Robin Griffiths: The Fed is Zimbabweanising the Dollar

The admirable Robin Griffiths, of Cazenove Capital, was interviewed again recently by Eric King, on King World News. Following some messages, the actual interview begins at 1:14 on the clock:

Griffiths opens by discussing how the Fed has been printing dollars to ‘trash’ the dollar and how people are therefore hedging themselves against this continuing debasement by using paper money to buy up real money; i.e. gold.

With a Jan Hatzius paper from Goldman Sachs quoting a shock and awe figure of $4 trillion in quantitative easing before the Fed’s QE policy can have any substantive effect on the Taylor ratios that the Fed policy wonks follow, and with QE1, QE1.5, and QE2 already in place, with more to come, Griffiths can easily see gold going to $2,500 dollars an ounce with a quadrupling in the silver price to accompany it upwards [to approximately $100 dollars an ounce].

In the shorter term, Griffiths thinks gold will have a burst of strength to break through the $1,400 dollar barrier before consolidating for a while, and silver may continue its mean-reversion to a more historically stable ratio against gold.

[The gold/silver ratio has dropped from 59 to 52 in the last month and the historical ratio is around 15; though the 20th century average was around 47.]

As long as the Fed continues to pursue its centre line strategy, thinks Griffiths, then precious metals will keep going up, and at $1,450, gold may go exponential.

However, before all of us gold bugs start booking flights to the Moon, Griffiths thinks that there are political shenanigans to consider. With Obama sending some of his top Keynesians back to Harvard, the US president may also ground Bernanke’s helicopter at some point, in a bid to bounce back from being a lame duck over the next two years, to give himself a chance to win a second term in 2012. What Bernanke is doing isn’t working and more of the same may not be what the political spin doctors order Obama to do to get re-elected.

Unless and until that grounding happens, however, cross rates on the dollar are telling Griffiths that ‘the dollar is toast’. It is the Fed’s continuing policy to trash the dollar, he says, to reduce the value of the debt the US government owes the rest of the world.  The rise in precious metals is therefore an equal and opposite reaction to this ‘trashing’ of paper money.

Moving on to more technical matters, Griffiths believes that if the dollar index broaches down through 76, then it is straight down to 74. At that point the Chinese may throw in the dollar towel and a waterfall efffect may cut in as the Chinese dump their dollars to take the dollar index down by another 20%, to take it to lower than 60.

The dollar will, in effect, have been Zimbabweanised.

After this tasteful entrée drenched in flambéed dollar, Griffiths follows up with a light chocolate soufflé on various investment strategies to cope with the instabilities and volatilities described above. For instance, with Nestlé being able to borrow money cheaper than the Swiss government, you get an international food company producing a good dividend yield based upon great food products that people will buy throughout any economic situation. What can go wrong, asks Griffiths?

He also discusses where he thinks the markets are going over the short and medium term, although he is not expecting a rip-roaring economic recovery in the western world any time soon.