Let’s chat about where I stand
There is nothing I enjoy more than a healthy debate on the future of the markets. Recently I’ve been told by some, that an investment in precious metals is a bad decision. But let’s look at the numbers. Up until Wednesday of this week, the price of Gold outperformed the Dow in 2017, 14 percent to 13 percent. I consider that a home run for the long term Gold investor.
Wednesday after the Fed meeting, many long term investors ran for the exit doors as they believed the Fed’s projections that higher interest rates are coming, no doubt about it. We all know that the Fed has been telegraphing their policies, in order to be more transparent. But by executing that type of policy they have put themselves in a corner with no flexibility in decision making. So now it seems the Fed is softening up on their inflation target of 2 percent from what some believe is pressure from the “Hawks” on the Fed board.
Chairwoman Janet Yellen said this is their three-year plan for reducing the balance sheet, (of course, if you do the math it will take ten years to complete), but the Fed is ready to stop their plan of letting their bonds mature if the economy shows signs of weakness. She also indicated that, if necessary, the Fed is prepared to reinvest those dollars and put them back on the balance sheet.
So why is everyone running away? Nothing has changed from what they have been saying for months; that they will be reducing the balance sheet.
I find it interesting that the ETF Gold investor hasn’t budged. In fact last night, 261,000 ounces was added to the funds. Matter of fact, in 4 out of last 5 days, the gold ETF investors have purchased gold, adding to the funds. The recent sell off in Gold seems to be totally Futures related.
I remember when my son would come home from school when he was young and I asked him if he had any homework to do? He would say, “Yes, Dad, but all my friends are playing outside. Can I play first then do my homework?” Being the nice guy, I say. “Go ahead, you got an hour.” Back then there were no cell phones so I couldn’t contact him in a pinch. As I was at work and preoccupied with the tasks at hand, when I finally looked up at the clock and it was always several hours later and he still would not be home. In the end he would be so tired after playing with his friends he couldn’t do his homework. Obviously that didn’t go on for long.
The point I’m making is, the politicians in Washington are no different than my son in elementary school. They have all their homework to do and now it’s nine months later and NOTHING has been accomplished. Promises go only so far. If my son never did his homework the teacher would have failed him. Our representatives have failed us and the Equity Market right now still believes that their representatives in Congress will get their homework done. Until you “show me” you are responsible, I will not believe you.
So go on America, keep believing that a middle class tax cut will benefit all and spur growth. But before you get too excited, just remember what you just read last month. That individual debt is at a historic high, even HIGHER than before the financial crisis, and if that was me, any extra money I received (and I don’t expect much) I would have to use to pay off that debt and not go out on a spending spree.
So if our representatives in Washington can’t accomplish what America expects of them, the Fed will have no other choice but to reconsider their three-year plan.
Oh by the way, let’s not forget the bully in the schoolyard that everyone should be concerned with. They tell me his name is Kim Jung Un.
These are only a few reasons why, in the long run, Gold will be victorious. Until you SHOW ME you are capable of completing the tasks at hand and passing a comprehensive plan that we all will benefit by (and not a watered down version just to say you passed something) I will continue to buy the yellow metal any time I see a pull back.
I remember when I was in college and taking a basic contract law class, my professor said, “In the years ahead, if you remember nothing else you learned in this class, make sure you remember this. On every contract there will be small print, that’s where the meat and potatoes can be found. Never ignore those details. Matter of fact, make sure you understand the small print. It will save you a lot of money.” So when and if our representatives come out with a tax plan and/or healthcare bill, I will be sure to read the small print and report back to you to see if it’s a good plan for America or a bill that is so watered down no one will benefit from the new legislation.
One more thing
The Street is looking for a corporate tax reduction from 35 percent down to 15 percent. Currently the average CEO makes 204 times what the average worker makes. After working on Wall Street for 37 years for two of the largest investment banks and insurance companies, I can assure you that if this bill is passed the difference between the CEO compensation and the average worker will dramatically increase. The question remains, if this tax plan passes, will it have any trickledown effect on the middle class or will it just benefit Wall Street executives.
Let’s not forget who’s running the U.S. Treasury and where he can from. One can expect there is still a lot of loyalty there, and future benefits to those who support such a corporate tax cut.
Does anyone out there believe that this proposed tax plan, both corporate and individual, has any chance of being revenue neutral? If so, I don’t blame you if you sell your long term gold holdings. Otherwise stay on board and enjoy the ride.
Be sure to read Monday’s comment. “Socialism on America’s shore”.
Have a wonderful Friday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.