As many of you know who have been with us for a decade or more, I like gold and cash in a portfolio. They provide a degree of comfort and warmth when things get bothersome. Tumultuous. Frightening. They tend to give a solid foundation. They allow me ‘to do boring quite well’, as I have said a few dozen times over the past 41 years.
In addition to creating a financial sense of less vol – volatility – there is a method to my madness. Cash, in the form of U S Treasury money market funds, has earned a very respectable 4%+ interest over the past 12 months. Even after the recent rate drop by the Federal Reserve, their yields exceed 4%. Gold has been everyone’s favorite movie star for more than a decade. Can you recall when it traded at less than $500/oz? 20 years ago.
So why have I been so keen on these two investments? Here is an Econ 201 lesson for September. The story hasn’t changed since I first developed the thesis in the late ‘90s. my incredulity at the world ignoring these issues has only increased…
These are the important points:
- Debt. Global debt has risen from $40 to $300+…trillion dollars. Since 1997, U S government tax revenue has changed from $2B to $6T, or an increase of 8x, as U S debt has increased 44x. Imagine if your income jumped 8 times while your debt jumped 44 times…
- USD. The dollar has lost more than 98% of its value relative to gold since 1971. This is when Nixon took the dollar off a gold linkage.
- Desperation. From delinkage to devaluation, through monetary easing 1-8, tariffs, taxes, giveaways etc., government policy has been ‘linkage’. Tie the stock markets to the (fill in the blank) markets and rescue them all. Banks. S&Ls. Real Estate. Bonds. Crypto. ‘Etcetera, etcetera and so forth’. Power seized so to monetize political promises made. Print more money. MMT: Inflation good.
- The S&P 500. A composite of the top 500 publicly traded stocks in US companies. This is now a list of seven. Ignore those seven and the markets have been trashed over the past decade and more.
- Globally, the USD has been sold as gold has been stockpiled (‘stacked’ is the term). Billions in gold have been refined, processed and bought by governments around the world, leading with China and India. Then disappeared from the world markets. Stacked.
- Discord appears to be global in extant and rising in frequency. Europe, with France, the UK, the Netherlands, Germany, and Spain in chaotic turmoil. How many new murders are reported daily here at home, both individual and political? How short is our memory of previous economic disasters? Day trading the spread is not investing, it is gambling – and the house always wins.
What is to be done? Politicians of all stripes can only point cannons at one another. The federal government continues to print money. The markets have for now only one direction: upward. Each decline in markets (stocks, bonds, RE, banks, interest rates, global, currencies, Crypto, et al) leads to new federal intervention. Whistling past the graveyard. I can’t help but wonder why the Fed is buying Chinese stocks…tech stocks…bank stocks…consuming its own debt at a voracious pace. A snake eating its own tail.
Here comes the curmudgeon. Gold and cash can act as buffers to significant market declines. Not always, but frequently enough to be boring. I can recall 1987, 1994, 1997, 2000, 2001, 2009-10, 2020. Massive drops in market valuations. Massive intervention by a variety of government entities, led by The Fed to The Rescue! Slow recoveries by the markets over too many months as you receive scary statements in the mail.
How many more times will this Group of 12 (The Federal Reserve Board) rescue the current ‘group of 7’? Can we rely upon the posse each time the bad guys come to town? Where is the sheriff?
In an attempt to be fair, I gladly and positively also point out the following facts:
- We Baby Boomers have created and today enjoy the greatest wealth accumulation in generations.
- Inflation has been a non-event since 1982.
- War, tribulation and violent deaths are at the lowest ebb in human history.
- Health, education, life, human rights and compassion continue to increase each decade
These are each from my favorite website: Julian Simon Was Right About Population and Prosperity - Human Progress. Not only was Mr. Simon right, he continues to be correct, only more so. Despite global wars, pandemics, the ritual of annual global strife and a general sense of fear and loathing in Gaia, Mr. Simon’s statements continue to ring true,
Nevertheless, I shall hold cash and gold to attempt to provide a buffer for each of you during the coming struggle. Whatever economic struggle this may be. This is more a constraint upon potential losses than a panacea for success. Recall that I also have no crystal ball, preferring to protect first, then grow your wealth, your portfolios and your well-being.
Please call or email with questions and concerns!
Eat wisely.
Sleep well.
Love With Abandon!