I. Russia, China, and the super-rich are going for gold — how about you?
You’re likely aware of the price action in gold lately. Gold has rallied from US$1,591 per ounce on 1 April to US$1,784 per ounce as of last Friday. That’s a 12% gain in less than three months.
Today’s price of US$1,784 per ounce is the highest since 2012, and a solid 70% gain from the low of US$1,050 per ounce at the end of the last bear market in December 2015.
The history of gold bull markets (1971–80 and 1999–2011) shows that the most powerful gains come toward the end of the bull market, not at the beginning. That means even if you’ve missed out on the gold rally so far, you could still score huge gains as gold trends toward US $10,000 per ounce over the next four years.
What’s driving this bull market in gold? It’s not retail investors (apart from a small number who understand the dynamics) and it’s not institutional investors (institutional portfolio allocations to gold are typically about 1–2%). Instead, the steady buying is coming from central banks (especially Russia and China) and from the super-rich, who typically store their gold in private non-bank vaults in Switzerland and other good rule-of-law jurisdictions.
As described in this article, the drive toward larger portfolio allocations to gold (in some cases up to 10%) is coming not just from the rich themselves, but from their wealth managers and portfolio advisers. This is a sea change.
For decades, wealth managers have rejected gold and pushed their clients into stocks, corporate credit, and alternative investments including private equity. Recently, all those portfolio allocations have backfired.
Equity markets crashed in March and are set for another fall soon after recovering over half the losses. Corporate credit downgrades are at an all-time high and that market is being propped up by the Fed in unsustainable ways. Private equity looks increasingly illiquid as IPO markets dry up and most hedge fund investors have badly underperformed.
This leaves gold as one of the best performing asset classes around. If central banks, the super-rich, and their advisers are all jumping on the gold bandwagon, what are you waiting for?
Gold’s worst ever bear market (2011–15) is behind us and gold is positioned for new highs of over US$2,000 per ounce in the short run, and much higher over the next two years. The time to go for the gold is now.
II. A great economic reset is coming, but it may not be the one you expect
You’ve probably heard a lot of commentary and forecasts about a global economic ‘reset’. In fact, I’ve used that expression frequently in my own newsletters, as have other analysts.
The term ‘reset’ is typically used in reference to confidence in the dollar. As that confidence is eroded due to Fed money printing and congressional super-deficits, investors gradually look for alternative stores of wealth including gold. These trends begin slowly and then gather momentum. As the dollar price of gold begins to soar, investors take notice. Even more people invest in gold, driving the price still higher.
Investors like to say that the price of gold is going up. But what is really happening is that the value of the dollar is going down (it takes more dollars to buy the same amount of gold). This is the real inflation and the real dollar collapse most investors miss at the early stages.
Eventually, confidence in the dollar is lost completely, central bankers need to restore confidence, and they turn to some type of gold standard to do so. That’s the reset.
Now, as described in this article, the term reset is being used in quite a different way. The World Economic Forum (sponsor of the ‘Davos’ conference in Switzerland every January) has decided to devote their January 2021 conference to the great reset.
This will be a globalist reset. The people and institutions behind it are Al Gore, the United Nations, the IMF, and CEOs of major globalist firms. They are promoting what they call greater ‘equity’ and ‘fairness’. That’s elite code for transferring wealth from developed-market economies to developing economies, many of which are quite corrupt. It’s also code for the climate change agenda and new ‘social contracts’ in areas such as education, labour regulation, and world taxation.
A new form of world money controlled by the IMF will not be far behind. This reset will be the end of capitalism and personal freedom and the beginning of an elite top-down system that taxes your wealth and limits your opportunities.
The elites are using the COVID-19 pandemic as a cover for pushing an extreme agenda. They are pushing fear. When people are fearful, they are more open to radical change without fully understanding what those changes mean. As the globalist Rahm Emanuel once said, ‘Never let a good crisis go to waste.’
III. The IMF has an atrocious forecasting record — but this time they may be right
The Federal Reserve has one of the worst forecasting records of any major institution. Occasionally, I am asked if any institution has an even worse forecasting record. That’s a high bar to clear, but the IMF is certainly a contender.
Year after year, the IMF comes out with rosy forecasts, and year after year, those forecasts have to be downgraded as growth comes in below forecasts. When the final results are known, they are even worse than the revisions.
Still, as reported in this article, perhaps the IMF staff economists have learned their lesson. The new revised IMF forecast for 2020 shows that the world economy will shrink by 4.9% this year. Just to put that in perspective, it means $4.3 trillion in lost output compared to where the global economy stood before COVID-19.
While recessions in developed economies such as the US are unusual, they are even more unusual in the context of the global economy. Even if certain countries are in a recession, it’s generally the case that other developing economies are doing quite well. The winners cancel out the losers among nations and the global economy continues to grow even as individual countries may stall.
For the entire world to enter a recession at the same time is almost unheard of. The IMF went on to say this will be the worst year economically since the Great Depression. My own estimate is that this year may be even worse than the Great Depression.
Investors ask why the stock market is doing so well, given the fact that the economy is doing so poorly. This is one of those times when the perception (the stock market) is at odds with the reality (the real economy). The one thing you can be sure of is that when perception and reality diverge, reality wins every time (but it can take time).
You should expect stocks to correct sharply in a second wave crash in the second half of this year.
IV. Trump is losing now and there’s not much time left to turn things around
If the presidential election were held today, Trump would almost certainly lose to Biden. This reality is reflected not only in the national polls (which don’t mean much because the US does not have national elections; we have state-by-state elections implemented through the Electoral College). It is also reflected in polls from the key battleground states such as Michigan, Pennsylvania, and Wisconsin.
Even allowing for the fact that some of the polls are poorly constructed and oversample Democrats relative to Republicans, Biden’s leads are so large that the chance of a Trump victory is remote.
I was one of the very few analysts who predicted a Trump victory in 2016. I did this in national TV interviews in Australia, London, and New York — in addition to writing about it in my newsletters. I made this forecast at a time when polls and pundits were giving Hillary Clinton a 92% chance of victory. So, I know something about how to interpret polls, search for anecdotal evidence, and not get caught up in the mainstream media narrative.
Yet those same skills that caused me to predict a Trump victory in 2016 now point to a Trump defeat. This article describes some of Trump’s hurdles and his self-inflicted damage. It’s easy to say that the election is still 125 days away and there’s time to turn things around. A lot can happen in politics in a week, let alone four months. But that’s not as much time as it sounds.
Voters don’t change their minds in October, despite the occasional ‘October surprise’. Evidence shows that the debates don’t change many minds either despite their high profile. Most voters make up their minds sometime between Labor Day and 1 October, based on overall impressions of the candidates without getting too bogged down in policy details.
One of the primary rules of politics is ‘You can’t beat something with nothing.’ Biden isn’t much, but at least he’s something. Voters perceive him as steady, experienced, and somewhat of a ‘regular guy’. (Never mind that the reality is quite different and Biden is in a state of cognitive decline; it’s the perception that counts, not the reality.)
Trump appears to be nothing. He has no program, no platform, and no plan for the next four years. Voters don’t blame him for COVID, but they will judge him by his response. Voters don’t blame him for the depression, but they will judge him by the recovery. Right now, Trump is not responding well or showing leadership; he’s just blaming others and complaining about the Democrats.
For investors, it’s important to know that the markets have not priced in a Biden victory. As we get closer to election day and Biden’s likelihood of victory becomes more apparent, markets could get caught in another downdraft based on Biden’s plans for higher taxes, more regulation, and the Green New Deal. It’s one more reason to lighten up on stocks and build cash reserves until we have more clarity on the election.
V. When police are beleaguered, don’t be surprised if they just walk away.
What began as protests against the death of George Floyd at the hands of Minneapolis police, have now morphed into widespread demonstrations, riots, looting, and violence in major US cities from coast to coast, and even the world.
One of the offshoots of those protests and riots is an effort to ‘defund the police’. But it’s worse than that for state and local police departments. They are being confronted, harassed, and in some cases shot at or run over by protester vehicles. Whatever the merits of the peaceful protests (there are no merits in the riots and looting), the fact remains that the police are under siege.
In many cities, the response by the police has been to stand down or stand aside. Neighbourhoods are not being patrolled. Calls to 911 are not being responded to. Laws are not being enforced, even as public monuments are torn down and city blocks are set on fire. In many cases, police are calling in sick or working shorter hours, something called the ‘blue flu’.
The criminals and gangs have taken notice. Once they know the police are not enforcing the law, the number of robberies, murders, and violent assaults will skyrocket. According to this article, that’s exactly what’s happening. Not only is crime in the streets exploding, but the court system is largely shut down because of the pandemic.
Even if the police catch a criminal, they have difficulty handling the case because the courts are closed. Often, the response is just to release the accused wrongdoer. In the end, the police give up entirely and don’t even arrest those caught red-handed.
This type of downward spiral typically gets worse. The most talented people in the big cities move out, leaving poorer residents to the mercy of the criminals. People buy guns to defend themselves (since the police won’t) and this can contribute to even more violence.
I lived in New York City in the late 1970s and early 1980s, which was the last time conditions were as bad as they are now. It took 20 years (1992–2012) to clean up New York under Mayors Giuliani and Bloomberg. Let’s hope things don’t get much worse. It can take decades to revive a city, but it only takes a year or two to destroy it.
