For all the talk of gold sinking remorselessly to $1,000 an ounce, the metal has risen to $1,200 per ounce and has held its ground. Have we seen the bottom? Money managers Doug Loud and Jeff Mosseri of Greystone Asset Management say that if we haven't seen the bottom, we will soon. In this interview with The Gold Report, they predict that the next bull market will result in patient investors realizing gains in the multiples and suggest several companies poised to break out.
Douglass N. Loud joined Greystone Asset Management at its founding in 2005 and has been senior managing director of Axiom Capital Management Inc. since 2009. Prior to that, he was with Murphy & Durieu, where he served as executive director of the Private Clients Group. Loud has over 35 years of investment management and securities industry experience. He holds a degree from Yale University and a law degree from the University of California, Berkeley.
Jeffrey N. Mosseri established Greystone Asset Management in 2005 and became a director of Axiom Capital Management Inc. in 2009. He was a stockbroker and investment manager at Goldsmith & Harris for 20 years. Mosseri also worked as a stockbroker and investment manager for Carnegie Capital, the investment advisory division of Prescott Ball & Turben, where he ran the international arbitrage division and developed the gold mining research and investment department.
The Gold Report: David Stockman noted Nov. 13 that after an 8% correction in October, equities came roaring back, gaining 12% in less than a month. How long can this last?
Jeffrey Mosseri: It's really a question of interest rates. As long as they remain close to zero, equities can continue to run with periodic 5–10% corrections.
Douglass Loud: And I don't think the Federal Reserve wants to raise interest rates. If it does, the U.S. government will have to pay more interest on its debt, and that would be difficult, given all the money it's been printing.
TGR: Sure, but stocks can't have an infinite value. There must be some correlation between actual worth and share prices.
DL: That's the theory. Look at 1929!
JM: What we don't know is what happens in a period of extended zero-interest rates. In the 1980s and 1990s, we had low interest rates for a short period of time, and the price-to-earnings (P/E) ratios reacted accordingly. Those P/E levels we have today do not seem as out of whack as what we had then.
DL: And these high P/E ratios are not yet manifested in a lot of stocks. A few hot stocks with large P/E ratios greatly influence the entire S&P 500.
TGR: Tech stocks in particular are characterized by high P/E ratios. Are they vulnerable?
JM: They're always vulnerable. But the hedge funds are piling on so as to have better results by the end of the year.
DL: When the end of the year comes, if they are not in Apple Inc, Alibaba Group, Ambarella, those kind of companies, their clients are going to wonder why not. So the hedge funds are buying them, but who knows what will happen after Jan. 1.
JM: Will we be in a bubble then? There's a very strong case to be made that we will.
TGR: Why aren't gold stocks benefiting from this equities blowout?
JM: They should. I use the metaphor of the U.S. dollar being the cleanest dirty shirt in the laundry basket. Most people have forgotten, however, that there is a clean shirt in the laundry basket, and that's gold.
DL: Gold is denominated in U.S. dollars, so when the dollar goes up, gold goes down.