BOZEMAN, MONTANA – We’re staying in a hotel in Bozeman, Montana. It’s a rather unremarkable hotel. The sort you’d find on the outskirts of town near an airport or a freeway exit. But the beds are soft, the showers are warm, and it has a small swimming pool.
It’s a nice break from the camper.
Change of Plans
This morning, I was fetching coffee from the coffee dispensers in the lobby.
“Where are you going next?” asked the friendly receptionist we’d been chatting to.
“I don’t know,” I said. “Wherever the wind blows us next.”
We had planned to see Yellowstone National Park and Glacier National Park. But there are so many tourists, all the campgrounds are full, and it’s starting to get cold at night. We’ve even heard some reports of snow.
Marriage on the Horizon?
Now I’m thinking we should head south again…
“Want to go get married in Las Vegas next week?” I asked Kate, when I got back to the room with our coffees.
“Okay,” she said.
We hit the road again tomorrow…
Big Financial Predictions
For the last year or so, since we’ve been writing these Postcards, we’ve been making a series of big financial predictions…
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There’d be a series of recessions coming. “Recessions are like buses,” I said. “You wait for ages and then three come along at the same time.”
We made this prediction before COVID… when there hadn’t been a recession for 12 years. Now, we’re in a recession. I still expect there will be a couple more recessions before the decade is out.
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These recessions would stretch the government’s finances (tax revenues down, spending promises up) and force the Treasury to issue a ton of extra debt.
So far so good on this prediction, too. The current recession we’re in has led the Treasury to massively accelerate its debt issuance. In the last three months, it has had to issue about two times as much debt as it issued during this time period last year.
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In order for the Treasury to issue all this extra debt, the Federal Reserve would have to print money because there wouldn’t be enough free capital anywhere else in the world to finance the Treasury’s debt binge (at least not at current interest rates.)
This prediction has worked out. In the last six months, the Fed has printed $2.83 trillion.
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Sooner or later, all this borrowing, spending and money-printing would cause inflation and exert upward pressure on the interest rates the Treasury pays to borrow. The Fed would have to introduce yield curve control to stop the government’s interest rate from rising and bankrupting the Treasury.
Inflation rates would rise above interest rates, which would mean, effectively, that anyone lending money to the U.S. government would be forced to accept a guaranteed loss, potentially for years, also known as a “negative real interest rate.”
The Fed hasn’t officially introduced yield curve control, although they may have already started controlling yields unofficially.
This chart shows the yield on the five-year Treasury bond, adjusted for the bond market’s expectation for inflation over the next five years.
As you can see, it went negative this year and is now almost negative 1.5%. (Note: this chart uses the market’s projected inflation rate, not the actual consumer price inflation (CPI) inflation rate. So inflation hasn’t arrived yet. Just the market’s expectation of it.)
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When investors, money managers, and our foreign creditors figure this out and realize the long-term implications of this (that government bonds will have negative real interest rates potentially for years to come), they’d revolt and refuse to lend the Treasury their capital. There’d be a stampede out of the government bond market and into real assets like gold, silver, and commodities.
The Fed will end up having to buy most of – if not all of – the government bond market. The Fed’s balance sheet will start rising towards $20 trillion. Ultimately, if nothing’s done to stop this cycle, it’ll lead to an exodus from paper currencies and a new financial reserve system.
This prediction hasn’t panned out yet, either. We need to wait for the market to come to terms with #4 first, and then it will pan out. We’ll see.
We’ve been calling this story “the greatest financial experiment in history.” We don’t know how long this great experiment will take to run its course.
We just know we don’t want our precious savings to get caught up in any implosions or disasters or currency devaluations, and we’d prefer to wait on the sidelines in gold, out of harm’s way.
– Tom Dyson
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FROM THE MAILBAG
Readers have questions about the Dyson kids’ “formal” education… what’s next on their itinerary… and how to live off of gold investments…
Reader comment: I hope your children are getting enough schooling from textbooks as well as their real-life adventures. The three “Rs” (Reading, wRiting, and aRithmetic) plus the history, penmanship, social studies, and now computers, keyboards, etc. are all so important in later life. Of course, with the COVID right now, your children are among so many others with some form of homeschooling. Have they ever had any formal “in classroom” education? Will they, at some future time?
Tom’s response: Our children have never had any formal “in classroom” education. Not sure about the future, but we’re not planning on it. We like homeschooling them. We use a mix of textbooks and online resources. We don’t have much room in our luggage for heavy things like books, but we do carry a textbook for each child, which they work through every day.
Reader comment: Your comments about “oil carriers” and other ocean cargo ships have me worried. They are not doing too well at the moment and I’m looking for consolation perhaps.
Tom’s response: I’m not sure what I said that makes you nervous. Shipping stocks are my favorite sector of the stock market right now. Their stock prices seem to have stabilized after a rocky summer and they’re paying the biggest dividends of any sector. They’re also very cheap and have great prospects for the years ahead.
Reader question: If not Canada, which country might be next on your list for travels?
Tom’s response: We’re going to stay in the U.S. for the winter. Then next year, we’ll see what things look like regarding international travel. We still have our tickets to Argentina, which we weren’t able to use earlier this year. Maybe we’ll go to South America. We would also love to travel around Mexico…
Reader question: I, too, enjoy your Postcards. I’ll say I’m only a bit jealous. The Dow-to-Gold ratio is an intriguing investment concept; that has to require discipline along with patience. I have a question regarding having a large portion of investments in gold.
When I ask my trusted financial guy about gold, his response is, “Gold doesn’t generate dividends or interest,” which is what I need to live on at this point in life. So, in the meanwhile, I dabble in gold. Regardless of age, we all need to generate income from one (or more) source or other. How do you live on gold alone?
Tom’s response: This is a great and important question… and one I’ve been pondering for months. (My parents have the same issue.) How are you generating income and dividends currently? Most stock and bond investments don’t pay very much these days. I have some thoughts about living off gold investments. I’ll write a full essay on this subject one of these days…
Meanwhile, others poke fun at Tom’s rugged appearance… and invite the Dyson family to stay with them in Hungary…
Reader comment: You said, “She is the first homeless person we’ve seen on this trip.” What?? You see a homeless person every morning when you shave!!
Reader comment: I, too, am enjoying reading about your touring adventures through this wonderful country of ours. I’ve seen a lot in my years, but you’ve definitely seen more of the “inner” USA than I have. I hope you all will have wonderful memories for life.
Reader comment: I was surprised about the cost of six month’s living in winter in the USA or Canada. Here in Hungary it would be half of the cost, or less. You could also visit your mum in London any time she needs it. Of course, everything will depend on the second wave of COVID-19.
We live 30 kms away from Budapest. You can rent out our 100 m2 apartment on the second floor for 40 Euros/daily. In the restaurant, we can arrange a takeaway meal for 2 Euros/person. You can also cook in the kitchen, if you wish and use the washing machine.
Tom’s response: The USA is among the most expensive countries in the world. I agree with you. It’s very expensive. But we really want to live in a ski resort for the winter and we’ll have to pay a premium for that.
(P.S. We spent some time in Hungary two years ago near the beginning of our trip and we loved it and found it very cheap. Maybe next year we will return to live in Europe?)
And, as always, please keep writing us at [email protected]. We read every note you send in.