Dave: Well I think that gold is really caught here between its role as an insurance hedge really against things going wrong. And I don't mean so much inflation but the geopolitics, you know how do you measure gold or how do you value gold? I mean gold isn't like a bond where you can, estimate a real rate inflation expectation, or term premium or in the credit market, when you're evaluating spreads you look at the fault rates and recovery rates and it's not like an equity market where you can do a dividend discount model or look at price to book price to earnings, dividends. No, that's gold. How do you value gold? Gold is one divided by T where T is trust. I mean we tend to find actually when gold has its best days in the past several years it was centered around on a geopolitical uncertainty. A lot of that with the coming out of the government shutdowns in the US, the debt ceiling situations, problems in Greece so on and so forth. So, gold is really an insurance policy against things somehow going wrong. I don't think I’d be buying gold because of any inflation view. I don't think we're gonna be getting big inflation even though we're seeing some cyclical pressures, which is not unusual. You're buying gold really as an insurance policy against things going wrong either in terms of global trade through this protectionist bent among the administration or say something happening with the EU in which case the dollar probably would rally but gold will probably rally as well.
I think the knock against gold really is gonna be what we talked about before, which is the fact that, the one thing we do know is that barring something unforeseen the Fed is raising rates 3 times no matter what. They've already told us that before Trump does anything, and no other Central Bank is touching rates and the most important determinant of exchange rate valuation, since currency are appeared trade one against the other, is relative interest rate differentials. And my sense is that that will continue to move in the US dollar's favour that will end up curbing gold to large extent because gold is priced in dollars but also the risk is that real rates starts to rise and real rates and the gold price do have this timeworn historical inverse correlation. So, my sense is that when you're buying gold today, you're really only buying it against the backdrop of heighten geopolitical risk for the coming year. There's really no other reason to go long gold right now, unless you have a big inflation view, which I don't.
Erik: Okay and finally I'd like to just ask more of an open headed question is you look at your radar for the rest of 2017 what do you see in terms of macro trends and trades that people should be thinking about?
Dave: Well I think this is gonna be a case where we're gonna be finding I think heightened volatility and the VIX at 10.7 right now is not sustainable. I think it’s going to be, if last year it’s a uh, I would say that this year it’s going to be a rollercoaster ride benchmarked against last year’s merry go round, I think there’s going to be a lot more volatility, it means there’s going to be a lot more opportunity if you’re nibble and you’re disciplined and you take profits quickly to raise some dry powder or some cash to put to work. So, it’s going to mean, it’s a good remark to say that the traders market, the stock traders market, it always is, but I think that it’s going to be like that this year by several standard deviations against any historical norm you want to use. I think it’s going to be a year of value over growth, I think it’s going to a year in the US where you probably want to stay local as opposed to export oriented in terms of your exposure, because you don’t know how the administration is going to influence cross border trade or border taxes or what this means for global supply chains, in terms of what that mean especially for Silicon Valley. So, it’s going to be very much a special situation and a focus on local as supposed to foreign flavour, I think the financials still makes sense especially if the FED is going to raise rates and provide some margin, and I think that really in a special situation, think of the areas of the economy in the market, that are going to do well no matter what the White House does.
And so, I think energy capital spending, capital spending relates to energy, is going to be a very good place to be. It is going to be a big growth engine for the US this year, so it’s going to be energy CAPEX especially about the shale area and so that’s the primary focus. Outside of that there’s going to be some opportunities, obviously, Canada is going to have some with the currency cheap and giving a boost to industrial and transport here, the Canadian banks look pretty good with decent dividend yield and I think overseas is going to ask me what the big turnaround story is, it’s right in front of our eyes, and it’s called Japan. And Japan is one of the few areas in the world that’s trading and a price earnings multiple discount to its historical norm and Abenomics is finally starting to kick in and I don’t mean in terms of just the economy, but you are starting to see company’s respond by getting rid of that cash off the balance sheet towards a more productive uses, which over time is going to give them a relative boost, in their returns on equity, which have lagged so far behind their competitors over the past several years, so there’s going to be some areas out there that look really interesting to me and a lot of them, you know like I said, US energy and Japan, the Canadian financials would be a global portfolio for the 3 things that I want to be focused on.
