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Don Coxe: Negative Rates to Take Gold to Heights Never Before Seen in History of Mankind

As a historian, Don Coxe is cautious in saying there is something new under the sun. He didn’t think he would live long enough to see the creation of an entirely new asset class, which is negative and seemingly endless in scope. Negative yields were first created by the self-financing Swiss to get the euro-zone moving again. Don likens them to the multiplying of bad germs, and finds it likely that there will be painful corrections in the economy, the stock market, or both.

Negative yields are a big challenge to the mathematics of wealth accumulation. This fastest-growing asset class not only won’t pay you, but it won’t pay you back. It challenges the capital asset pricing model, which is the basis of all actuarial valuations and pension plans. Paying dividends to stock holders and interest to their bankers and bond holders had been the process since the birth of capitalism. It’s a new crisis for social security and pension funds around the world.

Stock markets are going to new recovery highs, without any good economic news to justify them. No one is predicting economic growth above 2.5% at most. There is nothing embedded in this to justify the price-earnings ratio aside from the dividends which are being financed by issuing extremely low-yield bonds. If the only formula for giving rewards to investors is to borrow to pay dividends and to buy back stock, then a major stock market sell-off will happen at some point.

All of this is good for gold and silver because of the rising value of financial assets, and the sheer scale of government debts. Gold and silver are among the top performing asset classes in the world. As we see the gold bull market unfolding, we should invest in mining companies, which bring more of a predictable return. When going into mining stocks, one should have a view that things will get better for the price of bullion. Year-to-date the mining companies are up roughly 95%, and gold is up 26.7%, which certainly fits the bill for a bull market.

Talking points from this week’s interview:
• We should see painful corrections in the economy and/or stock market
• US government debt has more than doubled since Obama’s presidency
• Gold and silver are among the top performing assets in the world
• Saudi fear of Iran, plus fracking led to the crash in oil prices
• Tesla’s big success is solely due to government subsidies

Don Coxe has 40 years of institutional investment experience in Canada and the US. As a strategist and investor, he has been engaged at the senior level in global capital markets through every recession and boom since the onset of stagflation in 1972. He has worked on the buy side and the sell side in many capacities and has managed both bond and equity portfolios, and served as CEO, CIO and Research Director. From his office in Chicago, Mr. Coxe leads the Global Commodity Strategy investment management team. He is advisor to the Coxe Commodity Strategy Fund and the Coxe Global Agribusiness Income Fund in Canada, and the Virtus Global Commodity Stock fund in the US, and the UCIT Global Commodities Fund. Coxe maintains a highly visible presence in the business community as an advisor to Boards, and speaker for business conferences and industry events—and through his weekly conference calls for investors.