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Will Supreme Court Rescue Trump Presidency? Thorns with American Flag in background

A global pandemic, wrenching unemployment and political polarization have created one of the most uncertain presidential election environments in modern history. 

In late October, polls show the presidential race tightening between President Trump and Democratic nominee Biden. The president has been casting doubt over mail-in ballots for weeks and the Republicans have been busily filing hundreds of lawsuits across the country designed to limit how mail-in ballots can be counted.

Issues like postmarks, when the ballot arrives, does the signature match, did the voter fill out the ballot correctly or did the voter move recently are all items being contested in court now – ahead of the election.

In our final election series installment we outline a potential legal battle over the results.

It’s November 4th: Day after Election

Wednesday morning November 4th, U.S. citizens wake up to the news that neither candidate yet has the required 270 Electoral College votes to determine a winner.

Thousands and thousands of mail-in ballots are still being processed and counted. In several key states across the country, mail-in ballots cannot be processed (verified) and then counted until after the polls close.

Local election systems are overwhelmed with the huge number of mail-in ballots used in 2020 due to the COVID health crisis and are working slowly through the ballots.

Supreme Court in Focus

Assuming that Amy Coney Barrett will be seated on the Supreme Court before the November 3rd presidential election – she will become the key and deciding vote in a case on mail-in ballots and who, ultimately, will become the United States President for the next four years.

A 4-4 Split Means Lower Court’s Ruling is Upheld

Without a ninth justice on the Supreme Court (which Barret will be) – any 4-4 Supreme Court ties — revert to the decision of the lower court. Let’s unpack what that means.

For example, in mid-October, the Supreme Court already ruled on a case regarding Pennsylvania state mail-in ballots.

A Pennsylvania state court ruled that mail-in ballots could be counted even if they arrive up to 3 days after election day – if they are postmarked by election day. The Supreme Court ruled in a 4-4 tie on the matter.

That means the decision of the lower Pennsylvania court stands – and those mail-in ballots can be counted.

If Amy Coney Barret had been on the court at that time, her judicial philosophy suggests she would have joined with the 4 conservative votes to not allow those votes to be counted. And, the lower court’s ruling would have been struck down.

2020 Trump v. Biden

So, you can see when it comes to election cases – having a fifth reliable conservative vote on the court could make the difference between a Joe Biden presidency and a Donald Trump second term.

Barrett dodged recusal questions

It’s no secret why President Trump wanted to advance his judge so quickly.

Amy Coney Barrett has been thrust onto the court amid President Trump’s frank calls for her swift confirmation so that she can be seated in time to decide the election cases.

Yet, in her Congressional testimony, Barrett artfully declined to answer whether or not she would recuse herself if a contested election case comes before her that could determine the outcome of this monumental presidential election.

Indeed, legal scholars point to a case from over a decade ago – Caperton v. A.T. Massey Coal Co., and say it applies directly to Barrett’s recusal decision and would require her to decline to vote on election cases.

The case states: A judge cannot hear a case that centers on the financial interests of someone who supported him substantially in his campaign for election.

Here’s the rationale: “Under the Due Process Clause and Tumey v. Ohio (1927), a judge must recuse himself if he has a direct, personal, substantial, pecuniary interest in the outcome of a case.”

Even more, Justice Antonin Scalia, while he did dissent in the case he wrote in that case:  “In the best of all possible worlds, [judges should] sometimes recuse [themselves] even where the clear commands” of the Constitution don’t require it.

Yes, there is a strong case for Amy Coney Barrett to recuse herself from 2020 election cases.

Will she recuse herself?

Unlikely.

Get Ready for a Replay of 2020: Bush v. Gore

The nation has been primed for and is hurtling toward a reply of 2020’s Bush v. Gore, in which the Supreme Court decided the fate of the election and the country for the next four years.

President Trump stated shortly after the death of Supreme Court Justice Ruth Bader Ginsberg: “I think this [election decision] will end up in the Supreme Court,”  “And I think it’s very important that we have nine justices,” instead of the eight seats currently filled.

President Trump publicly stated several times that he wants Barrett to be appointed swiftly so she will be on the court in time to “decide” the presidential election results.

How Will Financial Markets Respond?

In the event that our country moves through November and December with no presidential outcome – as court cases work their way toward the Supreme Court – the stock market will sink.

In 2000, the last time we saw a contested presidential election, the S&P 500 and technology stocks sank. Expect that to happen again – extended stock market weakness and volatility. In this scenario, investors will rush to safe haven assets like gold and silver and the U.S. dollar will tumble by 15-20%. Gold climb moderately amid the uncertainty hitting a new all-time high at $2,100 an ounce.

Bottom line

If the 2020 Presidential election battle is turned over to the courts as it was in 2000 – having Amy Coney Barrett seated on the court all but ensures a victory for incumbent President Trump.

Worth noting – power to pick presidents and strike down laws

No matter your political party affiliation, it is worth noting the extreme power the Supreme Court now has on our society.

In an increasingly polarized environment where Congress has become ineffectual due to gridlock, the Supreme Court has moved to the forefront to be the most important governing body in our land.

Of course, our founding fathers intended for all three branches of government (Executive, Judicial and Congress) to be equal with checks and balances on each other.

Today’s reality is different.

The Supreme Court has shown its ability to decide presidential elections (Bush in 2000) and can strike down any law that Congress passes that it sees unconstitutional.

With a strong conservative majority on the Supreme Court with Amy Coney Barrett – and their   lifetime appointments – the Supreme Court has become the most powerful influence and governing body for America for the next 30 years.

Longer-Term Market View

In this scenario, once the Supreme Court decides the election – and hands the White House back to President Trump for a second term, U.S. dollar devaluation will continue as the Administration brow beats the Federal Reserve into printing ever more money to attempt to prop up the economy.

The stock market will rally briefly on expectations for another tax cut – but as the second term continues the economic realities of isolationist and combative trade policies tank the U.S. equity market.

Investors will turn to hard assets like gold and silver as the dollar continues to weaken and as capital begins to leave the United States.

Wealthy investors will begin to move their money offshore as it becomes clear the decline of the United States of America is on a track that can’t be turned around. Gold will easily eclipse the $3,000 an ounce mark. For precious metals investors, there is small comfort in their gold and silver holdings, as inflation is becoming rampant and the country’s economic future becomes grimmer.

This concludes our “What Happens If…” election series. With less than one week until election day, we hope that we’ve provided you with valuable information to help you prepare your portfolio for most any eventuality.

Regardless of the election outcome, the economy is still reeling from the pandemic and a quick recovery is unlikely. Inflation is coming. Call us today at 866-629-2281 for a personalized review of your long-term financial goals. We want to help you protect what you’ve worked hard to build.

If you’d like to read the entire six-week series, please follow the links below and let us know your thoughts.

Read Part 1 here: “What happens if….” Trump Wins in a Landslide

Read Part 2 here: “What Happens If….Biden Wins in a Landslide

Read Part 3 here: “What Happens If…Trump Wins on Election Night but Biden Prevails After Mail-in Ballot Count

Read Part 4 here: “What Happens If…” Biden Wins on Election Night…But Trump Prevails After Mail-in Ballot Count

Read Part 5 here: What Happens If…” States Aren’t Ready to Declare a Winner

Americans historically have been terrible at saving.Savings account passbook with pencil

The COVID-19 crisis changed that.

Indeed, the COVID-19 crisis has changed our lives in so many ways, including how much we save.

Back in 2013, the American personal savings rate stood at a paltry 3%. That compares to Germany (10%), Australia (11%) and France (15%), according to Organization for Economic Cooperation and Development (OECD) data.

Americans who are still employed in 2020 are saving more during the COVID-19 crisis – than ever before in history.

Most experts would argue – a higher savings rate is a good thing. In fact, we agree. Yet, your future financial security depends on where you put that savings (more on that later).

In April at the height of the COVID shelter-in-place lockdowns, American’s savings rate surged to over 30%, according to the St. Louis Federal Reserve. It’s come down since then – but still stood at a respectable 14% as of August.

In fact, total household net worth rose 6.8%, to $119 trillion in the second quarter of 2020, the Federal Reserve said. That gain was the largest in quarterly records back to 1952.

What to Do With Your Savings?

Investors looking for a safe place to store their savings today see meager choices in vehicles that our parents and grandparents used – like certificate of deposits, bank savings accounts or even Treasury securities.

  • Current CD rates stand at 0.27% for a year.
  • The average bank savings account interest rate stands at 0.05%.
  • And, 3-month Treasury bill yields only 0.09%.

When you factor in inflation – you lose money every month you store your money in one of those assets.

  Current Rate Inflation Real Rate of Return
CD 0.27% 4% -3.73%
Bank Savings 0.05% 4% -3.95%
3 Month Treasury Bill 0.09% 4% -3.91%

What Happens If the Dollar Crashes?

To make matters even worse for investors today, the COVID-related explosion in the U.S. government debt leaves Americans so vulnerable to a dollar-crisis.

If the dollar crashes, you lose. It’s really that simple.

This is not something many people think about.

The value of the U.S. dollar – measured as the U.S. dollar index on the global financial markets matters a lot – to your future purchasing power.

Sadly, the Federal Reserve and our government continue to obliterate the future value of our dollars, with every new dollar they print and every new dollar they rack up in government debt.

  • In 2016, the total U.S. government debt stood at $5 trillion, according to Treasury Direct.

What is the national debt today?

  • We just surpassed $27 trillion in October 2020, four years later.

If the dollar index falls you lose.  Then what?

Of course, we all know the U.S. government no longer backs its dollars with gold. Yet, the government has printed more dollars by the trillions – just this year alone!

What does that do to the value of the piece of paper in your pocket? As we learned in Econ 101, more of anything dilutes the value.

Can you trust the value of the U.S. dollar to stay the same?

Absolutely not!

Today the U.S. dollar is increasingly vulnerable to a major crash due to central bank money printing and massive government debt.

Stephen Roach, Yale University Senior Fellow and former Morgan Stanley Asia chairman, told CNBC this summer that a dollar crash is looming.

“The dollar is going to fall very, very sharply. These problems are going from bad to worse as we blow out the fiscal deficit in the years ahead,” said Roach.

His forecast calls for a 35% drop against other major currencies within the next few years!

What will that do to the real rate of return on CDs, savings and treasury bills? You can bet it will be worse than the -3% to -4% you’re getting now.

Want a safe, liquid asset that keeps your purchasing power intact?

Gold Preserves Your Purchasing Power

It’s no wonder that investors in the U.S. are turning to gold in 2020. Major investment firms have even called gold a “bond alternative” this year.

When you are investing for the long term you want to increase your wealth and preserve your purchasing power. Gold does that for you.

Legendary investor Warren Buffett highlighted this critical point in his 2014 letter to Berkshire Hathaway shareholders. Buffett explained how over the past 50 years, the purchasing power of the U.S. dollar fell 87%. That means it now takes $1 to buy something that could be purchased for 13 cents in 1965, as measured by the Consumer Price Index. That’s simply from inflation!

A dollar simply doesn’t buy what it did 20 years ago and will buy even less 20 years in the future – especially as the government enacts policies that weaken our currency.

You need your investments to hedge against currency volatility and to keep up with the pace (or exceed) the rate of inflation in order to preserve your purchasing power.

Gold and the dollar have what is known as an ‘inverse correlation.’

Gold is a traditional hedge against inflation and tends to increase often significantly during inflationary periods. And also – this is important – when the dollar goes down, gold goes up.

Turn to the safety of gold

In today’s uncertain world, where you put your savings is more important than ever.

Don’t let your hard earned savings crash in value – as government policies leave the U.S. dollar at risk.  

When you invest your savings into tangible assets like gold and silver you can be assured your future purchasing power will be preserved. Just as it has been for thousands of years, gold is a store of wealth, an asset without credit risk related to any government. Gold is an alternative currency and some may say the only real currency. You can take that to the vault.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Rejected Ballots Deliver Win to Trump.American flag in cabin

It’s Election Night 2020.

Democratic contender Joe Biden is ahead in the popular vote as of 9 pm ET.

Traditional “Blue” states like Washington, Oregon, California, New York and Illinois have been called for Biden.

Key battleground states like Minnesota, Wisconsin, Michigan and Pennsylvania with their rich number of Electoral votes are still undecided.

Will those states go to Trump or Biden? Americans across the country are glued to their favorite television channel watching the returns and waiting…

Electoral College Will Decide Election

As of 10 pm ET, it becomes clear that the battleground states of Minnesota, Wisconsin, Michigan and Pennsylvania will decide the Electoral College victory and with that – the White House, no matter who wins the popular vote.

Popular Vote Goes Big for Biden

Voters remember that Hillary Clinton won the popular vote in 2016 by nearly 3 million votes. And, today Joe Biden is a lot more popular than Hillary Clinton ever was.

By 10:30 pm the popular vote shows Biden trouncing President Trump. Biden is ahead by 7 million votes! But, of course, the popular vote doesn’t matter in our country. 

All that matters is which candidate earns 270 Electoral College Votes.

Waiting on the Mail-In Ballots…

TV news anchors tell viewers – there are still millions of mail-in votes that have not been counted!

Indeed, many states don’t allow the processing or counting of absentee ballots until Election Day. Processing simply means getting the ballot ready to be counted (signature verification and opening the envelopes).

In fact, Wisconsin and Pennsylvania do not allow votes to be counted or processed before Election Day. In Minnesota, ballots can be processed when they are received – however ballots cannot be counted until after the polls close in that state.

By 11 pm ET, news anchors are reporting that thousands and thousands of mail in ballots are being rejected!

The media reminds the country that these are most likely Democratic votes that are being tossed. Pre-election surveys showed Democrats twice as likely to vote by mail as Republicans.  

It turns out that in the 2016 presidential election, 315,651 absentee (mail-in) ballots were rejected. Yet, even weeks ahead of the 2020 presidential election, experts were warning well over a million Americans could lose their vote on Nov. 3.

Why?

In the contested 2000 Florida presidential election that went all the way to the Supreme Court – the culprit was hanging chads on paper ballots.

In 2020 – it turns out that mismatched signatures, voters who have moved since requesting their ballot and post-marks after Election Day are the major reasons over a million votes are thrown out.

As Americans wearily go to bed on Election night, Biden is well ahead in the popular vote. Yet, the states that will decide the 2020 election through the Electoral College (Minnesota, Wisconsin, Michigan and Pennsylvania) have not been called – and the nation must wait for mail in votes to be counted.

Market Reaction

On Election Night, the stock market sells-off hard amid both the uncertainty and the expectations that Biden could win. Gold climbs quickly to a new all-time record high at $2,100 as investors rush to safe haven assets and on concerns that Biden’s policies would be inflationary.

What We Knew Ahead of the Election

Ahead of the election, hundreds of lawsuits clogged the courts over how signatures are evaluated on mail in ballots and whether voters can fix ballots that get tossed and other mail in voting issues. President Trump and the Republicans fought hard for strict signature matches. While, the Democrats argued for easier rules that gave people a chance to prove their identity, even if their John Hancock may have changed a little bit.

“At least 1.03 million absentee ballots could be tossed if half of the nation votes by mail. Discarded votes jump to 1.55 million if 75% of the country votes absentee. In the latter scenario, more than 185,000 votes could be lost in Florida, North Carolina, Pennsylvania, and Wisconsin – states considered key to capturing the White House,” according to an Oct. 8 USA Today article.

Fast forward to the results in our hypothetical scenario…

The Red Sweep!

By November 10 – the key battleground states have finished counting their mail in ballots and it is announced – Trump wins!

Despite Biden’s crushing lead in the popular vote, almost 2 million mail in ballots were tossed due to technicalities, which delivered Trump the Electoral College and the White House for another four years.

Sound farfetched? Not really. Consider this.

President Trump won Wisconsin in 2016 by almost 23,000 votes.

Yet, more than 23,000 absentee ballots were rejected in the state’s presidential primary in April 2020.

Also, over 37,000 primary ballots were rejected in June in Pennsylvania, a state Trump won by just over 44,000 votes, according to NPR analysis.

In a close election, every ballot that is counted – or is not counted truly matters.

Why did this happen? Thousands of first-time mail in voters made simple mistakes that led to their ballots being tossed.

Pre-election studies revealed that voters of color and young voters were more likely than others to have their ballots not count because required signatures are missing or don’t match the one on record, or because the ballot arrives too late.

  • Rejected ballots are even more widespread in Black and Hispanic communities. A University of Florida study found Black and Hispanic voters in the state were twice as likely to have their ballots rejected as White voters.
  • Younger voters were also more likely to have their ballots rejected than older voters, according to University of Florida professor Daniel Smith, who compiled the data from the Florida Division of Elections.

Voters saw evidence of this weeks ahead of Election Day 2020.

In North Carolina, as of September 17, 2020 Black voter’s ballots were rejected at a 4.7% rate versus White voters ballots rejected at a 1.1% rate.

Yet these ballots were tossed in 2020 – as the hundreds of lawsuits leading up to the election were ruled on favorably by the heavily conservative U.S. court system.

Another four years is confirmed for President Trump.

Markets and Economy under President Trump’s Second Term

We detail forecast and outlook for the economy and markets under a second Trump Presidency here. Key policy plans include falling tax rates, rising government debt, continued easing of environmental regulations and increased isolation of American within the world global power structure.

Now it’s Your Turn

How do you see this or another hypothetical election scenario unfolding? We invite your comments below!

Between now and Election Day, we present to you an in-depth Blanchard exclusive Presidential Election series. Please join us each week as we cover six hypothetical scenarios and detail potential outcomes for the economy, geopolitics, the stock market and precious metals if these scenarios unfold. We invite your comments, questions and insights below in this interactive event.

Read Part 1 here: “What happens if….” Trump Wins in a Landslide

Read Part 2 here: “What Happens If….” Biden Wins in a Landslide

Read Part 3 here: “What Happens If…” Trump Wins on Election Night but Biden Prevails After Mail-in Ballot Count

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Last week was one for the history books.

After nine-years, gold surged to a new all-time record high – trading up to $1,977.50 as the Covid pandemic rages on, the economic data crumbles and the U.S. dollar crashes lower.

The GDP report was a bitter pill to swallow – even though we knew it was coming.

The 2Q GDP report revealed that U.S. economic growth plunged 32.9% in the second quarter. That marks the largest drop on record, in history.

The economic damage will take years to unwind, according to Capital Economics. Indeed, as many as 4 million small businesses could be lost entirely in 2020, according to the Wall Street Journal.

In the midst of the health and economic crisis, gold climbed 10% in July, cementing its best monthly gain in eight years. Bigger picture, gold is up 27% year to date.

The rally in gold is being complemented by a dramatic surge in silver prices as well. Silver is now up 33% year to date – as precious metals prove to be a safe-haven in this crisis.

Fed reveals its impotence

At a Federal Reserve meeting last week, the central bank revealed its impotence in the midst of this crisis. Having already printed trillions of new dollars since the start of 2020, the Fed appears to be out of bullets to help the economy.

Indeed, many – including Goldman Sachs – now warn that the Fed’s actions are debasing our currency, which leaves us at risk of losing the reserve currency status of the world.

Since the Covid crisis began, central banks around the world, led by the U.S. Fed, have pumped massive amounts of liquidity into the global economy.

However – it is becoming clear that trillions of new printed dollars aren’t what will revive the U.S. economy.

Instead, in order to revive the economy – the U.S. must gain control over the Covid pandemic.

The Fed stated that looking ahead, a fair amount of economic uncertainty exists and that the “path of the economy will depend significantly on the course of the virus.”

The Fed kept interest rates at 0%, at its latest meeting and is expected to maintain that level for the next several years.

Stimulus Ahead?

The extra $600 per week in emergency unemployment benefits expired last week. While Congress has been debating a new round of emergency stimulus, talks are on-going.

With Congress scheduled to go into recess August 10 through Labor Day, there is growing concern the next stimulus package will stall and not get passed before the policymaker’s vacation.

The Presidential Vote

Looming large for the United States, the presidential election is a few months away – and will continue to take up a greater share of headlines. The nation is preparing for a potentially turbulent election cycle as public confidence in the electoral process may be eroding.

Last week President Trump floated the idea of postponing the Nov. 3 election.

Investors should plan and prepare for stock market turbulence into year-end – as the on-going health crisis, the election and on-going debasement in the dollar loom large.

Hurricane seasons heats up

As the hurricane season begins to heat up on the Atlantic coast, Tropical Storm Isaias threatens Florida. Just as the Covid-19 pandemic has altered so many aspects of our lives – hurricane prep is complicated by the virus. Florida authorities are challenged with how to prepare shelters where citizens can seek refuge from storms if needed – while safely social distancing and staying healthy.

If you are in a hurricane prone area, take the time now to prepare your emergency supplies and your family escape plan.

Last Word

Gold posts its highest weekly close on record – now what?  

“Still bullish and still buy dips,” says a July 29 BofA Global Research report.

Have a good week!

Best,

David

The U.S. Stands at a Dangerous Tipping Point.

As gold spiked to a new all-time record high this week at $1,960 an ounce, Wall Street investment bank Goldman Sachs warned the U.S. was at risk of losing the dollar reserve currency status.

Soaring U.S. government debt, rising political uncertainty and social unrest dominate our times. Meanwhile, our government policies have cheapened the value of our money.

The U.S. dollar’s century-long reign over the world economy faces a looming threat as China’s renminbi strives to become its successor.

These are not fringe or conspiracy concerns – but are being put forth by some of the brightest and most successful minds in our country today – and are helping gold soar to new all-time highs.

“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” wrote Goldman strategists including Jeffrey Currie. There are now, they said, “real concerns around the longevity of the U.S. dollar as a reserve currency.” – Bloomberg, July 28, 2020.

Print money and spend. Print money and spend. The U.S. has been able to get away with this economic model for decades as the U.S. dollar has the benefit of acting as the world’s reserve currency.

Yet, many warn the U.S. is blatantly mismanaging its finances and its currency – as we allow our government debt to skyrocket to an all-time high at $26.5 trillion (up from $19 trillion four years ago), run a zero-percent interest rate policy and continue to print trillions of new dollars at an astonishing pace.

“In the 1960s, French Finance Minister Valéry Giscard d’Estaing complained that the dominance of the U.S. dollar gave the United States an “exorbitant privilege” to borrow cheaply from the rest of the world and live beyond its means. ” – Foreign Affairs, July 28, 2020

View from Sydney

Sometimes it’s useful to look at what’s happening here in our country – from an outsider’s view. Here’s how the Australian newspaper, The Sydney Morning Herald, described the situation:

“What’s occurring is a loss of faith in the US economy, its political system, its competency and in its commitment to the post-war role it has played in the world’s affairs. America’s squandering of its global leadership and its rapidly deteriorating public finances provide no reason for the rest of the world to maintain the faith [in its economy].- July 29, 2020

Countries use U.S. dollars for world trade – for now.

Other countries around the world need U.S. dollars in order to conduct foreign trade. So, they buy dollars. For example, if Brazil wants to buy BMWs from Germany – they need to conduct that transaction in U.S. dollars. The vast majority of world trade is invoiced in US dollars. For now.

This gives our nation a tremendous financial advantage and has allowed our government to finance $26.5 trillion of debt at ultra-low interest rates.

Losing dollar reserve status would be death knell for US.

Just think what would happen if no one needed to buy dollars or U.S. death any more. We could no longer finance debt at 0%.

What would that mean for you and me?

Soaring inflation, soaring interest rates, plunging values in the dollar.

It’s no surprise in this environment, gold is soaring to new all-time highs. Gold, is the ultimate safe-haven, the currency of last resort, and a hedge against inflation due to limited physical supply.

America is a debtor nation with $26.5 trillion in debt – and that’s before the new pandemic stimulus package Congress is debating now. 

While policymakers in Washington debate the next round of pandemic stimulus – it’s worth remembering they are rolling the dice with our nation’s future with every new dollar they choose to print. They are printing new money to fund these emergency packages – and putting our future at grave risk.

Indeed, we are living in historically fraught times.

“According to Deutsche Bank, Germany’s biggest lender, a reelection victory by President Donald Trump could threaten the U.S. dollar’s century-long reign as the world’s de facto reserve currency.

In a July 1 report, Deutsche Bank foreign-exchange analysts wrote that Trump, a Republican, has shaken up “policy orthodoxies and institutions” during this term. In contrast, former Vice President Joe Biden, the presumptive Democratic nominee, would likely pursue “policies that are more predictable and mainstream, with traditional U.S. alliances valued.” Yahoo Finance. July 6, 2020.

Are we witnessing the fall of the U.S. Empire?

Billionaire money manager Ray Dalio recently wrote about the typical cycle behind empire’s rises and declines. What is at the top? “Debt Bubble and Big Wealth Gap.” What lies ahead in this cycle? Debt bust and economic downturn. Printing money and credit. Revolutions and wars. Debt and political restructuring.

“We first saw the Dutch and then the British rise to become the richest and most powerful reserve currency empire and then decline into relative insignificance in cycles that were driven by timeless and universal cause/effect relationships.  We ended with the British Empire declining in the first half of the 20th century.  That brought us up to World War II, after which the British Empire was replaced by the US Empire.” Ray Dalio, July 16, 2020

This week Goldman boosted its 12-month gold forecast from $2,000 to $2,300. Do you own enough?

We understand these are troubling issues. If you’d like to discuss the current economic environment, call your Blanchard portfolio manager today. We are here for you –and can provide advice on how you can protect your financial security for you and your loved ones now and for the future.

Falling dollar helps gold shoot above $1,900 an ounce.

The U.S. dollar fell five days in a row last week.

While paper money fell in value, gold and silver leapt sharply higher last week – fueled by a new Cold War with the U.S. and China, expectations for another trillion dollar government stimulus bill (paid for by newly printed dollars) and interest rates stuck at zero.

The historic 2020 bull market in precious metals is on fire.

The months-long rally in precious metals has more room to run with firms like Goldman Sachs and Citibank projecting more gains ahead. Last week’s gains in gold were the first time the metal traded above $1,900 since 2011.

Silver has surged a remarkable 26% higher since the year began, while gold is up 23%. Upside price targets in gold are seen at $2,300 an ounce and silver at $25.00 an ounce.

A new “Cold War” is building between the U.S and China.

Last week, Secretary of State Mike Pompeo put forth a grave speech to the nation and world. In his speech, titled “Communist China and the Free World’s Future,” he declared the failure of 50 years of engagement with China. And, Pompeo called for free societies to stand up to Beijing.

The United States shuttered the doors on the Chinese consulate in Houston. Soon after, Beijing lashed out and closed the U.S. consulate in Chengdu – which was considered to be the most valuable diplomatic output for gathering information on China’s far west region.

Pompeo’s speech pits East against West.

Sadly for Americans, we are the debtor nation. China is the rich nation that buys our Treasury securities to fund our nation’s gargantuan debt.

The politics could have immense economic consequences on American’s pocketbooks in the future. If China loses appetite to continue to buy our Treasury debt, the outcome would be double-digit interest rates and worse.

Senate Banking Committee approves Judy Shelton.

Last week, the Senate Banking Committee moved forward Judy Shelton’s nomination to the Federal Reserve’s policy making board.

President Trump nominated Shelton, a proponent of returning to the gold standard. However, she has faced widespread criticism from economists across the country. She is viewed by some as unqualified for the job.

The next stop for Shelton’s path to the Fed is a confirmation vote on the Senate floor, where Republicans hold a majority 53-47. Stay tuned.

The week ahead

The major market moving event this week – is the Federal Reserve’s policy making meeting on Wednesday, alongside Fed Chair Jerome Powell’s press briefing.

Wall Street awaits the Fed’s current views on the health of the U.S. economy and how monetary policy will support the fledging recovery.

Also due out this week is the first look at the second quarter Gross Domestic Product economic activity – the report is released on Thursday. Wells Fargo expects a 35% annualized contraction. That would represent more than three times the previous, largest decline on record, which was a negative 10% reading in the first quarter of 1958.

Parting thoughts: the danger of ‘free money’

As the U.S. government prepares to pass another trillion dollar stimulus package, it’s instructive and disturbing to consider how ‘dependent’ the U.S. economy has become on government bailouts, new money-printing and zero percent interest rates.

Here’s what Ruchir Sharma, chief global strategist at Morgan Stanley warned last week in the Wall Street Journal:

“The mantra of government officials is that these efforts are not only necessary but also will carry no cost or consequences. They believe that they can easily borrow to pay for it all because the last four decades of easy money have brought interest rates to near or less than zero: Money is free.”

“This is a dangerous form of denial… All of this leads to low productivity—the prime contributor to the slowdown in economic growth and a shrinking of the pie for everyone…At the same time, easy money has juiced up the value of stocks, bonds and other financial assets.”

Can the government indeed be the solution for all our economic woes?

In this world, protecting your wealth and future with hard assets like gold and silver has become more important than ever.

Have a good week!

David

Gold: One of 2020’s Top Performing Asset Classes

All eyes are on the gold market.

Gold closed higher for the fifth week in a row, cementing its spot as one of 2020’s best performing asset classes.

Gold is up 17% this year and closed above the $1,800 an ounce level last week. Silver wasn’t going to be left behind – and it also closed higher last week above the $19 an ounce level.

The trend for gold points UP – and new all-time highs above $1,900 (scored in 2011) are just around the corner.

This year, gold has already hit new all-time highs in 16 currencies, including Gold/euro, Gold/British Pound, Gold/Japanese Yen, Gold/Australian dollar, Gold/Canadian dollar, Gold, Chinese Yuan, Gold/New Zealand dollar.

Yes indeed. Gold $2,000 here we come.

There are No Easy or Quick Fixes for This

There’s no getting around it.

We heard a bunch of bad news last week – as major companies warned of massive job losses ahead. 

Iconic Brooks Brothers filed for bankruptcy last week after over 200 years in business.

United Airlines warned it may need to fire 45% of its workforce. That follows American Airlines statements suggesting it may have 20,000 more workers than it needs.

In the banking sector, Wells Fargo, the largest U.S. bank employer, is readying to cut “tens of thousands” of jobs in 2020, Bloomberg reported.

There are no easy or quick fixes. It will take at least 10 years for the labor market to recover from the Covid pandemic, according to the most recent data from the Congressional Budget Office (CBO).

While government officials state there is no appetite to force another shut-down, the pandemic continues to accelerate with a new single day Covid case high. Sadly, last week, Florida, Texas, California and Arizona saw their Covid daily death tolls hit record highs, according to Hopkins data.

What lies ahead for our country? The pandemic is spreading fast in Sunbelt states. Will Covid fizzle out on its own soon – or will the United States health crisis grow doubly worse once the seasonal flu season kicks in during the fall months?

The scary truth is that no one knows. If the health crisis continues to accelerate in the months ahead, another lockdown or shelter in place is one of the biggest risks to our economy ahead.

Waiting for the next shoe to drop?

The stock market is on edge, trading sideways last week in a holding pattern.

It’s only a matter of time before the stock market adjusts to the economic reality seen across the country with over 40 million Americans filing for unemployment benefits since the pandemic began just a few short months ago.

Businesses are shedding workers, because their profit and revenues are diving. A full 40% of companies in the S&P 500 pulled their earnings guidance because of the virus. There are real risks ahead.

Another new bullish forecast for gold

We have been asked whether we still like gold at these levels. The short answer is a resounding “yes” – a July 6 Wells Fargo Investment Institute.

In fact, the Wells Fargo Investment Institute issued its 2021 year-end target for gold at $2,200-$2,300!

“In our opinion, gold has a host of drivers working in its favor, and believe that gold is on its way to new highs,” the Wells Fargo Investment Institute report said.

The last word

Any portfolio disruptions you’ve seen this year due to the stock market volatility have been mitigated if you are holding gold now. Gold is in an uptrend, climbing – with more room to run. We are seeing clients increase exposure to gold now – as investors want to capture more portfolio protection and asset growth in these uncertain times.

If you have questions, we are here to help.

Warm regards,

David

By Mark Ferguson

Mark Ferguson is the editor and publisher of CAC Market Values. He has graded coins professionally for PCGS and served as the principal market analyst while managing updates for more than 65,000 price points for Coin World magazine. In other words, Mark knows his coins!

Demand for investment-grade rare coins has surged since the coronavirus pandemic and economic crisis began six months ago; and this demand has been strong for CAC coins.  This month’s market report gives you a behind-the-scenes look at what the country’s oldest and largest precious metals and rare coin retailer is seeing in client activity: Blanchard and Company.  It’s an eye-opening look at where demand is coming from, which will likely continue for the next several years.  This new demand bodes very well if you own high-grade, rare CAC coins.

For more than an hour in late June, I discussed the rare coin market and CAC coins with David Zanca of Blanchard and Company.  David is a senior portfolio manager at the firm and has been with Blanchard since 1993.  Among other collections he’s helped build, over a span of 25 years Zanca built one single portfolio of ultra-rare coins totaling nearly $20 million, a portion of which recently came to auction.

From the launch of CAC in 2007, Blanchard and Company has partnered with CAC founder John Albanese and Certified Acceptance Corporation in establishing a market for CAC coins.  Albanese and CAC are the primary suppliers of rare coins for the Blanchard firm.  Certified Acceptance Corporation makes a market in CAC-approved coins by publishing buy prices for CAC coins in the dealer-to-dealer market.

Blanchard and Company was founded in 1975 by the late James U. Blanchard who began a nationwide movement in 1971 to legalize gold ownership, after it had been outlawed by the Franklin D. Roosevelt administration in 1933.  Blanchard also founded the National Committee to Legalize Gold in 1971.  Success was achieved in 1974 when President Ford legalized the private ownership of gold.  The firm’s focus has been on the investment aspect of rare coins, but in doing so, has built advanced collections such as the one referred to above.

Motives for Private Investors Who Seek Rare Coins

Recent volatility in the stock market has caused many investors to seek alternative investments.  Many of these people are of the age at which they don’t want to take on a lot of risk.  According to David Zanca, the biggest concern of investors is the “printing” of money by the Federal Reserve and the stimulus that has been pumped into the U.S. economy, which may increase.  The concern is rising inflation and the loss of purchasing power of the dollar.  Low interest rates, with the possibility they could become negative rates, is another concern of investors.  They view gold as an alternate currency that’s a safe haven investment and they seek to own tangible assets they can control.  Similarly, rare coins serve this purpose.

Investors who are not collectors get introduced to rare coins through buying precious metals from a firm like Blanchard that handles both.  Other investors are referred by friends or family who have purchased coins.  After buying a few coins, some take an interest in the history of the coins and become collectors.  According to Zanca, what’s changed in the last six months is that many of these new collectors are putting investment money into their collections, rather than just excess “play money” they have sitting around.  He said every portfolio manager at Blanchard is seeing this.  He added that the market is moving from a long-term collector mindset to an investor mindset.  We saw this same change during the inflationary 1970s.  Then, after the coin market peaked in 1989, we experienced a return from an investor-based market to a collector-based market over the next 10 to 12 years.  Dealers generally refer to these phases as “cycles.”

Buying Preferences

Over the past six months, Zanca has been seeing investors put a higher percentage of their assets into rare coins.  Again, people are putting investment money into rare coins.  The pandemic has introduced uncertainty into our financial lives and investors realize that stocks can go to zero, whereas gold and rare coins act like a safety net in that they maintain value, they won’t go to zero, and owners have custody of the assets.  Zanca said this is similar to what he saw in the 2003 to 2004 period when demand for rare coins picked up and accelerated into a bull market that lasted until the financial crisis began in the 2007 to 2008 period.  Because many investors are buying coins with investment money, he sees demand for higher-valued coins increasing.

Zanca stated that high-net-worth individuals and ultra-high-net-worth individuals want high-grade coins.  They seek perfection and are drawn to CAC coins.  They feel comfortable with CAC-approved coins and see the benefits of owning them.  CAC coins “level the playing field.”  Zanca said helping buyers feel comfortable with CAC coins is an educational process.  But it’s become much easier with the internet.  Pictures, data and history are readily available, allowing people to educate themselves about coins.  The internet has opened the market and is bringing more people to coins.

Early gold coins are popular among these investors – they’re easy to understand and have an interesting history.  Humbert $50 “slugs” and branch mint gold coins are especially popular, but these investors are also looking for guidance on what to buy.  In addition to gold coins, these buyers find early silver coins appealing.  One big problem Zanca sees is that CAC gold coins are getting increasingly difficult to find, as are true rarities.  Owners are not selling because they don’t have good places to go with the proceeds.  This is a classic scenario that puts upward pressure on market values.

Zanca brought up an interesting concept.  He said that CAC coins have not been through a bull market yet, so we don’t know the true power they hold.  CAC was launched in November 2007, as the financial crisis was developing.  The crisis sparked a temporary correction in the coin market, but it experienced a strong market between 2011 and 2014.  Even so, that period could not be described as a true bull market.

Zanca sees premiums for CAC coins over non-CAC coins growing even more than they have already, adding that the possibilities for movement in prices for CAC coins are far greater now than at any time in the past.  When CAC coins first came to market, it was difficult for the investor to understand the price premiums they were selling for.  Now, almost fourteen years later, CAC coins have a proven and solid track record of pricing in both public and private sales.  CAC coins have established themselves as the preferred coins investors want to own.

Zanca added that prices for non-CAC coins are irrelevant; CAC coins make up their own market.  In conclusion, he said he believes Americans are beginning to realize the value of holding tangible assets, not just paper investments.  Europeans have practiced this financial strategy through the ages, and he believes Americans are beginning to realize the benefits of owning tangibles that they control.  It’s a new mindset that he sees developing in America.

Analysis

This is a telling look at how demand for rare coins has increased during the past six months.  In an atmosphere where seasoned collector-investors and dealers have been concerned about the graying of the hobby and a diminishing market for their coins, this is new evidence that investors will be buying our coins in the near term, not just a younger generation of collectors.  Additionally, Americans are not the only people who share the same economic worries.  I’ve recently been contacted by a group of investors from outside the U.S. who are looking to buy high-end U.S. coins, for many of the same reasons – they fear inflation.

I’ve read professional wealth studies by large multi-national firms that conclude high-net-worth and ultra-high-net-worth individuals put, on average, approximately ten percent of their investible assets into “treasure assets.”  This could be fine art, antique cars, rare wines or rare coins, for example.  The percentage varies slightly around the globe and for different cultures, but the average hovers around 10 percent.  U.S. coins are appealing to many of these investors because of the standing the U.S. has in the world and the well-organized numismatic market we have in the U.S.

Lastly, this new demand and the scarcity of some CAC coins, such as early gold coins, has to put upward pressure on their market values over time.  Additionally, demand for rare coins has been shown over time to run parallel to trends for the price of gold.  The huge economic stimuli that’s been injected into economies around the world during the past six months, and which will probably expand, has raised inflation fears.  Some experts in precious metals and economics predict the price of gold price will soar into the thousands of dollars per ounce during the coming years.  That will help propel market values for rare coins to new record highs.    

 

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If you are parking your sidelined cash in a money market fund, caveat emptor.

That’s Latin, of course, for let the buyer beware.

Long thought to be a safe harbor in turbulent times, money market funds are showing their true stripes these days. Few investors read the fine print on their investment company’s website or obscure SEC documents, so we are detailing current issues you need to understand here.

Long gone are the days when you can earn even 1% on a money market fund.

Today, the national average for a money market yield is 0.09%.

In fact, business is so bad in the money fund industry, Fidelity liquidated and closed two of its prime money market funds this month (June 2020).

A little history – breaking the buck

Investors’ park cash in money market funds that they want to keep safe. Investors believe that these accounts are secure, safe and can’t lose money.

Yet, that is not true.

Money market funds seek to keep the net asset value (NAV) at $1. There is a phrase called, “breaking the buck,” which means if the NAV falls below $1, investors will lose money.

In the midst of the 2008 financial crisis, a major money market fund – The Primary Fund, which had about $65 billion in assets – broke the buck. Initially, The Primary Fund reported that, until further notice, it would delay paying redemptions to customers for up to seven days, as permitted under mutual fund law. Source (NY Times)

Eventually, because the value of investments fell (the fund held a lot of debt from bankrupt Lehman Brothers) – it was forced to liquidate and investors in that money market fund only received 97 cents for each dollar invested.

What is going on with money markets?

The current zero interest rate environment and the specter of negative interest rates is making these funds even more risky now.

A money market fund generally holds investment-grade short-term government bonds that mature somewhere between 30 and 90 days. Some money market funds also hold triple A–rated corporate debt.

What happens when interest rates are zero or negative?

They lose money.

It’s important to remember that money market funds are not insured against loss by the FDIC. Here’s what the Consumer Financial Protection Bureau (CFPB) says:

“Money market funds are offered by investment companies and others. Money market funds are not insured by the FDIC or the NCUA, which means you could possibly lose money investing in a money market fund.” (Source: CFPB)

What will happen to your money?

Major investment companies are addressing the issue of negative interest rates and the impact on money markets funds on their websites – if you look for it.  That shows that investors are asking questions about this – and the funds are tacitly acknowledging that that negative rates may cause a run on the funds.

Will you be able to withdraw your funds with these restrictions in place?

You may need to wait up to 10 business days to withdraw your funds from a money market fund and pay a “liquidity fee” to get it.  And, these accounts have ‘broken the buck’ in the past – which means you may get back less than you initially deposited.

 Charles Schwab notes it is permitted to impose a liquidity fee up to 2% on redemptions.

Here’s the info straight from the SEC’s documents:

“The SEC also is adopting amendments that will give the boards of directors of money market funds new tools to stem heavy redemptions by giving them discretion to impose a liquidity fee if a fund’s weekly liquidity level falls below the required regulatory threshold, and giving them discretion to suspend redemptions temporarily, i.e., to “gate” funds, under the same circumstances. These amendments will require all non-government money market funds to impose a liquidity fee if the fund’s weekly liquidity level falls below a designated threshold.” (Source: SEC rules).

Negative rates could cause a run on money market funds, which could send these funds spiraling lower fast.

Here’s the hard truth.

  • You aren’t making any money holding funds in a money market fund (0.09% interest rate).
  • The NAV of your money market fund could go below $1.
  • You may have to pay up to a 2% liquidity fee to get your money back.
  • You may have to wait up to 10 days to get your money back.

Where can investors park assets to ride out the pandemic in safety?

Gold and silver.

  • Gold and silver are a tangible assets.
  • They are highly liquid. Gold and silver can be quickly sold for cash on the spot – in any country around the world. Gold is one of the most liquid financial assets in the world.
  • Gold is rising in value. In fact, gold is up 16% year to date!
  • It is non-correlated to stocks – when stocks go down, gold rises.

Consider increasing your allocation to gold now.  Get asset preservation, liquidity and rising value all in one golden package.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Gold Surges above $1,800 for First Time Since 2011

Gold traded above the $1,800 an ounce level last week for the first time since 2011. The summer gold rally is hot and getting hotter.

As the economy continues to reopen, store clerks are reminding shoppers to put on their face masks. People are waiting for the next elevator. Hand sanitizer is available at almost every establishment you enter.

Yet Texas, California and Florida continue to reveal a swift increase in the number of confirmed Covid-19 infections. Over 57,000 new Covid cases, a record high number, were reported in the U.S. on July 3 as the number of new daily cases accelerates and points higher.

The new wave of infections prompted California to order 19 counties to partially close down some activities. On the East Coast, New Jersey and New York City delayed the resumption of indoor dining at restaurants.

Hopes for a “V” shaped economic recovery are being dashed as some states are now back tracking on economic activity plans.

How to Interpret June Jobs Data

Last week, the June employment report came in better than expected with 4.8 million new jobs created. The unemployment rate fell to 11.1% from 13.3% the previous month.

While that sounds promising, at the same time, another 1.4 million Americans lost their jobs last week and applied for unemployment benefits.

The bottom line – is that the economic data is “noisy” right now.

The stock market is down, the stock market is up. Lock-downs shutter businesses, some are reopening on a smaller scale. Others are getting closed once again. One economic report looks good, another reveals the depth of the crisis.

Here’s the hard truth; it might take years for all of the jobs that were lost to fully recover. In fact, during the 10 recessions since 1950, it took an average of 30 months for lost jobs to finally come back, LPL Financial said recently.

 “As good as the recent economic data has been, we want to make it clear, it could still take years for the economy to fully come back,” explained LPL Financial Senior Market Strategist Ryan Detrick. “Think of it like building a house. You get all the big stuff done early, then some of the small things take so much longer to finish; I’m looking at you crown molding.”

Fed Meeting Minutes Reveal How Little They Really Know

Last week the Fed released its minutes from the early June Federal Open Market Committee (FOMC) meeting. What do we find?

A lot of uncertainty.

In fact, the Fed meeting minutes referenced “uncertain” or “uncertainty” 45 different times in the 13-page report.

Yes, really.

The Fed minutes also revealed that the central bankers remain fairly pessimistic on the economic outlook ahead as “voluntary social distancing, precautionary saving, and lower levels of employment and income” are likely to weigh on recovery prospects in the medium term.

In the News…U.S. Dollar at Risk

Billionaire hedge-fund manager Ray Dalio highlighted the shift towards “storeholds of wealth” like gold in an interview with Bloomberg last week.

Dalio, not afraid to speak the truth, stated that the Federal Reserve is boosting markets, and even more worrisome, the U.S. dollar could lose its appeal in the world marketplace.

“The economy and the markets are driven by the central banks in coordination with the central government,” Dalio told Bloomberg.

He warned that if any viable alternative to the U.S. dollar emerges, investors will dump U.S. Treasury bonds, which offer zero return, and pile into the new alternative.

“That would be terrible for the United States,” Dalio continued. “It would be probably the biggest disruptor not only to the markets but to the whole world geopolitical system.”

Sadly, given the size of our U.S. government debt ($22.8 trillion and rising every day) and the massive money creation by the Federal Reserve – make this a “when” not “if” scenario for our country.

Will this disruption come in 1, 5, 10, or 20 years? No one knows.

But, when it does, foreigners will pull out the U.S. dollar, sell U.S. Treasuries, pull out of the American stock market – leaving the U.S. nothing but $22.8 trillion in debt (likely much more by then) with no one willing to buy our bonds to finance the debt anymore. That will mean interest rates – probably at the highest levels ever seen in the United States – double digit for sure. And, a massive devaluation of the U.S. dollar.

It’s no wonder that bank after bank on Wall Street are turning more and more bullish on gold by the day.

More Bullish Forecasts for Gold

Another U.S. investment bank recently jumped on the bandwagon of bullish price forecasts for gold – Citi analysts have now increased their 3-month forecast for gold to $1,825 an ounce.

Goldman Sachs calls for Gold $2,000

Goldman Sachs forecasts gold to hit $2,000 within 12-months.

China Power Rising

On the global front last week, China’s power is rising – as it boldly passed a National Security Law for Hong Kong, which threatens the end of the ‘one country, two systems’ promised 23 years ago on the handover from Great Britain to China.

China’s rising power and ambition stretches far beyond Hong Kong with economic ramifications that will likely become the biggest challenge for our country in the decade ahead.

Preparing Your Asset Allocation for the Next Stage of the Covid Crisis

The second half of 2020 ushers in a U.S. presidential election, a potential “second wave” of Covid in the fall, once the seasonal influenza season begins, and a whole host of geopolitical challenges as China continues to force its way onto the world stage in a stronger way.

If you’ve been considering increasing your allocation to gold, the argument has never been stronger. Move to the safety of gold, an asset that will preserve, protect and grow your wealth today, tomorrow and for generations to come.

Best,

David