The Golden Arches are a symbol of McDonald’s, or golden arcs if you are a fan of McDowell’s, but mostly they are a symbol of Americana. They represent fast food, quick delicious, with the best breakfast value in the world, well before this last inflation hit and now a pair of breakfast burritos will set you back $5. That is outrageous but inflation is not what I want to discuss primarily today, but another symbol of Americana from a bygone era, gold.
Folks, in case you haven’t noticed and with the knitting expo in town this weekend it looks like you haven’t, my old yeller friend has broken into new heights and is running away like a poor Alabama boy away from his mama. Like the golden arches or arcs, Gold had rallied up and then fell down and then rallied up again and fell down over and over again around the $2000 price level, but now we made new highs at just under $2100/oz and have now eclipsed $2,300 just a month later, the eclipse on April 8th is brought to you by the C Thomas Printer Cooperative, being a shadow across your bright light since 2022. Gold is rallying and silver is coming with it as silver has now taken out $26. It has one more major level to take out and then it might have room to run to the topside as well.
For fans of the analog bitcoin like me, this is great news but really it is no news. The main idea behind buying precious metals isn’t to get rich it is to not lose your purchasing power. I believe the gold markets are responding to the Federal Reserve finally shirking its duties. They believe Powell is going to pivot before inflation has gotten down to 2%. I have heard a lot of people say that it is because the status quo wants Biden to win the election and keep the wee little orange man out of office. Trump famously wanted negative interest rates and was railing against Powell’s hikes in 2018. Trump is a borrow and spend guy just like Biden so I can’t see any fiscal religion being found with Donny T. I have called Powell our last Jedi because he hasn’t pivoted and I will not leave my wingman until he does pivot and not talk about it. Powell said higher for longer and we have been high for long. He has said they are preparing to pivot but they haven’t done so yet. If we pivot now with inflation bouncing, it would seem foolish to do all that work. Now, with that being said I think we are in a recession right now. Lay-offs are getting brutal out there people. It is simply different than the usual recessions of the past. This one white collar workers are being fired. Teachers, software engineers, usually DEI staff and more are all finding themselves on the sidelines saying what happened? We don’t need layers of middle management, but we do need real stuff. Blue collar is in the driver’s seat right now as the economy is trying to reshore and bring manufacturing back. Getting Americans to build things will be very expensive in comparison to importing foreign goods, so I have little hope that this will work and even little hope that it works well. I’ve said that people had better get ready to more with less because less is what this government is going to give you no matter who wins.
Gold’s place in this is very unique. Treasury bonds offer interest and the interest is good right now. A short term T-bill is offering over 5% and a long term Treasury bond is offering well over 4%. That’s seems like a good trade. Wrong….Ayn Rand’s Atlas Shrugged character Francisco D’Anconia once said “Contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong.” If a bond offers interest and gold does not, then shouldn’t they move in opposite directions? If more specifically, the US Treasury, the risk-free instrument of the world reserve currency, that bond is supposed to go down and yet gold goes up. What are we to make of this situation. There isn’t a bond trader under 65 that has seen a bear market until 2 years ago. They think that was the aberration, but that was the trend change. Who is going to buy the bonds, and at what price? The world will but at a higher rate of interest because money ain’t free anymore. Why is that? It isn’t precious like a precious metal, the government has printed and spent so many dollars that it isn’t risk-free anymore. Gold is very unique in that no one holds the other side, it has no counter party. My asset gold isn’t your liability. A bond is backed by a bank or a government. My rental income is backed by a tenant, my stock dividend is backed by a company etc. The dollar is just paper printed by the government. Gold just is….
What makes this time and space in history interesting is that the US is screwed, but perhaps not as screwed as other countries. It seems very defeatist to discuss how ugly a person is and then say well at least they are as ugly as someone else. In related news, Lizzo retired from the public scene this week. I had just found out who she was too. The US is still pumping lots of its own energy which makes it far better off than Germany, which has been kneecapped by our CIA blowing up the Nord Stream pipeline. Germans gave up their monetary sovereignty when they joined the euro so unless Don and Joe they can’t spend their way out either. Japan is teetering on a Yen about to fall of the cliff. It has said that it would step in and save the Yen at 152, well we are at 151 and change as I write. So the US is in bad shape, but in a world with lots of others that could be seen as reasonable strength.
This leads me to believe that we are having the beginning innings of a global depression. The only problem is I’m not sure it is a depression yet, it could be battling fiat currencies going broke because every government is printing and they are buying votes and they are going green and they are spending money so frivolously they would make Kim Basinger blush. What does this mean for you? The opportunity is in real assets. It could be a tractor which can do work, it could be a skill set or it could be precious metals. We have talked about this for some time, but a little history would do as well.
I have been scouring the internet looking for assets that did well during the depression. Unless you want to start making corn liquor and running ‘shine, I suggest you listen to another opportunity that rewarded those little salmon that swam against the current. If you want all the details reading the article A Real Goldmine: The Homestake Story by Gary Hoover as I have attached a link but here are the highlights.
Gold was discovered by the US Army in the Black Hills during an expedition led by none other than the golden-haired buffoon General George Armstrong Custer. He would succumb to the Sioux two years later in 1876 at the Little Big Horn, but word spread that there was gold in them their Black Hills, and eventually the prospectors came running. That included Fred and Moses, no, not that Moses, but the Manuel Brothers from Quebec. They filed a claim that would one day be Lead, South Dakota and the Homestake Mine. They were soon bought out by big business and that big business was in the name of George Hearst, from San Francisco which has a Golden Gate bridge, built much later of course, but I am trying to stay on theme for a change. George Hearst was a successful mining operator and excellent judge of mining claims. He partnered with an attorney that would eventually become president of Wells Fargo, the banking and shipping company and James Ben Ali Haggin. These three bought the Homestake mine and Hearst went to work building and developing it.
Hearst and his partners became even richer from the mine and when he died his widow ran it until her death from the Spanish flu in 1919. Their son Willie, no relation to the president from Arkansas, was none other than William Randolph Hearst. He took over one of his father’s newspapers, the Examiner and built a media empire. He was the inspiration behind the industrialist in Citizen Kane which won an Oscar for best screenplay, the trophy of which is known as the little golden man. His greatest source of wealth to draw upon while he bought newspaper after newspaper, the Homestake mine. This was important because during the Depression serious wealth was destroyed. From goldsilver.com
“In the span of a single month, the crash wiped out $16 billion in stock values across 240 companies. To put this colossal figure in perspective, as noted by economists Milton Friedman and Anna Jacobson Schwartz, the entire U.S. money supply in 1929 amounted to roughly $48 billion. The losses incurred by these 240 stocks alone accounted for one third of the entire money supply in the United States.
In an unprecedented move, the Federal Reserve intervened by adding almost $300 million to the reserves of the nation’s banks and lowered their rediscount rate (the Fed Funds Rate today). This temporarily bolstered the economy and in November the Dow began to rebound. There were fleeting moments of optimism as stocks rebounded by more than 20% in just six trading days, enticing more and more hopeful investors to scoop up bargains and reenter the market.” This is buy the dip territory it sounds to me like, but I will continue.
“But this glimmer of hope would be short-lived, as the Dow Jones Industrial Average continued its shocking decline, ultimately reaching its bottom on July 8th, 1932, a staggering 89% loss from its peak just two years earlier. It would take a quarter of a century for the Dow to fully recover to its 1929 peak.
As most of you know the gold price was fixed during this time, and President Roosevelt nationalized it in 1933. But even though you couldn’t directly own gold, investors found a way to capture its upside by owning gold stocks. Gold equities acted as a proxy for bullion during this time and saw huge buy volumes during the Great Depression.
From 1929 until January 1933, the shares of Homestake Mining, which was the largest gold producer in the United States, shot up an impressive 474%. Meanwhile, Dome Mines, Canada’s largest producer, went up 558%. During this same period, the Dow Jones took a beating, losing a staggering 73% of its value.”
Jospeh Kennedy may have bootlegged whiskey and shorted the market, but William Randolph Hearst made a killing buying up real assets and leveraging his Homestake mine to do it. It was a publicly traded mine and those that believed in gold survived. We often talk about not getting to the penthouse but avoiding the outhouse, this is just the type of investment that kept people afloat during the worst financial time in our country’s history, so far.
Times are very similar today and during the 1920s. I don’t know if we are in 1921 or 1929, but I know that people are doing the same silly things. Did you know avocado toast was sold for 25 cents a plate and people used to stand and have their lithograph taken with it? It’s true although the green avocado tended to not jump out to the viewer on a black and white still. People abused credit, people chased being rich, and the Model T was the Bugatti of tis time. People and their behavior remain the same, just the technology changes. Danieal Kahneman died this week, and he won the Nobel prize for his work in behavioral economics, and if you study human behavior it is likely to be a better indicator for market tops and bottoms than your stock broker.
So, while gold was outlawed in the Depression, investors bought the Homestake Mine as a proxy for gold and were rewarded handsomely. 40 years later, deflation wasn’t an issue but inflation. President Richard Nixon took the American economy off the gold standard and inflation and interest rates went higher throughout the decade of the 70s. Gold went from $35/oz to over $800. During deflation it does well and during inflation it has done well. It doesn’t tend to do well when things are good. So, all we really have to ask ourselves is this a time of potential turmoil and strife or good times ahead. Conduct yourself according to your own premises but check them thoroughly .
Sincerely Yours,
C Thomas Printer
On this date in history… 51 years ago today, the first cell phone call was made by an employee of Motorola who called AT&T’s Bell laboratories. I now know where I will go if I can ever experience time travel, 51 years and a day to the Motorola lab to stop this nonsense.
Also born on this date…William Wallace, who would not be happy seeing what is happening to JK Rowling in Scotland.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.