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Axel Merk, Merk Investments CIO, weighs in on how investors can make smart choices during the fiscal cliff talks.
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No scenario really gadgets on a path to sustainability.
Joining me today is Axel -- We're investments president and chief investment officer with more on it -- you should look to invest in this -- -- welcome back to the show why so pessimistic.
If you think about it we let's go over declared I will still have a deficit before us factoring in any -- -- -- -- what 3%.
And on top of that we won't have picks entitlement reform.
That's European style austerity.
And we as we know from Europe it doesn't work so well the key difference is that the bond market is giving us a free pass right the other key differences that in Europe we do not have a current account deficit so when -- bond market accepting Europe enforces policy -- track.
The Euro doesn't stop by as much whereas in the US we we think that the only time will engage in true entitlement reform which is what we need to get our budget to be sustainable.
While it is when we get this quote -- encouragement.
The bond market does not go down on the bond market here let me get you to.
Now data by market what we could expect in terms maybe bond vigilantes stepping -- will we see a sharp rise in interest rates do you think the Fed has just over reached.
Like should we get more message to really do not want to your theory -- and just get to you know fiscal cliff -- to get real sustainability because we like.
We like a frog in a boiling pot we have we feel very cozy around -- I think about it we don't need that Chinese to sell more treasuries they reduce their holdings over the last year by the way.
And we we just need to bond market to return to -- normal times historically the bond market is a volatile beast.
Everybody thinks you can change yields there and get good returns.
But be careful you might be.
Getting quite some volatility at some point and we -- -- -- kind of bond market summing up about 10% of -- of a few weeks on if we get the volatility back.
We can see a sharp plunge at that -- that the bond market turns and to be a mock at that point as the love to buy -- response might take a step back which hasn't been negative implication so.
If -- just an issue think -- of just reducing the supply of treasuries on the market.
-- -- -- Of course if it.
And yes that means living within your means I mean that would of course help.
I mean that this thing is it's so easy to you to spend the money and with run on key helping with the printing press comment -- we have this easy way out and that's the path we're gonna continue with -- get the -- and yes everybody will be upset -- some may be will will live another day.
But the problem is that we could not we could not afford interest rates at 4% Ohio comment because -- deficits would just blow out and.
I don't know but -- dollar right now.
And they're very well let -- let -- start and this time.
Get a -- -- -- on the Europeans on the other side of the ban on key trade and give the Great Depression as well the US went further away from the goes senate fairest.
And both lot of problems in Europe but -- stronger currency seen nowadays I'm not suggesting you should buy Greek bonds but the Euro and it is stronger than a dollar.
In the long run because they're not printing as much money -- suffering a great deal from that.
That might you know buying it because of the emotions of buying it because there's value -- everybody hates it and not putting as much money.
We showed our viewers a chart of gold slightly higher today.
What you think of that for an investment how much of the portfolio percentage.
Should gold make up right now.
My personally have a substantial -- Rio summit off funds.
I'm we have a global debt to GDP ratio if you if you take in the developed countries -- of 100% has never happened before in peacetime.
I don't hold gold because of yesterday's problems I hold gold because I don't.
Think that we can get through this without -- inflation.
What with growth in either scenario obviously have inflation no growth at some point the bond market is going to sell off that's going to make it very difficult to make about sustainable which means -- -- Q we'll have to continue to print money.
And we'll see that similar trends in Japan and the UK and with that gold should do very very well he -- to -- We'll leave it there for it for today Axel we'll see you soon Axel mark.
My --
