Taking inspiration from George Orwell’s “1984,” renowned BMO advisor Don Coxe has coined the expression “Weakness is Strength” to describe the current economic situation. In a far-ranging interview with The Gold Report, Coxe explains how an international regime of weak currencies has set the scene for a upsurge in the price of gold shares and believes that gold will return as a preferred hedge against loss of value because inflation is inevitable.
Brook Asset Management was up 7.27% for the first quarter, compared to the MSCI GBT TR Net World Index, which returned 3.96%. For March, the fund was up 1.1%. Q1 2021 hedge fund letters, conferences and more In his March letter to investors, which was reviewed by ValueWalk, James Hanbury of Brook said returns during Read More
The Gold Report: Your investors’ report last week was entitled, “Orwellian Currencies: Weakness is Strength.” Could you please explain?
Don Coxe: In his classic book, “1984,” George Orwell’s Big Brother rules society with three slogans: “War is peace. Freedom is slavery. Ignorance is strength.” I coined the slogan “Weakness is Strength” to sum up the idea that a weak currency creates a strong economy. But it has to be weak like Goldilocks’ porridge: Weak enough so that domestic industries can still sell products abroad, but not so weak that people dump government bonds and cause a financial crisis, which is the situation that threatened the Eurozone when the euro went south 18 months ago.
After the fall of the Berlin Wall and the implosion of Communism, there was a general consensus that capitalism had become triumphant. At the end of the last decade, a Democratic president proclaimed the end of the welfare state and the end of big government. The idea was that central banks would only be temporarily needed in the face of a crisis, because the basic economy is strong enough to stand on its own. But in 2008, the financial collapse was blamed on the private sector. Actually, it was the intersection of corrupt politics with bad banking practices that caused the crisis, but that was the way the media narrative was played out.
TGR: Who is in charge?
DC: An elite group of central bankers are in weekly communication with each other on a first-name basis. That’s why when the crisis came, everybody knew whom to phone. This elite group of international bankers puts up with politicians, whom they regard as a mixed blessing at best, and a curse at worst, and certainly not as smart as the bankers. This elite is comparable to the great 19th-century diplomats who ran global affairs prior to World War I, managing things pretty well until it all blew up in the war.
Now the central bankers are saying, “Don’t let currencies get too strong.” It started BMO Advisor Coxe: “This Is the Worst Trading Situation I Have Ever Seen” The Gold Report www.TheAUReport.com “Unlike every other commodity, the amount of new gold produced is virtually irrelevant to the price because it only adds about 2–3% to the total with Japan. The yen reached an all-time high last summer. It was after the nuclear crisis, and Japan was in deep recession. It has the worst demography of any country on earth, and it’s being harassed by the Chinese. A new premier decided to drive down the value of the yen by printing more money. Consequently, hedge funds got rich by shorting the yen, further driving down its value. The Nikkei rallied and Japanese companies started reporting bigger profits, with great expectations ahead. In Japan, weakness is strength.
Weakening currency works as monetary policy until it kicks off runaway inflation, which is what happened after Venezuela devalued the bolivar by 47%. Inflation shot into double digits. It is hard to use monetary policy to cook the not-too-hot, nottoo-cold porridge. The goal of the central banks is to manipulate interest rates to make sure that weakened currencies do not become too expensive inflation-wise. And it is this dilemma that moves gold.
TGR: Why hasn’t inflation shown up in the Western economies?
DC: Advanced technology means that the supply of consumer goods can keep expanding as prices fall. We’ve had technological booms before, but nothing as powerful as the current boom, in which the improvement in technical performance is exponential. The North American demography is deteriorating as the baby