“Cash Is Trash”
When famed hedge fund manager Ray Dalio said, “Cash is trash,” he wasn’t lying.
Cash just might be the single-worst investment choice right now.
The coronavirus pandemic has created a global economic crisis in which governments and central banks spend and print money like never before.
Over $18 trillion has been pumped into the world economy, lowering the value of global currencies by 3.3%… and the U.S. dollar has dropped as much as 10% in just 23 weeks.
As paper money’s value gets beaten lower, investors are fleeing cash to save their buying power.
And can you blame them?
Since the pandemic began, there has been a massive shift in how Americans spend their hard-earned dollars. Economists at the Federal Reserve of San Francisco estimate that spending on items with extreme price increases is at its highest level in over a decade.
That’s because prices have skyrocketed in high-demand categories. Food is up 4%… Housekeeping supplies are up 5%… Medical care costs are up 5%… The median home price is up 8%… And used car and truck prices are up 22%.
The shift in spending leads me to believe the government-calculated Consumer Price Index is drastically understated at its “official” reading of just 1.3%.
Given the current economic environment and changes in spending habits, my team estimates the “real” inflation rate is running closer to a blistering 4%.
Add real inflation to the U.S. dollar’s 10% decline, and your money is on pace to lose as much as 14% of its value this year. Think about what that looks like…
If you put $100,000 in your bank account in January… didn’t touch it… and ended up with only $86,000 in December, you’d be upset, right?
Well, that’s what’s happening to the dollar right now. Except while your account’s face value is still $100,000, your purchasing power (the amount of goods you get for each dollar) has collapsed to $86,000.
But the U.S. dollar isn’t alone. Skinny bond yields aren’t just cutting down on your income… When you factor in inflation, they’re actually negative.
For instance, 10-year Treasury bondholders are making a published interest rate of 0.6%. But when you factor in inflation, they’re making a real rate of negative 1.06%.
And when you factor in our real inflation estimate, those interest rates become -3.4% per year.
While a falling dollar and negative bond returns are awful for the millions of folks trying to retire, it’s great news for another asset class… One I’ve been telling my readers to buy since July 2019.
Income From Gold?
Longtime readers know that I’m no gold bug…
First, gold pays no interest. So if you buy gold instead of bonds, you forgo that extra income. But for the third time in my professional career, I see the potential for massive upside.
You see, when the real yield from bonds turns negative, institutional buyers – pension funds, central banks, and professional investors of every ilk – flock to gold as a safe-haven asset.
Under this scenario, gold could easily trade at $2,500 per ounce… But based on my research, gold could reach $15,000 from today’s prices if real rates continue to fall.
If you don’t have exposure to gold, I encourage you to buy some today. A small allocation of 5% is a good place to start… But there’s an even better option for people who want to own gold and earn a steady yield.
I recently told readers of my Palm Beach Letter service about a revolutionary way to earn income from their gold holdings.
It’s a highly credible investment built on the blockchain that can let you receive a 4% annual interest payment on your gold. Even better, the interest is credited to your account in the form of more gold and it compounds monthly.
This opportunity only became available last month, so I’m confident we’re the first newsletter to write about it. Subscribers of my Palm Beach Letter can read up on this exciting opportunity here.
And if you’re not a subscriber, there’s still time to get in on this revolutionary way to own gold before the rest of the market catches on… and it’s only a matter of time before today’s negative yields become too much for investors to stomach.
Let the Game Come to You!
Editor, Palm Beach Daily