KATE’S PARENTS’ HOUSE, FLORIDA – The words I’m thinking about today: “Do whatever it takes” and, as Bill Bonner puts it, “Inflate or Die.”
Expect massive stimulus announcements from global central bankers over the next week. And if these measures don’t “work,” expect more announcements… and then more again… until they do work.
How will this affect the stock market and gold? More below…
Greetings from West Palm Beach, Florida…
My family and I flew back from Nicaragua last night and I’m writing this message to you from Kate’s parents’ house…
To recap, Kate and I split up six years ago, got divorced, and lived totally separate lives. Two years ago we made a spontaneous decision to leave America and go traveling together. While on our journey, we restored our relationship and we’re now getting married again.
Kate’s parents were disappointed in me for divorcing their daughter and then acting like an ass.
They were concerned about us taking their three grandchildren out of Florida (where they got comfortable seeing their grandchildren every weekend) and on a crazy trip around the world to places like Rwanda, Lebanon, Egypt and India (where they would not see their grandchildren at all).
And now they’re unhappy we’re taking off again and embarking on another year of travel…
(We were supposed to fly to Argentina on Friday, but Argentina just closed its borders to travelers from America, so we’re not going to Argentina anymore. Where will we go? I’m not sure…)
The thing is, because of our travel and divorce, I haven’t seen Kate’s parents in six years.
This morning they met us at the airport. The meeting at the airport was a little awkward. And the car ride back to their house featured long uncomfortable silences…
As we’ve said many times in these Postcards, the biggest bubble of all is the bubble in central bank hubris. They think they can fix any problem or crisis that comes along in the economy. Let’s call it a “God Complex.”
In other words, because of the stress in the markets last week, we’re about to see a MASSIVE fiscal and monetary response from the central bank and the government, not just in America, but all around the world.
Things have moved so fast they haven’t had time to put a full response together yet. But it’s coming. And it’s going to be the biggest financial intervention in all of history.
They will do whatever it takes to make the stock market go back up.
Interest rates are going to zero. The Federal Reserve meets on Tuesday and Wednesday next week. They’ll announce the new interest rate on Wednesday afternoon.
Then we’ll see a big acceleration in quantitative easing (QE), which is the official name of the program where the Fed prints money and uses it to buy assets like government bonds and mortgage bonds.
They may expand the program to corporate bonds and stocks soon. Or even begin giving money directly to Americans. We’ll see.
Either way, I expect the Fed will print up more than $5 trillion over the next few years and $10 trillion over the next decade.
We’ll also see the federal government cutting taxes and announcing big spending plans… for healthcare, infrastructure, and pension fund bailouts.
The government is already spending more than a trillion a year ABOVE what it receives in tax revenue, but as we’ve warned over and over again in these Postcards, during a recession, the pressure on government finances gets much worse.
Could we see the annual budget deficit balloon to $2 trillion? Or $3 trillion? These numbers sound crazy now, but I think they’re possible…
Inflate-or-Die begins NOW. As in this weekend. As in “right now.” There is a huge market intervention in the works as I write these words.
The stock market is about to stage a big rally, the type of rally that traders say “will rip your face off.” It may have even started today. We’ll see.
Either way, whatever rally we’re about to get in the stock market will be a bear market rally. A bear market rally is a temporary bounce higher in the stock market during a longer-term bear market. These rallies are often violent and shocking and completely normal to see during a longer-term market decline.
So we’d rather be in the sidelines in gold right now. It may not jump as fast as the stock market initially, but over time it will rise. The next big milestone is $1,911 an ounce, which is the all time high it set in 2011.
Gold mining stocks and gold royalty streaming companies are also presenting excellent buying opportunities right now, if you’re so inclined.
What I’m Doing Now
Am I doing anything to try to profit from the big rally in stocks (short-term) and gold (long-term) that’s probably starting soon?
No. We’ve already put our entire life savings in gold and buried it. We’ll keep sitting on the sidelines in gold and silver until the Dow-to-Gold ratio hits 5.
(Catch up on the Dow-to-Gold ratio – what it is and why we follow it – here.)
These are long-term trends that take years to play out. I expect the Dow-to-Gold ratio to go below 5 sometime in the next five to 10 years.
In the meantime, I’m going to try to make the most of life, do the best job I can as a husband and father, and stop looking at my phone and computer so much.
– Tom Dyson
P.S. The coronavirus outbreak gives the PERFECT political cover for the huge intervention that’s coming. As an excuse for financial intervention and monetary activism, it’s even better than war!
In today’s mailbag, readers ask about owning silver… share a travel warning… and thank Tom for his writings…
Reader comment: The beach bonfire photo is the most perfect example of the genre. The composition is absolutely magical. The lighting is breathtaking. It is definitely a “Postcard for the Fridge.” A prize winner for sure! I’d like to do a wall in our beachfront condo with it. WOW!
Reader question: Thank you for your postcards. Many analysts disagree with you in asserting that gold will outperform silver. You state this often but don’t say why. Why?
Tom’s response: Because I think gold will play a central role in the new monetary world order that’s coming. The days of using U.S. Treasury bonds as reserve assets are coming to an end. We own silver and I expect silver will rise too, but not as much as gold will.
Reader comment: I was wondering why the gold miners are not catching a bid in the last few days of the market tanking. Usually they seem to ride alongside the spot gold price.
Tom’s response: It’s just supply and demand. Movements in the markets have been extreme this week and investors have been going crazy. There’s a lot of leverage. So when the market goes down, people stop valuing their stocks as streams of future earnings… and start selling anything that’s not nailed down.
Reader comment: I think what you have done is amazing. I suspect you have become pretty “travel savvy” but be careful, especially for your children’s sakes.
I traveled the world when I was a professional engineer and I can tell you it is dangerous out there these days. People and things have changed and it is not nearly so pleasant traveling today.
There are many dangerous rogues who do not respect your rights as a human being and I have met a few of them. Just be careful, safe, and keep the emails coming. I love reading your accounts. For your info, I’m now 87 years old and just a bit jealous!
Reader comment: My gut feeling is you see value in what you’re doing and how you’re living and only wish that for others! You have to show/display that and all it entails to convince others. You are also giving your take on financial matters because that is a universally important aspect in every person’s life and allows you to do what you do. I think of it as a gift, so thank you!
Tom’s response: As always, thank you for your kind notes and messages! Kate and I read every one. Please keep writing us at [email protected].