Sneak Peek: The Wealth Warrior on Gold

Written by Adam English
Posted October 17, 2019

Today we're bringing you some sage advice from Jason Simpkins' The Wealth Warrior and a peek at his expert analysis from a recent issue.

While many think of the defense sector as a small handful of megacorporations, there is a wave of innovation coming from small, dynamic companies. It's never been a better time to take a close look at the opportunities.

Take care,

Adam English
Editor, Outsider Club



wealth warrior bannerI want to start today by talking about the importance of owning gold.

It’s a commodity I’ve wanted to include in our portfolio since inception but I haven’t found the right way to do it. For a long time, I considered an ETF, but I don’t like those because many of those funds merely hold derivative contracts that are only backed by gold — not actual gold.

I’ve also been looking at miners, but that’s a far more involved process. Even then, owning shares of a gold miner (while potentially lucrative) is still no substitute for owning physical gold.

So whether it’s gold coins or bullion, I’d like to encourage you today to increase your physical gold holdings and I’ll tell you why...

For one thing, we’re clearly heading into a sluggish, if not recessionary, environment.

Stocks have been faltering, and we’re long overdue for a bear market. Gold, obviously, is the quintessential safe-haven investment.

Similarly, as the global and U.S. economies begin to falter, we’ve re-entered a period of loose monetary policy. Rate increases at the Federal Reserve slowed and then reversed course, culminating in July’s 25 basis point cut.

The Fed’s key rate now stands at a range of 2-2.25%. 

The FOMC will meet again at the end of October. It’s widely expected that the Fed will issue another rate cut at that meeting. Of course, there’s no guarantee that the Fed will cut again, but given certain economic indicators, it’s likely.

That likelihood is further compounded by the president’s aggressive posture toward Federal Reserve Chairman Jerome Powell.

President Trump has been harassing Powell for months now, demanding rate cuts to weaken the dollar and mitigate the damage of his trade war with China. He’s even tried to appoint unqualified lackeys to the Fed’s board to do his bidding.

Trump is constantly harassing Powell, memorably going as far as calling the Fed Chairman (he himself appointed) an enemy of the state on par with Chinese President Xi Jinping.

The central bank is supposed to be independent. It’s mandated by Congress to moderate prices and promote employment.

It is not the job of the Fed to compensate for poor economic policy, to throw the dollar under the bus anytime we face the prospect of a recession, or to prop up the stock market with cheap money.

Recessions and bear markets are a necessary evil. They promote efficiency and eliminate bad actors, keeping valuations in check.

Nevertheless, it’s clear why the President would want to avoid such a collapse heading into the 2020 election.

What remains to be seen, though, is how susceptible the Fed will be to Trump’s harassment.

Will it cave to political interests or stay true to its mandate?

We don’t yet know.

But if the Fed does cave it will have set an entirely new precedent that future politicians will continue to exploit.

Going forward, every politician in Congress will scapegoat the central bank to save their own skin, and the Fed will lose all independence, neutering itself and effectively becoming a political tool.

That would be terrible for the dollar. And such a scenario, alone, makes gold an attractive investment.

But there’s actually another long-term concern to consider, which is our national debt.

The U.S. closed out fiscal year 2019 with a $984 billion budget deficit, up 26% from the prior year.

At $22.3 trillion, the country’s collective debt is already 101% of GDP, and growing quickly.

And we aren’t even in an actual recession yet.

The market right now is panicking over recession indicators, but the economy itself has yet to really deteriorate.

If/When it does, there will be new calls for increased government spending, like the $787 billion stimulus package President Obama enacted to combat the Great Recession.

On top of that, politicians on both sides of the aisle are already making huge fiscal commitments in an attempt to win next year’s election.

The “Tax Cuts and Jobs Act” Trump signed into law in 2017 has already added $1.8 trillion to our national debt and it will add trillions more in the years to come.

Of course, that hasn’t stopped Trump from promising another “middle class” tax cut should he be re-elected, or chasing after billions of dollars for his border wall.

Meanwhile, Democrats have taken a hard turn left. Promises from them now include free health care, free college, and student loan forgiveness among other things.

These policies will also be costly, and they could easily come to fruition.

If the economy tanks and takes Trump down with it, we could see a blue wave bigger than the one that gave Democrats control of the House in 2018.

With total control of the government, and a newly-elected anti-Trump president, we’d likely see trillions more added to the debt.

Ultimately though, it doesn’t really matter who wins in November, because it’s clear that both parties have abandoned any pretext of fiscal responsibility, while the Fed has rendered itself the politician’s printing press. And that brings me to my final point...

The United States can’t afford a war.  

In today’s dollars, World War II cost $4.1 trillion. And as it happens, that’s roughly what Operation Iraqi Freedom cost, as well.

Now, it’s clear that one of those efforts was much larger in scale than the other, so the cost of war has shot up dramatically.

Just imagine how much it would cost, then, if we had to take on a real adversary like Russia or China. Heck, even if we fought a halfway competent foe like Iran, the cost burden would be enormous.

In a way, such a concern seems far off, but at the same time, these things happen rather suddenly.

No one in 2000 knew we’d end up in decades-long conflicts in Iraq and Afghanistan, but a small group of terrorists changed all of that on September 11, 2001.

Those wars have only recently been wound down. And yet, new threats loom heavy on the horizon.

I just named them.

Those threats would take trillions upon trillions of dollars of debt just to fight, and victory isn’t even assured.

In the almost-unthinkable event that the United States lost a war to another major power, the damage to our country would be catastrophic.

The dollar’s role as the world’s most dominant currency would evaporate almost overnight, leaving us with nothing to sustain our grandiose spending. Social programs would collapse and inflation would skyrocket to unparalleled heights.

Frankly, I don’t even know if the dollar would survive at all in its current form.

And THAT more than anything else is the reason investors ought to own gold — not just contracts or stock, but physical, hold-it-in-your-hand gold.

Fight on,

Jason Simpkins Signature

Jason Simpkins

follow basic@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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