Intergenerational Reflex

“The anti-Gold reflex is intergenerational.”

-Jim Rickards

 

Instead of telling yourself Old Wall Perma Bull stories that you’re “buying beaten down Financials” and/or “phew, the economy is back!”, imagine you woke up every morning in 2016 gearing yourself up to buy Long-term Treasuries (TLT), Utilities (XLU), and Gold (GLD)?

 

Wow, you’d be killing it.

 

I had both the pleasure and privilege to have a Real Conversation (Here’s the link) @HedgeyeTV with Jim Rickards yesterday about his brand new book: The New Case For Gold. Since I haven’t been bullish on Gold since 2012, I’m really starting to like this new idea.

 

Intergenerational Reflex - gold

 

Back to the Global Macro Grind

 

As I’ve learned going into my 17th year on Wall Street, some of my best old ideas (I was a Gold Bull from 2003 to 2012) can become my best new ones. Like economies and profits, investment ideas and asset allocations are cyclical, after all.

 

Only battle-tested (and torn) buy-siders get that.

 

If you want to be a famous academic or journalist, you have to focus on never learning what buy-siders learn through investment cycles. You have to learn to A) never change your mind and B) keep defaming and demagoguing those who don’t have positions that agree with your famous ideology.

 

Who, btw, is the most famous ideological investor of all-time?

 

As are many of Rickards original research questions and thoughts, what’s awesome about being a Gold Bull right now is that the Perma Bears (ideologues who lost lots of money being short Gold from the 1999 generational breakout) are intergenerational!

 

Among the older generation are PhDs who came of age in the wake of famous Gold bashers such as Milton Friedman. This generation includes Paul Krugman, Barry Eichengreen, Nouriel Roubini… these anti-Gold giants are now joined by a younger generation educated (or miseducated to believe that Gold has no place in a monetary system.” –Rickards (The New Case for Gold)

 

I won’t waste keystrokes rattling off the names of “reformed” brokers, repurpose-other-people’s-content-bloggers, and click-bait-journos. You know who they are. From a macro investing process and historical knowledge perspective, these are some of the most underwhelming market pundits in US history.

 

Jim Rickards, on the other hand, can forget more about Gold history on the way to the bathroom than I’ll ever know.

 

I don’t wake up in the morning thinking that I know everything and/or have the hubris to assume that without a constant grind (reading a book every 10 days) and a 40 person Research Team that I’d know anything at all.

 

God willing, the legacy of Hedgeye will be that I either hired or partnered with the world’s most objective domain experts.

 

Now that you have my multi-duration, multi-factor, #Collaboration speech out of the way, what do you do into and out of the US Federal Reserve’s decision today (which is mostly priced in) to remain pro-cyclically hawkish?

 

  1. USD (TREND bullish) – up on the week (into the news), so I’d be a seller of US Dollars on any incremental strength today
  2. RATES (TREND bearish)  – up last week (into the news), so anywhere > 2.00% on the 10yr, I’d be a buyer of LT Treasuries
  3. STOCKS (TREND bearish) – since I covered our Financials (XLF) short on red last week (expecting hawkish), I’d sell today

 

If Gold is down on the news, I’d be a buyer of that too. You see, the ultra-bull case for Gold has been:

 

  1. Down Dollar
  2. Down Rates

 

When those two things are happening (at the same time) you’re good to go.

 

Since my call (since July) has been that long-term US Interest Rates would reverse to all-time lows (despite a “rate-hike”) I’m more confident in the Down Rates catalyst than I am in the Down Dollar one.

 

With time, all macro correlations change. And what’s been happening from a Correlation Risk perspective is that Gold has been de-coupling from an intense and pervasive inverse-correlation between USD and Commodities (CRB Index).

 

What that tells me is that the Rickards view of Gold not being a “bag of rocks” or a “weed” like commodity has not only always been true (it’s an element), but that it should earn an investment premium as an alternative to “negative yields.”

 

Is it true that Gold has no “yield”? Yes.

 

But it’s also true that the Russell 2000 (-1.6% yesterday, -6.1% YTD, and -17.8% since the US economic cycle peaked in July) doesn’t either. What Gold has right now is what you need – absolute return. That need is intergenerational too.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.78-2.02%

SPX 1
RUT 1047-1097
USD 95.93-97.96
Oil (WTI) 33.82-39.53

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Intergenerational Reflex - 03.16.16 Chart


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