Gold and Politics

I’m bullish on gold. I’m bullish on gold because I think the national debt is an intractable problem. I’m bullish on gold because I think Kevin Warsh will be more dovish than people anticipate. I’m bullish on gold because it just had a 28% drawdown and sentiment is apocalyptic. I’m bullish on gold for a lot of reasons, including politics.

You might have heard about all the communists winning primaries these days. You might say that they are democratic socialists, but I would say that they are democratic socialists in the sense that North Korea is the Democratic People’s Republic of Korea. I know we have people of all political persuasions receiving this newsletter, but I think we can agree that communism is bad? Maybe? And if one of them assumes power, do you think that the intractable debt problem will get more or less intractable? My point exactly.

Economically speaking, Trump is far to the left of where Clinton was 30 years ago. Fact. And JD Vance is to the left of that. My first choice for 2028 would be Marco Rubio, and my second choice would be John Fetterman—no kidding. You may disagree, and that’s fine; we all have opinions. I’m not telling anyone how to vote. I’ll also add that I haven’t voted since 2004, but I recently registered to vote in the midterms because, for the first time in 22 years, I am energized. We have to keep the communists out of office.

The problem is that there is not one single defender of free markets on the right these days. JD Vance was taking a dump on Milton Friedman in a recent interview. What JD Vance has become is mighty dispiriting. Marco Rubio, as a descendent of Cuban refugees, probably has better free-market instincts, but as Secretary of State, it is not in his bailiwick. Thomas Sowell just turned 96 years old. Friedman is long gone. All we have is Javier Milei, and I’m sure he’s watching what’s going on in the US with some interest. The results of the Argentine experiment are in: Capitalism works. Nobody seems to care.

Today’s Opportunity

Alan Greenspan passed away recently. I suggest you go back and read his 1966 essay “Gold and Economic Freedom,” which ended up in Ayn Rand’s essay collection Capitalism: The Unknown Ideal. It is also all over the internet. I like Greenspan (we also share a birthday), but Greenspan compromised his free market principles on several occasions. His memoir was interesting reading. If AOC becomes president (which the prediction markets have as a measurable probability), that essay will come in handy. The long and the short of it is that now is an exceptionally good time to buy gold, or at least not sell any that you already have.

A secret: When I first started buying gold in 2006, I did so for political reasons—I saw which way the winds were blowing, and shortly thereafter, Nancy Pelosi was elected Speaker of the House. One of the most liberal members of Congress at the time! Also, gold had a 30% drawdown in 2008, from $1,000 in March to $700 in September. It was vicious. At the time, I was pounding the table with veins popping out of my neck—we were on the cusp of electing Obama and doing quantitative easing. Gold has never looked back. I think we are in a similar situation today.

Just think, you could have bought gold for $700/ounce right before Bernanke started QE. Gold never saw that price again. And you have an opportunity to buy it at $4,200/ounce today, right before Warsh’s resolve crumbles like one of those Biscoff cookies you get on an airplane, and Congress goes full socialist. When you zoom out like this, you can see the opportunity.

In his essay, Greenspan talks about the “shabby welfare-statists.” I mean, just a few years ago, we bailed out Silicon Valley Bank! Whose customers were all super-rich venture capitalists! I might add that 2022 was also a good time to buy gold. Now we are talking about state-directed investment into AI, and the only people raising any hackles about this are the hardcore libertarians. 

The Life Hedge

I don’t think the lesson of the financial crisis was that we should have bailed out Lehman and everyone else. I’m quite proud of the fact that I worked at the only firm that didn’t get bailed out. Bernanke and others may have thought that they were preventing a depression. Well, we are still paying for it to this day. Quantitative easing may have rescued the stock market, and it may have prevented deflation, but it destabilized society by drastically widening inequality. Much more to say on this, but books have been written about it. I’ll say one thing about it: A bout of deflation would fix a lot of problems that we have right now.

I just wanted to get you thinking about some of this stuff, because it is scary to buy something that is in a 28% drawdown. In my new book, The Awesome Portfolio, I talk about the concept of a life hedge. We’ll talk about this more next week via an excerpt from the book.

If we go red socialist, you will be pretty glad you have gold—at least until they take it away from you or tax the capital gains at 100%, which is more likely. I seriously doubt gold will be lower than it is today on Election Day in 2028. All aboard the last chance train.

Jared Dillian, MFA