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Gold as an Investment Is Made for Times Like These

Written by Jared Dillian via MarketWatch

The average Wall Street trader believes all kinds of crazy stuff.

One long-running theory claims that the federal government has something called the Plunge Protection Team, or the PPT. If the stock market drops toward the end of the day, the PPT swoops in and rallies the market before it closes.

Or, so the story goes. I’ve never believed a word of it.

There’s a similarly crazy conspiracy theory element among gold investors. But you don’t have to believe a bunch of crazy stuff to own gold. And you absolutely do want to own some gold, especially now.

Gold standard

Long ago, the U.S. had a gold standard. This meant people could exchange their dollars for a fixed amount of gold.

The U.S. dropped away from a strict gold standard in the 1930s, and President Nixon abandoned it altogether in 1971. Since then, the dollar has been a “fiat currency.” Meaning its value isn’t tied to anything tangible such as gold. Those little green pieces of paper, and the digits in your bank account, are only “money” because the U.S. government says they are.

A gold standard is inflexible. So it stops the government from doing things like quantitative easing (money printing), which increases the number of dollars in circulation, and could potentially lay the ground for high inflation. Or so the theory goes.

I’ll be frank: I would like the U.S. to return to a gold standard, but that is never going to happen. So we’re stuck in a world of unlimited quantitative easing (QE) and other Fed funny business.

Which means this is a world where you want to own gold.

Yes, I think it’s a little weird that people invest in shiny rocks. However, this has been going on for up to 5,000 years. Some people say technology will change that. Yet it keeps happening.

Purchasing power

The fact is, gold has maintained its purchasing power over a huge span of history, and that isn’t likely to change.

Over the last 70 years, for example, gold’s inflation-adjusted annual return was 2.1%. In other words, gold has held its purchasing power. And that’s what it’s supposed to do.

Many investors argue that gold performed poorly at the beginning of the current crisis. Initially, yes, it slipped from around $1,700 per ounce to $1,470 in mid-March. Now it’s back up around $1,700. And it’s likely going higher.

So, really, gold has continued to do what it’s supposed to do. It’s performed pretty well. And, given the government’s reckless monetary actions —including its foray into modern monetary theory (MMT) — it’s going to perform well long after the acute phase of this crisis passes.

One of the big reasons people buy gold and drive up the price is the fear of inflation. This is why gold shot from roughly $800 per ounce in 2009 to $1,900 in 2011.

Infinite QE

The Fed started its very first round of quantitative easing, called QE1, during this period. People thought it would cause a lot of inflation, so they bought a lot of gold.

The inflation never happened, but gold still climbed higher because people feared it was lurking around the corner.

Something similar is happening now. But this time, the Federal Reserve isn’t doing a finite amount of quantitative easing like it did with QE1. This time, it’s going to do an infinite amount of quantitative easing.

Once again, people fear this will result in inflation, and reasonably so. I have the same concerns myself.

Gold is bound to keep rising in this environment. Because the Fed can print an infinite number of dollars, but it can’t print gold.

The price of gold also goes up when the federal deficit grows, as it’s doing now. This was the other reason gold more than doubled between 2009 and 2011: The government’s annual budget deficit soared into the $1.8 trillion neighborhood.

Now the government is talking about running the biggest deficit in the history of the United States. Even bigger than we had in World War II.

And that bodes well for gold.

Read the full article at MarketWatch: Opinion: Gold as an investment is made for times like these | MarketWatch

Dalio: You’d Be Crazy to Hold Bonds Now

Written by William Watts via MarketWatch

Ray Dalio, the billionaire founder of Bridgewater Associates, the world’s largest hedge fund, offered that warning in a Bloomberg webcast on Wednesday, arguing it made no sense to hold bonds when the Federal Reserve and other major central banks are effectively printing money at a rapid clip as part of their effort to backstop a global economy racked by the COVID-19 pandemic.

“If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency and you’re going to receive that, why would you hold that bond?” Dalio asked.

Bond-buying by the Fed is seen contributing to a fall in Treasury yields this year. The yield on the 10-year Treasury note was down 10 basis points at 0.64% on Wednesday. Yields have fallen sharply as the coronavirus pandemic forced the shutdown of most of the U.S. economy and other countries. Stocks plunged from record highs in February into a bear market before stabilizing late last month, to bounce off their March 23 lows.

Stocks fell Wednesday, with the Dow Jones Industrial Average dropping 445.41 points, or 1.9%, to close at 23,504.35 and the S&P 500 shedding 62.7 points, or 2.2%, to finish at 2,783.36.

It’s a point Dalio has made before, including last week in a question-and-answer session on social-media platform Reddit, when he argued that the necessary round of stimulus measures would set the stage for an inflation rebound, eroding the real interest-rate returns on bonds.

Via MarketWatch: Billionaire investor Ray Dalio says “you’d be pretty crazy to hold bonds” right now | MarketWatch

8 Charts: How the Coronavirus Has Shaken the Economy

Written by Lora Jones, David Brown, Daniele Palumbo via BBC News

The coronavirus outbreak, which originated in China, has infected tens of thousands of people. Its spread has left businesses around the world counting costs.

Here are eight key maps and charts to help you understand the impact seen on different economies and industries so far.

Growth could stagnate

If the economy is growing, that generally means more wealth and more new jobs.

It’s measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.

The world’s economy could grow at its slowest rate since 2009 this year due to the coronavirus outbreak, according to the Organisation for Economic Cooperation and Development (OECD).

A graph showing how the OECD has downgraded growth forecasts for various countries and reagions.

The think tank has forecast growth of just 2.4% in 2020, down from 2.9% in November.

It also said that a “longer lasting and more intensive” outbreak could halve growth to 1.5% in 2020 as factories suspend their activity and workers stay at home to try to contain the virus.

Global shares take a hit

Investors have been worried about the impact of the coronavirus as it spreads outside of China.

Big shifts in stock markets, where shares in companies are bought and sold, can affect investments in some types of pension or individual savings accounts (Isas).

The last week of February saw the worst performance for major stock markets since the 2008 financial crisis.

A graph showing the coronavirus's impact on stock markets in first quarter of 2020.

European and US stock markets have seen a slight uptick since then as it’s hoped that countries will intervene to protect economies from the coronavirus outbreak.

The US central bank, for example, slashed interest rates in response to mounting concerns. That should, in theory, make borrowing cheaper and encourage spending to boost the economy.

Factories slowing down

China makes up a third of manufacturing globally, and is the world’s largest exporter of goods.

But activity has decreased in the so-called “workshop of the world” as factories pause their operations to try to contain the spread of Covid-19.

A satellite image showing how pollution over China has cleared up due to manufacturing slowdown.

Nasa said pollution-monitoring satellites had detected a significant drop in nitrogen dioxide over the country. Evidence suggests that’s “at least partly” due to the economic slowdown caused by the outbreak.

Restrictions have affected the supply chains of big companies such as industrial equipment manufacturer JCB and carmaker Nissan. Both rely on China’s production and its 300 million migrant workers. Jaguar Land Rover even said it had flown car parts in suitcases as some factories run out of parts for vehicles.

See the remaining 5 charts at BBC News: Coronavirus: Eight charts on how it has shaken economies | BBC News

Bridgewater: Gold Could Climb 30% Amid “Frothy” Markets

Written by Shawn Langlois via MarketWatch

“There is so much boiling conflict. People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to.”

Read the article at MarketWatch: Bridgewater sees an explosion in gold prices amid ‘frothy’ market climate | MarketWatch

Gold Could Reach $3,000 an Ounce: Investment Expert

Written by Yvette Killian via Yahoo Finance

Wealthy people are stocking up on physical gold, as in bullion, coins and bars, according to a recent note from Goldman Sachs. As a result investors who are bullish on gold say it’s the precious metal’s moment to shine.

“I think gold’s going to $2,500, $3,000 an ounce in the 2020s because the climate—the landscape for gold is so hugely supportive.” Paul Schatz, Heritage Capital president, told Yahoo Finance’s On The Move.

In a recent note Goldman Sachs presented reasons for owning gold citing recession concerns and political uncertainty as catalysts for an investor shift to gold. Over the past year, gold prices have risen nearly 20% and gold is on pace for its best year in a decade.  By 2020, Goldman thinks the price of gold will reach $1,600 an ounce.

Schatz thinks Goldman’s forecast is too low. “I think Goldman is way off here,” he said. “$1,600 is going to be a footnote.”

What’s interesting this cycle is that it’s not just gold ETFs and other abstract investments driving demand for gold but rather people buying actual gold bullion. “Physical gold seems to really be in… and basically it sounds like rich people are hoarding physical gold, the bullion itself,” said Yahoo Finance’s Myles Udland, co-anchor of The Final Round and co-author of Morning Brief. In Goldman’s “view that squares with demand for vaults and everything. But I just think end of the world trades are fun, and it seems like the global rich want the actual thing,” he added.

According to Schatz, “an individual investor should have 5% to 10% in some capacity in precious metals. People who don’t trust the markets, don’t trust paper will want to buy gold coins. Anything that they’re comfortable,” he said. “You want to buy gold stocks? Fine. You want to buy GLD? Fine. You want to buy gold coins? Fine.”

For people who don’t want to store physical gold, in the manner of bars and coins, in their basement, gold ETFs are an alternative, said Schatz. “If you want to leverage play, you play the stock ETF, “ he added, highlighting it as a practical way to own gold.

Read the story at Yahoo Finance: Gold is going to $2,500, $3,000 an ounce: investment expert | Yahoo Finance

The World’s Super-Rich Are Hoarding Physical Gold

Written by Myles Udland via Yahoo Finance

Bullion is the only real hedge

Gold has had a great run in 2019.

Over the last year, gold prices are up nearly 20%. The yellow metal is on pace for its best year since 2010.

In a note to clients published over the weekend, analysts at Goldman Sachs outlined why the strategic case for owning gold remains strong. The firm cites political uncertainty and recession fears that are unlikely to abate as primary catalysts, among other worries among the global elite like wealth taxes and increasing talk about MMT and central bank effectiveness.

By 2020, the firm thinks the price of gold will reach $1,600 an ounce; on Monday, gold was trading near $1,460.

But the firm also surfaces some really interesting data on how investors have expressed their desire to own gold. Which is that owning the physical metal seems to be the global elite’s preferred way to hedge against tail events.

“Since the end of 2016 the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs,” the firm writes, citing the chart below.

Graphs showing that the build in non-transparent gold investments has been larger than in gold ETFs.
Trade data implies that gold in storage has increased far more rapidly than is reflected by financial market instruments, indicating a widespread preference for physical gold instead of gold-linked financial assets. (Source: Goldman Sachs)

In plain English, this means that for those including gold in their end-of-the-world trade, owning gold bullion is a must.

“This [data] is consistent with reports that vault demand globally is surging,” the firm writes.

“Political risks, in our view, help explain this because if an individual is trying to minimize the risks of sanctions or wealth taxes, then buying physical gold bars and storing them in a vault, where it is more difficult for governments to reach them, makes sense.”

“Finally, this build can also reflect hedges by global high net worth individuals against tail economic and political risk scenarios in which they do not want to have any financial entity intermediating their gold positions due to the counter-party credit risk involved.”

This thesis also brings to mind Evan Osnos’ 2017 New Yorker story that chronicled efforts from the super rich to prepare luxurious hideaways that will see them through the apocalypse.

The head of an investment firm told Osnos that, “A lot of my friends do the guns and the motorcycles and the gold coins. That’s not too rare anymore.”

As Osnos chronicled, underground bunkers with air-filtration systems and helicopters that are gassed up and ready to go are now the real differentiators in the prepper community.

If you want to be truly prepped, then owning gold is just table stakes.

And for Goldman Sachs, that reality helps round out the already strong thesis for investing in gold.

Read the full article at Yahoo Finance: The world’s super-rich are hoarding physical gold | Yahoo Finance

Why You Should Care About the US Debt

Written by Michael Snyder via TMIN

We are facing a corporate debt bomb that is far, far greater than what we faced in 2008, and we are being warned that this “unexploded bomb” will “amplify everything” once the financial system starts melting down. Thanks to exceedingly low interest rates, over the last decade U.S. corporations have been able to go on the greatest corporate debt binge in history. It has been a tremendous “boom”, but it has also set the stage for a tremendous “bust”. Large corporations all over the country are now really struggling to deal with their colossal debt burdens, and defaults on the riskiest class of corporate debt are on pace to hit their highest level since 2008. Everyone can see that a major corporate debt disaster is looming, but nobody seems to know how to stop it.

At this point, companies listed on our stock exchanges have accumulated a total of almost 10 trillion dollars of debt. That is equivalent to approximately 47 percent of U.S. GDP…

“A decade of historically low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S. corporate debt to nearly $10 trillion, or a record 47% of the overall economy. In recent weeks, the Federal Reserve, the International Monetary Fund and major institutional investors such as BlackRock and American Funds all have sounded the alarm about the mounting corporate obligations.”

We have never witnessed a corporate debt crisis of this magnitude.

Corporate debt is up a whopping 52 percent since 2008, and this bubble is continually growing.

And actually the 10 trillion dollar figure is the most conservative number out there. Because if you add in all other forms of corporate debt, the grand total comes to 15.5 trillion dollars. The following comes from Forbes…

“Total corporate debt is actually much higher. Adding the debt of small medium sized enterprises, family businesses, and other business which are not listed in stock exchanges ads another $5.5 trillion. In other words, total US corporate debt is $15.5 trillion, 74% of US GDP.”

Needless to say, this mountain of corporate debt is definitely not sustainable, and I have already noted that defaults are rising. One expert recently explained that all of this debt is “an exploded bomb” and that at some point something will come along to “trigger the explosion”

“‘We are sitting on the top of an unexploded bomb, and we really don’t know what will trigger the explosion,’ said Emre Tiftik, a debt specialist at the Institute of International Finance, an industry association.”

Right now a lot of large corporations are so maxed out that they can barely service their debts. So when things start getting really bad for the economy, we could be facing a wave of defaults unlike anything we have ever seen before.

Read the rest of the story on TMIN: 47 Percent Of GDP – This Is Definitely The Scariest Corporate Debt Bubble In U.S. History | TMIN

How to Talk About the Economy With Your Family at Thanksgiving

Written by Rex Nutting via MarketWatch

Find common ground with a discussion of who deserves a slice and who doesn’t

Image showing a pie chart divided into who gets the most pie according to their wealth.
If Thanksgiving dinner were distributed the way that wealth is in America, one person would get half of the meal, while half the guests would a sliver to share.

If your uncle corners you at Thanksgiving dinner and starts talking about how the U.S. economy is best it’s ever been, what should you do?

If you’re feeling generous (as you should on Thanksgiving), you’ll politely change the subject. You won’t change his mind, nor he yours. You could talk about football, or flowers, or the hideous dress your niece is wearing. Anything but politics. Or economics, which is the same thing.

If you’re feeling a little pugnacious, you should tell him that the economy is on (more or less) the same trajectory it was on when President Donald Trump was inaugurated nearly three years ago, with decent growth in output, jobs, and incomes.

You might print out and hand your uncle this column I wrote recently that goes through the data that proves that the economy is no better than it was before.

The normal state of the economy is modest growth, which is what we’ve had. Trump deserves some credit for helping the economy to keep chugging along, but he hasn’t transformed it as he promised he would. Or as Trump and your uncle claim he did.

Common ground

But if you want to find some common ground with him, why not take the opportunity to turn Thanksgiving dinner into a discussion of a topic that many Trump supporters agree is a big problem: How the system is stacked against regular folk like the ones who are gathered around your holiday table.

You could talk about how all of us work hard, but most of the bounty we produce ends up in the hands of a very few.

What would Thanksgiving dinner be like if the food were distributed the way wealth is in America?

Imagine for a minute that you are standing at the head of the table, about to carve the turkey. Nineteen of your relatives are watching with hungry eyes and drooling lips as you slice down the breast bone and take half of the turkey and plop it on your plate.

That’s your fair share, according to our economic system. One-twentieth of the people has half of the wealth.

You proceed to take half of the sweet potatoes, half of the green beans, half of the stuffing, half of the cranberry sauce, and half of the wine. Life is good! Thank you, Lord!

Later, you’ll take half of the pumpkin pie your grandmother baked with love, and half of the pecan pie your brother-in-law baked with joy.

Your relatives object loudly: “Why do you get half? We grew the veggies, we raised the turkey, we cooked the meal, we baked the pies, and we set the table! You didn’t do a thing except go upstairs to talk to your broker!”

“Why do I deserve half?” you reply. “Because I own the farmland where the turkey was raised and where the veggies were grown. Because I own the factory where this carving knife was made, and because I hired the scientist who tweaked the genes of the turkey to make it extra plump.”

“And most of all because I came up with the slogan: ‘Prime Free One-Day Delivery.’”

Read the rest of the advice at MarketWatch: Opinion: How to talk about the economy with your family at Thanksgiving | MarketWatch

Snyder: What in the World Is the Fed Thinking?

Written by Michael Snyder via ZeroHedge

You don’t use up all of your ammunition before the battle even begins.

The U.S. economy has not even officially entered recession territory yet, although many experts are definitely anticipating one in 2020.  When that recession arrives, the Federal Reserve is going to want as much ammunition to fight it as possible.  So I was horrified to learn that the Federal Reserve announced on Wednesday that interest rates are being slashed once again.  We have now had three interest rate cuts in 2019 as the Federal Reserve desperately attempts to revive the stalling U.S. economy.  But what are they going to do during the next recession when they have already pushed interest rates all the way to the floor and they can’t push them any lower?

In addition, in recent days the Federal Reserve has decided to absolutely flood the financial system with new money in a desperate attempt to stabilize the repo market.  In essence, the Federal Reserve has launched a massive new round of quantitative easing even before a major crisis has erupted on Wall Street.  I can understand trying to be proactive, but in reality quantitative easing is an extreme emergency measure that should only be used in the most desperate of situations.  If the Fed is creating this much new money now, what are they going to do once things really get bad?  Are we destined to become the next Venezuela?

For a long time, the Federal Reserve has insisted that the U.S. economy is in good shape.  If that is true, there is no way in the world that the Fed should be cutting interest rates.  But that is exactly what happened on Wednesday…

“In a vote widely anticipated by financial markets, the central bank’s Federal Open Market Committee lowered its benchmark funds rate by 25 basis points to a range of 1.5% to 1.75%. The rate sets what banks charge each other for overnight lending but is also tied to most forms of revolving consumer debt.

“It was the third cut this year as part of what Fed Chairman Jerome Powell has characterized as a “midcycle adjustment” in a maturing economic expansion.”

With rates now so close to zero, there isn’t going to be much that the Fed can do in that regard once the next recession strikes.

According to Fed Chair Jerome Powell, this latest rate cut was done for “insurance” purposes…

“Powell said lowering the rate again was ‘insurance’, or protection needed because ‘weakness in global growth and trade developments have weighed on the economy and posed ongoing risks.’”

If the U.S. economy doesn’t plunge into a deep recession next year, Powell and the other bureaucrats at the Fed will probably be applauded for these moves.

But if we do experience a significant economic downturn, they will be caught with their pants down.

Read the rest of the article at ZeroHedge: Snyder: What In The World Is The Federal Reserve Thinking??? | ZeroHedge

Four Questions Every Investor Should Be Asking

Written by Sven Henrich via ZeroHedge

The Fed has gone into full intervention mode. Not only into full intervention mode, but accelerated intervention mode. Not just a little “mid cycle adjustment” but full bore daily interventions to the tune of dozens of billions of dollars every single day. What’s the crisis? After all we live in the age of trillion dollar market cap companies, unemployment at 50 year lows and yet the Fed is acting like the doomsday clock has melted as a result of a nuclear attack.

Think I’m in hyperbole mode here? Far from it.

Unless you think the biggest repo efforts ever by far surpassing the 2008 financial crisis actions are hyperbole:

What indeed is the Fed not telling us?

Something’s off here. See it all started as a temporary fix in September when suddenly the overnight target rate jumped sky high and the Fed had to intervene to keep the wheels from coming off. Short term liquidity issues they said. Well those look to have become rather permanent:

And these liquidity injections are absolutely massive. Just yesterday the Fed injected $99.9 billion in temporary liquidity into the financial system and $7.5 billion in permanent reserves as part of its $60 billion per month in treasury bills buying program. The $99.9 billion coming from $64.90 billion in overnight repurchase agreements and $35 billion in repo operations.

All this action is surprising frankly. What stable financial system requires nearly $100B in overnight liquidity injections. The Fed did not see the need for these actions coming. They are reacting to a market that suddenly requires it. Funding issues Jay Powell called it in October. The Fed was totally caught off guard when the overnight financing rate suddenly jumped to over 5% and they’ve been reacting ever since which pretty much describes the Fed in all of 2019.

Read the full article at ZeroHedge: Intervention… In Extremis | ZeroHedge