Mike Gleason: It is my privilege now to welcome in Greg Weldon, CEO and President of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in the metals and commodity markets, and even authored a book in 2006 titled Gold Trading Boot Camp, where he accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $550 an ounce. He's a highly sought-after presenter at financial conferences and is a regular guest on financial shows throughout the world.
Greg, thanks so much for joining us and it's a real pleasure. How are you?
Greg Weldon: I'm great. Mike. Thanks for the invite.
Mike Gleason: Well, before we get into the metals specifically, Greg, to start out here, give us your thoughts on the U.S. stock market, the state of the U.S. economy, and the geopolitical environment, and so forth. Obviously, there's a tremendous amount of exuberance still in the equity markets despite a lot of headwinds or black swans circling about, but yet things keep rolling along, and we keep seeing records made in the Dow. What are your thoughts about how long this might continue?
Greg Weldon: Well, you got a couple hours, I'd be happy to share all that with you, because there really is so much going on. I think you're right to pick on the stock market to kind of center the viewpoint, because right now that kind of is, to me, a potential land mine. It's not so much that the simple fact that the fundamentals and the expectations seem to have gotten a little bit out of alignment if you want to talk about the macro economy. You want to talk about you've gone through earning season. You want to talk about individual companies. You want to talk about certain businesses. That's well and good. There's always a place to look in the stock market where you can find opportunities.
But from a general, bigger, macro picture view, it gets to the Fed that has projected their going to be more hawkish than they have been really since 2014 when taper went to tap-out; when they stopped buying U.S. treasury debt, when they stop monetizing debt. They've continually stated on their dot plots that they would be much more hawkish than they turned out to be and I think that that's finally come to the fore and you can't get away with that for only so long until it's impacted the Dow. And now the Dow has come down and what's interesting about that is you haven't seen the normal reaction you might see in commodities. It certainly hasn't hurt the stock market, but nor did the stronger dollar, which you might have thought would be a negative headwind for the stock market.
All of that is one thing. The second thing being, of course, well you mentioned, the expectations based on the fact that this rally kicked off in November. No doubt about it. You can map it back to November 9th. It doesn't take a rocket scientist. And, the expectations for three to four percent GDP growth that was going to be something you might see by the end of this year, maybe the fourth quarter. If not for sure next year, based on policies that were to be implemented that, right now, are nowhere on the radar screen. That's an issue, as well.
But then you take it to the third level, and this is where is gets a little troubling, and you take some of the high-flying tech stocks. And I'm not bashing the business. I'm not bashing the people running companies. I'm not bashing anybody. What I'm saying is, you have widely owned stocks that have gotten to such high levels of nominal prices, you think like an Amazon or Google, and you trade a thousand dollars a share. Widely owned, for the most part, I don't think you really can argue that the people that want to own these stocks, own them. And from that perspective, if you get any kind of dynamic that is landmine-ish in terms of some of the peripheral stuff you have going on. North Korea would fall into that category, we can talk about a lengthy list there, as well. I think there's a situation where you've had diminishing volume. You've had huge ownership and if you go to see any kind of liquidation, even if it's just profit taking, it starts as profit taking, you could hit a real vacuum of volume, a vacuum of buyers, and you could see something begin to roll into a bigger picture story that kind of comes out of that. So, in this U.S. stock market, that's my biggest fear right now.
Mike Gleason: Certainly the dollar has showed signs of weakness. You touched on that a bit ago. That's generally a pretty good tailwind for gold and silver. Are you looking for inflation to start to rise here as the dollar gets weaker?
Greg Weldon: No, not at all. In fact, we've called inflation, I'd have to, humility aside, say exceptionally well. And it's been pretty simple. It's been linked to energy. And you could see the peak coming in February, because you had the big moves in energy over the past 12 and 24 months that played out to see exactly what we saw, which was a peak in inflation in the U.S., and globally, frankly, in February. And since that it's been down, as we anticipated, given that the big positive year over year effect out of energy was stripped out of the equation. And if you look at what's going on in commodities right now, energy is renewing, kind of, it's breakdown. It had a perfect Fibonacci retracement, depending on what contract you look at, above 50. We watch the December contract. Came right to the 200 and moving. It's textbook stuff and now it's breaking down again.
The grains have gotten destroyed. The crop report from Friday, rice was the only bullish light along with dairy. Everything else, from livestock to corn to soybeans to cotton to sugar, were all bearish revisions in terms of the expectations for this crop. So, CRB (Commodity Research Bureau index) is actually negative on a 3 month, 6 month, 12 month, 24 month basis right now. That doesn't support any thought process right now around inflation, unless it were to come from wage inflation. Do we see it coming from wage inflation? Sporadically, in certain industries, skilled laborers, yes. More broadly, to the point where the Fed wants to see it above three? Absolutely not.
So, no, I don't see inflation in the medium term horizon. That's not to say that things couldn't change in the meantime in terms of monetary policies, but as it stands, no, absolutely not.
Mike Gleason: Obviously the Fed is very much concerned with inflation, so you got to think that that is likely to dictate some of their monetary policies as we move throughout the rest of the year here. I know you follow pretty much all the commodities. What do you make of copper's recent surge? They call it Dr. Copper because it's a pretty good indicator of global economic growth. So what is copper telling us right now, Greg?
Greg Weldon: Well, I'll tell you what, the base metals, we're long bullish to base metals. The DBB is the ETF that you could play there. We have liked aluminum and zinc, in particular. But even the weakest link, nickel, is breaking out here, too. So it is a broad base rally that extends beyond copper.
In terms of copper being the widely watched benchmark, I have a couple of comments. The first one is, Asian demand is still very good. You have some pretty hot areas globally in terms of the economy and that's one of the reasons the dollar is down is because other currencies are stronger. And, in the case of a place like Korea or Thailand or Taiwan or China even and some of the peripheral Asian countries, emerging markets are fairly strong, so those currencies have been strengthening.
But in the context of what you're asking me, I think that the dollar ultimately looks lower because you don't have inflation. So really, it's all about the Fed's fund rate right now. And the expected Fed's fund rate and where you've come and where you've been and what you've expected and what the Fed has said they expected. This is a shell game that's been going on for really since 2014. And the expectations right now are pretty, again, broadly diverse from the market thinking maybe you have one and maybe you have 25% chance of two rate hikes between now and the end of next year. For the end of next year, the Fed's dot plot is 2 to 2.25 (percent).
So, that's a massive divergence and I think, as the Fed continues to disappoint, even though it's priced into Fed's fund futures, I think the dollar has further downside, too, and I think if you look at what's going on in Europe, it's important, because you have economies there that are actually strong. The U.S. would die to have some of the numbers you're seeing in Europe in places like Poland, and the Czech Republic, and Germany, all liked to the German export juggernaut. Record high exports. Tremendous numbers. Historic lows in unemployment. And these economies are cooking. So, to think the ECB is going to be continuing to be buying bonds beyond the end of this year, I think a taper is coming there, too, and that will further support the interest rate dynamic that moves away from the dollar.
Mike Gleason: Kind of expanding the point here on some industrial metals. Silver, which is both an industrial metal and a monetary metal, can often get caught in the cross currents. Is it a safe-haven when things don't look good? Or does lagging demand for hard assets do to a slowing economy hurt it? What are your thoughts on silver, Greg?
Greg Weldon: Well, you know, silver really has lagged all over the place. And silver has been subject to some pretty sharp swings on really a lack of depth almost. Silver has -- I love silver. I grew up in the silver pits. To me, there's always an emotional tie to silver, as there is for a lot of people out there. But it's unfortunate the market has kind of deteriorated to the point where you really need to break out in gold about $1,295 here to give silver any chance. And to think that the gold-silver ratio can get a big move right here, I'm not sure I see it.
To touch upon industrial metals, we were speaking about copper -- I actually didn't finish my thought there. It's kind of the same for silver. It's kind of the same for platinum. Outside of palladium, which is on its own universe, these metals are kind of tied together as industrial metals. And if you look at what's happened in copper, you have the big rally that's predicated upon growth you're expecting to see down the road. It's not predicated upon growth you see now. At least not in copper's fundamentals, because the swap rates for copper are at new lows. In the deepest contango we've seen throughout this entire rally. That belies the thought that copper is a tightened market and that you're actually building on expected future demand that hasn't materialized yet based on policy implementation that doesn't seem likely anytime soon.
I kind of have a problem with copper itself. The other base metals we kind of like, but in terms of silver, it will only trail gold if gold breaks out about $1,295. Right now, I'd rather be long gold.
Mike Gleason: In our space, we have seen a few people looking for an anti-dollar investment instead turn to Bitcoin and other cryptocurrencies, rather than to gold and silver. What are your thoughts there? Is Bitcoin a suitable substitute for the time-tested value of gold and silver as true money?
Greg Weldon: I think the immediate answer to that is a resounding no. I think that there's a lot more we could talk about with Bitcoin in terms of A, is it drawing money away from gold? And I think right now it has. If you see the latest little blurb in stock market, Bitcoin takes off. I think people are kind of using it as an alternative currency, obviously, and that does draw away from gold. So, I think it's interesting to note that, as the dollar has declined like 7% since, I guess it was maybe December, January, gold went down like three or four percent. I don't remember the last time I saw that and I wonder at the same time Bitcoin is soaring, whether that's a function of the rally in Bitcoin?
I could go much deeper on this in terms of what does this mean for monetary authorities and controlling money supply globally? I think that's, obviously, the biggest tipping point with something like Bitcoin. Will they try and regulate it? The SEC has already made some noise on that, so I think that's the way to look at Bitcoin in terms of the risk. The risk is that it's a disruptor of magnitude that we really don't even want to contemplate.
But is there an alternative to gold? No. Not in the long run. In the long run, if you have some kind of situation where you need hard currency, Bitcoin's not a hard currency, case closed. If you have an electronics failure, who cares about Bitcoin? What you're going to care about is the bar of silver you have in your hand or bar of gold. So, from those perspectives, you could talk all you want about the new age of money, but, at the end of the day, in terms of a store of value that will, as you say, stand the test of time, it's a resounding no.
Mike Gleason: Getting back to the stock market here. Do we need to see a significant correction in order for gold to catch a bid and drive a bunch of global safe-haven buying? Or is it possible to see it rise on other factors?
Greg Weldon: In terms of the stock market, does it take a decline of stock market for gold to catch a bid? No, I don't think it does. It's awfully tough, because where I go with gold is dollar down and dollar down's not necessarily bearish for stocks. So what I kind of really see might be some scare in stocks that actually causes the Fed to back off or to kind of change their tone even more away from hawkishness maybe even with a dash of devilishness in there.
If you look at St. Louis Fed Bullard, he is very staunch in his belief and has been since March and we detail his speeches all the time, because we're right in line with his view. But the Fed's not likely to hike rates at all between now and the end of next year. That's completely against the grain of the Fed. I agree with that. I think that puts the dollar at risk. And yet, that's supportive to stocks, but I think there's still a case there for gold… that gold starts appreciating on, hey, maybe, what are we doing here? Are we getting a little crazy with the reflation again?
Let's not forget that you’ve had consumer credit grow an unprecedented level. The collateral is the stock market. The collateral is the 401K. You can take housing and the market back in 2007/8 and make some similarities. I'm not saying it's the same, but there are a lot of similarities in the dynamic between the way consumers have borrowed to sustain their own spending in a feel good economy. That's given us two to three percent growth and everyone scoffs at, but without QE, we wouldn't even be here.
So, from that perspective, when you look at the degree of consumer borrowing that's taken place, against the rise in the stock market, that's little scary and that's where a decline in the stock market would probably elicit a Fed response. The Fed's very well aware of this, because if the stock market were to decline materially, that would really cause the consumer to re-tense very quickly, because of the link to credit and the immediate situation where the collateral base has dropped and the consumer still owes the money. Then what? That could be a bad economic scenario. The Fed's not going to want to see that happen. And I think that's the bottom line, end game, bullish story for gold.
Mike Gleason: In your view, what do see happening if we do get that little pull back here in the stock market that so many people have been waiting for? Will it have a snowball effect and really get bloody quickly as everyone heads for the exits all at once? People always talk about the movie theater analogy where a fire erupts and then it becomes mass chaos as everybody's trying to go through a small little exit point all at the same time and some people get left behind. Talk about this, Greg, and give us your thoughts on what you see happening if we do finally get that pull back in the U.S. stock market. Will it be short lived or could we see a major correction that feeds on itself?
Greg Weldon: I kind of liken it to the exact scenario you just laid out. That's something we've been saying in our daily research and some of the other interviews I've done recently. Specifically, that, that this is a real situation where you could see some very quick damage done. It's almost like you start thinking about the old portfolio insurance days. This is a situation where people are long with big positions, cash managers, low levels of cash, not something we recently, in a lot of these other dips, you've had cash cushion. You don't see that now. You've had public investments huge and passive investments, which own all of these stocks, and more recently now, they've expanded their inflow into actively managed funds again.
So, the public's invested, too. Maybe not fully, but right now it doesn't matter because these stock prices, again, it's just to me, so many people own them, the volume has dried up. And if you get into a position where you start rolling to the downside and people want to liquidate, it's a potential vacuum of buyers and vacuum of volume underneath this market where you could shave off 20% so quickly it'd make your head spin.
Does that then become a bigger picture story? It absolutely could, because of how extended technically these markets really are. And how vulnerable it would be in terms of the impact it could have on the consumer. So, from that perspective it's kind of like you always got to watch out who could get hurt here, because they usually do. So, in that case, unfortunately, it's the consumer. And then the question becomes, how quickly and forcefully does the Fed potentially react? And you're talking about the entire flip side of what we're looking at right now. So, how does that all play out remains to be seen, but I think the stock market's a potential catalyst for that, for sure.
Mike Gleason: I've heard you call gold a coiled spring. Talk about maybe the technical side there. What you're looking for on the charts. Obviously you follow this stuff very, very closely. What do you see ahead for the yellow metal and why do you have that view that it's "a coiled spring"?
Greg Weldon: Again, it links back to the correlations with other markets i.e., the dollar. And when you tie the technicals with the fundamentals and you kind of come up to where we are now, it seems, I'm kind of wondering, is it too obvious? You know and I know, I've been around long enough that if it seems this obvious, you want to ask yourself what's wrong with my thinking? What's wrong with my scenario.
So, part of what we do every day here is not only just look to confirm what we think we know, but to look to refute it, too. And in that vein, it looks almost too perfect, because the technical situation, in the dollar, flips off to the technical situation with the gold extremely well right here. And the technical situation in gold, Mike, is really exciting. It is long term secular stuff where if you get above $1,300 here, $1,295, then you've got $1,377, and beyond that, this is a new bull leg. And a new gigantic structure type of bull market going on where you're thinking about these metals going to new all-time highs.
How all that plays out, obviously, remains to be seem. That's why we love doing this every single day. Digging in and finding out where we're at and finding what's changing and finding what's happening. But the technical structure is such that it goes all the way back and you're talking about the big move 12 years from '99 into 2011. You had, basically, a four year correction one third of that time frame. ABC, down to the lows, just below $1,100, that you set, not too long ago, and then you bottomed in 2016. You've had this pattern that you've now been congesting and setting up this coiled spring like we said, where you bust out to the upside and, man, you're turning all the long term momentum is poised here to really accelerate. So, it's huge $1,296 and then sometimes you get above it a little bit and it's a false start. We want to keep some dry gunpowder to try this several times in case it takes a couple times. But we think the breakout is here, we think the fundamentals are in place, and we think the technicals are compelling.
Mike Gleason: Well, Greg, it's been a real pleasure and I thoroughly enjoyed having you on. I definitely hope we can do this again. Now, before we let you go, please tell folks about Weldon Financial or any other information that they need to know about you and your firm. Tell them how they can do that.
Greg Weldon: Sure. We'd love to offer a free trial to any of your listeners that haven't trialed with us previously and it's at WeldonOnline.com. We do WeldonLive. It's a short video. It's a PDF chart pack that comes every day; it's about 60 pages. And we go through everything from global macro to fixed income to foreign exchange. Current to stock indexes and ETFs, precious industrial metals, energy and agriculture commodities.
Every single day we have specific trading recommendations in the WeldonLive, in our trade lab, and we do portfolio breakdown's in the U.S. stock market in terms of what sectors do we overweight, underweight, stuff like that. There's a lot of great information in there and, most of all, we try and help the smaller guy. We kind of act more like a hedge fund and we serve the hedge funds. So, from that perspective, anyone can trial it and we feel its value for any type of level of trader. So, WeldonOnline.com. Sign up for WeldonLive.
Mike Gleason: Well, great stuff. Again, I really did enjoy speaking with you and look forward to maybe doing it again down the road and thanks so much for the time and I hope you enjoy the rest of your summer. Thanks very much, Greg.
Greg Weldon: Thanks, Mike. Take care.
Mike Gleason: Well, that will do it for this week. Thanks again to Greg Weldon of Weldon Financial and WeldonLive. For more information, simply go to WeldonOnline.com and we urge everyone to sign up for a free trial that Greg was eluding to. Again, you can find all of that information at WeldonOnline.com. Be sure to check that out.