The presidential debates are going to go like this:
candidate A: “I will spend $1 trillion to get this economy moving again. “
Candidate B: “I will spend $2 trillion to get this economy moving again…”
Candidate A: “I meant to say I will spend $3T….”
Across the world money managers are starting to realize that central banks and governments are actually going to accomplish the inflation they “desire.” They didn’t get in in 2008, but I believe they will now. And in relation to that, what I think is happening is that the ownership of gold is spreading beyond the smaller group of investors who have been worried about inflation and money printing to more traditional money managers who are now fearing that outcome.
What’s Happening
Commodities in general have been in a bear market for a while. What is interesting, is that many people (including me around 2010) thought that the tremendous money printing and borrowing in 2008-2010 (at the time “tremendous “ - nothing compared to what they’re doing now) would spur cost of living increases all over the place. In a way it did (did you see housing, one of our biggest expenses over the past decade?). But that didn’t happen.
When the Fed purchased the bonds in the last crisis, they also put systems in place that allowed banks to borrow money from the Fed at 0%, and keep it on deposit at the Fed at 0.25%. This money printing allowed the banks to recapitalize. But with all of the stimulus done by the Fed, not much reached the middle class consumer.
Yes interest rates dropped and it made mortgages more affordable, but with people losing jobs and seeing investments crash, it was more likely a rich person with cash in the bank and good credit using the low rates to buy investment properties, than it was a (formerly) middle class person scoring a cheaper home. In a normal recession, prices would have stayed down longer and recovery would have been gradual enough for these folks to buy back in. But our leaders wanted a fast recovery and dismissed the results as necessary to get things back on track. Interestingly, two of the largest beneficiaries of low rates to buying cheap homes were Goldman Sachs and Warren Buffett.
That all being said, this time, politicians have learned their lesson. The Fed has greased the tracks but Congress and the President now realize that to get people out of depression, they need to get money in their hands. So unlike 2008, we now have Congress, the President and the Fed working together to create a recovery out of printed money. How? The Fed is backing junk bonds of shaky companies while Congress provided PPP loans for their employees to keep getting paid - and $600/wk bonus for those who did not. The Fed offered to back the PPP loans. And The Fed is diligently printing and buying up the enormous 2020 budget deficit. With more to come.
What’s Coming?
More extended unemployment benefits for sure. But even bigger, all of the dreams that politicians had about spending with abandon will now be realized. There is very little resistance in Congress these days to deficits and too much spending. In fact, there is now widely accepted academic backing for spending and printing (MMT). Being fiscally responsible is so 20th century.
Politicians have a green light to make us happy with true helicopter money (which has been almost literally proposed). Trump knows to get re-elected he needs to give people something that they would fear losing. He backs a big spending plan and more stimulus. Biden, being an old school democrat, would love a huge infrastructure plan.
So here’s the real magic for commodities and tragedy overall:
I can not remember when everything has been so aligned for borrowing and spending in the US a la Argentina style. The President, most of Congress and the Fed are all aligned to borrow, spend and self finance the debt with money printing. The amount will be virtually unlimited.
What does that mean for us? This is something I wrote about a bit, a long time ago on my personal blog. But to summarize…
From a spending standpoint:
lock in your debt interest rates because eventually this will lead to much higher rates - obviously keep refinancing lower and adept people might be able to get away with short term rates for the next 3-7 years but for average people keep this fixed.
Keep costs low on utilities - where you can, invest in solar etc while materials costs and labor are relatively low and the cost of the product (eg electricity) could go way up.
Try to diversify your income - the economy is changing rapidly. Be ready.
Buy bulk, it’s cheaper.
Try to get by one one car - reduce insurance costs and maintenance costs.
From an investing and growth standpoint:
our community of clients is invested in gold, silver and platinum group metals
we are also exposed to industrial commodities, food and energy
We are investing in sectors which will benefit from increased government spending on roads, bridges, buildings, plants etc and the materials that go into them
We prefer active management for growing and value companies. The economy has turned into a rapidly changing place - commercial real estate is in trouble, as are clubs and gyms. I don’t want to own an index in this environment. Especially when the S&P 500 has become the “S&P 5”, with 495 companies together barely moving. It reminds me of the “Nifty 50” of the late 1960s and I don’t want all my investments in 5 stocks that have run up to nosebleed levels.
I hope this summary of thought helps our client community understand how we see things and what we see coming. For those of you not in our client community, we hoped you found this informative. We do think a bit differently on the investment side - but we also offer this kind of independent thought on all areas of personal financial planning: tax strategy, insurance, estate planning, mortgages, cash flow and more. If that sounds interesting to you, fill out our intake form and request a phone chat with Chris by clicking HERE.
Cover photo source HERE.