John Rubino/Dollar Collapse
“Two points about Mobius’ suggestion that most portfolios should be 10% allocated to gold: First, the idea of replacing dollar cash with a historically better-performing store of wealth seems like a no-brainer in a world of soaring fiat currency debt and plunging interest rates. Second and vastly more interesting, the current allocation to gold in the financial world is about 1% of total investable capital, so moving from here to 10% would produce spectacular price gains for gold.”
Image courtesy of Visual Capitalist/Jeff Desjardins
Repost from 7-11-2019
“There is lots of institutional demand waiting on the sidelines. Gold is reappearing on everyone’s radar, and investors are becoming more interested. Gold is in a bull market in most currencies, and overall is doing exceptionally well. The world gold price is close to all-time highs. He thinks that gold will now move into a bull market in dollar terms and $1500 should be a relatively easy target. Election years are generally favorable for gold.”
“Morgan Stanley economists expect the Federal Reserve to make a half percentage point rate cut to head off downside risks and the impact of a weakening global economy and trade tensions. ‘Risks to the outlook remain skewed to the downside. A non-linear impact to growth could materialize if financial conditions tighten, bringing corporate credit risks to the fore,’ the economists wrote in a note Wednesday.”
“As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.”
“I’ve witnessed a lot of ‘crazy’ in my three decades of closely following various Bubble markets (i.e. Japan’s Nikkei ending 1989 at 38,916 (closed Friday at 21,746); manic early-nineties buying of Mexican tesobonos; late-1993 collapsing U.S. yields and Bubble excess that portended the 1994 rout; speculative Bubbles in SE Asian securities and Russian bonds; LTCM with $2 TN notional derivatives exposures; Internet and tech stocks in 1999; and $1 TN of new subprime CDOs in 2006; etc.). Yet nothing compares to the ongoing global yield collapse. . .According to Bloomberg, the amount of negative-yielding debt globally jumped Thursday to a record $13.4 TN. Rising almost $2.2 TN over the past month, ‘negative-yielding debt now comprises 25%’ of the total investment-grade universe.”
“When Federal Reserve Chairman Jerome Powell testifies before Congress on Wednesday and Thursday, he is expected to talk about slowing economic activity and increased risks, showing that the Fed is ready to cut interest rates as needed. But Powell is also likely to keep the markets — and the White House — guessing about how soon and how deep the Fed intends to trim rates, when it meets at the end of July.”
“Gold is a highly liquid yet scarce asset, and it is no one’s liability. It is bought as a luxury good as much as an investment. As such, gold can play four fundamental roles in a portfolio:
“Veteran investor Mark Mobius says that gold’s set to push higher, potentially topping $1,500 an ounce, as interest rates head lower, central banks extend purchases, and uncertainty surrounding geopolitics and cryptocurrencies fans demand.”
“Richard Clarida, a well-respected economist and market expert, joined the Fed Board as vice chair in the fall of 2018, tipping the balance of the FOMC in a more dovish direction. Before then, Fed Chair Jerome Powell’s own dovish tendencies had been kept in check by a slightly less dovish staff and the third member of the Fed’s leadership troika, New York Fed President John Williams, who expected inflation to rise gradually above target as the labor market tightened.”
“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, ‘You don’t understand. These are not eating sardines, they are trading sardines.’
“For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.” – John Maynard Keynes
“‘She’s really a political figure, much more so than an economist,’ Alicia Levine, chief strategist at BNY Mellon Investment, said on Bloomberg Television. ‘She’s very political, she’s very wise, and I would assume she has the best economists that can help her with this. It is a little puzzling because she’s not known as one of the leading economic minds out there.’”
“At current prices, the minerals contained in asteroid 16 Psyche are said to be worth $700 quintillion — enough to give everyone on the planet $93 billion. We’re all going to be richer than Jeff Bezos! OK, now for the bad news: This isn’t going to happen.”
“Gold prices can continue to climb even after they hit a multi-year high last week, a global investment strategist said Monday. In fact, prices are set to ‘reach $2,000 by the end of the year,’ predicted David Roche, president and global strategist at London-based Independent Strategy.”
“In fact, Hayek said, central planning led, via cumulative attempts to mend its inevitable failures, to ‘a servile state’ (he recalled Hilaire Belloc’s 1913 book of that name). It led to serfdom, to a condition ‘scarcely distinguishable from slavery.’ Moreover, any attempt at getting a little bit pregnant in this domain, by toying with moderate planning and a ‘middle way’ between capitalism and socialism, would set the democracies on a slippery slope that would end, more slowly but just as surely, in that same serfdom. The free market was not only more efficient economically but indispensable for political and cultural freedom. Its enemies were intellectuals, meddling politicians–and unbridled democracy, which is to say, oppression and spoilation by demagogues invoking the unrestricted will of the majority.”
“It’s all systems go for gold investors. The bullion market is stirring from a multiyear slumber and looks set to enter a sustained rally, experts say. Double-digit increases within the next 18 months may be only the start of the price surge. ‘[W]e believe there is a very good chance that this marks the beginning of a new gold bull market,’ says gold market veteran Joe Foster, portfolio manager for the VanEck International Investors Gold Fund. Foster says the run is ‘likely to last several years.'”
“Economist Nouriel Roubini, who earned the appellation ‘Dr. Doom’ a decade ago for his predictions of a global financial crisis sparked by the bursting of the U.S. real estate bubble, is once again warning of a dire economic outlook, this time sparked by the U.S.-China trade policy conflict. ‘It’s a bit of a scary time for the global economy,’ the NYU professor and head of Roubini Macro Associates told Bloomberg Television Tuesday. ‘There is a risk of a global recession and financial crisis by next year.’”
“I find that for me, being a history buff makes it almost impossible not to be a believer in the metal that has been a fixture and sign of value and wealth since ancient times. I am a gold bug and have been since I first started in the commodities business in the early 1980s. There is no other asset that gives a person the same feeling than gold. Holding a kilo bar of the yellow metal is a feeling that no other investment can elicit.”
“Geopolitical and trade frictions aside, there is a rationale for why foreigners may want to pare back on U.S. debt. That’s because the fiscal deficit is projected to explode higher in the coming years. A perfect way to fund a gold investment might be selling down your bond exposure.”
“The problem is centralization causes deficits. You can pretty much take that as a rule. Centralization lowers skin in the game… Whereas when you have decentralized communities, like in Switzerland, people are much more fiscally responsible because those who make decisions live in the community… We have a problem of agency between us and those supposed to represent our interests. They do not represent our interests, so they run deficits… So we need to have some kind of laws banning the government from deficits.”
“There’s a standard explanation when gold prices spike, as with their 10% appreciation over the past month: Uncertainty is driving haven demand. People are worried about war in Iran, or a trans-Pacific trade war, or Brexit. In times of crisis, people instinctively cling to bullion. There’s certainly something to that. But an overlooked factor is what’s been happening in the other haven trade, government bonds.”
“Although we have not had a Fed rate cut exactly yet, we have expectations that rates are going to go lower particularly real interest rates (the nominal interest rate minus inflation) and so that typically means gold’s price is on the rise and I think this move is here to stay.” – Will Rhind, Graniteshares
“That brings us to our call of the day from Citigroup analysts who say this ‘bullish gold fever is justified,’ and say the metal could reach between $1,500 to $1,600 an ounce in the next 12 months, and $1,500 by end-2019 in the most optimistic of their new predictions for the metal.”
“I have been a gold agnostic – occasionally concerned about the effects of monetary expansion but not convinced that hoards of a largely useless metal are the correct way to gauge excesses. . .That said, it is not surprising that global investors faced with obvious financial aberrations, and strong indications of more unconventional monetary policy ahead, are increasingly opting for the traditional wealth-preserving vehicle of gold.”
