TBill & Chill

It doesn’t quite match up in terms of rhyme appeal, but my Spring 2024 version remains TBill and Gold. Gold’s diving exhibition has not been unexpected; I waved a caution flag for $2400 when it was still in the $2200s. But that was a trading call, not an investment call. The fundamental case for gold is not going anywhere anytime soon, unless you think the US government is about to go on a fiscal responsibility jag. Despite its insistence it will get a handle on inflation, the Federal Reserve is coming under immense pressure to monetize government debt, and it will capitulate.

The other leg of our defense is more of an … uhm … transitory … nature. It acknowledges that stocks and commodities are both short term overextended and vulnerable. Too much hot money is on one side of the trade for it to remain consistently profitable. It’s been getting a tailwind from the Fed-is-about-to-cut-rates meme the media has been carpet-bombing investors with for months, a trend whose premise was meaningless if not false, as I’ve equally strenuously carpet-bombed Financology readers for just as long. Watch not the Fed, but the bond market, which has been hiking rates since December 27.

I’ve been much more reticent on the geopolitical picture, partly because the media tend to exaggerate its market impacts, leaving me with not much gap to fill. But the threats are growing more grave. A World War III type of situation looms, as we have both a US-Russia confrontation in Ukraine and an Israel-Iran confrontation in the Middle East. They are not unrelated. A coherent stance from both America and Russia in the Middle East could go a long way towards deescalating tensions there, but their Ukrainian proxy war makes it difficult. In my view the US has erred in not trying to cultivate better relations with Russia.

The investment implications are more in our bailiwick. The standard media formulation is a vague and fuzzy flight-to-safety refuge to explain heightened interest in gold, but it doesn’t connect the dots. Why gold? The real issue is the value of fiat. Governments resort to monetary inflation to finance war. If they had to send taxpayers a bill for the costs, war would be much rarer than it is. And gold can’t be inflated by governments.

Don’t be overly distracted by geopolitics though … even if the threat of war vanished tomorrow, the threat of inflation wouldn’t. The fiscal crisis predated the war threat and would outlive it.

Aside from having foreseen at least some price congestion in the $2400 area for gold, I have little idea what to expect in the short term. TBills and gold may take turns outperforming. Non-gold commodities are almost as important a defense against currency rot. TBonds are fundamentally awful, but are knocking on the bottom of a trend channel and could be a decent trade for the intrepid. Stocks could go down much further, but I’m not dumping mine because the bulk of them are held for income, not sale, and they’re selected to at least offer decent long term return prospects for the risk. I would be less sanguine if I were holding only an S&P 500 portfolio. 

I am regardless maintaining an overweight stash of TBills and gold.

7 thoughts on “TBill & Chill

  1. Milton Kuo says:

    >In my view the US has erred in not trying to cultivate better relations with Russia.

    Trump wanted better relations with Russia and was labelled a Russian agent for it. Russia bridges the European and Asian continents but its dominant culture is decidedly European. It should have been brought into the western fold after the Cold War ended. Probably not immediately but on a very slow, gradual pace because a communist society is a corrupt society.

    This whole Russia Hoax tripe has been utterly infuriating.

    >I am regardless maintaining an overweight stash of TBills and gold.

    That’s what I’m doing, too, and the Treasury bills have me clenching my butt cheeks even though I have more gold than Treausury bills.

    1. Finster says:

      I’m no geopolitical expert, but I’m old enough to remember the days when words like “perestroika” and “glasnost” were familiar in the news. The optimism that the Cold War was thawing, if not over, and the “peace dividend” that followed. Now it’s like waking up thirty years later and wondering what the heck happened. How did we squander decades of opportunity to build on that peace?

      It’s not hard to imagine other geopolitical burdens might be lightened, for example North Korea and Iran, with America and Russia being on better terms.

      You have a point about Trump. It’s telling that he was safely out of the White House before Russia invaded Ukraine. I don’t believe everything Trump says, not necessarily even most of it, but I do believe him when he says the war would never have happened on his watch. That might even have something to do with the establishment hostility towards him.

      Why is there so little effort being devoted to bringing this war to a peaceful conclusion? From the beginning it’s been almost nonstop escalation. What does Russia want? Best I can figure, it’s not to have NATO on its doorstep. That would strike me as a very small price to pay to avoid the risk of nuclear war. Am I missing something here?

      The thing about TBills is at least as much psychological comfort as anything else. Your nominal position is sturdy. They also make useful dry powder when other assets go on sale. Gold is better for keeping your real position sturdy, but other commodities are too. I like copper, gold, silver, platinum, energy, etcetera … the only thing that gives me pause at the moment is that a lot of other people do too.

      1. Milton Kuo says:

        > I don’t believe everything Trump says, not necessarily even most of it, but I do believe him when he says the war would never have happened on his watch.

        There are some highly-credentialed pundits who claim that Trump was a deterrent in Putin not invading Ukraine. I totally disagree with that analysis. Trump didn’t want to enter a war with Russia because it just doesn’t make any sort of sense to the U.S. unless one were trying to embezzle from the country.

        I think the greatest culpability for the current mess in Ukraine is the now-retired Victoria Nuland. She started this mess during the Obama presidency with the ouster of the duly-elected Ukrainian president and brought this thing to a head with the current mess where NATO took one step east too far.

        If Trump did anything correct on the Ukraine issue, it was that Nuland was not part of his administration.

        1. Finster says:

          I couldn’t agree more, Milton. Last time I checked, Ukraine wasn’t even a North Atlantic country. Why put it on the NATO track? Just to poke the bear?

          People like Nuland act like they’re playing a giant game of Risk. The object is to rule the world. Any connection with the well being of the average American would be purely accidental.

          Trump just isn’t into the whole globalist project. It’s America first, and unless you’re doing something that makes it America’s business, it’s not going to go out of its way to get involved. I’m totally down with that. US as global bully isn’t pretty, and multilateralism is inevitable.

          Not that I’m on board with everything Trump. His TCJA was a disaster, giving giant corporate America – Apple, Alphabet, Meta, et al, who seem to be doing just fine thank you – a flat tax while a progressive rate structure is good enough for individuals. He threatened to veto a pork-filled omnibus spending bill then caved. He shoulda sent it back to Congress and told it to cut the crap. The relevance here is that his administration has to shoulder some of the blame for the debt explosion. And that if he is re-elected, the debt problem will still be a problem.

          All things considered though, this war juggernaut is bad. The last thing anybody needs about now is world war. Give peace a chance.

  2. jk says:

    it is a matter of some debate whether george h.w. bush offered gorbachev an assurance, as opposed to a hint, that nato would not expand eastward except for the possible effect of german re-unification. nonetheless, the inexorable march of nato into former warsaw pact nations over the next couple of administrations antedate nuland’s role. nuland was just a more recent manifestation of a longstanding anti-russian stance.
    .
    the “color revolutions” in eastern european nations were certainly aided and encouraged by american intelligence entities, but whether one wants to call yanukovich “duly elected” is questionable. shall we call putin himself “duly elected”?
    .
    overall, there appears to be a history of renewed western hostility to russia after the chicago boys failed in their economic shock treatment under yeltsin, and instead created the conditions for oligarchs looting the country’s resources. yeltsin’s chaos created the conditions for russia’s reversion to type in the emergence of a strongman like putin.
    .
    the u.s. has historically not had a problem accepting and dealing with strongmen around the world provided they played ball economically. i’m not sure how much russia’s not “playing ball” with western interests is the foundation of u.s. hostility.

    1. Finster says:

      For sure Nuland didn’t invent imperialism or warmongering … there are plenty of birds of that feather. The deeper question would be by what strings are they drawn into positions of power.

      As an econ guy I feign no expertise in international or even domestic politics; but I do know that there’s a strong connection between war and the financial subterfuge we know as inflation. If politicians had to send out tax bills to cover the cost, war would be rare.

      Just picture how well GWB’s get Saddam campaign would have gone over if voters were consciously aware of the trillions they were going to pony up. Iraq. Afghanistan. Or for that matter Vietnam. Or a host of others.

      The gist of it being that inflation does an end run around cost-benefit democracy. And if you can’t make an honest cost-benefit case, it probably doesn’t exist. Printing money doesn’t just raise prices and generate economic inequity. It kills.

  3. Finster says:

    Gold continues to bump its head on the $2400 ceiling, likely being closely related to waning fears of imminent Fed rate cuts. TBills are, well, TBills, though TBonds bear watching. The latter rallied today, possibly on the same waning fears. The more the Fed worries about inflation, the less the markets have to.

    So … just as the bond market started hiking rates as Fed rate cut mania was gathering steam back in December, the situation could now have pulled a 180° … paradoxical as it may seem, free of rate cut fears, long bonds could rally for a while. The next couple trading days should point the way. They’re knocking on the bottom of a trend channel and have to decide whether to break it or bounce.

    The stocks setup is less clear. If the pattern of most of the past couple years holds, stocks will rally in sympathy with bonds. That would feed back into Fed perceptions by injecting a little more juice into burgeoning inflation. It’s hardly a foregone conclusion though … since December the correlation has given way to anticorrelation as stocks rallied while bonds sank. Any sign of developing business and labor market weakness could reinforce that … except with rallying bonds and sinking stocks.

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