Axel Merk: Fed To Stimulate In Any Crisis; Don’t Let Short-Term Events Bother You

Mike Gleason: It is my privilege now to welcome in Axel Merk, President and Chief Investment Officer of Merk Investments and author of the book Sustainable Wealth. Axel is a well-known market commentator and money manager and is a highly sought-after guest at financial conferences and on news outlets throughout the world and it's always great to have him on with us here on the Money Metals Podcast.

Axel, it's a pleasure to have you back and thanks for joining us again. Welcome.

Axel Merk: Good to be with you.

Mike Gleason: Well, I'd like to start by getting your take on the coronavirus since that has been dominating headlines in recent days. There is an awful lot of speculation about how markets might be impacted. Some people think it is a tempest in a teapot, others think the apocalypse is upon us. Everyone has to rely on data coming out of China, which is always a dodgy proposition, but what are your thoughts about the virus and what it could mean for financial markets in the weeks and months ahead?

Axel Merk: Well, you're in luck, I got my crystal ball here so I'll tell you exactly how it's going to play out. I mean basically none of us have a clue. More importantly, people are afraid of the unknown. We don't know many, many of the parameters. What we do know is that historically we kind of get used to these things and in particular we get used to crises. And so whichever way this plays out, we'll probably find a way of dealing with it. Now at the same time, it doesn't mean it can't be quite disruptive. And so that said, just like many others, every day I punch into my little spreadsheet, the new known cases and infections and whatnot and I try to look at a consistent source. And so I'm trying to look at is there a change in the rate of change that impacts something.

And then if I kind of look at something more on a micro level, the U.S. economy is a much more closed one. And so we haven't seen us consumer spending change. We do know that the various governments take this very, very seriously, which should impact the distribution as well as the spreading of the virus. And so overall, I am more in the camp that says, well, yeah, this is a shock. If it's a most severe shock, it's going to have an impact, but if it's not a more severe shock, we'll get through this and so I'm more on the glass half full camp, but that doesn't mean that I'm convinced on that. That is just my best-case scenario.

Mike Gleason: The old saying goes, when the U.S. sneezes, the rest of the world gets a cold. I guess you could say the same thing about China based on how large that economy's gotten over the last several years. If we go back to August 2015 we had major shock waves in the Chinese stock markets and that nearly started a global financial crisis there, that was averted. But nonetheless, China's impact there had some major ramifications for the rest of the world financial markets. Talk about how that may affect things here. Are we starting to see any implications there that the Chinese economy is really starting to feel this?

Axel Merk: Well, we do know that until the coronavirus was known, we had tailwinds coming in with that phase one trade deal, things were turning around. Indeed, if you look at the global manufacturing industries that are taken before the news of the virus, they were all positive. Now we also know that the Chinese government has a very strong hand and so they can isolate a town if they want to. Now we do know that they were slow to react in the beginning, but if you're not in a free society, you can impose things that you couldn't impose in other countries. So in many ways, I do think they will be able to get a handle on it. Now will that necessarily be pleasant for everybody? I don't know. Will that impact the economy in parts? Yeah, quite likely.

And so, in the short term it's going to be a shock. Now markets obviously are a discounting mechanism on what's going to happen in the future and so it's in that context that I think that they'll figure out a way forward. I don't see a revolution coming from this. I don't see that the system in China is going to change completely and so it is a disruption. I'm very closely monitoring some of the big manufacturers there to see what they can do. And ultimately it's probably the same thing as with any crisis. If you're a big business you probably find a way to deal with it and if you're a small business you might be out of luck. Now obviously that can impact economic growth and yes, if they sneeze the rest of the world could have a cold. And a fear not, an interest rate cut can probably cure this virus as well. That's cynical by the way. Just as a side note, in case you didn't get that.

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Gary Anderson 1 month ago Contributor's comment

The Fed did not stimulate in the Great Depression and Great Recession. Can it be trusted?