Tag Archives: Fiscal



The capital markets were once again relatively quiet, as was the price of gold bullion (down 0.1%) for the month). The gold mining stocks were mixed on the month, with the larger miners (represented by GDX, up 1.8% and the smaller miners, represented by GDXJ down 2.5%. It appears that the re-balancing of GDXJ, which we described last month, and has affected the pricing of some of the small to medium sized miners has largely run its course, so the miners should begin to act a bit more rationally.  Our gold related holdings have not changed, but we have found some restaurant/retail companies that we believe offer opportunity to “augment” our returns.

The most significant fiscal/monetary developments over the last month are as follows:

The federal budget debate continues, and is heating up in terms of resistance to the suggested spending cuts. Also, the debt ceiling has to be raised quickly because tax receipts are coming in more slowly than anticipated, and the government is already running on “temporary” spending measures.

While there is evidence of improvement in the economy, in particular the employment numbers (all of which are estimates, normally revised several times) there continues to be many signals that the recovery is anemic. Even the Fed said “the growth is modest………Consumer spending softened, with many districts reporting little or no change in non-auto retail sales”.

Related to the Fed’s observations, the most recent consumer surveys show a clearly weakening trend, which we postulate reflects frustration over POTUS’ difficulty in delivering on campaign promises.

Clearly, the unproductive “noise”, largely provided by our inexperienced and “unorthodox” Commander in Chief is undermining  policy initiatives. Policy paralysis, in large measure,  becomes the result, with executive orders implementing a more limited agenda. Unfortunately, time wasted is exacerbating, not helping, the fiscal/monetary distortions that are negatively affecting the worldwide economy.

Consumer debt is at new highs. The housing “bubble” of 2007 has been replaced by new highs in sub-prime auto debt, student loans, and “shadow bank” (internet) lending. We don’t believe interest rates will rise by much. Higher rates would choke off the already tepid consumer spending and wreck government budget balancing attempts.

We continue to feel that the 1.5-2.0% GDP growth (the weakest “recovery” after recession in at least 50 years) that has been a feature of our economy for almost ten years now is more likely to slow than accelerate. The sluggish growth has been in spite of close to zero percent interest rates and trillions of newly created dollars. It stands to reason that even modestly higher interest rates and an attempt to reduce the size of the Fed’s balance sheet will be a deterrent, not a stimulant, to faster growth. Further, we believe that the modest “tightening” direction will prove to be just a setup to the next phase of stimulation, as the economy stalls and politicians scream “do something”. At some point as that process plays out, we expect gold related investments to be the “cream rising to the top” of asset allocation.


March 2, 2017


The fiscal/monetary world was essentially in a state of suspension, as we wait for the new administration to start the implementation phase of its stated policy objectives. The general stock market continued its optimistic expectations.  While gold bullion was up about 3.2% for the month, the mining stocks were down about 3.0%, so portfolios such as ours, with exposure to both, were essentially unchanged. (The large miner ETF, GDX, was down 4.5% and the small miner ETF, GDXJ, was down 2.2%). The US Dollar remained strong, as the financial community weighs the timing of the next 0.25% (big deal!) rise in interest rates. As we have discussed before, both dollar strength and higher interest rates are perceived as negative for the price of gold, but history has demonstrated that the gold price, to varying degrees in different currencies, can go up substantially in spite of those short term headwinds. In point of fact, that has been this case so far this year, with gold bullion up 8.8% in spite of a strong dollar and higher interest rates.

In terms of the economy and the equity market, the sentiment surveys and the equity market continue strong, including trading the first day of March, in the wake of President Trump’s Congressional address on 2/28. However, political promises and policy objectives are a long way from practical implementation. The consuming public (representing 65%-70% of GDP) may understand this better than the financial markets. While President Trump and Co. debate how to “repeal and replace” Obamacare, reduce taxes, reduce government spending (except for defense, education, infrastructure needs, and healthcare), the consuming public is still stretched. We continue to closely follow the restaurant/retail industry, and (over four decades) restaurant sales trends have invariably been a productive window and a leading indicator of general economic activity. The public does not have to buy a car, take a vacation, purchase or renovate a home on a regular basis, but they do have to feed themselves somewhere almost every day. Well over fifty percent of meals are now purchased and/or consumed outside of the home, and these trends tell us more about consumer confidence than surveys of “spending plans”. Up to this moment, there is no tangible sign that consumers are loosening their purse strings in this regard. Money spent is largely promotionally driven and comparison shopped, both in restaurants and general merchandise. Takeout and delivery is the strongest segment of retail, and that is generally at the low end of the price spectrum. Amazon is apparently going to rule the world. An economic pickup could come, but there are few tangible signs so far.

In light of the foregoing, we expect interest rates to stay relatively low (in spite of two or three possible fed fund increases this year), a pickup in the economy to be delayed (at the very least), both current and cumulative monetary deficits (in almost all major worldwide economies) to grow. This, in turn, will remain a major drag on the worldwide economy, convincingly supported by the long term historical studies of  Reinhart and Rogoff in  “This TIme is Different. Eight Centuries of Financial Folly”, published in 2011.

We expect all major currencies to continue to depreciate relative to the price of gold over time, which has been the case in the last 16 years, in the last 50 years, in the last 100 years, and for well over 2,000 years. From 1980 to 2000 and from 2012 until 2015 that has not been the case, but there were non-recurring reasons for that “consolidation”, which we have discussed before. We continue to believe that gold is the ultimate currency. Our positions in the gold miners, which have the money safely stored underground, plus our options on gold bullion, reflect that conviction.