Chris Temple's 2020 Outlook for Gold and Markets

Trevor Hall [00:00:05] Everybody, welcome to Mining Stock Daily, today is Tuesday, December 10th. This is Trevor Hall. I am pleased to be joined by the editor and publisher of The National Investor. That's our friend of the show, Mr. Chris Temple. Chris, great to join you today. And discussion. We've got a few things we want to cover. We're going to talk about gold and kind of your outlook for next year. That's going to be the highlight. But we've got some pretty timely news this morning on the trade front on a couple of different angles here. We have the U.S. China trade deals. It sounds like those tariffs they're supposed to be implemented this weekend are going to be delayed. It hasn't been announced by the White House at this time, but we also have the U.S., Canada Mexico trade deal, which is actually signed by Congress. Sounds like that's a go. Give us a little bit of a rundown of what this means both for the economy here in the U.S. but also for the markets.

Chris Temple [00:00:59] Well, Trevor, I've been distinguishing for a while between my outlook for both. You know, the U.S. economy continues to be the least bad one on a planet where economies at various speeds have been slowing down for a while. And that has much less to do with trade or worries about trade than it does with the core underlying fact of a dozen years now nearly of monetary tinkering, quantitative easing, zero interest rates, negative interest rates, and the whole world basically becoming stuffed on consumption and overconsumption. So we're at a place leaving the trade element aside for just a second where a credit cycle we used to talk about business cycles. When I first got into this industry 40 years ago, now it's all about credit cycles because the central banks are the main driver of economic activity or killer economic activity from time to time. So we're at a place where a credit cycle has peaked. Debt to GDP levels on the planet continue to rise. And there just is no room for for moving the needle very much on economic growth. And everybody is much more occupied with digesting and paying off what they've already taken on for the last dozen years. So it's an overstatement to say or to believe where the economy is concerned going forward and whether it's the U.S. economy or others, that any relenting of these trade skirmishes, the various ones around in the U.S. and China, one is unique in many respects. But taking them all together just for a second. When you look at the actual economic activity that's going to be affected or augmented by either USMCA or by, you know, some partial truce in the U.S. China thing, it's not even a rounding error when you look at overall economic activity. So I think that down the road, people are going to be disappointed when they see how little traction or is the markets. On the other hand, especially when you look at the fact that unlike 2008, when the Fed under Ben Bernanke cleaned up a deflationary implosion after the fact, at least this time around, or trying to get out in front of one. Now, that may not end up any place different than we did in 2008 because there's all kinds of cracks that have appeared in markets around the world. But with the Fed having started, it's not QE 4 and having almost half way gone back to the peak balance sheet level, it had in very short order. You know that that argues in favor of the markets at least plodding along. So I don't by any stretch of the imagination think that we're equities are concerned we're gonna have to kind of a good year next year that we did this year. It's going to be very volatile. There's a lot of downside risks. I think the best environment investors can hope for is that because of the Fed getting out in front of things, we at least avoid any kind of a deflationary crisis like we had in 2008. And we muddle through in an environment that's still fairly liquid and there's gonna be much more conducive to buying value and buying undervalued sectors.

Trevor Hall [00:04:19] Chris, I know Fed chair Jerome Powell, he's not without his criticisms. Right. But I do have to ask you, I mean, does this the man deserve a little bit of credit for giving using the ammunition at his disposal, maybe getting out in front of this thing ahead of time as opposed to what happened in 2008, which was much seen, much more of a reactive strategy?

Chris Temple [00:04:40] Well, he certainly does, as I said, Trevor. And, you know, he he doesn't want to be seen as having kowtowed to the White House at all. I think he has been honest in that he is not affected by the criticism that regularly comes from top. I mean, look, keep up Trump. Trump is scared half to death that his legacy is going to be. Jimmy Carter is a president. Don in. By coming in at the end of a crisis at this case, the end of a credit cycle. You know, it was Richard Nixon and Arthur Burns that set the table for the stagflation Jimmy Carter has been saddled with by history incorrectly. Donald Trump, when he was running for office, talked about the bubble in the stock market and the Fed being too easy for too long. Now, you watched it the other way. And you don't get both. So, you know, Powell has been good to let that criticism roll off of his back and do what he thinks is best. You know, just yesterday it was announced that over the weekend, Paul Volcker, the former Fed chairman, died. Lots of misinformation about his background, which we don't nearly have time for today. But the parallel that I have drawn almost from the beginning to Powell is that Volcker came in at a time when tough medicine was needed and he administered it for about three years until along about 1982, Volcker flipped from hawk to dove. And for the next five years of his tenure, basically set the table for everything that has come since. As far as unsound money is concerned, history forgets about that part. History looks only at Volcker's first three years, and that's how they paint his legacy. Likewise, Pop Idol, when he came in, wanted to normalize policy, wanted to raise interest rates. But in his case, unlike Powell, that managed to get away with, you know, good medicine and and needed medicine for three years. Powell didn't even make it a full 12 months before he started running up the white flag last December. And now he is gone full on Dove and has accelerated the growth of the Fed's balance sheet fat and Bernanke ever did. And, you know, in the context of the world in which we live, when we're at the end game of fractional reserve banking before it either completely blows up or we have a peaceful replacement of that system with something that makes more sense. It's pretty much all he can't do within the constraints. He lives in.

Trevor Hall [00:07:11] Right? Well, I know they convening today and tomorrow. No, we're not expecting much of any changes in policy coming out of this week, but we know I'm sure we'll be paying attention regardless tomorrow when that press conference does have. But let's move over to precious metals, because we both know that policy changes in policy can be jet fuel for precious metals. And we want to talk gold with you. Chris, what exactly we've held we had a really great 19 excuse me, 2019, the GDX moved up. It seems like there's a good floor of the twenty six dollar level there. Gold is kind of being traded in this range about 14 sixty to fifteen hundred at times its days it seems risk off and doing really well other days is risk gone and more money moving into the stock market. But as we move into 2020, what are you looking at for your outlook with precious metals, specifically gold?

Chris Temple [00:08:09] Well, as far as specifically gold is concerned, Trevor was exactly a year ago that I became sector bullish on gold for the first time in several years for a variety of reasons, in fact, right now and anybody that wants it can contact me for free copy. I've got a new report on the sector coming out imminently. In the title of it is This is not your father's gold market. I mean, if we step back in time a little bit and look at what usually would affect the gold price in a positive way, historically, what if central banks complained about for for all of this year and really prior to that? There's not any inflation or not enough inflation. And yet gold has had a very good year coming off its double bottom. As such, a few years ago. And then it has had nothing whatsoever to do with any inflation worries as they have been traditionally understood. So there is a lot of differences in the gold sector today compared to what drove it in the past. It's already affecting mining stocks because you've got a feast or famine environment there. I mean, with some of I'm I've looked at good explorers, Trevor, with good stories and good properties who share price today at fifteen hundred or nearly as less than it was at eleven hundred an ounce a few years ago. And there's very key reasons for that, that a lot of gold bugs need to start to understand because this is going to be driven by a lot of different factors and some new blood going forward. So you know, I think that, you know, last time you and I talked about the gold sector, I termed gold as the UN-currency. For those old enough like me to remember, seven up years ago used to run ads distinguishing themselves from Coca-Cola and Pepsi Cola. They were the UN Cola. Gold is the UN currency. And of course, the context, meaning the UN fiat currency is being gobbled up by central banks. It's hit record highs and many other currencies this year and it is being looked at as something quite aside from the traditional inflation hedge. The question in my mind in 2020 is that will gold continue to go up for those same reasons, even with a strong dollar? Or are we going to have a transition with the Fed really hitting the accelerator or cargo? Jane, cargo plane? Jay Powell, as I've dubbed him, you know, going even more nuts. So I'm throwing money in the retail market and starting a formal quantitative easing program. Are we going to be back to the old days of, know, more aggressive monetary botching being gold's driver? I don't know. But it will be one or the other or one will transition into the other.

Trevor Hall [00:10:54] Let's show real quick about the producers, the gold producers in the in the market, because we know when Q3 earnings came out, we had our first full quarter of bull market gold between $1450 and Fifteen hundred dollar gold as you watch some of those financials come in. Do you feel like we maybe weeded out some of the companies that, you know, can continue to create good revenue and cash flow at this bull market as opposed to others who are still struggling, maybe because of capital expenditures that have been placed on their books and they're really struggling? You know, it seemed to me like we were watching some of these some of these financials come in, that a lot of a few companies did really well, such as Agnico Eagle. But other companies that you thought want to do really well still couldn't really make the get the budget. They get the books in line even with this bull market. Do you think we'll continue to see more of that as we move into 2020?

Chris Temple [00:11:47] I do. And I think it's healthy. I think it's long overdue. There's still an awful lot of companies out there, not so much producers, but explorers that should have gone bust during the law and bear market for this sector. But look, one of the points I make in my report. You know, this is not your father's gold market. In fact, one of the subheadings of one of the sections of it is titled Gold Companies are companies, too. And for a long time, there was enough of a constituency of gold bugs who will just throw money at the sector because it's a religion to them that companies were able to get away with a lot of sins while most of those people are dying now. And you know, the zero point five percent of individual investors who have a somewhat religious affinity for the sector, they've already pretty much gone fully invested long ago. And so now what's going to have to happen going forward is you're going to see the wheat separated from the chaff, because in order to attract new investors who are going to start to warm up because of people like you and me, tell them this story in a sensible way to this sector, albeit they aren't going to be is willing to just throw money at it. Companies as as gold bugs were in the past. They want to see results. They want to see costs controlled. They want to see cash flows. Increase. They want to see companies able to do so start maybe to pay some dividends. So, you know, going forward, one of the big distinctions between this unfolding chapter of gold's secular bull market and every one that is preceded it is that it will not be an environment where the rising tide lifts all boats. And I'm glad to see investors already starting to recognize that reward the companies that should be rewarded and stay away from the companies that shouldn't be.

Trevor Hall [00:13:39] Well, that's a really good outlook for 2020. Let's kind of bring it back into the broader macro outlook. Before we let you go, Chris, because we probably won't chat again until Q1 of next year. What are your outlooks for as we move into January or through the holidays, into January and beyond?

Chris Temple [00:13:59] Well, I have been putting out a couple of rolling commentaries, not just one single forecast for 2020, but kind of a tag team mishmash of things, you know, subject by subject. And I guess to best answer your question in a succinct way to me. 2020. From the macro sense, both as far as the economy and the markets generally is do we have what Ray Dalio, the billionaire hedge fund manager and I think very smart man calls the great SAG were something I have called a slow, dull ache, or are we going to have something worse than that? You know, one of the things that I've been talking about in the recent past, and this is part of this whole larger new Cold War that the U.S. is going to have with China for a long time to come. You've got a lot of cracks that have emerged in China and particularly in Hong Kong. And we won't know until after the fact. What straw broke the camel's back. That causes an implosion and markets globally where people always need to keep in the back of their minds. Trevor, when we have a world that is so highly leveraged, so incestuous, solely intertwined among countries and companies and especially financial institutions, that as we go into this new world of the US and China, decoupling to a fair extent other populist forces throughout the world, other moves by countries are not for bad reasons to bring production and greater control of their national economic lives closer to home. The world can adapt to that. It's adapted to tougher things over the years. But what is in the back of my mind is can markets adapt to that or are they too invested in the old regimen that moving to the new one is going to cause some things to break? So those are the two scenarios that I look at going into next year. I hope it's the former, but I'm sufficiently concerned that I've pointed out sufficient reasons to be worried about the latter, that we're going to stay fairly conservatively invested. I still love my odd couple theme being long U.S. treasuries and being long gold at the same time is has been a winner. It will continue to be a winner. Beyond that, I think there is a lot of opportunities and value plays in the stock market. My favorite statistic I'll leave you with is that even if some of mine and others worst fears are realized and we have a more notable drop in stock indices and the weakness in the economy going forward. Always remember what happened during the depression from the peak of the market. Hundred 381 on the Dow Jones average in September of twenty nine until it bottomed in the low 40s in early 1932. You had an eighty nine percent drop in stocks from top to bottom. Yet during that same time, one third of all public companies rose in price. And so one of the things that is actually somewhat fun to do right now is to start picking out those 1 and 3 stocks right now winners. There's some good stories out there.

Trevor Hall [00:17:13] There are. And you've pointed pointed out a few really good value plays in your newsletter for those listening and are interested in Chris Temple's writings. You can visit national investor dot com. Chris, hey, man, I really appreciate you and all your thoughts and thank you for your time. Happy holidays to you. And we will catch you again in 2020.

Chris Temple [00:17:34]  My pleasure. And also to you, Trevor, and your family.

[00:17:38] Mining stock daily and its affiliates are not responsible for any loss arising from any investment decision in connection with the material presented here in.