I had the pleasure of chatting with Hedgeye’s Daryl Jones last week on a number of topics.
Here’s a link to the Hedgeye page One-on-One with Mish Shedlock: “I Would Hide Out in Gold & Treasuries” where you can play or download the podcast. It’s about 52 minutes long.
Topics
- Inflation or Deflation Debate: There is a lot of hidden inflation
- Favorite Asset Classes: Gold and Treasuries
- Good Reason to Expect Recession: Greenspan doesn’t
- Rate Cut or Hike What’s Next: It’s clear what they want to do
- Central Bank Independence: I would abolish the Fed in a second
- US election.
To spill the beans a bit, the inflation has primarily been in assets.
I propose another deflationary bust is up next.
Mike “Mish” Shedlock
The blogg is an interesting listen. Aren’t US Treasuries and other bond markets also in a huge bubble caused by Quantatative Easing Purchases? Supporting low yields by purchasing bonds with printed money seems like a disaster waiting to happen to me? Just a question of when? So if bonds and equities are bubbles waiting to burst, and gold is very volatile, there isn’t an obvious safe haven. Maybe this is why the bubbles are lasting longer than anyone expected? Who knows!
Bartering with gold and silver is highly unlikely in the US in the absence of a return to the gold standard where gold is routinely used.
There are occasional transactions now, at coin dealers swapping one coin for another +- cash back, or perhaps an occasional trading a silver dollar for some other object or service, but those so minor as to be irrelevant.
I see nothing more than that.
When Argentina collapsed in 2001/2002, gold proved to be a great store of value, especially simple gold jewelry. It still wasn’t commonly used to barter, but it saved some people’s savings and it was used in bigger transactions, like real estate. That is the most realistic use for gold in big crisis situations. Gold+guns+ammo, if you believe a depression is coming.
OTOH, in a deflationary bust, paper cash will be much better than gold, at least initially.
Agree about cash in theory. But in practice, it can work only person-to-person in the event that restrictions are placed on its use in banks. This already happens in two directions:
1 In Mexico where I am now, I can only exchange $1500 USD per month in a bank teller window. Passport numbers are recorded, address noted, visa info recorded etc so that one cannot go to another bank within one month to exchange more. This is to protect against narco-trafficking, it is said.
2 In Greece during their collapse, banks simply froze cash liquidity. Individuals could only take $50 a day out of ATM’s or teller windows; checks were not honored; savings and cash accounts were frozen (some businesses collapsing because of it because they couldn’t meet payroll obligations).
So when banks are involved, cash is no longer king. However, between individuals, providing both parties accept it as valuable, it can still work.
For catastrophe, I suspect junk silver is advisable in the form of the old, verifiable 90%+ silver dimes, which can be used to purchase basic items like bread, wine, camembert and other such necessities without which, parbleu, life is not worth living! That said, such dimes can easily be faked, and police could raid any stores accepting them and so on. But still: person-to-person and in small, local situations, they should work.
Best hedge against catastrophe is land in a sunny climate. But there, instead of institutional kleptocrats, you have some very nasty street-level banditos to deal with, some of whom won’t hesitate for a second at separating an old person’s head from their torso.
Silver and gold are also very hard to buy and sell without a roughly 30% spread premium, even from government mints. Good for savings, not transactions.
No easy options.
But what else is new?
NYFRB out with Q3 household debt update today:
“The CMD’s latest Quarterly Report on Household Debt and Credit reveals that total household debt increased by $92 billion, or 0.7 percent, to $13.95 trillion in the third quarter of 2019. It was the twenty-first consecutive quarterly increase, and the total is now $1.3 trillion higher, in nominal terms, than the previous peak of $12.68 trillion in the third quarter of 2008.”
Mish, do you see a use case for splitting some safety money out into silver rather than gold?
I like Silver. It’s an industrial commodity though. Will it perform more like a precious metal or an industrial commodity in a downturn?
I don’t know?
It’s a higher risk/reward setup.
I like silver for SHTF because I can’t picture being at the gas station scraping bits of gold off a bar or coin. OTOH they might be willing to accept a few silver eagles.
You want hard and fungible assets? MINIATURE LIQUOR BOTTLES. There will always be a market for booze. These little bottles will be good for barter because the tops are sealed. You won’t be able to open a quart of bourbon and expect people to trust that the 2 oz you’re pouring haven’t been diluted. IMHO these are perfect for barter. And if there is no crisis you have a ton of booze!
The problem with physical PMs, used for barter, is that if and when the wheels come off, “counterfeit” coin/bars will proliferate. How do you know the gold coin you accepted as barter is not a 24kt gold- plated copper coin? Is everyone going to carry an expensive ultrasound meters to check the purity of said coins?
Very difficult to counterfeit gold or silver coins. Bars yes, but with proper equipment, fakes can be easily detected. This is a non-issue. The real issue will be protecting against theft, once people know what you have.
Good point. And I DON’T have any – just for the record.
Something to be said for small allocation to gold miners too – senior & junior – to add some spice. ETF rather than individuals to spread risk. When deflationary bust comes input costs to miners (energy etc) likely to fall whilst o/p and reserve rise in value, adding some leverage to gold in portfolio.
The business cycle has not been repealed.
What central banks have managed to do is extend the cycle at …what will ultimately prove … great cost.
The credit quality at this cycle’s end will shock many … not lest the banksters … who will play the “no one could have foreseen this” game. Again. And, uh, meanwhile have hand extended for taxpayer bailout … with no salary / bonus clawbacks, of course … and, uh, no one goes to jail or lose job … just like last time.
Obama’s repeated nonsense of ‘no wrong doing*. Can’t prosecute bad luck / poor decisions’ still ringing in my ears.
*Eric Holder / Lanny Breuer let the cat out of the bag that potential prosecution had to weigh stock market effect. Naturally, no one from a primary bank (big Wall Street banks) had to ever worry about the massive fraud they committed.
New highs daily in the stock market, miraculously produced by 1.0% GDP growth. Total stock market capitalization is now growing 23 times faster than the underlying economy. Surreal, unsustainable asset hyper-inflation. Resolution will be BIBLICAL.
I don’t have a clear opinion one way or t’other on this, but some of the global figures are disputed viz. the US economy. For example, detailed analysts like Sundance keep pointing out that various underlying fundamentals are very strong, principally in the areas of employment and wage growth, that there is a resurgence on reality-based Main Street at the expense of fiction-based Wall Street.
I don’t trust either side. But having lived more decades now than care to count, have been convinced since the 60’s that it was all about to come crashing down, always for very good reasons, but it never did. I still am convinced because impermanence of everything is a universal law of nature. (Though just like with trading, market-timing is a tricky business!)
It WILL all come tumbling down, and it will be BIBLICAL when it does, but for now the world is surprisingly stable accept at various flash point fringes (Greece, Venezuela, Bolivia, Brexit, narco-trafficking across US border, Syria etc.). Are they harbingers of imminent collapse, or a healthy venting of power redistribution in an otherwise largely stable system. After all: China and India are growing steadily; Eurasia is consolidating and working to develop a new post-industrial civilisation following prior Chinese examples; Russia is vast (and cold!) but stable; Europe is a political mess but still a gem (though demographically about to disappear perhaps, victim of poor immigration policies or evil Soros machinations if you prefer). In other words, there are grounds for real optimism. Also in the US: a sober, sane America First policy makes sense. America could become a ‘normal’ country instead of an Empire. Latin America could begin to wake up and grow as well for a century or more.
If we could only get rid of those pernicious, pesky credit cartels whose greed and control threaten to bring it all down.
Really, the main problem is that most countries are run by criminal cartels. Take them out, and the only problem we’ll have is the upcoming mini ice age which will make life in the upper zones of the North (like most of Europe and the US) a tad difficult to say the least! But hopefully the Global Warming crowd is right (albeit for the wrong ‘scientific’ reasons) and there’s nothing to worry about. And timing that sort of thing is even worse than market cycle predictions so….