Stocks are up and the economy is not. It’s a crazy world and gold is hot because of it.
Let’s start with stocks…
The S&P 500 has gained 13.3% so far this year while the 15-51i strength indicator has reversed its early year’s woes and has now pulled ahead of the Dow Jones Industrial Average, 9.4% versus 8.6% respectively – which isn’t too bad considering this stock market rally is all about AI (artificial intelligence).
Unlike the S&P 500, both the Dow and 15-51i are market diversified portfolios and therefore sport much lower technology allocations than the S&P 500 (and Nasdaq) – more than 20-points lower, in fact. Basic logic implies less investment in growth assets will most likely produce less investment growth – especially when robust growth is isolated to just a single market segment (AI).
The tech-heavy 15-51 portfolios I manage (S, P, and X) have all outperformed the S&P 500 for the same reasons my 15-51i portfolio consistently outperforms “the market” – because they’re smaller, stronger, and more effectively managed. See table below.
Despite 15-51i’s rebound the portfolio still isn’t firing on all cylinders now more than nine months into the year. Deckers (-53%) and Church & Dwight (-16%) operate in difficult markets facing heavy price pressures, trade challenges and tariffs – and their stock performances reflect it.
Fundamentally all fifteen stocks of the 15-51i remain strong and operate in the markets I want to cover. But that doesn’t always translate into desired stock market performance.
Stock price strength is derived mostly from growth and the expectations thereof. And 15-51i isn’t getting strong growth from a few reliable performers, like: Apple (-2%, while MSFT is +22%), amazon.com (-3%), and Intuit (only +5%, while ORCL is +73%).
The AI-boom is specifically that – and Apple, Intuit, and amazon.com aren’t penetrating it in any significant way, so they aren’t participating like AI-related players. They also derive revenue and income mostly from individual consumers, contrary to the B2B-heavy companies noted above for comparison.
Note to self: B2B strong, B2C weak.
Consumer spending represents between 66% and 70% of the total market economy – and they are struggling – consumer debt levels are extremely high and starting to age, one-third of student loan borrowers are one or two months away from default, wages haven’t recaptured the inflation rate and instead are falling further behind, local property taxes are out of control, and outside of a handful of industries, markets are so tight the employment picture is worsening.
That’s a terrible combination for a market. Tenuous is the word I use.
Yet stocks remain near all-time highs, as if the Wall Steet establishment and institutional investors haven’t read the tea leaves.
Clearly they’re distracted, whether intentionally or not.
Trump, Peace, War, and Government Shutdown
The recent peace deal Trump choreographed in the Middle East is legendary. Kudos to all involved and I pray that it holds. And if Trump can parlay that win with a Russian truce with Ukraine he just might avert World War III.
But his fight would still be far from over…
Antifa and their left-wing ilk are taking up arms against law enforcement (ICE) and national guard troops; they do so with some state and local governors on their side calling for more unrest while they openly defy federal law.
That is the definition of a confederacy – and we know how wars with them go here.
No one is talking about it but America is engaged in a civil war and Trump is the leader of the rebel side.
Obama, the de facto leader of the other, is orchestrating battle plans from behind the scenes – an arrangement he always said that he wanted – for the establishment side.
This government shutdown is just one battle in that longstanding war. The rebel side is labeling it a fight over “healthcare for illegals” with the establishment side saying it’s about more than that, about “healthcare for all, fairness, and equity.”
Economically, the establishment side is demanding a complete government takeover of the healthcare industry (a.k.a. a single-payer system) while the other side tepidly rejects that by temporarily defunding it with a “clean CR” – which has no chance of winning the battle let alone the war.
Free-market proponents (clearly rebels in this war) want “conservatives” to repeal Obamacare because that would liberate the market by relieving it from the toxic regulatory burden that is the Affordable Care Act – which is also the mechanism the establishment side is using to take-over the healthcare system – a law that has done nothing but make healthcare more expensive, harder to access, and more political (think mask and quarantine policies during Covid). But you don’t hear boo from Republicans about repealing it – even though their rebel-leader-in-chief (Donald Trump) campaigned and won on that cause the first time around.
Republicans never fight to win and that is what makes them worse than Democrats. Democrats win with the losing argument, and Republicans lose with the winning argument — ALL THE TIME. That’s what makes them such losers. Republicans should never lose but hardly win.
Also not a good condition for the American ideal.
It is important to appreciate that communism is both a sociopolitical and economic system, ruled by one authoritarian Party with total control and without limitation. The leader, therefore, is effectively a dictator – and go ahead and try voting them out in their “democracy.” Let me know how that goes.
America is a constitutional republic where laws are superior to elected leaders, which is the reason our oaths are made to the Constitution and not to a representative democracy. America’s leadership position was framed to be subservient to constitutional law and the limitations contained therein, regardless of who is in power.
America has immigration laws and well-defined borders. Biden discarded both as trivial and Trump is enforcing them as defined.
That’s another battlefront in the civil war being fought on our soil.
Tens of millions of illegal migrants represent a dramatic increase in demand for the American market, which is not only highly inflationary, but it also inflicts extreme pressures to vital social services.
There is one economic certainty that can never be denied: limited supply plus greater demand equals higher prices and/or worse service – in guns, butter, healthcare, or any other product or service.
In fact, that is the economic tenet that made the Affordable Care Act (a.k.a. Obamacare) a complete fraud from the very beginning. Anyone who believed otherwise at the time it was signed was either ignorant to basic economic facts or a Kool-Aid drinking communist. Sorry folks, there is no other possibility.
So why would the establishment (Obama/Biden) promulgate such debilitating policies?
To collapse the system…so they could take it over.
Destroy the market with expensive regulation, huge subsidies and hyper-inflation, and massive over-expansion of market demand – by giving it away to some while making it much more expensive for everyone else. In fact, expand the market so far beyond its supply of doctors and nurses, hospital beds, and immediate care clinics that it drives prices so high the market collapses (a condition where markets stop doing business) and people say mercy in unison, just let the government do it; we need government to save healthcare.
And then they own it – killing the free market in the process.
When government owns and controls a market they thereby control business and investment for it, and therefore control labor and prices, thereby owning and controlling both sides of the market (supply and demand) – and there you have it, communism.
Seizing power under the cloak of crisis is like taking candy from a baby without a guardian present. It’s just too easy. And from it come laws like, the Patriot Act, No Child Left Behind, and the Affordable Care Act – from which we all lost privacy, taught a generation of children to embrace communism, and made healthcare unaffordable, politically charged, and less timely and efficient.
The communist economic model has never worked for one very good reason. Government central planners can never do effectively what free markets naturally do efficiently.
The establishment big-government side is a communist regime.
Trump is not one of them and they hate him for it. Now more than ever because he is taking the fight to them from the power-position on the inside.
This is your market! – all of which will find its way into the investment markets and send the world into correction.
That should be on every investor’s radar.
Get Strapped In, Gold and their ETFs
Gold remains a must for every portfolio because gold rises when currencies fall.
Debt, deficit, and money supply are concurrent problems for people, governments, and world economies alike. Most suffer from bad management or are byproducts of it.
Look at the Federal Government’s P&L and Balance Sheet and I’ll show you an investment destined for correction, austerity and devaluation – a condition ripe for gold expansion.
Gold recently closed at $4,000 an ounce and I see no end in sight, which puts me on the opposite side of the fence from Art Laffer (an economist for the Reagan team) who sees a collapse in gold followed by an economic boom.
First, a gold correction can only happen when both the fiscal condition of money and their underlying economy greatly improve from where they are today – but instead they’re deteriorating.
Laffer certainly must know this.
Second, Laffer fails to recognize that Trump isn’t Reagan, Powell isn’t Volker, and this isn’t your granddaddy’s economy. Things are very different now.
Surely Laffer must know this too.
Which makes it clear to me that Laffer is an establishment operative first and foremost and a supply-side propagandist second. I bet he owns a ton of physical gold.
Consider this for a moment…the gold ETF offered by State Street (GLD) has tracked the rapid rise in gold (+61% this year alone) which has more than doubled since March 2024 – producing 500%+ more return than the S&P 500 – yet there’s still a 5% open short on it.
Who in their right mind would hold an open short on GLD in this market condition?
Laffer’s hedge fund perhaps?
It’d be a typical establishment-type bet — one that goes long on bouillon and short on its paper derivative.
Which made me think…and for the first time I can see a real possibility that “irregularities” with gold ETFs come to light during the next corrective cycle. That would create such chaos and help the establishment’s claim to more market control. Nothing quite like another Wall Street scandal to investigate. It’s so easy to imagine.
So yes, physical gold is more precious than the paper receipt for it, however less functional. So choose your weapons wisely…
As I tell everyone, if conditions do get to a level of bad where gold ETFs are found to be even fractionally fraudulent, then the best investments to own are physical silver, guns and ammunition.
Silver recently closed around $55 per ounce and should enjoy a gold-type run in percentage terms as this cycle continues. If both precious metals triple from this point forward (as I see it) then GLD will reach $1,200 by the time gold gets to $12,000 an ounce, and silver will be valued around $150 per troy ounce (one silver dollar) – a denomination easily traded for a few bags of groceries, a tank of gas, or supplies for the home, garden or livestock kennel.
But what will you trade for a $12,000 gold coin?
And what kind of change will you get in return?
Silver will quickly live up to its “precious metal” billing during the coming financial crisis and may outperform gold in percentage terms because of its portability advantage.
It should also be highlighted that prices for weaponry skyrocket during times of crisis and are easily traded or bartered (besides you may need them). Many people don’t realize prices for these items spiked 500% during Covid-19 and demand was omnipresent.
Weapons and ammunition provide safety-belt-type protection. They could only save your life if strapped on when there is seemingly no need. And because they could save life when nothing else can, their prices rise dramatically during times of crisis when demand is high and supply is limited.
That’s just basic economics.
And investing 101.
Gold, silver, guns and ammo are growth assets because that is the environment governments are curating. Stocks remain overvalued and ripe for correction for the same reason.
The storm is here.
And investors need to appreciate that, because the day will come when Wall Street wakes up surprised by the severity of opening trades related to early morning news of another financial crisis that started with smaller regional banks.
Bet on it.
Stay tuned…
