In the third of our series, Jody Clarke talks to newsletter writer Dennis Gartman.
Is it still possible to make money from this rally?
Gains of this magnitude, if not unprecedented, are certainly over on the far right of the bell curve as far as returns are concerned. It was one thing buying aluminium giant Alcoa at $5 it's another buying Alcoa at $15.
If you had $10,000 to invest, where would you put it now?
I'd probably keep it in a savings account and wait until stock prices go sideways or even correct 10% or 15%. Until that correction occurs and my guess is that it will be sooner not later I don't think I'd buy much of anything at all.
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But if you put a gun to my head, I'd buy into the raw-materials exporting countries that are doing better economically than the US. So I'd buy Australian banks, tar sands group Suncor (TSX: SU) in Canada, and Brazilian oil giant Petrobras (NYSE: PBR).
How should investors react to rising budget deficits around the world?
With a great yawn. Contrary to what people say, over the last 30 years rising budget deficits have given way to lower interest rates. So you shouldn't be too concerned. Rising budget deficits have been associated with both bull and bear markets in equities and rising and falling gold prices, bond markets and base metal prices. So I'm not sure if there's any correlation to be drawn.
What about the structural shift from the West to Asia?
I'm not sure it's a problem because rising per capita incomes in China and India will give rise to the greatest boom in consumer demand we'll ever see. That will offset falling consumer demand in Europe and the US.
I'm not sure how to play it in stock prices. But if I had a 22-year-old son, who didn't know what he wanted to do with his life, I would fund him and tell him to go buy the gas, plumbing and fixtures distributorship in the tenth largest city in China, and say "go make this work". Because that guy is going to get wealthy over the course of the next 50 years. The people who sell the normal things of modern life to a rising consumer society are going to make fortunes.
You've recently been bullish on gold
Well, I have been, but please write this down. I don't like myself when I'm bullish on gold. I'm not a gold bug. I don't like the gold bugs I think they're a disdainful bunch of people who are pessimistic about the future. I don't look at gold as being anything other than a price, a number dancing across a page.
The gold price is rising because of a loss of faith in currencies. If it has something to do with inflation, why is the long end of the yield curve at 2.5%? I think the bond market is smarter than the gold market. Because there are more participants, there is more at risk and more circumstances at play. And if the bond market is at these yields, it isn't worried about inflation, so there has to be something else driving gold prices higher. And I think it's a general disdain for currencies.
Do you think we're facing deflation?
Someone asked me on television a couple of months ago whether I thought we'd see inflation or deflation. And I said 'yes'. I think there will be both. I think there will be inflation as far as raw material prices are concerned. But there will be deflation as far as wages are concerned.
The autoworker in Detroit is no longer looking across the river and seeing the autoworker in Windsor, Ontario, as his opponent. Instead, he now looks to India and China and sees a billion people as his opponent. And that's going to keep inflation down as wages have a far greater impact on the price of an automobile or a computer. After all, what's the cost of a chip? A couple of grains of silicon that's not much. If labour rates are weak and falling, even if raw-materials prices are rising, the ultimate impact on inflation is non-existent.
What's your strategy for picking stocks?
I buy things that are going up and I short-sell things that are going down. So I follow the momentum. I'm not a value investor. I've watched too many value investors buy something at 80 that had value, then buy more at 60 when it had even more value, and again at 40 when it had yet more value, then at 20 when it had demonstrably more value, and then lose all their money when it fell into bankruptcy.
Who is Dennis Gartman?
Now one of the highest-profile market-watchers in the US, Dennis Gartman, 59, was born into "a very poor family" in Akron, Ohio. His father made compressors for the local car-manufacturing industry. "If it wasn't for the scholarships I won, I wouldn't have been able to go to university." Gartman says he watched the markets from the sixth grade (equivalent to the first year in secondary school in Britain). After leaving graduate school in North Carolina in the early 1970s, he became an economist for a body promoting the cotton industry. He went on to trade currencies for a bank, and bought himself a seat on the Chicago Board of Trade commodities exchange. In 1987, he began producing The Gartman Letter on a full-time basis. Today, the daily market commentary is one of the most influential trading newsletters on the market.
