GOLD, INSTABILITY AND THE FED

 

The most destabilizing economic force is inflation.  As inflation carreens out of control the only monitary beneficiary is gold.

The last US president to seriously fight inflation was Carter with his Fed Head Volker.  They broke the back of inflation with 20 percent rates, brought on and suffered a terrible recession though they knew it would be politically disasterous, and enabled 50 years of unchecked negative real rates that sparked a 50 year market bubble that is just now blowing off.

Taking rates from %20 to %0 with a backdrop of globalization to suck up inflationary results was a once in a century run - or perhaps a unique historical run.

That's over.

Globalization has given way to a new age of Super Power Imperialism.

And 50 years of negative real rates has brought about an economy that moved from a creditor economy to one of the world's largest debtor economies.

Now inflation is permanently out of control - remember the Inflation rate is only a measure of how much more inflation is increasing.  Even at 2 percent (which may never again be reached) prices are still careening out of control - just at a slower - 2 percent - rate.

The US government is living with 2-3 trillion dollar yearly deficits with long rates permanently backing up - in spite of a Fed that is officially easing. 

So what is the FED to do?

The conventional wisdom is that they can't keep cutting in this circumstance (sticky inflation, rising rates and near full employment).  The market is acting now as though this is obvious.

HOWEVER - the FED - (like the SUPREME COURT - and like CONGRESS) - though supposedly independent and co-equal to the President - is actually a wholly ownded subsidiary of the US Billionaire class that controls the US presidency.

The only question is this: CUI BONO?

In other words: WHAT WILL BENEFIT THE BILLIONAIRE CLASS?

the answer is this: LOWER RATES no matter what is happening in the broad economy.  Because the narrow economy - the Hard Asset owning class - the Blllionaire class - makes money as liquidity rises.  And liquidity only rises as the real cost of money remains substantially lower than the rate of inflation.

So the Fed will be forced to cut.  And if they resisit, the members will be replaced - whether the law allows for this or not.  Because the LAW is also a wholly owned subsidiary of the Billionaire class.  

If you don't beleive it just look at the felons and rapists and tax cheats and violent insurectionistts that fill the top posts in the government.  If they are in the Billionaire class or endorsed by the Billionaire class nothing else matters.

Learn it.  Love it.  Live it,  Invest accordingly.

GOLD and INSTABILITY: CERTAINTIES VS PROBABILITIES

 

If we take the axion that gold is an instability hedge as true, then what do we know for sure about global instability and what can we expect as probability?

Things we know for sure:

1) The world has changed from a Unipolar (The United States) center of global power to a Multilateral (China/Russia/Iran axis vs the US)  center of global power.  This change will necessarily create instability until a global understanding of this new order has been established.

2) The world debt situation has crossed every line that seasoned wealth managers consider to be red flags of instability: Debt to GDP, Debt Service to GDP, Debt derivatives to the Global underlying assets.  And all of these things are accerlerating towards unprecedented levels of instability.

3) Financialization and Permanent Negative Real Rates have created a massive imbalance between rich and poor - and Super Wealthy and Middle Class - and this trend is also accelerating at a pace wherein all the assets are being concentrated in fewer and fewer hands while the cost of living rises at alarmng rates.  This creates massive instability within countries. 

4) Government in the US has become concentrated in the hands of the Super Wealthy.  So the world's largest economy is now a wholy owned subsidiary of the Billionaire Class.  This is a majorly unstable situation as the goals and aims of the Billionaire class is at diametrical odds to the goals and aims of the rest of the country.

Things that we can surmise:

1) Tarrifs.  Tarrifs lead to instability.  Tarrifs and counter Tarrifs destroy supply lines, create global tension, and lead to trade wars that can and do often lead to hot wars.

2_ Anti Immigrant sentiment in almost the entire First World is also historically tremendously destabilizing for the countries the foster this sentiment.  It led to the Second World War in the 1930's which was the last period wherein this sentiment was most similar to our present era.

3) Over valued equity markets lead to mean reversions that tend to wipe out capital for those who can least afford it.  That is to say small speculators who follow trends without understanding how to hedge postitions and how to understand valuations in terms of historical means.  

It is especially true when wages stagnate in relation to the cost of living so that desperate citizens are driven to gamble what little capital they can accrue.

We are currently at extremes of specualtion and valuation that exceed the markets bubble of 1929 that led to the great depression.  Many believe This Time is Different because of AI.  But this time has never ever been different.

When this bubble bursts the rift between the super wealthy and the middle class will expode as many middle class families will become part of the working poor.  Nothing could be more destabilizing

4) Loss of faith in Institutions.  This is not only on the rise but is being amplified by the ruling class.  This only happens in periods of Autocracy wherein the Tiny Ruling Faction want to destroy the validity of any competing governing bodies.  This is tremendously economically destabilizing because investment occurs in direct proportion to faith investment parties have in the Oversight and Enforcement Intstitutions that make Contract Law viable.  Without an iron clad faith that a contract will be honored, economic activity eventually grinds to a halt.

This is true Internationally when treaties and even trade norms are violated, and this is true within nations when faith in Government institutions is damaged.

It would appear that this is on the rise in all areas.  It can not be measured accurately.  But over time the effects become obvious.

All of this - in so far as you agree with it - is reason to own gold.  And reason to inrease your gold position.

To the extent that you disagree with all of the above then stay away from gold and speculate in whatever else you like.

HOW DO YOU VALUE GOLD?

 

We can tell that the stock market is historically overvalued by PE ratios, Price to Book ratios, Price to free cash flow ratios etc.

The PE of the SP is currently about 30 percent, while historical averages are closer to 18 percent.  That gives a useful valuation metric.

You can tell the value of a Credit Instrument by analyzing the quality of the debt to asset ratios of the balance sheets underlying the instruments.  Then you can guage whether the interest rates on offer are commensuate with the risks involved.

But how do you value gold?

Nobody has a decent formula for this type of valuation.

You can look at the balance sheet of the countries most in control of the global economy.  You can look at the total Debt inssuance of these countries.  You can track global liquidity flows which is the same a global debt flows.

And you can track - to some extent - Gold puchases by Central Banks, and by the investing public.

All of these are interesting inputs.  But then how do you guage the value of gold in realtion to these inputs?

That would tell you something if you could do it accurately - which would be very tough to do.

But Gold is ultimately a guage of the Stability of Global institutions.  Global politcal institutions, Global Legal institutions and Global Economic institutions.  And these are all all dependent right now, in our current era, on Debt.

There is no guage for this.

You can look at public confidence in the US congress for example which stands at 17 percent (an historical low.)  Or the Supreme court - 44 percent (near an historical low).

Again, that can't yeild any sort of metric for valuing gold.

HOWEVER - what you can do as an investor is to take an historical view of the era in which we live and guage for yourself whether overall Global Stability is rising or falling.

For example, in the Fourth Turning, Neil Howe argues that historical eras repeat and move from stability to instability and back again.  He argues we are in a fourth turning era which is the most unstable.  He, like many historians, liken our era to the era of the 1930's.

But you would need to read the argument to see if you agree.

Then in this broad context you can analyze - first and formost -  whether the leading global economies are built on stable Debt to Asset structures.  Because we live in an era wherein all economic activity is built on DEBT.  Units of account are units of Debt.  Dollars are instruments of Debt.  As are Euros and Rubles and Yen.  And Debt derivatives (economic activity in toto) are measured in the multi-quadrillions.  And most of this activity in unregulated.

If debt is careening out of control it is a certainty that stability is crumbling.  But what does out of control mean?  You have to decide that for yourself.

Then try to gauge the political will - and the poltical economic acumen - to tackle the Debt problem.  (if you agree there is a problem).

If that is truely high, stability could reassert itself.  If not, instability will increase.

I think the answer to these questions are most obvious.  So, to me, adding to my gold position at the current price (around $2600) is also obvious.  

But you have to come to these conclusions yourself and invest accordingly.

No ratios or valuation metrics will help.  And it you are American you are at a distinct disadvantage for gauging these things because the American standard of living is so much higher than anywhere else in the world.  It is only since the great financial crisis that American Standard of living has begun to deteriorate - as the US has made the decision that the taxpayer will always be on the hook for poor decision making by Banks, Shadow Banks, and corporations.  That decision in itself has destabilized the lifestyle of the average citizen in favor of preserving the wealth of the super rich.  But this is a recent developement and it will take time for Americans to realize that this is a one way bet on stability.

On top of this, the decision to allow the super rich to financialize all assets in a way that they are only available to the super rich ie through Private Equity and Private Credit is again massively destabilizing - but recent enough that few can see it.

In the end, it all comes down to common sense in a most personal sense in seeing and understanding trends that can only move in one direction until there is a Mass Will will to move another way.  But this must be preceded by a Mass Understanding which is difficult in an age where the super wealthy control the flow of information.

The only protection against these trends for the private citizen is Gold ownership.  Gold is the only asset with no Counter party risk.  Most every other country in the world sees that and is moving in that direction.  Eventually, as their lifestyle deteriorates,  the US citizens will see it too.

But if you are counting on the ratios or gauges supplied by anyone but yourself you'll go broke investing in gold because all investments are subject to short term volatility that will knock you out of your position.  The only thing that will save you from this - especially in gold where there are no reliable metrics - is your personal conviction of where the world is in the Stability to Instability spectrum.

And where it is heading.

Our NEW Secretary of the Treasury, Billionaire Scott Bessent says inflation doesn't really exist

 

Quoted from the Wall Street Journal 12/27:

"Treasury secretary-designate, said last month that tariffs wouldn’t allow businesses to raise prices in a sustained fashion.

“Tariffs can’t be inflationary because if the price of one thing goes up, unless you give people more money, then they have less money to spend on the other thing, so there is no inflation,” he said on a radio program hosted by Larry Kudlow, a former Trump adviser."

By that logic inflation just doesn't actually exist because when prices go up middle class people go broke so prices must come down.

In a way that's true in the very long run.  Massive inflation eventually leads to crushing debt deflation.

Along the way however, everyone not in the Billionaire class goes broke.  Meanwhile billionaires get richer and richer.

How?

Because inflation is the condition that allows the hard asset owning class - the Billionaire class - to have the value of their assets inflate along with everything else.  Meanwhile if milk and eggs and rent and education and health care and insurance inflate too what do they care?  It's a drop in the bucket compared to the fact that they own all the real estate and the farm land and the health care establishments and the insurance companies that are reaping the benefits.  The cost of daily life products are meaningless to them.

So when a country is ruled in every facet by the billionaire class expect inflation to be the unstated policy of the ruling class.  And expect them to try to convince you that inflation isn't really a problem.  Or doesn't really exist.

And invest accordingly.

DOGE AND GOLD

 

The Republican economy is placing a tremendous amount of faith in the ability of DOGE - a billionaire controlled department that will slice waste out of the budget to cover the 2-3 trillion dollar deficits that the republican budget will be running each year.

That's about the amount DOGE is claiming it will cut out of the deficit.

How will they do that?

Well, 80 perent of the US budget goes to paying for A) Defense - (the republicans have pledged to increase the Defense budget to modernize our weapones sytems)

B) Interest on the Debt (Even the US must pay interest on its debt), and the debt keeps growing at parabolic rate year over year.  In fact, interest on the Debt now is the single greatest component of the budget.  And as most of our debt is funded at the long end of the yeild curve  - it is impervious to all Federal Reserve actions save Yeild Curve Contorl (which would send gold to the stratosphere).  

Cand D) Social Security - and Medicaire.  Nobody will ever touch social security - for one thing it's not a transfer payment, it's money that has been payed into the government by workers and is owed back to the workers on retirement.  So cutting that is just pure theft and it is theft from the largest voting block in America.  Touching that is political suicide.  Medicaire  perhaps can be toyed with at the fringes if the ruling party again wants to flirt with political suicide.

So what does that leave?  

Well, infrastructure - which is badly delapidated in this country.  Cutting spending there will lead to terribly unsafe roads and rail systems which could cost far more in accidents than it would save.  

Veterans health care.  That would save a tiny amount while abandoning everyone who has served this country in the armed forces.

Education. That would save a tiny amount while serving to vastly increase the divide between rich and poor in this country,  That will prove to be social suicide because that divide is what is making this country the most dangerous country in the entire First World.  Most other first world countries have travel advisories in effect for their citizens travelling to the US because of violence here - especialy mass gun violence.  It is impossible to say that all the mass gun violence is due to the rich/poor divide.  But certainly some of it is.  So far I don't think a single mass murderer has come from the Billionaire class.  Maybe if we increase the amount of hopes and prayers we use to combat this plague we'll get it under control.  So far that hasn't worked very well.

Cutting education to the poorest element in society in the long run is probably the absulute dumbest thing we could do.

So good luck to DOGE.  

I'm sure they'll figure something out being billionaires.  But on the face of it it seems they'll end costing the government money simply because they are adding another government agency that requires funding. 

So I think we can pretty well count on the 2-3 trillion dollars deficits the Republicans are planning on running - as a fait accompli.  That is terrible for our economy.  But it is great for GOLD.

THE BILLIONAIRE CLASS - AND GOLD

 

Billionaires control the US Government, the US Media, the US economy.

A tech billionaire and a social media billionaire have total control over the US government.

X, Truth Social, Instagram, Facebook, Tik Tok, are all assedts owned and controlled by Billionaires.

Fox, Newsmax, NBC, ABC, Serius, are all assets owned and controlled by Billionaires

Every social messaging platform, every media influencer, every media truth, every product, every art and fashion trend are assets controlled by Billionaires.

That is total control over all discourse, all information, and over the issuance and use of all the units of account and credit that make up the US dollar backed global economy.

So if you want to understand how to invest and you are not a billionaire you have to understand what benefits the billionaire class and then hitch a ride as best you can on to their coat tails.

So what increases the value of all these assets controlled by billionaires?

LIQUIDITY.

The value of all of these assets are 100 % driven and 100 % correlated to ever increasing Liquidity.

What is Liquidity?

It is the entire global pool of fiat issued units of financial account: Dollars, Yen, Yuan, Euros, Rubel, etc produced and issued into the global economic system in the form of DEBT INSTRUMENTS.

The Total number of these DEBT/LIQUDITY instruments introduced into the Global Economic System has to increase day over day, month over month, year over year for the Billionaire class to increase its wealth.

And one thing we know for certain about the billionaire class is that their only concern it to increase their wealth.

So they need to increase global liquidity to increase their wealth.

At the same time the ever increasing global liquidity is also exactly the same thing as the ever increasing global debt.  Because liquidity is Debt.  Debt is Liquidity.  Every new dollar. yen, yuan, euro etc is introduced into the global eonomy as a unit of Debt.

And the ever increasing Debt/Liquidity introduced into the global economy is also a unit of Inflation.

As the amount of total Liquidity increases the amount or Units of Liquidity (Dollars, Euro, Yen, Yuan, Rubels etc) needed to buy everything needed to sustain lifestyle: Food, Shelter, Energy, Education, Insurance, products -  Increases in cost.  

Day over Day, Year over Year everything must get more expensive.

That means that INFLATION is the ultimate driver of the wealth of the Billionaire class.

Inflation simultaeneously destroys the wealth of evey other class other than the Billionaire class.

Of course, there is the grey area of the Super wealthy who have only a few hundred million or perhaps only 50 or 60 million so that inflation simultaneously increases the value of their assets while skyrotting the cost of their lifestyles - so that they ultimately tread water in what is a very satisfactory place.

Everyone else goes slowly broke because the cost of their lifestyle increases faster than the savings required to accumulate assets.

So the Billionaire class is faced with a very tricky narrative that  they must produce using all the Social/ Media Assets which says that we will simultaneously drive up the value of your assets while driving down the Inflation that destroys the cost of your lifestyle.  

Tricky?

Yes.  

Because this Requires simultaneously driving Liquidity up while driving Liquidity Down.

Impossible.  Yet this is the story the Billionaire class must tell their political consituents if they want to maintain control of the US government.

So how do they do this?

A) They count on the fact that almost nobody understands that Liquidity drives the entire global economy. 

B) They never mention the fact that you can not simultaneously Increase and Decrase liquidity.

C) In stead, they get everyone to focus on the minutiae of the economic system (GDP, GDI, GNI, FDI, PCE, PMI, employment figures, stock indices figures etc) without the understanding that these are meaningless outside the context of Global Liquidity.

D) Hope that everyone buys whatever absurd narrative they want to build that will prove they can simultaneoulsy fight inflation (Decrease Liquidity) while increasing assets values (Increase Liquidity).

E) They prosecute or sue into bankruptcy anyone in a position of influence who tries to contradict their narrantive.  

Currently the Narative produced by the Billlionaire class is that they will use Tarrifs to both increase liquidity by confiscating a fortune in Liquidity units from other countries (Tarrifs do no such thing.  The US consumer pays those increased confiscations) while decreasing liquidity by destroying the liquidity units other countries would otherwise accumulate selling products to the US.  (Tarrifs do no such thing - the other countries just sell elsewhere)

The fact that this is a nonsense narrative at every level is irrelevant.

They also have fastened on the narrative that the mass deportation of aliens and their families will make all real Americans richer while driving down the cost of living.  How?  That's irrelevant.

The fact that every social / media outlet hypes this narrative means that ultimately everyone will agree if possible.  Those who don't best just shut up.

The policies are simply diversions.

They are only meant to give cover to the real policy that dominates the real economy domintaed by Billionaires: Liquidity/Debt must be increased day over day, week over week, year over year.

And anything that interferes with this mass Liquidity Drive must be cleaned up/bailed out by the Central Bank whose balance sheet can and will balloon to infinity as the Liquidity Drive turns into periodic Credit Crises.

So if you are not a billionaire how do you invest for this Liquidity Economy?

There is only one asset available to the non billionaire that can withstand the erosion of the value of money and the vicissitudes of the inflation/destruction cycles that accompany the vicissitudes of the debt/liquidity  economy - and that is Gold.

Because the price of Gold is constant.  It goes up as liquidity rises.  And during the draw downs that occur during crises Gold treads water in relation to all other assets that plunge.    And then when the central bank bails out the next credit crisis with more liquidity gold rises as liquidity rises.

It is the only monetary asset that is a store of value as well as a unit of account.

That doesn't mean you can't make money in other assets if you are a brilliant trader.

But if you are simply an ordinary dude who just wants to get by and has enough savings to invest, then over time Gold is your best bet.

 

The $2600 Plateau: Wait and see

 

Gold is resting at about $2600.  It's previous resting spot was about $1600.  So a decent move in the course of a little more than a year.  What is it waiting to see?

For one thing everything but meme stocks move in cycles.  The cycle for a meme stock is straight up and straight down.  If you see anything that moves like that you can be sure it is moving on pure emotion without any underlying fundamentals.

So what are the underlying fundamentals for gold?  When you know that you know what gold is waiting to see.

A) Central Banks of the world use gold as the rerserve currency of last resort.  Many central banks have been selling dollars (US treasuries) to buy gold. These include China, India, Russia, Iran, Saudi Arabia, Turkey, UAE, Kazakstan, Poland, Rumania, Brazil, Columbia, Viet Nam etc.  

These central banks have accounted for %90 of the gold move.  So gold is obviously waiting to see how this trend will continue in 2025.  Trump has threatened all these banks with Tarrifs if they continue.  But a large part of the reason they are selling dollars to buy gold is because of the threat of using the dollar as a weapon.  So threatening to use the dollar as a weapon should have the result of accelerating the purchase of gold in 2025 if the past is any indication.  We'll soon see.

B) Gold is used worldwide as the primary hedge against the ever diminishing purchasing power of paper currencies.  Especially the dollar, the Euro, the Yen and the Yuan,  Paper Currencies are diminshed in direct preportion to debt that must be paid off in paper currencies especially by printing more and more of them thus creating more and more debt.  

As long as the Globalization movement was providing a cover for long dated debt by keeping rates low the massive printing of debt seemed like a perpetual rollover game to those fortunate enough to procure debt at rates significantly below the real rate of inflation.  (Ie the very rich - especially the US Government)

Now that Globalizaiton has reversed and the new ethos is Every Country First and Soley for ITSELF, long rates have begun to soar despite the central banks cutting the short Bank rates.  Therefor all that debt accumulated in the Globalization debt orgy that lasted 50 years has to be rolled over at higher and higher rates.  

At the same time every countrys has gotten used to running on bigger and bigger deficits that also have to be financed at higher and higher rates.

This drives gold higher and higher as all the central banks continue to buy gold as a hedge against an ultimate debt reckoning,  It's inflate or default.  Central Banks always choose inflate.

So what is gold waiting to see?  Well for one thing it needs to see whether the president of the United States is actually as divinely appointed Angel of God who can take highly inflationary actions like imposing Tarrifs and cutting taxes on the wealthy while firing and deporting much of the working poor - and achieve deflationary results.

On the face of it this is so absurd it's not worth contemplating.  But enough people  believe in it that Gold must pause to see.

I don't believe that pause will be very long.  1 + 1 still equals 2, regardless of what George Orwell may have alleged.  At least in the realm of global finance.

So it's my belief the pause won't be all that long.  Maybe a few monts.   Maybe less,

We'll soon see.