Translation of an interview for Oroyfinanzas.com
Oroyfinanzas: These last few weeks half of the planet’s stock markets
reached historical heights. Do you see this upward movement continuing going
forward?
Fabrice Drouin Ristori: I would answer in two parts:
First, in nominal terms (measured in paper currencies),
stock markets have effectively been growing these last years, but evaluating
an asset in a devaluating currency (dollar or euro) does not lead to a clear
vision of its performance. In order to get a clear idea of its performance, I
think it is best to eliminate the monetary factor and compare an asset
against other real assets, such as gold or oil, for example. And if we use
this method over a long period, we realise that the stock markets do not
really perform highly. This performance is an illusion due to the
depreciation of paper currencies.
Secondly, stock markets are not the free markets they
once were. We now know that central banks intervene massively in those
markets, distorting their value by creating demand coming directly from
liquidity injections into the system. So as long as central banks keep
monetising the stock markets, we will continue to see a high performance in
nominal terms, but not in real terms.
Thus, if central banks continue to intervene in the stock
markets, they can continue rising in nominal terms.
Oroyfinanzas: Is this rise justified, seen through the lens of economic
fundamentals and corporate results?
Fabrice Drouin Ristori: No. The price-to-earnings ratios are approaching levels of
over-valuation like the ones of the last speculative bubble of the 2000’s. As
I was stating above, the current valuation of the stock markets has strictly
nothing to do with fundamentals, and everything to do with central banks’
interventions. Or else, for instance, how could one explain that trading
volumes on stock markets have been plunging these last few years, while stock
prices are rising? It doesn’t make any sense, unless one factors in central
bank interventions.
Oroyfinanzas: Is there a mutual relationship between central banks and stock
markets?
Fabrice Drouin Ristori: The majority of investors keep an eye on the stock markets’
performance. A rising stock market may provide the illusion of economic
health and comfort for the masses. And this is what governments and central
bankers have been trying to sell us since 2008, while the fundamentals of the
real economy keep on deteriorating.
This is the reason why central banks, certainly at the
behest of governments, intervene in those markets. This is, notably, the role
of the Plunge Protection Team in the United States.
So there is a direct relationship. Without monetary
stimulus we wouldn’t have witnessed such a stock market performance these
last few years.
Oroyfinanzas: According to Janet Yellen, the role of the Fed is to favour
the development of the real economy and to protect the dollar. Do you think
this situation can last for awhile?
Fabrice Drouin Ristori: No, it is not tenable. Monetary creation has never succeeded in
putting back an economy on track or to develop its structure. If it were the
case Zimbabwe would now be the foremost economic powerhouse.
Take a look at Japan, for instance, that just got into a
recession while they announced their 9th QE plan. The Japanese economy is
drowning in liquidity and, still, it is not improving. Monetary printing does
not work.
Contrary to what the Fed says, I think its role is, above
all, to protect and save the current financial/banking system by injecting
the necessary liquidity to prevent the sector from collapsing, rather than
supporting the real economy.
In so doing, the Fed contributes to the dollar’s
devaluation, notably for boosting exports, but this doesn’t work either
because all countries are participating in this currency war. I don’t see how
the Fed can avoid another QE, since the BoJ and the ECB are continuing the
competitive devaluation game.
One has to understand that all currencies are falling –
albeit at different speeds – and they are all falling together. We can
foresee a total loss of faith in paper currencies.
Oroyfinanzas: How can one explain the dollar getting stronger against the
euro when the Fed has injected more than $35billion a month in the markets?
Fabrice Drouin Ristori: The relative strength of the dollar recently has more to do, in
my opinion, with the “fear trade”, leading investors to take refuge in the
dollar, than with any other fundamental explanation.
Of course, when the Fed announced the end of QE, the
dollar rose against the euro but again, as I was saying above, the Fed will
not be able to go without a new QE plan. It will need one to keep supporting
the stock markets and to continue its competitive devaluation policy in an
attempt to boost exports.
So the performance of the dollar against other currencies
is only temporary.
Furthermore, on a geopolitical level, the BRICS are
slowly tapering the use of US dollars in international trade settlements,
which does not bode well for the dollar on the long term.
Oroyfinanzas: Will the US dollar lose its role of international reserve
currency? And what role does China play in this?
Fabrice Drouin Ristori: Yes, absolutely, and this has everything to do with the
petrodollar status being questioned.
The new world powers do not want the United States to
continue with this exorbitant privilege of being able to freely issue the
world’s reserve currency at will.
On the one hand the Fed, with its exponential monetary
creation policy, is destroying the dollar’s purchasing power and, thus, the
value of the monetary reserves of every country on the planet.
On the other hand, this privilege of issuing money lets
the United States finance wars and aggressions against the new world powers
(Russia, China).
All of the events of these last few years leading to the
use of a different currency than the dollar for the settlement of bi-lateral
commercial trades (commodities, oil, gas, commercial goods etc.) are to be
analysed in the context of a progressive calling into question of the US
dollar being the international reserve currency. China and Russia are the
pillars of this trend toward rejecting the dollar.
As Charles de Gaulle was saying:
“The time has come to establish the international
monetary system on an unquestionable basis that does not bear the stamp of
any country in particular. On what basis? Truly, it is hard to imagine that
it could be any other standard than gold.”
This is the new system toward which we are rapidly moving.
Oroyfinanzas: How do you see the price of gold moving in the next months?
Has the confidence crisis in paper gold intensified?
Fabrice Drouin Ristori: As long as the gold market will continue to be disconnected from
the reality of the physical gold market, the price of gold will keep going
down.
I’m one of those who consider that the price is being
manipulated, or influenced, to the downside with the help of this virtual
supply of paper gold.
I just wrote an article on the influence of paper gold in which I brought up the following
question, which investors should ask as well: If the price is not being
manipulated or influenced, how is it possible, given the law of supply and
demand, that the price is going down while there has been a record demand for
physical gold and silver in the last few years?
It’s a simple question that all investors interested in
gold must ask before taking their investment decisions.
In that article, I give the answer to that question.
I would simply add that the price of gold and silver will
go back up as we witness tensions on the physical market getting more and
more acute. Said tensions will be sending a clear message to investors: If
the gold or the silver is not available, it just means that there is not as
much physical gold and silver as there are paper gold contracts outstanding.
That will be the time when we see an acceleration of the
rush toward physical and, conversely, a strong rise in the price of precious
metals.
One should note that the BRICS and the central banks do
not buy paper gold or silver; they only buy physical metals.
Oroyfinanzas: What advice would you give at this moment for investors who
would be interested in gold? Is physical gold a sound option?
Fabrice Drouin Ristori: I would advise investors to focus primarily on analysing global
demand for physical gold and silver and stop listening to the Western
financial media, which do not correctly analyse the precious metals markets.
Thus they will realise that there is an anomaly in the
price fixing mechanism for precious metals and that they must take advantage
of the extreme under-valuation of precious metals to acquire some before the
physical market gets really perturbed and that more important scarcity
problems occur.
I have been personally investing in physical gold and
mainly silver since 2008, and I buy more every time there are engineered
dips.
I am doing what central banks do, namely those of the
BRICS, that all own physical gold. I am my own central bank, which means also
that I do not store my physical gold or silver in the banking system.
The company I founded, Goldbroker.com, has put in place
an investment solution that lets investors own physical gold and silver
directly in their name, without any intermediaries, and store it outside of
the banking system. Each investor can thus become his/her own central bank
with our solution.
My final recommendation for investors is this: Become
your own central bank... invest only in physical gold.
