This week started off just swell, with the biggest drop of 2019 shaving about 3% off the markets.
Goodbye nearly $1 trillion.
What a shocker, though. Who could have seen it coming?
Everyone. The answer is everyone. Quite frankly, anyone surprised should be ashamed.
We knew there had been no progress, only tepid platitudes about how important reaching a trade agreement is for both nations.
We knew that more tariffs were coming for months now. Really years, but with less detail.
We knew the Fed was fully committed to propping up the stock market and would drive down interest rates to keep Wall Street happy.
We knew that they had no qualms about using interest rates to juice trade concerns, which the Fed and politicians were crying foul on Europe over in the not-too-distant past. Hypocrisy is expected, but good to point out.
We knew China was perfectly willing to use its far more comprehensive and effective economic tools, including currency controls.
We knew the President had been calling China a currency manipulator for years.
Yet so many simply cannot help themselves. Like moths to the flame, they follow that shining pile of money and headlines championing new all-time highs each day, forgetting that nothing has changed in months if not years.
Nor will they. Goldman Sachs predicts no trade deal before the election. I agree. It also predicts three Fed rate cuts. I hope not, but I wouldn’t bet against it after yesterday’s market drop.
So, what else isn’t changing any time soon?
The specter of China cutting off rare earth minerals certainly isn’t changing. Yesterday saw Chinese shares in mining and processing companies spike upwards in spite of a strong market pullback.
That started nearly a year ago. In September 2018.
There is movement around the periphery of the issue, though. Finally, the U.S., Australia, and Japan are taking this more seriously. They’re teaming up to lessen China’s stranglehold.
It has the potential to be a fantastic trade with the predictable escalation that has happened and will continue.
Another thing that won’t change is the rise of gold. It has been a great year so far and it’ll only keep heading up in price over the longer term.
Gold prices are at six-year highs and jumped 1% yesterday. Money is pouring in.
As I mentioned last week, China and Russia are buying massive amounts of gold. In total, governments added 651.5 tons of gold in 2018, a 74% increase year over year.
That’s the most since 1971 and the Nixon shock that ended gold convertibility, launching us into a world of purely fiat currency.
It certainly isn’t just big bulk purchases like this that have been happening for over a year and will keep happening.
About $5.4 billion flowed into raw-material ETFs in June, the biggest in three years, according to Bloomberg. Of that, all but $140 million went into gold-based ETFs.
July saw $1.3 billion going into the SPDR Gold Trust (GLD), putting it on the Top 10 list for all ETFs alongside a bunch of broad-market and bond ETFs popular with automatic deduction retirement funds.
This will not change, and will keep going on for the foreseeable future as well.
Now’s the perfect time to tap into the experience of a man called “the original goldbug” — Mr. James Dines. No one else has more.
Do yourself a favor and take advantage of these trends. Don’t get sucked into chasing all-time highs just because they’re there.
Understand that the mini melt-ups we’re seeing really can’t last in this kind of market. They haven’t for a year and a half now. We’ve functionally been treading water since January 2018.
Find something that is advantageous to own when nothing really changes in today’s market.
