WEST PALM BEACH, FLORIDA – In 1998, Wall Street bailed out a hedge fund.
In 2008-09, the government bailed out Wall Street.
In 2020, who bails out the government?
More below.
How My Family Got Here
Greetings from West Palm Beach, Florida…
Six years ago, Kate and I got divorced and went our separate ways. We had our own apartments. Our own money. And we found new partners. We passed the kids back and forth at weekends like every other divorced couple.
My life spiraled out of control during this time.
I got very depressed, stopped working, lost the business that I’d started, stopped keeping in touch with my friends and family, and isolated myself. I also went through a very tough breakup with my girlfriend.
At my worst, I couldn’t sleep. I developed a tremor in my hands and I had persistent suicidal thoughts.
I tried everything to fix this… including antidepressants, AA meetings, self-help books, more therapy, meditation, exercise, and drinking.
Nothing worked.
Eventually, Kate came to me and told me I needed to get my head straight because I was useless to her and the kids as I was. She said she’d take care of the kids and I could leave town for a while to do whatever I needed to do to get my head straight.
I told my work that I was taking an emergency three-month medical leave and I went to Scotland in the middle of winter. I went hiking up mountains and riding around on trains for a few weeks. Then, I went to South Africa and lived in a sort of surf commune by the beach and surfed every day.
It was while I was in South Africa that Kate mentioned to me that she might take the kids on a road trip to see some of America’s national parks while I was away. I asked her if I could come with her.
“I’ll be your luggage porter, navigator, security guard, chauffeur, and tour guide all in one,” I said.
She thought about it for a few days and then said yes. So I rented us a really cool little graffiti-covered campervan from Escape Campervans, bought a separate tent for me to sleep in near the campervan, and returned to America.
American Road Trip
Kate and her boyfriend had been together for four years at this point. It was definitely a serious, long-term relationship. But he was very supportive of Kate and let her go. (I didn’t know him, but he struck me as a very mature, loving guy. The kids liked him a lot too.)
A few days later, we picked up the van in Miami, loaded up, and set off for Seattle. We had 35 days to explore as much of America as we could during that time.
We had the best time on our American road trip. It was better than perfect.
We saw the Grand Canyon, we swam in the Colorado River and the Rio Grande, we slept in Redwood forests, and swam in the Pacific Ocean.
We went to a show in Las Vegas, and camped under the stars for 35 days in a row in some of the most beautiful campgrounds we could have imagined. We built campfires and roasted vegetables each night.
We all got along so well (just as friends) and we made a really good team together. Logistics wise, the trip was smoother than smooth.
Here we are…
Left to right: Dusty, me, Miles, Penny, and Kate
To this day… after having traveled all the way around the world to 30 countries… driving around America and sleeping in campgrounds was the thing we all loved the most.
We can’t wait to do it again. We’re thinking that when America has recovered from the virus, it’ll be the first thing we do.
In the meantime, we’re in South Florida. We’ll wait here until it’s safe to venture out again.
Dusty (12) in quarantine, playing with Legos
Who Bails Out the Treasury?
Turning back to my question up top, this is the easiest way to understand what’s happening in the financial markets…
In 1998, a big hedge fund called Long-Term Capital Management (LTCM) blew up.
LTCM had borrowed such extraordinary amounts of money from various banks, its collapse threatened to bring down the whole banking system. So a cabal of Wall Street banks clubbed together and bailed out LTCM. They averted the crisis.
In 2008, Wall Street blew up. Bear Stearns, Lehman Brothers, and a bunch of other banks collapsed when their bets on subprime loans went wrong.
It threatened to bring down the whole banking system. So the government stepped in, and acting in concert with the Federal Reserve, they bailed out the whole of Wall Street. They averted the crisis.
In 2020, the government is $23 trillion in debt, it’s running a trillion-dollar budget deficit, and it has a pile of enormous bills to pay stretching into the future. The Treasury was already in the most-stretched financial condition it’s EVER been in.
When a virus shuts down America’s economy, impairs the government’s tax revenues, adds another huge line item to its debt load, and blows a fatal hole in the government’s finances… Who bails out the Treasury?
Inflate-or-Die
There is only one way to rescue the government. That’s INFLATION. Inflation is a way to reduce the real value of the government’s debt (and everyone else’s, too.) It’s the only remaining way to bail out the system.
Inflate-or-die.
They ALREADY decided to do the bailout with inflation. They made that decision last weekend when they decided to hyperinflate the Federal Reserve’s balance sheet.
I know everyone’s focused on the pandemic and the economic damage it’s doing, and all the defaults and bankruptcies that are coming.
I know we haven’t seen inflation for four decades and no one believes it can make a resurgence.
I know most people are terrified that the market will keep falling.
So I know this sounds crazy. But I’m certain about this.
Inflation is the ONLY path left to bail out the government from its collapse, and they’ve made the decision to pursue this path.
It may take a while for this decision to filter through the economic community and society. But if your portfolio is NOT positioned for inflation, you’ll be on the wrong side of the trend.
In previous Postcards, I’ve described this as stagflation. That’s because I don’t think inflation will produce economic growth. It’ll only devalue the dollar, other currencies, and things that are claims on currencies (loans) relative to anything backed by real assets.
Cash is just about the WORST thing you can own right now. Bonds (which are just claims for cash) will be terrible investments, too.
When the market understands what just happened, I predict a thunderous stampede of capital will leave the bond markets and charge into the stock markets and into gold.
If you don’t see that the Fed and the Treasury will do WHATEVER IT TAKES to produce inflation to bailout the government… you’re betting that, for the first time in history, the owner of a printing press was not able to devalue its own currency.
That’s not a bet I’d be willing to make.
– Tom Dyson
P.S. No one is saying the government “blew up” financially. There aren’t any stories about the government’s collapse. There won’t be any books about it. But it did.
Without the Fed monetizing its debt, the government would have ground to a halt within months and it would have defaulted on its obligations. It put itself in a position where the only way it could survive was through a bailout. That’s a blow up.
P.P.S. As I mentioned yesterday, I’ve started making little videos from the porch of our house to answer your questions. Here’s the first one…
As always, keep sending your questions to us at [email protected], and I’ll try to answer them in one of my videos.
FROM THE MAILBAG
One reader offers her thoughts on hiding gold… while others share how the Postcards are helping them during the coronavirus crisis …
Reader comment: Loving your newsletter about your newly chosen lifestyle. As to hiding gold, tell investors that they should NOT hide it in their bedroom. It is instinctively the first location someone thinks to use, but every burglar and home invader knows this. Also, what do you think of a secondary decoy location with only a few things (that look) of value in it? Have that in the bedroom.
Reader comment: I’d like to add my thanks for your highly enjoyable writing. It’s been literary meditation for me as I imagine the world you’ve lived in. It’s not that I envy or desire the experiences you and your family have lived/endured/enjoyed, it’s getting to experience them mentally while, at the same time, hunkering down in retirement. I’m a recently retired dentist. The stress of being a health care provider in this country gradually increased over the years until it finally superseded the joy it gave me initially. I felt lucky to be able to exit it when I did.
As I’ve watched my 401(k) retirement nest egg dwindle, it’s been a source of comfort to read your issues. It’s reminded me that I have always lived under my means and am well-equipped to do so to whatever extent is needed in the future. I have always been able to take pleasure in small day-to-day things and your Postcards are a constant reminder to me of just that. Thank you so much for having the courage to write in complete honesty about all of your failings and successes. It reminds all of us to forgive ourselves.
Reader comment: I read your letter about Kate’s parents making you “feel” as one of them and part of their family. May that sink deep with you. The life you’re living is as priceless as your family. Be careful of changing that. Chasing the “buck” will never give you the happiness you’ve found.
Reader comment: I am a UK resident and absolutely love your Postcards. They have helped me to think clearly about the big picture. I love reading about your travels as well.
I read recently that you were a bit worried about your Mum. In the UK, supermarkets are contacting the elderly, provided that they are registered with a supermarket online. They can then prioritise online delivery slots for the elderly so they don’t have to go out to do their shopping. Thought that might help you.
Tom’s response: Thank you for the information. I will pass it on.
Two readers offer their thoughts on a paid subscription after Tom introduced the idea in his March 26 postcard…
Reader comment: I have been reading your Postcards for a couple years now and they are thoroughly enjoyable. I have been gradually moving in your direction regarding the gold ideas with the little we have been able to sock away. I believe you have a unique perspective on both the markets and life in general. Your exploits around the world are fascinating and informative.
I have been appreciative of your limited advice about the markets and understand why you cannot give more specific details. I also understand why you are considering a paid subscription newsletter. The only thing I have a problem with is the same reason I don’t subscribe to any of them. I can’t afford it. We are living on a very fixed income and most of these newsletters, as good or bad as they may be, are way out of our budget. I am glad to hear you will continue to write the Postcards, and as long as you do, I will read them and appreciate them.
As far as any paid subscription, sorry, not in my budget, no matter how valuable the information may be. Please take care of yourself and your family and as long as you keep writing the Postcards, I will keep reading and enjoying them. Godspeed to you and your family.
Reader comment: I enjoy every one of your letters. You’ve mentioned the mutual life insurance that you and Kate have – a whole life policy, I believe, and I am interested in knowing more about it from you. I admire the courage you and Kate have to pursue the life you are living and giving the children. I pray that all will stay safe, healthy, and that this experience will prove to be totally successful for each of you.
Reader comment: I’m an old guy from the mountains of Idaho who has followed you since your days with Stansberry. I watched when you joined Mark Ford to start the Palm Beach program and it’s obvious that’s gone well.
You and your assistants helped teach me how to sell puts and make some money doing it. I remember one of your early videos, where you explained, “I’m the guy with the British accent.” But I did notice the void and missed you when you dropped out.
Like most other folks, I’m enjoying your daily missive. Writing the messages seems to be a labor of love for you and that’s what it should be. Your idea of a paid letter seems like the next logical step for you. A guy’s got to eat and feed his family. Don’t worry what anyone thinks, just do it. Oh, and keep loving Kate and the kids just as much as you possibly can. They are a treasure…
Tom’s note: As always, thank you for your kind messages! Please keep writing us at [email protected].