by Sean Kelly
“We’re not even thinking about thinking about the consequences of our actions.” —Jerome Powell, Chairman, Federal Reserve
Some people recognize that a major economic and financial shift is underway in this country. They know that things won’t be the way they were. Some of them—the “smart money” and the ultra-wealthy—are preparing for it.
The rest of the people should prepare to be squeezed like a lemon.
We wrote a piece in early May about the smart money on Wall Street preparing for what’s coming by buying gold (US Money Printing Goes Stratospheric! The “Smart Money” Goes for Gold!). It cited a string of well-known names like Dalio, Druckenmiller, Tudor Jones, Zell, Gundlach, Singer, Klarman, Einhorn, and Rogers that understand the importance of gold, especially now, in the crumbling of the old financial order.
But it is not just the Wall Street smart money buying gold. Now it is the ultra-wealthy around the world, too. If they aren’t personally paying attention, or as smart themselves as the Wall Street smart money, at least many of them have advisors who are.
A headline from the international news organization Reuters the other day told the story: “World’s ultra-wealthy go for gold amid stimulus bonanza.”
According to the report, advisors to the world’s wealthiest investors are viewing any bounce back in the stock market here with skepticism. And they take an equally dim view of the global central banks’ money-printing spree.
From the story: “Nine private banks spoken to by Reuters, which collectively oversee around $6 trillion in assets for the world’s ultra-rich, said they had advised clients to increase their allocation to gold. Of them, four provided forecasts and all saw prices ending the year higher than they are now.”
Some of those that Reuters spoke with had previously had little or no allocation to gold in their clients’ portfolios. Now, facing the risk of inflation and currency devaluations, many have jumped to a ten percent recommendation.
One of the people Reuters quotes is Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley, who says, “Our view is that the weight of monetary supply, expansion, is going to ultimately be debasing to the dollar, and the Fed commitments, which (are) anchoring real rates, make the case for gold pretty sturdy.”
What they are all saying is the Federal Reserve can’t just conjure up trillions of dollars out of nothing without tanking the greenback’s purchasing power.
So much for the smart money and the ultra-wealthy. But what happens to everybody else?
Stephen Roach knows. He’s a former Fed official, one-time chairman of Morgan Stanley Asia, and now an economist at Yale. He’s looking both at the inevitable consequences of the Fed’s loose money and at the deficits, too.
Roach’s hair has practically been on fire lately as he has made the rounds of financial television programs trying to warn people.
“The dollar is going to fall very, very sharply,” he says.
“The national savings rate is probably going to go deeper into negative territory than it has ever done for the United States or any leading economy in economic history,” said Roach.
Roach is calling for a 35 percent dollar crash. He warns that “US living standards are about to be squeezed as never before.”
What can you do?
First, you cannot control the Fed or undo what it has done. In fact, even the Fed learned that it can’t roll back its crazed money-printing, although it tried to do so for a few weeks in 2018.
And you cannot undo the US government debt. It’s too late. The money has already been spent and there is no meaningful coalition in Washington to try to stop them from going still deeper into debt.
What can you do to avoid the squeeze?
You can do what the smart money is doing. And you can do what the ultra-wealthy are doing.
That’s what we recommend.
You can buy gold.