WEST PALM BEACH, FLORIDA – “How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
This dialogue comes from a novel – The Sun Also Rises – by Ernest Hemingway.
What does it have to do with the financial markets? (More below.)
How I Proposed to Kate (Again)
Greetings from West Palm Beach, Florida. Here’s the story of how I proposed re-marriage to Kate, five years after our divorce…
Two years ago, I took a three-month medical leave from work due to my depression. I went to Scotland and then South Africa.
It was while I was on this sabbatical that Kate and I decided to go on a road trip around America together to see the national parks.
Somewhere along the way we decided we were having such a good time, I should permanently quit my job (instead of the three-month medical leave I’d taken)… we should move out of our apartments in Delray Beach, Florida… close all our accounts… get rid of all our things… and we should keep traveling.
For our next trip, we decided we’d fly to Europe and buy Eurail tickets and spend three months cruising around Eastern Europe on the railways like backpackers.
So we returned to Delray, threw away our belongings, put the few keepsakes we couldn’t throw away in a small storage locker, I sold my car, we closed all our accounts with cell phones, internet etc., and went to Europe.
Oh… and Kate broke up with her boyfriend of four years during this return to Delray Beach.
Not because she was considering getting back together with me, but because she was going to be gone for at least three months. She didn’t think it was fair to string him along while she was gone.
When I Knew
I knew I wanted to get back together with Kate when I was in South Africa… long before we’d decided to go on the road trip around America together.
In fact, I had a diamond ring made for her while I was in South Africa, using South African gold and South African diamonds.
But it wasn’t until we were in Turkey, about halfway through our interrailing adventure, that I floated the idea and told her about the ring. (I didn’t have the ring with me because I hadn’t wanted to bring it on our railway journey.)
She was shocked. Totally blown away. Couldn’t believe I was even suggesting it. She said, “Can I think about it?”
A few days later, she said “yes.” But then a few days after that, she changed her mind again and said “no.” And then a few more weeks later, she said “yes.” And then another month after that, she said “no.”
And so it went for months. “Flip-flopping,” we called it. Meanwhile, we were having an awesome time…
Kate Finally Said Yes
The train trip in Europe was incredible. We went to Poland, Romania, Greece, Albania, the Czech Republic, Bulgaria, Serbia, France, and Turkey. It was summer time… the cost of living was so cheap… and we had the adventure of a lifetime.
(By the way, Eurail is a great way to see Europe. We loved riding the overnight sleeper trains, and getting woken up in the middle of the night by Eastern European border patrol guards and having to change currency in every new country.
It felt like we’d gone back in time 30 years. In Western Europe, the trains are modern, automatic, and air conditioned. And there are no border agents.
But in Eastern Europe, the trains are 40 years old. You can still crank open the windows and lean out into the wind. And they’re covered with graffiti.)
I told Kate: “You don’t have to decide now. It’s an open-ended offer and it’s unconditional. Take your time. I’m not going anywhere.
“And if you decide you don’t want to marry me and you want to go back to your boyfriend, there won’t be any consequences. We’ll just continue being best friends and co-parents.”
Anyway, somewhere along the way we made the decision to keep traveling. This time we were going to go “all the way” and travel the whole way around the world. So I bought round-the-world tickets and on we went…
Drama struck in India about four months later. Our daughter, Penny, fell off a bunk bed. She was six at the time. We had to rush her to hospital, and we were very worried.
It was at the hospital that Kate turned to me and said, “I will.”
“Huh?” I asked.
“I will marry you.”
Everything turned out fine with Penny in the end. Just a concussion. She was back to her normal self the next day.
We Haven’t Seen the Crisis Yet
Turning back to the markets… A friend told me today that I was one of the few people who had “forecast the crisis.”
“Total nonsense,” I said.
Right now, the U.S. dollar is trading near its highest valuation of the last 35 years. (I use the trade-weighted dollar index published by the St. Louis Fed.)
The Treasury’s credit – as judged by the price of the T-bond – is near the highest price it’s ever been in history.
Investors all over the world still consider the U.S. dollar to be the ultimate safe-haven for their savings. They’re rushing to buy more of them.
The chairman of the Federal Reserve has “carte blanche” to print as many dollars and backstop as many banks as he wishes.
This is NOT the crisis. The crisis comes when the world loses confidence in the U.S. dollar as a store of value.
That crisis is still in the future. This is just a coronavirus bailout using an experimental new technique called Modern Monetary Theory (MMT) and a pile of freshly printed money.
Gradually, Then Suddenly
When does a bankruptcy begin?
It’s not when the money runs out and the lights go off.
It happens before that… when an invisible line gets crossed and – “poof” – psychology changes. Creditors begin to panic, calling in their money all at the same time. A “run on the bank” begins and bankruptcy follows soon after.
These bank runs have the pattern that Hemingway identified in The Sun Also Rises: gradually and then suddenly.
We’re watching the Fed engineer the largest financial bailout in history, using printed money and the good credit of the U.S. government.
I suspect this bailout will ultimately cost between $10 trillion and $25 trillion in printed money (measured by the total assets on the Fed’s balance sheet.)
The question I wonder is: When does “gradually” turn into “suddenly,” and we see a run on the dollar?
I don’t know the answer. But we’re preparing for it now, anyway, because when it happens… it’ll happen so fast there won’t be time to get out of the way.
– Tom Dyson
P.S. If you agree with me, that there’s a dangerous line the government can cross that sends the dollar suddenly spiraling, then you must buy gold now. Once we cross the invisible line… it’ll be too late to get gold. Do not wait.
Check out today’s Q&A video in the mailbag below for more on that…
FROM THE MAILBAG
Tom has an urgent message for you in today’s exclusive Postcards Q&A video…
Meanwhile, one reader offers Tom a suggestion for his videos… while another asks about inflation…
Reader comment: Just suggesting a little tweak to how you make your videos. You’ve got great information. We all love reading your Postcards. The main thing about the on-camera stuff is you must look into the camera. When you don’t and/or you look down, we, the audience, wonder what you’re looking at. But you’re talking to us, so talk into the lens.
Now, here’s the BIG SECRET. Imagine someone you know, someone you like, someone who likes you, someone you trust is behind that lens. You are telling that person all the information. Pick a real person from your life. Believe me, it will make all the difference and we will feel like you are talking to us personally. You’re on a great path. Such a treat to be able to share some of it with you.
Reader comment: You are a dreamer. You abandoned the real world a few years ago and you have been living your dream life. You are living off of your savings and producing nothing for the real economy.
The problem with the lockdown is that the rest of the world is now following your model. There is zero investment and consumption has collapsed. GDP must be down 50- or 80% on a monthly basis. So where is inflation going to come from? Look at the price of oil for an answer. Who cares about inflation and gold…
Tom’s response: Your analysis doesn’t take into account policy response. Without any policy response, economic growth would quickly turn negative and stay there until the excesses and bad investments of the credit boom had been liquidated and balance restored. But the world monetary system is run by the most interventionist policymakers in history. They have a God complex and they will do whatever it takes to generate inflation. They may even engineer it on purpose. That’s my point.
And as always, thank you for your messages! Please keep writing us at [email protected]. Kate I read every note you send us.