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Is Gold is a Good Hedge Against Inflation and a Stock Market Crash?

“The impact of the rate of inflation on the price of gold is like tracking the footprints of an animal.” — Julian M. Snyder (“Maxims on Wall Street,”…

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“The impact of the rate of inflation on the price of gold is like tracking the footprints of an animal.” — Julian M. Snyder (“Maxims on Wall Street,” p. 154)

Jay Martin invited me to be a keynote speaker for the first time at the annual Vancouver Resource Investment Conference this week. It was a pain going through all the Canadian bureaucracy to get here, but it was worth it.

Over 200 mining exhibits were on display at the conference on investing in gold, silver, uranium and other precious metals. I was surprised that no oil & gas companies were exhibited, even though the sector is in a major bull market.

Here at the Vancouver Resource Investment Conference, I was called by attendees and introduced by emcees as “the legendary” Mark Skousen four times! I must be getting old…

In several conference sessions, the big question on everyone’s mind was, “Why has gold underperformed as an inflation hedge when we’re experiencing the highest inflation in 40 years?”

It’s a tough question to answer. Certainly, gold has held up better than the stock market, which is in a major bear market. Stocks have traditionally done poorly during periods of rapid inflation, as the 1970s testify.

But gold has traditionally risen during times of inflation. Below, we see the strong link between gold and Consumer Price Index (CPI) inflation in the 1970s:

However, in the 2020s, the relationship between the price of gold and the CPI inflation is quite separate.

In the face of the highest inflation rate in 40 years, gold has underperformed. It rose sharply from 2018 to 2020 to over $2,000 an ounce in August 2020 in anticipation of higher price inflation, but it has not been able to decisively break through the $2,000 barrier ever since.

Currently, the price of the yellow metal is back down to $1,800 an ounce.

That’s not the inflation hedge we had predicted.

What has happened?

There are several explanations.

First, gold is a leading indicator of inflation. It’s always looking ahead. Gold rose in anticipation of more inflation in 2021 and 2022, but it is now suggesting that price inflation will come back down in 2023.

In fact, the Federal Reserve is now “fighting inflation” by raising interest rates and reducing monetary inflation. The money supply (M3) grew by 26% in 2020, but it has been slowing down sharply ever since.

Second, the U.S. dollar has been strong recently, especially during the Russian-Ukraine war. Since gold is priced in dollars, expect gold to struggle.

Third, gold has a new competitor. Bitcoin and other cryptocurrencies have played a role as new inflation hedges, especially during the pandemic.

Overall, I don’t think investors should complain much. Gold is at breakeven for 2022, while the S&P 500 is down 15% and the Nasdaq has fallen by 25%.

Gold mining stocks have been far more volatile than gold, but they are still down only 3% for the year. Mining stocks have always been highly volatile. So, they can be good speculations during bull markets, but treacherous during bear markets.

I don’t know of a single major mining stock which has a long-term upward trend.

Gold itself is different. At Forecasts & Strategies, I’ve been recommending gold as a hedge. It should be in every person’s portfolio.

Libertarian Senator Rand Paul to Address FreedomFest for the First Time in Five Years!

Mark and Jo Ann Skousen pose with Sen. Rand Paul and his new book, “The Case Against Socialism.”

Great news! Senator Rand Paul, the most influential libertarian in the Senate, has just confirmed he will be a keynote speaker at this year’s FreedomFest. This will be Senator Paul’s fifth appearance at FreedomFest, and his first since 2016, so you don’t want to miss what he has to say. He’s agreed to do a one-on-one interview with me and attendees on wide-ranging topics including the inside scoop on his fiery confrontations with President Biden’s chief medical advisor Dr. Anthony Fauci, Homeland Security Secretary Alejandro

Mayorkas and U.S. Department of Health and Human Services Assistant Secretary for Health Rachel Levine, the first openly transgender government official. Sen. Paul will give us his insights into the Biden/Harris presidency, dealing with a 50-50 split in the Senate, the Russian-Ukraine war and the chances Republicans will retake Capitol Hill in November. If you are registered to attend, I’ll try to work in your question to Dr. Paul. Email me at mskousen@freedomfest.com.

Senator Paul and I go back a long way. He first spoke at FreedomFest in 2011 as a freshman senator; We’ve traveled to Israel together in 2013 (see photo); my wife and I hosted a fundraiser for him in early 2020. I’ve known his father, Congressman Ron Paul, since the late 1970s.

Sen. Paul and Mark Skousen travel on the Sea of Galilee in Israel in 2013.

FreedomFest gave Sen. Paul our annual Leonard E. Read Book Award for his latest book, “The Case Against Socialism.” Read his book, and get it autographed at FreedomFest.

To register, go to www.freedomfest.com, and use the code EAGLE to get $50 off the registration fee. If you have any questions about FreedomFest, email Hayley at hayley@freedomfest.com. We already have over 2,000 people signed up, including speakers and exhibitors. We expect a record crowd this year. Come join us in the festivities.

Speaking this Saturday at the Los Angeles Chapter of AAII

On a personal note, today I’m at the annual Vancouver Resource Investment Conference in Canada, and I will have a full report next week on the outlook for commodities.

Then, this Saturday, May 21, 9-12 a.m., I’ll be the second speaker at the LA chapter of the American Association of Individual Investors (AAII) at the Skirball Cultural Center, 2701 N. Sepulveda Blvd. in Los Angeles. I’ll be speaking on “The Madness of Crowds vs the Wisdom of Crowds: Puzzles & Paradoxes in Money and Investing,” where I will auction off a jar of pennies (not to be missed!). I’ll also sign copies of “The Maxims of Wall Street” and “The Making of Modern Economics” Both can be bought at www.skousenbooks.com.

The price of admission is normally $18 at the door, but you pay only $5 if you are a new guest. Skirball is still requiring proof of vaccination to come.

Good investing, AEIOU,

Mark Skousen

You Blew It!

The Author of ‘Rich Dad, Poor Dad’ Becomes a Prophet of Doom

“We all have tremendous potential, and we all are blessed with gifts. Yet, the one thing that holds all of us back is some degree of self-doubt. It is not so much the lack of technical information that holds us back, but more the lack of self-confidence.” — Robert T. Kiyosaki, Rich Dad, Poor Dad

Robert Kiyosaki was a keynote speaker at the Vancouver Resource Investment Conference here in Canada. He is famous for his bestselling book, “Rich Dad, Poor Dad,” which has sold over 41 million copies.

The book is upbeat and promises you untold riches if you become an entrepreneur in business and real estate. For Kiyosaki, America is the promised land of opportunity.

His quote “The poor and middle-class work for money. The rich have money work for them” appears on page 23 of the “Maxims of Wall Street.”

Even so, I don’t agree with everything Kiyosaki says in his book. For example, he says that a home is a liability, not an asset. Not so! You need a place to come home to. And not everyone is suited to be a high risk-taking entrepreneur (the rich dad). There’s nothing wrong with working for others, saving a lot, living within your budget and investing the difference in the stock market or real estate.

But overall, Kiyosaki emphasizes the need to find what you’re good at and do it.

So, imagine my surprise when I saw that in 2002, he wrote a book called “Rich Dad Prophecy,” predicting “the biggest stock market crash in history.” He warned that it was inevitable and that every investor needs to be prepared for another Great Depression.

“Wouldn’t building a hotel, spa and golf course make more sense than an ark?” He asks, referring to the story of Noah in the Bible.

His timing couldn’t have been worse. The market bottomed within a year of his prophecy, and then in 2013, he doubled down on his doom-and-gloom prediction, only to see the stock market enjoy “the mother of all Bull markets” for another eight years!

At the Vancouver conference, Kiyosaki joined forces with Harry Dent in predicting another crash. We’re definitely in a bear market, but we have weathered these kinds of severe corrections before. We will do so again.

Sounds like a poor dad’s prophecy to me.

As J. Paul Getty warned, “Businessmen can profit handsomely if they will disregard the pessimistic auguries of self-appointed prophets of doom.” (Maxims, p. 112)

I have devoted several pages of “The Maxims of Wall Street” to bear markets and the Cassandras of the world. To order the book, go to www.skousenbooks.com.

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked…

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37 mins ago

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March 11, 2024

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked by the NY Fed Consumer Survey extended their late 2023 slide, with 3Y inflation expectations in January sliding to a record low 2.4% (from 2.6% in December), even as 1 and 5Y inflation forecasts remained flat, moments ago the NY Fed reported that in February there was a sharp rebound in longer-term inflation expectations, rising to 2.7% from 2.4% at the three-year ahead horizon, and jumping to 2.9% from 2.5% at the five-year ahead horizon, while the 1Y inflation outlook was flat for the 3rd month in a row, stuck at 3.0%. 

The increases in both the three-year ahead and five-year ahead measures were most pronounced for respondents with at most high school degrees (in other words, the "really smart folks" are expecting deflation soon). The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at all horizons, while the median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined at the one- and three-year ahead horizons and remained unchanged at the five-year ahead horizon.

Going down the survey, we find that the median year-ahead expected price changes increased by 0.1 percentage point to 4.3% for gas; decreased by 1.8 percentage points to 6.8% for the cost of medical care (its lowest reading since September 2020); decreased by 0.1 percentage point to 5.8% for the cost of a college education; and surprisingly decreased by 0.3 percentage point for rent to 6.1% (its lowest reading since December 2020), and remained flat for food at 4.9%.

We find the rent expectations surprising because it is happening just asking rents are rising across the country.

At the same time as consumers erroneously saw sharply lower rents, median home price growth expectations remained unchanged for the fifth consecutive month at 3.0%.

Turning to the labor market, the survey found that the average perceived likelihood of voluntary and involuntary job separations increased, while the perceived likelihood of finding a job (in the event of a job loss) declined. "The mean probability of leaving one’s job voluntarily in the next 12 months also increased, by 1.8 percentage points to 19.5%."

Mean unemployment expectations - or the mean probability that the U.S. unemployment rate will be higher one year from now - decreased by 1.1 percentage points to 36.1%, the lowest reading since February 2022. Additionally, the median one-year-ahead expected earnings growth was unchanged at 2.8%, remaining slightly below its 12-month trailing average of 2.9%.

Turning to household finance, we find the following:

  • The median expected growth in household income remained unchanged at 3.1%. The series has been moving within a narrow range of 2.9% to 3.3% since January 2023, and remains above the February 2020 pre-pandemic level of 2.7%.
  • Median household spending growth expectations increased by 0.2 percentage point to 5.2%. The increase was driven by respondents with a high school degree or less.
  • Median year-ahead expected growth in government debt increased to 9.3% from 8.9%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 0.6 percentage point to 26.1%, remaining below its 12-month trailing average of 30%.
  • Perceptions about households’ current financial situations deteriorated somewhat with fewer respondents reporting being better off than a year ago. Year-ahead expectations also deteriorated marginally with a smaller share of respondents expecting to be better off and a slightly larger share of respondents expecting to be worse off a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.4 percentage point to 38.9%.
  • At the same time, perceptions and expectations about credit access turned less optimistic: "Perceptions of credit access compared to a year ago deteriorated with a larger share of respondents reporting tighter conditions and a smaller share reporting looser conditions compared to a year ago."

Also, a smaller percentage of consumers, 11.45% vs 12.14% in prior month, expect to not be able to make minimum debt payment over the next three months

Last, and perhaps most humorous, is the now traditional cognitive dissonance one observes with these polls, because at a time when long-term inflation expectations jumped, which clearly suggests that financial conditions will need to be tightened, the number of respondents expecting higher stock prices one year from today jumped to the highest since November 2021... which incidentally is just when the market topped out during the last cycle before suffering a painful bear market.

Tyler Durden Mon, 03/11/2024 - 12:40

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Spread & Containment

A major cruise line is testing a monthly subscription service

The Cruise Scarlet Summer Season Pass was designed with remote workers in mind.

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39 mins ago

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March 11, 2024

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While going on a cruise once meant disconnecting from the world when between ports because any WiFi available aboard was glitchy and expensive, advances in technology over the last decade have enabled millions to not only stay in touch with home but even work remotely.

With such remote workers and digital nomads in mind, Virgin Voyages has designed a monthly pass that gives those who want to work from the seas a WFH setup on its Scarlet Lady ship — while the latter acronym usually means "work from home," the cruise line is advertising as "work from the helm.”

Related: Royal Caribbean shares a warning with passengers

"Inspired by Richard Branson's belief and track record that brilliant work is best paired with a hearty dose of fun, we're welcoming Sailors on board Scarlet Lady for a full month to help them achieve that perfect work-life balance," Virgin Voyages said in announcing its new promotion. "Take a vacation away from your monotonous work-from-home set up (sorry, but…not sorry) and start taking calls from your private balcony overlooking the Mediterranean sea."

A man looks through his phone while sitting in a hot tub on a cruise ship.

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This is how much it'll cost you to work from a cruise ship for a month

While the single most important feature for successful work at sea — WiFi — is already available for free on Virgin cruises, the new Scarlet Summer Season Pass includes a faster connection, a $10 daily coffee credit, access to a private rooftop, and other member-only areas as well as wash and fold laundry service that Virgin advertises as a perk that will allow one to concentrate on work

More Travel:

The pass starts at $9,990 for a two-guest cabin and is available for four monthlong cruises departing in June, July, August, and September — each departs from ports such as Barcelona, Marseille, and Palma de Mallorca and spends four weeks touring around the Mediterranean.

Longer cruises are becoming more common, here's why

The new pass is essentially a version of an upgraded cruise package with additional perks but is specifically tailored to those who plan on working from the ship as an opportunity to market to them.

"Stay connected to your work with the fastest at-sea internet in the biz when you want and log-off to let the exquisite landscape of the Mediterranean inspire you when you need," reads the promotional material for the pass.

Amid the rise of remote work post-pandemic, cruise lines have been seeing growing interest in longer journeys in which many of the passengers not just vacation in the traditional sense but work from a mobile office.

In 2023, Turkish cruise line operator Miray even started selling cabins on a three-year tour around the world but the endeavor hit the rocks after one of the engineers declared the MV Gemini ship the company planned to use for the journey "unseaworthy" and the cruise ship line dealt with a PR scandal that ultimately sank the project before it could take off.

While three years at sea would have set a record as the longest cruise journey on the market, companies such as Royal Caribbean  (RCL) (both with its namesake brand and its Celebrity Cruises line) have been offering increasingly long cruises that serve as many people’s temporary homes and cross through multiple continents.

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International

This is the biggest money mistake you’re making during travel

A retail expert talks of some common money mistakes travelers make on their trips.

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39 mins ago

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March 11, 2024

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Travel is expensive. Despite the explosion of travel demand in the two years since the world opened up from the pandemic, survey after survey shows that financial reasons are the biggest factor keeping some from taking their desired trips.

Airfare, accommodation as well as food and entertainment during the trip have all outpaced inflation over the last four years.

Related: This is why we're still spending an insane amount of money on travel

But while there are multiple tricks and “travel hacks” for finding cheaper plane tickets and accommodation, the biggest financial mistake that leads to blown travel budgets is much smaller and more insidious.

A traveler watches a plane takeoff at an airport gate.

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This is what you should (and shouldn’t) spend your money on while abroad

“When it comes to traveling, it's hard to resist buying items so you can have a piece of that memory at home,” Kristen Gall, a retail expert who heads the financial planning section at points-back platform Rakuten, told Travel + Leisure in an interview. “However, it's important to remember that you don't need every souvenir that catches your eye.”

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According to Gall, souvenirs not only have a tendency to add up in price but also weight which can in turn require one to pay for extra weight or even another suitcase at the airport — over the last two months, airlines like Delta  (DAL) , American Airlines  (AAL)  and JetBlue Airways  (JBLU)  have all followed each other in increasing baggage prices to in some cases as much as $60 for a first bag and $100 for a second one.

While such extras may not seem like a lot compared to the thousands one might have spent on the hotel and ticket, they all have what is sometimes known as a “coffee” or “takeout effect” in which small expenses can lead one to overspend by a large amount.

‘Save up for one special thing rather than a bunch of trinkets…’

“When traveling abroad, I recommend only purchasing items that you can't get back at home, or that are small enough to not impact your luggage weight,” Gall said. “If you’re set on bringing home a souvenir, save up for one special thing, rather than wasting your money on a bunch of trinkets you may not think twice about once you return home.”

Along with the immediate costs, there is also the risk of purchasing things that go to waste when returning home from an international vacation. Alcohol is subject to airlines’ liquid rules while certain types of foods, particularly meat and other animal products, can be confiscated by customs. 

While one incident of losing an expensive bottle of liquor or cheese brought back from a country like France will often make travelers forever careful, those who travel internationally less frequently will often be unaware of specific rules and be forced to part with something they spent money on at the airport.

“It's important to keep in mind that you're going to have to travel back with everything you purchased,” Gall continued. “[…] Be careful when buying food or wine, as it may not make it through customs. Foods like chocolate are typically fine, but items like meat and produce are likely prohibited to come back into the country.

Related: Veteran fund manager picks favorite stocks for 2024

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