Dear Gold Bugs, Grow Up: The 1970's are Back

The Inflationary Path Forward

by Soren K- When inflation really kicks in: Real estate will not save you, stocks will not save you, Bonds will kill you. Only monetizable dollar denominated assets will save you. Stocks will have already discounted inflation and go sideways to lower in the next 3 years. In a higher rate environment, how can they institute stock buy-back programs?

Crazy as it seems, Trump will likely preside over QE4 and higher rates. Sterilized printing (QE) and rolling out our debt to 100 years (Helo Money).  The Helo money is going to drop on corporations, not people. It will come in the form of subsidies, abatements, and handouts. The people will finance it. Jobs will be created, but wealth will not trickle down.

This is the 1970's all over again

Nothing has changed. The Dollar will stay strong because Trump says so. And it helps orchestrate the biggest short squeeze ever. Emerging markets (and US citizens) will be long dollars when the greenback finally starts its descent. The US and China will laugh it off as they will be out. US citizens will be deciding on hot dogs or cat food again as inflation kills their buying power. We will be forced to buy American because it is cheaper. But it will be crap product again because the raw materials will be more expensive to import. Meanwhile real rates will remain negative as the Fed (intentionally) chases inflation higher. It took 10 years to stop deflation. 

Inflation in Stages

  • Stage 1= Bonds Down, Stocks up, Industrial Commodities Up. PM ignored. Gold lags in a 1970's type inflationary market. 
  • Stage 2= Stocks sideways, Bonds volatile, Industrials Volatile, Precious Up.  Bonds lead. Stocks discount inflated earnings in Stage 1, then stagnate on squeezed margins. 
  • Stage 3= Volcker 2.0

Rebalance Percentages

Keep selling stocks in a rally and buying gold to maintain a 5-10% notional Gold portion on your investments. Stop whining about the price of Gold. It is not a religion. It is a hedge. And it is key to wealth preservation.

Your Home Won't Save You

Real estate will not help this time. The bank will not give you money to spend on loan. Rates will go up. Equity level demands by banks will be higher than before.  And if that doesn't stop them, a "windfall tax" will be instituted to slow down the velocity of money.

Empty-nester in the suburbs? MOVE to the city while you can. Cash in. There will be no new suburban housing demand from millennials. Boomers will have no-one to sell to. Last one out is condemned to suburban poverty.

Europe is Our Future

In Europe the poor live in suburbs, and the affluent live in cities. This is in part because their society is older than ours. Heed it. We are on that path now. The uber-rich  in Greenwich will move to Nevis. The rich will move to Florida. There will be no-one to buy their Mc Mansions. Suburban taxes will go up to compensate for subsidies for inner city rebuilding and more businesses moving to suburban office parks.

New Jersey Suburbs will become Slums.

NJ is a democrat state that derives its income from progressive taxes; Specifically high income tax. How else do you think gasoline is so cheap in NJ? Because of high income tax. When Jon Bon Jovi moves, it is over. Short Middletown, buy Camden. They are already talking about regressive taxes on Gasoline. That is the kiss of death. Double defaulting is already the new rage in some areas of New Jersey.

The Family of 27 Next Door in CT

CT is a regressive state in taxes. The Fairfield County area is GOP all the way. Low income tax and high sales tax. Gas prices are higher. This offsets the low income tax, attracts the rich, and keeps out the poor who can't afford $4.00 gas.

But, when a family of 27  hard working Guatemalans moves in next door to you in CT looking to survive on cutting people's lawns: you will know we are right then. And it will be too late for you. Your home tax mill rates will be higher to subsidize the next industry getting tax abatements to move there. Thank Clinton crony Malloy for that.  UBS, RBS, NBC, Bridgewater, etc.

Gold Folds for Now

This Chart Warned you- Read #2

That means a rounding bottom will likely be needed before the next sustainable rally. The technical levels were spot on. The numbers are what they are. Bullish above, bearish below.  When everything else has peaked, Gold will rally in a most vengeful manner. In the meantime, Gold will be a slave to the USD. Silver will not be as much.

Grow Up

We are disgusted with Goldbugs who need constant bullish affirmations and hand holding. Cry if you want. The macro is valid. Everything else is a trade. Are we pissed? Yes. Because we didn't short the market under our level. Be happy your stocks are going up. Then sell them and buy gold cheaper. It's a 5 year investment from here. It's a 2 day trade. Here it is again from November.

 

Bonds First, Gold Last to the Inflation Party?

You have to be nuts to sell Gold as a part of your portfolio. If you have the proper allocation of Gold to stocks, then last week should have been a good week for you. Speculation is a different story. But when stocks go up and Gold goes down, be happy. Bonds? In a normative market, Bonds predict, Stocks predict less so, industrial commodities react in real time, and Gold lags.

Bonds are discounting 2 years down the road again. That is because the government is not going to be manipulating them with QE we feel. That is your compass to know that gold will do well in the future. The key for you as an investor is to keep rebalancing your portfolio as stocks rise and Gold drops. FTA- Trump to Make Debt Great Again

Trump Will Make the Military Great(er) Again

Manufacturing and infrastructure wont be "shovel ready" until 2019. The only thing "shovel ready" now is military spending. Watch as Trump channels Reagan in this way. 

Finally

Just Saying. Nothing has played out differently since we first made our macro assessment  on November 15th. Keep your trading powder dry. By definition: if you are not buying Gold here, you are bearish or just an overextended long.

Full Article Here