I can always dump if if I dont like it but I want to be in it before Ackman starts pumping it with his presentations. I'm sure he will pump the hell out of it (now that he is in the deal making business). If it looks legit, I will hold, if not, I will sell into the possible rally in the shares. Then I get the Remainco + SPARC which I think are a decent bet
Peter Krauth - Fri Jun 4, 7:49AM CDT https://www.barchart.com/story/news/1826279/money-is-cheap-own-gold Sure Mr. Biden, money is cheap. But who’s money is it? The White House recently sent a $6 trillion budget plan to Congress. Let that sink in for a moment. Biden’s first wide-ranging budget calls for big spending on infrastructure, education and, of course, climate change. His plan lays out $6 trillion in spending against just $4.2 trillion in revenues. That’s an enormous 37% bump up from 2019 spending levels, and it suggests a deficit of $1.8 trillion, nearly double that of 2019. The idea is to spend now while money is cheap, with interest rates at historical lows. In fact, they’re at the lowest levels in 5,000 years of history. Bernie Sanders said it was “the most significant agenda for working families in the modern history of our country,” explaining that the budget would reduce poverty through the formation of millions of good-paying jobs. But deficits pile on to become debt. Repaying that debt becomes a massive burden, so governments use financial repression by keeping interest rates low. That eases the challenge of repayment, but it leads to big inflation. So the next generation’s best hope is to shield itself with hard assets, with gold chief among them. A Debt Explosion It took the US 211 years, from 1789 to 2000 to rack up $5.7 trillion in debt. From 2000 it had doubled, within just 9 years, to $12 trillion in 2009. Since then, it has more than doubled again, currently weighing in at $28 trillion. More than half of the entire U.S. public debt, over its 230 year history, has been created in just the last decade. This chart shows quite clearly that things accelerated in 2000, and then exploded higher with the Global Financial Crisis. The COVID-19 pandemic has just added gasoline to that fire. And now we’re looking to pile on even more. According to the IMF, at $28 trillion, US debt is about 133% of GDP. Italy is at 157%, Canada is at 116%, France is 115%, the U.K. at 107%. For comparison, Japan’s debt is near 257% of GDP. But before you start thinking all is fine because we’re nowhere near Japanese levels, let me throw some cold water on that thought. Consider that a study by the World Bank suggests national debt-to-GDP ratios above 77% for extended periods cause significant slowing in economic growth. In fact, it concludes that each percent above 77% actually costs 1.7% of economic growth. And for perspective, U.S. debt-to-GDP peaked at 106% after World War II, then dropped consistently to a range of 30% - 40% in the 1970s. Levels have risen since then, but the mortgage crisis that became a financial crisis in 2008 pressed down on the accelerator, and the 2020 COVID-19 pandemic has the pedal pressed firmly against the floor. Prices Soar The U.S. Department of Labor reported that the Consumer Price Index climbed 4.2% from April 2020 to April 2021. This means consumer goods prices have jumped the most in any 12-month period since 2008. Many of the trillions of dollars we’ve added to our collective debts have started floating around. There are few goods and services we can point to that haven’t soared in price. Food is no exception. The UN’s Food and Agriculture Organization (FAO) food price index tracks international prices of the most globally traded food commodities. From mid-2020 to end March, (except for meat, so far) food prices had risen for nine straight months. In fact, every food had set new 3-year high levels, other than meat, which may be undergoing substitution. Source: visualcapitalist.com Of course, even under pandemic restrictions and lockdowns, people still had to eat. So that helps explain support and strength in food prices. But it goes way beyond food. Major international consumer goods producers Procter & Gamble, Kimberly-Clark and Coca-Cola all recently cautioned they will be raising prices as their raw materials costs have risen. This next chart demonstrates that in spades. Source: Katusa Research At Berkshire’s annual shareholder meeting earlier last month, Warren Buffet said that “We are seeing very substantial inflation. It’s very interesting. We are raising prices. People are raising prices to us and it’s being accepted.” “We’ve got nine homebuilders in addition to our manufacture housing and operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, you know, just every day they’re going up,” he added. Berkshire also owns Benjamin Moore Paints and Shaw flooring, as well as businesses across multiple industries. If anyone has the pulse on inflation, it’s Buffet. Money Velocity Kick Starts Inflation We can also look at this from the perspective of money velocity. The velocity of money is essentially the rate at which a dollar is exchanged in the economy from one entity to another over time. The next chart shows that’s been falling dramatically since the late 1990s. Interestingly, this coincides with the big ramp up in public debt since. But the Fed just may get the inflation it’s so eager for. And not a moment too soon. Money velocity could kick into high gear and start ramping up as the pandemic’s limits on activity start to fade. There’s a whole lot of pent-up demand out there with people eager to travel, renovate, go to concerts or sporting events, or just enjoy a restaurant meal. There is precedent. As stated in the recent annual In Gold We Trust report by Ronald-Peter Stoeferle and Mark J. Valek, In 1933 and 1946, the velocity of money was similarly low, and in both cases the US government resorted to radical measures. In January 1934, it devalued the US dollar against gold by almost 70%, and in the period 1946–1951 it enforced financial repression in cooperation with the Federal Reserve, which capped interest rates at a low level. Both times, this massive intervention resulted in significantly higher inflation rates in the years that followed. Currently, the velocity of money is at even lower levels than in 1933 or 1946. We expect history to repeat itself and central banks to seek their salvation in financial repression. Piling on record historical global debts and holding rates down at 5,000 year lows is likely to stoke inflation like we haven’t seen for a long time. Gold has been sensing this since 2000, but has kicked into high gear once again since late 2019. You’ve no doubt seen and felt increases in food and pretty much everything else. The Fed says the recent bump in inflation is transitory, but the action in precious metals says otherwise. It’s why gold prices are up 42% in just the last two years. Sustained high inflation, coupled with low nominal interest rates, creates an environment of extended negative real interest rates. And that’s when gold thrives. At $1,900 gold is still 9% below its all-time high. But adjusted for inflation, gold is still 26% below its 1980 all-time high. With money so cheap, record global debt will keep expanding as governments keep spending money they don’t have. That coupled with historically low interest rates and a likely resurgence of money velocity means inflation will rear its ugly head. It’s time to fight back. Own gold.
I don't altogether agree, may be right, but dunno, have my doubts. I believe gold is largely a useless commodity.
https://www.linkedin.com/pulse/chapter-6-big-cycle-china-its-currency-ray-dalio/ "As a result of their longer history and their more intensive studying of it, the Chinese are much more interested in evolving well over much longer time frames than Americans, who are much more interested in making quick hits—i.e., the Chinese are more strategic than Americans, who are more tactical. The arc that Chinese leaders pay the most attention to is well over a hundred years long (because that’s how long good dynasties last) and they understand that the typical arc of development has different multidecade phases in it, and they plan for them. For example, the first phase, which occurred under Mao, was when the revolution took place, control of the country was won, and power and institutions were solidified. The second phase of building wealth, power, and cohesiveness without threatening the leading world power (i.e., the United States) occurred under Deng and his successors up to Xi. The third phase of building on these accomplishments and moving China toward where it has set out to be on the 100th anniversary of the People’s Republic of China (PRC) in 2049—which is to be “a modern socialist country that is prosperous, strong, democratic, culturally advanced, and harmonious,” which would make the Chinese economy about twice the size of the US economy[4]—is occurring under Xi and his successors. Nearer-term goals and ways for getting toward these goals are set out in nearer-term plans like the Made in China 2025 plan,[5] Xi’s new China Standards 2035 plan, and the usual five-year plans.[6] Chinese leaders don’t just plan and try to implement their plans; they set out clear metrics to judge their performance by and they achieve most of their goals. I’m not saying that this process is perfect because it isn’t, and I’m not saying that they don’t have political and other challenges that lead to disagreements, including some brutal fights over what should be done, because they have them (in private). In summary what I am saying is that they have much longer-term and historically based perspectives and planning horizons, they bring those down to shorter-terms plans and ways of operating, and they have done an excellent job of achieving what they set out to do by following this approach. "
I cant help but to think that the US dollar is going through a technical bounce in the context of a long-term bear market Financial repression is here to stay (whether in the US, EU, Japan and many others) but the difference is that the Fed has promissed 2% average inflation, that is effectively an increase in the inflation target, especially after what Powell said in the last press conference when asked about this. He mentioned there is no formal system for defining how to achieve that average inflation, so they just wing it and let inflation run faster than normal. I doubt they will let inflation run at 1% to make up for the fact that it run at 3% in the previous year. They are too scared of deflation to do that (the assymetry I mentioned in a previous post, they rather err to the side of inflation). So effectively, they raised the inflation target. But other developed nations didnt. This would be fine if interest rates were higher in the US to compensate for the difference but I dont think financial repression is going anywhere, so effectivelly, the USD will be debased faster than the EUR, JPY, CAD, AUD, etc So the technical bounce should be temporary and the long-term trend is likely to resume at some point. There is humongous resistance at 100, if it were to get that, which seems doubious given that this broke a long-term triangle and fundamentals are not positive. Anyone disagree and care to explain why?
Here is the Powell answer on average inflation " Q: Craig Torres at Bloomberg. If I were a businessman looking at the forecast today, I would ask how and when the Fed seeks to achieve an average of 2 percent inflation. In other words, does the FOMC have a lookback period, or does it plan to suppress inflation in outer years? Because over the next three years you’re going to be above inflation. So what is your lookback period? Does the committee have one? And if not, why not? And if they don’t, why isn’t this just flexible inflation targeting without an average in a range of 2 to 2 ¼ percent? Thanks. MR. POWELL: You know, we—so as part of our year-and-a-half-long process, the review that we did and came out with at the end of that with the new statement of longer-run goals and monetary-policy strategy, we look carefully at the idea—we’ve all read all the literature around different formulas for makeup and things like that. And we concluded—and, you know, I strongly agree—that it’s not wise to wed yourself to a particular formulation of that. So we did adopt a discretionary—there’s an element of discretion in it. You know, it says that we will seek to—seek inflation that runs moderately above 2 percent for some time. And it’s meant to create a broad sense that we want inflation to average 2 percent over time but—and that, under the old formula, under the old framework, what was happening was 2 percent was a ceiling because all of the errors were below. You were always getting back to 2 percent. So you were bouncing back and forth between 1 ½ and 2. And we wanted them to be centered around 2. So that’s the approach that we’re taking. And you’re right, it’s not—it’s not a formula-like approach. We were clear on that when we announced the framework. Was there another part of your question, Craig? Q: That pretty much answers it, Chair Powell. Thank you. MR. POWELL: OK." So the effective target went from a range between 1.5% to 2% (with the realized in the last 10 years being 1.5%-1.6%) to at least 2%. He said at 2% was a celling so all errors were below, well, so now they removed the ceiling, so I guess its fair to ask, will now all errors be above it? I would love to see an economist ask this on the next press conference
To argue the other way, here is where I think this is wrong: The Fed move from inflation targets to average inflation was a good move, its one step closer to NGDP targeting which would save the US economy from a lot of pain, specially in the context of record debt to GDP. A large indebted economy cant allow NGDP growth to move around widely (but especially, market expectations of NGDP growth) because too many economic agents borrowed money with the assumption that their incomes would be growing at, say, 4% a year. When the Fed delivers 1-2% NGDP grow, some of these agents go broke, debts have to be liquidated, collaterals are sold, unemployment happens, etc. When that happens in a bigger scale, a depression occurs (due feedback loops). Real GDP grew on average around 2.3% up until Covid hit (2010-2019), that with 1.5% inflation (PCE inflation). That amounts to 3.8% NGDP growth. The Fed is now saying growth will be 1.8% (long-term) and they expect to realize 2% inflation, thats the same 3.8% NGDP growth. But since the risks to inflation are to the upside (at least thats my read from what Powell said and the 'new framework') NGDP could come out at 4-4.5% which would actually help debtors because incomes will be growing at a faster pace than they probably expected. That means unemployment is likely to reach is ceilling sooner than expected and rate normalization can happen sooner than otherwise. The Fed's new framework will actually help the deleveraging of the economy by supporting nominal incomes Which means rates can be normalized sooner than other places, which means real rates vs the EUR/JPY/GBP will be higher which would drive inflows to the US. A stronger economy should also drive flows in the US That if inflation expectations remain anchored, if they do not, then NGDP will grow too hot which would then require a Volcker type recession to stop. So it seems that there are arguments both ways...
Here I disagree, Chinese look for shortcuts, Americans look for quality. In order to compete, China steals the technology then attempts to improvise and make it cheaper, Us leads while China follows on a tangent. Look at Chinese consumers, they all want to associate with US fashion, wearing Nike clothing and carrying Western handbags, driving Japanese, American or European status symbol cars.
So, about that US dollar bull or bear debate. I think I'm starting to get more confident that the bears will win. The chart above shows what issue that the Fed faces. Corporate leverage went UP after 2008 up until Covid, and then during Covid and it went up AGAIN. Households and State and Local govs did deleverage after 2008 but the Fed gov didn't. So net net, US leverage (total debt to GDP ratios) are higher. That basically means that interest rates have to be lower for the same level of NGDP growth (and that's what the bond market is pricing in) otherwise you break corporates (which breaks employment) and potentially break the gov bond market. There is a solution that I allude to earlier, which is to allow NGDP growth to run hotter. But given that productivity or population growth is unlikely to change, that extra growth has to come from inflation. And that ultimately is bearish for the dollar because it means extra financial repression vs EU or Japan (more negative rate due the higher inflation). The US Dollar would be a worse reserve asset vs EUR/JPY/Gold/CNY, etc So that's what I was missing, the fact that interest rates can be raised if NGDP growth were to run hot, is not bullish to the US dollar because that is actually the scenario where the Fed debases the money in order to delever the economy. The only alternative to this is to become like the EU where you have deflation/low inflation and an underperforming economy. Given the Fed's dual mandate and its aversion to deflation due the 1930's PTSD, I suspect they will prefer the inflationary solution. Especially given the quote I gave from Powell in the last press conference about the risks now being above 2% I dont think these are factors at play in the near-term, near-term the US dollar could do anything but looking many years in the future, I suspect there will be less demand for the US dollar as a reserve asset and more demand for alternative currencies like EUR, JPY, AUD, CNY, Gold and even Bitcoin. And the cause of this shift is the never ending financial repression that the US is likely to face