Ray Dalio, Paradigm Shifts >>> Buy Gold

[jp6]

https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio   Read it here.....

Part I: Paradigms and Paradigm Shifts over the Last 100 Years
History has taught us that there are always paradigms and paradigm shifts and that understanding and positioning oneself for them is essential for one’s well-being as an investor and beyond. The purpose of this piece is to show you market and economic paradigms and their shifts over the past 100 years to convey how they work. In the accompanying piece, “The Coming Paradigm Shift,” I explain my thinking about the one that might be ahead. 

Due to limitations in time and space, I will only focus on those in the United States because they will suffice for giving you the perspective I’d like to convey. However, at some point I will show you them in all significant countries in the same way I did for big debt crises in Principles for Navigating Big Debt Crises because I believe that understanding them all is essential for having a timeless and universal understanding of how markets and economies work. 

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To show them, I have divided history into decades, beginning with the 1920s, because they align well enough with paradigm shifts in order for me to convey the picture. Though not always perfectly aligned, paradigm shifts have coincidently tended to happen around decade shifts—e.g., the 1920s were “roaring,” the 1930s were in “depression,” the 1970s were inflationary, the 1980s were disinflationary, etc. Also, I believe that looking at

10-year time horizons helps one put things in perspective. It’s also a nice coincidence that we are in the last months of this decade, so it’s an interesting exercise to start imagining what the new ‘20s decade will be like, which is my objective, rather than to focus in on what exactly will happen in any one quarter or year. 

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Part 2: The Coming Paradigm Shift
The main forces behind the paradigm that we have been in since 2009 have been:

Central banks have been lowering interest rates and doing quantitative easing (i.e., printing money and buying financial assets) in ways that are unsustainable. Easing in these ways has been a strong stimulative force since 2009, with just minor tightenings that caused “taper tantrums.” That bolstered asset prices both directly (from the actual buying of the assets) and indirectly (because the lowering of interest rates both raised P/Es and led to debt-financed stock buybacks and acquisitions, and levered up the buying of private equity and real estate). That form of easing is approaching its limits because interest rates can’t be lowered much more and quantitative easing is having diminishing effects on the economy and the markets as the money that is being pumped in is increasingly being stuck in the hands of investors who buy other investments with it, which drives up asset prices and drives down their future nominal and real returns and their returns relative to cash (i.e., their risk premiums). Expected returns and risk premiums of non-cash assets are being driven down toward the cash return, so there is less incentive to buy them, so it will become progressively more difficult to push their prices up. At the same time, central banks doing more of this printing and buying of assets will produce more negative real and nominal returns that will lead investors to increasingly prefer alternative forms of money (e.g., gold) or other storeholds of wealth.

 I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier. 

 

Gold should do well In next decade 

 

[jp6]

I take it most have lost money lot's of money in last cycle....

That is how it always works with retail investors by Buying high and selling low and buying penny stocks.

 

 

[jp6]

If Dalio is right then Gold bull has lot going for it.

 

[jp6]

Time to convert US stock holding into Gold holding, Once C wave is done convert it all back into US stocks.

Watch how the Dow gold ratio charts plays out.

[jp6]

It's a good thing that there isn't much interest in Gold.

1560?

[jp6]

Gold market looks very strong, best to buy all dips. 

Soon it will take out $1550.

[jp6]

GDX should do better then Gold for now as it's under valued. 

Don't wast your money with penny stocks or crap.

[jp6]

Dow/Gold ratio chart

Gold just getting started and will see Dow do nothing for awhile

[jp6]

Gold should start to go up in December. Should get a chance to buy it around $1400-1425

[jp6]

The World Has Gone Mad and the System Is Broken  By Ray Dalio

Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up. The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that has happened many times before in history (though not in our lifetimes) and was thoroughly explained in my book Principles for Navigating Big Debt Crises. As a result of this dynamic, the prices of financial assets have gone way up and the future expected returns have gone way down while economic growth and inflation remain sluggish. Those big price rises and the resulting low expected returns are not just true for bonds; they are equally true for equities,

At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long. Where will the money come from to buy these bonds and fund these deficits? It will almost certainly come from central banks, which will buy the debt that is produced with freshly printed money. This whole dynamic in which sound finance is being thrown out the window will continue and probably accelerate, especially in the reserve currency countries and their currencies—i.e., in the US, Europe, and Japan, and in the dollar, euro, and yen. 

Since there isn’t enough money to fund these pension and healthcare obligations, there will likely be an ugly battle to determine how much of the gap will be bridged by 1) cutting benefits, 2) raising taxes, and 3) printing money (which would have to be done at the federal level and pass to those at the state level who need it). This will exacerbate the wealth gap battle. While none of these three paths are good, printing money is the easiest path because it is the most hidden way of creating a wealth transfer and it tends to make asset prices rise. After all, debt and other financial obligations that are denominated in the amount of money owed only require the debtors to deliver money; because there are no limitations made on the amounts of money that can be printed or the value of that money, it is the easiest path. The big risk of this path is that it threatens the viability of the three major world reserve currencies as viable storeholds of wealth.

 

[jp6]

 

Ray Dalio

• Fiscal/Monetary Coordination can take three basic forms:
• Increase in debt-financed fiscal spending, paired with QE that buys most of the new issuance (e.g., Japan in the 1930s, US during WWII, US and UK in the 2000s).
• Increase in debt-financed fiscal spending, where the Treasury isn’t on the hook for the debt, because:

a) The spending is paired with QE where the central bank retires the debt or commits to rolling the debt forever,

b) The central bank promises to print money to cover debt payments (e.g., Germany in the 1930s), or

c) Where the central bank directly lends to entities other than the government that will use it for stimulus projects (e.g., lending to development banks in China in 2008).

• Directly giving newly printed money to the government to spend, not bothering to go through issuing debt. Past cases have included printing fiat currency (e.g., Imperial China, the American Revolution, the US Civil War, Germany in the 1930s, UK during WWI) or debasing hard currency (Ancient Rome, Imperial China, 16th-century England).
• Printing money and doing direct cash transfers to households (i.e., helicopter money). When we refer to “helicopter money,” we mean directing money into the hands of spenders of money to get them to spend (e.g., the US veterans’ bonus during the Great Depression, Imperial China).
• How that money is directed could take different forms—the basic variants are a) to either direct the same amounts to everyone, or to aim for some degree of helping one or more groups over others (e.g., to the poorer more than to the rich), and b) to provide this money either as one-offs or over time (perhaps as a universal basic income). These variants could be paired with an incentive to spend it—like the money disappearing if not spent within a year.  
• The money could be directed to specific investment accounts (like retirement, education, or accounts earmarked for small business investments) to target it toward socially desirable spending/investment.
• One potential way to craft the policy is to distribute returns/holdings from QE to households instead of to the government.
• Big debt write-down accompanied by big money creation (the “year of Jubilee”). (e.g., Ancient Rome, the Great Depression, Iceland).

[jp6]

https://goldswitzerland.com/this-is-it/

 

So the coming economic downturn will see all bubble assets like stocks, bonds and property decline at least 90% in real terms. But although markets might bottom within say the next 5 years, the world economy might go along the bottom for a very long time, which could be decades. As always, historians will let the world know afterwards the extent of the coming downturn.

The chart below shows potential targets for the Dow. In my view the 1970-80 level is more likely than the 2003-9 one.

GOLD AT ALL TIME HIGHS IN MANY CURRENCIES

Precious metal investors are nervous because we are seeing a small setback. This is similar to 2008 when precious metals and the miners initially sold off strongly before they continued the rally. It is possible that the metals will correct further before they resume their uptrend. But the correction will be much smaller than in 2008.

In many currencies like pounds, Australian and Canadian dollars, gold is at the all time highs. It won’t be long before gold in US dollars will also reach a new high.

There should be no doubt that gold and silver will reflect the coming problems in the world economy and especially the guaranteed currency debasement that will take place due to unlimited money printing.

SELL THE DOW AND BUY GOLD

The Dow/Gold ratio tells the story. Since 1999, the Dow is down 65% against gold. Almost no stock market investor is aware of this fact. The Dow is down 30% against gold since Oct 2018 and has already fallen 15% in 2020.

 

[jp6]

Physical price not following paper Gold market.

 

[jp6]

On 8/14/2019 at 10:13 PM, jp6 said:

Time to convert US stock holding into Gold holding, Once C wave is done convert it all back into US stocks.

Watch how the Dow gold ratio charts plays out.

 

[jp6]

Erik Townsend and Patrick Ceresna welcome Jim Bianco to MacroVoices. Erik and Jim discuss:

• Update on the COVID-19 
• The impact of the virus on the economy and markets
• Systemic risks to markets and impact on dealers
• Has the FED put has expired?
• Should the markets be shutdown, and what is the alternative?
• Breaking of the stock vs. bond correlation 
• Credit risks and the future impact on high yields 

        GDXJ trade during the crash

https://mcdn.podbean.com/mf/download/p3xrft/MacroVoices-2020-03-19-Jim-Bianco.mp3