MARKET NEWS / MCALVANY RECAP / MARKET NEWS

Choices Determine Outcomes

MARKET NEWS / MCALVANY RECAP / MARKET NEWS
McAlvany Recap • Sep 04 2023
Choices Determine Outcomes
MPM Posted on September 4, 2023

This blog has spoken often of contrast in recent postings. It’s a crucial concept. Walking on the sidewalk is far safer than walking in the road. It’s better to drink water than gasoline, but it’s better to put gasoline in your car’s tank than water. And so it goes, almost ad infinitum.

These are truisms, but bear with us. What is obvious to you now is not obvious to a newborn baby. Much of growing up entails learning to deal properly and productively with contrasts. Children who are well taught learn what is thoughtful, what is helpful, what is constructive, what is pleasurable, and so on—and they learn the opposite of these things.

If they accept and live by the good things, they are considered mature and they prosper. If they reject those things, they are considered immature and they suffer loss. Of course, these two descriptions are endpoints of a spectrum on which we all live. Some days we get the bear, some days the bear gets us. But by learning and employing wisdom, discipline, and similar things discussed in this blog recently, we can proportionally tilt the odds in our favor.

So what’s the point in all this philosophizing? Well, if you wanted to reduce the preceding word blizzard to a flurry, it might be this: If you want life to be more pleasurable and productive, do good things; don’t do bad things.

Simple, right? Well, even those who get the definitions of good and bad right find it difficult to unvaryingly do good things. But there’s an even bigger problem hinted at in the previous sentence. Many people don’t get the definitions right.

In fact, if you think about it, that’s at the heart of America’s current woes. While there are almost as many factions in the US today as Carter has liver pills, there are, again, two endpoint-defining positions on the ideological spectrum. One says that there is a higher authority that brought humans into being and governs them. The other says that a few enlightened human beings at the top collectively produce and govern the higher authority by which we must live. For now, the latter belief system seems to be winning.

The implications of this definitional shift are far-reaching, impacting every aspect of civilization. The family—which is the basic building block of society not only in the West but most parts of the world—is under vicious and relentless attack. Institutions in such fundamental fields as education, justice, medicine, and governance are now headed and often peopled by advocates of the new morality.

More to the point of this blog’s raison d’être (you knew we’d get there eventually) is that economics are now (and have been for over a hundred years) in thrall to the new morality. Fiat currency is deemed superior to hard currency. Spending is superior to thrift. Debt is better than savings. And inflation is better than deflation.

Anyone who has studied these matters from the perspective of the old morality knows that these assertions are upside down. And just like the pilot who is flying inverted, anyone who lives life upside down runs into trouble when they try to “climb.” Earth is a less forgiving fly-through than the clouds.

“Attitude” in the aviation sense refers to one’s physical orientation relative to the earth. Attitude in its more common sense refers to one’s mental orientation relative to events. The correlation between the two definitions is not perfect for our purposes, but it’s still helpful.

If you want to improve your “attitude” concerning financial and economic precepts—not so much whether you’re happy or sad about them, but whether you understand them correctly or not—then make the reading of the below communications part of your weekly routine. There are few places in existence where you can find Kipling’s copybook headings (the unchanging principles that govern life) so scrupulously upheld in regard to monetary matters as they are here.

Key Takeaways:

  • Gold holds its own despite a host of reasons not to
  • Bonds seem not to believe in fairytales such as Goldilocks
  • Things matter; people matter more
  • BRICS now the BRICSIEEAU

The McAlvany Weekly Commentary: David and Kevin discuss the importance of real interest rates and their impact on the type of gold investors who might exit their gold position for bonds at some point. David mentions that, “I think there is a reason to recall that real rates ultimately will matter, but I’m not concerned about it at this point for three reasons. The geopolitical risk…is more pervasive now than at any time since the end of the Cold War. The second reason is that we’ve got global economic and trade constraints which seem to be building in a new era of deglobalization… The third reason is that at some point the mal in the recent era of investment craziness will come home to roost, and safe haven buyers of gold will exceed those who are interested in income… Gold is quickly approaching its day in the sun.” The hosts also discuss gold’s astonishing resilience, achieving “23 consecutive weekly closes over 1,900 an ounce…in spite of interest rates now being at the highest level that we’ve seen in 15 years.” It’s easy for gold investors to lose sight of the fact that sometimes the important news isn’t that gold isn’t going up, it’s that gold isn’t going down. The hosts recap the news from the central bankers’ Jackson Hole meeting, noting that rates appear to be heading—or at least staying—up for the foreseeable future. That policy will have some definite consequences, which the hosts also discuss.

Credit Bubble Bulletin: After titling his weekly post “Curious Market Action,” Doug doesn’t leave us hanging. He lists the numbers for bond rate developments, after which he summarizes, “The rates market says the Fed’s tightening cycle is likely over, yet bonds are conflicted. It’s as if the bond market views the ‘soft landing’ Goldilocks scenario with increasing wariness. Just not feeling it. As splendidly as it plays with equities and for the Fed doves, is it constructive for the bond market? Bonds these days yearn for the good old decades, where everything seemed to go their way.” He then offers his take on the overall economic situation, which you can read by clicking on the link at the beginning of this paragraph. A preview: he’s not on board with Bloomberg, the Financial Times, or Real Money, and his analysis is much more compelling.

Hard Asset Insights: Morgan is traveling for the long weekend, but takes a moment to express gratitude for the many friends and family members that enrich his life. May we all do the same.

Golden Rule Radio: Miles, Tory, and Rob begin the program by discussing the recent BRICS meeting in South Africa. It was the 15th annual meeting of the group, and the attendees agreed to continue with their development of an alternative reserve currency for world trade. Tory notes that next year’s meeting will continue the process of developing this currency, and also notes that the Bretton Woods system was not built in a day. Five other countries (Iran, Ethiopia, Egypt, Argentina and UAE) joined the BRICS group this year, corporately representing (with existing members) 42% of the world’s oil production and 29% of world GDP. The hosts also recap David’s and Kevin’s discussion of the Fed balance sheet vs. the Treasury’s gold holdings. At 9:1, this ratio is at a record extreme that indicates gold is severely undervalued. The hosts also discuss what the value of gold might be in comparison to the number of dollars in circulation or to things such as bread or a house.

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