“Calm down, Doctor. Now’s not the time for fear. That comes later.” – The Dark Knight Rises
When I retire, I’ve discussed with The Mrs. that I just might become a gold prospector. She doesn’t think that will pan out.
What’s happening right now in the financial markets is panic. Panic comes from uncertainty. This sort of thing was seen back all the way to the Japanese financial crisis starting in the late 1980’s. Their banking industry was a mess. Origami Bank folded; First Sumo Bank went belly up. Even Bonsai Bank had to cut some of its branches.
We’re in a different place in the United States in 2020. If I’m right, the world markets are just beginning their trip down. I’m not sure that anything saves them at this point except for raw panic causing markets to plunge enough that Wall Street hedge fund managers have to consider the idea of flying commercial.
Different sectors will be impacted differently by the Coronavirus. Bonus points if you understand that insurance companies make money by investing in stocks and such, and the insurance is just a way to get your money to invest to make profit, until you have a claim. What do you think will happen when insurance companies start taking losses? Extra credit: what do you think health insurance companies will do when faced with huge numbers of patients that weren’t in their projections when they set their rates? There will be several pop quizzes as events unfold. Eventually, though, the class is pass/fail.
I’d like to self-quarantine for, oh, 20 years or so?
We’re experiencing the economic dislocation brought on by the Coronavirus, it seems like a good time to talk about some basic principles. As I’ve noted in previous posts, my expectation is that if we see a panic, that’s the time to buy assets. Crude oil dropped to $30, and if that price stays for six months, oil rig hands will be begging to offload their Ford Shelby GT350® at bargain prices. If it stays that low for a year? Texas oil execs will be offering to sell you their $281,000 Lambo Hürącán Pérförmånté™ for a handful of magic beans.
Which brings us to gold.
I regularly correspond with several folks who are commenters here or fellow bloggers. Feel free to drop me a line: movingnorth@gmail.com. While I look forward to being so big that I say, “I don’t respond to every e-mail but I read them all” and then whipping an unpaid intern while yelling “be funnier!” while I lay in a hammock in the shade not reading your email on the marble patio complaining that the pool’s too hot, well, that hasn’t happened yet.
But a man can dream.
The best thing about the future? No more Bon Jovi.
Anyway, folks that write get responses, and some of them lead to lengthy conversations. One of people is Frequent Commenter Ricky. Ricky sent me a piece he was working on, and I thought it was brilliant. With his permission, I’m using it as a jumping off point to make a few points about our current economy. To the extent it’s not as good as his original, well, that’s on me. I’ll give the intern “motivation” to be better with a few nights in The Box if you guys don’t like it.
Ricky used a metaphor of Back to the Future to explain how currency has moved relative to gold, but I’m going to mangle it right from the start, which is on me, not Ricky. Let’s say that you were going to use the DeLorean® from Back to the Future to go back to the year 2000. That’s a nice, round number. Why 2000? Well, you only wear underwear from Montgomery Wards®, and they went out of business in 2000. So, if your tighty-whities are looking more like exclusive Swiss underwear since they are holier than St. Peter’s Basilica, it’s time for a new pair, and you should probably stock up.
So, off to Wards™, and let’s say you took $300 with you. I mean, it’s not like there’s a Wards® in every timeline, right?
When you get to the mall, you find that there’s a nice coin shop right next to Wards©. You stop in. You see that you can buy, for $300, an ounce of gold.
I hear these were featured in the 1983 Victor’s Secret® catalog, back when men used to just walk around the house proudly in their Wards™ underwear.
What? Why would you do that, man! You were after the gold standard of underwear, why settle for gold?
Because, with that same $300, you could buy an ounce of gold that in March of 2020 is worth $1675. You could buy a LOT of underwear in 2020. So, given the choice, what would you send back from the past? An ounce of gold, or $300 in cash, or $300 in Montgomery Ward© underwear?
Of course, the underwear. But if you’re like me, the number two choice would be the ounce of gold from the year 2000.
Ricky then asks the question:
If you could use that time machine to send yourself a gift in 2030, what would it be?
- $1 million in cash?
- Or $1 million in 2020 gold?
- Or $1 million in underwear. Ricky is sane, he didn’t ask this question.
I can certainly come across a time when, if I bought gold, it would have been a bad investment. On an inflation-adjusted basis, had I bought gold in 1980, I’d be at about a breakeven today – and a breakeven, even including inflation, isn’t a great investment. But at least money wasn’t lost. But that doesn’t mean that gold can’t be a losing investment: had I sold that 1980 ounce in 2000, I would have lost about $1500 in today’s dollars.
Ouch.
If these two married, it would be a constant fight over the hair products.
But why did gold peak in 1980?
The United States was a mess. The market was a mess. The Soviets looked unstoppable, as did inflation. Air Supply was on the radio, until it was declared a terrorist organization in one of the best moves the Reagan administration ever made. Gold looked like a good investment while the world looked like it was falling apart.
Would I buy gold today at these prices of $1600+ an ounce? Probably not. Would I buy gold in six months after the market had crashed and gold was around $1200? Probably then. When (if) gold hits $1000? Certainly. And platinum? Hmmm. That looks interesting.
The long-term trend is clear: countries are attempting to devalue their currencies to make them more competitive, and this will increase as economic tensions increase. The Fed will actively seek to lower the value of the dollar. What does that imply? That the dollar will continue to inflate away until it becomes worth much less.
Ah, the good old days, when Japan was going to take over the world . . . .
But an ounce of gold will still be an ounce of gold, even if we run into problems like Japan had, where Samurai Savings and Loan faced sharp cutbacks, and investigators found that Bank of Sushi was up to something fishy, and in the end customers got a raw deal.
Warning: I’m an internet humorist, not an investment adviser. Most mornings I’m wrong six times before I’ve even had my first cup of coffee. I don’t plan to change any investment position in any listed commodity in the next three days, and haven’t made any changes in the last three days, mainly because I’m lazy.
Gold is an interesting commodity. It does hold value fairly well, except at the big edges, which are difficult to gauge. If you took the amount of gold needed to buy a top end rifle today and transported back to 1880 you would likely have the right amount of gold to buy a top end rifle back then.
Yup. And I think they’re gonna print like there’s no tomorrow with Corona.
John – – Kudos on the Japanese banking failures. Very clever.
Enjoyed this consideration of economics. The usual crass brass of crashed hash seen in economic pontifications from the gold bugs was pleasantly absent.
I used to get calls at my office from guys wanting me to buy gold and silver. I told them all I wanted to buy was lead. They were certainly puzzled by that and always asked why……
I enjoyed, actually relished, in telling them, “People can’t eat gold or silver but there are those who can eat my lead…”
The calls stopped.
I actually made a few bucks in gold in 2009-2012. I made the money when I sold it.
It’s like anything – buy it at the wrong time, it’s a bad deal. I really do think there will be some pretty big opportunities – platinum dropped $100 today.
Gold, silver, lead, copper. Non perishable and generally hold their value (notwithstanding spikes and fashion trends in the markets.)
Did you know that the entire USA produces no lead today? The last lead smelter was shut down by Obama’s EPA. We import every ounce of lead (mostly from Brazil). Now you know the other reason why there wasn’t any .22LR to be found for love nor money a few years ago. Used tire weights are now harvested for making bullets.
I seem to recall reading that, but importing things used to be a lot more . . . certain. How much know-how have we lost?
Take into your calculations the price of gold extraction. All in, not the pretty numbers the mining company throws at the suckers. SRS Rocco is a great source. I can’t remember exactly, but I’m pretty sure that is above $1200. Gold shouldn’t fall below that price regardless. However, if you follow the same site, you’ll also find that due to industrial use there is only a few times silver above ground as gold. Silver has a huge upside. Think about that $20 coin going for $100 to $500 in today’s purchasing power. With the global downturn, not as much industrial mining takes place, and most silver comes with that as a byproduct. You just have to be patient and wait for JP Morgan’s derivatives on paper silver to unwind, for the true silver price to emerge. And I can’t imagine it will be too long. Go silver, go deep.
http://worldcomplex.blogspot.com/2020/02/the-gold-silver-ratio.html
I do like what I’m seeing in silver. There are, however, several really large deposits that become economical (my guess) well below $100 – they’ve essentially acted as the cap on silver prices.
But if we couldn’t mine them . . . .
Gold is not an investment. It’s insurance.
Yup. At certain levels of economic difficulty, it’s exactly that. At even worse outcomes, it’s useless. Depends on the outcome you expect and your time horizon if it makes sense.
I just can’t understand how I could hold a financially-significant amount of gold, and not have a thug follow me home to get the rest after I turn the first few ounces into spendable currency. I don’t have an army to protect it (and if I can’t touch it, I don’t really own it). I don’t even have a vault to hold silver, like the bankers do. What I do have a various bits of cast iron and high-speed tool steel which can be used (by someone who understands the whole shop) to add value to other lumps of wood and metal by changing their shapes. If you need a bullet-casting mold, for example, I might be able to help you out. But the average thug would just ruin the tools before making anything useful (and it would obviously take some sweat to steal it). I hope they have the sense not to try.
That is a key point – do you want to trust your metals to places you can’t go, like someone else’s vault? Or do you want to put it somewhere vulnerable, like your house?
Do you want your neighbors to look at you as “that guy who can weld a broken plow blade and put a great edge on a butcher knife” or “that guy who stands between us and his stash of gold bars”?
Great point. That’s why the front lawn is a mixture of Bud Light cans and mattresses. Who would think gold was in here?
Read the post to the Daughter Product (We did basic econ last year) and we got a good groan out of the Au punnage. Great form today!
Thank you very much! I hope you like today’s offering (Friday post about the cat). It really happened.
This one is excellent — both cogent and quite funny. So, I’m here to plead the case of that poor unpaid intern. He or she (sorry, there’s no third alternative) is doing some fine work. Please suspend the whippings. No more box. You might think about an ice cream cone, maybe in chocolate chip. I hear that unpaid interns enjoy that sort of thing.
James, thank you. I will add some butter with their pizza crusts this week. Ice cream? Perhaps. But we’ll have to wait for winter. And we’ll increase sunlight time to 15 minutes a day.
I am not a big fan of precious metals as a means to invest long-term, not least because I don’t see a viable long-term. However, as an asset to hold in case of collapse when the “money” that exists only in a computer at some bank is inaccessible and paper currency is worthless, it is a wise investment. I prefer silver at this point to gold, gold is simply too expensive to buy regularly (for me at least) but I can buy $100 in silver and get free shipping on a semi-regular basis. If the banking system isn’t working, I am not going to trade you anything I have for currency but for silver? Maybe. Precious metals are not the end all and be all but they are a critical component of the four Gs of investing in 2020: Guns, Grub, Gold and Ground ( https://www.arthursido.com/2019/10/the-four-gs-of-investing-in-2020.html )
One thing that scared me a few years ago was a Mark Dice video. He offered random strangers either a Hershey Bar, or a silver bar of the same size.
Everyone he showed on camera chose the chocolate. Silver was . . . a weird thing they didn’t understand.
The key there is “everyone he showed on camera”. Dice can always find a dozen idiots.
Exactly. That’s why I phrased it like that. But I know they’re the majority. For now.
But I’m thinking of some silver.
Prices are plummeting again today, I might buy a little more. Also time to place another order for something to feed the ever voracious semi-fully automatic AR-14 with the lightsaber bayonet.
Interesting side note, J.M. Bullion where I get precious metals, announced they were so swamped they were adding a 2nd shift, were delayed shipping 5+ days more than normal and were instituting a $299 minimum order.
Yup. Crazy times. Prices will be dropping like rocks today (my bet).
Maybe a twin gauge?
Gold is a good investment to pass on to crappy children. Stipulate in the will, they can only have what they can place in their pockets, and swim across Lake Superior.
Don’t forget ex-wives.
I assume you are buying and taking actual possession of physical gold. The paper certificates aren’t backed by anything other than a verbal promise.
Gold is a hedge against collapse, in which case stocks, bonds, gold certificates, and even paper currency are worthless.
It a collapse occurs, then you need guns and lots of ammo, and, very important, friendly neighbors who have guns and lots of ammo. If you have those perquisites, you can buy and hold metallic gold.
However, gold’s price per ounce is inconveniently high. You are better off hoarding metallic silver, which comes in useful units: 1 oz is about $16. And, like gold, you can buy coins and medallions that are certified.
But, again you need guns.
PS. The most useful barter item post collapse would be .22 LR cartridges. Other calibers would be useful, too, so you want lots of ammo even if you don’t have a gun for it.
Yup. Had certificates (ETF) and that went well back in 2011. But this time? No way. .22LR? I hope to never have to trade it. That means we’ve headed to a really dark world.
But you’re 100% right.