In this week's episode of "Money Metals Midweek Memo," host Mike Maharrey delves into the often overlooked yet significant realm of gold investment, drawing an engaging parallel between gold's market perception and a personal anecdote from his school days about a girl named Bertha.
Much like Bertha's transformation from a disregarded figure to one of the most admired, gold, despite being the investment world's "ugly duckling," is poised for a remarkable turnaround, challenging prevailing biases and demonstrating its enduring value.
Gold's Record Surge and Mainstream Skepticism
Recently, gold has seen an unprecedented surge, reaching record highs over $2,350 an ounce, hinting at a bull run with strong momentum. Despite this, mainstream financial media and analysts remain dismissive or outright negative about gold's prospects. Maharrey critiques this stance by highlighting a pervasive lack of understanding and appreciation for gold's qualities and economic fundamentals among financial professionals and media.
Mike Maharrey criticizes the mainstream financial media and analysts for their generally negative or dismissive attitudes toward gold as an investment. He observes that despite gold's historical significance, practical applications, and recent surge to record highs, mainstream financial pundits often ignore or belittle its importance and potential as a safe-haven asset.
This skepticism towards gold is depicted through various examples, including the reluctance of financial media to cover gold's rally with the same enthusiasm as other assets like cryptocurrencies.
Maharrey proposes two main reasons for the mainstream's negative stance on gold:
- First, he points out the financial industry's structure, where selling physical gold offers little benefit to financial planners due to the lack of recurring revenue, leading to a general reluctance to recommend gold as an investment.
- Secondly, he criticizes the mainstream financial experts' understanding of macroeconomics, which he finds lacking.
Maharrey argues that many are influenced by Keynesian economics, leading to misconceptions about inflation, government stimulus, and the true economic value of gold.
He further explains that the mainstream financial media's failure to recognize significant macroeconomic trends could impact the gold market. Maharrey then addresses the complacency of some who believe that the absence of a recent financial crisis means there won't be one, cautioning against such optimism by referencing the timeline leading up to the 2008 financial crisis.
This financial literacy or economic education gap leads to widespread misconceptions about inflation, the economy's health, and the utility of gold, resulting in biased financial advice and media coverage that often overlooks or underestimates gold's investment merits.
Furthermore, Maharrey argues that the financial industry's structure, which favors investments generating continuous fees and commissions, naturally disincentivizes the promotion of gold, which does not offer ongoing revenue streams for brokers once sold.
This systemic bias contributes to the mainstream's overall lukewarm stance on gold, despite its proven track record as a hedge against economic uncertainty and inflation.
In essence, Maharrey's commentary highlights a disconnect between mainstream financial narratives and the underlying economic indicators that support gold's value as an investment.
He advocates for a more nuanced understanding of gold's role in a diversified portfolio, especially in light of macroeconomic trends that could threaten the stability of more conventional investments.
Public Disinterest in Gold
Mike Maharrey mentions Guy Christopher in relation to Wall Street's general disinterest or negative stance towards gold as an investment. Christopher, a former stockbroker turned financial journalist who also worked with Money Metals, is cited for his insights into the attitudes of financial planners towards gold.
He had conversations with financial planners under the condition of anonymity, revealing that discussing or recommending gold could potentially lead to the loss of their licenses.
According to the late Guy Christopher, Wall Street professionals don't know much about gold, and their education and insights into it are limited. They tend to dismiss gold as a murky investment and are likely to dissuade clients from buying even a single ounce.
This dismissive attitude towards gold is attributed to the nature of Wall Street itself, where selling physical gold does not benefit financial planners with commissions or continuing fees, unlike other investments they sell. Hence, once a client buys gold, it doesn't generate further revenue for brokers, making it an unattractive recommendation for them.
This reflects a broader issue where the incentives in the financial industry do not align with promoting investments like gold that are out of the brokerage and financial planning mainstream.
The Misunderstood Nature of Gold
Maharrey counters common misconceptions about gold, emphasizing its practical uses beyond investment—ranging from jewelry to technology applications—and its historical role as money.
He challenges the dismissive views of notable figures like Warren Buffett and Dave Ramsey, arguing that such positions stem from a superficial understanding of gold and its market dynamics.
Mike Maharrey critiques Dave Ramsey's stance on gold, labeling it as misguided and overly dismissive. While he acknowledges Ramsey's debt repayment strategies as solid, Maharrey disagrees with Ramsey's assessment of gold as an investment.
Ramsey is criticized for claiming that gold has a "crummy track record" as an investment option, a view Maharrey challenges by citing historical periods where gold significantly outperformed other asset classes.
Maharrey provides examples to refute Ramsey's claims, pointing out that gold saw a cumulative gain of 280% during the 2000s, a decade when the S&P 500 experienced a 24% fall. He further highlights gold's strong performance during the 1970s, a period of high inflation where gold delivered average annual returns of 30.7%, vastly outpacing the nominal gains of the S&P 500.
Maharrey also notes gold's resilience during the pandemic and its comparative outperformance against several asset classes in 2023, using these examples to underscore gold's utility and effectiveness as a hedge against economic uncertainty and inflation.
By countering Ramsey's views with historical data, Maharrey aims to demonstrate that gold, contrary to being a poor investment choice, has consistently served as a valuable and reliable asset in times of economic distress.
Maharrey criticizes the mainstream financial advice that often overlooks gold's benefits, suggesting that such perspectives stem from a limited understanding of economic history and the dynamics of inflation and currency devaluation.
Analyzing the Economic Landscape
The episode shifts to a comprehensive analysis of the macroeconomic environment, suggesting that gold's current and future value is underappreciated amidst a landscape marred by inflation, Federal Reserve policies, and a burgeoning debt crisis.
Maharrey argues that prevailing economic indicators and mainstream optimism overlook deeper systemic issues that could precipitate a significant financial downturn, further bolstering gold's appeal as a safe-haven asset.
Mike Maharrey discusses the relationship between current interest rates, the economic bubble, and the Federal Reserve's monetary policy, suggesting a precarious situation that could unfavorably impact the economy. He notes that the Federal Reserve has raised interest rates to levels above 5% in an attempt to combat inflation.
However, Maharrey argues that even these elevated rates are insufficient to effectively curb inflation, as they remain below the actual rate of inflation when considering more accurate measures beyond the Consumer Price Index (CPI).
Maharrey warns that the economy is riddled with debt, making it extremely vulnerable to these interest rate increases. He explains that the debt levels across national, corporate, and personal spheres have reached such heights that even moderately high interest rates pose a significant risk of precipitating a financial crisis. This is due to the increased cost of servicing debt, which could lead to defaults and a cascading series of economic problems.
Furthermore, Maharrey characterizes the current economic environment as a "bubble," inflated by years of historically low interest rates and aggressive monetary expansion, including quantitative easing.
He suggests that the Federal Reserve's policies since the 2008 financial crisis, and more aggressively during the pandemic, have created malinvestments and inflated asset prices across various sectors, including real estate and stocks. These conditions, he argues, have set the stage for a potentially severe economic correction or burst.
By linking the current interest rates with the broader context of an economic bubble, Maharrey implies that the Federal Reserve's efforts to normalize monetary policy (by raising interest rates) after years of unprecedented stimulus could inadvertently trigger the very crisis it seeks to avoid.
He suggests that the correction of these imbalances when it occurs, could be more severe than past downturns due to the magnitude of the debt and the bubbles created by prolonged loose monetary policy.
In this context, gold is presented as a prudent hedge against the systemic risks posed by these economic conditions, offering a form of financial protection against the potential bursting of the current economic bubble.
National Debt
Mike Maharrey emphasizes the critical issue of rising national and personal debt levels, drawing attention to their potential impacts on the economy and the attractiveness of gold as an investment. He notes the national debt has soared to well over $34 trillion, highlighting the unsustainable trajectory of government borrowing.
Maharrey also points out the alarming increase in credit card debt among Americans, who have accrued an additional 10% on their credit cards despite facing interest rates as high as 28% on some accounts. This spike in credit card usage is attributed to individuals struggling to make ends meet, indicating broader economic challenges and financial strain on households.
Maharrey argues that the high levels of debt, both at the national and personal levels, make the economy particularly vulnerable to interest rate increases. He explains that even though current interest rates of over 5% are not sufficient to rein in inflation effectively, they are high enough to potentially trigger financial distress in an economy burdened by excessive debt.
The implication is that the Federal Reserve's interest rate policy, aimed at controlling inflation, could inadvertently precipitate a financial crisis by making debt servicing more challenging for governments, businesses, and individuals alike.
The discussion around debt serves to underscore Maharrey's broader argument about the precarious state of the economy and the protective role of gold as an investment. By highlighting the debt issue, he suggests that systemic financial vulnerabilities could lead to economic conditions that favor the stability and value preservation characteristics of gold.
Maharrey uses these points to caution against complacency in financial planning and to advocate for the inclusion of gold in investment portfolios as a hedge against economic uncertainty and potential financial turmoil stemming from the debt crisis.
Gold and Silver
Mike Maharrey touches on silver, emphasizing its potential to outperform gold in a bull market for precious metals. He notes that silver has historically tended to offer greater percentage gains than gold during periods of rising prices for precious metals.
Highlighting the recent performance, Maharrey points out that over the past 30 days from the time of his commentary, silver had risen by 15% compared to gold’s 7.7% increase. This observation is used to underscore silver's volatility and its potential for significant price movements in favorable market conditions.
He further argues that several indicators suggest silver is significantly underpriced compared to gold, especially when considering the gold-to-silver ratio, which measures how many ounces of silver it takes to purchase one ounce of gold. A high ratio traditionally indicates that silver is undervalued relative to gold, which Maharrey implies is the current case.
Moreover, Maharrey suggests that if the gold bull run continues or accelerates, particularly in the midst of a broader economic crisis, silver could see even more substantial increases in value. This is due in part to silver’s dual role as both a precious and industrial metal, which could drive demand across different sectors, further boosting its price.
In essence, Maharrey views the current market conditions as a potentially opportune time for investing in silver, given its historical performance patterns relative to gold and its current valuation. He suggests that investors consider the advantages of including silver in their portfolios, highlighting its potential for high returns in a bullish market for precious metals.
A Call to Action
Encouraging listeners to recognize the "inner beauty" of gold, Maharrey advises on the strategic acquisition of gold and silver as prudent measures against impending economic uncertainties. He underscores the importance of preparing for potential market shifts by investing in precious metals and leveraging their stability in times of economic distress.
Conclusion
"Money Metals Midweek Memo" with host Mike Maharrey serves not only as a critique of conventional financial wisdom regarding gold but also as a clarion call for a reevaluation of investment strategies in the face of economic realities.
By drawing on historical insights, current trends, and a nuanced understanding of the economic landscape, Maharrey offers a compelling case for the inclusion of gold in any discerning investor's portfolio, heralding a period where gold, much like Bertha, proves its detractors wrong.
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