Silver is a "great industrial metal" yet to catch up with gold's long-term bull run...
A WEEKLY COLUMNIST for the Financial Times, James Altucher co-founded a venture-capital fund specializing in the internet sector in March 2000.
Now a hedge-fund and fund-of-funds manager at his own Formula Capital, he's moved onto private investments in private equity (PIPEs), and is also the author of Trade Like A Hedge Fund and Trade Like Warren Buffett.
Here, James Altucher speaks to Mike Norman, anchor at HardAssetsInvestor.com, about gold vs. silver, why there won't be hyper-inflation, and how the stock market is about to come roaring back...
Hard Assets Investor: In the midst of everything that's going on, how do you – as a "contrarian" – see the rest of this year and into 2011?
James Altucher: Well first of all, when you say "contrarian," I think that word, now, means a lot of people just hate me, or at least...
HAI: Well, we don't hate you.
James Altucher: Whenever I write an article that's bullish on the market, all the comments are just, "Oh, you know, wait for a loaf of bread to be a billion Dollars," and just all these ridiculous comments. But, just to back up, in general I'm bullish on the economy and I'm bullish on the stock market. And I'm not in the camp that says, "Everything's falling apart."
Now, things feel bad. It's never good to have 10% unemployment. It's not like the economy's on fire. But we've been experiencing growth. ISM over 50 shows that there's growth that's there. The economy is still expanding. GDP has gone up for four quarters in a row. And CEOs are starting to loosen the belt a little bit. They're starting to spend money. They're confident in their future prospects.
So, while we may see some flattening of growth in the third quarter, I do think, over the next year, it's going to be solid GDP growth. And I do think the stock market is going to be on fire for the next year.
HAI: Some of the fear you mention stems from government policy – or the perception of policy – this idea that the government stepped in to try to support the economy. What do you think about the policies?
James Altucher: Well, we are not going towards a hyperinflation. If anything, I'm worried about deflation. Right now, housing prices are still...what are they, 20-30% off of their highs? The stock market's still down. People judge their net worth based on where the stock market is and how much their home is worth and also, what's in their bank account. All three of these things are down.
So, it's not as if people are going out and spending a billion Dollars for a loaf of bread. And that's what you need to have inflation. You need to have employment at full throttle. Sure. Like right now, you can say the Fed is printing up money. But, look – it's not going anywhere. The money supply has not been drastically increasing. Right now, they are just trying to avoid a deflationary scenario. In fact, the CPI is at its lowest point in what, three decades right now? So, I don't think we're anywhere near an inflationary environment. And if you are really worried about hyperinflation, you know what you should do? Buy stocks. Forty per cent of the S&P 500 revenues come from abroad. So, the S&P 500 is now a global index. I would say it's almost an inflation-tied index. So, that's what I'd be a buyer of, if you really are worried about hyperinflation.
HAI: So, let's talk a little bit about Gold Investing, which has been very, very strong. And a lot of people see it as the ultimate inflation hedge. You don't see it that way.
James Altucher: If I go and pick up a rock on the street, am I suddenly going to say it's worth $1300 an ounce? Gold is ultimately just a rock. It doesn't even have the industrial uses that silver has, which I view as a more interesting metal, because it's both a precious metal and an industrial metal. So, if the economy improves, silver goes up. But gold has zero industrial uses. And it's just a fear metal.
Now, this last real boom in gold has happened because of all the uncertainty that's going on. We don't know what the government is going to regulate next. We don't know about Greece and Spain and Portugal – how all these things are going to turn out. People have been Buying Gold as a fear metal. But that's going to end. When the stock market starts to really come back – and even though it's 70% off of its lows, we haven't even really seen it come back – when you really start to see money flows go back into stocks, it's going to be coming out of gold.
I'll tell you what, though. I did just make my first Gold Investment ever. I got married. I bought a white gold ring here. Very nice. I got it at a pawn shop. So, I didn't want to pay top Dollar for it.
HAI: So, there is some real demand for it. Actually, you're right. It comes from the jewelry side of the industry, which I has been kind of been coming down a little as a source of...
James Altucher: Fewer people are getting married.
HAI: There you go. So, let's expand that a little bit. If we get an improvement in the economy, which is what you're forecasting here, what about some of the other commodities that are more industrial-based? What about oil, for example? Can we go back to the highs that we saw?
James Altucher: Definitely. And look, oil's a great example, where we're significantly off the highs. We're like 40 or 50% off the highs. So that really shows you the state of where people think the economy and inflation is going. But I do think oil can go back to its highs. I'm not necessarily a believer in peak oil. We'll find alternative energies, ultimately, to replace it. But oil is going to go back to its highest at some point.
Silver, I think, is a great industrial metal that hasn't kept up with gold. I think we could see highs on that. And certainly, we can see highs on silver stocks.
HAI: So, you see that spread between silver/gold narrowing?
James Altucher: Absolutely. Again, silver is not going up on fear; gold is. Eventually, you can arb that.
HAI: All right. Well, there you have it. James Altucher, an economic bull.
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