SEMI MONTHLY FISCAL/MONETARY REPORT – GOLD CONSOLIDATES – ECONOMY STAGNATES – CANDIDATES (as far as we can tell) HAVE NO CLUE
The capital markets, including the gold market, were little changed during September. Our portfolio was up slightly better than gold bullion which was up 0.7%. For the year, we are outperforming gold bullion which is up 23.8%. As we have said before, we have participation with both gold bullion and the miners, and our portfolio should move more than bullion itself, especially on the upside. We expect the capital markets, as well as the gold market to be more definitive once the US presidential election is concluded. Neither candidate has indicated any policies that would be negative for gold.
It might be a good time to go back to economic basics, of paramount consideration within the political landscape. We continue to believe that the US debt will eventually strangle (completely) our economy, which has grown steadily but very slowly for a decade, not coincidentally since the debt burden accelerated. Zero interest rates, have helped our government to keep the annual deficit to “only” $600 billion in the latest 12 months, still growing faster than the lackluster economy, but has also penalized the saving public in the process. That is why so many “mature” individuals, normally of retirement age, continue to work. Many investors put their “heads in the ground”, assume their IRAs and 401ks will be OK over the long term, especially since they have done well since the ’08-’09 decline. The more conservative (I would say “realistic”) investor, understands that the stock and bond market performance has been (the Fed admits) largely supported by Central Bank easy money policies. The investor like myself, more aware of monetary history, has been less willing to “reach for yield” in an increasingly risky environment. For every million dollars a family has in the bank, if they want to keep the funds “safe” in US Treasury securities (which will not “default”, just be inflated away), they earn: maybe $6000 annually with a 1 year maturity, less than $10,000 per year for 5 years, about $16,000 annually for 10 years, all of it taxable. Not too many families currently have many millions in liquid savings, so it is understandable that the savings rate is (out of desperation, perhaps) going up as interest rates come down, and workers don’t retire. The Central Bank P.H.D. model, which calls for better consumer spending with lower interest rates, and higher inflation at some point (to inflate away the government debt) is not working. This is true not only in the US, but in Europe, Japan, and China, the world’s largest economies. I say again, the model is not working. When you are in a hole, the remedy is not to “keep digging”.
As we listen to the economic portion of the debate by the two presidential candidates, and their plans, or non-plans, to adjust government spending and get the projected rise in the yearly deficit under control, keep in mind the following inconvenient facts. The U.S. government has spent about $4 trillion in the fiscal year just ended. Pensions (Social Security, etc.) amounted to $1,105B (26.9%), Health Care (Medicare,Medicaid,etc.) was $1,124B (27.4%), Defense was $817M (19.9%), Welfare (Families, Unemployment, Housing, etc.) was 9.8%, Interest on the Debt, even with very low interest rates, was $318M (7.7%). There is not the political will, in either party, to materially reduce spending within the above categories, and this represents the bulk of the budget. In our view, it won’t happen until after the next financial crisis, which we believe will be much larger than the last. Most asset classes will be much lower and gold related securities will be much higher at that point.
It should be clear to all that our convictions have not changed. We are always available for your questions/concerns.
Special Note : If you are interested in this subject matter, you can view, FOR FREE, the three youtube videos I produced, only 3 minutes each, with links on our Home Page. Even more illumination you will get from Harry Browne’s books, the most profound of which we provide for free with a paid subscription to this website.