I had the chance this week to connect with Mark Mahaffey, co-founder and CFO of the London-based Hinde Capital, manager of the physically-backed and allocated, Hinde Gold Fund. The Hinde Gold Fund has been one of the world’s top performing gold funds, even amidst the shocking metals correction over the last week.

During this fascinating interview, Mark indicated that despite deflationary sentiment creeping into commodity markets, within two years, we could see a hyper-inflationary ”tipping point”, accompanied by catastrophic rises in interest rates, market failures, and shocking government confiscations. 

In a recent written piece Mark likened central bank money printing to, “The children’s game “Buckaroo”…[which] involves gradually adding weights to a spring loaded donkey before it bucks and everything falls off—the proverbial binary tipping point.”

Speaking to the potential of this hyper-inflationary tipping point, Mark said, “It obviously sounds like a ridiculous call…[but] in Japan [it's already] starting…The Nikkei is up 50% in the last 6 months. Do you think that’s because the Japanese economy is doing well? They’re just printing the money. Nobody seems to want to [believe it]—I don’t want to believe it…[but] as I mentioned in that article about the children’s game, “Buckaroo”, there is the binary [point], where you just print ‘one more’ bit of money [and everything falls apart][However] people think that because we’re doing it electronically by bond purchases…that it’s not the same as actually printing the dollars and handing them out.”

Decades of market and social stability have set up a psychological trap for many according to Mark, as “We have this natural inbuilt optimism based on forty years of ‘good things’ happening and bull markets. It means that we don’t worry as much as we should. If you worry, you’re called a paranoid, pessimist…[But] effectively, all countries that are in debt are potentially at risk of catastrophic situations where the debts have to be repaid in some shape or form. Whoever owns the debt, or whoever is a creditor of an institution [is] going to lose out. Anyone who buys a government bond here…at zero percent is going to lose money.”

The ”loss of money” in debt markets will be anything but gradual Mark indicated, saying that, “The next stage from zero interest rates [isn't] a ‘gentle raising’ of interest rates…that’s [not] how [it] works. I remember 1994 quite clearly, and interest rates went from 3.00% to 3.25% in the U.S., and people thought that was enough. Then they went to 6.00%, and the whole thing ran wild. And that was without the debt issues we have today…[So] the difference between 0% interest rates and the next stage, is not zero and back to a half [percent]—I think it’s [from] zero and then back [to] a lot.”

This silently approaching catastrophe will set off an historic market stampede Mark added, but unfortunately, “What happens in most stampedes [is] the small man in the street loses out. The amount of people who invested in government and corporate bonds here at effectively the lowest yields in 300 years…they’re going to lose. They’re going to lose a lot because of the inflation…[and] because there’s probably going to be more confiscation. I would recommend people look at the non-segregated cash in their bank accounts and find a way to own securities [in your own name]…[or] anything that’s ‘custodial’ rather than…non-segregated cash.”

Regarding this week’s frightening collapse in the gold market, Mark indicated that he doesn’t expect the short-term volatility to be over, saying that, “The amount of volume in the gold comex market was ridiculous…and I’m concerned about the gold price drop leaking into other asset classes, because if you get extreme volatility in one market, it usually has a knock-on effect…If you ask me ‘Could the S&P drop by a lot, in a similar way?’ I would have to say ‘yes,’ [but] obviously there would be a lot more support to the S&P by the authorities if it started going down a lot. But I think we are due for a lot more volatility in these markets.”

With respect to what people should keep in mind when considering gold at these levels, Mark concluded by saying, “If you want to invest in gold, you have to think about the physical first and foremost. If you’re physically holding gold [then] you have to think about where you’re holding it, and how many times a year you’re having it audited.”

As a final comment on gold following the recorded interview, Mark candidly stated that, “One of these days I think gold will go to $5000, [but when it does]—nobody will own it.”—(meaning that most will be shaken out of the market by that time)
This was a powerful interview with one of the world’s best performing gold fund managers. It is required listening for serious investors and market students.

To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:

>>Interview with Mark Mahaffey (MP3)

To follow Mark’s work and learn more about Hinde Capital, visit: HindeCapital.com

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Tekoa Da Silva
Bull Market Thinking