Friday, 25 February 2022 — Albert Park

By Brian Chu Editor, The Daily Reckoning Australia

[7 min read]

• Wag the dog…start a war
• Protect your wealth, how gold is the answer

Dear Reader,

The development in Ukraine has appeared to have taken a turn for the worse in the last 24 hours, at least according to the news headlines.

The markets reacted very quickly to this, with the global share markets falling almost 3% in a matter of hours.

Gold and oil caught a bid, rising almost 2% and 5%, respectively. Gold edged towards US$2,000 an ounce, and oil almost surpassed the US$100 mark.

Then, just as fast as people were adjusting to war, the markets reversed. It gave back almost all of its moves. Gold and oil are now at levels of before the missiles went flying.

It’s anyone’s guess where the market trades by the time you read this article.

Personally, I have many questions surrounding the events leading up to what is happening now.

There are so many pieces that don’t add up.

Sure, a war doesn’t have to make sense. There’s a lot of smoke and mirrors.

But there are aspects of what is going on that should make you go ‘hmm’.

One has to place a lot of pieces together and let the picture fit together. You cannot expect the nightly news or the wall-to-wall coverage of these outlets to inform you.

For one, leading up to the news of Russia declaring that it will conduct special military operations in Ukraine, both leaders said that they’re not going to war.

I’ve said this before; you would expect that the leader of Ukraine would become increasingly alarmed about the impending invasion by a much more powerful neighbour. You wouldn’t expect the Ukrainian government to put up troll posts mocking Western media about calling the invasion date wrong and asking for other predictions.

War is not a laughing matter. It is not like the Scottish troops pulling up their kilts and turning around and showing their bare bottoms to the English Army and then beating each other’s heads in, like the movie Braveheart.

So what exactly is going on?

I’m focusing more on the surrounding stories to help me make sense of it.

Wag the dog…start a war

Remember the movie Wag the Dog that came out in 1997 that was supposed to be a thinly veiled send-up of the Bill Clinton–Monica Lewinsky sex scandal?

There is nothing better to divert attention away from your scandals than to provoke an enemy and start a war.

And it’s not just about the scandal-ridden Biden administration either.

This time it’s about the entire Western governance system and the media complex. You may recall I wrote about this back in early December.

It appears things are coming home to roost.

The last month, we saw the increasing number of civilian-led protests over the government mandates and the increasing realisation by the public that the economy is falling apart and the government is doing little to help relieve the people’s plight.

Then, there is the massive bombshell that the Clinton campaign is now officially the target of criminal investigations for fabricating evidence against President Trump in the 2016 election.

The media spent more than four years telling us it was a sure deal. President Trump was a Russian spy. It’s a really bad look to find out that they peddled a fake story, and people are facing criminal charges.

This could turn into something huge, implicating several governments (including Australia as we are part of the ‘Five Eyes’ alliance that share intelligence), intelligence agencies, media, and business circles.

All this is happening as poll numbers for most Western incumbent governments are in the toilet. Best to start posturing by poking the bear — Russia’s President Putin. That should divert the attention away and save face.

You can say that this is nothing short of disastrous for the powers that be.

Protect your wealth, how gold is the answer

There’s going to be much red in the world the coming few months.

Red in the markets.

Red numbers in financial statements.

Red faces in high society.

Blood in the streets, though I pray that won’t be the case.

But I hope that you spare yourself from being a casualty during such times.

Gold was a laggard in the pantheon of investment assets for much of the last 18 months. It was literally the butt of jokes. Think of all those swipes people levelled at gold.

Have a look at how it performed in the hours after the news broke of the escalating conflict in Ukraine (and the subsequent bounce):

Those who taunted at this 6,000-year-old safe haven, I wonder how they are faring now. When war occurs, people will go to gold.

Let’s have a look at how the ‘star assets’ performed during the same period.

Here’s the NASDAQ Index:

Here’s Bitcoin [BTC]:

And Ethereum [ETH]:

This should put to bed any doubts on which are safe haven assets. Gold is. Period.

It takes a serious crisis to let gold show its true colours, even if this crisis seemed to subside so quickly.

At least for now…who knows if tensions will rise further.

Gold is not going away anytime soon as a way to preserve and even grow your wealth.

With economic woes likely to linger for much longer than the conflict in Ukraine, I expect that gold and gold investments will outperform against the other assets.

You should take a look at how I have built my wealth with gold investments in the past eight years. It doesn’t take a war to do so. There are other events that can cause it.

Right now, it seems like it is all lining up in gold’s favour.

Check out what my ‘niche gold’ investments are all about here.

In the meanwhile, continue to pray that conflicts in the Black Sea region will subside and that other parts of the world don’t see any escalation in tension.

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

Consumers hate rising prices. Investors hate falling prices. About 90% of the voters want prices to stay steady. But the 10% who will decide the issue want them to go up. Here, we reflect on the fine mess the Fed has gotten us into.  

Breitbart News:

‘First gas, then heating and now rents. Runaway inflation is driving rents skywards across Joe Biden’s America, delivering an average of a 20 percent increase in the U.S.’s biggest 50 cities over the past 12 months, a study details.’

Night follows day. Consequences follow actions. And the bill comes at the end of the dinner. Donald Trump decreed a moratorium on evictions during his panic response to COVID-19. But you don’t get away with anything in this world. And there was no way that depriving landlords of their rents was going to result in anything but trouble. That chicken, printing press money fluttering down from its wings, is now coming home to roost.

CBS News fills in some detail:

‘In the 50 largest U.S. metro areas, median rent rose an astounding 19.3% from December 2020 to December 2021, according to a Realtor.com analysis of properties with two or fewer bedrooms. And nowhere was the jump bigger than in the Miami metro area, where the median rent exploded to $2,850, 49.8% higher than the previous year.

‘Other cities across Florida — Tampa, Orlando and Jacksonville — and the Sun Belt destinations of San Diego, Las Vegas, Austin, Texas, and Memphis, Tennessee, all saw spikes of more than 25% during that time period.

‘Rising rents are [showing]…the biggest increase in 20 years and will likely accelerate.’

What are the poor and the middle classes to do? Move to the further out suburbs where rents are lower and drive their pick-up trucks into the city? Ah-ha! Gotcha!

Fuel is going up too. Yahoo! News:

Here comes $7 gas:

‘Drivers best start bracing for another surge in gas prices amid the conflict between Russia and Ukraine and years of under-investment by the oil industry, warns one veteran energy strategist.

‘“My guess is that you are going to see $5 a gallon…And you might get to $6.50 or $7…” Energy Word founder Dan Dicker said on Yahoo Finance Live.

‘Dicker said oil prices could shoot higher to $150 a barrel, or in line to the “super spike” highs from 2007.’

It looks like the markets are running ahead of the analysts. Posted on the internet:

‘I live in Los Angeles. The Mobile Station near me raised prices to $5.99 regular. I read another location downtown was at $6.66. I have a Tesla and a Prius, high income and retired. I feel for the blue-collar workers that drive into the city from affordable suburbs for their minimum wage jobs. These are mostly minorities.’

Rich, richer, richer still…

Alan Greenspan put forth the doctrine that the Fed should be used to support Wall Street, but not Main Street. This approach — ultra-low interest rates, money printing, and bond purchases — boosted the value of stocks and bonds…making the richest of the rich richer than ever.  

While the Fed coddled, protected, and rewarded the top 10% of the population, it punished the bottom 90%. For 20 years, a richer rich made the rest of the nation relatively poorer. The gap between rich and poor widened every day. But for the last two years, the middle and lower classes are becoming not just relatively poorer but absolutely poorer. Day by day, inflation pushes their basic living expenses upward…while wages lag behind. CNBC reports that companies expect to give employees a raise of 3.4% this year. But prices are rising at a 7.5% rate.

Of course, consumer price inflation hurts the rich as well as the poor, investors as well as consumers. We saw last week that over the long run when measured in gold, stock prices go nowhere. It took 18 ounces to buy the 30 Dow stocks in 1929. It takes 18 ounces today. Take out ‘inflation’, in other words, and capital gains disappear.

Still, companies create wealth. And they share it with their stockholders — either by paying out dividends or reinvesting in the business itself. But if you only get a 2% dividend yield, at the present inflation rate, you are losing 5.5% annually.

And when stock prices are high — as they are today — the folks in the skyboxes and business class seats have a very different perspective. Their biggest worry is deflation, not inflation. While consumer prices tend to ratchet upwards, stock prices are subject to big swings that bring them back to where they started. In just a few weeks, decades of investment growth can be clipped off.

Look out below!

The mortgage finance bubble popped in 2008–09, and investors were shorn of about 40% of their stock market wealth. So far this year, the Dow has lost about 3,000 points. Another 10,000 points down, and the loss to investors will be around 40%.

That’s what we aim to avoid.

But it is also just a beginning. The chilly winds of November prefigure the bitter blows of January. And in the stock market, the ‘primary trend’ doesn’t stop until its work is done. Cycles continue. And we don’t put off the undertaker just because we don’t want to die. Stocks sell for more than 15 ounces of gold at the top; at bottoms they sell for less than five. That puts today’s downside risk at about 72%.

By our reckoning, the primary trend began heading down 22 years ago. Through dumbbell wars, grifter bailouts, jackass handouts, an additional US$62 trillion in debt…lockdowns, shutdowns, put-downs…Bush, Obama, Trump, Biden…the primary trend has carried the Dow from 44 ounces of gold in 1999 to 18 today. Only 13 more to go!

So buckle up, buckaroo. Inflation…deflation…boom…bust…it’s going to be a rough ride.

Regards,

Bill Bonner,
For The Daily Reckoning Australia