The modern mind dislikes gold because it blurts out unpleasant truths.–Joseph Schumpeter
As mentioned prior, today’s economy is resembling the 1970’s more and more: booming oil and commodity prices, high inflation, rising interest rates and a stagnant economy. All markets have become very volatile, and everyone is quite focused on the day-to-day short term. Maybe the Russian invasion will end soon. Maybe not. Maybe the Fed will announce a raise in interest rates this week of ½ a basis point. Maybe not. Regardless, certain trends are firmly in place and investors must think ahead if they are going to survive the next 5-10 years. Many have already forgotten that oil and commodity prices were on the rise well before the invasion. Thanks to the extra trillions of dollars printed “out of thin air” the last few years and thanks to a world-wide supply side crunch, prices will continue to rise. Also, as per esteemed Pierre Lassonde of Franco-Nevada, the Fed is in a box and is limited to how much they raise interest rates because the economy and stock/bond markets are in a fragile place. As Lassonde put it, “Powell must feel like a porcupine in a balloon factory with only limited room to maneuver.”
Billionaire Rick Rule, formerly of Sprott Investments, also has some interesting thoughts to share. Rule believes, “Way too much money has been thrown at our problems and mentions that 35% of every dollar in existence has been created in the last two years.” (I checked around and got confirmation that this percentage is correct). “Society continues to vote themselves benefits and is leaving the costs to the next generation. In other words, through the excessive printing of money which leads to further currency debasement, we are spending our children’s future. Like Weimar Germany 100 years ago, excessive government and spending equates to a distribution of wealth via fiat, rather than utility. And, in light of this growing trend, it is critical that investors see the bigger picture and change their investment habits.”
Mike Savage, of Raymond Financial, is another sharp minded thinker that takes Rule’s idea one step further. Savage recently stated, “The world is full of financial pitfalls at this time. It is likely that the decisions you make in the next few months could have a dramatic effect on your future financial position. Those counting on the standard 60/40 portfolios (stocks/bonds) and the ‘market always goes up’ and the ‘Fed has our back’ memes are, in my opinion, likely to be gravely disappointed.” Savage also mentions that the “NATO allies poking the Russian Bear” could lead to MASSIVE inflation because of all of the natural resources they produce. And lastly, Savage brings up the fact that Russia and China have been pulling away from the US Dollar for years, which is creating the world’s reliance on the US dollar to fall. Lastly, Savage goes onto say, “By the end of the year we could see a MAJOR dollar devaluation that is actually long overdue. This is likely to lead to prices for food, fuel, energy and all the necessities of life to skyrocket.”
And then we have the recent comments of Charlie Munger, 99-year-old billionaire investor and best known for being Warren Buffet’s right-hand man, “I think a safe assumption for investors in the current environment is that our currency is going to zero. Unlike the 1970’s when our debt was 25% of GDP, the debt is now 120% of GDP. The tools to combat inflation have diminished because we have spent our future.” Like the 1970’s, we have deep negative interest rates and as per Rick Rule, “The investment narrative of the last 40 years is changing. Gold is going to fly much higher.” And finally, like minded Alasdair Macleod of Goldmoney Insights sums up the bigger picture by saying, “Because they discount falling purchasing power for currencies, rising interest rates, and collapsing bond prices are now inevitable. Being loaded up with bonds and financial assets as collateral, the consequences for the global banking system are so significant that it is virtually impossible to see how it can survive. And if the banking system faces collapse, being unbacked by anything other than rapidly disappearing faith in the fiat currencies will fail as well.”