Gold vs Stocks, Two Bull Markets You Don’t Want to Miss.
Gold vs Stocks
In 23 years of being in the financial industry I can say I’ve learned a few things:
-I have learned the obvious, that I can’t control or influence any market.
-I have learned that there are patterns in every market.
-That pattern is caused by financial environments that causes markets to move either down or up.
-If you understand and invest with the patterns instead of fighting them, historically those investors will have a better financial benefit.
There is a belief out there about a pattern that is misunderstood and could cause either a loss and/or the missing of a rally.
Recently with a small pull back in gold and a movement upward in stocks that borderlines “irrational exuberance” an old false belief has been mentioned again. The notion that when stocks go up because we have a healthy economy gold goes down. Let’s go back in history and prove that otherwise to adjust your thinking to real fundamentals.
Post 9/11 our country went on a spending spree to fund a war and expand our military, growing the National Debt. In the eyes of Central Bankers, our country’s debt was already unmanageable yet this was done as interest rates were lowered and massive amounts of Treasury Bills were created. I am sure the question was asked by Central Bankers when they met. “Can you get out of debt by creating more debt, and spending your way of debt?” I have never seen it and neither have Central Bankers, have you?
During this post 9/11 spending time, the National Debt to grew and so did the need to create Treasuries. It also caused job growth, and economic growth, resulting in the stock market going up. The country’s debt going up caused Central banks to buy gold.
Side by side numbers
Let’s compare the numbers for gold vs stocks , the Dow, and the debt going up at the same time from 2002 until now:
TIMELINE GOLD THE DOW NATIONAL DEBT DEBT/GDP RATIO
JAN. 2002 $278 10,259 $6.2 TRILLION 56%
OCT. 2007 $750 14,164 $9 TRILLION 61%
MARCH 2009 $950 6,594 $11.9 TRILLION 83%
OCT. 2012 $1900 13,610 $17 TRILLION 100%
CURRENT $1233 20,100 $19.9 TRILLION 105%
This comparison gives us four simple conclusions:
-The obvious is the U.S. debt continues to grow.
-U.S. debt levels are now is unsustainable.
-Gold historically goes up when debt rises, except during times of correction, as all markets do.
-Gold can outperform stocks when both are in a Bull market.
Moving forward I believe Trump is going to follow closely in the footsteps of President Ronald Reagan. Reagan lowered the corporate tax rate from 72% to 35% and Trump wants to lower it from 35% to 15%
Spending to Grow, balloon our National Debt?
The numbers that independent agencies list are all over the place yet the one common denominator is, massive spending! The backdrop of the coming financial landscape is supposed to create economic growth, and will probably do so. History has proven that this will cause a much higher national debt. The Center for Responsible Federal Budget estimates Trump’s plan would increase the deficit to $5.3 trillion over the next ten years. The punchline of the report says that President Trump’s fiscal plan and the House Republican fiscal plan is roughly $12 trillion apart over ten years. The non-partisan Washington-based think tank called, the Tax Policy Center estimates the infrastructure spending bill would add $7.2 trillion to the national debt in 10 years. According to the Congressional Budget Office (CBO) and the Government Accountability Office (GAO), President Trump’s spending bill would add $3.4 trillion to the national debt in 4 years. This is only his $1 trillion infrastructure bill, not any other added spending. In addition to the $1 trillion infrastructure spending bill, President Trump wants to reverse President Obama’s shrinkage of our military and grow the military back up to a strong military, like the Reagan era. This added military spending would almost double the numbers listed. Historically most Presidents get more than two spending bills passed during their first term. So far these are the only two bills being discussed, odds are there will likely be more. During a Republican presidency, history has shown they want to grow the economy through spending. President Reagan inherited a $998 Billion National Debt. He created and expanded our infrastructure. He also expanded our military, lowered taxes, and put America back to work. Sound familiar? When President Reagan left office the National Debt was $2.1 Trillion. Stay with me on this, since I want you to know I love President Reagan. My dad had the honor of serving him but the facts are the National Debt more than doubled under Reagan. During that time the Debt/GDP ratio was 43% when Reagan entered office and was at 50% Debt to GDP ratio. We have to assume that President Trump will spend much more than these two spending items in the next 4 to 8 years. President Obama in his first 19 months spent more than all the U.S. presidents combined through Reagan or an increase of $2.5 Trillion for those 19 months. When President Obama took office the National Debt was $10.6 Trillion with a 67% Debt/GDP ratio. When he left office it was $19.9 Trillion at a 105% Debt to GDP ratio. While in office Republicans fought him on almost all spending bills and he was not able to pass the $1 Trillion Infrastructure Bill. President Trump has the same infrastructure spending bill of $1 Trillion. More than likely, Trump will get that approved. We now have a Republican controlled House and Senate with a Republican President that is going to spend.
On or around March 16th the Debt Ceiling will have to be raised unless the Treasury Secretary, Steve Mnuchin does what previous the Treasury Secretary did in taking money from government accounts called “extra ordinary measures” to keep the government from shutting down. I will be writing about the Debt Ceiling explaining this, and also how our government officials “tested” the Bail In already several times recently. So look for that newsletter in late March. History has shown that when the nation’s debt goes up so does gold. This is why I believe we will see stocks, our country’s debt, and gold all go up during the same period of time and so far gold is leading the charge! As of this writing, here are the numbers year to date: Gold up 7.1%, Silver up 11.8%, and the Dow, which is getting all the attention is up 4.5%. Remember to do yourself a huge favor and diversify some funds into metals. This will give you safety from a stock market correction, safety from inflation, which is coming, and safety from a Bail-In. Contact one of my knowledgeable representatives and learn more about this. Also, when calling make sure you get the 6th edition of “The Coming Bail In” It is fresh off the press and has more added information in it than the previous 5 editions. It details much more about Dodd-Frank and sets the record straight on what President Trump is doing and also not doing. It also describes one of the most powerful entities in our country, The Consumer Financial Protection Bureau who comes close to having as much power as the Federal Reserve. You will be as shocked as I was in my recent studies on how our governments has created such a financial beast. As the famous Will Rogers once said, “I am not so concerned of the return on my money, as the return of my money”. Currently Gold and Silver are the only investments that do both while also insulating you from inflation and the government’s actions!