I'm writing this Wednesday morning, November 4th, 2020…
And the winner is…
Good question. Ask me again in 2 to 3 weeks, and I might have your answer.
As the sun came up post-election, expectations were confirmed. There was no clear winner. No victory speeches. No concessions.
Red states went red. Blue states went blue. Battleground states were still toss-ups. Heels were dug in. Ballots were still being counted.
The nation was, is, and most likely will be for the foreseeable future… split pretty much right down the middle.
What we do know is really no surprise at all. The pollsters got it very wrong again. Just like Brexit. Just like 2016. Dead wrong. No landslide victory. No double-digit wins. No decision Wednesday morning.
The other thing we know is this will not end quickly. Votes will be counted through the weekend or beyond. Then, with both sides posturing their lawyers for a legal battle, the courts may be the ones to eventually decide the outcome.
In the meantime, the world – not just the United States – will watch intently with heightened anticipation.
So, what does that mean for the markets?
In a word… uncertainty.
We all know markets do not like uncertainty. Investors prefer the known versus the unknown. They like to put their money where they have a more than reasonable chance of a return of investment first and a return on investment second.
Unfortunately, given Tuesday night’s results, that’s just not in the cards right now.
Uncertain outcomes of this magnitude, with a potential shift in policies to the opposite end of the spectrum, create increased market volatility. Investors will sway one way and another based on a Tweet, a newly reported result, or any shift in momentum.
In such an environment, volatility reigns supreme.
Long-time readers know where we go for safe harbor when markets are roiled.
We foresaw this scenario, and we have been suggesting for months now that you secure your wealth insurance for protection against it. If you have taken that step, good for you.
If you haven’t, it’s not too late. Gold and silver are only up slightly from their recent lows. The bull market dip – which is your opportunity to buy well in a rising market – is still very much there for the taking.
Fill your wealth insurance allocation, and ride out the storm. AS I said last month…
“I do not see, at present, an alternative path. The next few months will be contentious, unnerving, uncertain, and volatile.
Let us help you secure your golden anchor until the waters calm. Now, more than ever, you need gold in your portfolio.”
To me, this outcome was quite obvious, and it is playing out.
Peace Be with You
One last thought…
No matter the final outcome, I am proud to live in a country where change can happen, or things can remain the same, as a result of a peaceful (for the most part) process, where the will of citizens is measured and accepted.
Whether it be in a few days or a few weeks, we will have our answer, and we will move forward together as a nation.
And, if we don’t like the outcome, we have a voice we can raise four years from now.
I heard a quote the other day, and I can’t remember where, but I’m going to share it anyway…
In the end, nothing that happens in the White House has as much impact on you or those you love as what happens in Your House.
Live well. Treat your friends and your enemies with respect. Make a difference through your shining example to those you hold most dear.
We will eventually have a winner, one way or another, and America will move forward. Period.
P.S. If you are struggling with what to do next to Keep What’s Yours, register to join me in Las Vegas, November 14th through the 18th, for the 24th Annual President’s Week Asset Protection and Investment Conference. I hope to see you there!
Editor's Note: ASI has known and worked with Geoff Anandappa for about 15 years from his days as the Senior Portfolio Manager with Stanley Gibbons Investments in London. When SG closed its Investment department, Geoff stepped forward to help as many clients as he could. Now, his own company, Rare Tangible Assets Ltd. manages portfolios over $30 million for 150+ clients in UK, US and Asia.
Rare Tangible Assets: A Calm Amidst The Storm?
By Geoff Anandappa
The past two or three years haven’t been the easiest for investors in Rare Tangible Assets (RTAs). The economy was thriving, stock markets had been on a steady upward trend since 2008 and property continued to give steady returns. There was little reason for investors to seek diversification.
In contrast, the market for rare stamps was suffering. British stamps, which had increased at over 10% per year between 2005 and 2015, started to slow to 1% or 2%. In November 2017, Stanley Gibbons (SG) the world’s oldest stamp dealer, closed down its Investment Department. Prices in SG catalogues, the standard reference for many collectors, were slashed by ~15% in 2019. Investors were left holding portfolios of rare stamps with no advice about what to do next. In desperation, many tried to sell by auction – and the glut of rare stamps on the market caused prices to slump further.
Chinese stamps suffered a similar fate. While the Chinese economy was doing well, stamp prices were increasing at 10% to 15% per year. But the faltering economy and increasing unrest in Hong Kong took its toll. Once again, SG reduced catalogue prices by around 15% in 2018, and the market has still not recovered.
RTA investors who hold ancient coins (that is Roman, Greek, early English & European coins) have fared better. The US is the biggest market for ancient Roman & Greek coins, and prices have been steady. English coins have performed very well: up over 500% in the past 20 years. Within this, some areas have performed better than others. Coins from the Tudors (Henry VIII, Elizabeth I etc. 1400s-1500s) – traditionally a popular area – have increased only ~400% in the same period. In contrast, the later milled gold coinage of the Hanoverian monarchs (George I to Victoria, 1700s-1800s) has increased over 750%.
Spectacular Hanovarian Milled Gold
Queen Anne 1705 Five Guineas
in extremely fine (proof-like) condition, purchased for £90,000 ($150,000) in 2014, recently sold in London for a staggering £264,000 ($340,000).
RTAs in the Post-Covid World
As with many areas of the economy, the coronavirus pandemic initially caused chaos and confusion in the world of collectibles. Fairs and exhibitions traditionally frequented by collectors of stamps, coins, books, antiques and art were all cancelled. Dealers had to close shops and galleries, and some auctions were postponed.
However, dealers and auctioneers very quickly adjusted to the “new normal”. London’s annual stamp exhibition, usually frequented by thousands of collectors from around the world, changed to a purely online three-day event (see graphic, left) with virtual dealers’ booths, video presentations and chat rooms. Collectors’ clubs and societies adapted their meetings with video conferencing software. Online platforms such as YouTube, Facebook and Instagram saw a huge spike in collector-driven content.
The vast majority of auction houses already had facilities for online bidding, and many had even developed their own mobile phone apps. So the change to exclusively web-based auctions was not as difficult as it might have been. What was surprising was how quickly collectors and dealers adapted to the change. Most auctioneers reported increased engagement, with more viewers and bidders than usual. Auction platform Saleroom.com reported 3.3 million visits in July (up 28% on the previous year) with a 60% increase in registrations. The auction results also exceeded expectations, often with 100% of the lots sold and realisations well above estimates.
In general, dealers and auctioneers are optimistic about 2021 and the post-Covid world. Their travel costs are virtually eliminated, and the move from retail premises to online sales has reduced costs and increased profits.
The increased volatility in stock markets and the surge in government debt have also prompted investors to look at RTAs again. The last economic crisis of 2008-9 saw a spike in prices for RTAs. It is too early to predict whether that will happen again – but prices for RTAs are certainly not falling.
What Next for RTA Investors?
For those who own a portfolio of British or Chinese stamps which have slumped in value in the past three years, my advice remains the same: hold steady and don’t sell unless you must. There are no guarantees, but it looks like a slow recovery may be on the way.
Opportunities to sell at a good price may be thin on the ground, but they do exist. In the past week, I have found a buyer for two rare British stamps belonging to clients in Florida and Hong Kong. The total, just over $50,000, represented only a marginal profit – but, in the current market, it was too good to miss.
New Investment Opportunities in RTAs
For those who have yet to diversify their portfolio into tangible assets, this may be an opportune time.
The market for British and Chinese stamps has fallen in the past few years, but is now starting to recover. It is still possible to acquire rare items very cheaply, for 30%-50% of SG prices.
China 1894 24ca Carmine-Red
SG price £3,000 ($3,750)
Available at £1,200 ($1,500)
Great Britain 1913 £1 Green specimen
SG price £3,250 ($4,000)
Available at £950 ($1,200)
Opportunities also exist in English coins. Some areas are expensive but others, like Tudor gold coins, appear to be undervalued in the current market.
Elizabeth I 1596-9
Very Fine condition
George IV 1823
Gold Two Pounds
Very Fine condition
Most of these stamps and coins are available to purchase in New York, Hong Kong or London. However, London is the biggest trading hub for British stamps and coins. The British Pound is still cheap at $1.30 – compared with $1.60 five years ago. The 20% extra buying power certainly gives US investors an added advantage in the British market.
For those investors, like me, who already own a significant portfolio of rare stamps and coins, there are many other tangible assets worth considering. One of my recent purchases is a first edition of the first Harry Potter paperback, signed by J.K. Rowling. First editions of classics from the last 150 years, from Dickens to Hemmingway, have shown similar returns to rare stamps and coins.
I also own vintage movie posters: the 1962 James Bond (starring the late Sean Connery) Dr. No poster is a particular favourite. Other clients own classic Bogart and Hitchcock posters from the 1950-60s and the original 1977 Star Wars is increasingly in demand.
Limited editions of modern and contemporary art are another option: from the 1960s Pop Art of Warhol and Lichtenstein to British artists like Hockney and Banksy.
For those who wish to diversify their portfolio, for protection against volatility and coming inflation – with the added bonus of currency diversification – this is the right time to consider rare tangible assets. Whether you already own a RTA portfolio or want to start building one, I would be happy to help. Please email me: info@RareTangibleAssets.com.
Editor's Note: If you enjoy reading Tom Dyson's Postcard From the Fringe, catch up on back issues here. And if you have questions or comments, shoot him a note anytime here or at email@example.com.This article was originally published on October 27, 2020.
If You’re Invested in the Stock Market, You Need to See This Chart
By Tom Dyson
Let’s look at the most important chart in economics… the Dow-to-Gold ratio.
The Dow-to-Gold ratio shows us the relationship between the stock market and gold.
The first thing the ratio tells us – looking back 120 years – is there is a clear cycle in this relationship.
At times, stocks get cheap compared to gold. You can buy the Dow with only a few ounces of gold. This was the case in 1896, 1932, and 1980.
Other times, gold gets very cheap relative to stocks. It takes many ounces of gold to buy the Dow. 1929, 1966, and 1999 are examples of this.
The ratio seems to cycle between these extremes every decade or two. Take a look…
The second thing to notice is that extremes in the Dow-to-Gold ratio tend to mark important tops and bottoms in the stock market.
At important bull market tops – like 1999 – it takes many ounces of gold to buy the Dow. At important bear market bottoms – like 1980 – it takes only a few ounces of gold to buy the Dow.
This makes sense. In bull markets, people don’t want the safety and protection of gold. In bear markets, people flee from stocks and treat gold as a safe haven.
We can say, therefore, that the Dow-to-Gold ratio is a good indicator of the primary trend in the stock market.
Based on my reading of this chart, the stock market entered a bear market in 1999… And it will remain in a bear market until the Dow can be bought with only a few ounces of gold.
My guess is that will occur at some point in the next 10 years.
Stocks Are in a Silent and Insidious Bear Market
Today, one share of the Dow will buy only 14.5 ounces of gold. That’s down from 42 ounces back in August 1999. In other words, since 1999, the Dow has lost 65% of its value in terms of real money – gold.
Talk about a silent and insidious bear market.
Why is this bear market taking so much longer to play out than previous bear markets? And how can the Dow still be near all-time highs in nominal terms if it’s in a bear market?
The bear market is being prolonged by aggressive intervention from governments and central banks from all around the world.
They have chosen the soft landing approach: to do whatever it takes to prevent the bear market from doing its work… and to prevent the Dow-to-Gold ratio returning to single digits.
My guess is, in the end, these efforts will all be in vain.
The Dow-to-Gold ratio will return to low single digits (below 5) anyway… And the government policy of “do whatever it takes to avoid recessions and bear markets” will have been completely discredited.
The End of Banks?
Will banks be obsolete soon? It’s hard to imagine… but I wonder if that’s the direction we’re heading in…
Banks came into existence as warehouses where people could store their gold and then, later, their cash.
Using a clever technique called fractional reserve banking, in combination with government deposit insurance, banks became profitable businesses. They also became the central nervous system of the modern financial system… and the engine of money supply inflation and debt growth.
But what if, because of the invention of digital wallets and non-bank payment systems, we didn’t need checking accounts anymore? We would each have our own digital wallet… connected by the internet… outside the banking system…
Or what if the Federal Reserve controlled this system of digital wallets? The Fed could then dish out cash and loans and control interest rates on deposits directly without having to influence the banking system to do its dirty work. The Fed could even introduce a universal basic income this way.
I think it’s coming… and I think it’s going to be very inflationary as the Fed will be able to increase money supply without depending on banks to increase their lending activities…
– Tom Dyson
The Inside Story
Editor's Note: Frank Holmes is the CEO of U.S. Global Investors—a company that produces quality analysis concerning gold, precious metals, natural resources, and emerging markets—in conjunction with his work as a fund manager. Frank is a long-time friend of ours, and in the article below, he explains how inflation will impact investors. For more articles like this from Frank and other leading experts, you can subscribe to the U.S. Global Investors newsletter here.
Is Headline CPI Inflation "Fake News"?
By Frank Holmes
The Federal Reserve just tweaked how it thinks about inflation, and this could have a huge impact on gold and gold mining stocks.
Speaking at Jackson Hole last week, Fed Chair Jerome Powell unveiled an adjustment in U.S. monetary policy that would allow inflation to average 2 percent over a period of time. The implication is that the Fed would let increases in consumer prices overshoot the 2 percent target rate, which the U.S. has rarely touched since 2012 (if we’re going by the headline consumer price index (CPI), which I’ll talk more about below).
To support this reframing of inflation, Powell says interest rates are likely to remain at near zero for some time longer, possibly for another five years.
This policy change could be constructive for gold prices and, consequently, gold producers. This is something I’ve written and spoken about many times before. According to the World Gold Council (WGC), in years when the rate of annual inflation was greater than 3 percent, the price of gold increased 15 percent on average in nominal terms. That’s 10 percentage points higher than the increase that gold prices saw on average in years when inflation was 3 percent or lower.
As of Friday morning, spot gold was trading near $1,970 an ounce, down about $100 from its all-time high. There could be even greater upside potential if inflation is allowed to expand at a higher rate.
But Are We Even Measuring Inflation Accurately?
Besides signaling possible gains in the price of gold, Powell’s speech raises the question yet again if we’re even measuring inflation accurately in the U.S. As you may be aware, the official CPI is controversial among some investors, academics and economists for a number of reasons. Many people believe that it doesn’t reflect the real changes in prices they’re seeing every day.
For the month of July, for instance, the Bureau of Labor Statistics (BLS) reported that prices for all urban consumers rose only 1 percent year-over-year. Even when we remove core items like food and energy, the increase was a paltry 1.6 percent.
Really? Everything, it seems, is up right now. Stock indices are at record highs. With bond yields at record lows, even before inflation takes its cut, investors are chasing dividend-paying stocks. Gas prices have creeped up to pre-pandemic highs. Nearly every metropolitan area (96 percent) in the U.S. saw an annual increase in home prices in the second quarter, according to the National Association of Realtors (NAR), with the median price climbing 4.2 percent to $291,300.
Here in San Antonio, where the cost of living is typically lower than the national average, median home prices rose 9 percent in July to $260,700. The average price exceeded $300,000 in July, up 10 percent from the same month in 2019.
And look at lumber prices. From the start of the year, the wood has soared 190 percent as lumber demand has surged on an increase in home renovations during coronavirus lockdowns and supply was constrained by closed mills. On Friday, lumber hit a new record high of $916.30 per board foot, almost three times higher than the 10-year average of $338. This has helped support share prices of home improvement retailers like Home Depot, up 33 percent year-to-date, and Lowe’s, up 40 percent.
So is there a more accurate gauge of inflation than the CPI? I’m a fan of the site Shadow Government Statistics, or ShadowStats, which provides, among other things, alternate inflation data that uses the 1980 CPI methodology. For what it’s worth, if we use this definition of inflation, consumer prices actually rose 8.6 percent in July, not 1 percent, a not insignificant difference of 760 basis points.
Want to learn more about the relationship between inflation and gold? Watch the video below, and be sure to like it and subscribe to our channel!
Ohio Fund Adds Gold to Hedge Against Inflation
If you believe this—if you believe the headline CPI understates the impact of inflation—why wouldn’t you invest in gold?
I don’t think it’s a coincidence that institutional investors are starting to add gold to their portfolios at this time. Last week, we learned that the $16 billion Ohio Police & Fire Fund will be taking a 5 percent position in the yellow metal as a hedge against inflation.
If you recall, Texas became the first state in the U.S. to have its own gold depository when it opened the Texas Bullion Depository two years ago. At the time, I said that it might encourage other states to follow suit, and I’m pleased to see Ohio money managers realize that a 5 percent to 10 percent allocation to the precious metal is wise and prudent.
Improved Manufacturing Activity Is Also Inflationary
Earlier in the month I shared with you that manufacturing activity is improving around the world, as measured by the purchasing manager’s index (PMI). Factories in both China and the U.S., representing 40 percent of global economic output, are currently in expansion mode, with the official China PMI up for the past five straight months. Later this week we’ll see the PMI numbers for August, and I’m expecting them to have ticked up even higher.
This type of activity is inflationary. New orders means greater demand for metals, energy and other commodities and raw materials, and this has the effect of pushing prices up.
This is why we’ve seen the copper price rise steadily off its pandemic low. Sometimes referred to as “Doctor Copper” for its role as an economic bellwether, the red metal is universally used in electrical wiring, construction, industrial machinery and more.
It’s not just asset prices that drive up inflation, of course. There’s also wage growth, and in many economies that produce much of the world’s goods, especially those in Asia, wages are on the rise.
Of the countries featured above, China remains the most expensive to manufacture goods in based on a monthly base salary of $493, but according to CLSA, Indonesia and Thailand both saw relatively high wage increases in 2019. You can see why many companies, including Apple, Samsung, Nintendo and GoPro, are moving out of China and relocating to Vietnam and other lower-wage economies.
“As the Publisher of The Oxford Club financial group for over 28 years, I've learned to be very selective in who I recommend to our Members. When it comes to buying precious metals and offering services for offshore diversification and protection of assets, there's only a few groups I would trust. Asset Strategies International is one of the select firms I recommend without hesitation. I've worked with them for decades. ASI is a family-led business that offers the perfect complement of hard asset services and expertise for our Members, with the utmost professionalism and responsiveness." —Julia Guth // CEO & Executive Publisher, The Oxford Club
“As the Publisher of The Oxford Club financial group for over 28 years, I've learned to be very selective in who I recommend to our Members. When it comes to buying precious metals and offering services for offshore diversification and protection of assets, there's only a few groups I would trust. Asset Strategies International is one of the select firms I recommend without hesitation. I've worked with them for decades. ASI is a family-led business that offers the perfect complement of hard asset services and expertise for our Members, with the utmost professionalism and responsiveness."
—Julia Guth // CEO & Executive Publisher, The Oxford Club