peoples Bank of China and Japan’s Central Bank will soon awaken to the imminent FOREX danger this represents…and will subsequently dump Uncle Sam’s fiat paper to diversity their dire FOREX risks?

And in the event The Peoples Bank of China and Japan’s Central Bank divest themselves of US Treasuries, might that cause a crash in the US Bond market…and a related crash in the value of the US greenback?  

Grummes: Indeed the largest foreign holders of U.S. debts are China and Japan. Each holding roughly around 7% of U.S. debt. But I don´t think this is an immediate threat for the US. It is true that the Chinese are already diversifying themselves by increasing business with Russia, India, Brazil, Africa etc… Also by acquiring brands and technology in Europe for example. They just want to do business and make sure that they have all the necessary resources too. Longer-term they will try to end the US-Dollar regime of course. But currently they are not strong enough to do so. The US is still a very important customer to them and they surely don´t want to ruin their U.S. business. Only in a case of aggressive US military confrontation, China might use this financial weapon. The U.S.-Japan alliance instead is a cornerstone for U.S. security interests in Asia and they both share lots of vital strategic interests. Therefore I don´t see the Japanese as a threat at all. Instead they are a trusted ally.

Generally one can say that the U.S. is still considered as the one-eyed man among the blind. Therefore as long as there are no safer places to invest, money will continue to flow to U.S. and will delay the need for higher taxes. Longer-term however this is highly unsustainable of course.

GOLD-EAGLE:  With regard to building cash in your own investment portfolio, are you in the same conservative boat as billionaire Warren Buffett who has amassed a cash position of over $55 BILLION (in anticipation of a stock market meltdown)?

Grummes: I am still missing a few bucks to make it into the billionaires club (haha…) but I think a cash position of at least 10-15% of one´s net worth is more than reasonable… even though it might mean that you are losing purchasing power while waiting for outstanding opportunities… The biggest gains are always made with patience while waiting at the sidelines… The markets will always offer new opportunities to the one who is prepared but patient.

GOLD-EAGLE:   What is your opinion of the ramifications of Swiss National Bank’s unexpected decision to abandon the currency’s cap versus the euro…which drove one of the biggest shakeups in foreign-exchange history?  Will the SNB decision cause the Euro currency to crash…i.e. thus paving the way for the eventual collapse of the Euro Union?

Grummes: No, this will not crash the Euro but it is another domino piece that ultimately leads to a complete loss of confidence in our paper money system. The decision of the Swiss National Bank was long overdue and correct…but the implementation extremely amateurish.

GOLD-EAGLE:   To date the only member of the Euro Union that has been living high on the hog so to speak (i.e. referring to the PIIGS) has been Germany.  What might Germany do to salvage what it can?

Grummes: I don’t think there is much to salvage. We are part of the EU and the Euro System and our politicians are doing everything to defend the current status quo. The only development that I can see is that the German people will vote for a new party trying to change the direction of politics. But this is a long process and will take time. I am afraid it will be too slow and will happen too late.

GOLD-EAGLE:   Many thanks to Analyst Florian Grummes for sharing his insightful and timely views with our global readership.  His website is www.goldnewsletter.de

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