I listened to a podcast with Harry Dent the other day and he made some great points about demographics and the fragility of the stock and bond markets. I have watched Harry’s work for some time now and find myself agreeing with him on many points. I certainly would trust anything he says about demographics as he has done more research in this area than anyone that I am aware of- at least in terms of how the demographics play into economics.

I wanted to start out with that endorsement because I respect Harry Dent and his views. I also respect Martin Weiss and his views at Weiss Research. I mention them both because I find both to provide meaningful information and I pay Mr. Weiss every month for the ability to see his thoughts on company’s balance sheets and safety ratings. Since his company charges ME for the information- and  not the companies that he is preparing the report for- I am pretty sure he gives me the most accurate unbiased opinion. I have been reading Mr. Weiss since 1991 and appreciate his insights immensely.

Having said that I rarely agree with the Weiss ratings buy or sell recommendations. That in no way makes the information any less valuable. I am able to see how a company’s books look with not too much time spent on my part and can see how a stock has performed, P/E ratios and other pertinent information in a concise manner.

With all of that information you would think that we would likely agree on buying or selling based upon all of that information but it rarely happens. It appears to me that while I get an accurate view of a company’s current situation I fee like the Weiss ratings are looking backwards. They seem to compare prior performance versus other similar assets (as well as current circumstances) and make a call.

Personally, I prefer to look ahead and purchase assets that may have underperformed with the idea of buying low and selling high. Many times there may be a sell rating that I see as a buy because something is changing or a company may have been beat up for a one-off reason. There are many examples of that.

In the case of Harry Dent I would say we agree on most points except gold. He has said many times that gold will fall to $700.00- maybe lower. The reasons he gives are that 1) gold is a commodity and the commodity cycle has peaked. 2) In 2008 gold fell along with everything else and 3) the US dollar will be the safe haven like it was in 2008 because this will be a deflationary event. There may be more but I will address these points made in the podcast.

I guess the first point is that while gold may trade like a commodity it is actually money, at least in the eyes of world banking authorities.  The Bank of International Settlements, with their Basel 3 rules, just made gold a riskless asset on bank’s balance sheets. 100% of gold can be used for reserve purposes- up from 50% prior.   Central Banks. These entities that can conjure “money” up out of nowhere bought 571 TONS of gold in 2018 and may be buying more in 2019. Major banks are also following suit and loading up on gold and silver- for themselves.  Ask yourself this question- if any central bank can “print” virtually ANY amount of faux purchasing power at any time why would they buy gold? My guess is that they know at some point we will all catch on that the “money” we are using isn’t worth the paper it isn’t printed on.

Also, gold is being held down in the paper gold market. Unlike most derivatives (an asset that derives its value from another asset- like mortgages or loans let’s say) the gold market is having its price dictated in the paper markets where it is similar to central banks “printing up” currency out of nowhere. The banks are able to create paper gold contracts with little- if any- real gold changing hands and manipulate the price.1

I have reported many times about the 4AM and 8AM market order trades at the most unlikely time to sell. Just last week $1.5 billion of paper (not real gold) was dumped in just a few minutes. It was a market order- prior to NY open- looking to drive the price down. Of course, those buying- central banks, banks and many countries must look at this as a gift.  Eventually this will correct violently in my opinion. We are 8 years into this.

#2 Gold fell along with everything else in 2008. Absolutely it did. It also recovered faster than any of the other asset classes but the reason it fell was that it was the best performing asset class of the 21st century and many people bought it. 2008 was a credit event. In a credit event there is no thought as to what gets sold. The margin clerk is determining what gets sold to cover margin accounts and the most liquid assets go first. Gold fell first and recovered first. Likely, this was because of its liquidity and its allure in a crisis. For 5000 years gold has been accepted as payment. (JP Morgan: “Gold is money- everything else is credit”).

I believe it will be different this time because most people don’t own the gold to sell. A margin clerk can’t sell something you don’t own.

I am not saying that gold may not dip in an initial panic but I believe it would be bid back up- maybe in violent fashion very shortly after.

I find the last point to be the one that could hurt the most people. The US dollar is backed by the full faith and credit of the US Government (and nothing else!) This is a government that has over $22 trillion that it admits to in debt, possibly as much as $200 trillion in unfunded liabilities, and can’t find over $21 trillion just from the Department of Defense and HUD between 2000-2015. (Dr. Mark Skidmore Phd and Phd candidates at Michigan State U and Katherin Austin Fitts- Former Asst Director HUD).

Using GAAP accounting the US government’s deficit for fiscal 2019 is $6.1 TRILLION. (USDebtclock.org)

Last December when the market had its latest correction the Fed acted. In my opinion, by stopping rate increases and paring back on QT (selling some of the assets that they bought with money conjured up from nowhere to pretend we could pay our bills), along with comments like “there will be no return to normal” and “We should look at using QE (conjuring money up out of nowhere and buying stuff) as a policy tool” as opposed to an emergency measure.

These statements and actions make me believe that they will “print” the US dollar- along with all of the major currencies to oblivion rather than let the markets correct-(Find fair value).

If this is the case I look for all currencies to get crushed- particularly the US dollar. I may be wrong in the very short term but in my opinion the writing is on the wall. Russia, China and others aren’t hoarding gold and setting up alternative payment systems because they are bullish on US dollars. As a matter of fact, Russia has sold virtually ALL of its US dollar holdings and have bought 1 million ounces of gold monthly in 2019. (Goldcore.com)

If there is inflation gold will likely rise along with most assets that have to actually be produced because of the dilution of fiat currencies- US dollar included. The ONLY way I believe we will get inflation is if we actually do hit a $100 Trillion button that I have joked about in the past but it is no longer a laughing matter- they could do it. Anyone who thinks they can’t just go back 5 years ago an contemplate $10 trillion in bonds that have NEGATIVE yields today- would you have believed that? I wouldn’t have.

If there is deflation there is a good reason why some may consider holding gold also. Why? Because it is likely that nobody will trust the assets that depend upon being paid back by someone else. Just using basic math we can see that the debt in the USA and globally is not payable with fiat currencies being worth anywhere near their value today. As I write this over $100 trillion in new debt has been issued globally since our last debt crisis in 2008. Much of this “money” has gone to retire old debt, pay interest on existing debt and spent propping up government programs that would have gone bust long ago without the “help”. In other words, the assets have been spent in many cases and the debt is still there to be serviced. It appears the only question is “Who eats the loss?”

Notice I am only talking about national debts. There are many trillions more in personal, student loan, credit card, mortgage, corporate, city, state and local debts. Let’s also not forget about the trillions of dollars that many pensions are underfunded by.

The chances that we get past this situation without either massive inflation, massive deflation – or possibly both- is pretty slim. I’ll take my chances with real assets or possibly the companies that produce things like food, energy, water, etc. over someone else’s promise to pay me in the future.

$700.00 gold? I won’t say anything can’t happen anymore after witnessing what has happened in the last 10 years- which have NO historical precedent but I will say “I doubt it Harry”.

Be Prepared!

1-      Andrew McGuire on King World News and Kitco charts