I: The USA has more debt that we can repay.
II: History says there are three paths out of this – civil unrest, war and/or inflation. It is probable that it will encompass a combination of the three. We are already seeing it and before the tax hikes and lowering of government benefits.
III: The US Dollar is losing its position as the Global Reserve currency. The USA will not, is not, going peacefully into the night on this one. I suspect the Russia/Ukraine battle revolves around this topic in unspoken ways. A potential kinetic war with China cannot be ruled out.
The investment theme will be the most rewarding, is a return to buying things with real value. This comes down to Tangible/Real items and dividends.
- Commodities to include energy/food/shelter/basis materials/ precious metals
- Companies with existing infrastructure that work with commodities such as refineries/farms/Petrochemical companies/pipelines
- Producers of various commodities.
- International sources of commodities – Australia/Canada/USA/Brazil/Russia/Vietnam will do well.
Real value also means low P/E companies that pay stable Dividends.
At the opposite end of inflation Investing are asset light companies that are growing revenue and cash flows faster than Inflation. To be “Real Growth” means cash flow has to be part of the formula.
Third party support for the thesis above includes Neil Howe’s Fourth Turning. 2021 interviews are linked here for Part one and here for Part two of an interview with Wealthion founder, Adam Taggart.
Part one is more focused on the historic cycles of the changing evolution within society while part two focuses more on the investment changes that are evolving and will continue for the next decade and longer. These cycle changes traditionally extend over two to four decades. Example: the cycle of falling interest rates lasted from 1982 until 2022. We are in the very first stages of rising interest rates, rising taxes, reduction of benefits and rising inflation. According to Howe, US Government CBO projections are for interest rates, though rising, will remain below inflation through 2038. Will the government be able to do that? Good question.
If you only listen to the Howe interview, Part two, minute five through minute eight – three minutes, it might change your thinking on how you invest.
On the subject of the US Dollar losing its status as global reserve status, there is ample evidence from Russia, China, Saudi Ariba, Turkey, India, Iran, North Korea and more, are developing trading agreements away from the US Dollar and the SWIFT system. Gold and additional commodities like copper and oil will likely be part of the alternative global currency. Examples: 1) Turkey and Russia work around the SWIFT system 2) Russia, China and India cooperate to by-pass SWIFT. 3) China an Saudi Ariba. 4) Russia and North Korea. 5) Russia hold very little US Treasuries. 6) Japan & China’s US treasury position in in decline.
Real activity today or not, it shows that multiple countries have a strong intent to get away from the US Dollar. FACT: as the US Dollar declines as ”the” Global Reserve currency, the USA will not be able to export our inflation to other countries.
From an investment theme, as times get more challenging, greater emphasis will be placed on “Real Value.” Dividends, Low P/E ratios and Cash Flows for safety. It is likely that “Story Stocks” with marketed, “potential to change the world,” but small earnings and cash flow, peaked out in popularity, in February 2021.
Our focus is on companies with real costly infrastructure to build are attractive.
- We have mentioned Dow Holdings (DOW) in past writings. A 5 & 5 company. 5 times trailing earnings and a 5% dividend.
- We picked on gold and silver miners as a place we want to be invested because we see years of inflation ahead. Also because of demand for natural resources to build out the green new economy. This includes oil & gas as well as all the minerals that conduct and build out the electric grid infrastructure. Demand that exceeds our ability to produce the needed materials. Copper, Uranium, Lithium, Hydrogen, Oil & Gas, Silver & Nickel. Gold as part of the replacement currency basket for the US Dollar.
The world cannot pay back is debts. It needs to inflate the debt away. It will work out ok for those with assets and Jobs as wages rise above the last thirty year pace. For those of us who do not have wage growth or assets to inflation it will be very challenging. Try to get into high quality dividend payers in the major miners. Bitcoin is not going away and will play its role as a limited edition asset. Oil 7 Gas pipeline companies will do well as dividend payors.
We will follow this up with some comments on high quality producing gold, silver and copper companies for growth, dividends and takeover potential.
Have a great day!
Tom
Written by Tom Linzmeier on Sept 9, 2022, for Tom’s Blog at www.LivingOffTheMarket.com
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