Category: simonblack

It started with the Antonine Plague in the late 160s AD, most likely a really bad smallpox epidemic that killed 8 million people across the Roman Empire.

Then came the barbarian invasions… a tidal wave of migrants pouring across Rome’s northern border and plundering the countryside.

The Roman government also bizarrely spent a fortune doling out vast sums of money to adversary nations– a sort of bribe (they called it ‘tribute’) to make sure that foreigner powers wouldn’t attack Rome.

But instead, those adversary nations smelled weakness and used the money to build up their own military capabilities and menace the Empire… all courtesy of Roman taxpayers.

Crime rose and general security deteriorated; while merchants had once been able to travel across the empire quickly and safely to trade their wares, the rise in brazen crime and looting caused major disruptions to Roman trade.

Climate change and extreme weather events also became major problems, and agricultural productivity plummeted as a result. Famine was not uncommon.

Naturally the imperial government stepped in with one bonehead policy after another. They distracted the population with free bread and circuses. They vastly increased the size of the government– especially soldiers who would enforce imperil edicts and taxation at the point of a sword.

They spent way more money than they collected in tax revenue… so the jacked up taxes and confiscated people’s assets to pay for their bloated budget.

They also routinely debased the currency, sparking widespread inflation across the empire.

One of the clear lessons from history is that human beings have a breaking point. And Romans reached theirs. After decades of instability, crisis, humiliating foreign policy blunders, and economic stagnation, peasant rebellions began to tear the empire apart.

By the late 200s AD, various regions of the Roman Empire had broken away and declared independence; the northern provinces became known as the Gallic Empire, while the eastern provinces became the Palmyrene Empire. The original Roman Empire had essentially disintegrated… and the rest of the world couldn’t believe what they were seeing.

But in the year 270, a new emperor came to power– former general Lucius Domitus Aurelianus, known to history as Aurelian.

Aurelian’s success as emperor was nothing short of astonishing. In just five years, he managed to retake all the breakaway provinces and reintegrate the empire… and his swift military successes struck fear in the hearts of Rome’s foreign adversaries.

Aurelian also made much needed changes in the Roman government and economy. He prosecuted corruption, terminated incompetent officials, reformed the currency, and eliminated the outrageously expensive alimenta welfare program.

He was far from perfect and made plenty of mistakes. But given that Aurelian inherited an empire that was dying and disintegrated, it’s pretty miraculous how quickly he managed to turn things around and put Rome back on the right track.

America has a laundry list of its own challenges these days… most of which have grown worse each year.

The national debt is out of control and will most likely reach $36 trillion within the next couple of weeks. Total interest payments on that gigantic pile of debt reached $1.1 trillion in the last fiscal year and will almost certainly be even higher in this current fiscal year.

The nation’s largest entitlement programs– Social Security and Medicare– are in critical need of reform, given that the programs’ trust funds are set to run out of money in less than a decade.

Prices are still way too high, the inflation problem hasn’t gone away, and America’s standing around the world has taken a nosedive.

Like ancient Rome, the US federal government has bizarrely doled out countless billions to adversary nations. Afghanistan received tens of billions of dollars of military equipment in 2021, courtesy of the US taxpayer. Iran has received tens of billions more… which they have used to develop weapons technology to strike the US.

You can’t make up this level of incompetence.

But as I’ve argued several times before, these problems are still fixable. And there is, right now, a very limited window of opportunity to fix them.

At least 73 million people in the United States recognized this. They might not understand all the details, but they at least see that the country is headed in the wrong direction and needs to be fixed. Now.

Turning things around is not rocket science. And America already has the playbook: it’s called capitalism, i.e. the economic system that made the United States the wealthiest country in the history of the world.

It’s not hard. All the government needs to do is get the hell out of the way and let the private economy do its thing: create, innovate, and grow.

This means slashing stupid, productivity-killing regulations. And I can’t think of anyone better to head up that effort than Elon Musk… who at this very moment is already working on it.

Growth also means finally liberating America’s energy sector (and regulatory agencies allowing oil and gas companies to drill and produce again). It also means the government taking its boot off the throats of American businesses.

Combined with the coming productivity boom of AI, there’s a good chance that US GDP growth could reach a sustained 3%, then 4% very soon. This was the norm in the 1990s, and there’s no reason why the economy couldn’t achieve that again.

Higher growth means more tax revenue, lower deficits, and (eventually) a lower debt. The problem can slowly melt away.

It’s going to take serious effort. It’s going to take focus. It’s going to take a little bit of luck. But it is possible.

Personally, I’ve been writing for more than 15 years that America is in trouble; back in 2009 I described the effect of logarithmic decay, i.e., thanks to excessive government spending, the US would decline gradually, then suddenly.

This was an incredibly controversial idea back then, and a lot of people thought I was crazy.

But then it happened… and we’ve all witnessed the gradual– then sudden– decline, culminating in the breakneck pace of face-palming humiliation, chaos, and crisis over the past few years.

I’m a West Point graduate and Army veteran, so I take no joy in having been right about America’s decline. But at this point, right now, today, I hope to become wrong. I’m rooting desperately to become wrong.

And I have hope and confidence that the new administration can make me wrong.

I’m not saying that Donald Trump is Aurelian. But I am saying that America has a chance. I would even say it’s a very good chance. So, this is a great time to be optimistic. I certainly am.

But as we used to say in the military, “hope is not a course of action”. So, despite the positive things that may happen on the road ahead, it absolutely 100% still makes sense to have a Plan B.

Source

from Schiff Sovereign https://ift.tt/gUGB2tf
via IFTTT

At around 4 a.m. on March 28, 1979, the quiet hum of machinery at the Three Mile Island nuclear plant in Pennsylvania was shattered by a cascade of alarms and error alerts.

It started with a relatively minor issue— a cooling pump malfunctioned, triggering an automatic shutdown of the reactor. But it quickly spiraled into a full-blown crisis.

The pressure in the reactor core rose sharply, and a relief valve malfunctioned, allowing radioactive coolant to leak out unnoticed. In the confusion, operators misinterpreted data and shut off the emergency cooling system, causing the reactor’s core to dangerously overheat, leading to a partial meltdown of the fuel rods.

As the news leaked that a partial meltdown might actually be underway, the media descended on the area, stoking fears of a full-scale nuclear catastrophe.

The government’s message shifted daily, with conflicting statements that did little to reassure an anxious public.

Pennsylvania’s governor feared ordering an evacuation would incite panic, though he ultimately recommended that pregnant women and young children within a five-mile radius evacuate. This only fueled widespread concern that the situation was far more serious than officials initially let on.

Yet by all measures, the incident was not that bad. No one died. And even in the immediate area, radiation never reached harmful levels.

In fact, the plant was not even shut down. While the unit that suffered the meltdown never reopened, another unit continued operating until 2019.

Nevertheless, public confidence in nuclear energy was obliterated that night, more than 45 years ago.

Three Mile Island became a symbol of nuclear failure, and left a lasting impression, to the point that it became a kind of social meme; even the spiciest wing sauce at the ‘Hooters’ restaurant chain is named “Three Mile Island.”

Combined with the meltdown at Chernobyl in the Soviet Union a few years later— which was actually catastrophic and deadly— these events virtually eliminated any nuclear power ambition for decades.

Then something interesting happened. No one wanted to build a nuclear power plant anymore. The public wouldn’t hear of it. So every private company with experience and expertise building those power plants shifted gears and started doing something else.

Fast forward a few decades, and nearly anyone with experience building nuclear power plants has either died or retired. The skill of building those plants has become more or less extinct.

Meanwhile, most governments around the world have become fixated on extremely inefficient wind and solar energy. They’re anti-fracking, anti-fossil fuel, and unfortunately, missing the obvious answer.

They should be going all in on nuclear power, which is far and away the most efficient energy technology known to man. It’s so extraordinary that a single rock of uranium contains enough nuclear energy to power an entire city.

Some countries understand this. China and India, for example, have been ramping up their development nuclear power plants for several years.

But in the West, and especially in the US, nuclear plants have been decommissioned, shut down, and demolished.

Part of this is due to the lingering memory of Three Mile Island, along with the media’s relentlessly bad portrayal of nuclear energy; they have been irresponsibly selling the dream of wind and solar as the future, while demonizing nuclear as a bad idea.

In fact, only three new nuclear power plants have been completed in the US since the start of this century.

And in the meantime, America has lost so much knowledge and experience about how to efficiently build these plants that developers today are struggling to figure it out.

As a result, two of the more recent nuclear reactors to be completed were seven years late and 2x over-budget.

Despite all this, I’m optimistic.

It’s hard to keep a good idea down forever, and nuclear is an incredibly good idea. And it’s one that’s truly needed.

First of all, demand for electricity is surging. The government wants to electrify everything— for example by forcing people to buy electric vehicles, and attempting to shift people away from heating and cooking with natural gas.

On top of that, the on-shoring of manufacturing back to the US will drive even more electricity demand. Plus the intense energy demands of AI data centers will push the US electrical grid well beyond its capacity.

America needs more power. And it needs it now.

We’ve talked about natural gas as a great short-term solution because US natural gas is very cheap, clean, and safe. The plants are efficient and quick to build, thanks to the up-to-date expertise of today’s companies.

But in the long run, nuclear is the most obvious solution.

The goal should be cheap, clean, safe, and reliable energy— which is necessary for a healthy economy. And nuclear fits that role better than anything else.

Interestingly, the reactor at Three Mile Island is set to reopen.

And Microsoft is writing the check to fund it.

Billy Gates, as we call him in our household, despite all his crazy talk during the pandemic, is a huge supporter of nuclear power. So at least with respect to nuclear, he’s absolutely right.

And the company that owns Three Mile Island, Constellation Energy, saw its stock price surge over 20% in a single day after the announcement of its joint venture with Microsoft.

But there are a lot of other nuclear energy related businesses—not to mention natural gas companies— that are trading at laughably low valuations.

And these are examples of the most important resources, i.e. “real assets” that we talk about all the time.

Energy is the foundation of the economy— really of modern human existence. It’s the most necessary component that drives every other real asset, from growing food, to powering productive technology.

You even need energy to produce more energy, i.e. drill for oil, mine coal, or dig up more uranium.

Given future energy trends, and the desire for cleaner, cheaper, more efficient sources, these are exactly the kinds of real assets worth paying attention to.

Many of them are dirt cheap for now. But that’s probably not going to last.

Source

from Schiff Sovereign https://ift.tt/sdzoXWH
via IFTTT

In the pantheon of human ingenuity, the development of iron and steel ranks up there with the discovery of fire and the invention of the wheel.

In fact, the advancement of human civilization would have been nearly impossible without iron—and the steel that it becomes.

Metallurgy (and agriculture) are ultimately what brought our ancestors out of caves and allowed them to build lasting settlements, many of which (Athens, Jerusalem, Delhi, etc.) still exist to this day.

Steel is still arguably the most important industrial commodity in the world. From railroads to skyscrapers, cars, bridges and electrical infrastructure, our modern way of life depends on steel.

This is why, when economies develop rapidly, one of the first things that happens is a surge in demand for steel, along with other essential commodities like copper, oil, and even food.

China experienced this surge in the early 2000s. India is going through it now.

This ongoing demand makes steel—and, by extension, iron—a ‘real asset’, i.e. a critical resource upon which human civilization truly depends.

We talk about real assets a lot— and they include certain commodities like steel, oil, copper, and gold, all of which serve vital functions. Agriculture and productive technology are also real assets. Water is a real asset.

And in an inflationary environment, these assets tend to perform exceptionally well.

We consistently make a very strong argument in this column that the future will likely be extremely inflationary.

After all, it seems like just yesterday that the US national debt hit $35 trillion. Yet it’s already closing in on $36 trillion. The budget deficit was $1.8 trillion last year, and the government’s own projections conservatively estimate $22 trillion in additional deficit spending over the next decade.

Technically, the situation is fixable, but it certainly doesn’t look like anyone in power is moving in that direction.

Realistically, the only “solution” will be for the central bank to print more money— potentially tens of trillions of dollars over the next decade.

As we saw during the pandemic, when the central bank expanded the money supply by $5 trillion, we got 9% inflation. How much inflation will we see if the Fed creates another $20 trillion?

No one knows for sure. But it probably won’t be zero.

Real assets, by the way, did very well during the pandemic. They also performed well during the stagflation of the 1970s.

And given that the world is looking at another major inflationary cycle, we believe that real assets are primed to outperform.

The good news is that a number of real asset producers are currently selling at absurdly cheap valuations.

We’ve said this before: while gold may be at an all-time high, many gold producers are extremely undervalued.

We think iron and steel companies are worth taking a look at as well given the importance of those commodities.

To give you an example, we wrote about one highly undervalued iron company to our subscribers of The 4th Pillar— our most exclusive premium investment research service.

This company has a unique business model because it isn’t actually a mining company; it’s a royalty company.

Owning and operating a mine involves a lot of work and risk. When the underlying commodity increases in value, the mining company generates more revenue. But inflation can also drive the costs of production higher as well.

But royalty companies don’t operate mines. They provide financing. And in exchange for providing financing, they get a cut of the revenue.

This is a unique model. Banks who provide financing receive a fixed rate of interest on their loans. Investors who provide financing receive shares in the company, i.e. a portion of the profits.

But royalty companies receive a percentage of top-line revenue… which means they will be major beneficiaries when inflation pushes up the prices for key resources like steel and iron.

This company in particular also trades at a low, single-digit price-to-earnings ratio, pays an 8% dividend, and has a solid balance sheet. We believe it has significant upside potential.

But it’s just one example of a regular theme at Schiff Sovereign: exposure to real assets can help inflation-proof your portfolio and your life.

Right now, many real assets are trading at historic lows, from gold miners to iron royalty companies to natural gas producers. Given the coming inflationary cycle, that’s probably not going to last.

Source

from Schiff Sovereign https://ift.tt/1JdarEN
via IFTTT

The year was 1991. The shoulder pad fashion craze of the 1980s was finally coming to an end, and Kurt Cobain’s “grunge” look was in.

The Silence of the Lambs hit the theaters and swept the Academy Awards that season (with a nice chianti and some fava beans)— Best Actor, Best Actress, Best Director, and Best Picture.

The World Wide Web became accessible to the public that year.

The Berlin Wall was a distant memory, and the Soviet Union was dissolving in front of the world’s eyes. Gorbachev resigned on Christmas Day, and the Soviet flag was lowered over the Kremlin for the last time.

Overnight America became THE dominant, unchallenged global superpower.

Simultaneously the US economy was booming. Inflation was low. And by the end of the decade, the government was actually running budget surpluses— thanks to explosive economic growth and responsible spending. Crazy concept.

America’s debt-to-GDP ratio never rose above 65% in the 90s, and was actually headed down at the turn of the century.

Yet, despite such stellar financial and economic conditions, the average yield on US government debt throughout the 1990s was 6.7%.

In other words, even though the US government was almost infinitely powerful and affluent, bond investors STILL demanded a nearly 7% return on Treasury bonds.

And the government was happy to pay; 6.7% didn’t cripple the economy— it was a completely manageable interest rate. In fact, it was considered low by historical standards, given the double-digit rates of the 1980s.

Today’s fiscal situation is far from the 1990s. Just about everything that could go wrong is going wrong for Uncle Sam today.

The US government’s credibility is in tatters. They go into debt to give money to their adversaries, and political dysfunction is so extreme that hardly a year goes by anymore without some crisis— Congressional leadership, debt ceiling, government shutdown, etc.

Meanwhile their finances are horrendous. Mandatory spending, i.e. Social Security, welfare, healthcare, plus interest on the national debt, together consume 100% of tax revenue.

Literally the ENTIRE discretionary budget, including military spending, has to be paid for with MORE DEBT.

The national debt is now closing in on $36 trillion, more than 120% of GDP. Interest on the debt exceeds defense spending for the first time in US history… and it goes higher each year.

If a country like New Zealand or Taiwan were in this position, their currencies would be in the toilet… and local interest rates would be through the roof. No one would trust them enough to buy their government bonds without demanding a huge yield to compensate them for the risk of default.

Yet despite such an atrocious financial position, the US government is still able to borrow money at 4%.

Remember, in the ‘everything was awesome’ 1990s, rates were nearly 7%. The fact that the government is so much WORSE off, yet still able to borrow at just 4%, is almost miraculous.

Technically the ‘average’ interest rate on the federal debt today is even less— just 3.1%; but even that laughably low rate is too expensive.

The national debt is now so high that, even with an average interest rate of just 3.1%, the federal government STILL spent over a trillion dollars a year on interest. And that amount will be even HIGHER next year.

We’ve explained before how this interest problem will grow exponentially until it suffocates federal spending.

But for now, while it’s a major, major problem, it is still technically fixable. But urgent action is required.

The logical solution is to cut spending while simultaneously embracing capitalism… and allowing America’s robust private sector to do what it does best.

The US has deep capital markets, innovative businesses, and talented people. With sensible immigration policies that attract skilled workers, as well as spending cuts, waste reduction, and deregulation, the government could potentially solve this debt/interest problem.

But hardly anyone is talking about this. The media is constantly whining about abortion, making up absurd stories about fascism, etc. There is almost zero discussion about a looming economic crisis that will threaten the livelihoods of 350 million people.

Most politicians aren’t thinking about it either. Who needs sensible policies when you can just print money? And that’s basically their solution.

Since 3.1% interest is ‘too high’ for the US government to afford, the plan is to ensure the Federal Reserve slashes interest rates all the way back down to zero. Maybe even negative.

Of course, the only way this can really happen is if the Fed expands the money supply (i.e. ‘prints’ money) to the tune of tens of trillions of dollars.

Janet Yellen, the US Treasury Secretary has acknowledged this last week, saying that the government has to bring its interest costs down.

Well there’s only two ways to do this— either cut spending and pay down the debt (fat chance); or print absurd amounts of money to bring interest rates down.

Remember what happened during the pandemic; the Fed printed $5 trillion in new money, and we got 9% inflation. How much inflation will we see if the Fed prints $36 trillion?

No one knows. But it will probably be more than their magical 2% target.

This is why we focus so much on real assets, i.e. the most critical and valuable resources in an economy, like energy, key minerals, food, productive technology… and the companies which produce them.

Real assets cannot be conjured out of thin air by central banks or politicians; they’re scarce, and extremely important. And that’s why they do so well during inflationary times.

And as we’ve highlighted on many occasions, many real assets just happen to be historically, laughably cheap right now… making this a very good time to set yourself up for a future defined by inflation.

Source

from Schiff Sovereign https://ift.tt/8efRX6s
via IFTTT

Apart from weathermen, no one besides government bureaucrats can be so wrong, so often, yet still keep their jobs.

No one was ever fired for telling Americans that COVID lockdowns would last just “two weeks, to stop the spread” and “flatten the curve”.

If we’re being generous and call that a ‘miscalculation’, they were off by about 100 weeks, i.e. 50x, in most places before COVID restrictions ceased.

Then there was the infamous Obamacare website, healthcare.gov, which the ‘experts’ in government originally estimated would cost $93 million. That’s already an absurd price tag for a website. But in the end, it cost over $2 billion, and barely functioned.

Not to mention, despite the ‘experts’ estimating a drastic decline in US healthcare costs, the actual cost of medical care in the United States actually increased after Obamacare.

The government is also notorious for missing the mark on tax estimates.

About fifteen years ago, for example, the Obama administration claimed that Americans were evading massive amounts of taxes by secretly hiding ‘trillions of dollars’ in offshore bank accounts.

Obviously there were plenty of people with undeclared accounts. But TRILLIONS? That hardly seemed a credible estimate.

Nevertheless, President Obama signed the Foreign Account Tax Compliance Act (FATCA) into law in 2010 with an aim to grab that supposed trillions of dollars of offshore money.

Among other things, the FATCA law forces EVERY bank in EVERY country around the world to disclose information on ALL of their customers to the US government.

It’s bizarre when you think about it: the US government forces other countries’ banks to comply with US laws. It would be as if the government of Saudi Arabia passed a law forbidding US grocery stores from selling bacon to Muslims on US soil.

And compliance with FATCA is extremely expensive. Banks (plus brokerages, investment firms, mutual funds, trust companies, money transmit businesses, etc.) all have to file forms, hire extra staff, pay lawyers, spend valuable time combing through records, etc. in order to comply with the law.

The overall global cost of FATCA compliance, in fact, goes into the BILLIONS of dollars annually, based on what banks report on their financial statements.

But hey. At least the government brought in ‘trillions’ of dollars of tax revenue to justify those costs.

Except they didn’t. According to IRS data, FATCA has only brought in an average of $500 million per year, on average.

Not only is $500 million peanuts compared to the federal government’s multi-trillion dollar annual deficit, it’s also peanuts compared to the multi-billion annual cost of complying with FATCA.

The benefit is simply not worth the cost.

But, again, FATCA all started with some bureaucrats’ completely fictitious estimate of how much ‘hidden’ money was sitting overseas. They were totally wrong.

Unfortunately, being wrong has never stopped the government from doubling down on a bad idea. And now they’re back to the same logic, with the same false premise.

Last week while attending the IMF/World Bank annual summit, US Treasury Secretary Janet Yellen claimed that her new army of IRS agents (thanks to $80 billion in funding from the Inflation Reduction Act) will close a “$7 trillion tax gap”.

The “tax gap” she refers to is the difference between what the government thinks it should be collecting in tax revenue, versus the amount it actually does collect.

Obviously there are plenty of people who underpay (or don’t pay) tax. But $7 trillion??? Seriously??? Where do these people come up with such ridiculous estimates?

Here’s why their number is way off. Literally since the end of World War II, the US government’s tax revenue has consistently averaged around 17% of GDP, year in, year out, with very minor variations.

In 1954, for example, federal tax revenue totaled 17.8% of GDP. In 1964, 16.7%. In 1974, 17.0%. In 1984, 16.5%. In 1994, 17.2%. 2004? 16.5%. 2014? 17.1%.

You get the idea. It’s pretty much always 17% of GDP.

How much revenue did the government collect in FY2024 (which just ended last month of September 30)?

16.9% of GDP. Pretty much a bulls-eye relative to the long-term historic average. And this leads to the obvious question: if tax revenue is right where it’s supposed to be, WHERE IS THIS SUPPOSED $7 TRILLION TAX GAP!?!?!?

Honestly, what are these people smoking to invent such a ridiculous number??

They were completely, woefully wrong with FATCA, like by 100x. And something tells me that their $80 billion worth of new IRS agents won’t even be able to find $80 billion worth of unpaid tax.

Once again, the benefit won’t be worth the cost. But they’re sure going to try.

Obviously they’ll start by auditing the wealthiest Americans. But before long they’ll run out of the super-rich and quickly move down to the middle class. There is simply no other way for the government to ‘close’ this fictitious tax gap other than an army of field agents harassing and scrutinizing regular people.

This has been a common tactic throughout history going all the way back to the Roman Empire. Bankrupt governments start with debasing the currency, i.e. inflation. And we’ve talked about that a lot in this letter.

In fact, as I wrote on Friday, Yellen also tacitly acknowledged that the US central bank will have to print trillions and trillions of dollars… which is going to generate a LOT of inflation.

But in addition to creating inflation, bankrupt governments also come up with destructive ways to increase tax revenue. And it’s not just about raising tax rates; they also become extremely aggressive with tax enforcement.

Once again, Janet Yellen spilled the beans on the government’s plan.

She knows that they have to bring down the deficit. The national debt is nearly $36 trillion and the annual budget deficit is nearly $2 trillion per year. So she flat-out acknowledged that they are going to (attempt) to make ends meet through inflation… and then stepping up tax enforcement.

Sure they’ll catch a few cheats here and there. But the vast majority of cases will be innocent people who have their lives turned upside down.

Naturally, no one talks about simplifying the tax code, making tax rates more competitive, spending money more responsibly, reforming entitlements, or dismantling the productivity-killing bureaucracy so that the economy (and hence tax revenue) can grow more quickly.

No. Their approach is to make up some ridiculous, completely unrealistic estimate for what tax revenue should be, then assume every American is a criminal tax cheat because the IRS doesn’t collect that much money.

It’s a pretty sad statement for a government that is supposed to be “of the people, by the people, for the people”.

Source

from Schiff Sovereign https://ift.tt/H2MEfOg
via IFTTT

In the aftermath of World War II, with Europe devastated and Japan in ruins after two atomic bombs, the world faced the monumental task of rebuilding the global economy.

It had already been decided at the 1944 Bretton Woods Conference that America and the US dollar would dominate the new international financial system.

But also born from that same conference were the World Bank and International Monetary Fund (IMF)— both of which were created to help resurrect global trade and production.

The World Bank provided crucial loans for rebuilding war-torn countries, including helping to finance European reconstruction projects (including much of France’s modern infrastructure).

Meanwhile, the IMF stabilized global currencies, helping nations avoid economic collapse by offering financial assistance and ensuring currency exchange systems remained functional— all of which was vital to help resuscitate international trade.

These two institutions— the IMF and World Bank— played an incredibly important, almost heroic, role in rebuilding the global economy after World War II. And for decades they remained important pillars of the international financial system.

But that was a long time ago.

Today the IMF and World Bank are sort of like the legacy media (i.e. CNN, MSNBS, etc.)— they haven’t kept up with the times, and their own actions have made them irrelevant and impossible to take seriously.

The IMF, for example, boasts BOTH a Diversity and Inclusion Council AND a Diversity and Inclusion Office, which puts out an annual diversity and inclusion report.

The World Bank has also joined the anti-racism crusade with a formal charter to make cities more inclusive through bizarre urban development projects.

Both are also part of the Climate Change crusade. And, while, again, we are all for a clean and healthy environment, these ignorant institutions deliberately waste billions of dollars pushing counterproductive policies and subsidizing inferior technologies.

The World Bank, for example, has deliberately NOT financed a single nuclear power plant anywhere in the world since 1959— even though nuclear power is THE best solution to improve both the environment and human prosperity.

These two institutions helped save the world and rescue the global economy back in the 1940s and 1950s. Today they’re a complete joke, run by woke fanatics who do far more harm than good.

That’s why I found it strangely appropriate that US Treasury Secretary Janet Yellen showed up to the World Bank and IMF’s annual meeting, which is happening right now.

Just like the World Bank and IMF, American influence in the world is also waning… and the government is similarly run by woke fanatics who do more harm than good.

It’s ironic because, almost at the very same time as the IMF/World Bank meeting, the so-called “BRICS” nations are holding their own summit—a conference of rising powers like Brazil, Russia, India, China, and South Africa.

It’s basically the new guys versus the old guard.

While the IMF’s and World Bank’s relevance fades, BRICS represents the producer nations, i.e. those who are rich in natural resources and/or manufacturing capacity. They export. They create surpluses.

As a bloc, the BRICS nations represent around 35% of global GDP, and roughly 40% of global economic growth.

Yet at the moment they don’t even have a seat at the table. That’s because the international financial system is still controlled by the United States, i.e. the country with a massive trade deficit, a completely dysfunctional government, and a nearly $36 trillion national debt.

The BRICS countries are tired of not having a real say in global finance, especially with US government finances in such a weak state.

Frankly, the US Treasury Secretary should have been at the BRICS summit, if nothing else to make the case for American strength and credibility.

Instead, she chose to attend the IMF/World Bank convention of declining, irrelevant has-beens.

But here’s the best part:

At this meeting, with the BRICS summit in the backdrop, a reporter asked Ms. Yellen how she planned to convince other nations to continue buying US government debt— given the already massive national debt, continuing deficits, and skyrocketing interest bill.

She answered, “By making sure that we stay on a sound fiscal path…”

Come again? STAY on a sound fiscal path? Where is this sound fiscal path, and when was the last time the US was on it?

More importantly, though, the Treasury Secretary added the following: “I believe it’s very important that we remain focused on keeping the real net interest cost of the debt near historic levels and certainly under 2% [of GDP].”

This is where Yellen spilled the beans. She said the quiet part out loud.

In FY 2024 (the fiscal year that just closed a month ago on September 30th), the government spent a total of $1.1 trillion on interest. That’s roughly 3.8% of America’s $29 trillion GDP.

And this number keeps increasing every year. The national debt keeps growing (MUCH faster than GDP). And as a result, interest on the debt keeps growing.

There’s only ONE way, realistically, that the government can reduce its interest bill. And that’s by reducing interest rates. A lot.

Think about it: if interest rates were, say, 1%, then the government’s annual interest will would “only” be $360 billion per year (1.2% of GDP), instead of $1.1 trillion.

There’s only one problem— bringing down interest rates means that the Federal Reserve will have to ‘print’ a boatload of money… literally tens of trillions of dollars. And that’s going to be EXTREMELY inflationary.

Remember during the pandemic— the Fed added $5 trillion to the money supply, and we ended up with 9% inflation. What will happen if they add twenty or thirty trillion dollars to the money supply?

No one knows for sure. But it’s probably not going to be their magical 2% target.

That’s why we keep talking about real assets, i.e. the world’s most critical and valuable resources which cannot be conjured out of thin air by central banks— assets like energy, key minerals, disruptive technology, and the companies which produce them.

Real assets tend to perform extremely well in inflationary environments. And Yellen tipped her hand this week about the inflation that’s coming. They simply have no other option.

And the best part? The producers of these assets—energy, commodities, mining—are ridiculously cheap right now.

It’s a sensible move to consider in a world where central banks are about to crank up the inflation machine once again.

Source

from Schiff Sovereign https://ift.tt/YBhfuZS
via IFTTT

There’s a really dirty four-letter word that starts with a “C”.

No, not that one. This is a word you simply cannot say around Greta Thunberg, otherwise her ears will melt off of her face.

I’m talking about coal. And it’s about to have its moment.

One reason is that global population grows each year, and every one of them needs energy in some way or another—to keep the lights on, to fuel the machines that harvest their food, to power virtually everything that keeps life going.

Second, the world population generally becomes wealthier each year. Billions of people in China, India, and Southeast Asia are better off now than they were ten years ago. As economies develop, they consume more food, more goods, more electricity— and all of that requires more energy.

More efficient technology offsets some energy use, like switching from old-school incandescent light bulbs to LEDs.

But the general rule is that as energy becomes cheaper, people tend to use more of it, i.e. the world always finds a way to use that energy savings somewhere else.

Plus there are some technologies (AI, crypto mining) which, in aggregate, consume a ton of energy.

So overall global energy demand keeps rising.

Energy supply, on the other hand, is REALLY hard to come by. Exploring for oil, drilling, constructing power plants, building hydroelectric dams, wind turbines, etc. is capital-intensive, labor-intensive, resource-intensive, and very time-consuming.

Meanwhile, many sources of energy supply are dwindling.

Some major shale fields in the US, which were once the biggest source of growth in energy supply, have peaked.

But perhaps an even more significant obstacle to supply is how the government and hyperventilating, pearl-clutching leftists do everything they can to reduce supply.

These people who stop traffic, throw glitter bombs on priceless works of art, and deface public property, in their efforts to “Just Stop Oil” want to turn the clock back to 1750 on human civilization.

Plus there are fanatics with real political power— like California Governor Gavin Newsom—  who insist on replacing conventional electrical plants with extremely inefficient wind and solar.

I like clean air and water as much as anyone, but wind and solar aren’t anywhere near as environmentally friendly as people claim. They require tons of dirty minerals and chemicals, and barely produce enough energy yield to offset the inputs.

This is why big technology companies (who are looking to power their massive AI electricity needs) are going all-in on nuclear power.

Nuclear is absolutely the power of the future. It’s clean. It’s safe. It’s absurdly efficient.

By comparison, a single kilogram of Uranium can produce as much electricity as an entire square kilometer of solar panels. The difference in energy yield is not even close.

Tech companies understand this… hence why Google, Amazon, Microsoft, etc. are investing billions in nuclear energy as the ultimate solution to power their electricity-hungry AI data centers.

But it takes time to build nuclear power plants. And the most advanced “small scale” nuclear reactors are still in development.

In the meantime, tech companies still need power. The world still needs power. Lots of it. And more every year.

We’ve already talked about how natural gas (especially US natural gas) is THE cheapest energy source on earth right now. In fact, at its current price of roughly $2.40, US natural gas is priced at the energy-equivalent of oil selling for $15 per barrel. That’s cheap.

But there’s another cheap, abundant energy source that is going to be extremely relevant in powering the world’s energy needs for the foreseeable future: coal.

Yes, it’s a very, very dirty word. Climate fanatics don’t want to hear it. But until the world builds sufficient nuclear energy infrastructure, there’s still a critical need for conventional fossil fuels. And that includes coal.

Like it or not, coal is still vital to energy infrastructure, accounting for more than a third of global electricity production. In fact, global coal consumption has consistently INCREASED over the past few decades despite the environmental backlash against it.

Coal is still an extremely efficient source of energy, compared to wind and solar. On an energy return basis, it’s about 6x more efficient than wind and solar— i.e. less energy input required per unit of output.

And if you think coal is dirty, then you should check out how environmentally damaging cobalt mines are (a key ingredient in solar batteries). Not to mention, most cobalt mines in Africa are teeming with child labor.

Coal power plants have the added benefit of being very quick any easy to build. That’s why China— in addition to investing heavily in nuclear power— is also still buying a lot of coal.

It’s also worth pointing out that coal is an essential ingredient in iron and steel production. So even though the leftists hate it, coal will likely remain a key resource in human civilization for the next few decades.

However, from an investment perspective, hardly anyone wants to touch coal. Investment funds are afraid of government blow-back and the wrath of the left… so they don’t invest in coal.

And for individual investors, coal is uncool and unpopular. Thanks Greta.

As a result, there are some coal companies out there making money hand over fist. They have a bright future with plenty of demand down the road. Yet their valuations are a total joke.

We’ve highlighted two such companies for subscribers of our investment research newsletter, The 4th Pillar.

Both have still been bringing in solid free cash flow, and paying dividends up to 15%. They have very little debt, and large cash reserves.

And if the price of coal goes up (which we expect it will, thanks in large part to fanatical environmental policy), these companies will be in for a profit bonanza.

You can buy these companies for as little as 5x or 6x free cash flow; again, they’re profitable and already paying dividends.

And in a world where there’s more conflict, less global cooperation, more trade disputes, more debt, more inflation, more scarcity, etc., a commodity as critical as energy is going to become extremely valuable.

We talk a lot about why it makes sense to invest in real assets; coal is just another example of a critical real asset whose producers are almost universally cheap right now. It probably won’t last.

Source

from Schiff Sovereign https://ift.tt/qImDBSF
via IFTTT

The corpse of King Louis XV was still warm when his son and successor, 19-year old Louis XVI, started cleaning the royal house.

French finances were an absolute mess. The country was almost hopelessly bankrupt after decades and decades of costly warfare… and even more costly royal luxury. The young king’s predecessors, Lous XIV and Louis XV, spared no expense when it came to their comfort and grandeur, and the end result was the largest national debt in the history of the world up to that point.

Louis XVI knew something had to be done urgently. So, his first order of business was to appoint a brand new finance minister– the famed economist and philosopher Jacques Turgot.

Today we would describe Turgot as an economic libertarian; he believed in limited government, free trade, low taxes, low debts, and balanced budgets. And he came in at just the right time.

The year was 1774, and Turgot noted that the government’s annual revenue was 213.5 million francs, with annual expenses of 235 million francs– a deficit totaling 10% of tax revenue.

At the time, this was considered an absolute crisis. (The US, by comparison, hasn’t had an annual budget deficit of less than 10% since 2007!)

But Turgot got to work. Just like Elon Musk today proposes to have a “Department of Government Efficiency”, Turgot slashed spending anywhere and everywhere he could find it. He deregulated commerce, he abolished trade restrictions, and he grew both the economy AND government tax revenue… all without having to increase the actual tax rates.

Turgot’s success aside, the most important step was that the French actually recognized their financial problem in 1774.

But Americans today can’t seem to do this, even though the US government’s deficits are closer to 40% of tax revenue.

Data just reported from the Treasury Department on Friday shows a $1.833 trillion annual budget deficit for Fiscal Year 2024, which ended a few weeks ago on September 30.

That’s the third highest ever. And the only two that beat it were FY ‘20 and FY ’21—pandemic years.

But all the so-called “experts” claim this isn’t a crisis.

Bond investors, Wall Street banks, and even economists, if they do talk about it, say it’s a mild concern.

But politicians are the worst.

People like AOC come right out and say that deficits don’t matter.

A couple of years ago, Biden bragged that the annual budget deficit was only $1.3 trillion… as if that’s some sort of accomplishment.

The media is equally complicit. This is a five-alarm fire, and they’re acting like abortion access is the most important issue facing the country.

Not to downplay the abortion issue, but it affects maybe 900,000 people per year, versus 350 million Americans who are at risk of having their lives turned upside down by a collapse in government finances.

Yet when you watch the debates and coverage of the election this year, the national debt and budget deficit barely register as issues.

But this is something that isn’t even a political problem—it’s an arithmetic problem.

And it’s one that’s going to spiral out of control very, very quickly. I’ll explain how—

Government spending can be broken down into three main categories.

One, discretionary spending is the stuff Congress argues about every year through appropriations bill, i.e. the annual budgets for the military, national parks, the State Department, etc.

In FY ‘24, discretionary spending was about $1.8 trillion—basically the size of the entire annual deficit. That means you could cut ALL discretionary spending, including the military, and the government would still be running a deficit. That’s how bad it has become.

Two, mandatory spending is the largest category—programs passed decades ago that are automatically funded, like Social Security, Medicare, and welfare. These programs also automatically increase each year with inflation. Nobody wants to touch this stuff. No politician is going to take food stamps from poor people or mess with Social Security.

Third is interest on the debt. In FY ‘24, total interest on the national debt hit $1.1 trillion.

This has been increasing dramatically. Less than a decade ago, in FY ‘19, interest payments were $573 billion—now they’re twice that.

Going back further, interest payments accounted for 12% of tax revenue in FY ‘15, and that number has nearly doubled in less than a decade, to 23% of tax revenue today.

This spirals out of control fast. Tax revenue has been growing by 4.7% per year on average, while interest payments have been growing at 12.2%. It doesn’t take a math genius to see where this is heading—eventually, 100% of tax revenue will go to just paying interest.

Sure, there is some time before that happens, but exactly when should the government start taking this seriously?

Right now, the government borrows 100% of the money for its entire discretionary budget. Interest payments have surpassed the military budget for the first time in US history, and nearly a quarter of tax revenue is going toward interest.

Plus, nearly half of tax revenue goes to Social Security and Medicare, and that’s to say nothing of the defense budget, veterans’ benefits, and literally everything else the government does.

And they are still not taking the problem seriously.

But you know who is? Foreigners.

This is why central banks around the world are buying up gold, diversifying out of the dollar.

Will this trend continue? It looks like it.

The US government’s internal forecasts show another $22 trillion in debt over the next decade, with no plan or hope to get spending under control. That’s assuming there are no new wars, pandemics, crises, or bailouts—most likely, it’ll be much worse.

Foreign governments and central banks have over $8 trillion in US dollar reserves. Yet up until now, they’ve only converted a small portion of that $8 trillion into gold… driving the gold price to an all-time high.

What will happen to the gold price when the US government’s finances become a real crisis, and those same foreign institutions move hundreds of billions, or even trillions of dollars, into gold? What will happen to the value of the dollar?

Gold is already at an all-time high, and we think it’s going much, much higher.

But we also understand it’s tough for some people to buy an asset at its current all-time high, even though there’s a strong case that it can go much higher.

The good news is that gold companies, mining stocks, royalty companies, and other gold related businesses are nowhere near their all-time highs. In fact, some are trading at absurd discounts.

Source

from Schiff Sovereign https://ift.tt/RKiaGxS
via IFTTT

It’s very hard to overstate just how obliterated the global economy was following World War II.

Europe was in ruins, with many major cities having been bombed back into the Stone Age. Japan had literally been nuked.

And just about every economy around the world that still had any manufacturing capacity was pumping out guns, bullets, and bombs; there was hardly any economic activity taking place that wasn’t somehow tied to the war.

It was sort of like Covid— the regular economy was shut down… and governments discovered very quickly that they couldn’t simply turn the global economic machine back on with the flip of a switch.

The transition from obliterated war economy to booming peacetime economy was an incredibly difficult one. So, in 1948, the United States (which was among the only developed major economy still standing) launched the Marshall Plan.

The idea was simple: America would shovel $13 billion (which, as a percentage of global GDP, is equivalent to around $5 trillion today) around the world to facilitate trade and economic redevelopment.

But alongside the financial aid came a promise: the US Navy would protect the seas, ensuring that the global flow of goods could continue unimpeded.

For decades, American naval dominance guaranteed a level of safety and stability that allowed international trade to thrive. Shipping routes were secured, costs remained low, and commerce could flow relatively uninterrupted across the world’s oceans.

The post-WWII era ushered in an unprecedented period of cooperation and prosperity, making international trade easier, faster, and more profitable.

But those calm seas are growing choppy again.

The war between Russia and Ukraine, for example, has drastically altered oil trade routes. Russian crude oil, which once flowed easily into Europe, is now making much longer journeys to places like India, where it’s refined and then sent back to Europe as diesel.

This convoluted, inefficient process is adding enormous strain and cost to shipping routes, increasing the “ton miles”, i.e. each mile that a ton of product must travel.

But this is just one example. In the Middle East, the Houthis in Yemen have launched attacks on vessels transiting the Red Sea, creating a new chokepoint in global shipping lanes. Pirates have increased their attacks in the area as well.

Many oil tankers are now rerouting entirely around the southern tip of Africa to avoid the Suez Canal, extending travel times significantly.

The further oil must go, the more tankers are needed. The problem is, these changes took place quite rapidly, yet shipbuilding is not an industry that can quickly respond to that demand.

Shipbuilding is a slow, capital-intensive process. And after years of underinvestment, there are hardly any new tankers being built. Shipyards are busy constructing other types of vessels, but the number of new oil tankers remains near record lows.

At the same time, a large chunk of the existing global fleet is over 20 years old, nearing the end of its lifespan. This imbalance is going to worsen before it gets better, leading to a serious shortage in oil tankers at the exact moment when the world needs them most.

The combination of more ton miles and fewer ships is creating a perfect storm in the tanker market.

This imbalance is inflationary. Both shipping and energy are core components of nearly every supply chain. Higher costs to transport oil mean higher costs for just about everything else we buy—from groceries to manufactured goods.

Climate fanatics can pretend that the world is ready to run off wind and solar, which is why they suppress investment in everything from new drilling, to transport ships. But the reality is, oil is still the most important energy source on earth.

Energy is a prime example of a real asset— a critical resource that keeps the economy going, and cannot be created out of thin air by governments and central banks.

And the shipping companies which transport that oil are real asset businesses… which is why we have been following this industry closely.

One company in particular that we told subscribers of our premium investment research stands out as being uniquely positioned to capitalize on these trends.

It has a fleet of 82 ships, with an average age of just over 10 years, meaning they have plenty of life left. They can also continue to benefit from the shortage of ships as long as it lasts— which we know from the global orderbook for new ships, will be several years at least.

But this also means the company won’t have to spend huge amounts of capital in the near future buying new ships. And already, it carries little debt… yet still pays around a 12% dividend.

Again, in addition to the dynamics of debt, deficits, and dysfunction in the US government which promise to increase inflation, global conflict is also inflationary.

This is another example of the real asset companies not only poised to do well in an inflationary world, but that are also trading near historic low valuations.

This shipping company, for example, is trading at a P/E (price to earnings) ratio of just 4.44.

While we can wish all we want that the world was not becoming less cooperative, that won’t change the reality. Better to position ourselves to benefit under these conditions, by investing in companies that actually gain from that disorder.

We’ve talked a lot about this same dynamic when it comes to gold, and why central banks around the world are turning to it, and away from the US dollar.

We also talked about it recently in relation to how the prices of certain critical metals have been artificially suppressed by climate fanatics who think the days of gas vehicles are past. They are wrong.

The best way to fight back, while inflation-proofing your future, is to invest in critical real asset companies at historic lows.

Source

from Schiff Sovereign https://ift.tt/mqR9SoE
via IFTTT

Today’s letter is about how to go back in time.

A lot of us remember 2009 as a pretty tough economy. The whole world was in bad shape. Major banks had failed, panic had set in, governments were spending money hand over fist, and debts were rising fast. It was pretty brutal.

But if there’s anything nostalgic about 2009, it would be that, almost exactly 15 years ago, gold traded below $1,000 an ounce for the last time.

Today, the price of gold is hovering at its all-time high, more than $2,600 per ounce.

We’ve talked a lot about why that is. Central banks have been buying up physical gold, literally by the metric ton, primarily because they are looking to diversify a portion of their reserves outside of the US dollar.

And central banks are sitting on a LOT of US dollar reserves— more than $8 trillion.

It makes sense that they want to diversify. There’s so much more conflict in the world, and US global dominance is waning.

Iran is now flat-out threatening the US government and promising to retaliate if America provides military support to Israel. This would have been unthinkable even five years ago. But today, adversary nations have seized on the US government’s weakness. And foreign central banks— which, again, hold trillions of US dollar reserves— have noticed.

They’ve also noticed America’s outrageous national debt, and its annual budget deficits; in fact the most recent estimate by the Congressional Budget Office of the Fiscal Year 2024 is an incredibly $1.8 trillion.

So obviously these central banks see a clear need to diversify. And gold is one of the best and easiest ways for them to do that.

The gold market is big. It can handle tens of billions of dollars of inflows at a time. Plus gold is universally valued around the world with a 5,000 year history of maintaining its value. No central banker is worried about whether or not they’ll be able to liquidate their gold holdings in the future.

But central banks only buy physical gold, i.e. piles and piles of physical gold bars. They do not buy gold mines… or gold miners.

This is why there is a historic anomaly in front of us: the price of gold has soared to an all-time high. But many gold companies are laughably cheap.

This is pretty strange when you think about it; a gold miner’s revenue is denominated in… gold! And many of these companies are starting to see soaring revenues and record profits. Yet their stock prices are still languishing.

For example, one gold producer we profiled in our premium research is trading at a Price to Earnings (P/E) of just 4x. It has almost no debt. And it produces a ton of Free Cash Flow.

The company has even blown away expectations and managed to produce 100,000 ounces more gold than they had originally anticipated. Yet the stock price has barely budged.

What’s amazing is that the entire company is currently valued at less than the market price of that extra gold that it mined.

But the kicker is how little it cost this company to produce that gold.

Their “All In Sustaining Cost” (AISC)— everything spent to pull that gold out of the ground, from mining to processing— was less than $1,000 per ounce.

And in our view, buying shares in an efficient, profitable, deeply undervalued mining company with such a low cost structure is almost like going back in time to 2009 and buying up gold at less than $1,000 per ounce… especially given that the company still has millions of ounces of proven gold reserves in the ground which it has yet to extract.

I’ve written many times before— we still see significant upside for gold. Especially if Kamala is elected.

Based on the type of spending she envisions, plus her weak “vibes” and “joy” leadership, I don’t expect the dollar to last as the global reserve currency beyond her first term.

Instead, central banks will continue to turn to gold. And when central banks converted just $80 billion— about 1%— of their US reserves into gold, the price increased to over $2,600 a ounce.

What would happen to the gold price if they converted 5%… or 20% of their US dollar reserves into gold?

Even buying physical gold, right now, at all time highs, would probably work out really well.

But buying a company whose revenue is gold, yet costs a fraction of that price, could work out even better.

Gold is just one of the real assets we talk about in Schiff Sovereign Premium.

We’ve been clear that America’s debt problems can only be solved by lower interest rates and more money printing from the Federal Reserve.

That’s why we don’t believe inflation is behind us, and why we believe so whole-heartedly in the value of real assets— critical resources that cannot be conjured out of thin air by governments and central banks.

This gold producer is just one example of these massively undervalued real asset companies we’ve named in Schiff Sovereign Premium— a highly educational, month-by-month guide that is designed to help you navigate the world from a position of strength, both personally and financially.

You can click here if you want to learn more about both the Plan B strategies and compelling investment research we present.

Source

from Schiff Sovereign https://ift.tt/cDU5kYB
via IFTTT