Can we please have some more?
Last week, voters in the UK sent the conservatives to the sin bin for a generation, voters are about to do the same to the incumbent left in France as the rest of Europe appears to be shifting to “the right”. Who knows what will happen in the US but at least the virtue signaling left can blame an incognizant and incoherent Joe for their demise if they don’t get up.
On current evidence one might conclude voters seem intent on tossing out any incumbent from either side of politics. Why is that? Could it be that populations aren’t buying what the establishment is selling or has sold them? Could it be that the zero-interest rate debt binge and insane bailouts of the last 16 years have consequences? No more “so far so good”?
The problem we have here now is that the debt and social commitment burdens in the European Kingdom of Economic and Social Self Destruction, the US and Japan are such that they now retard real economic and wage growth, accompanying sky high asset prices. It may be that, finally, the financial malarky of the last 16 years is morphing into a sovereign crisis across the areas mentioned above. This inevitability was always a very large risk and most investors still believe nothing is happening when in fact it is all happening at the same time, manifesting in political blowback.
The average analyst or investor may even believe a sovereign crisis/debt bubble bursts in the same way as the 08/09 subprime collapse or other run of the mill bubble bursts of the last 30 years, suddenly, clearly, obliviously, after a buildup of course. Sovereign crisis is a much more insidious beast, slowly boiling a nation by way of purchasing power destruction (inflation) whilst .gov does everything to tell them everything is fine, nothing to see. Such are the participants, the effects are gradual, slowly leading to economic stagnation due to crippling debt and over inflated nonproductive .gov spending.
One “unforeseen” consequence of Sovereign crisis is the retarding of the middle class ability to climb the social ladder. A slow impoverishment through inflation, whilst asset prices boom for many others is consequential. Wealth inequality is now extreme and those without a mum and dad bank have serious issues with getting “ahead”.
The socialists in Europe or the lefties in the US and the like will say such commentary is “arse about face” and that capitalism is to blame. But for the stimulus packages rescuing the middle class from the excesses of Wall Street we’d all be rooned (said Hanrahan) and much of the stimulus money has gone to support lower and middle class peoples. Unfortunately, drinking this cool aid ignores 2000 years or more of can kicking reality.
They believe that since there have been no obvious adverse effects of the policies undertaken since the GFC that this will continue, and everything is great. The unwashed naysayers of the last 14 years have been wrong about stagnation, inflation and wealth inequality all this time so why should now be any different?
Now the higher costs of healthcare, insurance, food and thanks to the green policy mismanagement, energy, are really starting to bite. Or really anything else you can think of if you haven’t moved to a developing nation. But they too are feeling the same effects, its global.
Money creation is never neutral. It goes to those closest to the spigots. Check it.
The other problem with recent bubbles is that they are a mostly a product of statism, hence the sovereign component. For example, there could never be a real estate bubble the size of Australia’s without the complete complicitness of .gov, at all levels. You would not have had subprime lending if .gov had not implemented a policy that would give the highest rating of mortgages provided by state owned companies to people without the ability to repay.
The irony and opportunity in all of this is that the socialists and .gov all believe the reasons their policies “maybe” failing is this: THEY HAVENT DONE ENOUGH! Don’t choke.
For example, the US has recently moved to guarantee second mortgages as well as first. Think about this, frees up spending through further debt accumulation, adding to an existing inflation and debt problem. Kick that can!
Unfortunately, regardless of any political change investors can be assured of more bailouts, more money printing, more government, less productivity, more zombification and more middle classes wondering what the hell is happening.
Remember, everything .gov gives you for “free” is taken from the productive economy, one way or another, by taxes or inflation. These are well within proven laws of nature that many around the world are starting to figure out. Investors will need to deeply consider how they mitigate the inflationary and sovereign bubble risks in their own backyard.
Just start with gold, it’s incredible how under owned gold is in the West given what we’ve outlined above. The same can’t be said for central banks since the Russians had their Reserves “confiscated”.
The chart below shows foreign central banks (it would be interesting to add foreign pension funds to this chart) seem to be reducing their US debt holdings at a time US debt is out of control, hence, the sovereign crisis.
Sufficient to say, the old 60/40 portfolio thesis is almost dead. Consider how physical assets will play a part in this change over the next few years.
Many thanks to the crew at Incrementum for their annual In Gold We Trust report and the charts above. You can read more here: In Gold We Trust Report 2024 by Incrementum
These guys have been particularly accurate for many years without ever being over bullish on the gold price.
Peace!
