Earlier today, I had the pleasure of discussing gold, equity valuations, bond bubbles, and inflation with Greg Hunter at USA Watchdog.
In the interview, I mentioned the nearly “everything bubble” and stated a belief that gold was one thing that was not in a bubble.
Following the interview, Hunter asked me to put my thoughts on gold and the “nearly” everything bubble in writing. Specifically, Hunter asked: “How Much Gold Should the Common Man Own?”
My answer follows. First, please consider my USA Watchdog interview: The Everything Bubble – Mike “Mish” Shedlock
How Much Gold?
There is no one correct percentage, but this rule applies: If you have trouble sleeping at night or are constantly worried about the price, then you likely have too much. If you are worried about a price drop of a few hundred dollars, or the equivalent percent in stock or bonds, you probably should not be investing in anything.
It’s curious that people are worried about gold but not the obvious bubbles that surround them. Media contributes to the ignorance by demonizing gold while praising bubbles.
It should be clear to any rational thinker that the Fed (central banks in general) blew amazing asset bubbles in equities and junk bonds in their response to the “Great Recession”. In their misguided quest to produce inflation, which they do not even know how to measure, central banks even re-blew the housing bubble.
In general, 10% to 25% in physical gold and silver seems like a reasonable amount. At major lows, miners offer tremendous opportunities. They were practically giving away miners in late 2015 and early 2016.
Outside of precious metals and miners, good investment opportunities are scarce. High cash allocations are likely to be wise. To be fair, I have been saying this for several years. This only proves that bubbles can always get bigger, until they don’t.
Inflation, Where Is It?
Central banks cannot see inflation because they are totally clueless how to measure it. For discussion, please see: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle
Economic Challenge to Keynesians
Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.
I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.
- My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
- My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.
BIS Deflation Study
The BIS did a historical study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
If you wish to understand the nature of the bubbles we are in, a few recent articles of mine will help.
- Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble
- Median Price-to-Revenue Ratio Higher in All Deciles vs 2007, 90% vs Dot-Com Bubble: THE Choice
- Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?” Mish Reading List
Trends in Sentiment, Asset Bubble, Gold
Finally, please consider my 38 slide powerpoint Venture Alliance Presentation on trends in sentiment, asset bubbles, and gold.
Thanks to Greg Hunter for having me on his show. I hope to be back on where we can go over some more of these points in detail.