It's Dumb To Have No Gold Amid All Of This / Commodities / Gold & Silver 2019
TheGreen New Deal is silly and not worth our attention. It implies we can haveanything we want if the Federal Reserve extends credit.
Letme blow your hair back for a second.
Thetwo biggest US stock market rallies (in the 1920s and in 1990) occurred whenthe budget deficit was disappearing or had disappeared.
CalvinCoolidge led the US through most of the Roaring Twenties. And he is perhaps thesecond-least well-understood president of the 20th century(behind only Warren Harding).
Longstory short: Coolidge was perhaps the biggest saver known to mankind. He ranthe country like he ran a household budget. Talk about austerity—wow.
Inthe 1990s, I worked for the government under the Clinton administration.Clinton was not well-liked by government employees. He kept telling people to “domore with less.” No money for trips, no money for projects, no money forboondoggles.
Golook at the budget figures from the 1990s. The government size remained prettyconstant, which is something. It was the closest thing we’ve had toausterity in nearly 70 years.
Todaythe opposite is happening.
9/11kicked off the drunken spending spree funding new government bureaucracies andmultiple wars. Dick Cheney said that deficits didn’t matter, but at least hewas constrained by the bond market.
Isuppose that if Modern Monetary Theory (MMT) were implemented, foreignexchange markets would have their say about it (provided we still had floatingexchange rates).
Doyou think it is a coincidence that the two biggest bull markets correspond withgovernment austerity? I do not.
Monetary Mess
Nomatter how much money the Fed prints, or what they do with their balance sheet,you can’t spend more money than you make.
Youcan make up a shortfall with debt (just like the government), but after awhile, your creditors get sick of you and the jig is up.
It is kind of hardto tell people to mind their personal finances while the government isgoing bananas. But that is what we do.
Wetell people to eliminate debt and manage risk. And part of the reason we tellpeople that is because people have to manage the stupidity of governments.
Governmentshave always found the temptation to borrow, overspend, and mess with the valueof their currency.
Ifyou happen to be a resident of one of those countries, then you will get mowedover as an innocent bystander.
Unless you takemeasures to protect yourself.
Ultimate Hedge
Theway you protect yourself from plans to demolish every house and kill all thecows is… gold.
Otherhard assets, too. Base metals, timber, diamonds, stuff like that.
Interestinglyenough, in 2009–2011, people thought it was really important to own that stuff(because of QE). I was one of those people. It didn’t cause inflation, unlessyou think it works with a really long lag.
Thestuff people are talking about now is way moreradical than what was going on during the financial crisis.
Iown a lot of gold, most of it from before the financial crisis. I have neverbeen sorry about my decision. I was a little stressed out when the drawdown gotto 45% or so, though. You own it specifically for times like these. Crazy town.
Should I Own Physical Gold?
Don’tbother if you don’t have any assets to protect in the first place. The point isnot to punt it around.
Ithink that’s where people went wrong in the last big bull market—it was a punt,rather than a hedge.
AndI don’t mean that it’s a hedge in the portfolio sense, as in gold goes up whenother stuff goes down.
Imean, physical gold is a hedge on your life. You have a tube of Eagles on yournightstand that you can put in your pocket and run to the airport with if thingsstart getting kinky.
Thereare a lot of people who buy gold. They do so for a reason.
Somepeople say that gold doesn’t track inflation very well. But one thing it doeswell over time is maintainpurchasing power, with some minor variations along the way.
Ibet Venezuelans wish they had some gold. And guns!
That’sthe most depressing thought in the world—that one day, we might need gold andguns in this country, like in some right-wing dystopian fiction.
Ihope not! Things usually work out for the best. But sometimes they don’t.
It’sdumb to have 100% of your portfolio in gold, but it’s also dumb to have 0% ofyour portfolio in gold.
Thisisn’t a market call on gold (though I am a bit bullish). It’s responsible tohave a good chunk of bonds, and it’s responsible to have a little bit in gold.It’s irresponsible to have it all in the QQQ.
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