Update on gold, August 2020. Since I finished editing the Book in April of this year, gold has gone on a tear, up around 25% for the year. Thru the worst of the pandemic lockdown and wipeout of the economy in the spring of this year, gold only lost 2.3%, vastly less than other assets or stocks, then quickly took off to the upside. I just read a WSJ article by Jason Zweig where he readily admitted he was wrong in 2015 for calling gold a “pet rock”, meaning it was a lousy investment and going nowhere.
In Zweig’s current article he points out that gold was up an average of 10.5% per year since his “pet rock” remark, and as I referred to above, it’s up another 25% in just the last 90 days. Zweig goes on to promote the same strategy that I do in the “Coronavirus” book, and that is: Hold just a percentage of your total investments in gold (I recommend up to 10%), and hold it for the long term as a safe haven, as “lifelong insurance”, in the event of a massive financial crisis (which is no longer a remote possibility).
I do think gold has gotten ahead of itself at $1900 per ounce, so I recommend that you look for a pullback of around 10% or more from that price before buying gold, or before buying more. Note that on the “predictions” page of this site, I predicted gold will hit $3,000 per ounce within 2 to 3 years. So even at 1,900 per ounce, there is a good likelihood of a gain in price from that level in the next couple of years. $3,000 gold is just a prediction, and though that price is based on my best analysis and experience with gold, I cannot promise or guarantee anything.
Update on Debt Bubbles, August 2020. The Book explains that the massive amount of excess money supply ends up mostly in assets; stocks, bonds and in debt issuance (loans by investors and banks with money to lend). What I should have added in the Book is how all this debt issuance damages the economy. So, I will briefly explain that here.
With excessive lending of cheap money (low interest rates), we end up with a lot of “zombie” businesses and some zombie banks too. These are businesses that can only be kept alive as a going concern by taking on more and more debt, none of which they can pay back. This in turn blocks the entry of a significant number of new and better businesses, because they can’t compete with the zombies and cannot get the loans that the zombies are soaking up. Further, we don’t get rid of the dead wood zombies, and they produce very little new except for a more sluggish economy.
Even successful companies soak up a lot of the excess money to lend, then use much of it for non-productive activities like stock buybacks, stockpiling cash, buying up competitors, cornering the supply of critical employee talent, and sucking up other resources. These activities too often result in little new productivity, in a stifling of competition, in an additional drain on economic growth, and – inflation in prices.
A great article that explains all this in much more detail is: “Review – The Rescues Ruining Capitalism”, Ruchir Sharma, Chief Global Strategist at Morgan Stanley, Wall St. Journal, July 25, 2020.
Chapter 6 update – reasons behind low inflation. In the sub-topic, “Why has inflation been relatively tame since the Great Recession?”, the book states that the Federal Reserve’s quantitative easing (QE) program “was a 3.5 trillion dollar injection of new money into the economy.” While a great many economists and analysts agree with that assessment, a recent WSJ article by Phil Gramm and Mike Solon*, points out that the Fed actually borrowed money from commercial bank reserves to fund QE, so new money was not created. QE did add much liquidity to the economy but, according to these author’s, not actual new money.
I suspect these writers are correct, or mostly so, but either way it makes almost zero difference to all the key points, information and statements made throughout the Coronavirus book.
* See “The Fed May Not Duck Inflation This time”, Wall St. Journal, May 29, 2020 and June 7, 2020.