In the same way that denial is not just a river in Egypt, “truth or consequences” is not just a city in New Mexico. Truth is a real thing, and much of the world is getting a refresher course in the consequences of rejecting it as 2024 comes to a close.
We’ve spoken often in this blog about the reality of reality (or truth), and how important it is for people to live in concert with it rather than in opposition to it. The US election on November 5th reminded the Democratic Party that many people prefer reality to make believe.
Of course, that lesson was a political one, and politics is in many ways the art of deception. President-elect Trump is already negotiating budgets with Congress that don’t comport with reality. Granted, they’re a great improvement, but they still spend massive amounts of money we don’t have. And the thing about reality is, it doesn’t care who you are or how noble your goals are. It’s a really big, really strong rock. You can build a great house on it or you can collide with it. If the latter, you will lose—and it will hurt.
That’s not necessarily a prediction for America. Trump operates at a level this author can only imagine, and the president-elect doubtless has a plan. His tenacity, courage, and strategic thinking ability are “yuge.” But he is not perfect, and mere mortals can still make pertinent observations regarding his actions. This author has succeeded at a few things that have eluded the once and future president—speaking in complete sentences, for instance, or not speaking at all; staying married to one woman. Small victories, perhaps, but things that would have helped the great man. (Now if this author can just learn to make killer deals, earn billions, and become president…)
This blog recently commented on problems in the land of the Teutons—another place where the denial of reality has become epidemic. Germany is incredibly rich in agricultural lands and stunning scenery, not so much in energy sources such as oil and gas. But following the dictates of its Luddite Green Party, it shuttered its nuclear plants and failed to invest in internet technology, among other similar initiatives.
After losing much of its natural gas that it received via pipeline from Russia, Germany has now renewed its reliance upon coal-burning plants for electricity. Not brilliant for a continental country located entirely above 47 degrees north latitude (most of America’s border with Canada is at 48 degrees north latitude). The country’s economy is experiencing great difficulty as a result of these and similar unrealistic decisions.
Benjamin Franklin famously observed that “experience keeps a dear school, but fools will learn in no other.” America and Germany seem destined to prefer the dear school—if they will learn in any school at all. It’s true that America elected Trump after experiencing Biden for four years, but Poor Richard would clearly have a poor opinion of the few million voters who couldn’t see the writing on the wall in 2020 but later learned their lesson. Who knows what he would say about the 74.4 million people who, despite four years of astonishing denial of reality, voted for Harris this year anyway. We do know what Rudyard Kipling would say about them: “the burnt fool’s bandaged finger goes wabbling back to the fire.”
None of this is intended as partisan dialogue. This author is not a Republican, and this blog has repeatedly expressed concerns about RINOs and establishment Republicans (and even Trump), along with political opportunists in all parties—noting further that some of our most principled political figures now are former Democrats, including Trump himself, RFK Jr., Tulsi Gabbard, and others.
This author can and does pray that Trump will make America great again. Given that the West’s greatness has come from changes in heart rather than from external circumstances, and that fundamental changes in the heart are largely beyond the control of even the heart’s possessor—much less the grandiloquence of politicians—the matter is far from certain.
This is one reason why the McAlvany companies have so strongly and consistently advocated backing your investments that benefit from other people’s strengths with an investment that guards against their weaknesses. This latter concept is called “avoiding counterparty risk,” and if it’s not unique to gold, it’s most fully realized in that truly precious metal.
Key Takeaways:
- Embrace the bubble?!
- Emerging markets got it all wrong
- Lower rates? Higher rates? Pick your poison
- Gold is down—right on schedule
The McAlvany Weekly Commentary: The Bubble: Embrace or Run Away?
David and Kevin talk this week about the stark contrast between what the Fed’s doing and what the markets’ are telling it it should be doing. The Fed is lowering interest rates as if money conditions were tight, and the markets are ballooning as if money were growing on trees. Even though the Fed says it is data dependent, the data is showing very loose financial conditions. Accordingly, the hosts observe, the Fed’s lowering of rates may be ending its run. David observes that, “households have never had more assets positioned in stocks than right now.” Where’s the problem in that? Well, the data tells a compelling story, but so do the actions of money managers and large company CEOs. Both are selling stock and going to cash. Recent sell/buy ratios of company stock by CEOs have been as high as 99:1. David reminds listeners that Barron’s headlines are often contrary indicators, and he cites a recent one incredulously, “Stocks Could Gain Another 20% in 2025. Embrace the Bubble.” Of this, he observes that, “Trends don’t need triggers. They just need exhaustion… 170% household equity ownership to GDP. Never been higher. How many more buyers are out there?”
Credit Bubble Bulletin: Deleveraging Doom Loop
Doug begins his weekly comments with thoughts on the market selloff after the Fed’s comments last Wednesday, saying that more was in play than just Fed pronouncements. He then questions whether the ability of a non-elected billionaire to affect congressional actions (such as budget development) is what we should hope for. And he then zeroes in on the current account deficit. While a nation’s current account has long been a bellwether of its financial conditions and monetary policy, he notes that it now commands little attention at all. Emerging markets, in particular, have viewed it all wrongly: “Rather than the battered EM universe recognizing the critical role loose U.S. conditions and Current Account Deficits had played in their Bubble collapses, they doubled down on the dysfunctional global financial structure. Countries believed that larger holdings of international dollar reserves would buttress their currencies and safeguard their systems from devastating ‘hot money’ exodus – and resulting currency and bond market collapses. Accommodating massive U.S. deficits has for years now seemingly promoted ‘stability.’”
Hard Asset Insights: Merry Christmas to All!
Morgan takes a look at the FOMC action and its aftermath, including especially the reaction to Chair Powell’s comments. Markets clearly fear that 2025 will bring fewer rate cuts than previously expected, which will change the dynamic considerably. “A slowing economy (lower income tax revenues) and a falling stock market (lower capital gains tax revenues) means less income to the government, while higher rates and a strong dollar mean government outlays will increase. The combo of lower receipts on greater outlays means we have an accelerated deficit problem until the Fed decides to change its stance back to dovish.” Morgan’s conclusion? “The Fed’s bark was big this week, but will its bite match the bark? HAI doubts it. Either way, gold continues to look like the best possible bet over the widest distribution of potential scenarios.”
Golden Rule Radio: Markets React Sharply to Fed’s Rate Cut: What It Means for Gold
Rob and Tory start the program this week, taking a look at the FOMC meeting and its helpful aspects—to banks, for instance. However, they show a chart of the Dow after Chair Powell’s comments, and it was down 6% as of program time. The dollar is up, gold is down, and silver is down even more. The hosts have been talking about a December pull-back in gold for several months, and have been hoping for it as a buying opportunity. “This is healthy, this is necessary, this is certainly predictable when you see a US dollar rally,” notes Tory. “Look at these opportunities as dips to buy. These are gifts.” The hosts further note that the Dow had had 10 straight days of losses at recording time. That’s the most since the 1970s, says Rob. Tory mentions that next week on the program the hosts will discuss what makes the gold market move—the underlying fundamentals that move gold in the short and long term.
