Here is an interesting article.
Fiscal Murder & The Rebirth of a Gold Bull Market
By Gerardo Del Real
On March 3, 2016, Ray Dalio — Founder, Chairman & Co-CIO of the world’s largest hedge fund Bridgewater Associates — was here in Austin, Texas to speak at the University of Texas Board of Directors 20th Anniversary event.
In typical Ray Dalio fashion he went over the ineffectiveness of current monetary policy, the business cycle — the typical five-to-eight year cycle — and the differences between a short-term debt cycle and a long-term debt cycle — one he feels we’re at the end of — which goes on for 50-75 years.
The speech was important because it highlighted the very few options central bankers around the world have available to them and the potential consequences. As investors and speculators, it’s much simpler to make profitable investment decisions if we’re able to identify the important trends before the herd does.
Japan has undergone one of the most aggressive monetary policy experiments in the history of the world in an effort to stimulate its economy to no avail: A multi-decade experiment of zero interest-rate policy where it begged for 2% inflation without success.
Dalio also spoke of Europe’s zero and negative interest-rate policy and the failure that policy has been for the real economy there.
He explained the many recent experiments here in the U.S. and how that helped stabilize asset prices — mostly to the benefit of asset owners but to the detriment of savers.
But it was his comments afterwards that were particularly interesting.
He outlined what he believes is the next “big” (his word, not mine) move in monetary policy. Mr. Dalio believes that while we could see another rate hike or two this year, the next big move in monetary policy will be putting cash directly in the hands of consumers, or so-called “helicopter money.”
Dalio stated he believes diversification is important but that in this environment it would be a good idea to have 5-10% of your portfolio in gold.
Context matters. Bridgewater manages approximately $154 billion in global investments for a wide array of institutional clients, including foreign governments and central banks, corporate and public pension funds, university endowments and charitable foundations.
"When the Chairman of Bridgewater publicly advocates for a 5-10% portfolio allocation in gold, I listen.
Anyone who has invested for any period of time knows that the market has a way of making fools of people who speak in certainties.
Do we think this is the absolute bottom in the gold space and the related stocks? No, but we do believe that the next few months will provide the best window for establishing very, very attractive entry points in to the companies we feel will outperform in the next gold bull market.
The better names in the junior resource space have seen an impressive run in recent quarters.
If you’ve followed our first couple of editorials, you’ve probably noticed an emphasis on fiscal and monetary policy as well as a touch of political commentary.
We strongly feel that the next gold bull market will happen as a result of incompetent government — the incompetence isn’t up for debate — few fiscal policy solutions, and a lack of options for central bankers that will eventually lead to looser, not tighter, monetary policy here in the U.S.
Richard Fisher, former Dallas Fed President, commented this week that the Fed had enabled and allowed the federal government to get away with murder — fiscal murder.
Artificially low interest-rates have allowed politicians to collect checks while wealth inequality in this country has exploded and our infrastructure continues to crumble.
Combined with a political climate where politicians spend more time arguing about the size of their hands than the size of our economy, it isn’t reasonable to believe that an enlightened fiscal policy will materialize any time soon.
So what do we see in the cards here in the U.S.?
For a taste of what might be on the menu consider how the European Central Bank's (ECB) keeps cutting interest rates further, pushing its key deposit rate deeper into negative territory. It also is increasing asset purchases and announced it will extend those purchases to include and begin a program of cheap loans for banks.
Money for the banks, sound familiar?
New Zealand recently announced a surprise rate cut. Why? It basically said it was forced to as a result of everyone else cutting rates.
The race to devalue is real and eventually the U.S. will have to join in.
That doesn’t necessarily mean it happens in a straight-line and understanding the order of how things unfold will be key.
Expect tough talk from the Fed, maybe a stronger dollar as a result and maybe another commodity sell-off — one we’re hoping for soon to deploy capital.
Just paying attention to your favorite company’s news releases will no longer be enough. The war on savers, cash, and privacy are all very real global themes that have a very real effect on the returns of all asset classes.
We plan on staying ahead of it and with some hard work and a little luck, making it a very profitable time.
To your wealth,
gerardo-sig
Gerardo Del Real
Editor, Resource Stock Digest Premium
