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Smartleaf
February 14, 2019

 

We’ve previously written about “Why the Days of Calendar-Based Rebalancing are Numbered,” making the case that rebalancing on a set periodic schedule has been made obsolete by the advent of what we called “cost-benefit rebalancing” — rebalancing not by the clock but whenever it is beneficial to the client, based on a cost-benefit analysis of each trade. Cost-benefit rebalancing has a triple advantage over more traditional approaches: it is more efficient, it reduces dispersion, and it supports greater tax efficiency. Simultaneously. But what, exactly, is cost-benefit rebalancing? We’ll lift the hood and show some of the mechanics.

Cost-benefit rebalancing starts with the idea of a cost-benefit score.1 Any trade can have both costs and benefits. Costs include taxes, commissions and losses from bid/ask spreads. Benefits include risk and drift reduction, improving the average “ranking” (e.g. “strong buy” or “strong sell”) of the securities in the portfolio, and loss harvesting. To get a cost-benefit score, we assign every cost and benefit a numerical value and then, roughly speaking, add them up. Once you have this scoring mechanism in place, you can use optimization technology to find the set of trades that have the highest possible cost-benefit score for every portfolio. The higher the score, the more the trades benefit the investor.

We then use these cost-benefit scores to implement a very simple rebalancing workflow: trade every account that either a) has a mandate, like a cash withdrawal or b) has a cost-benefit score above a predetermined threshold. That’s it. This two-step workflow is repeated every day.

This approach not only makes it easy to implement investment ideas, tax manage, etc., it also makes it easy to deal with process failures like trade errors and suspensions, which makes cost-benefit rebalancing less error prone. For example, you no longer need to have a special process to deal with accounts that are temporarily suspended — as soon as they are unsuspended, the daily cost-benefit rebalancing workflow will step in, automatically.

 

What actually goes into a cost-benefit score?

On the benefit side, we include:

  • Drift reduction: getting a portfolio closer to your recommended asset allocation and security selection. We use expected reduction in “tracking error” to measure drift reduction.3

  • Rankings improvement: increasing the average quality of the securities in the portfolio as measured by your rankings (e.g. “strong buy”, “strong sell”).  

  • Loss harvesting: selling a security, not because you want to get rid of it, but in order to reduce your taxes by realizing a loss.  

On the cost side, we include:

  • Commissions

  • Taxes won realized capital gains

  • The implicit costs of bid/ask spreads

After we assign each of these factors a numeric value, we can add them together to get a single net cost-benefit score. Our users set a preference for how much they value “low drift and dispersion” vs. “low cost and taxes.” There’s no right answer, and different firms will choose differently. This preference is folded into the way we add up the numbers so that the final score reflects each firm’s beliefs and preferences.3

Compared to common alternatives (like calendar-based or min/max weight rebalancing), cost-benefit rebalancing is better for investors. It enables wealth managers to simultaneously lower return dispersion and provide investors with higher levels of customization and tax management. We can quantify this. Compared with calendar-based rebalancing, cost-benefit rebalancing reduces BOTH return dispersion and taxes by more than 60% (see Are Your Portfolios Noisy?). As a general rule, you'd expect a tradeoff between low taxes and low dispersion. That it’s possible to simultaneously reduce both is a measure of the power of the cost-benefit approach.

Have more questions? Wondering whether cost-benefit rebalancing would make sense in your firm? Give us a call at 617-453-0078 or write to us.

 

Source:  https://www.smartleaf.com/our-thinking/smartleaf-blog/an-inside-at-cost-benefit-rebalancing?utm_campaign=thought%20leadership&utm_medium=email&_hsenc=p2ANqtz-_aurI-FG5rhilKHLjsPKIpvcJ3nJeBrVJq2oKcvSYMmM5pqSErdCtv4hgn9XrzhI0lphUpMkC8nXhNyMOr88k4nDRiXBeyerhJ66-WZ9IbHSCmXrQ&_hsmi=69892809&utm_content=69892360&utm_source=hs_email&hsCtaTracking=afeb3630-d604-478d-ba9c-a6d3acec1d60%7Cf3dba6cf-78c9-4bca-bd85-120856bedccf

 


1 In the Smartleaf application, we call our cost-benefit score the “opportunity score”.

2  Tracking error is the standard deviation of the expected difference in return of two portfolios. Tracking error is calculated using a multi-factor risk model. (Ask us if you want to hear more!).

3  OK, it’s actually a little more complicated than simple addition — at least one square root works its way in.

 

Smartleaf
May 30, 2019

A comparison of strengths and weaknesses

 

Are you better than a robo-advisor? The answer is yes. And no. Human advisors are better than robos at some things. Robos at others. What’s interesting here is the intrinsic advantages each hold and the potential for what each can do. This, more than the current state of play, will inform the future shape of the wealth management industry on the assumption that, overtime, robos and human advisors will each specialize in what they do better. So, what can robos do as well as advisors? What can they do better? And where will human advisors continue to have an edge?

 

Where Robo-Advisors and Human Advisors are Equal

Robos and advisors tie in three areas of intrinsic ability: pre-tax, pre-expense performance, customization and tax, and convenience.

  1. Pre-Tax, Pre-Expense Performance
    In principle, robos can invest in anything an advisor can, so there’s no built-in advantage to one or the other. In practice, robos tend to use simpler products like ETFs. This enables them to lower costs and serve smaller investors. But it’s a choice, not a limitation of robos.

  2. Customization and Tax
    Traditionally, high levels of customization and tax management have been associated with the type of labor-intensive portfolio management provided to high net worth or ultra high net worth investors. But most forms of customization (including customized asset allocation, customized product choice and ESG screens) and most forms of tax optimization (including tax-sensitive transition, year-round tax loss harvesting, and long-term gains deferral) can be automated.

    Most robos currently keep things pretty simple, but, again, this is a choice. There’s nothing stopping robos from offering the type of customization and tax management that used to be the exclusive preserve of ultra high net worth investors.

  3. Accessibility
    You’d think accessibility and convenience would be a clear win for robos. But nothing stops human advisors from offering all the same 24/7 reporting and self-service options a robo does (e.g. putting in a withdraw cash request late on a Sunday night). The “tech-enabled advisor” is basically an advisor with all the tools a robo has.

    Most advisors haven’t yet rolled out this type of functionality, but this is just a matter of time. Robos have no intrinsic advantage.

 

Where Robo-Advisors Beat Human Advisors

Robos have the potential to outperform advisors in terms of price and post-expense performance, as well as trust that is based on transparency.

  1. Price
    Robos charge less than human advisors (or at least they should) — after all, they don’t have to pay advisor salaries. There’s no way around this, and it’s a pretty big deal. The robo cost advantage leads us to the second area where robos can (or at least should) beat advisors:

  2. Post-Expense Performance
    Robos have lower fees, and, in principle, robos can invest in anything a human advisor can. So, net of advisory fees, you’d expect robos to outperform human advisors, on average.

    This assumes we hold investor behavior constant, meaning we assume that investors who work with robos and investors who work with human advisors will behave the same in terms of things like the amount they invest, their predilection to market timing, etc. This is a big assumption. More on this later.

  3. Trust via Transparency
    Trust? For a computer? Surely this is where humans win? Well, as we’ll see, yes, it’s an area where humans can do better. But not always. Robos have the advantage of transparency. Robo offerings are automated and systematized, and this makes it possible to know precisely what you’re getting. It’s public and transparent.

Form ADVs notwithstanding, what human advisors do can be pretty opaque. That makes it harder for investors to judge the quality of human advisors. And investors are justified in having some trepidation about what their human advisor is really doing, and why. For example, advisors tend to invest in more expensive products, despite a dearth of evidence that they serve investor interest. One common explanation is, to quote an old Wall Street saying, “the margin is in the mystery,” meaning you get to charge more for products that customers don’t understand. This is not meant as an indictment of advisors, only a reminder that human advisors shouldn’t take for granted that they, not robos, are going to win the trust war.

 

Where Human Advisors Beat Robo-Advisors

We see advisors beating robos in three areas: coaching, advocacy and trust.

  1. Coaching
    Arguably the most important part of financial advice comes under the heading of “coaching” — helping clients set realistic goals, guarding against panic and excess enthusiasm, and changing spending and saving habits. Each of these can change investors’ lives. And, for now at least, human advisors have a clear advantage.

  2. Oversight and Advocacy
    Human advisors can act as the hub of all your financial concerns, coordinating the activities of your CPA, your trust and estates attorney, your mortgage broker and your insurance agent.

    We spoke with one RIA who described it this way, “If a client ever has to ask us whether they should refinance their mortgage, we’ve failed. Our advisors should know enough about their clients and the current market to tell their clients when refinancing is in their interest. And they should do this even though we don’t get paid on mortgages or refinancing.”

    Another said, “We’re not (all) CPAs, but we know accounting pretty well, we’re not (all) insurance agents, but we know insurance well, and we’re not trust and estate attorneys, but we know trust and estate law pretty well, too. We know enough to be the financial hub, making sure all the players are acting together in our clients’ interests.”

    Dreams of robos powered by AI notwithstanding, no robo can touch this level of service.

  3. Deep Trust
    We listed “trust” as one of the strengths of robos over human advisors. Here, we list it as one of the strengths of human advisors. This is not contradictory. Many investors are distrustful of human advisors, as a group, and these investors may have an easier time trusting robos, in the sense that they will be charged a fair price. But deep trust, the willingness to let someone be a coach and advocate, is still the exclusive preserve of human advisors.

 

There are all sorts of ways in which the above lists of strengths and weaknesses doesn’t fit the current state of the market. But the potential is there, and we think this heralds a fundamental shift in the role of the human advisors. In the long run, human advisors can’t base their value proposition on services that robos can provide just as well. And that means human advisors will lose to robos if they compete solely on security selection and performance. What’s the alternative? Competing based on holistically overseeing and guiding the client’s financial wellbeing. We’re not alone in thinking this. Most of the wealth managers we speak to are steering their firms in this direction. The shift won’t be easy (knowing where you want to go and getting there are different things, but that’s a topic for another day). Nevertheless, the consensus we hear is that the question isn’t if. It’s when.

Written by Gerard Michael on May 30, 2019

Hard Assets Alliance
June 13, 2019

 

 

Elon Musk, Richard Branson, and Jeff Bezos have invested more than $4.5 billion into the future of our species.

I’m talking about space travel!

And as crazy as this might sound…

According to Forbes:

“It appears that we really are less than a year away from commercial space flights.”

But there’s a huge problem for intergalactic tourism.

No, it’s not reusable rockets… or rocket engines… or even funding…

It’s radiation.

This radiation comes from the sun as solar particles…

Or from the galaxy, as cosmic rays.

And it can cause some serious damage to everything we send up into space…

Like the spaceships, the onboard computers, and the people inside.

But it turns out, there’s a simple solution to this universal problem.

GOLD… Yes! The same GOLD you can buy with your SmartMetals Account.

Which is why you’ll find it inside every single galactic gadget there is.

It’s used with:

 

  • Gold in space helmets to protect astronauts’ faces. A thin film of gold fends off the dangerous effects of solar rays...

 

           So it’s an absolute necessity for space travelers.

 

  • Lubrication for mechanical joints. Where oil or grease might freeze or evaporate in space…

    Gold keeps slipping, sliding, and protecting.

 

  • Connectors in spacecraft computer systems. Gold is a dependable conductor and connector…

 

            Meaning it can carry electrical currents without fear of corrosion.

As you can see, the space industry is dependent on gold…

It’s indispensable.

Keep your eye on it…

Because demand is about to explode.

You see...

The space industry is expected to grow from $360 billion to $558 billion by 2026.

And gold is the best metal for protecting space tech from radiation.

This future has arrived.

Now you have an incredible opportunity…

To invest in the future of space travel...

By investing in gold.

If you’d like to hold some of this noble metal in your portfolio…

Click here to buy gold now - and invest in the final frontier!

For information on Hard Asset Alliance, click HERE

WealthCare Connect may receive compensation from Hard Asset Alliance for purchases make through the above links(s).

Hard Assets Alliance
July 10, 2019


 

Last quarter was incredibly kind to gold investors. For the first time in a long time, gold outpaced stocks. Which is really something considering the S&P 500 posted its strongest June since 1938. Meanwhile, fixed-income continues to hold less and less appeal as a safe haven as the market anticipates a fresh Fed rate-cut cycle. 

To help you make sense of it all, we created this report. It examines the performance of gold and other major asset classes this year so far and highlights the conditions we see which could impact the gold market going forward.

 

Q2-2019: Gold Price Breakout

 

Gold began the second quarter at $1,295 per ounce. The price was flat in April and May, then spiked in June due to the Fed’s increasingly dovish stance, the conflict with Iran, and the ongoing US/China trade war. Gold ended the quarter up 8.8%.

 

Here is the performance of gold and other major asset classes in Q2 and YTD.

Gold outperformed all major asset classes and markets in Q2 except gold stocks and palladium, rising 8.8%. It’s now up 9.9% for the year. (We’ll note that Bitcoin, not shown, spiked 200% last quarter, up 230% YTD.) The US dollar index fell 1.1% last quarter, and is flat for the year.

 

Gold’s performance in other currencies also made headlines.

 

In total, gold is now at or near an all-time high in 72 currencies. To put the importance of this in perspective, the US represents only 4% of the world’s population.

 

Unsurprisingly, gold’s volatility also spiked. The CBOE Gold ETF Volatility Index (GVZ) ended the quarter 61% higher than where it started. However, the current reading of 15.94 remains roughly 25% below the Index’s 10-year average of 20.

 

Silver continues to trail gold, and is down 1.1% on the year. Gold’s stronger relative performance has pushed the gold/silver ratio (gold price divided by the silver price) higher. The ratio began the quarter at 85.8 and ended at 92.1, now a 28-year high. This suggests silver is a better value than gold at present for those looking to add bullion.

 

While our investment thesis is not predicated upon technical analysis, many chartists maintain that the gold price broke above a critical long-term resistance level in June. Gold had not exceeded $1,400 since August 2013, failing to break through the $1,380 level six separate times since then. The momentum demonstrated by a move that has shattered this stubborn six-year ceiling is well worth watching, as it appears gold has moved into a new price range.

 

Catalysts and Barriers

 

A number of potential factors could impact the gold price over the coming quarter.

 

The Fed: The US central bank has made a major dovish pivot, going from a steady rate-raising regime, to pausing those hikes, to now likely cutting them. All in just six months. When discussing the likelihood that the Fed will have to again resort to 0% interest rates and additional rounds of QE in the future, Chairman Jerome Powell said it was inevitable: “There will be a next time.”

 

It’s not just the Fed; other central banks are equally as accommodative, which is generally gold-bullish. As Bloomberg’s Eddie van der Walt said, “With central banks around the world turning more dovish, the latest move may just be the start.”

 

Interest Rates: As the quarter closed out, traders had priced in a near-100% certainty that a rate cut will be made at the Fed’s July meeting, though those odds have since pulled back to about 85%. Interest rate reductions are typically gold-positive, since they diminish gold’s holding cost and lower the competition from Treasuries. Some of gold’s rise may reflect a cut that has already been priced in, though research from the World Gold Council shows that gold tends to perform well when the Fed is neutral or dovish.

 

Negative Interest Rates: The amount of government bonds paying less than 0% continued to make headlines, hitting a new high in late June. Globally, a total of $13 trillion in government debt now offers sub-zero yields, rising by $2 trillion since late May alone. In fact, negative-rate debt now makes up almost 40% of the value of all government bonds outstanding.

 

This trend continues to be particularly prevalent in Europe. Last month, French and Swedish 10-year yields fell below zero for the first time ever. Nearly all debt issued by the Swiss government – from one-month to 20-year maturities – now carries a negative yield. This is closely followed by Sweden (91% of all government debt), Germany (88%), Finland (84%) and the Netherlands (84%).

 

In all, central bank activity around much of the world has become decidedly more accommodative. OECD Secretary-General José Ángel Gurría publicly stated that central bankers “have run out of ammunition.” As always, central bank guidance bears watching.

 

Trade Wars/Currency Wars: President Trump has complained loudly and frequently about trade imbalances and currency manipulations by foreign governments. It is expected that ongoing trade conflicts and overt efforts to weaken the US dollar would be gold-bullish.

 

Geopolitical conflicts: The clash between the US and Iran made geopolitical headlines in June. Iran shot down a US drone over international waters… President Trump imposed sanctions to freeze the assets of Iranian military commanders including the Supreme Leader… Iran claimed US sanctions “closed the door on diplomacy”…  Trump threatened a heavy military response if Iran attacked any US interests. 

 

Ongoing tensions between the two countries could continue to support gold prices, particularly if the conflict escalated. A resolution could dampen this catalyst.

 

Central Bank Gold Purchases: We’ve been highlighting the increase in central-bank buying in our reporting, which reached 45-year highs at the end of 2018. This price support has continued into 2019: Kazakhstan, Russia, and Turkey all added to official Reserves last quarter. Through May, China has added to its gold reserves for six consecutive months. There is no evidence that this trend has let up.

 

Recession Watch: The yield curve (as defined by the spread between 10-year and 2-year Treasuries) ended Q2 at a paltry 0.24%. The last six times the yield curve inverted a recession followed shortly thereafter. Meanwhile, the US Manufacturing PMI fell to 10-year lows in May. Gold is typically sought as a safe haven during periods of negative economic output, and tends to be flat or weak when GDP is growing.

 

The Hard Asset Hedge

 

The advantages of gold supersede quarterly price fluctuations. Gold… 

 

  • Has outperformed stocks over the last 20 years
  • Can hedge against systemic risk, stock market pullbacks, and inflation
  • Is a store of wealth
  • Improves the risk-adjusted returns of portfolios, while reducing losses
  • Can provide liquidity to meet liabilities during times of market stress

 

An appropriate balance of gold in a portfolio can serve as a useful hedge, particularly in light of the Fed’s new dovish stance, ongoing geopolitical conflicts, the unrelenting growth in negative interest rates, and trade and currency wars.

 

Now is a good time to check your gold allocation and consider whether you have the amount of bullion you may need or want.
 

Jeff Clark, Senior Analyst

For information on Hard Asset Alliance, click HERE

Website:  https://www.hardassetsalliance.com/?aff=TWC

WealthCare Connect may receive compensation from Hard Asset Alliance for purchases make through links(s) on this website.

 

 

Hard Assets Alliance
September 18, 2019

I recently completed a visit to Australia where I was invited as the keynote speaker at the 2019 National Conference sponsored by ABC Bullion, one of the two largest gold refiners and gold dealers in Australia along with the Perth Mint.

ABC Bullion also kindly invited me to tour their facilities in Sydney. I visited five separate locations (out of a total of 15 in Sydney alone), which included refineries, gold bar casting facilities, jewelry design, trophy fabrication and secure storage. It was an intensive one-day crash course in all things gold outside of actual gold mines.
 
During these tours, I was able to observe state-of-the-art technology for the separation of gold from silver and other metals without the use of chemicals. These processes were invented by Russians, but are obtained under license from third-party intermediaries. Precise melting-point temperatures are combined with high-pressure gas to achieve the separation without the use of cyanide, chlorine or other chemicals.
 
It was also fascinating to observe the final stages of gold and silver bullion bar casting. These were entirely handled by robots without human intervention. Gold or silver beads of pure metal were poured into graphite molds and a top was placed on the mold. The molds were heated to high temperatures, which melted the bullion into the exact shape and size desired. The bars were then cooled and measured by weight before being etched with a unique serial number and the ABC Bullion logo.

I was not surprised to learn that much of the refinery output is sold to China. But, I was surprised to learn that many of the bars make a “round-trip” and end up back in Australia for secure storage. This can be verified by referring to the serial numbers on the bars.
 
In effect, the Chinese are converting dollars to gold and then diverting the gold out of China through various channels. This is easier than sending dollars directly out of China due to Chinese capital controls. The gold leaving China can go to many destinations including Singapore, Canada and Switzerland, but Australia is popular for this purpose.

This round-tripping of gold is one of the reasons China recently imposed a ban on private gold imports (although the ban was eased somewhat for those with special licenses granted by the government).

China’s voracious appetite for gold (despite recent restrictions) is one of many gold market developments I was able to learn more about first-hand during my visit Down Under. The local Australian demand for gold bullion is also at an all-time high, as is true elsewhere in the world.

With a bull market in gold firmly underway, what are the prospects for gold prices in the months and years ahead?

At Project Prophesy, we use third-wave artificial intelligence (AI) to offer readers the most accurate and powerful predictive analytics for capital, commodities and foreign exchange markets available anywhere.

First wave AI involved rules-based processing. Second wave AI involved deep learning as the iteration of rules produced new data that could be incorporated into the original rules. Third wave AI combines deep learning with big data as machines read billions of pages of information in plain language, interpret what they read, and add that to the big data input.

With Project Prophesy, machines are never on their own. Human analysts oversee the output and update algorithms as needed to steer the system on a smart path. Human+Machine processing is at the heart of Project Prophesy predictive analytics.

Project Prophesy relies on four scientific disciplines: complexity theory, Bayes’ Rule (a statistical method from applied mathematics), behavioral psychology, and history. A network of nodes and links is created with specific nodes conveying information from each of those disciplines.

Nodal input comes from data feeds, news services, exchange prices, and machine reading using systems such as IBM’s Watson supercomputer. Nodal input also comes from other nodes in a densely configured neural-type network.

Certain nodes are highlighted as containing actionable price information on stock sectors, fixed income instruments, commodities, currencies, and macroeconomic indicators generally.

Right now, the action nodes are telling us that the new gold bull market is intact and has far to run. To support this estimate, it’s important to take a longer historical perspective than the short-term rallies and dips that most analysts discuss. This longer perspective is illustrated in the chart below.
 

This chart graphs the U.S. dollar price of gold from 1970 until today. It illustrates two major bull markets, 1971-1980 and 1999-2011. It also illustrates two major bear markets, 1980-1999 and 2011-2015. Finally, the chart highlights a new bull market that began in 2015 and should continue for years.
 
It does not make sense to discuss bull and bear markets prior to 1970 because the world was on a gold standard for a century from 1870 to 1971. Prior to 1870, gold was simply money measured by weight and was not typically thought of in terms of currency equivalents. This pre-1971 gold standard went through many variations including the “classic gold standard” (1870-1914), the “gold exchange standard” (1922-1939) and the “Bretton Woods system” (1944-1971).

There were also periods when gold trading and gold shipments were suspended due to war and its aftermath including World War I (1914-1922) and World War II (1939-1944). Gold was occasionally revalued, for example, by France in 1925, the UK in 1931, the U.S. in 1933 and on a global basis in 1944.

However, all of these standards, suspensions and price resets were dictated by governments for policy reasons and were not the direct result of market forces. A true market for gold (albeit with government manipulation) did not emerge until 1971, so that is the appropriate starting point for considering bull and bear dynamics measured in dollars.

The first great bull market lasted from 1971 to 1980 and saw the price of gold go from $35.00 per ounce (the original Bretton Woods price) to $800 per ounce; a 2,100% gain in less than nine years. This rise was fueled by near-hyperinflation in the U.S. as the dollar lost half its purchasing power in a mere five-year period from 1977 to 1981.

The bull market was followed by a slow but persistent bear market that lasted from 1980 to 1999 and saw the price of gold fall 68% from $800 per ounce to $250 per ounce. This bear market was fed by extensive central bank sales including the infamous “Brown’s Bottom” where Gordon Brown, the UK Chancellor of the Exchequer (later Prime Minister), sold 395 tons of gold (more than half the UK’s gold reserves) in 17 auctions from July 1999 to March 2002 at an average price of $275 per ounce, near the lowest price for gold in the past forty years. Compared to today’s prices, this sale cost the UK over $17 billion in lost profits on gold.

The second great bull market lasted from 1999 to 2011 and saw the price of gold go from $250 per ounce to $1,900 per ounce; a 670% increase. This bull market was fueled by a combination of low interest rates (2001-2005) under Fed Chair Alan Greenspan and flight-to-quality dynamics during the mortgage crisis (2007), global liquidity crisis (2008), zero interest rate policy (2008-2015), and a new currency war, which produced a record low value for the U.S. dollar (2011).

Another bear market arrived in August 2011 just as dollar weakness turned to dollar strength. A persistently stronger dollar starting in 2011 and the promise of monetary tightening by the Fed starting with the “taper tantrum” in May 2013 were among the forces driving the decline.

As prices declined, gold miners struggled, mines were closed and gold mining rights and equipment were sold for cents-on-the-dollar, especially after the gold price crash in April 2013. The IMF added to the selling pressure by dumping 400 tons of gold on the market in 2010; another example of official manipulation of gold prices.

The turning point came on December 15, 2015 when gold bottomed at $1,050 per ounce, a dramatic 45% drop from the all-time high of $1,900. At that point, the third great bull market began. Almost no one saw this at the time because sentiment was completely depressed and many past rallies had been followed by new declines and new lows. Top gold analysts were still calling for $800 per ounce gold prices as late as 2017.

The point is, bull and bear market turning points are usually only seen in hindsight and rarely understood in real time. To our credit, we urged readers to buy gold at the $1,050 per ounce level and have been urging allocations to gold ever since. Gold has rallied almost 50% in less than four years as part of this new bull market.

The purpose of this long-term perspective is to illustrate the huge upside potential still remaining in this new gold bull market. The first bull market rallied over 2,100% in nine years. The second bull market rallied over 670% in twelve years. In both cases, the majority of the gains came toward the end of the bull market in a super-spike blow-off.

The current bull market is still in its early stage. A 50% gain in four years is impressive, but that’s just a down payment on what’s to come. If we simply average the performance of the past two bull markets and extend the new bull market on that basis, we would expect to see prices peak at $14,000 per ounce by 2026. Of course, even greater gains and a longer bull market are possible.

Jim Rickards

James G. Rickards is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He was the principal negotiator of the rescue of Long-Term Capital Management L.P. (LTCM) by the U.S Federal Reserve in 1998. His clients include institutional investors and government directorates.

His work is regularly featured in the Financial Times, Evening Standard, New York Times, The Telegraph, and the Washington Post, and he is frequently a guest on BBC, RTE Irish National Radio, CNN, NPR, CSPAN, CNBC, Bloomberg, Fox, and The Wall Street Journal. He has contributed as an advisor on capital markets to the U.S. intelligence community, and at the Office of the Secretary of Defense in the Pentagon.Rickards is the author of The New Case for Gold (April 2016), and three New York Times best sellers, The Death of Money (2014), Currency Wars (2011), The Road to Ruin (2016) from Penguin Random House.
 

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.

For information on Hard Asset Alliance, click HERE

Website:  https://www.hardassetsalliance.com/?aff=TWC

WealthCare Connect may receive compensation from Hard Asset Alliance for purchases make through links(s) on this website.

Hard Assets Alliance
September 23, 2019

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.

 

Last month, as the trade war was stealing the headlines, annual summer camp was in session for international central bankers at Jackson Hole, Wyoming. There, Federal Reserve Chairman Jerome Powell remarked that the Fed is committed to continue to do what’s needed to “sustain the expansion.”

 

He noted that the U.S. economy is in a “favorable place,” although it faces “significant risks.”

 

He said that economic slowdown in Germany and China, the possibility of a hard Brexit and tension with Hong Kong contributed to a “complex, turbulent” picture. And he agreed that markets were volatile.

 

As you recall, the Fed decided to cut rates by 25 basis points on July 31. And many were listening to Powell’s speech trying to decipher whether he truly meant the rate cut was just a “midcycle adjustment” or if he was going to strike a more dovish tone.

 

Powell’s speech confirmed the notion that the rate cut did not necessarily signal strong dovish monetary policy to come. He didn’t give those wanting to hear strong dovish talk much to go on.

 

And no one wanted to hear strong dovish talk more than President Trump. This is what Trump tweeted after Powell’s comments from Jackson Hole:

 

As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great…

 

Here’s how he capped it off: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”

 

Recently, Trump had more to say:

 

The Federal Reserve loves watching our manufacturers struggle with their exports to the benefit of other parts of the world. Has anyone looked at what almost all other countries are doing to take advantage of the good old USA? Our Fed has been calling it wrong for too long!

 

Those are fighting words, calling the chairman of the Fed a downright enemy of the country, maybe worse than the Chinese leader who had just announced anti-U.S. tariffs.

 

Powell’s borne the brunt of President Trump’s repeated accusations that the Fed is what’s holding back the stock market and threatening the economy. Trump has publicly expressed frustration with Powell, believing he has negated the impact of the Trump tax cuts.

 

Presidents have normally refrained from publicly commenting on the Federal Reserve’s policies, allowing it to maintain at least a veneer of independence, as mandated by the Federal Reserve Act of 1913.

 

But whatever you think of him, you have to admit that Trump is no ordinary president. He’s certainly not one to keep his opinions quiet.

 

And that doesn’t mean presidents haven’t privately leaned on the Fed to help their reelection prospects.

 

Just look at another Republican president – Richard Nixon. When the Fed began raising interest rates during Nixon's term, he also raised objections, although not in public like the current president.

 

Back then, the U.S. had been in the throes of a recession in the beginning of the 1970s. The Fed had cut rates by half to stimulate the economy. There was no quantitative easing (QE) program during that period.That's because it wasn't a banking crisis preceding that recession, so the level of Fed support wasn't anywhere near as expansive as it has been this past decade.

 

Fed Chairman Arthur Burns believed that "awful problems" could occur if the Fed didn't raise rates in tandem with the growing economy. On a somewhat lesser scale, that was the position of Jerome Powell before he backed off the rate hikes at the beginning of the year.

 

But here’s how Trump’s comments can affect Fed policy…

 

Trump is almost forcing Powell to cut rates by carrying on the trade war, which is taking a toll on the stock market and the overall economy. But Powell does not want it to appear like he’s caving into Trump’s demands.

 

The Fed is supposed to be independent of politics, even though it really isn’t. But it at least has to give the appearance that it’s independent of politics. If Powell starts cutting rates aggressively, it would make him look like a puppet.

 

But if he doesn’t cut rates, the economy and the stock market could suffer at a time when they’re most needed. As geopolitical tensions rise, trade wars mount, currency wars spawn and volatility continues to build, it's clear the economy faces increasing pressure that could spiral into recession or worse.

 

The Fed can tolerate weakness in the stock market, but it fears a complete collapse, which is a very real possibility. So Powell’s in a catch-22, damned if he does and damned if he doesn’t.

 

Powell can look like he’s giving into Trump and keep the bubble going, which will only prolong the ultimate day of reckoning and make it worse, or he can withdraw support and risk a crash.

 

Ironically for President Trump, such friction could incite greater economic uncertainty, which could prove detrimental to the economic strength he desperately wants to maintain heading into the 2020 election.

 

Interestingly, former New York Fed President Bill Dudley is actually calling on Powell not to lower rates. Why not? Because it would help Trump win the election next year. To prove that the Fed isn’t independent of politics at all, Dudley said:

 

Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.

 

He continued:

 

After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

 

It doesn’t get much more direct than that for a former Federal Reserve official. So the next time someone tries to say the Fed is independent of politics, don’t listen to a word of it.

 

Ultimately, I believe Jerome Powell will be forced to cut rates because of slowing economic conditions.

 

 It might look like he’s caving to Trump, but that’s just something he’ll have to live with. That also means more dark money will be coming to support markets.

 

Regards,

 

Nomi Prins

 

Nomi Prins is a renowned journalist, author and speaker. Her latest book, Collusion: How Central Banks Rigged the World is an expose into the 2007-2008 financial crisis and how the influence of central bankers triggered a massive shift in the world order.

 

For information on Hard Asset Alliance, click HERE

Website:  https://www.hardassetsalliance.com/?aff=TWC

WealthCare Connect may receive compensation from Hard Asset Alliance for purchases make through links(s) on this website.


 

Hard Assets Alliance
October 10, 2019

 “There’s a lot of pressure into gold, and we’ve just barely begun this cycle,” says Dan Oliver, founder of Myrmikan Capital. In an interview at Kitco, Mr. Oliver doubled down on his expectations for gold. “Oliver noted that once gold had broken above $1,350 an ounce, institutional investors started to pay more attention, especially once heavyweight fund managers like Ray Dalio of Bridgewater Associates started publicly advocating for gold.”

 

Something The 5 highlighted over a month ago when we picked up on something Dalio said in a rather long-winded essay at LinkedIn: “It would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.” In the aftermath of Dalio’s pronouncement, gold notched its highest finish since May 14, 2013. (As Dave so elegantly said at the time: “[Dalio’s] reasoning doesn’t matter as much as the fact it’s Ray Freakin’ Dalio who’s saying it.”) “None of these institutional guys want to be heroes,” says Oliver. “Once a guy like [Dalio] says it’s OK, then they can all do it…

 

“What’s interesting is that all the institutional money is trying to squeeze into a market that is very small,” Oliver continues, “and it’s hard to figure out how to do it, and that’s what they’re scrambling to figure out. “So I think there’s a lot of momentum behind this move,” he says. Just how much momentum? Well, gold sits at $1,503.00 at the time of writing… and when we say Oliver doubled down, we mean that literally. He forecasts gold $3,000.

 

Another advocate for owning gold — perhaps before Dalio — is Robert Kiyosaki, best-selling author of Rich Dad Poor Dad. Like it or not, Robert says, “Recession fears are spreading. Meanwhile, gold has risen nearly 20% since… December when Trump warned: ‘I am a Tariff Man.’”

 

According to MarketWatch, “During that time, [gold’s] left a lot of other popular investments trailing in the dust. It’s beaten the S&P 500 stock index by a hefty 15 percentage points… It’s crushed popular investments like Apple, Alphabet and Netflix. It’s beaten Tesla by 53 percentage points.”

From Tariff Man to Tariff Heaven

Robert goes on to say the escalating trade war’s played no small role in gold’s recent breakout: “President Donald Trump announced 10% tariffs on the remaining $300 billion of Chinese imports [and] China let the yuan weaken and rise above seven against the U.S. dollar for the first time in more than a decade.

 

“Trump eased tensions… after announcing he’d delay at least some of the tariffs. But the trade war is still very much alive. Now we have the currency wars to deal with too. “Gold is up because no one knows if the U.S. currency is going to follow in the yuan’s footsteps,” says Robert.  “People are concerned,” says RJO Futures senior market strategist Phillip Streible. “If I had money in the bank, I [would] sell the dollars and use that money to buy gold. You are divesting yourself from your currency by selling it and buying a hard asset.”

 

Why divest dollars?

 

“Most people think of dollars as money,” Robert says, “but the reality is that the dollar is not. An amusing way of looking at this is to realize you can buy $10,000 in cash from the U.S. Bureau of Engraving and Printing for only $45. The catch is that they're shredded.” More to the point: “Since Nixon took the dollar off the gold standard in 1971, it is no longer money.  “Before 1971, there was a relationship between a dollar and how much gold was backing that dollar in the U.S. Treasury,” Robert says. “After 1971, that dollar was not backed by anything other than the full faith and credit of the United States government.

 

“[The dollar] can go up and down in value depending on how other currencies are performing and based on many economic conditions. It is tied to nothing and can move in either direction very quickly. “The good news is you can [use] fake money to buy real money and real assets,” says Robert. And here’s the thing: “When I purchase gold,” says Robert, “I do not expect an ROI because I am not taking a risk. “When I purchase real gold… I purchase [it] forever. I never plan on selling. Just as Warren Buffett holds stocks forever, I will purchase gold… forever. “I use [gold] not as an investment but as a hedge,” Robert says, “and [now] you can easily get started building your wealth through gold…”

 

As for oil, it’s up 75 for a barrel of WTI at $54.39. And, well, we already mentioned the price of gold above…

 

“While other parts of the economy may show some weakening, consumers have remained confident and willing to spend,” says Lynn Franco of the Conference Board that surveys 3,000 U.S. families to track the consumer confidence index. While expectations for the next six months cooled marginally from July, the survey’s results show consumers are as optimistic about the overall current economy as they’ve been since 2000.

 

The Case-Shiller home price index stayed static in June, below consensus, making year-over-year growth now the slowest since 2012. A separate home-price measure from the Federal Housing Finance Agency also clocked in below expectations. Perhaps a sharp decline in mortgage interest rates will put a floor under the housing market…

 

“President Trump has repeatedly claimed that the United States does not bear the costs of [trade war] tariffs,” says an article at The Hill. But according to the Congressional Budget Office, trade tariffs enacted by Trump’s administration will cost each U.S. family $580 by 2020. Doesn’t sound like much? (Although we’re pretty definite you could think of other ways to spend $580.)

 

“That figure — which does not include new tariffs scheduled to go into effect in September and December — amounts to a significant chunk of economic growth. It is the equivalent of roughly $60 billion in lost economic activity,” The Hill reports.  Not only that: “Higher trade barriers — in particular, increases in tariffs — implemented by the United States and other countries since January 2018 are expected to make U.S. GDP about 0.3% smaller than it would have been otherwise by 2020,” says CBO Director Phillip Swagel.

 

But hey, look on the bright side — the CBO calculates trade war tariffs will add $33 billion to the U.S. Treasury. But… that’s a net loss of $27 billion, right?

 

Brilliant.

 

Best regards,

 

Emily Clancy

 

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.

For more postings by Hard Asset Alliance, click HERE

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Hard Assets Alliance
November 7, 2019

 

By Brian Maher

 

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.

 

Dear Reader,

 

As a bad penny returns to its sender, or a dog returns to its vomit… investors are returning to the stock market.

 

“All in” these gentlemen and ladies are going (or at least the computer algorithms that set market pace).

 

Lance Roberts of Real Investment Advice:

 

With cash levels at the lowest level since 1997 and equity allocations near the highest levels since 1999 and 2007, it suggests investors are now functionally “all in.”

 

You may recall sharply unpleasant events subsequent to 1999 and 2007 — after investors had become “all in.”

 

Now that they are once again marshalling their poker chips… and shoving them out onto table’s center.

 

Will Mr. Market break them once more — or do they possibly play a lucky hand this time?

 

First this question:

 

Why are these gamesters going “all in” now?

 

We believe we have the answer, revealed anon.

 

We first note the stock market has once again scaled the impossible heights…

 

Is a “Melt-up” Back in Play?

 

All three major indexes have recently established fresh records. And so the market has scaled its cliff face of worry.

 

Trade war, impeachment inquiry, a fading global economy, Brexit, the devil and any number of impediments... it has clawed above them all.

 

Affirms analyst Andrew Brenner of National Alliance:

 

Brexit, impeachment, budget deficit, lack of a budget — none of those things are affecting the market at this point.

 

It is — in the parlance of the trade — “risk on.”

 

Our spies even report fresh speculation about a possible “melt-up.”

 

A melt-up is the glorious terminal phase of a bull market, when stocks reach fever heat — before melting down.

 

Melt-ups have preceded some of history's greatest collapses.

 

In the 18 months prior to the Crash of ’29, for example, the stock market nearly doubled.

 

And the Nasdaq rocketed 200% in the 18 months before the dot-com mania peaked in 2000.

 

Why are investors rushing back in now?

 

4 Possible Reasons Stocks Are Rising

 

Several reasons suggest themselves…

 

Reasons 1: The Federal Reserve sliced interest rates last week — the third occasion this year — and for a total of 75 basis points. And as explains Raymond James:

 

Over the last 30 years, when the Fed has implemented an “insurance” rate cut policy of 75 basis points, the equity market has been “lights out” as the S&P 500 has posted a 12-month forward return of about 23%, on average.

 

Reasons 2: Markets are again hopeful the United States and China will come to terms on trade.

 

Commerce Secretary Wilbur Ross announced yesterday the combatants were making excellent progress toward a “phase one” trade accord.

 

A successful resolution would lift tariffs on some $156 billion of Chinese exports, presently scheduled to enter force Dec. 15.

 

Reasons 3: Corporate stock buybacks this year — despite recent slackening — should nonetheless turn in their second-largest year on record.

 

Reasons 4: Stocks as a whole are surpassing earnings estimates.

 

These reasons and more we can cite.

 

But do they haul the full cargo of explanation?

 

We are unconvinced.

 

Look to the Federal Reserve

 

Is the primary reason the stock market once again scales record heights… and that poker chips are piling up on the table’s center…

 

Because the Federal Reserve has been slyly hosing in floods of liquidity?

 

The short-term lending market nearly seized in September as liquidity ran dry.

 

The Federal Reserve’s New York command center therefore grabbed the hoses… and gave the “repo” market a good soaking.

 

A temporary expedient, they labeled it

 

But long experience teaches that nothing can be so permanent as a temporary expedient.

 

Our agents inform us the New York Federal Reserve has emptied in some $250 billion since September.

 

We hazard a healthful portion of that $250 billion has gone to funding speculative activity on Wall Street.

 

And the hoses pump yet.

 

Furthermore, this we have on the Federal Reserve’s own word: these same hoses will pump “at least” through next year’s second quarter.

 

Jerome Powell insists these “open market operations” are not quantitative easing.

 

Apologists claim they are merely plugging a leak within the financial plumbing. And in detail, they may well be correct.

 

But these operations have expanded the Federal Reserve’s balance sheet... precisely as if they were quantitative easing.

 

QE4?

 

The balance sheet expanded over $50 billion last week alone and exceeds $4 trillion.

 

“The Fed can deny that they’re doing quantitative easing,” argues permanent bear Peter Schiff — who styles current operations QE4.

 

He adds: “But they can’t hide the numbers. They can’t hide their balance sheet.”

 

Is QE4, as you style it, even larger than QE3, Mr. Schiff?

 

The Fed is expanding its balance sheet right now at about twice the pace that it was expanding its balance sheet when it was doing QE3. So QE4, whether they admit it or not, is much, much bigger than QE3, and it’s going to continue, and it is going to accelerate.

 

And is QE4 responsible for the latest stock market spree?

 

And that is what is driving the stock market… They’re doing quantitative easing, and they’re going to print as much money as they have to keep the markets going up and to keep the economy propped up.

 

Just so.

 

But stocks are vastly expensive by history’s standards. By some measures today’s valuations rise even above 1929’s and 2008’s.

 

Will today’s lemmings make much money in this stock market — as they go hoofing for the cliff?

 

The odds strike us as… slim.

 

That is because the higher things rise, the further they fall.

 

A Losing Bet

 

Assume today’s obscene valuations. From these heights, history argues the Dow Jones may plunge some 35% next time.

 

Meantime, we understand that options traders are lowering their guard of late.

 

These fine folks take out “call” options in anticipation market gains. They conversely take out “put” options to insure against losses.

 

When the number of calls runs too far ahead of puts, it is evidence the guard is down. And a lowered guard invites a blow.

 

That presently appears to be the case.

 

The last occasion the ratio of calls to puts attained current highs was on Jan. 23, 2018 — immediately prior to a market thumping.

 

We must assume investors presently streaming into the stock market will come ultimately to grief… as they did in 2001… and 2008.

 

When precisely, we do not know.

 

But “experience keeps a dear school,” as Benjamin Franklin affirmed two centuries ago — and “fools will learn in no other.”

 

Regards,

 

Brian Maher

 

Managing editor, The Daily Reckoning

We hope you have enjoyed this article by our guest writer.

 

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RiXtrema
February 26, 2019

On January 15th I wrote an article in which I described that the most likely outcome to fund the government was congress passing a bipartisan resolution while President Trump declares the situation at the southern border a national emergency. And on Friday, this largely played out (though I also predicted that all of this would take place by January 21st and end the first shutdown). So, while I was correct on the ultimate outcome, I was off by a few weeks on the timing. But my other expectation was that all of this would have no effect on markets.

And on this point, I stand with my original conclusion – neither the contents of the bipartisan resolution nor the nature of the declared national emergency will have any effect on the markets. In fact, the market barely reacted to the declaration in real time. From a market perspective, this is as close to a non-event as it gets. Trade with China, Brexit, the Fed and other economic issues will continue to dominate the market cycle. Any noise surrounding the emergency declaration, be it a congressional override, lack of a congressional override, a lawsuit, or any other political maneuverings, will also have no effect on markets.

The decision to declare a national emergency to get what couldn’t be passed through congress is one with which I strongly disagree. It sets a very dangerous precedent where the current or future presidents could declare national emergencies to fulfill their campaign promises or other pet projects. And the results may not always be so benign for the markets. A democratic president could declare a national emergency on gun violence where they ban the sale of certain weapons. They could declare a national emergency in health care and mandate Medicare for all, enact a Green New Deal unilaterally, etc.

While this turn of events doesn’t warrant a new risk scenario in Portfolio Crash Testing, be sure that if the ‘emergency’ isn’t reversed by congress or the courts, we will begin to create scenarios around potential future ‘emergencies’ that may occur by presidential decree. We have promises from various parties that lawsuits are on the way to being filed, and we have the House likely to pass a resolution effectively undoing the ‘emergency’, and potentially even more than 50 votes in the senate. Overriding a veto is another issue, and it may come down to the courts to decide. Hopefully, we don’t have to start creating those scenarios.

Source: https://www.rixtrema.com/blog/emergency-sos/

Hard Assets Alliance
March 20, 2019

 

 

I don’t like to speculate on what the market is going to do next, but there are three things that have me worried right now...
 
See this chart?

 

This shows how much US households are spending on goods and services…

And spending has absolutely CRATERED!

Like, “we haven’t seen this since 2008” kind of bad.

The personal savings rate has made a HUGE jump...

 

 

And most disturbing of all…

The number of major S&P 500 tumbles in the last three-year window has hit its highest level since the 1940s!

 

What the heck is going on here?
 
Is this a warning sign for trouble ahead?
 
Or are people just getting jittery, and it’ll all be okay?

 

P.S. Precious metals – like gold, silver, platinum and palladium – are a great option to consider if you’re looking for a reliable safe haven from the stock market.

 

For more info, click HERE