GOLD MAKES AN ALL TIME HIGH - NOBODY IN THE US NOTICES

 

Gold has made an all time high, rocketing nearly 100 dollars since inauguration day.  Yet nobody in the US has the slightest interest.  We know that because inflows into the GLD ETF move between modestly positive to modestly negative month to month.

Interest in China, Russia, South America, Eastern Europe, Much of Western Europe and the Middle East is at an all time high, led by Central Bank purchases in all of those areas.

But here in the US interest is high in Bitcoin, AI, Trump Meme Coin, Dawgz AI, and Black Box Private Equity Bundles.

This is not a joke.  Nor is it an exaggeration.  Pension Funds across the US are loaded up with "investments" that have no track record, little to no liquidity, and in many cases, no mark to market information.  And not just pension funds, many US investors have borrowed to the hilt to get in on these "opportunities."

Meanwhile, globally the interest in old fashioned boring Gold, Real Estate, Old Master Artworks, Diamonds, and other deathly boring investments are soaring.  The Swiss Federal Pension fund has Gold now as it second highest percentage investment.  The Florida Pension Fund has Bitcoin (bought at an all time high) and Private Equity Black Box investments as its top two "investments."  And when I say Black Box - that means not only are the returns opaque, they don't even know what investments are in the bundles.  The PE firms say that if they told, they would lose their edge.  Seriously.

What is the reason for this extraordinary disconnect?

One thing that might account for the difference in investing strategies is that the Swiss Pension fund has Investmtent Executives with an average of 30 years of proffesional investing experience on its board.  The Florida Pension fund is managed by political appointees none of whom have any proffesional investing experience.  None, not a single one.  They are all lifetime political hacks.  That is not a joke.  Certainly not for the the citizens of Florida. 

According to Warren Buffet the entire US pension fund system is broke on a mark to market basis.  But that's just Warren Buffet; he's really old, so he probably just doesn't get it.

So far AI has little to no monitizable value for the companies that have loaded up on purchases.  This is because AI makes mistakes that are impossible to check without countless editing man hours.  So any company that can be sued for an AI error can't use AI.  That's most of corporate America.

I'm sure some day they'll overcome this drawback.  But right now they're not close.

And as for Black Box investing - Well the financial crisis of 2008 was caused by excactly that type of black box bundling.  It's happening again less than 20 years later.  Repeating the same mistake and expecting a different outcome is the definition of Insanity.

So it is American Exceptionalism or American Insanity?

I don't know.  But Gold is betting that it's the latter.

And I'm betting on Gold.

And eventually some Americans will catch on.  Then the price will really soar.

LONG RATES BACKING UP WHILE THE FED CUTS: GOLDEN ROCKET FUEL

 

This will happen:

As the funding needs of the US government spiral out of control while the tax income is slashed, only one outcome is possible: The US goverment will be forced to issue massive new debt and the markets will demand ever higher rates at the long end.

Meanwhile the Republican Majority supports the president taking over the responsibility for setting short rate policy (That used to be the Domain of the Fed).  And he has made it very clear he wants rates lower, preferably back to zero.  That will be a tremendous benefit to his real estate holdings.  It will be a disaster for inflation.

Period.  End of Story.  This answers the question Cui Bono?  Who  benefits?  The person setting rate policy benefits.  The Billionaire class holding reals estate, gold, art, pop culture memorabilia, and other hard assets, and also some crypto (not a hard asset but an asset favored at the moment by Billionaires in charge of the government.)

Who doesn't benefit?  Anyone who lives and works dependent on job income to feed and house and nurture their families.  Without hard assets their income buys less and less.

And the Fed loses all credibility which will be a disaster for the dollar even further damaging purchasing power for wage earners.

Of course the government will come out with statistics showing Inflation has come back down.  But all that means is that the rate that things are inflating has slowed.

Nothing will ever be cheaper than it is today.  Except Fad Impulse assets.

Insurance, education, housing, food, energy, medical costs  will always inflate under a regime that refuses to raise rates above the real rate of inflation which is close to 10 percent

The last regime with the courage to do so was Carter/Volker even though they knew it was political suicide.  They took rates to 20 percent and caused first a terrible recesion but then a boom that lasted 50 years as each successive regime simply cut rates whenever anything economically challenging occured.  

But Volker raised rates when the US was a creditor nation.  Now we are a massive debtor nation.  So raising rates will be much more painful for everyone who financed purchases at zero and then has to roll over their debts at 7,8,9,10 percent.  All private equity and private lending would go broke.  That's the shadow banking system crashing.  It will not happen.

So inflation must continue to spriral out of control.

And hard assets, especially gold will spiral ever upward.

WOLF RICHTER ON THE DOLLAR"S RESERVE STATUS:

Status of US Dollar as Global Reserve Currency: USD Share Hits 30-Year Low as Central Banks Pile on Other Currencies & Gold

by Wolf Richter • Jan 5, 2025 • 

If the rate of decline over the past 10 years continues, the dollar’s share will sink below 50% by 2034.

By Wolf Richter for WOLF STREET.

The US dollar lost further ground as global reserve currency among many reserve currencies held by central banks. Its share has been zigzagging lower for many years as central banks have been diversifying their holdings to assets denominated in currencies other than the dollar. And they’ve also been diversifying into gold. But the dollar remains by far the dominant global reserve currency.

The share of USD-denominated foreign exchange reserves fell to 57.4% of total exchange reserves the lowest since 1994, according to the IMF’s COFER data for Q3 2024. USD-denominated foreign exchange reserves include US Treasury securities, US agency securities, US MBS, US corporate bonds, US stocks, and other USD-denominated assets held by central banks other than the Fed.

In Q1 2015, the USD’s share was still 66%. Over these 10 years, the dollar’s share of global reserve currencies has dropped by 8.6 percentage points. If this pace of decline continues, the dollar’s share will fall below 50% in less than 10 years, by the end of 2034.

 

The new Populism and Gold

 

The populist revolution is spreading all over the world.  Orban in Yugoslavia.  Republicans in the US.  Le Pens in France,  Farage in Britain, the Neo-Nazi AFD in Germany, Chavez in Venezuela, and similar parties all over the world.

I don't care to speculate on why they are all taking power, or why the particular leaders appeal to their working class partisans.  I just think it fascinating that all the populists leaders are very wealthy and are all backed by Billionaire co-leaders, proxy leaders, and the entire billionaire class of their particular countries.

The Republicans are backed by Elon Musk and most of the rest of the Billionaire class in the US. Orban is backed by multibillionaire Lorinc Meszaros and his son in law is the youngest Billionaire ever in Yugoslavia.  The Le Pens are backed and controlled by Billionaire Vincent Bollore, and Nigel Farage seems to be a puppet of the Murdoch family.  The Flick family are the most prominent German Billionaire neo nazis, but certainly not the only ones

Why the Billlionaire class is attracted to an extreme right wing nationlist agenda that also appeals to the working classes is for historians and psychoanalysts.  Or perhaps they just don't care about the agenda as long as they can buy the leaders.

All I can say is if you want to understand what the ultimate policies of these  politicians will be and their economic results you have to ask one question: CUI BONO?  Who Benefits?

Now it may be the working class that elects these people.  But it is the Billionaire class that pays their parties, their election costs and their salaries.  So the Billionaire class will be the ones who benefit.

And the Billionaire class is dependent on the ever increasing flow of liquidity coming from the world's central banks.  This flow is highly inflationary.

So expect inflation.  And expect gold to rise with the tide of inflation,

GOLD AND THE ECONOMY: CUI BONO?

 

Where is the economy headed under this new administration?  What does it mean for gold?

To answer these questions there is a principle of Logic attributed to Cassius and often used by Cicero - that was taught to me in 10th grade logic (do they teach logic any more?) and that principle is to ask CUI BONO?  

Who Benefits?

This question is the first principle for uncovering the logic behind any situation.

Take the cease fire between Israel and Hamas.  CUI BONO?  Who benefits?  Well, at first, everyone benefits.  Israel gets back hostages, and gets temporary respite from criticism in the international press.  Hamas gets a pause in the bombing so they can try to regroupe and reassamble their command structure.

Beyond this neither Netanyahu nor the Hamas command structure benefits from a pause in hostilities because they are both commited to wiping out their opponents.  So of course the cease fire can not hold.

If you want to move beyond CUI BONO you can make all sorts of arguments to the contrary, but why bother?  CUI BONO gives the answer you need to anticipate the ultimate result.

Now take the US economy.  The main issues are Debt, Inflation, Cost of living, and the Asset Markets.

Of course the economy is tremendously complex.  You can - and must - analyze global liquidity and the flow of funds.  And the Global Debt Structure and the Global Energy use and distribution.  And many other things.

 But first: CUI BONO?

Who benefits?

To understand who benefits you must look at who is in charge

Right now the Billionaire class owns the US government.  Period.  End of story.  The President, Co-President, Commerce Secretary and Secretary of the Treasuy are all Billionaires.   The Billionaire class also owns the Russian govenment, and the Chinese government (Though perhaps to a lesser degree in China.)

The Billionaire class is benefited by the exact same thing all over the world: Increased liquidity to float the Asset Markets ever higher.

Increased liquidity means printing money.  And amassing more debt.

This drives up inflation.  But inflation doesn't matter to the Billionaire class.  They love it.

But won't the masses get angry as the costs of everything rises?

Yes, but the Billionaire class also owns the media.  They own Tik Tok and X and all the internet media and most of what you see on television.  So they can control the messaging and blame the inflation that they must and will engender on everything and anything but themselvbes.  Wokeness.  DEI.  Transgender swimming teams.  Immigrants. Jews.  Who cares?  As long as they don't get blamed they can get away with it forever.

They've gotten away with it - and everything else - for years.  They've been the shadow banking system through Private Equity and Private Lending - that controls everything for the past decade, driving up prices and buying up all the assets, and nobody blames them (except Gretchen Morgensen) for anything.

So you can argue this or that til you get blue in the face.  But if you ask CUI BONO?  You get the best and only answer you need.

Inflation will soar.  And gold will soar with it.

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.