Market News

Is there an “Optimal” Gold Allocation?

Gold | May 11, 2021
It is common for investors to ask, “what is the right amount” when considering how to portion their investible cash across numerous assets. This question is especially common among gold investors because there has been an ongoing debate about what percentage of the total should be held in gold to generate the strongest possible return….

Should You Worry About The Future of the U.S. Dollar?

Investment | May 5, 2021
The U.S. dollar is under fire from multiple fronts – and that increases the importance of investing in tangible assets like gold bullion more than ever before. The U.S. dollar is being devalued at home – by our own government that is printing new money and expanding the money supply at a historic pace. And,…

Gold Jumps to 7-Week High as Inflation Rears its Ugly Head

Gold | April 22, 2021
Gold climbed to a seven-week high this week – boosted by weakness in the stock market, signs that inflation is emerging in the U.S. and amid strong demand from India and China for physical bullion. The short-term trend turned positive for gold last week as the yellow metal climbed above its 50-day moving average –…

1937-D Buffalo Nickel – 3 Legs

Market News | April 19, 2021
In early 1902, President Theodore Roosevelt made it a priority to update and improve the look of U.S. coinage. However, there were constraints that prevented even the president from getting what he wanted. An earlier 1890 act of Congress made it a requirement that all U.S coins remain in circulation for a minimum of 25…

World’s Largest Memorial to Confederate Leaders

Market News | April 14, 2021
Since the days of the ancient Greeks and the Romans, commemorative coins have been popular as they honored important historical events. The 1925 Stone Mountain Silver Half Dollar is a prime example. America’s largest Confederate Memorial is carved 42 feet deep and 400 feet above the ground on the side of a huge granite mountain…

Silver Climbs 68% since Mid-March Low

Precious metals are on a tear this summer.

Silver soared as high as $19.44 last week, and continues to climb today, cementing a 68% gain off the mid-March low.

The rotation toward silver is evident in the precious metals arena, as silver has now outpaced recent gains in the S&P 500 and even gold.

Investors are piling into silver as an alternative to Treasury bonds and even gold.

Industrial demand for silver is growing amid factory re-openings in the U.S., China and elsewhere around the globe. Silver is a critical component in industry and is widely used in solar panels, medical equipment, consumer electronics, car engines and more. Because of the industrial demand, silver demand – and prices – typically rise as economic activity picks up, which is a key differentiator from gold.

Near-term, silver bulls are eyeing the psychologically significant $20.00 an ounce level, with gains easily forecast beyond there.

The gold-silver ratio remains historically wide spread at 94 – which signals that silver remains extremely undervalued compared to gold.

Expect dramatic catch up in the months ahead by silver.

Meanwhile, the gold market has stabilized above the $1,800 an ounce level as modest price weakness quickly sees strong buying action enter the marketplace. Analysts and Wall Street firms remain extremely optimistic on the outlook for gold – with a run through the all-time high just above the $1,900 an ounce level seen potentially even before year-end.

Consumers Losing Confidence…

Last week, we saw the University of Michigan’s consumer confidence index fall to 73.2 in July, down from 78.1. Our take? That’s an indication that the surge in new coronavirus infections across much of the country is worrying consumers.

Backward Looking Government Data Provides Hope, But…

The June retail sales number came in better-than-expected at 7.5%.

Consumers were out buying essentials like clothing, furniture, electronics and sporting goods last month, while online retailers and groceries saw marginal declines.

Looking ahead, August retail sales faces challenges once those $600 weekly unemployment checks expire at the end of this month.

“Economic data out this week point to a historic recovery. But, with coronavirus cases on the rise across the country, concerns are growing that these gains may be short-lived,” wrote Beth Ann Bovino, U.S. Chief Economist at S&P Global Ratings. “Retail has nearly reached its pre-pandemic point, in part because of government assistance, but consumer sentiment data already shows fears of the rising number of COVID-19 cases,” she added.

Kicking the Can down the Road

The U.S. budget deficit hit $3 trillion in the 12 months through June, the Wall Street Journal reported last week. The culprit? Soaring stimulus spending, while tax revenues plunged. That gap could widen even further if Congress moves ahead with another round of emergency spending.

How will our country ever pay its debt? The Federal Reserve’s money printing policies are becoming a crutch for our country. These actions only devalue our fiat money now and in the future.

The Fight Continues

The fight against rising Covid-19 infections continues with new requirements nationwide from some of the largest retail stores. Walmart, Starbucks, Target, CVS and a slew of other major retailers now require shoppers to wear masks while shopping in their stores. What will the fall months bring as seasonal influenza enters into the mix. The health crisis has not yet been tamed.

Looking Ahead

We are just weeks away from August and September – historically and seasonally – the worst months of the year for the stock market. Covid-19 is still spreading. Many cities and states are slowing or reversing the reopening plans.

Is your portfolio ready for what lies ahead?

Gold and silver are proving to be shining safe havens in the midst of this historical health and economic crisis. And, recent news reveals that money market funds may not be as safe as you think. Until next week…

Take care,

David

Suggested Reading:

In April – we let our clients and readers know that the bull market in silver was beginning. There’s still more to go. Don’t miss out on the next leg up in silver.

Special Report: The Long Bear Market in Silver – Part One

Special Report: The Long Bear Market in Silver – Part Two

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.    

 

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.

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

It turns out, investors have short memories.

If you have assets invested in the stock market, you might be feeling okay right about now.

Indeed, the stock market has rebounded smartly off the March lows.

The S&P 500 is still down on the year, but only a 3% decline – versus the stomach-wrenching 35% decline we lived through in March.

Do you believe the worst of the Covid-19 inspired stock market declines are behind us?

It feels easy to believe that right?

In fact, the jury is still out on whether this is a simply a bear market rally.

Nonetheless, it is all too common for investors to assume what has happened recently will continue to happen in the future.

Psychologists call this “recency bias.” It refers to the phenomenon where an individual more easily remembers recent events, compared to something that occurred in the past.

Simply put, the recency bias makes it easier for you to remember the recovery off the March lows than the sickening sell-off that began in February.

Here’s the rub. Investors often mistakenly rely on recency bias to make investing decisions.

It might not be wise to become too complacent about the stock market right now. It may be recency bias trying to trick you up.

Recent data shows that a lot of investors dumped stocks in February and March, during the stock market crash, and went to cash.

Assets in money market funds surged to a record-high $4.6 trillion recently, according to data from Refinitiv Lipper dating back to 1992.

If you are sitting on cash right now and feeling optimistic about the stock market. Consider how you may re-allocate those funds.

Major investment firms remain bullish on gold and are now advising high net worth clients to consider allocations to gold as a replacement (or partial replacement) for their bond allocation, given the paltry yields offered on U.S. Treasury securities today.

Don’t fall prey to this psychological investment trap. Don’t project recent experiences (the swift stock recovery) onto the future.

Right now, it may feel like it is smart to move back into a heavy weighting to equities. But, for investors who aren’t properly diversified, their portfolios could suffer – perhaps even dramatically – if trends change quickly.

When investors think about trading psychology, fear and greed usually pop to mind. However, there are deeper psychological biases at work – like the recency bias – that may impact how we think and act without even realizing it.

The lesson? Be cautious after big wins in the stock market.  This is a time to rely on objective allocation principles. Be aware just after a big recovery rally in stocks, you may be vulnerable to bad investment decisions.

Never before has it been more important to seek out objective, expert investment guidance. If you moved to cash in February and March, give us a call and we can talk through scenarios that could be appropriate for your long-term investing goals and risk tolerance levels.

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.

How Long before We See Gold Hit $2,000?

Did you wonder what would happen to the economy once the second wave of Covid-19 hits in the fall?

It turns out the first wave still isn’t over. In fact, it’s getting worse. Covid-19 infections are spreading like wildfire in hot spot states.

Last week, the U.S. recorded a new all-time daily high of Covid-19 cases – at 40,000 in one day. The U.S. now has 2.4 million confirmed Covid-19 cases – and 122,370 deaths – more than any other country. Texas and Florida governors hit the pause button on their reopening plans as those states became the new hot spots.

Covid-19 is indeed reshaping our economy in ways we never could have imagined and it will be months or years before we understand the new landscape we now live in.

Because of Covid-19, Microsoft announced it is permanently closing all physical stores, while retail employees will continue to serve customers remotely and digitally. Hilton Hotels announced it laid off 22% of its corporate staff as business and personal travel could take months or years to return to its pre-Covid-19 levels.

Markets react

In the midst of this news, the stock market cratered last week as investors began to question the market’s swift recent recovery.

And, gold soared to a new 8-year high! With gold closing in on the $1,800 an ounce level, new all-time highs are within easy reach this year.

New economic data

Last week, the government reported a 4.2% drop in personal income in May. If consumers don’t have money, they can’t spend it. The recession isn’t over for millions of American. The latest jobless claims report saw another 1.48 million people file for unemployment insurance benefits.

Presidential election looms

Recent polls show Democratic contender Joe Biden beating out incumbent President Donald Trump. There are still several months before Election Day and sentiment may change. Yet, this looms as a major turning point for the country in 2020.

Early insights reveal expectations that a ‘clean sweep’ for Democrats would hold back the stock market. Why? In large part because that could pave the road for higher corporate taxes and a reversal of the sweeping tax cuts that were put into place under the current Administration. Expect election news to move front and center into daily headlines in the weeks ahead.

Wall Street Embraces Gold

Wall Street is turning to gold in 2020 like never before. From Goldman Sachs, to BofA Global Research, big firms are bullish on the prospects for gold ahead.

A June 24 BofA Global Research report was titled: “Another GOLDen breakout = Stay bullish”

The firm stated that gold is breaking out to the upside, which is in line with their “secular call a year ago targeting $2,114 -$2,296” an ounce.

How long before we see Gold $2,000?

With the country in the worst recession since the Great Depression, the Fed on a money printing binge, social unrest at the highest level in decades and a major President Election just months away, we could see gold hit $2,000 faster than you think.

U.S. dollar won’t be king forever

As the Fed continues to degrade the value of fiat money by printing trillions of new dollars just this year in an effort to stoke economic growth, it puts the future of the U.S. dollar’s supremacy at risk.

For now, we have the benefit of being the “reserve currency” of the world. At this pace of money printing, it is only a matter of time before the U.S. falls from that pedestal. The result won’t be pretty for America. We are talking the potential for sky high interest rates as foreign governments will no longer have any incentive to buy our government debt.

Mainstream money managers are talking about this now.

Scott Minerd, the chief investment officer of Guggenheim Investments, thinks investing in gold could help offset any concern about the status of the U.S. dollar as a global reserve currency, according to recent Bloomberg article.

“With the Fed going all-in on financing the government deficit, the U.S. dollar could be at risk to negative speculation of its status as the dominant global reserve currency,” Minerd said.

With so much uncertainty, it’s no surprise investors big and small, domestic and foreign, continue to turn to gold.

While gold is creeping quietly higher, now is your chance to add gold to your portfolio before it scales the $2,000 mark. Do you own enough gold to hedge, protect, preserve and grow your wealth for now and the future?

Wishing you a Happy Fourth of July!

David

We live in a historic period in which the US economy is experiencing a massive inflow of money. This tidal wave will have a meaningful impact on all investments, including gold. To understand why, one must first understand the M1 and M2 money supply.

The M1 money supply is a measure of currency in an economy. This category includes physical currency, demand deposits, negotiable order of withdraw accounts, and travelers’ checks. These are forms of currency that are highly liquid because they can be used almost immediately for a purchase.

In contrast, the M2 money supply represents the total amount of both the M1 supply and “near money” which includes less liquid assets like savings accounts, money market accounts, and certificates of deposit. The Federal Reserve has the power to influence the M2 money supply by using a variety of tools. For example, the Fed can change the reserve ratio which dictates the amount of reserves a bank must carry against total deposits. When the ratio drops banks are in a position to increase their lending which drives up the money supply. Additionally, the Fed can raise or lower the discount rate which influences the money supply because with a lower rate it becomes more affordable for banks to borrow more. The Fed can also purchase issued securities like Treasury bills from banks which will also increase the money supply.

In mid March of this year, the US saw a dramatic increase in the amount of M2 money in our economy. In fact, when compared to the same point in 2019, the M2 supply has increased approximately 12%, representing the largest jump in over a decade.

This increase has coincided with an increase in gold prices in recent months which is a phenomenon we have seen before. In 2011, gold reached a historic high of $1,900 an ounce just as the M2 money supply surged above 10 percent on a year-over-year basis. This heightened level of M2 money supply is likely to persist for the long-term given the Fed’s recent announcement that they plan to keep interest rates near zero until 2022.

However, the increase of M2 totals and the corresponding rise in gold prices is more than an economic factor.  It is also a psychological one because investors are witnessing the debasement of the US dollar. Debasement is the lowering in value of a currency as a result of a government printing more money. In these circumstances, investors often seek more stable forms of currency that will not be negatively impacted by the Fed’s stated goal of maintaining a low interest rate and thereby keeping the M2 money supply elevated.

In uncertain times investors look for more than a return, they look for consistency. As the value of the dollar comes under scrutiny in the US and abroad, investors are turning to gold as a store of value and a rare place to grow wealth as low interest rates reduce the earning potential of many other investments. 

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No doubt, you’ve been both comforted and confused by the strong rebound in the stock market in recent weeks. You aren’t alone.

Speculators run the show these days.  And that only lasts so long before it falls apart. 

The Speculative Day Trading Mania of 2020

We are seeing a stock market mania and a bubble – while we are in a recession!

There is a reason for the massive disconnect in the stock market and the real economy.

Day traders.

Have you heard? A new crop of amateur traders have jumped onto the day trading bandwagon during the pandemic and helped drive the stock market up about 40% off its March low.

Ever since online brokerage firms moved to the $0 trading commission model back in October, new accounts opened by individual (retail) traders skyrocketed. The data backs this up.

The perfect storm

The Covid pandemic created a situation ripe for this new day trading mania.

Day trading surged in recent months as millions of Americans were deprived of their sports teams to watch (and bet on) and were stuck at home under shelter-in-place orders. The newly minted $0 trading fees lured thousands of new day traders into the stock market game.

Indeed, we have a recipe for a new speculative bubble. If you are remembering back to the Dot.com crash in 2000, you’ve got a good memory. Before it was over, the NASDAQ index crashed 78%.

The Robinhood traders

They call them the Robinhood traders, based off a new mobile phone trading app company that offers fractional shares. Sure, buy a piece of a stock for $1, $15 or whatever you’ve got.

In recent months, equity inflows are at seven times their pre-Covid levels, to nearly $3 billion a day, CNBC reported on June 11.

Warning: They have no idea what they are doing

This new breed of day traders is creating chaos in the stock market. Trading off apps on their cell phones. With no knowledge of markets, fundamentals, or valuations, these day traders are trading on whims, ticker symbols that sound familiar and have driven two companies in bankruptcy up over 300% in days.

Just a couple of weeks ago, an obscure Chinese online real estate company’s American depository shares (ADSs) skyrocketed 1,250% intraday before closing 400% higher. The reason?

The company name – FANGDD Network – was similar to the acronym FAANG, which refers to the high-flying technology stocks: Facebook, Apple, Amazon, Netflix and Google.

Yep. The day traders jumped on the bandwagon and bought an obscure Chinese company because they mistakenly assumed by the ticker that it related to U.S. tech stocks.

The speculators are running the stock market show right now.

Hint. This won’t end well.

Indeed, the recent 1,800 point sell-off in the Dow warned of what could lie ahead.

Retail investors are often called the “dumb” money, while institutional traders – Wall Street pros – are called the smart money.

What are smart money investors saying now?

The day trading boom pushed stock market euphoria to its highest levels in 18 years. Citi’s research team warned in early June, that the bank’s Panic/Euphoria model hit its highest euphoria reading since 2002. What does that imply? A 70% plus probability of a down market in the next 12 months, Citi’s chief U.S. equity strategist said.

Rely on Gold

Now is the time for you to prepare your portfolio!

Take advantage of the safety, security and diversification properties of physical gold. Gold is already up 15% this year, with smart money investors forecasting new all-time highs within a year.

Gold is your safety net in all types of storms. This new speculative bubble in stocks is looming like a black cloud on the horizon. The bubble will burst. They always do. Take out an insurance policy now to protect your wealth now by increasing your allocation to physical gold. Remember the NASDAQ fell 78% from 2000-2002. You can prepare now for whatever lies ahead.

Fed to the Rescue. Again.

You may have heard the saying, “Don’t Fight the Fed.”

Last week, the Fed once again turned fear into greed and boosted stocks with an unexpected announcement that it will start buying individual corporate bonds.

Whatever it takes. Yes, indeed.

No matter the future cost, the Fed valiantly continues to support the bubble in risky assets, known as the stock market.

No matter how far the stock market valuations differ from the underlying economic picture, the Fed is all in, willing to do whatever it takes to keep the stock market and liquidity train running.

Until they can’t.

Jeffrey Gundlach, founder and chief executive of DoubleLine Capital, warned recently about the inability of “Superman” Fed Chairman Jerome Powell to save the stock market.

Looking ahead, the billionaire money manager expects the stock market to fall from its “lofty” perch as he foresees corporate credit downgrades and a wave of white-collar layoffs ahead.

And, gold? Gundlach forecasts a move to new all-time highs for gold ahead.

Mixed Economic Signals

Fed Chairman Jerome Powell appeared before Congress last week in his semi-annual testimony and warned about the “potential longer-term damage” from permanent job losses and business closures due to the Covid pandemic.

In the midst of these dire warnings, May retail sales snapped back hard with a 17.7% gain last month. Chalk it up to major pent-up demand after consumers sheltered in place for months.

Looking ahead, capacity in some sectors, like eat-in dining, remains severely limited by social distancing requirements.

Also, the extra $600 in weekly unemployment insurance is set to end at the end of July, which could once again dampen retail sales.

People Are Still Getting Laid Off …

The number of people who lost their jobs last week and filed for unemployment benefits stands at almost twice as much as the 2008-09 recession. A total of 1.5 million people applied for unemployment benefits last week, plus another 760 thousand gig workers filed through a special Pandemic Unemployment Assistance program for unemployment compensation.

Over 2.2 million additional people were thrown out of work last week. And, no matter how many corporate bonds the Fed buys, those people still won’t have a regular paycheck.

Covid Cases Jump in Some States

In Texas, hospitalizations due to Covid jumped 11% last week, while the list of states reporting record-high daily cases hit nine. While economists talk about what the second wave could do to the economy, we still haven’t finished the first wave.

Meanwhile, November Presidential Election Looms

Polls last week revealed that Joe Biden edged ahead in the polls by more than 8% to President Donald Trump. Much could change over the next five months, but this remains a key flashpoint in 2020.

As social unrest hit the highest level in decades, a health crisis gripped our nation and a recession forced millions of Americans out of work. The November vote will be a significant election for the economy and the markets. Stay tuned.

Gold Stands Strong

In the midst of the recent stock market recovery off the March lows, it is useful to note that gold maintained its double-digit gains that emerged since the start of 2020.

Gold is up 14% year-to-date and stands at an 8-year high.

In the midst of the uncertainty and the stock market rebound, gold continues to perform well.

Indeed, last month the World Gold Council stated that “Gold is a clear complement to stocks, bonds and alternative assets for well-balanced US investor portfolios. As a store of wealth and a multi-faceted hedge, gold has outperformed many major asset classes while providing robust performance in both rising and falling markets.”

The WGC explained the four ways that holding gold can support your portfolio:

  1. Generate long-term returns
  2. Act as an effective diversifier and mitigate losses in times of market stress
  3. Provide liquidity with no credit risk
  4. Improve overall portfolio performance

Many economists and hedge fund managers warn that another leg down in the stock market is just around the corner. Consider using this time now to prepare and get ahead of the next selling phase with an increased allocation to gold.

Parting Words

Gold is money. Everything else is credit.     – J. P. Morgan

Best Wishes,

David