It seems like every day now that I see something in the financial news that has me shaking my head. The latest example is the huge increase in US retail sales in October—more than double September’s increase.
Americans continue their spending binge despite people quitting their jobs in record numbers—months after the last round of stimmie checks. Well, there are still the extra childcare checks. But those aren’t for everyone, and wages have not been rising as fast as inflation.
So why—how—does a country working less spend more?
By taking on debt, of course.
Hey, if the government can run gargantuan deficits, why not households?
Federal Reserve data shows consumer debt spiking 8.3% in September. There are reports of soaring “buy now, pay later” financing by consumers with maxed-out credit cards.
At the same time, there are reports showing the massive surge in US imports is not only up 22% from last year, but also up 16% from 2019—before COVID-19. It’s not just pandemic problems breaking supply chains, but record demand.
My fellow Puerto Rican, Peter Schiff, likes to point to the trade deficit and soaring import prices as far better measures of inflation. The numbers are based on actual prices not massaged by government agencies to minimize the impact of inflation.
If you’re like me, we keep thinking, “This can’t end well.”
But many economists point to surging demand as evidence of a “strong consumer.” Somehow, the negativity in the latest consumer confidence numbers doesn’t count for much in this view.
I have to ask: what if they’re wrong?
What if consumers are pulling forward their buying because interest rates are artificially low and they’re afraid of higher prices in the future?
The debt data and the stubbornly low labor force participation rate makes me highly skeptical of the strong consumer thesis.
That’s not to say that I don’t see any green shoots in the US economy. Jobless claims remain historically high, but trending downward. Industrial output is up by several measures. And while wages aren’t up as much as inflation, the increases may make unwary consumers feel freer to spend and take on debt.
But a few green shoots do not make a healthy economy poised for strong, sustained growth.
I can’t give you defensible statistics, but my sense is that the number of days I think, “This won’t end well” vastly outnumber the days I think, “Nice to see some good news.”
The COVID-19 shutdowns revealed how fragile the global economic system is. It only survived by the grace of stupefying fiscal and monetary intervention. As we can see in Europe today—sadly—the shutdowns are not over. And even if they were, their effects are still reverberating through the system. China in particular is a source of worry, with growth slowing rapidly.
It has long seemed to me—and it seems truer than ever now—that one false step by The Powers That Be (TPTB) can bring the whole global financial house of cards tumbling down.
That said, people with an Austrian economics bent like me have generally been so bearish on the effects of government policy for so long, I can’t blame the mainstream for ignoring us as Chicken Littles.
This and the truly astounding (to me) failure of the financial house of cards to collapse after the crash of 2008 make me a cautious forecaster. I’m sure I could sell more newsletters making bold, headline-grabbing predictions of financial doom, but such predictions keep proving wrong year after year. I refuse to join the prediction racket.
My purpose today is not to say that the piper has finally come to collect his pay.
Though I’m sure that he will, sooner or later.
Instead, I simply want to ask you: are you ready if that day is drawing near?
To answer “yes” does not require one to have a bunker surrounded by a self-sustaining farm in some quiet place. (Though I wouldn’t mind having one, myself—and any useful and/or productive real asset should serve as shelter in a financial storm.)
Even if there is a great deal of disruption and chaos ahead, it’s far from certain that the world will go “Mad Max” on us.
But I do think any sensible person should harden their portfolio.
This could result in the accumulation of a great deal of wealth, if one plays one’s cards right and realizes profits as one goes. I certainly intend to try to do so and guide my clients to profit as well.
But that’s not what I mean.
I think everyone should harden their financial portfolios as insurance against financial chaos—and that means a substantial allocation to gold bullion.
And by that, I mean physical bullion under one’s direct control, not some paper proxy.
“What’s the big deal, Lobo?” one might ask. “Haven’t you gold bugs been telling us to buy bullion for decades?”
Well, it’s true that I’ve been saying for decades that saving in bullion is a good idea. (And I’ve done so with my own savings.)
This is different.
What I’m saying is that if I had been putting off stacking at least the equivalent of a few months’ living expenses—ideally, enough to cover a couple years—I’d want to do so ASAP.
I’m not saying the world will end tomorrow.
I am saying that if TPTB lose it, financial turmoil will be breathtaking in its speed and fury.
I wouldn’t want to be caught short.
What if TPTB kick the can down the road another decade or two? Wouldn’t loading up on bullion be a misallocation?
Because it’s not an investment; it’s insurance.
I don’t know about you, but every year I don’t use my life insurance, I’m happy. And I never think it’s a mistake to renew that insurance.
Simple as that.
But wait—what about silver?!?
Sure, I like silver and have a stack of that as well. But it currently takes 74.8 times as much silver to stash the same amount of value as gold (and it’s prone to tarnish, if not slabbed). Stacking gold is more efficient.
It may look fun to build a big treasure chest and fill it with silver, as we see some folks doing on social media—but that’s an obvious target for theft. (Posting pictures of one’s treasure on the internet is asking for trouble.)
As I’ve written before, if one wishes to speculate on silver prices rising more than gold prices, then it’s fine to buy more silver. But such speculation is not what I’m talking about today. I’m talking about hardening one’s assets as insurance against turmoil.
Call me Darth Silver or whatever you like, but if the idea is to store real value with the least trouble and expense, gold is the way to go.
I understand that Bitcoin and similar cryptocurrencies are able to survive a nuclear war, as long as civilization itself doesn’t collapse.
1] Bitcoin is a new thing. It wasn’t in circulation during the crash of 2008. We have a lot of loudly proclaimed theories about how great it will be at protecting wealth, but no track record. Even if I were sure it will work, I wouldn’t want to put all my eggs in one (untested) basket.
2] If things really do get bad, a form of wealth and means of payment that works even if governments shut down the internet will be a better store of value.
At the end of the day—and whatever TPTB may say or do—the gold standard for wealth protection is… gold.
You may know everything I’ve just written.
You may already have all the bullion you could want.
But after shaking my head for the umpteenth time today and thinking, “This can’t end well,” I felt strongly that I had to speak up.
Any who’ve been putting off buying bullion should remember that the time to buy insurance is before you need it, not after.
That’s my take,
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