Legendary financier Frank Giustra speaking at the World Outlook Financial Conference in Vancouver earlier this month said what the global economy is going through is not just "another turn in the normal economic cycle," but a "whole new game".
The billionaire investor who made money in a rare combination of two very different industries – gold mining and movie making – said that he's already made his ultimate bet.
He said the endgame of the policies employed by the world's central banks is inevitable: inflation. And that tells you which asset class you have to been in.
Giustra says the reason hyperinflation has not yet appeared in official numbers despite the cheap money flooding markets is because the velocity of money – the speed at which money changes hands in the economy – is at its lowest since 1959, when it was first measured.
Once the velocity of money returns to more normal levels, inflation could pick up quickly because "inflation is caused by the fear of inflation".
Central banks' primary function has been managing these inflation expectations.
The problem is they are past masters of massaging the numbers and "making up stats": including conveniently stripping out energy and food prices to focus only or core inflation, hedonic pricing (an "arbitrary" decision to explain a higher price for a product by deeming that the consumer is deriving more pleasure from it) and hedonic substitution where for instance chicken is substituted for steak in measuring the basket of goods because the price of steak has gone up.
Giustra talks about asset classes starting at around 8:20 and the inflation-specific conversation begins at the 21:00 mark, while at 30:00 Giustra gives his opinion on the market for junior commodity stocks warning investors to look out among others for dilution.
Giustra started out at as mining industry dealmaker in the 1980s and got out when the market turned sour in the early nineties.
He then founded Lionsgate, today the biggest independent Hollywood studio.
By 2001 he was back in mining setting up among others Wheaton River which would morph into what is today the world's number two gold (Goldcorp) and silver (Silver Wheaton) companies.