Monday Morning Wrap Up – September 28, 2020
Posted on — 2 CommentsPolitical risks are rising. 
The stock market sank last week as the September sell-off continues, with technology stocks leading the way down. The Nasdaq 100 has plunged 12% since September 2nd. The FAANG stocks, which include Facebook, Apple, Amazon, Netflix and Alphabet (Google) have tumbled 15%. The S&P 500 has dropped 9% so far in September.
The stock market is lurching lower amid the growing uncertainty over the state of the economy, worries over the new COVID-19 outbreaks in Europe, the lack of another fiscal stimulus package and last but not least, the rising political risks that lie ahead with the contentious presidential election.
The death of Supreme Court Justice Ruth Bader Ginsburg has shifted the Senate’s focus to swift confirmation hearings of President Trump’s chosen replacement, Amy Coney Barrett.
The upcoming battle over the Supreme Court appointment ahead of the November 3rd presidential election is decreasing the odds that Congress will pass another fiscal stimulus package to support the ailing U.S. economy.
Beyond the Supreme Court battle, this week ushers in the first scheduled debate between President Trump and Democratic candidate Joe Biden. You can watch that debate at 9:00 pm ET on Tuesday evening.
Tensions Are Heating Up
Last week, President Trump declined to commit to a peaceful transfer of power if he loses the November 3rd presidential election, the Associated Press and other news outlets reported.
While the temperatures outside are dropping in much of the country as fall begins to take hold, the internal temperature of the country is rising.
America cities are already on edge after protests this summer.
Facebook CEO, Mark Zuckerberg, has warned there may be civil unrest and violence after the presidential election. Other experts and law enforcement officials are also warning about this possibility, as covered in a recent Time article.
Gold Breaks Down
Gold sold off last week, breaking down below the $1,900 an ounce level. The sharp jump in the U.S. dollar index was the primary factor pressing gold lower. Gold is priced in U.S. dollars and a rising dollar typically pressures gold lower. In general, this is viewed by analysts as a short-lived decline in gold.
“Further gold price weakness is possible, but U.S. election uncertainties will likely intensify and the Fed will ultimately need to expand policy. Hence, we maintain our positive view on gold,” the UBS analysts wrote in a research note to clients last week.
Also, economist Stephen Roach told CNBC last week that the US dollar is vulnerable to a crash next year and he sees double dip recession odds above 50%. He is the former chairman of Morgan Stanley Asia. Roach points to the “net national savings rate” which has turned negative in the United States as an indication the U.S. dollar must adjust sharply lower.
Jobless Claims Remain High
Over a million Americans filed for initial jobless claims in the week ending September 19th, with initial claims climbing 870,000 plus an additional 630,000 self-employed workers filing for benefits through a separate Pandemic Unemployment Assistance program. These are stunning losses in the labor market nine months after the COVID-19 virus first shut down our economy.
The stock market is registering its concern that the recovery is in trouble – and the economy isn’t out of the woods yet.
A Big Week Ahead…
In addition to this week’s presidential debate, investors will be watching for key economic data on Friday – the September non-farm employment report is slated for release. This marks the last major labor market update before the November 3rd elections.
We are heading into what could be the most turbulent election in modern history. The case for owning precious metals has never been stronger. We are seeing many clients increase their holdings of silver and gold heading into this election cycle.
Last week’s drop in gold offers you the opportunity to own more gold at a lower price – if you act now. Check out the current gold price here.
Stay safe. Until next week…
Regards,
David
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“What happens if….” Trump Wins in a Landslide
Posted on — 2 CommentsOver the next six weeks, 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.
Trump Sweeps!
It’s election night November 3, 2020. Millions of Americans are anxiously glued to their television sets. Many are filled with joy at what they see, while others are dismayed.
Turn on any network TV channel, any cable TV channel or even public radio – and you see and hear the same thing – a United States map covered in red, with only a couple of scattered blue states.
“Trump wins in a landslide!” – network anchor after network anchor confirms,no matter which channel you watch.
Wanting to make sure their votes are counted, American citizens turned out to vote across the nation IN PERSON and in droves.
That meant states were able to count ALL mail in ballots on Election Day itself.
At 11:47 pm ET, Joe Biden concedes, as the sea of red is irrefutable, as shown on even on liberal cable TV channels.
Trump wins back the White House without question – hearkening back to the 1984 election between Ronald Reagan and Walter Mondale. Then, of course, Reagan won 49 out of 50 states.
Once again, Trump surged from behind and wins the election, despite what the pollsters found in the weeks and days heading up to the election.
Trump’s Second Term
What will it mean for the economy, key government policies, the stock market and precious metals? We explore some of those questions here with hypothetical scenarios and invite your thoughts too! This election could prove to be one of the most momentous turning points in modern American history.
The Stock Market
On election night, the stock market skyrockets to new all-time record highs!
Investors pour money into risky assets with confidence that President Trump will keep in place the lower corporate tax rate, decreased financial and technology company regulations and will maintain pressure on the Federal Reserve to keep interest rates at zero percent throughout his entire term.
Gold on Election Night
On election night, gold sells-off sharply, as investors pull out of gold and pour their money into the high-flying stock market.
Investors are in a risk-on mood, and they’d rather be gold sellers, not gold buyers.
Falling Tax Rates
In a second term, President Trump could make good on his promises to make permanent the payroll tax cut after he’s reelected, which will weaken the Social Security Trust fund. (It’s the payroll tax cut that funds the nation’s Social Security program).
Trump may follow through on his plans to cut taxes on the middle class (Tax Cuts 2.0), reduce the tax rates on capital gains, create a travel tax cut, and give businesses additional tax breaks. See the proposals here. While the stock market initially climbs on news of every tax break, the government debt levels continue to rise as economic growth remains weak, and government spending remains high.
Continue to Roll Back Regulations
Corporate America cheers President Trump’s second term confident that a friendly and low-impact regulatory environment will remain in place and new easing of regulations will be seen in a second term.
Federal Deficit
Annual budget deficits of over $1 trillion are forecast in a Trump second term.
The world is turning away from the U.S. dollar as the deficit climbs well past the $26.8 trillion mark (the level seen in September 2020). The CBO warnings may come true in 2021 – as the size of the U.S. debt topped that of the economy itself.
As the U.S. dollar sinks, gold gains favor once again and increases in value – with many on Wall Street targeting the $6,500 an ounce level before the end of Trump’s second term.
America’s high and rising debt matters because it threatens our economic future, the Peterson Foundation warns. The day of reckoning lies ahead and President Trump will be faced with tough choices around cutting spending – like on key Social Security and Medicare programs or raising taxes or both – before his second term ends.
Does the Federal Reserve attempt to solve those problems by simply printing more new dollars to pay the Social Security benefits? A move like this would further erode the world’s confidence in the U.S. dollar and create an inflationary future for Americans and help gold soar sharply higher.
The Economy
Despite new tax cuts and zero percent interest rates, the U.S. economic recovery remains challenged. The recession is dragging on – as 1 in 3 Americans are unwilling to take the coronavirus vaccine, which has limited a return to airline travel and normal life. The economy limps along, as reduced consumer spending continues to restrain economic growth.
Geopolitics Heat up More
Expect continued pressure on China with tariffs and licensing restrictions. Expect continued criticism of global multi-lateral agreements and nongovernmental organizations.
The United States moves away from its previous role in the world as a superpower, as President Trump doubles down on Make America Great Again in his second term. Already having pulled the United States out of key global alliances in the first term, he pulls inward even more to focus on domestic growth.
The result is that the global power begins to tilt more towards China –as that country makes incredible investments around the world.
Heading into President Trump’s second term, China was already the world’s second largest economy and the largest exporter by value. China has aggressively expanded its influence around the globe with investments in infrastructure in countries from East Asia to Europe – in order to expand its political and economic influence. The initiative called the Belt and Road Initiative (BRI) expands dramatically under Trump’s second term – as country’s in need know they can get support (both economic and militarily) from China.
The U.S. – China trade war deepens to new depths in Trump’s second term. And, China begins to pull back on buying U.S. Treasuries.
Interest rates begin to rise, as the U.S. government must offer a higher interest rate on Treasury securities to sell notes and bonds each month, which is needed to pay the interest on the ever rising debt levels.
Gold over the Long-Term
Over the medium and longer-term, the impact of rising U.S. government debt levels and slower economic growth from U.S –China trade war encourages investors to move back into tangible assets. Gold continues to advance to a new all-time high and hits the $3,000 an ounce level by the end of Trump’s first year in his second term.
Stocks over the Long-Term
In the short-term and days following the election, the stock market is ebullient and climbs in a knee-jerk reaction. Over the medium and longer-term, increasing levels of government debt, rising interest rates and falling trade levels from U.S. – China trade war weighs on economic growth here in our country – and pushes the stock market into a bear market.
Now It’s Your Turn
How do you see a second term by President Trump playing out? We invite your comments below!
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Early Date Gold 1795-1834
Posted on — Leave a commentBy David Zanca, Senior Portfolio Manager
Think back to the earliest days of the United States. Place yourself in the late 1700s. Imagine the excitement felt by the citizens of this young country who had just gone through the battle of their lives to establish their independence as a sovereign nation. This new nation was based on the principles of life, liberty and the pursuit of happiness. Close your eyes and put yourself back in that time. Feel the pride that these new citizens of the United States must have felt in their country.
How much has changed since that time? How have we, as a country, preserved and held steadfast to those principles? Wouldn’t we all like to get in touch with that pride and actually hold and preserve that pride? Early gold (coinage minted from 1795 -1834) can do that for you.
In the twelve years I have worked in the rare coins and precious metals industry, nearly every investor or collector that I’ve spoken to has been excited about the opportunity to own something from this time period. Investment-wise, these coins have always provided them with tremendous universal appeal combined with very high rarity. These factors combine to provide investors and collectors with what has proven to be one of the strongest and most secure long-term investments available. In fact, over the past three years, gold investors, like you, have seen some of their early gold coins rise in value over 200%! There is simply no other class of coins that disappear from our available inventory faster than early gold.
The majority of these early gold coins were minted from 1795-1804 during which time the United States mint manufactured $2.50, $5.00 and $10.00 gold coins ($2.50 were first minted in 1796). Most of these coins were transported out of the country and melted down because the gold content could be sold in European commercial centers for more than face value. This fact, and the age of the coins (most are over 200 years old) create a class of investment that gives you tremendous rarity with the universal appeal of early gold and you will hold in your portfolio what has proven to be one the most consistent top performers in the gold coin market.
Call and ask your Blanchard consultant how early gold can enhance your portfolio. If you don’t currently have a personal Blanchard consultant, call us directly to discuss your options in early gold.
This article originally appeared in the September 2020 issue of PCGS Rare Coin Market Report
The 1835 Capped Bust Dime
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It would surprise many to learn that a coin designer at the US Mint in Philadelphia was, in fact, born in Germany. This unlikely origin for someone who has left such an indelible mark on US coins is only one of many unexpected sides to John Reich who, in 1800, moved to the United States after the Revolutionary War came to an end.
His early work was so striking that Thomas Jefferson recommended that Reich receive the position of engraver at the US Mint. However, despite the prestige of a recommendation from Thomas Jefferson, Reich’s first job at the mint was a small one. Disillusioned, he considered returning to Europe before finally receiving a promotion where he ascended to the role of assistant engraver in 1807.
At the time, Chief Engraver Robert Scot was 62 years old. His eyesight was beginning to fail him and he was in need of new talent. As a result, mint Director Robert M. Patterson assigned Reich the task of redesigning many existing coins. One such coin was the Capped Bust coin. The pieces, also known as the Liberty Cap coins, included the 1835 dime struck in 89.2% silver and 10.8% copper.
In time, engraver William Kneass, serving as the second Chief Engraver of the United States Mint from 1824 to 1840, modified the piece. The obverse depicted a left-profile portrait of Liberty in a cap surrounded by thirteen stars. The reverse shows the heraldic eagle design with a shield in the foreground with an olive branch in one of the eagle’s talons and arrows in the other.
The popularity of the 1835 dime is evidenced by the fact that it has the highest mintage of any dime before 1838. The design of the piece can also be found in an earlier gold version of the coin created in 1795 by Robert Scot. Many believed that Scot looked to Martha Washington as inspiration for the appearance of Liberty. The turban shown on Liberty’s head was considered an exotic choice at the time and became one of the most memorable features of the coin.
Other aspects of the design, however, were unpopular. The reverse image on the original design showed an eagle perched on a branch with a victory wreath in its mouth with the engraving, “The United States of America.” This imagery only lasted a few short years from 1795 to 1797. Critics believed the eagle lacked the boldness it deserved. They wanted the eagle to be more emblematic of the power and stature they believed the US represented.
Redesigns featured eagle imagery based on the United States Seal. In response to the previous criticisms, Scot placed the arrows in the eagle’s right talon because this was considered the bird’s dominant talon, thereby illustrating strength on the part of the US.
In many ways the 1835 Capped Bust Dime represents several defining characteristics of the US, from an immigrant who became an influential artist in the depiction of the US character..
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Monday Morning Wrap Up – September 21, 2020
Posted on — Leave a commentAre you ready for October?
Crash month. It’s right around the corner. October often triggers fear and panic among investors as memories of the 1929 and 1987 market crashes come alive.
Indeed, history is littered with downright scary moves in October.
Remember the 554-point drop on October 27, 1997? Don’t forget Friday the 13th in 1989. More recently, the Dow crashed 18.2% in October 2008 (1,874 points).
Investors are rightly concerned that the recent tech-led retreat in the stock market signals an end to that sector’s outperformance. With the S&P 500 trading around its pre-pandemic levels, the idea that valuations of “risky” assets are now unsustainably high is understandable.
Risks Ahead – Buckle Up Your Portfolio
Looking ahead over the next several months, many risks abound, including a possible increase in COVID-19 cases, heightened US-China tensions, and election uncertainty.
Just as a pilot warns his passengers that turbulence lies ahead, investors should be warned that more stock market volatility is coming.
Now is the time to ‘buckle up’ your portfolio and consider increasing your exposure to tangible assets to smooth volatility and protect and preserve your wealth.
Election Jitters
Less than 50 days remain until Election Day. Voters are beginning to cast votes in some early voting states to choose the next president and determine who will control Congress. Election jitters will dominate financial markets in the weeks ahead.
Confusion over Timing of Coronavirus Vaccines
Big pharma continues to move at a furious pace, racing to roll out a vaccine to halt the deadly Covid-19 virus. American citizens received mixed messages on general availability. CDC Director Robert Redfield told ABC News that “…I think we’re probably looking at late second quarter, third quarter 2021”, compared to President Trump’s assertion that the country will have enough vaccine doses for all Americans in April.
New Covid-19 cases have generally stabilized with a majority of U.S. states reporting daily case growth under 1.0%. However, Wisconsin is an outlier as new Covid cases are spiking there.
Technology is New Geopolitical Battlefield
U.S. – Chinese tensions remain high.
Last week, the US Commerce Department began banning downloads and updates of Chinese technology companies TikTok and WeChat apps. The Trump Administration took this action because it says “the Chinese Communist Party (CCP) has demonstrated the means and motives to use these apps to threaten the national security, foreign policy, and the economy of the U.S.”
Federal Reserve Makes History
At last week’s Federal Reserve meeting, the central bank came right out and said it expects to keep interest rates at 0% through the end of 2023.
That’s right. The Fed is not even thinking about raising interest rates for four years.
Gold and silver thrive and climb in zero interest rate environments and the Fed is guaranteeing that until the end of 2023.
For precious metals investors, that is excellent news. It’s no surprise that gold climbed higher after Fed officials met last week.
Bottom line: The Fed is holding course with its unprecedented display of monetary firepower, providing massive liquidity to the economy and marketplace.
However, monetary policy cannot solve the underlying cause of the recession – the pandemic and the Covid-19 virus.
Investors Pessimistic About Challenges Ahead
The economy continues to weigh on investors’ outlook, with more saying they are pessimistic (47%) about economic growth over the next 12 months than optimistic (40%), according to a new The Wells Fargo/Gallup Investor and Retirement Optimism Index released last week.
Most investors believe economic downturn is ahead, dismissing talks of V-shaped recovery.
In terms of an economic recovery, two-thirds of investors believe the road to recovery will be far from smooth. 40% of investors believe the economy will have multiple downturns before a recovery will take place, while another 23% believe the economy will have at least one other significant downturn before recovering — a so-called W-shaped recovery, the survey found.
Investors fear COVID-19 and the presidential election
Of the various challenges that could affect the stock market this year, investors worry most about the coronavirus (40% are very worried). The November election ranks a close second, at 36%, and the federal budget deficit third, at 32%, the survey also found.
Prepare Now
Investors can expect financial market volatility to remain high amid a backdrop of rising uncertainty.
Don’t count on fiscal help from Capitol Hill to support the economic recovery. With each passing day, the probability for another round of emergency stimulus falls, as lawmakers remain at an impasse. While some economic measures are improving, the risk of jeopardizing the recovery from reduced fiscal support is growing.
Gold is Range Bound
Gold investors may need to be patient as the market continues to consolidate in a neutral, sideways short-term trend. The long-term gold trend continues to point solidly higher.
The market had an incredible run throughout 2020 thus far. But, rest assured, the Fed is creating one of the most bullish backdrops for gold prices we’ve seen in modern history. Major Wall Street banks are forecasting gold $3,000.
Lloyd Blankfein, former chairman and chief executive officer at Goldman Sachs, shed light on the outlook for gold last week in a virtual fireside chat hosted by CME Group.
“It has been so long since these metals have played a role in financial markets as a store of value,” he said. “But if there was ever a time where they would, it would be now.”
Answering Your Questions
Recently, a reader asked: “What will silver be worth if gold peaks at $3,000?”
Great question! The simple answer is $42.05-$50.00 an ounce.
Here’s how that is calculated:
Gold and silver tend to climb together, of course. Bigger picture, silver prices have more to go. In fact, Bank of America predicts that silver could hit $35 an ounce in 2021 and $50 an ounce over the medium term.
A simple back of the envelope calculation shows that if gold increases from its recent high to $3,000 that would mark a 45% gain from that level.
Projecting that 45% gain onto silver from its recent high equals a silver price of $42.05 per ounce.
However. History has shown that silver tends to climb at a faster percentage pace than gold. Silver has always outperformed gold and the percentage gains were stronger, according to research by CPM Group.
That is why a silver price target at $50 an ounce or more can easily be projected with gold at $3,000. That also matches Bank of America’s medium term forecast for silver prices.
Please keep your questions coming!
Until next week…
Regards,
David
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The Fed is Making History
Posted on — Leave a commentBlanchard Fed Report: September 2020
Not only for its unprecedented 0% interest rate and money printing policies, but because it is creating one of the most positive environments for gold that we have seen in modern history.
Today, we saw another Federal Reserve meeting. And, yes, another reason to buy gold and silver.
The Fed kept its benchmark interest rate at zero percent today.
That was expected.
Yet, the more we listen to Fed officials, the more it becomes clear that the central bank is intent on leaving its easy money policies in place for a very long time.
If you were ever hoping to get a return on a CD account at a bank in the next few years, you can forget that idea.
In fact, at today’s meeting, the Fed came right out and said it expects to keep interest rates at 0% through the end of 2023.
That is worth repeating.
The Fed is not even thinking about raising interest rates for four years.
For savers in CDs or bank accounts, that’s not good news.
For precious metals investors, that is excellent news. It’s no surprise that gold climbed higher after Fed officials met today.
Gold and silver thrive and climb in zero interest rate environments and the Fed is guaranteeing that until the end of 2023.
What’s more? The Fed stated today that inflation is “on track to moderately exceed” the Fed’s target rate of 2% “for some time.”
Zero percent interest rates and rising inflation.
That is a classic textbook recipe for higher gold prices ahead. Never before in history has the Fed given the green light for gold prices to grow exponentially for a period of several years.
As the central bank continues to devalue fiat currency with its money printing policies, the stage is set for a breakout in gold back to $2,000 and beyond.
Gold investors may need to be patient.
The market had an incredible run throughout 2020 thus far. But, rest assured, the Fed is creating one of the most bullish backdrops for gold prices we’ve seen in modern history. Major Wall Street banks are forecasting gold at $3,000. It will be here sooner than you think.
You can take that to the vault.
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When San Francisco Welcomed the World
Posted on — Leave a commentIn 1915, San Francisco welcomed the world to host the Panama Pacific International Exposition – a mere nine years after the city had been devastated by a deadly 7.9 magnitude earthquake.
The exposition celebrated the successful completion of the Panama Canal (linking the Atlantic and Pacific oceans), a major American achievement of that time – and underscored the United States prominent new leadership role on the world stage.
The ability of San Francisco to recover and rebuild after the quake in time to host the Panama Pacific International Exposition is a testament to the resilience, optimism and hard-working spirit that symbolized those in the early American West.
Over nine months in 1915, more than 18 million people from around the globe visited the fair, which promoted the technological advancements of its time.
Visitors from around the world explored pavilions of exhibits, luxurious gardens, carnivals, visits by celebrities, reproductions of classic buildings, and evening fireworks on 635 magnificently landscaped acres on San Francisco Bay.
The world fair demonstrated to amazed onlookers a transcontinental telephone call and promoted the use of the automobile and wireless telegraphy.
To celebrate the milestone in San Francisco history and the first-ever world fair on the West Coast, Congress authorized the San Francisco Mint to mint one of the most magnificent gold coins in American history – the $50 1915 Panama-Pacific Exposition gold piece.
The $50 gold coin was struck in limited numbers and in two versions: a round and an octagonal.
No doubt due to the hefty face value price at the time (the average American income only totaled $1,250 in 1915), only 483 of the round $50 gold coins were sold.
A total of 645 octagonals were sold.
Many of these special coins have never surfaced on the numismatic market, no doubt being passed down from generation to generation as a treasured family heirloom, or were simply lost over time.
We have just one of these truly exceptional coins from American history – a round version. The obverse features a helmeted head of Minerva, while an imperious owl (a symbol of wisdom) is featured on the reverse. You can view this truly impressive rarity here.
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Monday Morning Wrap Up – September 14, 2020
Posted on — Leave a commentHigh-flying tech stocks fall fast.
Warning: volatility lies ahead!
Football is back, children are in school (or on Zoom classes), a chill is felt in the morning air and in some parts of the country the leaves are beginning to turn yellow, red and brown in Mother Nature’s stunning fall display.
Yet, despite this small sense of the new normal, the stock market cratered last week in a topsy-turvy week in which investors dumped high-flying tech stocks like Apple, Facebook and Amazon.
Indeed, the S&P 500 and the tech-heavy Nasdaq Composite fell 4.8% and 7.2% over the past two weeks.
Is this volatility a hint of what’s to come over the next six weeks?
You bet it is.
The classic herd mentality drove stocks higher in recent months.
Guess what?
The herd is changing direction.
Remember that big wave of new Millennial day traders who got into stock trading during the pandemic? They place orders on their phones, just like they would order takeout food. They are learning a hard lesson – the equity market goes down too.
There is an old Wall Street saying: Stocks take the stairs up and the elevator down. That is why they call them stock market crashes.
Markets nervous about election
As the U.S. presidential election edges closer, the polls are tightening between incumbent Donald Trump and challenger Joe Biden. All across the country, voting commissioners are already facing lawsuits about technicalities, mail-in voting postmark dates and other challenges to voting in the midst of the Covid-19 pandemic.
This will be the most hotly contested and highly partisan presidential election in decades.
And, financial markets are getting nervous.
Just look at last week’s market action. This is only the beginning. In the meantime, the traditional role of bonds in a portfolio continues to wane in today’s world of zero and negative interest rates.
The decreasing value of bonds
As the markets and economy head into a challenging period, investors around the globe are rethinking the traditional role of bonds in a diversified portfolio – that has been, in part, behind the historic rush into gold and silver in 2020.
In fact, the 10-year Treasury bond’s real yield, which includes inflation – now stands at -43 basis points.
In simple terms, yes, that does mean you lose money for every dollar you invest in a U.S. government bond. With inflation, you are losing nearly 50 cents on every dollar invested in a 10-year note.
No surprise that major investment firms are now calling gold a ‘bond alternative.’ Not only are investors able to hedge against inflation, but also capture precious metal price appreciation.
Speaking of inflation…
The inflation trend is rising
Have you noticed? Prices for the things you buy are going up.
The consumer price index rose 0.4% in August, the Labor Department reported last week. That comes after the CPI also advanced 0.6% in June and July.
Here’s what the experts are saying about inflation…
“This inflation outbreak will test the resolve of Fed officials who say they are not all concerned about inflation and will continue to pour gas on the fire with the QE of $80 billion monthly purchases of Treasury securities and they won’t rein in the economy with interest rate hikes,” Chris Rupkey warned last week. He is chief financial economist at MUFG, a global financial group.
“More recently there has been a lot more upward pressure on prices than we would have expected…With goods production continuing to lag behind the rebound in spending, those problems are only going to become more acute over the next few months, pushing core inflation higher,” according to Paul Ashworth, Chief North American Economist at Capital Economics.
Indeed, Jason Fertitta, head of registered investment advisor Americana Partners, said that in light of all the easy money central banks are pumping into the global economy, there is a case for investors to increase their exposure to real assets. “My biggest concern is that the levers the Federal Reserve is having to pull to keep this market going is very experimental, and we don’t know when inflation is coming,” he told Barron’s. “We have to put in some assets that could benefit from inflation. Real assets historically were a small part of the portfolio, and we are certainly open to that being a larger piece.”
Gold consolidates
The gold market traded quietly last week – as it continues to build value around the $1,950 an ounce level. The gold market is trading well above its 200-day moving average (now around $1,700 an ounce), which is a technical signal that the rising trend in gold remains healthy and strong.
Gold is consolidating its incredible gains throughout the first eight months of 2020 –and gathering strength for its next leg higher with the next big price target at $3,000 an ounce, according to recent Bank of America forecasts.
Fed Meeting This Week
The Federal Reserve meets this Wednesday in its first meeting since its policy shift to a more flexible average inflation target. Investors are waiting for more clarity on this new policy and for how many years U.S. interest rates will remain at zero.
Current expectations are that zero interest rates are here to stay until at least 2023.
We will update you on important developments from the Fed this week. Stay tuned. In the meantime, please call a Blanchard portfolio manager at any time to discuss opportunities, wealth preservation and accumulation strategies in these interesting times.
Stay well. Until next week…
Regards,
David
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Gold and The Monte Carlo Simulation
Posted on — Leave a commentHow do you plan for uncertainty?
This question has plagued investors since the beginning of time. Moreover, it is an inherent challenge for most people attempting to build their long-term wealth because outpacing inflation means making your money grow with equities, bonds, or commodities, all of which represent levels of uncertainty.
The problem, however, is more specific than mere uncertainty. After all, investors expect occasional drops in the value of their assets. The serious problem occurs when the most remote possibilities rise to the surface and threaten ruin. These scenarios, which are improbable but not impossible, could conceivably eliminate nearly all of one’s holdings. Examples include outliers like:
- 1929: The Great Depression
- 1987: Black Monday
- 2007: The Global Financial Crisis
Most investors accept this possibility, but few know they can measure it with something called the Monte Carlo Simulation. This is a method of running an equation hundreds, thousands, or even millions of times with the help of a computer. Each time the computer runs the equation it does so by entering a new number for a particular variable. This approach allows the individual to understand and quantify the effect of uncertainty on an investment decision. This exercise is akin to living, and re-living a choice repeatedly and experiencing the range of outcomes.
After the Monte Carlo Simulator completes running the equation the requested number of times the full breadth of results are averaged so that the investor can begin to understand what could happen. This mathematical method of risk management has great potential for those attempting to construct a portfolio.
For gold investors, the Monte Carlo Simulation can offer insight into the durability of gold over the long-term. In the second half of this article we look at what a Monte Carlo Simulation tells us about the risk and return of gold in comparison to other investments.
A Monte Carlo Simulation shows that a $10,000 investment in gold over a period of 25 years using a “historical returns” simulation model has an expected annual return of 7.49% in the 50th percentile.
For comparison, running the same simulation for the same parameters but instead using global bonds as the selected asset class returned just 5.53%. Even using the broader category of commodities resulted in a 6.62% loss!
These figures begin to illustrate the range of outcomes an investor can anticipate as they formulate their portfolio. Simulations like these also offer other important numbers. The same parameters run for the emerging markets asset class point to annual returns of 6.48% with a historical standard deviation of 22.5% suggesting that uncertainty here runs high in comparison to the lower (20.0%) historical standard deviation seen for gold over an even longer period.
The Monte Carlo Simulation shows us that the game of risk is far more complex than most realize. It is only after running thousands of simulations that we begin to form a picture of what possibilities await.
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Weekly Wrap Up – September 8, 2020
Posted on — Leave a commentThe origins of Labor Day may surprise you.
For many Americans, Labor Day marks a day off from work – a traditional end of summer rite of passage marked by backyard barbecues, street parades (pre-pandemic of course), parties and fireworks.
As we witness history in 2020 unfold, with new protests this weekend at the Kentucky Derby and elsewhere, we offer perspective to reflect back on what was occurring in our nation just over 125 years ago…
Looking back
Massive social unrest, riots on the streets and a railroad boycott from 1894-1896 led Congress to pass a “workingman’s holiday.”
The law was an attempt to repair ties with American workers and celebrate their achievements and contributions to our society – just after the height of the Industrial Revolution.
In the late 1880s, a worker commonly worked 7 days a week and 12 hour days to earn a basic living.
Workers rebelled.
In 1894, the Pullman Palace Car Company workers went on strike to protest wage cuts. Eugene Debs called for a nationwide boycott of all Pullman railway cars that crippled railroad traffic across the nation. In 1886, the now infamous Haymarket Riot broke out in Chicago left several Chicago policeman and workers dead.
Following this explosive social unrest and in an attempt to repair ties with American workers, Congress passed an act making Labor Day a legal holiday. On June 28, 1894, President Grover Cleveland signed it into law.
You can thank an act of Congress for the fact that Labor Day always falls on a Monday.
The Uniform Monday Holiday Act of 1968 changed a number of holidays to ensure federal employees could have a three day weekend including Memorial Day, President’s Day and Columbus Day.
Last Week’s Recap – Dow Plunges
Shifting back to present day – the stock market sold off fast and furious last week as a little bit of air was let out of the technology stock bubble. Looking ahead, a hornet’s nest of challenges faces investors as the country remains in the grips of economic recession, unemployment remains high and a contentious Presidential Election is just around the corner.
Labor Market Improves…But
Last week, the government reported that the U.S. economy regained 1.37 million payroll jobs in August. That means nearly half of the jobs lost in March and April have now been recouped.
The overall unemployment rate fell to 8.4% in August, yet “the pace of job gains continues to slow, and there are already signs that the recovery could be lengthy,” said Satyam R. Panday, Ph.D. and Senior Economist at S&P Global.
Risk Appetite Wanes Heading Into Election
Investors poured money into bond and gold funds and pulled out of equities, BofA’s weekly flow statistics showed last week, as U.S. election fears curbed risk appetite, Reuters reported.
Gold has been increasingly touted by major investment firms as a “bond substitute” in the new zero-interest rate environment, which is expected to last several years at a minimum.
New Forecasts from Congressional Budget Office
Last week, the non-partisan Congressional Budget Office (CBO) released its forecast for the next decade — this is the first analysis that includes the economic effects of the Covid-19 pandemic and the government’s response to it.
Warning. It isn’t pretty.
First key takeaway: The national debt will soon exceed the size of the economy.
Second key takeaway: It’s not just the Social Security fund that is heading toward insolvency. Covid-19 is speeding up the Medicare trust fund’s dive toward insolvency. Brace yourself. By fiscal year 2024, Medicare’s federal Hospital Insurance Trust Fund will be insolvent.
Third key takeaway: Even after the pandemic ends, the government will be saddled with large deficits resulting from a structural mismatch between spending and revenues.
Peeking Ahead at Presidential Election Outcome…
If the stock market has anything to say about it, Donald Trump may well win re-election, according to historical stock market performance data.
It turns out, how the S&P 500 Index performs in the three months leading up to the election has been a good predictor for who wins the White House, according to research by LPL Financial.
“A positive market over this period may signal an increased likelihood that the incumbent party may win, while stock market losses during the same period have tended to predict an opposition party win. The stock market returns in the three months leading up to the election have correctly predicted the election result every time since 1984, and 87% of the time since 1928,” wrote Ryan Detrick, Chief Market Strategist, LPL Financial in a research note.
Indeed, in August, the Dow Jones Industrial Average rose 7.6%.
Does last week’s sell-off mean the tide is turning? Clues to the outcome of this presidential election could lie in the stock market’s performance in September and October.
The election results may well be a coin toss at this point, despite contender Joe Biden’s lead in the polls. The financial markets don’t like uncertainty and uncertainty is what they will get over the next nine weeks.
Bottom line: Expect stock market volatility and perhaps a deeper correction and price plunge in the weeks ahead.
Precious Metals
The gold and silver markets continued to consolidate last week – both still posting double-digit, stellar gains on the year. Silver remains a leader up 46% year to date, while gold is up 25%. That compares to a 6% gain in the S&P 500 year to date and a 0.72% return on a U.S. 10-year Treasury note yield.
Precious metals remain the best investment in town for today and tomorrow.
Our Spirit Prevails
The pandemic of 2020 has been challenging for us as individuals and our nation in so many ways. Yet, the American spirit always prevails. From the seeds that our Founding Fathers planted over 200 years ago to grow our democracy – we have grown into the biggest economy in the world. Our entrepreneurial spirit, work ethic and optimism that we can create a better life will continue to propel our country forward this month, next year and into the next decade.
In the midst of this crisis, investing in gold is a proven method to diversify your portfolio and protect and grow your wealth. We are here for you if you’d like to discuss current market conditions and if changes to your portfolio allocations may be appropriate to hedge against the risks that lie ahead.
Best Wishes!
David
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