What Should We Expect? What Should We Do?

Image source: Pixabay
 With the election behind us, both sides are marking their territory. Last week Chuck Butler and I began discussing what to expect. I’m a believer that those who accept change/trouble as a normal part of life, while doing their best to survive when things happen, end up both happy and prosperous. Let’s avoid the political and media hoopla and stay focused on protecting our life savings.Our interview continues….DENNIS: Chuck, we discussed how the USD is losing the status of world reserve currency. Inflation, deficit spending, and less world demand will cause the USD to lose value. What can We The People, as individuals, do to counter that?CHUCK: Gold is the universal currency, holding its value while paper money always loses value. There are no gold-backed currencies in the world today. That’s why Gold went on a 50% gain in the past couple of years…What can We The People do? My first comment is always – Got Gold? The key to protecting wealth is owning assets that hold their value when paper money goes down the drain. Some foreign currencies will appreciate while the dollar continues down – but gold should come first.DENNIS: Since the election, the gold price has dropped and we have seen a lot of volatility. You recently explained:

“You need the insurance as long as you are at risk. The risks of inflation are as bad as I have ever seen – therefore we should hold our insurance.”

While Trump may help ease some of the war tension in the world, causing the price to decline, do you recommend any changes for those holding gold?CHUCK: Changes??? Yes, it’s even more important now that we own and hold physical Gold & Silver.We’ve seen these engineered takedowns of Gold & Silver since these two metals began their rise in 2000. Everyone needs to calm down, and not panic here…For years I’ve felt that the U.S. Gov’t. is behind the price manipulation of Gold & Silver. They decided, after Nixon took the U.S. off the Gold Standard, that the Gov’t needed to do something to keep Gold from getting more popular than the dollar. The scheme was for major Banks with commodity desks to undertake price manipulation, without threat of prosecution.In 2001 Peter Warburton let the cat out of the bag:

“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur.

On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value.

Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies.

Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.”

The only thing to send the price manipulators home with their tails between their legs is for everyone to buy physical Gold or Silver. That would drive their short positions into losses, and cause them to leave….For those of you keeping score at home – There are presently 50 days of production of physical Gold that short trades represent. And 180 days of production of physical Silver that short trades represent.If readers don’t feel they have enough, don’t let the current volatility prevent you from adding to your core holdings. When the inevitable comes, today’s prices will be looked at as a bargain.DENNIS: Both Jack Kemp and Connie Mack convinced me that politicos are ruthless in their desire to destroy their political opposition. Some would delight with another 1929 collapse, Great Depression and label Trump as the modern version of Herbert Hoover.Wolf Street writes:

“Office CMBS Delinquency Rate Spikes to 9.4%, Highest Since Worst Months after the Financial Crisis.

‘Survive till 2025’ is the motto in CRE now, but that might not work either.”

Wall Street On Parade (WSOP) chimes in:

“The New York Fed has created gasps in the corridors of power in the banking world by releasing a paper that documents how banks have ginned up their capital by ‘extending and pretending’ on their underwater commercial real estate (CRE) loans.

…. ‘In this paper…we document that banks have ‘extended-and-pretended’ their distressed CRE mortgages…to delay the recognition of losses.

…. The authors of this extend-and-pretend study…are effectively doing what the Baum character in that scene from The Big Short did. They are yelling out in a public forum that this banking era of extend-and-pretend is unlikely to end well.”

Chuck, are we ripe for another 2008 collapse? Can it be prevented?CHUCK: Well, we almost went down that rabbit hole last spring, with banks being closed, it’s possible that we could see more going forward. The Banks are all carrying paper losses in their bond holdings. If the people of the U.S. really wanted to see the banks fall to their knees, they would have runs on the bank’s deposits.But since that would be the last thing anyone wants to see; the banks need to come clean on their CRE losses, get them out in the open, and request Gov’t Assistance. Yes, they will earn lower profits…. That’s the only way this can be prevented from exploding on the economy in 2025.DENNIS: Many feel the first thing Trump should do is secure the border and send the illegals home. It certainly would have a lot of public support.Not much has been said about banking reform. Let’s take the WSOP article a bit further:

“It is also critically important to remember that a key reason that publicly-traded megabanks don’t want to properly reserve for potential losses is that it lessens quarterly earnings, which might reduce their stock awards and their path to becoming a billionaire….”

There is a lot of circumstantial evidence that Wall Street has many politicians in their pocket. While Trump is at odds with Powell, do you see any possibility of reinstating Glass Steagall? Gold standard maybe????CHUCK: I doubt it, Dennis… The Too Big To Fail Banks have too much invested to go back to the way things were before Glass Steagall was taken out. After the Dodd-Frank bill was passed to end derivatives, congress quietly repealed that provision in a spending bill. Wall Street has a huge influence in the halls of Congress.I read that the Fed nominee from a few years ago, Judy Shelton (of Gold Bug fame) is back. As she was a Trump nominee, we could very well be heading to discussions about a return to the Gold Standard…Want to make me a believer? Show me and do the right thing….DENNIS: One final question. Let’s tie this all together for our readers.Hold on to your gold. If you don’t have enough insurance, don’t be afraid to buy at current prices. Holding the right foreign currencies and other “inflation-beating” assets are high on the list.What are some other things readers can do? For example, a Trump mantra is, “drill baby drill!” What sectors do you feel will be helped/hurt by a Trump presidency?As always, thanks again for your time….CHUCK: Well, I think and hope that the Oil production will once again get ramped up. Our country needs to be Oil independent – again! The previous administration did their best to put Oil production in this country backward 10 years. It will take a lot, but it will get going, in my humble opinion. How nice it would be to be a major oil exporter to the world…Shipping will also be good, as long as the countries that we place tariffs on do not decide to cut us off. That could very well happen… so be careful hereAnd Gold & Silver will take off on signs of inflation rising again…Thanks for inviting me again….DENNIS: As always, thank you so much for your insightsDennis here.During my working career I had several clients in the oil and gas industry and I’ve followed things closely.XLE is an exchange-traded fund for the energy sector. Around 45% of the fund holdings is Exxon, Chevron and Conoco.In 2020, I increased my holdings, anticipating what Chuck described – politicians making great effort to cripple the industry; supply would go down and prices would rise. People were screaming when gas prices skyrocketed.This Morningstar Chart tracks the price since 1/1/2000.The oil industry ruthlessly protects their profits, stock prices, personal stock options and executive bonuses. Supply should increase, decreasing pump prices and gross profits. Exports and increased US consumption could make up the difference and more. They run their businesses well and will do everything they can to increase profit even more.Right now, I’m holding on to my energy stocks, I’m not going to bet against them.In summary, it’s still wait and see. Lots of talk about reducing government spending, deficits, banking reform and corralling inflation.If/when the talk turns into meaningful action, we will revisit our investment strategy.
 On The Lighter Side…December has hit southern Indiana like a sledgehammer. Temperatures dropped into the low teens with the wind chill near zero.Jo and I enjoy the Thursday night special at Red Geranium Restaurant in tiny New Harmony, Indiana. The restaurant is located in Jo’s early childhood home. Last week we had planned to go, but decided to stay home because it was just to damn cold to drive that far to eat. Grilled cheese was just fine.I said to Jo, “When it’s so cold we don’t want to go out for dinner, it’s much too cold for me!” As expected, she defended her hometown, suggesting “It’s just very unseasonable weather.” While she is correct, I don’t ever recall “unseasonable weather” preventing us from a date night dinner in Florida or Arizona. It’s all relative, I guess.To keep things in perspective, if your biggest problem is “unseasonably cold” to the point you don’t want to go out for dinner, life is probably pretty good.I decided not to cut my hair this week, maybe a little more fur will help.This too shall pass….
 Quote(s) of the Week…

“Inflation is a quiet but effective way for the government to transfer resources from the people to itself, without raising taxes.” — Thomas Sowell

“We don’t have inflation because the people are living too well, we have inflation because the government is living too well.” — Ronald Reagan
 

And Finally…As I dream about warm weather, here’s some Jimmy Buffet wisdom for our enjoyment:

And my favorite:

Until next time…More By This Author:Like Sands Through The Hourglass, So Are The Days Of Our Lies….
Knee-jerk Policies Brings Bad Consequences
Inflation And Common Sense