One Solution for an Absurd Situation

CHISWICK, WEST LONDON – Gold is at $1,800, about where it was 14 months ago…

The dollar index is at 92, stuck in a narrow trading range for the last seven years…

And the U.S. government’s credit is still pristine. There’s been no loss of confidence in the government’s ability to service its debts or questions about the Treasury’s solvency. (As regular readers know, we’re patiently waiting for the government to “soft default” on its debt.)

Meanwhile, the Dow Jones Industrial Average has doubled over the last five years…

Over the last year, U.S. property prices rose 18%, according to the Case-Shiller national home price index (that’s the largest annual gain in the index’s 34-year history)…

And total world debt outstanding went up about 35% from 2019 to 2020, according to the Institute of International Finance. 

What does this mean for us as investors today? More below, but first…

Four More Weeks in London

Greetings from London… 

Three years ago, my family and I handed in the keys to our apartments, got rid of all our possessions, and became a full-time traveling family.

We’ve been floating around the world ever since, living in Airbnbs, cheap hotels, and on mattresses at the houses of our friends and family.

We are currently in London, wrapping things up following my mother’s death. (She named me executor of her will.)

We’re almost done here. And besides, our 180-day U.K. tourist visas are about to expire. So I bought plane tickets yesterday… to New York. We leave in four weeks…

My father lives in New York in a one-bedroom apartment. He is an artist and a musician, and he is fluent in Spanish. We’re going to sleep on his couch for six weeks and practice music, art, and Spanish with him.

Then, we’re heading to Idaho to get our possessions out of our car. (We lived in Idaho for six months before flying to London. We left our car parked at the Idaho Falls airport. And then we sold it to my colleague Dan Denning, coauthor of The Bonner-Denning Letter.)

And finally, we will spend Christmas with Kate’s parents in West Palm Beach, Florida. 

After that, who knows…

London Summer

We’ve been in London all summer, having a grand time.

Kate’s found a homeschool group in Ealing, and she’s made a bunch of friends.

Here are all the homeschool kids having a meetup at the indoor rock-climbing gym last week…

The boys and I got really into cricket.

We’ve played in a dozen matches for Chiswick Cricket Club, our local team, and we’ve watched several professional matches at London’s biggest cricket stadium.

We’ve also taken lessons in rowing, karate, gymnastics, and performance art.

Here are the kids performing a song from The Lion King in their performance art class…

We’ve been to lots of tourist sites… including the Science Museum, the History Museum, the War Museum, the Museum of London, the Home Museum, the Victoria and Albert Museum, Kensington Palace, Hampton Court, the Tower of London, Buckingham Palace, St. Paul’s Cathedral, the Royal Court, and Oxford University.

Finally, we’ve completed all the paperwork relating to my mother’s death, paid all the taxes, and renewed all our travel documents… 

We’ve only got a few more things to do, and we’ll be ready to move on again…

Absurd Situation

Back to the big investment picture…

The Federal Reserve is printing dollars at a rate of $120 billion per month.

In the last two years, the Fed’s balance sheet has more than doubled. They’ve printed $4.6 trillion – more than they printed during and after the 2008 crisis. And they’ve increased the money supply by about one-third.

The U.S. government is running deficits of $3 trillion a year, and financing these deficits by borrowing dollars. It is currently $29 trillion in debt. And it has unfunded off-balance-sheet liabilities of over $100 trillion at present value.

Interest rates offered by the Treasury to borrow dollars are negative on a real, inflation-adjusted basis… the lowest they’ve ever been.

In short, this is an absurd situation.

In these Postcards, we call it “the greatest financial experiment in history.” We observe it has led to the greatest speculative bubble of all time, in all things.

The situation resolves itself in one of two ways (or possibly both)…

Either the world loses faith in the U.S. government’s ability to service its debt, in which case we’ll get a run on the dollar and witness the early stages of hyperinflation…

Or they’ll stop intervening in the markets, interest rates will return to normal levels, and we will lose 20 years of capital investment, credit growth, and stock market gains. I call this the “Great Reset.”

Gold will win either way, especially measured against equities and other risky assets.

This is why my family and I have gone all-in on gold (and other hard-currency proxies). And it’s why, as regular readers know, we watch the Dow-to-Gold ratio so closely.

I have total conviction in this view. So for me, it’s just a question of timing… a waiting game… a challenge of my patience…

One “Big Trade” for Financial Freedom

I’m taking the challenge very seriously. I see it as the culmination of my life’s work… my “big trade” to achieve financial freedom… 

First, I’ve prepared myself mentally for the Great Reset to take at least a decade to arrive. 

Second, I bought physical gold and buried it in multiple locations around the world, where I can’t access it and won’t be tempted to sell it impulsively. 

Finally, I got rid of my smartphone.

The smartphone is the enemy of patience. Using it compulsively for 15 years has shattered my ability to focus, contemplate and, above all, wait patiently.

I now have a terrible case of “cognitive impatience.” My mind is like a ping-pong ball, in other words. 

This will sound a little crazy… But I believe this hurts my ability to sit tight on our gold trade and see my “big trade” through to its climax.

So I’ve gotten rid of my smartphone.

And I’m not going to use it again until the Dow-to-Gold ratio hits five. (I’ve also started practicing feeling bored, in an effort to rebuild my cognitive patience again.)

– Tom Dyson

P.S. Regarding the end of the great financial experiment and the two possible outcomes… The timing comes down to handicapping the Fed’s response. It’s impossible to predict when that will happen. But my hunch is, they’ll keep the experiment going (printing, borrowing, spending, and intervening) until investors start to lose faith in the dollar.

At that point, the Fed will get religion (meaning it’ll change its mind and make stabilizing the dollar its priority), and we will get the big liquidation I’ve been calling for in these Postcards. But, as I said, it’s hard to predict exactly how it’ll unroll…

Like what you’re reading? Send your thoughts to [email protected].

Postcards reader Bert was delighted to re-read Tom’s essay about visiting his Texas Mustang ranch last year…

Reader comment: Bert here! Hope you and your beautiful family are well and continuing to live the life! It was a pleasant surprise to see this blog. Thank you, it made my day! You are welcome back anytime! Best to “all y’all”!

Meanwhile, Tom’s decision to “do nothing” with his late mum’s home resonated with several readers…

Reader comment: I think your idea to lock up the house and have it for possible return is an excellent idea. Going to the States might precipitate a needed return to safety in England… at least for a while.

Reader comment: I like your phrase, “When you don’t know what to do, do nothing.” That allows the power that knows the way to take over and give you answers. Thanks. You and Bill Bonner have brought sanity to my world.

Reader comment: A wonderful idea. I think there are reasons why this house pulls you. A few days ago, one of your readers articulated changes I’ve noticed in you and your family’s photos so well since you arrived at your mom’s house. All of you look more solid, rested, relaxed, and happy. Energetically, as well. I could see these changes through photos you’ve shared in your newsletter. Best wishes to you and your family!

Reader comment: I find it amusing that after following your worldwide adventures with you and your family, you are currently living in Chiswick, which is a stone’s throw from where I live. Wishing you and your family well.

Tom’s note: As always, thanks for your kind messages. We read every note you send us, and your encouragement keeps us going. Please keep sending in your comments and questions to [email protected], and I’ll do my best to answer them in a future Friday mailbag edition.