Bianco: Gold a ‘High Yield’ Asset in a Negative Rate World

Fri, May 6, 2016 - 3:50pm

Jim Bianco, president and founder of Bianco Research, says the traditional argument against holding gold—it has no yield—doesn’t hold water when $8 trillion of government debt around the globe is yielding negative.

He also explains why he thinks oil is eventually heading back down towards the mid-$20 region and that current data suggests the Fed is unlikely to hike rates at all this year.

Here’s some of what he had to say on Friday’s podcast:

The amount of debt yielding negative is now "$8.1 trillion...65% of which is in Japan and pretty much the rest of it is in Europe right now. 20% of world sovereign bond markets are now at negative interest rates. If you exclude the US, it's about 50%...

My friend Jim Grant likes to say that the problem with the barbarous relic is for 5,000 years...it's always yielded zero; it had no yield, and that's always been the argument against owning it: ‘Why would you want to put your money in something that doesn't yield you anything?’ Well, guess what? Today, a zero yield as gold has is a high-yield alternative when compared to $8 trillion dollars’ worth of investment options in sovereign bonds. So we are really in an alternative universe where the high yield is now zero…”

Scroll down to read more of his comments, or click to hear a preview of his interview below. Subscribers can access the full audio by clicking here or via podcast on their mobile device.

There’s a lot of investors betting on higher oil prices. Where do you see oil heading?

“I think it's going to retest the $26 low. Give me ‘til the end of the year, maybe into the Spring, but it will retest that low. Now, why do I think that? Well, a couple of reasons. One, I'm of the opinion that we've never really solved the oversupply situation. The oversupply situation has continued. The inventories in the United States are at all-time highs. They are going straight up. There's been no rectifying of that…”

Do you think we’ll see any further rates hikes from the Fed this year?

“I look at the Fed funds futures markets and I like to jokingly say, 'Okay, for June, the odds are 10%. For September, the odds are 33%. For December, the odds are 48%. Okay, done—no rate hike, next question. It's just that simple. The Fed FOMC statement was developed in 1994 and [since then]…there has never been a rate hike unless the market priced it in at least 50% or higher…”

What’s your opinion on the US elections?

“None of the conventional wisdom has worked at all. As a matter of fact, today on Nate Silver's 538 blog, he had a piece—he's the big guru that tears apart all the polls and aggregates them into a big picture outlook on what he thinks is going to happen with elections—and he basically said that nothing he's said has been right… So let's throw out all the rules. Let's throw out all the axioms because none of them have been working. So what I've been using in that breach is the election betting markets. If you look at those…Hillary is trading at 60% to win the presidency and Trump is trading at 40%...which means it's still very much up for grabs right now. It can go either way and I don't think a lot of people have come to terms with the idea that Trump...could actually be the President. That is a very real possibility.”

To listen to this entire podcast interview with Jim Bianco, president and founder of Bianco Research, log in and click here. Not a subscriber? Click here.

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