April 24, 2020
Publisher’s note: One of the most influential precious-metal analysts in the world recently noted he was “all in” on gold and gold stocks – days before Bank of America predicted a $3,000 gold price within the coming months…
He’s scheduled a Gold Rally Kickoff Call this upcoming Monday morning at 9:30 a.m. Eastern time to go public with his 2020 outlook for gold – and share why certain gold-related stocks can both protect your wealth and make you a fortune.
In fact, I have it on good authority that he plans to spill the secret behind how he turned a modest six-figure portfolio into one that was well in the seven digits following the 2008 financial crisis… and how the coronavirus financial crisis is setting up similar gains that you can take advantage of right away.
Keep an eye on your inbox for an e-mail with the subject line “Gold Rally Kickoff Call” on Monday morning prior to the broadcast. It will contain all the details on how to tune in.
I’ll be listening in, and I hope you will be too,
Steven Longenecker
Publisher, American Consequences
Take the Money
Dear reader,
One of the most important financial disaster lessons I’ve ever learned is simple: When cash is available in a crisis, take it.
Not tomorrow… Not next month… Now.
Yes, I know that debt – along with processed sugar and slow Wi-Fi – is the root of all evil. “Take the money now” means more money that you’ll (probably) have to pay back later. But the only thing that’s worse than more debt is not having cash when you need it.
I learned this in August 1998 during the Russian financial crisis (at least that’s what we called it in Moscow). The ruble collapsed, big banks went bust, and the government defaulted on its bonds. Millions of people lost a lot of their life savings. (It being Russia, this was happening every several years… but each time hurt as badly as the last time.)
I was lucky… My biggest problem was finding a working ATM so that I could pay rent. And when I found one, I withdrew as much crisp cash as I could – who knew when I’d find another ATM what wasn’t tapped out? – and then called friends to share the intelligence.
That equivalent of “gorging at the ATM” is happening now at a multinational scale…
As the Financial Times explained in late March:
“When the world was awash with liquidity, lenders would offer low-cost revolving credit facilities – akin to a credit card – as a perk to win other business. The banks believed that most would never be used in full; such was the stigma of large companies drawing them.”
In normal times, companies tap credit lines for short-term expenses or bridge liquidity… like the coin jar on your dresser for when you need quarters for Cheetos at the vending machine.
Now though, companies aren’t nibbling on pocket change. They’re chugging the entire coin jar. They don’t know when the bank’s credit line might suddenly disappear as the economy enters the most severe downturn since the Great Depression…
In March, more than 130 companies took more than $124 billion from credit lines with banks, the FT reported. According to CFO magazine, General Motors drew down $16 billion… Boeing pulled its entire $13.8 billion credit line… Deere & Co. renewed an $8 billion line of credit… and dozens of others did similar.
Cruise operator Carnival understands the math. It took on new money… In early April, it raised $6.25 billion from yield-greedy investors, including $4 billion at an interest rate of 11.5%. (The debt is “secured” by its massive floating petri dishes that – along with prisons and old folks’ homes – are hands-down some of the best places to catch a highly contagious virus.) That’s around 3 times more than you’d need to pay for a mortgage today.
And it’s even 3.6 percentage points more than the government of Argentina had to pay in June 2017 on its 100-year bond. (Today, Argentina is weeks away from its ninth sovereign default.)
So what should you do now?
I advise that you do what the Russians do. They’ve learned their lesson the hard way. And they took out as much cash from banks during the seven weeks after March 1 than they did during all of 2019: Get cash while you can.
I’m not suggesting you won’t be able to get cash later. I have no idea, and you probably don’t either. And that’s the point. When the global economy is previewing Great Depression: The Revenge, no one knows what’s next.
Of course, there are plenty of compelling investment opportunities now, too, if you have an appetite for risk (and the cash). World-class businesses are still selling for great valuations… despite the nearly 30% rise in the S&P 500 Index since its recent lows last month. Gold is excellent “insurance” for a financial disaster.
In the meantime though, if you need money for groceries, or to get your sick kid to the doctor, or encouragement for a doorman to look the other way… nothing beats cash.
What kind of cash? The all-time best explanation of the best type of cash to hold is from a classic 2003 article in Esquire magazine, called “The $20 Theory of the Universe“…
“A twenty-dollar bill, now, that’s a thing of beauty. Nothing static about a twenty. Used correctly, a twenty is all about movement, access, cachet. Forget the other bills. The single won’t get you much more than a stiff nod and, these days, the fin is de rigueur. A tenner is a nice thought, but it’s also a message that you’re a Wal-Mart shopper, too cheap for the real deal. A twenty, placed in the right hand at the right moment, makes things happen. It gets you past the rope, beyond the door, into the secret files. The twenty hastens and chastens, beckons and tugs. The twenty, you see, is a verb. It’s all about action.”
Someone else who knows the value of cash now? My house helper Norma… and the other 164 million other temporary foreign and migrant workers around the world.
These are people who leave their home countries to pick grapes in California, build soccer stadiums in Qatar, clean hotel rooms in Germany, and swab decks at sea. Here in Singapore, there are 250,000 live-in domestic workers… They cook, clean, change diapers, kill cockroaches, walk the dog, and do whatever else necessary around the house.
Norma sends around $300 per month of her wages to her son and father, who live in a village in the Philippines. It pays for their food, the boy’s schooling, transportation, medical expenses, and anything else that comes up.
“They’re also using the money to build a bigger house for when I go back home,” she told me. She’s been in Singapore, making between $400 to $600 each month, for more than a decade.
That might not sound like much money… How many people do you know who regularly blow $400 a month on doorstep delivery of grilled mahi-mahi, a few bottles of Siberian mushroom-and-Thai-mango shampoo, and an at-home foot massage? But it’s far more than many professionals make in Manila. That’s why migrant workers spend years away from home in hard, unpleasant jobs.
According to the United Nations, these wandering workers – who generally do the work that rich-country locals don’t want to – remit cash that supports around 800 million people back in their respective home countries.
Those “remittances,” in economist-speak, are desperately important to a lot of emerging-market economies. Money sent back home to Haiti by the guy driving your Uber, delivering your groceries, or slaughtering your steak accounts for one-third of the country’s total gross domestic product (“GDP”). In El Salvador, it’s 20% of GDP. For the Philippines, 2.3 million people (around 2% of the population) work abroad and remit the equivalent of 10% of GDP.
The global economic decline is hitting emerging markets harder than anywhere else… in India… in neighboring country Bangladesh, it’s a similar situation, for example… And in many economies that depend on oil – from Saudi Arabia to Iran to Nigeria – these are very dark days.
Add to all that… remittances to poor countries will fall by around 20% in coming months, according to the World Bank. Few migrant workers can work from home (Norma and her fellow house helpers are a significant exception, obviously)… and coronavirus lockdowns means a lot of them don’t have jobs anymore. Since many migrant workers work in the informal economy, they don’t have health insurance, unemployment benefits, or anything like that.
If ever my wife or I forget to pay Norma on time, she doesn’t hesitate to remind us. Like McDonald’s (who recently drew $1 billion from a credit facility), the world’s migrant workers know that the best time to get the cash is… right now.
And even better if, just in case, it’s in the form of crisp, new $20 bills.
Now here are some of the stories we’re reading…
‘We’re in a prison’: Singapore’s migrant workers suffer as COVID-19 surges back
The country, which avoided sweeping shutdown measures throughout March, appeared to have contained the virus. But rights groups say little attention was paid to migrant workers who, despite the pandemic, continued to live in close quarters, and spent hours a day travelling on the back of crowded lorries to get to and from construction sites. “The way the workers were stacked in [on the back of lorries], it was like the way goats are stacked in when they are taken to a slaughter house.”
We must make our own meds
Talk about a breach of national security. We no longer make our own penicillin in the United States… The last enterprise that did so was Bristol-Myers Squibb, headquartered in the prototypical Rust Belt town of Syracuse, N.Y. Make no mistake, de-industrialization and national medicinal security are linked. Most of the drugs Americans need to fight AIDS, cancer, and depression are made abroad, many in China.
The U.S. economy has now erased all job gains since the Great Recession
It took only five weeks for the U.S. economy to wipe out all the job gains it added over the last 11 years. The coronavirus and forced business closures throughout the U.S. again buoyed the number of Americans applying for state unemployment benefits… the number of Americans who have filed for unemployment over the previous five weeks is 26.45 million.
About 150 years of oil-price history in one chart illustrating crude’s spectacular plunge below $0 a barrel
“This is stunning as it basically says that a barrel of oil earlier this week was effectively cheaper than it was in 1870. A period over which US inflation has risen 2,870% and the S&P 500 31,746,505% in total return terms.”
She got a forgivable loan. Her employees hate her for it.
In Mississippi, a less-generous state when it comes to unemployment benefits, full-time workers making less than $21 an hour ($43,680 a year) would make more money on unemployment than from their job… In California, a “medium benefits” state, the breakeven is around $26 per hour, or about $54,000 a year. And in Washington, a generous state, it’s $30 an hour, or about $62,000.
Axios qualifies for small-business loan amid pandemic
The company had qualified for a loan from the Paycheck Protection Program (PPP) valued at “just shy of $5 million… [ensuring it] can avoid layoffs and pay cuts for our almost 200-person staff.
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May you find your way through the chaos,
Kim Iskyan
Chaos Chronicles Editor, American Consequences
With P.J. O’Rourke and the Editorial Staff
April 24, 2020
