Gold, Crackpots and Smart Money

Posted On May 12, 2016 By Dave Gonigam

  • Critic of “American far-right crackpots” says nice things about gold!
  • And so do two guys who represent the proverbial “smart money”
  • The impeachment drama in Brazil: Proxy war between the U.S. and China
  • Fretting over retail… the truth about an online sales tax… when an ellipse is not an ellipse… and more!

Even the Antichrist is talking up gold these days. And no, we don’t mean Greg Guenthner of our trading desk.

In February 2013, as gold broke below $1,650, Greg declared gold to be in a bear market. The response from some of our longtime readers was furious — as if we at Agora Financial had broken some sort of unspoken pact with gold bugs. Among the sobriquets readers had for Greg was “Antichrist” — surely, the most memorable of those we can publish in a family e-letter.

But that was then and this is now. On Feb. 11, as gold punched decisively above $1,200, he said “This breakout looks like the real deal.”

As we write this morning, gold sits at $1,275 — little changed from 24 hours ago. “The charts don’t lie,” he says by way of update. “Gold and precious metals miners have broken free of a bear market that has held these stocks back for years.”

No, the Antichrist we have in mind now is the Harvard economist Kenneth Rogoff.

Rogoff’s claim to fame is a 2009 book he co-authored, called This Time Is Different: Eight Centuries of Financial Folly. It had some worthy insights about government debt. But Rogoff is as Establishment as Establishment gets. In the rogues’ gallery of intellectuals waging the war on cash, Rogoff is leading the charge. “Paper Money Is Unfit for a World of High Crime and Low Inflation” was the headline to an Op-Ed he published two years ago in the Financial Times.

Last week, Rogoff published a new opinion piece at Project Syndicate — urging central banks in emerging markets to load up on gold, diversifying their portfolios away from dollar holdings. “There is a good case to be made,” he wrote, “that a shift in emerging markets toward accumulating gold would help the international financial system function more smoothly and benefit everyone.

“Just to be clear,” he added, “I am not siding with those — usually American far-right crackpots — who favor a return to the gold standard, in which countries fix the value of their currencies in terms of gold.”

Which prompted the following tweet from our own Jim Rickards, who recently penned a book advocating just that. Heh…

Description: JimTweet.png

Here’s the point: “What happens,” says Jim, “when a bona fide member of the elite has a good word to say about gold? When elites say dump dollars and buy gold, what are you waiting for?

“That’s an earthquake, and it just happened!”

Less seismic, but no less significant, is the move by several hedge fund big shots into gold.

This week, Paul Singer made public the letter he sent clients on April 28. “Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”

Assuming faith in central bankers continues to fade, “The effect on gold could be very powerful. We believe the March quarter’s price action could represent something closer to the beginning of such a move than to the end.”

Last week, it was Stanley Druckenmiller — who made his clients an average 30% a year for a quarter century until he closed his firm in 2010. “Some regard it as a metal,” he said of gold, “We regard it as a currency and it remains our largest currency allocation.”

“Druckenmiller ‘gets it,’” says Jim Rickards. “Most investors think of gold as a commodity or investment competing for an asset allocation in your portfolio. Both views miss the point. Gold is money; money is gold, pure and simple.

“If you want a store of wealth for your hard-earned savings, then gold is the way to go for part of your net worth. I recommend 10% of investible assets.”

If you’re already at that 10% threshold, Jim says now’s not the time to add to your position.

As we’ve mentioned the last couple of days, Jim sees a once-in-a-decade opportunity arising from gold’s resurrection this year. He and our publisher have sunk $1 million into a project identifying best-of-breed gold miners.

We can’t emphasize enough the risks of “going it alone” with gold stocks. Performing due diligence on a gold miner is enormously hard work compared with other sectors of the market. Unless you have enough assets to score a personal meeting with management at each firm you’re considering — and even if you do, do you have time for that? — you’re much better off getting expert guidance.

Jim has assembled the team to do just that. The window of opportunity is opening just now. It might not stay open for long. And the profit potential is enormous — for every dollar invested, up to $192 in gains. That’s not a figure Jim’s making up, either — follow this link and he’ll show you the math.

Major U.S. stock indexes began the day in the green but quickly slipped into the red, adding to yesterday’s losses. At last check, the S&P 500 is down a third of a percent at 2,057 — no better than it was 18 months ago.

Stocks slowly tumbled out of bed as yesterday wore on, traders fretting about a sickly earnings report from Macy’s and what it bodes for the rest of the retail sector. Retail as a whole had its worst day yesterday since 2011. [Congratulations to readers of Rickards’ Intelligence Triggers, who’ve parlayed retail’s woes into a 41% gain in just over two months.]

This morning, the street chatter is about Germany’s Bayer exploring a $40 billion bid for Monsanto… and a renewed warning from the Bank of England of catastrophe if Britons vote to leave the European Union. Expect a lot more of this in the run-up to the referendum on June 23.

In an epic battle for power and influence over Latin America, the United States just scored a victory over China.

Those are the stakes this morning as Brazil’s senate voted to begin an impeachment trial of the center-left President Dilma Rousseff. As we mentioned last month, Rousseff stands accused of dipping into the funds of state-owned banks to conceal a huge budget deficit during her re-election campaign in 2014.

With today’s vote, she’ll be suspended from office till her trial’s over. Vice President Michel Temer will take over. He hails from a conservative opposition party… and if anything has an even bigger cloud of corruption hanging over him. “It’s a coup,” Rousseff told her supporters.

Temer: Meet the new boss…

Here’s the background you won’t see from the mainstream: “Over the past decade and a half, China and Latin America have grown much closer,” writes Nomi Prins — best-selling author and contributor to Rickards’ Strategic Intelligence, who’s spent considerable time this year in Brazil.

“Chinese-Brazilian trade alone rose from $6.5 billion in 2003 to $83.3 billion in 2012,” she says. “As of 2014, China was the top import/export partner with Brazil, closely followed by the United States and Argentina.”

Brazil is also collaborating with China on a $10 billion railroad project linking Brazil’s Atlantic coast to Peru’s Pacific coast.

“The American government does not relish the prospect of seeing the continent’s resources shipped off to Asia,” Nomi writes. So it wouldn’t be surprising to learn they want Dilma out — especially since her government has been doing all sorts of deals with China.

Temer, on the other hand, might well scupper the railroad project — the better to curry Washington’s favor.

“Private businesses and banks in Brazil want Dilma out so they can have less competition from state-owned, or -favored, companies,” Nomi goes on. “Wall Street wants her out because if Temer privatizes anything, large fees to big foreign banks will result. The area would be riper for Western bank infiltration.”

For now, though, turmoil reigns: Nomi is bearish on Brazil. “Markets rose enthusiastically over Dilma’s pending demise, but her successors are mired in corruption. Brazil has poor economic fundamentals, rating agencies stating it doesn’t matter who is president, and faces a troubled global environment regarding oil price declines and China problems.” Bleah…

“About the proposed Internet sales tax,” a reader writes: “The only way it could possibly work would be if it were a national sales tax, not apportioned, or left to, the states. If it were left to the states, it would be FAR too complex.

“As an example: I live in the New York tax hell. There are 62 counties, each with their own sales tax rates. NYS imposes no sales taxes on clothing/shoe purchases under $100 (or so)… but counties may charge their own sales taxes on the same (and many do).

“Some purchases are exempt from taxes (those made for farming equipment and supplies, for example… and if online is the only place you can find a part for that 1950s-era tractor, you’re tax-hosed (and if you don’t think they’re still in use, THINK AGAIN), and if you’re a card-carrying Native American like my sister-in-law (definition will vary by state and tribe), you need not pay sales taxes. And then there’s NYC…

“So for just one state, you have more math than I can cope with: 62 counties X what’s purchased (and how much it costs) X what it’s used for X who’s purchasing it. And I’ve probably missed a couple variables.

“Accountant’s nightmare, business killer.”

The 5: As we mentioned when we first started covering this topic in earnest five years ago, Amazon has developed proprietary software it’s willing to sell to other Internet retailers, the better to navigate the 9,600 or so state and local sales tax rates that dot the land.

And all Jeff Bezos wants in exchange is 2.9% of every sale. What a mensch!

Little wonder AMZN has supported Internet sales-tax legislation in Congress, contrary to what you might expect.

Amazon’s P/E multiple is ridiculous — that is, in the quarters when it has earnings. But if the Supreme Court takes the South Dakota case we wrote about on Tuesday… we’d consider going long AMZN anyway!

“A technical thought on the ellipses — or the alleged ellipses,” writes a reader after we got called on our punctuation in yesterday’s mailbag…

“Speaking from my dubious vantage of 45 years of copy editing and having contributed to a few style manuals:

“The ellipsis is formally defined as a string of three periods standing for content left out. The 5’s use of that configuration is almost always to indicate a break or an unfinished phrase

“When a string of three dots is not being used to indicate content left out, then it does not function as an ellipsis. The 5’s editors could easily argue that it is no longer an ellipsis, that it is something else and that it may follow its own rules as to spaces before and after. (Different style systems already space them differently internally.)

“It may be true that copy editors can overthink anything.

“Bottom line: I betcha no one else is confused.”

The 5: That might be the most sensible thing we’ve read all week…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “Even mad Jim Cramer has come out saying everyone should have a position in gold!” writes a reader from Australia. “From most hated to most sought after in the blink of an eye. This will be the rally of a lifetime!”

Indeed, it will. It’s the next push on what Jim Rickards believes will be a climb to $10,000 an ounce.

We’ll spend a little time tomorrow exploring how he arrives at that figure.

But even that eightfold gain from present levels pales in comparison with the gains that could be had from select gold stocks.

Jim Rickards has just recorded a short — less than a minute — video on the topic, followed by a comprehensive exploration of the question: Why now?

And the even more important question: How much money can you make?

Watch here.


Other Articles In 5 Min. Forecast