I hear a lot of ads advising investors to put gold in their IRAs or 401ks.  Seems like a terrible idea.  The big benefit if retirement accounts is to defer income. Gold generates no income, and actually incurs storage and transaction fees.  Gold can also be very volatile.  In the 1970s and 1980s we saw gold go from $35 to $800 and back down to $300. Gold did not have a net inflation adjusted gain for 25 years.   Gold may or may not be good investment but a retirement account is not the place to own it.  If it does go down and it is in a taxable account at least you can offset other gains with it.  If it goes up you may be able to get a capitals gains treatment.

Tax deferred accounts are the best place to put secure income producing investments.  It is even somewhat of a waste to put stocks with the intention of producing long term gains as along as those gains are taxed at a reduced number. High yield stocks are a different consideration.

Self reliance used to be a cherished American virtue.  Many today consider it synonymous to being anti-social.

Debbie Wasserman Schultz seems to be a liability for the Democrats.  Claims that the Republicans are anti-women and anti-immigrant are just old school demonizing. Only the sycophants drinking the party’s bathwater from a distant past do not see such statements as either silly or offensive. The independents seek solutions, sometimes poorly, and are likely to be put off by such caustic stereotypes.  At a time when the party should be steering center she is turning left.

Republicans seem to struggle to control the narrative.  Part of this is the inability to stick to a cohesive message stated clearly.  It does them no good to attack their own party members who are actually proposing adult solutions to long term problems.  The perfect is the enemy of the good.  Perhaps this primary process will coalesce into a winning strategy.

Democrats win more by solidarity than by popularity.  However much they may speak against an incumbent they will rally to their party when the final election comes.  Republicans are divided by an assortment of litmus tests that has destroyed their effectiveness and unity.  Whoever their candidate is they must be able to unite a very diverse party to be effective.

This early in the game polls are pretty worthless.

Gold is high and could be headed higher, but that does not make it a great investment. Gold is priced well above the cost of production, so its value is more determined as an alternative to traditional investments in an atmosphere where the fear of inflation, if not the reality, is motivating the valuation.  Gold delivers no dividend and pays no interest and being valued by emotional fears may be subject to substantial volatility. If interest rates do climb ( and they really cannot go lower) then the costs of holding gold also climbs, and could drive gold prices lower.

Since gold is valued well above its production costs as a hedge against the fear of inflation, a buyer today who hopes to sell at a higher price in the future is hoping that someone else will have a greater fear of inflation that a buyer today would have.  That may happen but it is not a sound investment strategy.

The constant barrage of companies promoting gold on nearly every media outlet seems more like the activity associated with a top in the market than a bottom.  If money is so worthless and gold is so valuable then why is the dealer so willing to exchange his valuable gold for a mere $1500 an ounce?

If it is a bubble it could still go much higher, but if fear is the driving force it could be dangerously volatile.  At today’s price I would not overweight it.

“We have moved to the PhD standard from the gold standard.”

A very short but very wise assessment from James Grant.

Mr. Grant makes a point that explains more than just the Fed and an obvious failure in monetary policy. Our government has become a place where we have relied more on academic credentialism and delusional intellectual certainty than tried and true principles. When leaders propose a return to proven principles they are decried as simplistic and anti intellectual.  We need to overthrow the rule of intellectual idiots.

With the dollar weakening, debt growing, and the global and domestic economy still sluggish there is pressure driving up the price of gold, silver and industrial commodities.  Forgive me if it just seems too obvious.  Endless ads selling gold, and gold buyers showing up in vacant strip malls makes me skeptical.  What could reverse this trend?

China.

If there is any significant slowing in the growth of China, the demand for commodities will suffer.  Corrections are often steeper than the increases.  Markets can remain illogical for long periods, as we have certainly learned.

When interest rates climb, the holding costs for gold which pays no interest or dividend, goes up and the value declines.

I recall how many in the late 1970’s bought gold at $800 an ounce, thinking that runaway inflation was inevitable. It wasn’t and many lost 75% of their investment. Depending on whether the new Congress has the balls to truly address our problems, gold may indeed be a worthy investment. But do not ignore factors which could easily drive it in the other direction.

We are living in interesting times.  While the professional economists are trying to figure out what happened we have all become economists of sorts just to try and understand the events that greet us every day.

With huge deficits many would expect inflation as another weak willed government resorts to the printing press to solve its problems.  In response we are saturated with ads to buy gold, the default inflation hedge.  Yet I well remember the inevitability of inflation in the 1970’s as gold passed $800 an ounce; only to hit the Reagan/ Volcker wall.  Inflation fell as did the price of gold.  In inflation adjusted dollars gold has yet to recover over 25 years later.

Retired economist Scott Grannis, in his excellent blog, Calafia Beach Pundit, explains how we can be looking at record low bond yields and interest rates while the deficit hits and record levels and  inflation remains tame.  It is a subject that has puzzled me. Read A bond bubble?

Excerpts:

So perhaps there is, in addition to weak growth expectations, an inordinate fear of the future: a fear of big tax hikes, and of a prolonged economic malaise caused by an overbearing state that absorbs the fruits of and smothers the private sector. Japan comes to mind, with its massive deficits, a debt/GDP ratio that has been well into triple digits for years, and sluggish growth. Perhaps it’s the case that as debt approaches and exceeds 90% of GDP the economy simply loses much of its forward momentum, a thesis supported by the findings of a recent research paper by Rogoff and Reinhart. There’s even some support for this thesis in our own history—muddled of course, by WWII—when federal debt surged to 120% in the early 1940s, even as 10-yr yields traded at 2% or so.

If the market is scrambling to buy bonds yielding 2.5% or less, it only makes sense if market participants hold little or no hope for a better alternative in the foreseeable future on a risk-adjusted basis.

It also makes sense that today’s almost-zero yields on cash, extremely low yields on risk-free bonds, and massive debt sales become in a sense a self-fulfilling prophecy. Low yields represent very low hopes and aspirations on the part of the private sector, while the bonds being sold and the money absorbed from the private sector by our federal deficit are being used to fund a level of spending and wealth redistribution such as we have never seen before.

We’re not witnessing a bond bubble in the making, we’re living in a statist nightmare.