Dear Reader,
Today I want to talk about what JPMorgan is calling, “The Debasement Trade.”
I wasn’t clever enough to come up with this phrase last year when we did a report on the death of the dollar.
The “debasement trade” is an investor strategy of buying hard assets like gold, and even now Bitcoin, to protect against devaluation of our dollar. And fiat currencies in general.
What’s driving that trade is, again, this high government debt, inflation, waning consumer confidence in government-backed money.
Look, this is basically something we’ve been talking about here on our little channel for two years now.
Because during President Trump’s first term he added $7.4 trillion.
Biden added another $7.2 trillion during his term.
And it looks like Trump’s second term he will do much of the same.
We talked about this a lot leading up to last year’s election - that President Trump would probably do that.
So, what’s causing the “debasement trade?”
Let me just go down the list here…
High government debt…
Persistent inflation…
Weakening confidence in fiat currencies.
We see people losing faith in traditional currencies and moving into alternative assets and away from the U.S. dollar, which has caused a lot of trouble.
The interesting thing driving the trend is a lot of ETF inflows catapulting gold to new highs.
It’s just astonishing. Gold hasn’t gotten this much action since the 1970s. Since John Travolta was doing Saturday Night Fever, okay?
That’s how much action gold is getting right now.
It’s really crazy.
$3,900 an ounce. Can you imagine?
Nobody wanted to touch gold at $1,800 or $1,600 an ounce.
But at $3,900, you can’t get enough of it.
Bitcoin is trading in the $120,000 area.
A few weeks ago I shared Ray Dalio’s opinion on what you should have in gold and/or Bitcoin - basically, what percentage your portfolio should have.
We talked 15% to 25% of your portfolio.
Historically banks have always talked about the 60/40 portfolio. 60% of your portfolio in bonds. 40% in stocks.
Or, depending on how young you are, the exact opposite.
Now the portfolio is looking stocks, bonds and gold. Because again, gold seems to be taking the place of the dollar as a new fiat currency.
And Bitcoin to a lesser extent, but gold for sure.
Interesting times.
As the man said, may you live in interesting times.
Have a wonderful day.
The Buck Stops Here
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Written by Dylan Jovine