Gold and Bitcoin are two of my favorite investments. Here are 5 reasons why I believe both are headed much higher over the next few years:
#1 War and Political Instability
Despite running on a non-interventionist foreign policy, President Trump appears to be escalating tensions around the globe. He fired over 50 Tomahawk missiles at a Syrian army airbase and dropped a GBU-43/B Massive Ordnance Air Blast bomb (MOAB), for the first time ever, on suspected ISIS fighters in the mountains of Afghanistan. Recent airstrikes in Syria have reportedly killed U.S. allies and dozens of civilians. Ground operations are also thought to have increased in the Middle East.
It appears that Trump has handed the keys of the military over to the generals, as the Pentagon is reportedly deciding when, where and how many troops to deploy in Iraq and Syria. Trump has increased hostility towards North Korea and recently sent a carrier strike group to the region. He also mobilized and installed the THAAD missile defense system in South Korea and sent nuclear submarines. China has responded by testing new missile systems and performing live military drills. They have repeatedly warned the U.S. against installing THAAD systems so close to their borders.
It is increasingly looking like the European Union could fall apart, with nationalist parties in multiple countries gaining political power. Edrogan is in the middle of a major power grab in Turkey, purging thousands of police and military officers, shuttering critical news organizations, all while the opposition party attempts to stop him. Conflict over the disputed South China Sea remains a flash point, Secretary of State Tillerson has stated he will not remove sanctions from Russia until they return Crimea, which will never happen. NATO is in the midst of its most aggressive military deployment to Russia’s borders, including a recent deployment of dozens of F-35 fighter jets.
Gold is a traditional safe-haven asset that does well during times of increasing war and geopolitical uncertainty. Bitcoin also stands to benefit as citizens look to shield their assets from governments that need to feed the war machine.
#2 Multiple Market Bubbles Poised to Pop
Stocks, bonds and real estate are all in historic bubble territory by a number of different measures. A major correction in these markets will likely have a contagion effect, dragging down all markets at once and setting off a derivatives crisis. With the FED raising interest rates, reducing its balance sheet and the baby boomer generation removing vast amounts of wealth from the markets, the bottom is due to fall out.
The NASDAQ has doubled in price over the past five years. The Shiller P/E, or CAPE (cyclically adjusted P/E ratio) has reached the third most expensive the market has ever been. It was only higher just prior to the Great Depression and 2000 dotcom bubble.
Real estate prices in many markets have eclipsed their 2006 bubble highs. A simple calculation of the median single family home price divided by average household income shows that homes are nearing the least affordable levels they have ever been. This ratio has risen dramatically over the past seven years back towards levels just before the last housing market crash. Put simply, wage increases and not keeping pace with increasing home prices.
#3 Unsustainable Debt Levels Continue to Grow
The national debt is fast approaching $20 TRILLION. To put that number into perspective, it requires interest payments of nearly $450 BILLION per year or nearly $15,000 per second. The debt per U.S. citizen has increased to over $60,000, while most Americans have less than $5,000 in savings. The debt is now 106% of GDP, with most economists warning about a slippery slope whereby it is increasingly difficult to reverse course after debt reaches 100% of GDP.
Of course, this is just the official debt number and does not include unfunded liabilities or off-balance-sheet debt. While it is impossible to know the exact number, estimates of the true debt of the United States range between $100 trillion and $250 trillion. If it is $200 trillion, the United States debt to GDP ratio is well over 1,000%. That would make the debt load of the United States many times worse than Japan at 250% or Greece at 180%.
While I generally favor lower taxes, Trump’s tax cuts are estimated to add $7 trillion in new debt over the next 10 years. His administration is hopeful that flourishing business growth would make up for the loss in tax revenues, but I believe this is wishful thinking. And while he has proposed cutting some forms of government spending, these savings are offset by massive increases to military spending.
#4 Global Currency Debasement, A Weaker USD and Rising Inflation
Central banks and governments around the globe are competing to keep their currency values low in order to keep their exports affordable and support their manufacturing industries. President Trump and his Treasury Secretary have come out mulitple times calling the dollar “too strong,” while accusing China of manipulating their currency to the downside.
The USD had been trading sideways for a few years, finally broke out above the 100 level, but has since dropped back below 100 in a new downtrend channel. The 2017 dollar weakness has materialized despite the FED raising interest rates in December and promising 3 more hikes this year.
Notice the USD index is now testing major support and that a drop below 98 would be very bearish for the dollar. Everyone was long the USD heading into 2017 and that crowded trade turned out to be wrong, as crowded trades so often prove to be.
While growth in the money supply has slowed over the past few years, inflation is finally starting to pick up. Enough money was printed in the years following the financial crisis to create extremely high inflation, but the velocity of money was too subdued to feel the effects. Banks were being rewarded by the FED to lock up excess reserves, rather than increasing lending.
Whether you prefer to use government numbers or the shadowstats alternate, inflation is undeniably picking up pace. In fact, inflation rates are at the highest levels since 2011, despite rising interest rates. But the real impact will be seen once the bubble economy pops and the government frantically rushes in again to stop the bleeding.
The bottom line is that fiat central bank notes will continue to lose value over time and the Trump administration seems more vocal and motivated to keep the dollar weak than previous administrations. This bodes well for precious metals and cryptocurrencies, which both have a limited supply and cannot be created out of thin air at the request of bankser and beauracrats.
#5 War on Cash and Growing Third-Party Risk
Governments around the world are intensifying their war on cash. They want oversight and control of the wealth of their citizens. They are trying desperately to keep people from moving their money outside of the traditional banking system, outside of their country and outside of their ability to tax (steal) from their citizens. Capital has been fleeing China in a major way over the past decade and Bitcoin has become an increasingly popular way for the Chinese to transfer their wealth outside of the country and outside of government control.
The ostensible reason given by our rulers for suppressing cash is to keep society safe from terrorists, tax evaders, money launderers and drug cartels. But the actual aim of limiting or even prohibiting cash transactions is to force the public at large to make payments through the financial system in order to prop up the unstable fractional-reserve banks, while expanding the ability of governments to spy on and keep track of their citizens’ private financial dealings.
If the government declares a national emergency, if war breaks out, if the economy is crashing, money that you have locked up in bank accounts or investment accounts may not be safe. It only takes a flick of a pen for the government to block your access to these funds, which we have seen occur in multiple countries in recent years.
As people seek to protect their assets from inflation or theft, secure their financial privacy, flee oppressive governments and be their own banks, look for massive amounts of money to flow into gold and bitcoin. Some argue that we have already hit peak gold and that global production will only decline into the future. Likewise, there will only ever be 21 million bitcoin in existence and 16.4 million are already in circulation. With increasing demand and limited supply, prices are likely to continue pushing much higher.
Even with Bitcoin having scalability problems and gold facing leverage paper price manipulation, I believe prices for both will explode higher as people flee fiat bankster notes, the FED finally loses control of the global economic system and our governments plunge us into never-ending wars.
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