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Category: Economics

Consolidation for now – with uncertainty a constant

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The gold price had a warm and sunny June: it went up by almost 13%, hitting on 25 June an intra-day high of $1440/oz. Speculative investors in the futures market significantly increased their bullish positions over the month. As many of such investors are looking for swift, short-term gains, it is inevitable that some have decided to take profits, so the price has come down a little. But the factors that underlie its recent rise are all still in place, and they can be summed up in one word – uncertainty. The combination of falling Bond yields and the possibility of lower US interest rates (and thus a potentially weaker dollar) continues to make gold a very attractive investment. The US Federal Reserve is putting out lots of signals that an interest rate cut is imminent; the Bank of England’s Governor, Mark Carney, said this week that “intensification of trade tensions has increased the downside risks to global and UK growth”, Governor-speak meaning ‘no interest rate rises for now’, and the European Central Bank is in a quandary about what to do to get the Eurozone economy out of its sluggishness. One thing is certain – the ECB will end up doing fresh quantitative easing, i.e. printing more banknotes. The chart below shows the gold price in US dollars set against the open interest established by the US Commodity Futures Trading Commission (CFTC);  increasing open interest represents new or additional money coming into the market. ‘Open interest’ is a reflection of investor interest in a particular market.

All in all this is a particularly supportive background for gold not just for the short but also the longer term. It’s time you downloaded Glint and started buying, saving, and spending gold.

Gold, black cabs, and politics

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The gold price has been soaring in most paper money terms recently. In pounds sterling, it came close to its record since 1970 of £1,124.23 per troy ounce, set on 28 February 2012. Gold has set a new record high in Australian dollars, too – above A$2,000.

Why these new highs?

Uncertainty stalks the world, that’s why.

For one thing, the US Federal Reserve hit the uncertainties button on 19 June. Slowing economic growth, rising trade tensions, inflation stuck at below its 2% target, were all on the lips of Jay Powell, Chairman of the Reserve, as he readied the market for a cut in US interest rates in 2020.

The US is moving from its “solid” rate of growth anticipated by the Fed in May, to a “moderate” pace, It’s well known that President Donald Trump, anxious for his re-election success, is pressing the Federal Reserve to cut interest rates.

Before the Fed made known its latest macroeconomic view, the president of the European Central Bank, Mario Draghi, – i.e. printing paper – in order to try to get the European Union’s economy moving faster than a very tired snail.

The fact that these two major economic areas are nudging close towards stagflation – stagnation combined with badly disguised inflation – was enough to jolt the US dollar gold price higher.

And for the gold price to rise so significantly in pound sterling, the uncertainties are considerable.

The United Kingdom is now less than a month away from having yet another Prime Minister, who will have the job of dealing with the vote to leave the European Union. It has been more than three years since the UK referendum on EU membership – and these three years have been wasted, whether you are a Leaver or Remainer. “I’m exasperated. I’ve had enough,” said John Griffin, one of the biggest donors to the Conservative Party and the founder of Addison Lee, the London-based private taxi company, in  . Griffin – who voted to remain in the EU but has reconciled himself to the vote to leave – expressed his annoyance at Boris Johnson, the favourite to become the next leader of the party, and therefore Prime Minister. Johnson has said that the UK will leave the EU by 31 October, the final date agreed between the UK and the EU.

There’s no doubt that Johnson has great charisma, and that he can fill a hall with supporters. He has wit, charm, and great good humour. But he is a deeply divisive character with a murky past. His well-publicised quarrel with his girlfriend – and his refusal to answer media questions about it – is just the latest episode which raises doubts his personal stability, doubts that influential supporters of the Conservative Party like Griffin are now openly expressing. Nevertheless he seems to retain more support from the grassroots of the Party than does Jeremy Hunt, the only other contender still in the race.

From black cabs to the gold price might seem a long way, but the two are closer than you think. Griffin’s obvious annoyance at there being no clear, obvious, universally popular candidate for the UK’s next Prime Minister speaks noisy volumes about the current uncertainty in the UK.

No wonder gold is so high in sterling terms.

Rather than shrug your shoulders and wonder what you can do, buy some gold at the most competitive premium on the market via Glint.

Guard your wealth against politicians, and their promises.

Spend gold instantly, anywhere, with the Glint Mastercard. Download the app here.

 

Worried? Who’s Worried? Should We Be Worried?

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Recent headlines regarding the situation in the Middle East can hardly be viewed positively. Since the US pulled out of the agreed nuclear disarmament with Iran last year, tensions have been steadily rising. Now, we have alleged Iranian attacks on oil tankers and more US firepower arriving by the day. Iran has the second largest population in the Middle East, at 83 million, is the 6th largest oil producer and holds the 2nd largest reserves of natural gas and seemingly on its way ‘once again’ threatening to become a nuclear weapon state.

Throughout history, we have seen tension in the Middle East creating oil supply concerns, pushing up prices. Often, these accompanied economic growth worries, amid rising inflation and interest rates. But, in today’s markets, no-one seems to worry about anything. Stock prices remain elevated, maybe it’s the permanent high plateau that Irving Fisher talked about in 1929!  The oil price has hardly budged and inflation expectations and interest rates are falling, not rising. Que raro!

 

Since 2nd May, Trump’s administration has imposed a policy of zero imports of Iranian oil due to Iran’s unwillingness to consider negotiations over the JCPOA. In addition to this, Trump is looking to block import waivers from all of Iran’s major export countries such as China and India, in order to put extra pressure on Iran with the threat of a serious economic situation. As a result, sanctions could remove another 500,000 barrels per day from the market.

In response, Iran has threatened to stop the flow of oil production from other big suppliers via the Strait of Hormuz. However, the Strait of Hormuz is around 20 miles wide and would be very difficult for them to block it for a long period of time. Furthermore, Saudi Arabia and the UAE have alternative pipeline routes that could avoid the Strait of Hormuz, with Saudi able to send around 6.5 million barrels per day around the Persian Gulf.

Although these sanctions seem to present a serious problem for Iran, China said that Iran’s oil was too cheap to pass up, and it has been increasing its purchases of Iranian crude oil in 2019, up to 700,000 barrels per day in April. It is likely that China will try to bypass these sanctions which will significantly reduce the threat to Iran’s exporting revenue. How the US will react to this, is up for discussion but it certainly doesn’t help ongoing tariff and trade war talk.

The market appears to be pricing in zero % probability of anything escalating, but we believe it is just another example of declining volatility, in all asset classes and would be very wary of complacency at this time. A neutral observer could be forgiven for thinking that the current status is only one spark away from an outright outbreak of hostilities in the region. What then?  While the long-term gold/oil ratio at 24 is at its average for the last decade and high compared to the noughties, any war and an oil spike could well see gold rise significantly as well.

Of course, no one cares until they do. Donald Trump and the market-place are far more focussed on the Federal Reserve’s projected path of interest rates of 2019, a complete U-turn from the 2018 with gradually rising rates. With record unemployment at 3.6% in May, wage inflation rising and bullet-proof stocks, who in their wildest economic dreams could imagine that we would need to price in three Fed interest rate cuts, back down to the zero-bound. Maybe, this is ominous in its own right, and a Middle-East war is a mere side-show.

Protect your assets through buying gold using the Glint.

Are the rich getting richer and everyone else struggling to make ends meet?

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A recent international report from the OECD economics think-tank has made some worrying statements.

  • Middle-class families are seeing their incomes stagnating as they are squeezed by the ultra-rich taking a bigger slice
  • The middle-classes are being ‘hollowed out’, with declining chances of rising prosperity and job insecurity concerns
  • The OECD believes there will be political consequences for Western countries
  • It says middle-classes have been the “bedrock of democracy”

We thought we would do own own analysis at Glint on the growing wealth disparity. The analysis is using UK data, but it is likely to be similar the world over.

The Sunday Times Rich list, updated and published every April since 1989 is a list of the 1000 wealthiest people or families living in the UK, ranked by estimated net wealth. To have ever been included in this list, you have clearly attained the status of ‘rich’ by observable metric comparisons. To simplify the analysis of easily obtained data, we have taken the top 12 people on the list in the last 10 years, starting soon after the global financial crisis. As you can see, their wealth has increased every year since, with a cumulative increase of over 200%, approaching an annualised increase of 12% a year. The rich certainly are getting richer!

(NAV-Net Asset Value, base=100, start 2009)

In comparison, the increase in wealth of the middle-classes shown by average UK wages and the lower-classes shown by the UK minimum wages is a far cry from the rate of growth seen by the rich, with barely a 20% increase in the last decade. But, it gets even worse than that. Unfortunately, consumer price inflation has often outpaced wage inflation and the real (nominal less inflation) wage changes over that time are actually falling. The middle-classes and the lowest paid workers are barely keeping their heads above water. They are indeed, getting poorer.

The rich, either through inherited or self-made wealth, typically hold their assets in bonds, equities, property and private businesses. Since the ‘last’ great financial crisis of 2008, the central banks have responded to ‘save the system from collapse’, by dropping interest rates to zero and embarking of the biggest monetary experiment of all time with Quantitative Easing’, money printing by another word. What has it achieved?

Well, for one, it has put the wealth of the rich’s asset classes at nose-bleed valuation levels. Bonds, equities, property and private businesses are at very high metrics of earnings, never seen before in history, while inflation and lack of wage growth has seen everyone else struggle to keep up.

Everyone would like to be able to save for a rainy day and see those savings grow but it does seem out of reach for most workers. While the UK savings rate has some correlation to the level of deposit interest rates, encouraging savings with returns, we believe the main reason that the UK savings rate has fallen so much is down to the declining amount of excess income as shown by the real wage declines. So not only are you barely keeping up with cost of living, but you are not able to save.

At Glint, we have long believed that saving regularly in gold can benefit anyone’s pot, whether you are rich or poor. Over the last 10 years, the chart below, shows the appreciation of the gold pot, relative to the meagre return of the cash deposit pot. Saving a regular amount into equities and bonds is reasonably accessible to most middle-classes, but the current valuations make this much less attractive than in in the past. Gold as an asset class for saving is far cheaper in comparable metrics and Glint has made it incredibly easy to do.

Investing with a Crystal Ball

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The legendary investor, Jim Rogers, used to say you only had to make a decision on one asset class every ten years to enjoy unbelievably high investment returns and that diversification and over-trading were the way to ruin. While Jim might well have incorporated many different asset classes into his ten-year choices, we have just looked at the last half century worth of returns by decade of US equities and gold.

So, with the benefit of hindsight, you would only need to make a decision every decade between US equities or gold to make truly eye-popping returns, obviously the RIGHT decision. It is quite incredible that the correct decade decision makes 315,132% returns over 50 years, but the incorrect decision loses 30.7%.

Undoubtedly, the volatility and drawdowns of this strategy would have been unbearable, but it does illustrate the point notably. The better informed you are, and the more knowledge you have of valuation and economic conditions, the more you can aspire to trade with the Gods. For mere mortals, some diversification is certainly wise.

I believe it is a far harder decision today, amidst the super-high valuations driven insanely by extraordinary money printing, to identify a major asset class that beckons a stellar ten-year return and could be considered cheap. But, if the decision is simplified and only includes a choice between stocks and gold to hold for the next ten years, then looking at the valuation of US equities at century high valuations on many metrics, gold is a clear winner.

We have shown Hussman’s margin-adjusted Cyclically adjusted price/earnings ratio (MAPE) before. Clearly, US equities are not cheap, or fair. They are in fact, more expensive on this metric than at any time in the last 100 years, blown up by the largest global monetary printing conditions ever.

Growth is slowing globally, especially in Europe, with real recession concerns in the foreseeable future, Brexit or no Brexit.  While wage inflation is gaining traction, adding to concerns.

And global liquidity, led by China is taking a distinct turn for the worse. The chart below shows monetary liquidity heading much lower, which historically correlates with large collapses in equity values.

Gold, on the other hand remains very quiet, still some 30% lower than its 2011 peak, treading water, biding its time? Is it cheap versus US equities? Of course.

But there is another part of the metal market that is truly cheap and solidly backs up the argument for precious metals as cheap.

Gold and silver mining stocks have become a forgotten market. Most of these stocks – junior and major caps – trade on the Canadian stock market with some other country listings. As an asset class, they are by far the cheapest. The metrics to measure them in 2011, at the highs of the metals last bull cycle, are no longer used. They have, in all effect, become penny stocks, beckoning insolvency. Companies, many with no debt and hundreds of ground claims with in-situ metal values in the hundreds of millions are going for single digit market caps.

 

The indices, GDX mining and GDXJ junior mining have fallen by up to 80% in the last eight years and these are indices. Imagine how many actual companies have fallen the full 100% and closed! Canada is the land of bandwagons – boom and bust, pump and dump – with stock market practices, which have long since been outlawed by developed countries. Last year, all the brokers were raising money for crypto mining hardware. Recently, they have raised money for cannabis companies that now have ridiculous valuations and will no doubt overpromise and under deliver. At a conference in Canada, one analyst presentation showed that 82% of ALL Canadian public listed companies (not just mining) had negative net income! (That’s a loss to you and me.) But you get the picture. There has been no financing at all, to speak of, into smaller mining companies and the larger companies are failing to provide any real profit potential at these metal prices.

 

While I can clearly see the ‘cheapness’ of this asset class at the moment, in relation to the metal prices, and I believe the metal prices will have to rise as production falls off the proverbial cliff, there is a concern that the whole model is potentially broken. As a result, I would not buy single stocks, only the indices. Often, when there is so much negativity and only extreme pessimism prevails, these are true cycle bottoms.

2019-2029, only time will tell what the future beckons for gold and US equities, but the facts seem to speak for themselves.

The State of Modi’s India

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This week we decided to look solely at India as the country is growing and changing.

The general election in India is fast approaching, with Prime Minister Narendra Modi and his party facing a path to glory. The political steamroller is now in full swing with all politicians campaigning in what will be the world’s largest democratic vote. This will be a significant event that takes place over several weeks to make sure that the millions of voices across India are heard loudly and clearly. The official date is yet to be announced but polling is due to take place between April and May 2019. During the last general election, 830 million individuals were eligible to vote. This time around the country is expecting about 875 million people to have their say. Modi and his nationalist party are looking to be re-elected following their landslide victory in 2014 but are being opposed by Rahul Gandhi, the descendant of the Gandhi dynasty. He is the son of former Prime Minister, Rajiv Gandhi, and the grandson of Indira Gandhi, India’s first female leader. His grandfather was Jawarhlal Nehru, who was India’s founding Prime Minister.

India’s political model is based on the UK system where parties promote candidates for seats in the lower house of parliament with 543 seats at stake. Whichever party wins the majority of seats gets to choose the Prime Minister in charge. Last time around, BJP and Modi won 282 seats in the general election. With their alliances, this number grew to 336 seats, making it the biggest majority in 30 years.

The voting will take place across India’s 29 main states and seven smaller territories that are known as Union territories, with some carrying more weight than others, based on their population. The largest battleground is the northern state of Uttar Pradesh, as it is home to approximately 200 million people. Given that this region accounts for 80 seats in parliament, it is critical for both parties and their ambitions of forming a government. Other key states are Maharashtra, West Bengal, Bihar and Tamil Nadu.

Unemployment and Slow Job Creation

Not too long ago, Narendra Modi looked untouchable, but a few months is a long time in Indian politics. Modi entered 2019 with his halo being shattered as Congress rallied towards the tail end of 2018 after winning a series of state elections, which were labelled “semi-finals”. Opinion polls and state elections were contradictory, demonstrating that BJP had lost a lot of ground. More worryingly, Modi’s popularity has dropped uniformly across urban and rural areas. One factor that could be pivotal is job creation. Even though India’s economy is growing faster than most across the globe, it is evident that jobs are not being created fast enough to match the country’s growth. Looking forward, it is estimated that 1 million Indians will turn 18 each month for the next several years, and at that speed, unemployment could well increase rapidly. Statistics show there is discontent within the population and research demonstrates that confidence in the economy has fallen by over 25% in the past year.

 

Farmers

The despair continues within the farming community who have been struggling with steep falls in the price of staples, such as chickpeas, onions and oilseeds. This is not a good sign and could be pivotal to the outcome of the election as 70% of people still directly or indirectly earn their living from the agricultural industry. Since we last wrote about the farming industry, the mood has not changed much with farmers marching to Delhi five times in the past year. Several commentators have suggested that the farming community is still disturbed by Modi’s decision in 2016 to invalidate a majority of the currency in the economy, which led to a cash shortage and an estimated 2% negative impact on the country’s GDP. In many ways, Modi is now suffering for promising so much when he came to power in 2014. In reality, citizens are dismayed as they feel little has changed in people’s lives after four years (at least in some parts).

Capturing Tycoons

What could play in Modi’s favour is his tenacity to bring a group of fugitives to justice. He has stepped up his efforts to punish a liquor tycoon, an arms dealer, a billionaire jeweller and a corporate lobbyist who have all fled India to avoid trials at home. India’s relationship with the UK has led to an order being signed to extradite Vijay Mallya, who currently lives in London after his Kingfisher airline defaulted on its $1.3 billion loans. This followed the successful extradition of Christian Michel (an arms dealer) and Deepak Talwar (a lobbyist) who were both brought back to India. This has helped Modi’s core initiative of bringing corruption under control which has marred India for decades. Prosecuting wealthy individuals accused of breaking the law would be a key boost for Modi’s image at a critical time in his political campaigning, as these individuals are loathed by the poor, who perceive them as being above the law.

Conflict with Pakistan 

Tensions have been rising with Pakistan recently and Narendra Modi has been responding unfavourably. This has raised questions about Modi’s Pakistan policy and whether he is looking to go to war. One of the objectives of the Balakot attack was to show the Indian public that Modi is a leader with the will to fight the terrorism that is brewing within Pakistan. The Premier has taken a hardline approach with Pakistan, with the BJP often threatening to go to war. This has been led by the party’s right-wing Hindu nationalistic views. Going to war with Pakistan would not guarantee political victory but it may help to gain votes from those sitting on the fence. Commentators believe that a warlike atmosphere would benefit his campaign to get re-elected for a second term. This has presented the Prime Minister with the opportunity to do what he enjoys the most, projecting the aura of a ‘strong leader’. By thumping his chest, driving the hyper-nationalism, he has not only made it impossible for any opposition party to take a stand against this, but will also take the wind out of the growing momentum against the BJP.

Adjusting Real Estate Taxes

To gain further votes and secure his second term, Narendra Modi’s government has announced that it would lower taxes on unfinished and affordable homes. Under the new tax regime, rates will fall from 12% to 5% on unfinished residential developments. Similarly, the rate will fall from 8% to 1% for affordable homes. This will be effective from April 1st and cover 90-95% of housing sales in India’s largest cities. This could reduce the net cost of buying homes by 6-7%, helping to bring down India’s unsold inventory as these measures are expected to shift demand from completed to under-development housing. Most developers have considerable unsold stock within this sector and while interest rates are stabilising (and expected to fall), this is positive news for buyers and companies. This is the eighth tax cut since GST was introduced, with four of the eight reductions coming in the months leading up to the state elections. These cuts will do nothing but aid Modi’s chances of getting re-elected.

Summary

Despite all the negativity, Prime Minister Modi is still enormously popular compared to Rahul Gandhi and this should ensure that he will stay in power for the next term. It just means that Modi’s victory will be less of a landslide and he will have to rely on his coalition partners, who will make greater demands for their support. Last time, the idea of BJP winning a majority on their own was unheard of, so a more normal result this time is not so surprising. That said, Congress has lacked the political imagination to really inspire the masses and found it difficult to produce a counter-narrative to the one assimilated by the BJP. It is clear that Congress has still not adjusted to the changing politics in India and are grabbing on to a political dynasty, having failed to groom a young, alternative leader other than one out of the Gandhi family. Congress’s lack of malleability will provide a strong tailwind for Modi and his quest to change India and remain in power.

Monopoly Night in America

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Guest Editorial by David Sanders

Who could forget family game night?  For the thespians in all of us it was Charades.  For the wanna be wordsmiths, Scrabble.  The future doctors honed their steady hand playing Operation, the really little kids wanted to romp through Candy Land which upon finishing scrounged whatever sweets they could find.  Future diplomats or dictators played Diplomacy and Grandpa always tried to swindle the family’s pocket change over a seemingly harmless, “just a few hands” of poker.  All of these games have a special place in our homes and hearts.  Quite possibly they helped define our characters and maybe even taught us a few life lessons and skills.

Inevitably, one person in the family would suggest Monopoly.  This was greeted with a wide swath of response.  “It’s too long” flew first out of dad’s mouth.  Mom didn’t like the constant infighting.  The boys tussled over the pewter car so they could make engine noises as they motored around the board.  The girls fawned over the precious little doggy.  And finally, grandpa was there to tell you a tale of the depression and of course, take all your money.  All in all a glorious family cacophony (Special side note, my grandfather Edward was raised very close to Baltic Avenue in Atlantic City during the depression and yes that was the crappy purple property nobody seemed to want.  He told me he was once robbed and only had a skate key, he didn’t even own the skates to go with said key).  So back to my article.  Usually one person was very eager to be the banker, but why?  Come hook or crook, in this case a crook, we learned this person cheated.  What in the wide wide world of sports, (thank you Mel Brooks/Slim Pickens) brought about this greedy behavior?  In 1991 Parker Brothers was sold to Hasbro who realized this plus many other infractions and released a Cheaters Edition.

Because this is a blog and not a novel, I will refer you to your favorite source of information on the internet or simply trust me.  Monopoly in its rawest form was originally called the LandLord’s Game and was invented in 1903 by Lizzie Maggie and then patented in 1904.  Maggie had originally set the game up to make people aware of Ricardo’s Law of Rent.  She included two sets of rules one for the Anti-Monopolist and one for the Monopolist.  Maggie wanted to clearly show the difference and why people should be up in arms.  Since then the game went through many iterations from different groups of people in various cities and finally ended up among Quakers in Atlantic City.  This version of the game was copied by Charles Darrow and sold to Parker Brothers.  Apparently, Milton Bradley and Parker Brother turned down the game on different occasions and blamed it on things such as “too complicated” and, “too long to play”.

Ok, now for the crux of this article and possibly my conspiracy mind acting out.  What I find fascinating is Monopoly was turned down for years but then suddenly produced in 1935.  Warning dear reader as this is pure speculation by me, so…What happened in 1933?  If you said, easy FDR took the U.S. off the Gold Standard.  Kudos to you dear reader!  Once the U.S. was off the Gold Standard all kinds of coinage disappeared leaving a need for currency.  Paper money was flooding the streets of America soon after and was accepted out of necessity.  Yes there was paper money before but this new money wasn’t redeemable for Gold it was becoming Fiat Money, aka toilet paper.  When the notes were no longer redeemable for Silver in 1968 the transition was complete. Was Monopoly a scheme by the establishment to get the average American family and future families to accept paper money?  I believe it was and it succeeded thus far but the world is currently puking up this grotesque concoction.  Debt is now defined in trillions, trillions dude!  If you really don’t understand how big that number is see here.  While you are at it feel free to look up de-dollarization, go ahead, I’ll wait.

The evidence is mounting that something must be done and soon!  At least Monopoly has kept up with the changing landscape.  Look at this Monopoly version with a bank card that tracks your wealth, ahem, you mean debt right Monopoly?  While I am ranting, why is it called a credit score when you are really applying for debt?!

Millennials would understand wealth if they were exposed to it.  Fiat Money globally has about run its course and a lot of people can’t even save for big items because of inflation.  Please take a look at the most recent Monopoly board, Monopoly for Millennials.  The banker box literally gloats and bashes you with its cane while stating, “Forget Real Estate. You can’t afford it anyway.”  I would suggest to Millennials instead of getting angry, get even.  Nothing could get you more even than to save and spend in Gold.  Say goodbye to inflation, it won’t harm you when you are vested in Gold.  Then pick up a copy of The Creature from Jekyll Island.  Learn how this happened and pass this information on to your children so it can’t happen again.

Ready, set, save!  Once you are onboard and ready to take command of your wealth, work hard and set your sights on what you are saving for: An education, a house, a zombie monster truck.  It is all up for grabs and you can afford it sooner than later with Gold.  Don’t believe me?  Just check out this handy Gold calculator and thank me later.  In this reality you do pass GO and you do collect $200.  Just make sure you save in Gold.

 

THE STATE OF THE UNION AND WHAT WAS NOT MENTIONED

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Guest Editorial by Paul Hebert

This week the American people heard their annual State of the Union Address, which lasted just over 82 minutes in length. Every viewer was treated to a masterful soliloquy filled with accomplishments of the first two years of the current Administration, which leads the strongest and seemingly most wealthy nation in the world. We were told at length about how vibrant our economy is, how low our unemployment rate is, how wages are rising faster than they have in decades, how blue collar workers are being brought back into the economic mainstream of US society, how 5 million Americans have been lifted off food stamps, etc…the list goes on. The speech highlighted how there is a focus on tackling childhood cancer, working to solve America’s health care issues, how our nation is the number one energy producer in the world and now a net exporter of energy, how our military is the strongest force on earth and how the US is the economic envy of the free world. These are all admirable accomplishments, if in fact they have actually been achieved.

What the speech didn’t touch upon, even in the slightest, is the extreme state of our nation’s indebtedness and the rate upon which our debt is rising and what our leadership is going to do about it and how we can ever possibly control it, let alone get out of it.  Here are some statistics which might shock you. The United States is now in debt to the tune of $22+ trillion dollars (and some argue it might be as high as $40+ trillion if the government was truthful with its figures). In FY2018 the gross federal debt increased by $1.25 trillion, an astounding annual figure.

To put these trillion numbers into perspective please take note:  I found that 1,000 seconds ago was equal to almost 17 minutes. It would take almost 12 days for a million seconds to elapse and 31.7 years for a billion seconds. Therefore, a trillion seconds would amount to no less than 31,709.8 years. A trillion seconds ago, there was no written history…I think you can now see where I am heading with all of this. How on earth is this great nation of ours, “the economic envy of the free world”, ever going to pay this money back? Clearly our country’s ridiculous spending habits are completely unsustainable and at some point the rest of the world is going to figure out that we are not the economic envy of the world but instead a massive out of control freight train heading for the biggest and most dramatic economic crash in the history of civilized nations.

The result of all of this is going to be that foreign governments will no longer be as interested in purchasing our US Government debt, especially at the artificially low yields our debt is presently being offered at. This of course will then lead to a rapid decline of the almighty US dollar. The ultimate upshot of this catastrophe, my fellow Americans, will be that your savings and wealth will no longer be worth what you thought it was.

How do you protect yourselves against this economic catastrophe and loss of wealth and savings? Maybe it’s time to look at what some central banks around the world are doing.

By purchasing physical gold through Glint we can take the first step in protecting your wealth. Gold has proven over time its ability to protect people during times of extreme economic crisis and stress. Glint is the easiest, most secure and most affordable way to purchase gold and it gives you the freedom to spend your gold instantly at the point of sale with your Glint Mastercard. Glint also gives you the freedom and control to hold, exchange between and spend multiple currencies at the most competitive market rates on Wall Street.

Download the app and start protecting your wealth because the runaway train is just starting to leave the station!

 

Gold and the stock market crash of 2019

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Long term analysts of portfolio theory, especially with respect to the well-known ‘Permanent Portfolio’, named by Harry Browne many decades ago will be particularly pleased with the performance of physical gold over the last six months. In that time, gold has rallied from its summer lows of $1175/oz to almost $1300/oz, over 10%. In that time, equities have fallen between 12-18% depending on the country.

Gold as the popular safe-haven with typical inverse correlation to equities has seemingly done its job again as portfolio insurance. Old Harry will be cheering from the grave, the ‘Permanent portfolio’ or sometimes known as the ‘Cockroach portfolio’ with its 25% allocation to cash, bonds, stocks and gold has survived this sharp downdraft admirably. Considering that this year’s US stock market saw the worst December since the Great Depression of 1931, this is no mean feat.

Playing Devil’s Advocate though, this is potentially far too ‘data-fitting’ for want of a better phrase than the fact that gold remains locked in a very confined trading range. Gold in 2018, started the year just north of $1300/ oz, rallied briefly, before falling in the seasonally poor spring/summer period, before reversing course upwards, again on typical strong up seasonals in the second half, often attributed to Indian wedding patterns and other festivals. But for all the fanfare, gold is down a small amount on the year, investors have lost money and it seems a case of ‘Move on, nothing to see here’.

When we look at the bigger picture of the longer-term monthly gold chart, we can observe the long decade super rise of gold from the $250/ oz bottom, in 2001, made famous by ex-UK Chancellor Gordon Brown’s exceptionally poor market timing in auctioning off most of the UK’s gold reserves all the way to the $1900/oz high in 2011. A whopping almost eight-fold gain!! A normal market correction of 30% until 2013. Since then we have effectively sat in a 200-dollar range straddling $1300/ oz going nowhere fast in five whole years, rather like the stalemate trench warfare of WW1.

We have had zero interest rates, ludicrous monetary policy worldwide, coupled with very worrying political changes in many western countries with random events like Brexit thrown in and yet gold still treads water. The fact that arguably very few if any gold mining companies can make long-term profits at this price point seems to go unnoticed as well. Take a look at any gold miner’s retained earnings’ history and you will weep as an investor. The lack of exploration expenditure which has dwindled to almost negligible in recent years must have a potential to see a cliff drop in production in future years. Yet, still we wait, wary of more false dawns like the last six months.

One of our strongest trading tools developed over the last 35 years, is the Trend Index, usually on a rolling 180-day count. In the simplest terms, it measures how coiled the asset class has become and how much potential for a new sustained trending movement. Currently, on the much longer monthly Trend Index, gold has been coiling for the last five years, time is running out for the range trader and 2019 may well be an explosive year.

As much as we can show that technical aspect of the market independently of other asset classes, it is very clear to us that the equity markets, especially in the US are in a very precarious state. Even despite this ‘small’ recent sell-off, valuations on most metrics that we have found reliable over a long history, the possibility of a huge stock market crash look to be much higher than most believe. The fact that since 1987, every crash has been met with a 5% interest rate cut to add liquidity and that is not possible today from the current low rates suggests that the crash might be the biggest ever.  In that case, the argument for gold and T-Bills making up a large part of your portfolio currently is very strong and investors ignore at their peril.

(My personal favourite for showing how high US stock prices are historically is below as John Hussman’s Margin-adjusted Cyclically Adjusted Price Earnings chart.)

Source: Hussman Funds

As we enter 2019, now with longest economy expansion in history, the case for a potential contraction with an accompanying stock market crash is not insignificant. At this juncture, we believe the argument for gold and T-Bills making up a large part of your portfolio is very strong and investors ignore at their peril. Protect your wealth by purchasing gold via Glint.

 

Down 20%

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Sterling has weekended 20% relative to the US Dollar since.