Hurricane Dorian is traveling (September 1) toward the United States. The destruction could be impressive.
Hurricane Federal Reserve has devalued the dollar for over a century. The destruction has been large. A few benefited, many lost wealth, purchasing power, pensions, jobs, and homes.
Hurricane National Debt has reached Cat 5 status, over $22 trillion in unpayable debt that weakens the U.S. economy, strains the government budget with half a trillion in annual interest payments, and sucks capital away from more beneficial uses. This debt hurricane should reach Cat 6 soon.
Hurricane Pension Default sits at only Cat 1 status today, but it will strengthen during the next recession. Low and negative interest rates will make it worse.
Hurricane Crazy Politics is building into a major force, expected to reach Cat 5 in October 2020.
TOO MANY DANGEROUS HURRICANES…
- We can’t stop winter from coming. Tornados and wildfires occur every year, and hurricanes form every summer. Plan around what you can’t control.
- Hurricane Federal Reserve is politically powerful. Many people, governments, and businesses benefit from this “gravy train.” Work around it!
- Hurricane National Debt is too large and growing. Debt will expand until it resets.
- Hurricane Pension Default will grow and become a political nightmare. The mathematics make it inevitable.
- Hurricane Crazy Politics: Enjoy the show. It happens every four years.
SO WHAT? HOW TO PREPARE FOR CAT 5 HURRICANES IN OUR LIFE?
First: What do we know for certain?
1. Debt will increase until it can’t. Every system has limits.
2. When debt increases, the quantity of currency units (dollars, euros etc.) in circulation expands. The currency units devalue, and everyone pays higher prices. We have suffered dollar devaluation for over a century.
3. Productive debt can be beneficial. Borrowing $10 million to earn $50 million makes sense.
4. Unproductive debt used for consumption is destructive. The capital is gone, but the debt remains, and we must pay the interest. Borrowing to pay for bombs, personal and corporate welfare, interest on debt, and hundreds of other unproductive uses… leads to a dark place.
Second: Make Wise Choices.
1. If Dorian is coming, prepare or leave.
2. Spend less, save more. Avoid debt and interest.
3. If the Fed and government are devaluing currency units, invest in something that retains value as currency units buy less. Think gold, silver, real estate, stocks, whatever.
4. You can time long-term market decisions. Stocks are not always a good choice. Buy and hold no longer makes sense. Gold was a poor choice between 1980 and 2000. Real estate prices move in cycles.
Third: How do I learn about Good Choices?
1. Usually by making bad decisions and learning from them.
2. Did you buy Internet stocks on margin in late 1999 or early 2000?
3. Did you buy homes with no down payment in 2007?
4. Did you buy stocks on margin in 2007?
5. Did you buy silver in January 1980 because it “was going to the moon?”
6. Or did you buy silver bullion at less than $5 early this century?
Fourth: What Can I do?
1. Question the narrative. Would you buy a used car from our national politicians? Do you believe the Fed cares about “Main Street USA” or unemployment? Why does Asia buy hundreds of tons of gold annually? Is gold useless and unimportant as the media proclaim? Is Wall Street helping anyone but Wall Street?
2. Examine long-term trends.
3. Compare ratios between markets to determine what is over-valued and under-valued.
Fifth: WHAT TRENDS AND RATIOS?
Debt increases more rapidly than the population. Examine this (scary) log scale chart of official national debt divided by US population.
Debt increases exponentially. There is no sign (as of 2019) that debt creation will decrease. As debt increases, dollars buy less. Plan on price inflation. Don’t expect this insane debt increase to end well.
Gold prices (and stock indices) increase as the dollar devalues. The price of gold may spike higher or fall too low for several years, but it will rise as dollars are devalued. In many currencies, gold sells at all-time highs. Gold prices will exceed the dollar high of $1923, perhaps in 2020.
The correlation between annual gold prices and population adjusted national debt since 1971 exceeds 90%. More national debt means higher gold prices. Plan on it.
The gold to S&P 500 Index ratio (65 week moving average) shows when gold is overpriced or underpriced compared to the S&P. During the past 50 years the ratio has been relatively constant, except during the metals blow-off in January 1980.
This graph shows a ten-year trend (1970—1980) of increasing gold to S&P ratios, a 20-year decline until about 9-11, a ten-year increase to 2011, and an 8-year fall until late 2018.
Conclusion: Gold is underpriced relative to the S&P. Silver (not shown) is also underpriced. Buy gold and silver knowing that our financial and political system will increase debt, devalue the dollar, and boost gold and silver prices much higher. The S&P is over-valued.
TIMING THE LONG-TERM EXCHANGE BETWEEN GOLD AND THE S&P:
- Buy gold when the moving average of the ratio is rising.
- Sell gold and buy the S&P when the ratio is falling.
- Confirm timing with the 65-week moving average of gold prices.
Buy gold in 1971—1972. Sell gold and buy the S&P in 1980. Buy gold in 2001, sell gold in 2011, and buy gold in late 2018 and early 2019. Don’t be surprised if gold corrects for a few weeks in September.
Of course not. We don’t know where Dorian will make landfall or how much flooding it will cause. We don’t know what disasters our politicians and central bankers will create during the next recession. And, despite decades of history, politicians might reduce spending, balance the budget, audit Fort Knox, lower taxes, abolish the Fed and push gold prices lower. Doubtful but possible.
Harry Dent tells everyone that gold prices will drop to $700 or lower. I think that is nonsense, but…
The Elliott Wave (subscription service) people are highly intelligent. They stated:
“We are confident that gold is at or near the end of a bear market rally…” [They expect further downside…]
Intelligent people can be wrong about the long-term direction of the gold market. We’ll see.
Debt will rise, politicians will spend, bankers will devalue, gold prices will rise. In the short term, gold and silver have had a nice run and should correct. Sentiment is excessively positive (dangerous) at the end of August 2019.
Expect a huge rally into next decade following a correction.
From Adam Taggart: “How to Ride the Gold (& Silver) Bull.”
“The prospects for further gold and silver price appreciation have rarely looked this strong.”
From Alasdair Macleod: “Negative Interest Rates and Gold”
“For some time now, I have maintained the wheels are likely to fall off the global economic wagon by the year-end.”
“Assuming economic prospects darken because of the coincidence of American tariffs and the emerging crisis stage of the credit cycle, it will be check-mate for central banks.”
“Instead of central banks stabilizing the system by monetary easing, the easing itself will guarantee the crisis… we can be reasonably certain that we are seeing the start of the dismantling of the dollar-based monetary system, and that gold has much further to go.”
From Bill Holter: “Infinity is Here!”
“QE to infinity is no joke. It is very real and it is already here and just getting started.”
“…all monetary roads lead to gold. It looks like “liability capital” will all now merge into a superhighway leading directly to gold and silver …where no liability exists!”
From Gary Christenson: “The Big Cons Will Boost Metals Prices.”
Miles Franklin will transfer fiat currency into real money—gold and silver. This year—2019—looks like an ideal time to shift into metals and out of paper assets. The metals bull run could last 5—10 years.
The Deviant Investor