The Gold Owner’s Guide to 2015
by Michael J. Kosares, Gold Seek Looking back – Two surprise transformations at the end of 2014 A year of many surprises, 2014 ended with a couple surprise personal transformations largely passed over by the mainstream media.
– Berkshire Hathaway chairman Warren Buffett startled recipients of his annual shareholder letter by revealing an instruction to the trustee for his wife’s estate that 10% of her inheritance should be invested in government bonds and the other 90% in a low-cost S&P 500 index fund. – Similarly former Fed chairman shocked the financial world by announcing that his years at the Federal Reserve cemented his long-held view of gold as an important asset allocation for the times given governments’ (note the plural) predilection to print money.
Buffett points to saving fees and the inability of fund managers to beat the indices as the chief reasons for his decision, but one wonders if there might be more to it than that. Since the 2008 meltdown and the subsequent bailouts things have changed considerably on Wall Street and at the Federal Reserve. Interest Rate Observer’s James Grant attempted to define the complicated change in the stock market’s monetary underpinnings in a speech this past November before the Cato Institute. “My generation,” he said, “gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates. We put the cart of asset prices before the horse of enterprise. We entertained the fantasy that high asset prices made for prosperity, rather than the other way around. We actually worked to foster inflation, which we called ‘price stability’ (this was on the eve of the hyperinflation of 2017). We seem to have miscalculated.” Stocks in this scenario become fungible, an asset class driven as much by monetary policy as it is a solid track record or growing market share. In the end, Buffett is not just saving fees by putting his wife’s inheritance in index funds, he is also betting, like it or not, on the Federal Reserve’s ability to keep stocks as an asset class headed in a northerly direction. Not everyone harbors the same high degree of confidence in the Fed’s grand monetary experiment that Buffett does. Alan Greenspan, for one, sees it as fraught with danger as does another former Fed chairman, Paul Volcker. Late last year, Greenspan likened the Fed’s over-blown balance sheet to “a tinder box that has not been lit,” characterized the job of Fed chairman as one subject to the heavy dictate of the federal government, and recommended gold ownership as a hedge for private investors. “Gold,” he said, “is a good place to put money these days given its value as a currency outside of the policies conducted by governments.” Stocks, on the other hand, have taken a position at the opposite end of the investment spectrum – an asset class that has become overly reliant on the policies conducted by governrment. Continue Reading>>>