Haymaker Friday Edition
Haymaker Friday Edition
Thank you, Simon Mikhailovich!
Hello, Readers:
Many years ago, I was taking Simon Mikhailovich on a golf-cart tour of what was then an undeveloped section of our Indian Wells, CA community. At that point, it was nothing but sand, sagebrush, and coyotes. Thanks to my “skillful” navigation, we were soon stuck spinning the wheels of our cart. Unlike me, Simon was calm and unflappable. Attempting to make me feel less foolish, he told me that he’d often gotten stuck in the sand dunes at their Nantucket summer home. He knew exactly what needed to be done and soon we were out of the predicament I had caused. My point is that he’s a good person to listen to during times of trouble, particularly of a much more serious nature.
For years, Simon has been anticipating a resounding rally in gold prices. Clearly, over the last year that has proved prescient. While it’s been a 30% move in U.S. dollars, in other currencies it has been an even more spectacular ascent. For example, in Japanese yen and Chinese yuan gold’s surge has been, respectively, 68% and 56% over the past 12 months, as you can see below.
Bloomberg – (Past performance is no guarantee of future results.)
Bloomberg – (Past performance is no guarantee of future results.)
Simon emigrated from the former USSR back in the 1970s. Many of his family members were not as fortunate and as the old Soviet Union disintegrated, they learned the hard way about sudden currency devaluations and government-appropriated bank accounts. He is alarmed to see some of the same disturbing trends developing in Western countries.
Hence, in his mind, gold serves a critical role in protecting investors from the reckless debasement of fiat currencies by vote-buying politicians. Similarly, he points out that in the U.S., government deficits have averaged 9% of GDP over the last five years, while real GDP growth has averaged less than 3%. (nominal GDP, which includes inflation, has been much higher but still below the 9% deficit spending level.) This is a theme I’ve often harped on, as regular Haymaker readers know. Basically, most of the “exceptional” growth the U.S. has experienced this decade has been a direct function of federal red ink.
As you will soon read, Simon (like so many of the economic experts I follow) is convinced the West is in the midst of Neil Howe’s now famous “Fourth Turning” event. This is, in essence, an extreme crisis era such as was experienced in the 1930s and 1940s. These tend to come along in roughly 80-year intervals. (Before that, there was the U.S. Civil War and, approximately 80 years prior to its conclusion, the Revolutionary War.)
As he notes, these are times when “’black swans travel in flocks”. Those can be positive surprises, like an AI-precipitated productivity miracle or an atomic energy breakthrough. However, during Fourth Turnings the shocks tend to be mostly to the downside. (The war in Ukraine which has pushed the world to the brink of WWIII, and the possible detonation of a nuclear device, are classic Fourth Turning events. To Simon’s great credit, he was among the few to anticipate that Putin was not bluffing and that he would actually attack.)
What doesn’t sync with a Fourth Turning is a U.S. stock market that is among the most highly valued ever. Nor do credit spreads (the difference between the yield on corporate and government bonds) that are close to the tightest they’ve ever been, signaling extreme risk complacency.
Back-to-back years of 20% plus returns on the S&P 500 have a way of making the majority of investors dismiss those who are pointing out that the Emperor’s wardrobe might have, in fact, gone missing. Having just watched an excellent new Netflix series on Winston Churchill, it brought back memories of how he was derided by most in Parliament for warning about the rapidly escalating Nazi threat in the mid-1930s. As was his God-given ability, he had a wonderful retort to his legions of critics: “Laugh, but listen”.
Wise words upon which to reflect right now.
David “The Haymaker” Hay
The Center Cannot Hold
Simon Mikhailovich
(Originally published December 30th, 2024)…
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