The Difference Between Wealth and Money
Posted onMoney is transitory. It is the only way to transact business/pay bills. From the beginning of time, this has always been the role of money.
Wealth is different. Wealth is measured in real things. Property. It always has been and always will be.
In the United States, wealth and money (dollars) have become intertwined over the past fifty years or so. This is a recent phenomenon and is only due to the dominance of the US dollar on the world stage. The incredible worldwide respect for the dollar has allowed it to be considered a stable and valuable store of value. This has been evidenced by the fact that the dollar has always allowed you to earn a nice rate of interest by simply holding it in the bank. You could do nothing and make a decent return simply because you held dollars.
In July, the dollar posted its biggest monthly drop in value in a decade. This is likely, in part, what prompted Goldman Sachs to warn that the dollar was in danger of losing its status as the world’s reserve currency. In turn, Goldman stated “We have long maintained gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their currencies and pushing real interest rates to all-time lows.”
Clearly, the days of easy interest are over. More than $10 trillion is sitting in money market and savings accounts making nothing. If the dollar had any level of respect left worldwide and this money was able to earn just 1% that would represent $100 billion in wealth created a year!! That is the magnitude of what has been lost. $100 billion a year at just a 1% interest rate.
Why can’t you make any interest? Because no one wants your dollars. They can get as many as they want from someone else. Is that where you want to store your wealth? In something that, returning to the norm, no one else really wants?
So what is really happening? A massive transfer of wealth is taking place right now. Massive.
Need proof? Those that transferred dollars to gold just one year ago have grown their wealth by 33%. Those that transferred dollars to silver just one year ago have grown their wealth by 43%.
This change is simply a return to the norm and is only beginning. Despite how obvious this is, very few have figured out what is happening. Ask yourself a simple question: Is the United States government going to print more money over the next ten years? If the answer is yes, you have a choice. Sit and do nothing and allow your dollar value to continue to be watered down, or take the responsible steps and build wealth for you, your family and your heirs.
Every day we hear about more and more trillion dollar “rescue” programs being passed by politicians. Rather than pay for these massive trillions upon trillions of dollars in handouts with taxes, the government simply prints the money. It is all really a clever way for the government to tax you without calling it a tax. How much is the tax? It’s equal to the gain in the value of gold over the past year – 33%!! Think about that. By doing nothing with your paper dollars in the bank over the past year, you were subject to a 33% tax.
Will you sit and be taxed on your dollars or make the transfer? If not now, when?
Read this article to learn more: The Hidden Risk of Money Market Funds
Monday Morning Wrap Up – August 17, 2020
Posted onConsumer inflation heats up fast. 
Is the inflation genie out of the bottle? Once it has escaped, policymakers know it is very hard to get it under control…
New data last week revealed that July Consumer Prices jumped higher. The annual core CPI inflation rate rose to 1.6%.
Here’s what costs more now: Gasoline prices increased by 5.6% m/m in July, motor vehicle insurance prices increased by 9.3% m/m last month, air fares increased by 5.4%, used vehicle prices rebounded by 2.3%, lodging away from home rates increased by 1.2%, clothing prices increased by 1.1% and new vehicle prices increased by 0.8%, Capital Economics noted.
Here’s what new research titled: “Inflation collapsed in 2Q, but it’s rising fast now” from a BofA Global Research report says:
“Inflation initially collapsed in 2Q20 as the pandemic hit, but it has recovered quickly in recent months as central banks engaged in unprecedented easing. In turn, the aggressive expansion of monetary and fiscal policy in the US has led to fears of US currency debasement and overshooting inflation.”
It’s no wonder gold prices surged an astonishing 35% higher from Jan. 1 into the August high! Gold is an excellent inflation hedge and now official numbers are beginning to capture the impact of the Fed’s massive money printing scheme.
The Gold Rally Pauses
Last week we saw the gold rally correct and consolidate. No, this does not mean the gold rally is over – far from it!
In technical terms, the gold rally was ‘overbought and due for a correction.’
After all, since July 1st gold surged from $1,769 an ounce to the $2,059 level — that’s a massive move in a short period of time.
Corrections are normal in all markets and the gold rally simply ran out of gas in the short-term and needs time to consolidate and build value at its new higher price point. The fundamentals remain strong for gold and silver.
For the short-term, expect gold to move into a holding pattern as it gains strength for its next move higher with a target at the $2,300 an ounce level.
Congress Takes a Break
As political jockeying continued, the U.S. House and Senate failed to come to terms on a new Covid-19 stimulus package before leaving for their August recess last week. Congress isn’t slated to return until Sept. 14 (for the House) and Sept. 8 (for the Senate).
Covid Infections Leveling Off
In the midst of the political bickering, new Covid-19 infections in the U.S. appear to be plateauing for now. The daily number of new Covid cases stood around 55,000, roughly the same as a week ago and steady for the past two weeks.
The daily national Covid-19 spread rate is now down to around 1% per day as of August 12. That has fallen to near the lowest levels of the pandemic so far and down from a recent high of 2 percent.
The focus is shifting to a potential second wave that could be sparked by schools returning to in-person learning and the onset of the fall influenza season.
Covid Rates Are Still High In South and Sun Belt States
Key economic driver states like California, Texas and Florida, however, have already started reinstating restrictions on indoor and group activities due to rising Covid cases there. In total, there are 21 states that account for 30% of the U.S. economy that have either reinstated restrictions or paused their economic reopening plans, according to S&P Global.
“As more states reverse plans for reopening and the U.S. government negotiates the next round of emergency stimulus to keep the economic recovery on track, recent real-time economic data continues to be mixed,” according to Beth Ann Bovino, U.S. Chief Economist at S&P Global.
“S&P Global Economics still sees the probability of a worse economic outcome–than its base-case projection–at 30%-35%. Although our base case is for a gradual recovery through next year, still-high levels of COVID-19 infections, together with no agreement in extending emergency COVID-19 relief, suggests that the near-term outlook remains challenging,” Bovino said.
Global Pandemic Picture
Total Covid-19 cases in the United States have topped the 5.3 million mark, as we continue to lead the world in the highest number of infections. And, tragically, more than 160,000 Americans have lost their lives to this pandemic.
Brazil is in second place with 3.3 million cases and India is third with 2.5 million cases, according to data from Johns Hopkins University.
Coronavirus Vaccine
Looking ahead, the CDC predicts initially we could have 10 to 20 million doses of a Covid vaccine – by year-end perhaps. However, there are 100 million Americans who are considered ‘high priority’ – people who work in essential jobs like health care or front line workers and those with high risk conditions. It will likely take up to two years before there is enough manufacturing capacity for all 320 million Americans to get access to a vaccine.
Disconnect between Stock Market and Economy Continues
In the midst of all this economic uncertainty, the stock market is flirting with its all-time highs despite the fact the economy isn’t anywhere close to previous levels of output.
It’s like Charles Dickens’ novel: A Tale of Two Cities.
Stocks are climbing against a backdrop of record economic damage in the U.S.
Chalk it up to massive money printing by the Fed – once again fueling a liquidity driven move in speculative and risky assets.
Is it sustainable? That’s why investors diversify – into tangible assets like gold and silver.
Where’s the Mail?
Last, but not least, it turns out the post office could end up as a central player in the next U.S. Presidential election. As unlikely as that would have sounded just 8 months ago – it may be true.
As the call for mail-in balloting increases so Americans fearful of the Covid pandemic can protect their health and vote by mail, there are concerns budget cuts could delay delivery time.
The election is fast approaching and could be a major flashpoint for the stock market and precious metals.
Financial markets do not like uncertainty – and there remains much uncertainty over perhaps the most divisive presidential election in decades.
The Bottom Line
This historic global gold rush into gold remains intact. Major investment firms continue to point to higher gold prices over the next 12 months with targets at $2,300 and even $3,000 an ounce. With widespread vaccination for Americans still one to two years out, and a watershed presidential election just around the corner, gold is money you can count on to protect, preserve and grow your wealth.
Stay safe,
David
The Uniquely American Appeal of the $3 Indian Princess
Posted on
In 1854 the U.S. Mint’s chief engraver, James B. Longacre, reached a milestone in his career. For the first time, he would choose the design for a piece of currency: in this case the three-dollar gold coin. Much of the currency up to that point favored designs that referenced the Romans and the Greeks. However, Longacre decided to go in a different direction.
He wanted to choose something that was closer to the American identity rather than imagery from “the barbaric period of a remote and distant people.” He decided instead to depict Liberty in an Indian princess headdress. For Longacre it seemed more important, and more interesting to choose this design which was more emblematic of the frontier and of America as a whole. The reverse side consisted of an agricultural wreath of corn, tobacco, cotton, and wheat. This also was an image selected to properly represent aspects of life that felt uniquely American. It seemed that, in many ways, Longacre wanted to make a design that was undeniably his own and, in identifying so deeply with the American spirit, he had to allow this sense of Americana to flow through the look of the coin.
While the design carried much spiritual weight, the origin of the piece was due to far more pragmatic reasons; a $3 coin would be a simpler denomination for the practical purposes of purchasing things like a sheet of 3-cent stamps. Additionally, the substantial gold content of the piece (90% gold, 10% copper) would make good use of the ample gold deposits found in California at the time.
Longacre’s decision to adorn the coin with Native American representation was a impactful given that the production was the largest of any three-dollar piece ever produced by the Philadelphia Mint at that time. Soon after more pieces were struck at the San Francisco Mint. Despite the practical need for a gold three-dollar piece the coin experienced backlash as many complained that the denomination was not as clear as it could have been. Therefore, in 1855 the words “Dollars” were enlarged in the design to help distinguish the piece from the quarter eagle coin for which it was occasionally confused.
By the early 1860s, the circulation of the coin became limited, especially in regions like the East and Midwest, as gold and silver became scarce amid the upheaval of the Civil War. Despite this, the Mint continued to issue the coin until 1889 when Mint Director James P. Kimball remarked that the denomination served no useful purpose and was sought after only by the occasional collector. Soon after, officials decided to cease minting the coin and melt the pieces that remained at the Philadelphia Mint.
While the coin did not enjoy as much popularity or circulation as other pieces it accomplished something far more important. Longacre’s design introduced imagery of Native American’s more deeply into the fabric of the country. His work represents a juncture where the identity of the country became more enmeshed with its own history rather than the romanticized notions of the Greeks or Romans. The Indian Princess three dollar coin is a true American piece.
Monday Morning Wrap Up – August 10, 2020
Posted on — 1 CommentThat didn’t take long.
As the historic precious metals rally in 2020 continues, gold hit a major milestone last week at the $2,000 per ounce level – and kept on going!
Spot gold traded as high as $2,059.90 last week as the coronavirus pandemic created the perfect playbook for gold and silver to perform strongly.
Global central banks and governments continue to flood the economy with stimulus and cash which has lifted demand for tangible assets like bullion. With official Fed interest rates at zero – holding gold and silver is more appealing than ever. After all, there are really no interest-bearing assets for gold to compete with in today’s environment.
Interest Rates Plunge, Is Negative Next?
In fact, U.S. 30-year fixed mortgage rates plunged to an all-time record low at 2.88% last week.
That marked the eighth time since the coronavirus recession began that mortgage rates sank to a new low. This has sparked a flood of refinancing for existing home owners – if they have a job and can qualify under the financial industry’s tighter underwriting procedures in the midst of the pandemic. Banks are not eager to extend credit to consumers in the midst of the high unemployment rate and uncertain economic outlook.
The 10-year Treasury yield flirted with all-time record lows at 0.514% last week. Buy a 10-year note – and earn 0.514% interest? Not very appealing indeed.
Negative interest rates have never existed in the U.S.
There are some experts who warn this could still happen here.
Negative interest rates in the US “are still possible,” according to a research note published last week by DataTrek co-founder Nicholas Colas. Indeed, earlier in 2020, President Trump called on the Fed to implement negative interest rates in the United States, so that the government can take advantage of low borrowing rates.
Wondering how that would work – and what it would mean for you?
If interest rates go negative – that means that banks charge you – the account holder – a fee to hold and store your money in their bank. It’s no wonder investments in gold are soaring this year.
U.S. – China Tensions Continue to Escalate
Last week, the Trump Administration struck back against Chinese technology companies.
The president implemented an executive order that would effectively ban TikTok and WeChat in the U.S. In China, WeChat is the primary chat app for consumers and also a major tool for payments, shopping and business transactions – with an estimated 1 billion users there.
It is similar to platforms like Venmo, Apple Pay or PayPal, here in the United States.
However, the parent company of WeChat includes a massive array of companies including video games studios, music companies and social media apps.
The rising U.S. – China tensions have fueled massive gold buying in Asia.
Precious metals sales surged 70% this year at Emperio Group, a retail store for precious metals in Hong Kong. Customers there are buying buying gold bars and coins because of low interest rates on bank deposits, while others are worried about U.S.-China tensions, the Wall Street Journal reported.
U.S. Starts Trade War with Canada
It’s not just China that the U.S. is wrestling with. Last week, President Trump said he will impose a 10% tariff on “non-alloyed unwrought aluminum” imports from Canada starting this month. Canada stated that it would retaliate fully and that the government intends to impose countermeasures on U.S. products that will total CAD 3.6 billion.
Jobs Data Shows Progress – But a Drop in the Bucket Really
Last week, the U.S. Labor Department reported that 1.8 million new jobs were added to the economy in July. Sounds positive right? Remember, the U.S. economy is still down 13 million jobs since the pandemic began, with the overall unemployment rate still in double digits at 10.2%. Bottom line? The labor market remains in a recession and on shaky ground.
Precious Metals – Top Performing Asset Classes in 2020
The global rush into precious metals is monumental. Even as the stock market edges higher, investors remain skittish about the economy, geopolitical tensions, the upcoming U.S. presidential election and the long-term damage to the U.S. dollar from the Fed’s massive money printing scheme.
In the midst of the Covid crisis, gold and silver are the second and third top performing asset class this year.
What’s first? Surprisingly, lumber with a 60% gain in 2020. Chalk that up to scarcity and supply issues in a thinly traded market during the pandemic.
Behind lumber, silver is the second best performing asset class with a 52% gain year-to-date. Gold is turning in a remarkable 30% gain year-to-date.
The big question on everyone’s mind is will gold prices keep rising?
Here’s what Edmund Moy, previous director of the U.S. Mint said last week: It took three years after the start of the previous financial crisis for gold prices to peak. This crisis is far from over!
Goldman Sachs and Wells Fargo Investment Institute see gold gains to $2,300. In April, Bank of America Corp. raised its 18-month gold-price target to $3,000 an ounce – in its well named “The Fed Can’t Print Gold” research report.
Will Silver Outperform Gold Ahead?
While gold has been in the spotlight, silver is on a record run too this year.
In fact, July represented one of the best months for silver on record, and its highest monthly gain since 1979.
Silver bullion coin demand is robust in 2020, up over 60 percent to-date this year.
Notably, the gold: silver ratio — the quantity of silver ounces needed to buy an ounce of gold –peaked at 127:1 on March 18 and now stands at 72:1, a decrease of 43 percent.
Over the medium term, Bank of America sees potential for silver to rally to the $50 an ounce level.
Given the strong rally in gold – to a major milestone at $2,000 an ounce – a breather wouldn’t be a surprise. Markets don’t go straight up or down forever. Markets need time to consolidate and catch their breath.
Gold has hit a new all-time high – many think silver will be next.
Silver still trades well below its all-time high – at nearly $50.00 an ounce in late 1979.
The gold-silver ratio still reveals that silver is historically undervalued to gold – Readings above 65 signal that silver is severely undervalued and is a strong buy signal for the metal.
Look for silver to move into a leadership role in the next few months – as the next wave of this historic precious metals rally continues to unfold.
Just as you buy gold to diversify your stock portfolio, it is wise to diversify your tangible assets allocation. How much silver do you own? There’s a lot of runway between current prices and the all-time high in silver. Check out the historical price chart of silver here.
Until next week!
Best,
David
Could Covid Kill the Penny?
Posted onSee a penny pick it up –and all day you’ll have good luck!
Remember that old rhyme? It could become a relic – along with the penny if some cost cutters get their way.
The Covid-19 pandemic has created a nationwide coin shortage. Shoppers are relying on debit and credit cards to avoid touching cash, which can carry germs, but that’s left parts of the nation short on spare change.
Here’s what the Federal Reserve said recently:
“Business and bank closures associated with the COVID-19 pandemic have significantly disrupted the supply chain and normal circulation patterns for U.S. coins. While there is an adequate overall amount of coins in the economy, the slowed pace of circulation has reduced available inventories in some areas of the country.”
The current coin shortage has revived the debate on whether or not we actually need the penny anymore!
Former Arizona Congressman Jim Kolbe spent several decades trying to kill the penny – by introducing legislation every year, but always got blocked.
Today – amid a coin shortage – experts are now debating the fate of the penny again.
The purchasing power of the penny has fallen because of inflation, while production costs have climbed.
In fact, the government loses money every year on minting pennies. It costs the government about 2 cents to make a penny. Indeed, the United States Mint manufactured more than seven billion pennies in the 2019 fiscal year, at loss of nearly $70 million, the New York Times reported.
While it could be a cost effective move for the government to say goodbye to the penny, there are many, however, who believe the penny should remain part of our coinage. It was one of the first coins minted by our country after all.
Notably, older pennies are made primarily of copper – which it turns out is antimicrobial. New pennies are made primarily from zinc, not copper.
The U.S. wouldn’t be alone if it makes this decision. Other countries like Canada, Britain and Australia have stopped making their smallest denomination coins. There is historical precedence – in 1857, Congress discontinued the half cent.
Feeling sentimental about pennies? Shop our cent inventory here.
Suggested Reading:
Monday Morning Wrap Up – August 3, 2020
Posted on — 2 CommentsLast 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
Goldman Sachs Warns Dollar Could Lose Reserve Status
Posted on — 2 CommentsThe 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.
Has the Psychological Impact of COVID Altered Investor Behavior?
Posted onWe live in confusing times. The outlook for a COVID vaccine has never been more promising. Yet, the number of new cases in the US has never been more dire. This dichotomy has people reeling because they are rightfully frightened while guardedly optimistic.
Consider the tone Pfizer CEO Albert Bourla struck earlier this month when he remarked on the company’s progress towards a vaccine stating, “until now I was thinking if we have a vaccine. Now I’m discussing when we’re going to have a vaccine.” The question of when has never been more pertinent as the total number of known cases in the US reached 4 million in recent days. Meanwhile, new cases worldwide have increased by 35% since the end of June.
The unprecedented nature of the pandemic is powerful enough and pervasive enough to fundamentally change the way people perceive risk. As a result, investors are taking a more defensive stance. This retreat from risk might explain why more investors are embracing gold as part of their portfolio. Recently, gold traded above $1,900 an ounce for the first time since 2011. The increased interest in gold as a mainstay of a well diversified portfolio is evident not only in climbing prices but in the “fear index” created by the Chicago Board Options Exchange (CBOE).
The fear index, formally called the “Volatility Index,” illustrates the market’s expectation of volatility for the next 30 days. Over the last three months the fear index has experienced many intense fluctuations. These dramatic changes are an indication of the angst underpinning many investment decisions. It is no surprise that “a third of Americans now show signs of clinical anxiety” according to research published in The Washington Post.
This anxiety is evident in financial decisions which, in times like these, send even the most stalwart investors to the edge. While this phenomenon is evident in everyday observations, formal research shows that “extreme emotional responses are apparently counter productive from the perspective of trading performance,” according to MIT research. The researchers also concluded that emotions like fear are harmful because they are powerful enough to override higher-level thinking by “short-circuiting” complex decision-making. Today, we are seeing plenty of short-circuiting in the market as investors retreat from their long-term investment strategies in favor of behaviors that offer a sense of short-lived calm.
The effect of this behavior becomes outsized as more investors give in to the impulsiveness often caused by uncertainty. Moreover, it is unlikely that we will see this behavior abate anytime soon. While pharmaceutical companies like Moderna, AstraZeneca, and Pfizer are optimistic about their vaccines, they are hesitant to pinpoint a date for availability. In the meantime, gold continues to fulfill a critical need for investors. Analysts like Eily Ong at Bloomberg Intelligence believe gold could continue its climb well into 2021 “amid rising geopolitical risks in a lower-for-longer interest-rate environment.”
Perhaps the most reassuring aspect of a gold investment is the fact that much of its value is based on its rarity and universally agreed upon value. There is no capricious board of directors, short-sighted CEOs, or fickle managers who can fall victim to the emotionally-driven decisions that are inherent to human psychology.
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Monday Morning Wrap Up – July 27, 2020
Posted onFalling 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
What Could Gold Do In the Second Half of 2020?
Posted onUncertainty has long been the default outlook of investors. The present, however, represents both uncertainty and volatility not commonly seen in the markets. COVID-19 cases continue to climb, geopolitical events develop on an hourly basis, and markets are wavering. These factors, which are likely to 
remain in flux over the next six months, have investors confused. In times like these, it is often useful to examine the most influential characteristics of the present to understand the future.
When it comes to the future of gold in H2 of 2020 investors must consider how competing assets are poised to perform because gold performance is driven, in part, by the relative attractiveness of fixed-income instruments and equities.
For example, consider one of the most popular fixed-income securities, the U.S. Treasury. Today, benchmark 10-year Treasuries offer a slim yield of only 0.621%. At this level, Treasuries are not far from their all-time low of 0.569%. As a result, investors, even those seeking safety, have little reason to seek out this kind of fixed-income solution. Moreover, as Barron’s recently reported, “in real terms, the Treasury inflation-protected securities 10-year yield has fallen to negative 0.81%, a hair from its nadir of negative 0.85% reached on Dec. 5, 2012.”
This under-performance might prompt investors to look elsewhere, like stocks. However, there are emergent problems here as well. While equities appear to be a rare bright spot for investors today a deeper analysis reveals problems. Some have touted the resilience of the S&P 500 which is about flat for the year. This performance, while not remarkable, does seem to indicate the market has held its value despite a crippling pandemic. The problem is that the index’s ability to retain its strength appears dependent on high valuations. At the moment, S&P 500 valuations, as measured by price to earnings ratios, are nearing levels seen during the dot-com bubble. For many investors it is worrying that a flat YTD performance demands such high prices.
The potential price appreciation of gold in H2 of 2020, however, is not entirely reliant on the dimming prospects among equities and fixed-income investments. Gold has proven it can command higher prices based on its own merits. That is, gold outperformed all major assets in the first six months of the year. The NASDAQ, US cash, EAFE stocks, oil, and EM stocks all under-performed in comparison to a 16.8% gain in US-dollar terms in the value of gold during H1 of 2020.
As the future unfolds gold continues to be an attractive investment for several reasons. First, the problems plaguing fixed-income and equities are unlikely to abate in the next six months. They are systemic. Second, positive price momentum seen in the first half of the year appears supportive of continued growth. Third, the pervasive sense of heightened uncertainty as seen by a volatility index that is running approximately double what it was pre-pandemic, indicates that other investors will support gold’s upward trajectory as more flock to the safe haven investment.
