Cash is trash … massive government spending and dollar debasement … how to protect your wealth
Get out of cash.
Own stocks, real estate, bitcoin, gold, etc.
All roads lead to debasement. ALL roads.
This warning comes from our CEO, Brian Hunt.
It’s from an internal InvestorPlace email he sent yesterday to a handful of colleagues.
I asked for permission to re-print parts of it in today’s Digest, because it contains a hard-to-hear, yet critical truth.
As an investor, you need to be aware of this truth. In fact, it’s crucial. It’s going to make a huge difference in your wealth, whether you see it coming or not.
In short, we’re at a sea-change moment in our nation.
We’re entering a very different era for America … for the U.S. dollar … and for unsuspecting citizens who don’t know what’s on the way.
What’s coming is going to be brutal on savers, and many Americans, for that matter. But it will also cause certain assets to soar far higher than anything we’ve seen before, which will reward investors who position themselves now.
But the truth? This new era isn’t just “coming” — it’s already started, which means getting your assets in line now is critical.
So, today, let’s look at what’s happening. But more importantly, let’s look at what you can do to protect your wealth this decade, and even help it explode multiples higher.
***Who would have guessed?
For newer Digest readers, Brian Hunt is our CEO. Beyond helming InvestorPlace, he’s a highly-successful investor and trader.
Fortunately, he enjoys passing on his knowledge and experience. Many times, this comes through internal emails here at InvestorPlace, such as the one he sent yesterday.
Turning to that email, here’s Brian (excerpted):
… the U.S. dollars just hit a fresh multi-year low.
Who would have guessed printing trillions upon trillions of dollars … exploding the federal budget deficit … exploding the cost of government burden on tax payers … while also facing the prospect of exploding entitlement spending over the coming decades …
Would result in currency debasement?
I’m of course not shocked that it’s happening. After all, for a long time, we’ve been saying that all roads lead to dollar debasement.
Now, let’s back up to make sure we’re all on the same page …
***You probably know the U.S. government has been spending way beyond its means for years
In 2019, the U.S. ran its first $1 trillion budget deficit since 2012. This amount was 26% larger than the budget deficit in 2018 … and up a stunning 122% since 2015.
Those figures are just for the annual budget deficit … which is like comparing your yearly salary against your yearly expenses.
As for total debt?
At the end of 2019, our TOTAL national debt was $23 trillion … an all-time high.
For context, if every American was called upon to pay off this debt, and the amount was split evenly, as of 2019, every citizen would owe $69,060.
That’s a steep bill considering that almost 40% of American adults don’t have the savings to cover a $400 emergency expense.
While most U.S. citizens pay these statistics no mind, those who understand accounting or economics find it terrifying.
And remember, these debt numbers relate to 2019. One year ago, we had no idea what was coming in 2020 — and how it was going to make our national debt situation much, much worse.
***The COVID-19 pandemic has been like kerosene on a fire, exploding our national debt
In response to the pandemic, the government pumped more than $4 trillion into the economy.
Of course, the government didn’t tap a large, rainy-day fund to get this money. There is no rainy-day fund (or “lockbox” as Al Gore used to love to say).
The U.S. government created that $4 trillion out of thin air, which just further damaged its rapidly deteriorating balance sheet.
But words don’t really do justice to the scope of our national debt. So, below, you’ll see how it’s evolved since 1900.
Now, keep in mind, our politicians are soon likely to pass another stimulus package with a price-tag of somewhere around $1 trillion.
While that sum is enormous, it’s nothing for President-elect, Joe Biden.
Referencing the latest $908 billion stimulus proposal by a bipartisan group of lawmakers, Biden said the amount would “at best only be a down payment” on a far bigger bill once he takes office.
***Bottom line — the United States owes more money to more people than any country in the history of the world … and it’s going to increase
We owe more money than we can possibly pay back with sound money.
So, what will our politicians do?
Will they buckle down, rein in spending, and make hard-yet-wise financial decisions?
No, they’re going pay back our debts with “funny money” — money created out of thin air.
The technical term for this is “currency debasement.”
Let’s return to Brian’s email:
There is no political will to cut government spending. Too many voters are net tax recipients now. They love to vote themselves money from their neighbor’s wallets. They love more and more government programs. They don’t think for a second about how the giant and growing government expenditures are harming the long-term health of the country.
This means, that these days, any politician that runs on fiscal responsibility is destined to get beaten like a narc at a biker rally … and so the only way to pay the colossal and growing obligations is with debased, devalued currency.
This means one thing …
The coming age of inflation, and the deterioration of the U.S. dollar.
***It’s already happening
In yesterday’s Digest, we noted a headline from Financial Times this week: “U.S. inflation expectations hit 18-month high on vaccine hopes.”
Also, from yesterday, legendary macro hedge fund manager Paul Tudor Jones said in an interview:
I think the stock market’s on a combination of fiscal monetary pulse that we’ve never seen before in history, nothing like this …
… you’re going to see commodity prices probably rally, see inflation come back. There’ll be a whole suite of things that, again, I think are pretty much baked in the cake.
We can also see these dynamics already at work by looking at what Brian referenced toward the top of this Digest — the U.S. Dollar hitting a new multi-year low.
We can see this by looking at the U.S. Dollar Index. It’s a measure of the value of the U.S. dollar relative to the value of a basket of six major global currencies — the Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona.
Below, you can see it falling to levels not seen in more than two years, quickly approaching its 5-year low.
***For savers with their money in dollar-denominated savings accounts, this is what getting poorer looks like — and don’t expect it to stop
You’re likely aware President-elect Joe Biden’s treasury secretary nominee is Janet Yellen. She served as U.S. Federal Reserve Chair under President Obama.
Speaking on Tuesday about the coronavirus and its impact on the economy, she said:
It’s an American tragedy and it’s essential that we move with urgency. Inaction will produce a self-reinforcing downturn, causing yet more devastation …
(Translation — we need to spend …)
Yellen went on to say that it’s important the economic recovery leaves out no one, and she pledged to …
… find collective purpose to control the pandemic and build our economy back better than before.
(Translation — and keep spending …)
And she finished with …
I pledge as treasury secretary to work every day towards rebuilding their dream for all Americans. To the American people, we will be an institution that wakes up every morning thinking about you, your jobs, your paychecks, your struggles, your hopes, your dignity and your limitless potential.
(Translation — and when you think you can’t spend any more, reach deep, and spend a lot more.)
The reality is Yellen will be a strong ally for Biden’s spending proposals. Now, consider what those proposals are …
Biden supports spending an astronomical $2 trillion on restructuring our energy grid to fight climate change.
Biden has rolled out a $1.3 trillion plan to make huge investments in U.S. infrastructure, with goals of creating jobs and rebuilding roads.
Biden plans to spend $775 billion on the so-called “21st Century Caregiving and Education Workforce,” which will focus on daycare and elderly care.
Biden has endorsed a plan to spend an estimated $750 billion on higher education. A main goal of the plan is making community college free for up to two years.
Biden has laid out a plan to expand Obamacare by spending $750 billion over the next 10 years. This will no doubt provide more and more social welfare programs paid by taxpayers.
Overall, the Committee for a Responsible Federal Budget (CRFB) estimates that Biden’s plans will increase the national debt by $5.6 trillion, possibly up to $8.3 trillion — and this excludes any COVID-19 relief proposals.
Here’s more from the CRFB:
Debt would rise from 98 percent of Gross Domestic Product (GDP) today to … 127 percent under Vice President Biden …
Now, a question …
How long could you spend 127% of your income without it destroying your finances?
Bottom-line, Biden has promised loudly and frequently that he plans to remake America … with government control and spending leading the way.
The result will be one of the largest mass paper currency devaluations in history.
Keep in mind, the purchasing power of the U.S. consumer dollar is already in the toilet relative to history.
Below is a chart from the Federal Reserve Bank of St. Louis. It shows the purchasing power of the consumer dollar.
The chart gives you a big-picture sense of how much “stuff” your dollar can buy today relative to the past.
Today, we’re at the lowest value on record (since 1913):
But at our current trajectory, it’s going to go a lot lower from here.
***At this point, let’s pause
We just covered a lot of bad news.
So, what can you do about this?
Well, it’s simple …
If the dollar is going to weaken, that means more dollars will be required to buy the same basket of assets as before, all things equal.
So, say gold used to cost $1,800. Well, all else equal, if the dollar loses value, that means more dollars will be needed to buy the same amount of gold as before — say, $1,950.
This bear market in cash is simultaneously a bull market in gold. (This dynamic echoes a great piece Brian wrote on the topic which I encourage you to read here.)
If your wealth is in gold, not the dollar, then the purchasing power of your wealth has remained strong relative to the dollar — possibly even increased.
But if your wealth is in dollars, you just became poorer.
It’s not just gold.
This same dynamic will play out with many different asset classes — strong stocks, elite altcoins, quality real estate, valuable commodities, fine art, collectibles, wine …
Just not cash.
My colleague, Luis Hernandez, and I have made this argument several times in past Digests, but it’s at a point now where we’re “pounding the table” on it. It’s that important.
Please understand, I’m not saying hold no cash. You still need some on hand for basic living expenses, emergencies, and even buying opportunities in various investment assets.
But overall, holding a large chunk of your net worth in cash — and planning on keeping it in cash — is incredibly dangerous to your financial well-being.
Let’s end today by returning to Brian’s original quote, as it sums things up quite nicely:
Get out of cash.
Own stocks, real estate, bitcoin, gold, etc.
All roads lead to debasement. ALL roads.
Have a good evening,