3 Events That Could Change the World

11/01/2011 11:30 am EST

Focus: MARKETS

Dennis Gartman

Editor and Publisher, The Gartman Letter, L.C.

The end of the euro is just one of the longer-term predictions made by markets expert Dennis Gartman, who discusses the major global trends that investors should understand in this exclusive interview with MoneyShow.com.

You mentioned that there are no long-term investments, there are only trades, and yet you do have some fascinating long-term perspectives. Give us two or three of your long-term expectations, if you will, that will ultimately get confirmed by something that happens in the market.

First of all, I do believe that there are no long-term investments, there are only trades. Investments were trades that went awry. For most people, that’s what ends up happening.

That having been said, what do I think is going to happen? I think that people are not understanding how important, how serious could be a dollar bull market.

I think there is going to be a bull market and the US dollar coming up, a very real consequence, simply because we are still the reserve currency of the world and we are not going to give that up, nor will it be taken away from us by anybody else. And the Euro, having been the usurper, as it were, has its own problems.

The dollar, I think, will surprise people by how strong it gets over the course of the next several years, especially given the fact that the other central banks are not having their rates that much above US rates. So on balance, money that might have gone elsewhere is going to come to the US. I think the dollar gets quite a good deal stronger.

I talked about, we’ve talked about agriculture. I think you’ll want to own fertilizer when you can, because that’s going to be a dominant theme as we try to feed the world. And I think you’re going to want to own the transportation companies that will move livestock and grains around the world, so you want to own the container ships. I think that’s going to be a very long-term circumstance that will prevail.

Can I be wrong? Of course, and I’ll be wrong when the market tells me I am, and suddenly that will then be another trade that went awry.

What else do I think is going to end up happening out there? I think I want to be bullish on fuel. If I’m going to be bullish of crude oil, I’m going to err upon the side of owning Brent crude. If I’m going to be bearish, I’m going to err upon the side of being short West Texas Intermediate. Or I may just say put the trade—buy Brent, sell West Texas Intermediate—and that spread is probably going to continue to widen out and is going to surprise a few people.

What about gold?

I have been bullish on gold for several years. I continue to be bullish on gold. I’m not a gold bug, and I want to make sure that everybody understands that fact—I don’t think the world’s coming to an end; I’m not one of those people who thinks that you need to store dry food and ammunition. But gold has been going higher.

Why? Probably because it has begun, at the margins, to be the second- or third-most reservable asset. It is now a currency…rather than gold, it’s simply another currency, and I think that that’s probably going to continue.

When will it stop? As I tell everybody—write this down—when it stops. It has been going up a long way. I don’t even think it’s got…it probably won’t stop until it has a parabolic move upward, amidst panic of some sort. That’s probably when it will stop.

From your economics background, do you believe that the strength of the dollar, which sounds very likely, will ultimately fizzle gold?

Well, that’s the reason why I’m not long of gold in dollar terms. I’m actually long of gold in euro terms; I’m long of gold in sterling terms. I’m long of gold, as of today, in yen terms.

One of the problems shall be that if the dollar does get strong, that would tend to inhibit gold prices. I’m long gold in non-US dollar terms…and also what that does, Charles, it’s interesting: it tends to ameliorate the violence of the gold price movement.

Several weeks ago, when gold got very weak in dollar terms and fell $200 an ounce—which was about, what, an 18% decline—it only fell like 6% in euro terms. That was a big help. Those are kind of things that help you survive corrections.

I’m actually bullish gold, but not in dollar terms. That’s a different trade, it’s an easier trade, and I think it hedges out dollar risk.

Do you think the euro will survive?

No, I don’t think the euro will survive at all. I really don’t. I’ve been surprised to…

How long do you give it?

Well, I thought it would be—let’s see, this is 2011—I thought we wouldn’t make it to 2008, but here we are in 2011 and it’s still here. How long do I give it? Not very long.

I think what will end up happening is the euro will do what it should do, or Europe will do what it should have done long ago, split up into a Northern euro and a Southern series of currencies.

Greece needs its drachma back—it needs to devalue. Spain needs its peseta. Portugal needs the escudo back, Italy needs the lira back, so they can get away from the tight monetary policies of Berlin, of Frankfurt, and have a currency that they can devalue.

No one can afford to go to a Greek tourist attraction any longer, and Greece needs tourism. It’s still going to be its dominant driver, absolutely its dominant foreign-exchange earner, and no one can go there. Greece needs to have its drachma back, so it can devalue and make itself competitive again.

As gold reverses, do you see a risk-off or fear-off trade in a food-on trade?

Yeah, I think that’s going to be the next big thing, will be fear. As I said, I think it will be food in, fear out. People are going to swap gold for corn.

Something that you need to consider—it’s not going to happen today, it’s not going to happen tomorrow, it may not happen in a year—but it now takes almost 245 bushels of corn to buy an ounce of gold. It wasn’t that long ago it took 40, wasn’t that long ago it took 20. We’re probably going to go back to that over the course of the next decade or more.

That may well be the great trade of the next ten years, as we get rid of fear and try to buy more food, to swap fear for food. It’s not time to do it now, because both of them are still moving upward, but eventually you’re going to see that relationship change dramatically.

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