Welcome to our Friday mailbag edition!
Every week, we receive great questions from your fellow readers. And every Friday, I answer as many as I can.
Now, before we dive into today’s questions, I want to thank everyone who joined me this week at my last strategy session of the year.
Thousands of your fellow readers tuned in to learn how they can protect themselves – and even profit – from the housing crisis.
If you missed it, my publisher is making a replay available. I can’t promise it’ll be online for long, so be sure to watch it here.
Now, on to this week’s mailbag…
Up first, reader Terry B. has a question about the gold standard from geopolitical strategist Peter Zeihan’s newest book, The End of the World Is Just the Beginning…
I often hear people talk about a return to a gold standard. If I read it right, Peter Zeihan noted in his book that there is not enough gold to support a gold standard. Did I read that right? What’s your take on this?
– Terry B.
Hi Terry, thank you for writing in.
You’re asking a very important question, and one that I believe is on the minds of many of our readers and subscribers.
I can’t totally speak for Peter of course – though you may be happy to know that I’ll be doing another interview with him very soon… and I will make sure to ask him your question.
(For those who missed it, I just published our second interview – and shared a preview in these pages. To get access to all four interviews I’m doing with Peter, head here to learn more.)
However, what I’ll say is this…
There isn’t enough gold in the world to go back to a full gold standard. What do I mean by full? Let’s use the U.S. as an example.
That would mean the fiat currency (U.S. dollar) is backed by full confidence in the U.S. government to make good on its debt obligations, and on the overall strength of the economy.
There is simply too much fiat currency in the world to have a situation where it’s convertible to real gold. That said, there is room for a quasi-gold standard.
What would that look like? Instead of every dollar (or any other major currency) being convertible to real gold… only a portion of the value of each dollar would have to be backed by a certain amount of gold. That’s the gold the Fed (or other central banks) would have to store in reserve.
That would put a cap on the amount of fiat currency that the Fed (or other major central banks) could just create at whim. That’s because they would have to hold at least a portion of real gold to back some of the fiat currency they create.
Under that scenario, people or governments would be able to convert a portion of dollars into gold, but not all of them.
Up next, Distortion Report subscriber Mary A. has a question about different kinds of gold opportunities…
I’m hoping you can expand on gold purchases. I understand stocks like Barrick Gold, buying gold coins/bars, and gold ETFs. But I think I am missing other possibilities and understanding having gold in my portfolio.
– Mary A.
Hi Mary, thank you for writing in.
I can’t give personal advice. But you’ll be happy to know, as a subscriber of my flagship service, Distortion Report, you get access to specific recommendations. And in our November issue, I recommended a well-diversified gold mining company.
In that issue, we took a global view of the steady demand central banks worldwide have for gold.
And I showed what the Three Stages of the Fed’s Pivot, which I’ve written about in these pages, will mean for gold.
As I put it back in November, I believed the Fed would kick off Stage 1 as early as this month. Stage 1 means the Fed is still raising interest rates as part of its fight against inflation, but by smaller increments.
And at its meeting this week, that’s what it did. It raised rates by 0.50%, compared to 0.75% at its last four meetings.
Stage 1 should dampen the dollar, and thus the dollar-gold relationship, which will favor gold. So for anyone interested in building new gold investments, now is a good time.
Next, reader Jim L. has a question about commissions and fees on broker deals… and comments on the wide availability of financial research…
I have a question regarding broker/dealer commissions. Aren’t most investment accounts now managed accounts that are not commissioned-based but fee-based? Aren’t there lots of low-cost investment accounts? Subscriptions to lots of good investment research and investor education are available and very reasonably priced. Aren’t Jim Cramer and Rick Santelli still on CNBC?
– Jim L.
Hi, Jim. Thanks for your questions.
Yes, Jim Cramer and Rick Santelli are still on CNBC. And we also provide a variety of research here at Rogue Economics that you can use on your wealth-building journey.
That means that, at the end of the day, as an investor, you make your own choices as to the style of funds you invest in and what information you choose to use.
As for commissions vs. fees, the ratio of those different fund management options is changing constantly, though fee-based funds have seen more recent growth than commission-based ones.
And yes, some investment accounts have lower costs than others, so it’s important to do your own homework there.
And finally, reader Tom M. questions why I called Goldman Sachs a strong player in my recent essay, “Has FTX’s Fall From Glory Doomed Crypto?”…
How can you call Goldman a strong player that came back in 2008, when it sought commercial bank status, to gain access to the discount window to shore up its finances? And didn’t it get a loan of $5 billion from Warren Buffett? Then it shed the commercial bank status as soon as the situation cleared. Sorry, I’m not buying that Goldman was a strong player seeing the assistance it received.
– Tom M.
Hi Tom, thank you for writing in and for your comments.
You are absolutely right! Goldman not only sought but achieved commercial bank status. Or more specifically, it achieved bank holding company status in order to gain access to the Fed’s help. It was on the verge of collapse in the fall of 2008.
Due to the size of its assets, Goldman became the fourth-largest bank holding company in the U.S. instantaneously as a result. (Even though the distinction was supposed to be reserved for banks that held regular customer deposits.)
Morgan Stanley did the same thing at the time. And yes, Warren Buffett’s Berkshire Hathaway did indeed invest $5 billion in Goldman Sachs at the time – a clear indication of having rich friends helping you out when the going gets rough – on a Wall Street level.
You are right, I probably mischaracterized by using the term “strong” instead of “powerful.” And I completely agree with you.
Frankly, if Goldman hadn’t converted to a bank holding company as per the Fed’s agreement…
And if it hadn’t received the Fed’s assistance, and Buffett’s, and a chunk of bailout money from the TARP act (or us taxpayers)…
It could very well have gone the route of Lehman.
I write about that possibility in my book, All the Presidents’ Bankers. That might be an interesting excerpt to share with you in a future essay, so keep an eye out for that.
And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins