5 MINUTES AGO! Jim Rickards Shared A Terrifying Message...
Summary
TLDRThe speaker discusses investment strategies, emphasizing the importance of true diversification beyond just owning different stocks. Real diversification involves holding minimally correlated assets like gold, cash, and real estate. They recommend 10% in gold, 30% in cash, and focus on sectors like energy, oil, and uranium. The speaker also highlights the cyclical nature of markets, referencing historical patterns in gold prices, inflation, and the Federal Reserve's monetary policies. The main takeaway is to prepare for market volatility and potential economic recession, while maintaining flexibility through cash holdings for future opportunities.
Takeaways
- 💼 Diversification is key to a strong investment portfolio, but owning 50 stocks in 10 sectors isn't true diversification if they're all stocks. You need different asset classes that aren't highly correlated.
- 💰 Cash is important and should be a significant part of a portfolio. While it doesn’t generate much return, it reduces volatility and provides safety in uncertain times, such as deflationary periods or market crashes.
- ⚖️ True diversification includes minimally correlated asset classes like gold, cash, and other investments. Gold, for example, should be around 10% of a portfolio.
- 📉 Cash provides optionality—when markets crash, cash holders have the advantage of being able to invest in assets at lower prices.
- 💡 The speaker recommends holding a large portion of cash (about 30%) to protect against volatile market swings and economic deflation.
- 🏦 The speaker mentions that renewable energy sources, like solar and wind, aren’t scalable or reliable enough to meet global energy needs, so oil, natural gas, uranium, and hydro power remain crucial.
- 💸 Inflation and deflation are both risks. While inflation is currently high, future deflation could emerge if the Federal Reserve tightens too much, causing a recession.
- 📉 The Federal Reserve’s monetary policies are often reactive rather than proactive, and tightening may lead to severe recession or market crashes.
- 📊 The speaker highlights the cyclical nature of gold markets and suggests that gold is in its third great bull market, with significant potential gains over the next few years.
- 📈 The price of gold could rise significantly, with a potential value of $15,000 per ounce by 2025 if past market cycles are a guide, according to historical analysis.
Q & A
What does the speaker mean by diversification?
-The speaker defines diversification as having a mix of different asset classes that are minimally correlated. This means that owning stocks across various sectors does not count as true diversification because stocks as an asset class tend to move together during market extremes, either up or down.
Why does the speaker recommend only a 10% allocation to gold?
-The speaker recommends a 10% allocation to gold because it provides insurance for the rest of the portfolio without overexposing it to a single asset class. If the strategy is wrong, it won't harm the overall portfolio, but if it's right, it can provide substantial returns.
Why does the speaker suggest holding a significant portion of cash?
-The speaker advocates holding a significant portion of cash, around 30%, because it provides optionality, reduces overall portfolio volatility, and performs well during deflation. Cash allows investors to take advantage of market crashes by having the liquidity to buy assets when others cannot.
How does the speaker explain the difference between cost-push and demand-pull inflation?
-The speaker explains that demand-pull inflation occurs when consumers accelerate their purchases in anticipation of rising prices, while cost-push inflation arises from increased costs of production, such as supply chain disruptions and higher energy costs. Currently, the inflation we see is primarily cost-push.
Why does the speaker say there is no substitute for oil, natural gas, and uranium?
-The speaker argues that renewables like solar and wind are not scalable or reliable enough to meet global energy demands, leaving oil, natural gas, and uranium as essential resources for energy generation.
What is the primary advantage of holding cash during times of market crashes?
-Holding cash allows investors to take advantage of market crashes by buying assets at low prices when others are forced to sell. This optionality makes cash a powerful asset, especially during deflation or crises.
Why does the speaker believe the Fed's approach to fighting inflation may cause a recession?
-The speaker suggests that the Fed's aggressive interest rate hikes and tightening policies may slow the economy too much, leading to a recession. The Fed faces a dilemma of either controlling inflation or triggering a recession by over-tightening.
What is the speaker’s view on renewable energy sources like solar and wind?
-The speaker acknowledges owning a solar module field but notes that renewables like solar and wind are intermittent and not scalable for large-scale energy needs. They cannot replace the baseline power provided by fossil fuels and uranium.
Why does the speaker emphasize the importance of watching the Fed’s actions closely?
-The speaker highlights that the Fed's policies can signal economic directions, such as whether they will continue tightening or start loosening to avoid a severe recession. These signals provide critical information for investors to adjust their strategies accordingly.
What historical context does the speaker provide for gold's performance?
-The speaker outlines three major bull markets in gold since 1971. The current bull market, which started in December 2015, is similar to past cycles where gold saw significant gains after periods of retracement. The speaker predicts gold could reach $15,000 by 2025 based on historical patterns.
Outlines
💼 Diversification and Cash Allocation in Investments
In this section, the speaker emphasizes the importance of diversification in investments. Many investors misunderstand diversification, thinking that owning multiple stocks in various sectors is sufficient. However, true diversification involves spreading investments across minimally correlated asset classes, such as gold, cash, and stocks. The speaker suggests a 10% allocation to gold and highlights the importance of holding cash (30%) despite its low returns. Cash helps reduce portfolio volatility, offers protection in deflation, and provides optionality during market downturns. The speaker also discusses the role of inflation and deflation, urging caution with over-reliance on leverage and emphasizing the value of cash as an investment tool.
📉 The Future of Energy and Opportunities in the Oil Sector
Here, the focus shifts to the energy sector, where the speaker critiques the limitations of renewable energy sources like solar and wind for large-scale applications. He highlights the growing gap in global energy demand, stating that renewables alone cannot meet this demand. Oil, natural gas, and uranium remain indispensable. The speaker encourages investing in oil companies despite negative sentiment from climate activists, as the world still heavily depends on fossil fuels. The section concludes with a diversification strategy involving stocks, private equity, residential real estate, farmland, and gold, addressing concerns over future inflation and recession risks.
🔄 Fed Policies and Economic Cycles
This paragraph explores the Federal Reserve’s economic policies, particularly interest rate hikes and quantitative tightening. The speaker outlines the Fed’s past attempts to normalize interest rates and reduce its balance sheet, which often led to stock market crashes and recessions. He references the Fed’s actions between 2013 and 2020, including rate hikes, quantitative easing, and balance sheet adjustments, explaining how these policies failed to achieve their objectives. The speaker predicts similar outcomes if the Fed continues down the same path, warning of potential economic turmoil if they fail to adapt to current market conditions.
📉 The Fed’s Playbook and the Inevitable Recession
The speaker argues that the Fed is repeating the same strategies that led to failure in previous years. He predicts that attempting to normalize interest rates and balance sheets will lead to a recession and a stock market crash. The discussion revolves around whether the Fed will stay the course or pivot to prevent economic damage, which would prolong inflation. The speaker emphasizes that understanding the Fed’s actions can provide insight into future market movements, cautioning that inflation could spiral out of control if the Fed opts to avoid triggering a recession by cutting rates prematurely.
📈 Gold Market Cycles and Future Projections
The focus here is on the gold market and its historical performance. The speaker outlines the three major bull markets in gold since 1971 and highlights their significant gains. He describes gold's cyclical nature, including periods of retracement, and provides an analysis predicting gold's value to soar in the coming years. By comparing past cycles, he forecasts that gold could reach $15,000 by 2025. Despite its volatility, the speaker views gold as a long-term investment with substantial upside potential and encourages investors to buy gold, especially as prices continue to rise.
🪙 Gold as a Long-term Investment Opportunity
In this final section, the speaker reassures long-term gold investors, explaining that the metal's fluctuations are part of its normal cycle. He encourages buying during dips, noting that even if the price drops, gold will rise significantly over time. The speaker addresses common criticisms that he's promoting gold for personal gain, clarifying that he has no direct financial interest in selling gold. Instead, he recommends it based on extensive analysis and his firm belief in its long-term growth. He emphasizes that those who haven’t invested in gold yet haven't missed their opportunity, as the metal is expected to multiply in value.
Mindmap
Keywords
💡Diversification
💡Conditional Correlation
💡Asset Classes
💡Cash
💡Gold
💡Deflation
💡Optionality
💡Cost-push Inflation
💡Supply Chain
💡Energy Sector
Highlights
Diversification doesn't mean holding 50 different stocks across sectors but rather having minimally correlated asset classes.
Having 10% of a portfolio in gold acts as insurance; it's a good hedge without overexposing yourself to risk.
Cash should make up a significant portion of a portfolio (30%) despite low interest rates because it provides optionality in volatile markets.
Cash reduces overall portfolio volatility, especially when paired with more volatile assets like stocks or gold.
Deflation remains a potential threat, particularly if the Federal Reserve tightens too much, leading to a recession.
Cost-push inflation, driven by supply chain and energy issues, is different from demand-pull inflation and requires different policy responses.
Rising gas prices act like a tax on consumers, reducing discretionary spending and potentially slowing the economy.
Cash provides optionality during market downturns, allowing investors to 'go shopping' when assets are crashing.
Renewable energy like solar and wind is not scalable enough to meet global energy demands alone; oil, natural gas, and uranium are still essential.
Despite climate concerns, investing in oil companies remains a strong strategy due to the continued necessity of fossil fuels.
Farmland and residential real estate are attractive assets for diversification and future returns.
The Federal Reserve's attempt to normalize rates and reduce its balance sheet failed in the past and may likely fail again without triggering a recession.
Gold markets follow cyclical trends, and we are in the third great bull market for gold, with significant upside still possible.
Gold's price fluctuations, while volatile, are a part of its long-term growth, and even small drops present buying opportunities.
Based on past trends, gold could reach $15,000 by 2025, offering significant returns for long-term investors.
Transcripts
I would increase my allocation to cash
I'll stick with cash but let me kind of
put that in context the most powerful
investment tool we have is
diversification problem is people don't
understand what diversification means so
I run into people all the time they say
well I'm completely Diversified I own 50
different stocks in 10 different sectors
you know semiconductors consumer non
durables minerals you Etc and I say
you're not Diversified you may own 50
stocks in 10 sectors but you have one
asset class stocks which are subject to
conditional correlation in calm markets
they idiosyncratic but in panics they
all go down together or in bubbles they
all go up together so you're not
Diversified so what is diversification
diversification is having slices of
asset classes that are minimally
correlated there not probably not zero
but as close to zero as you can get so
what would that be you'd have a slice of
gold but I recommend 10% and people have
some strong views on gold and I've
written a lot about it but people are
surprised to hear me say 10% Like Jim
why isn't a 50% or 100% if you believe
all this well I do believe it I wouldn't
say it if I didn't but you don't want to
be 100% in anything you don't want to be
50% in anything 10% is fine if I'm wrong
you won't get hurt and if I'm right
you're going to make so much money that
it'll actually kind of be the insurance
on the rest of your portfolio but that
leaves 90% so I would have a large slug
in cash maybe 30% and people say well
wait a second bank's paying me 25 basis
points you know stock market's going up
why I want to be in cash is horrible a
couple things number one the stock
market might not always go up cash is
the opposite of Leverage so leverage
increases the volatility of the rest of
the portfolio you'll get much bigger
returns but you'll have much bigger
losses if you have a slice of cash and
say you've got a volatile asset over
here which are stocks another volatile
asset over here Gold's fairly volatile
if you got that volatility and you have
cash it will reduce the overall
volatility so you can sleep better at
night cash is a great asset in deflation
and talking about inflation which is
here you got to deal with that but don't
rule out deflation if we go into a
recession because the FED over Titans or
you know the thing about the inflation
just a quick side it comes in two
flavors there's cost push and demand
pull demand pull is when individuals are
worried about inflation and they start
accelerating purchases like hey better
go buy that washing machine right now
because the price is going up or better
go buy that house right now because the
price is going up that's demand pull
cost P comes from the supply side not
the demand side and that's what we're
seeing because of what we talked about
supply chain energy cost the FED can't
drill for oil you know raising interest
rates doesn't get you more oil or
natural gas so the FED can't do anything
about it except kill the economy yeah
and that'll cool it off but when you pay
uh put gas in my car I don't just read
about this stuff you know it used to be
$45 now it's about $75 multiply that by
200 million cars Across America what
happens is it reduces your discretion
income if you're paying another 30 bucks
at the pump twice a week then you're not
going to go out to dinner Friday night
you're not going to you know take a a
vacation whatever it may be so that
depresses all those other areas so there
is this recursive function so don't rule
out deflation down the road not right
away but you know maybe next year so
cash here's the biggest value of cash it
gives you optionality people don't
understand this what if I said to you
hey I'll sell you a call option at the
market call option on every asset class
in the world he go yeah sounds kind of
valuable you know well that's what cash
is when things are crashing you're the
one who can go shopping and nobody's
better at this than Warren Buffet he's
got his cash level vir halfways at an
alltime high so there's a place for that
you can have some stocks but I would
look at the energy sector I actually
built and I own the largest
non-commercial solar module field in New
England and I run my house off it
produce about 7.5 um kilowatt hours so I
know a little bit about it and uh what I
know is it doesn't work at night it
doesn't work in snow it doesn't work in
rain it doesn't work in really cloudy
days by the way you don't run your house
off with solar modules you run your
house off of batteries yeah then the
modules charge the battery so you watch
the battery level that's how you manage
it so it works fine but if you think you
can run cities with that forget it so
it's just not practical at that scale
even if you thought it was and it isn't
that's very clear But Here Comes you
know wind turbines and SE I'm not
against it like I say I own one but
they're not scalable they're
intermittent and they don't give you the
Baseline power you need to run a modern
power grip meanwhile here's Global
demand okay so the Gap the gap's getting
bigger it's not getting smaller
Renewables whatever the pros and cons
are not closing the Gap the gap's
getting bigger there is no substitute
for oil and natural gas and uranium you
got to put uranium in the mix and hydro
if you live in quec that's great a lot
of hydro but not so much in the desert
and I've spoken to you know without
mentioning names I would say you can go
no higher in terms of who knows a board
members of the five biggest oil
companies in the world who said yeah he
said we talk about that but we we can't
say it publicly because we'll be you
know uh Chained and dragged through the
streets but those are just the facts so
therefore if you have an oil sector
that's been bashed by the climate
alarmist but you can't do without it
which is true buy some oil companies you
know so there's your stock portfolio
private Equity Venture real estate uh
not commercial but residential yes and
you know Farmland that's one of the
hottest ass categories and gold so
that's diversification and that's the
kind of portfolio you want the kind of
seasoned to taste so the question is
will the FED go down that path do what
they have to do do the only thing they
can do to subdue inflation at the cost
of a very severe recession and something
like a stock market crash or will they
see that coming they'll be the last to
know we we'll all see it before they do
but they'll be the last know it's
because they rely on flood models and
they're kind of in their own
economic forecasting bubble and they're
very defective ways of thinking about
the economy and they're very much a
creature of inertia there a whole lot of
reasons why the FED is not Nimble it's
kind of quite the opposite but they'll
see it eventually probably when it's too
late and will they block at that point
and stop rate hikes and maybe even
reduce rates that could save us from the
recession but that will just amplify the
inflation so rather than say which one's
going to happen I prefer to lay out
those two paths and then just watch it
very carefully but more to the point
we've seen this movie before this is a
replay and I think it's on um like you
hit the remote control for double or
triple speed it's going to happen faster
but this is a replay of everything that
happened from 2013 to 2019 and then to
2020 which was I'll just go through it
quickly so 2013 May banki says we're
going to taper asset purchases that's
money printing quantitative vising
whatever you want to call it the market
you know tanks bonds go down everyone's
like oh it's over but finally in
November 2013 they said okay the taper
begins they were still printing money
but at a slower rate in that matters
that went on until late 2014 the taper
was over they stopped buying new assets
they said okay here come the interest
rate hikes except they didn't G for
another year it wasn't until December
2015 that then Janet Yellen finally
raised rates and then another year for
the second rate increase it was December
2016 so it was really really slow took
two and a half years but they got to to
raid hikes but then Here Comes J pal and
then like Cloud boom boom boom 25 basis
point hikes every meeting and all the
Fed was trying to do was to get back to
normal they were trying to get interest
rates to maybe two and a quarter two and
a half get the balance sheet down to you
know something like 2.5 trillion they
never specified it that would have been
a reasonable level okay now interest
rates are kind of normal two and a half
balance sheets down around 2 and a half
trillion we're back to normal we finally
got through the global financial crisis
of 2008 we undid all that stuff well
what happened from October 1st 2018 to
December 24th 2018 the stock market
dropped 20% the Christmas Eve Massacre
stock market went down 3% in one day but
the Fed was tightening into the weakness
as they always do and the last interest
rate hike it was uh December 16th or 17
within a day or two but mid December
2018 they were still hiking and raised
rates and that was the last draw and
then the market just tanked and finally
J pal got that message first week of
January 2019 he says okay that's it
we're going to be patient use the word
patient it's one of these code words you
have to get the code book out and see
what it means but patient means we won't
raise rates again without giving you
Advanced warnings so you can get out of
your carry trades or whatever and then
he went further said huh looks like we
got a cut rates and they did and then by
early 2020 here comes the pandemic and
then they took rates all the way back to
zero and then they started QE I don't
know 67 call what you want they took the
balance sheet to 7.5 trillion doll after
getting it down to three and a half
trillion so look at that whole sequence
from 2013 to early 2020 including the
pandemic what happened they tapered the
asset purchases they raised rates they
sank the stock market then they said
okay no more rate hikes then they cut
rates and then they started QE and by
April 2020 where were we zero rates back
down to zero and the balance sheet was 7
and A5 trillion after getting down to
about three and a half trillion so that
was a big circle they ended up back
where they started from but the point
being they failed to normalize they
failed to get rates where they wanted
they failed to get the balance sheet
where they wanted they did sync the
stock market okay by the way I don't
have a crystal ball the FED told us this
I mean that's the thing about the F they
may be wrong but they're transparently
wrong so they tell you what mistakes
they're going to make in EV event so
that's the FED forecasting is actually
fairly straightforward because you just
have to believe them they're going to
announce a reduction in the balance
sheet whether they actually started 100
billion a month reduction in asset
purchases so that's QT quantitative
tightening in other words they're
running the same Playbook they tried to
run or they started to run in 2013 2014
they failed the last time why do they
think they're going to be any more
successful this time why do they think
they can get out of this and the answer
is they cannot without a recession they
can normalize rates in the balance sheet
and they can stop inflation but not
without causing recession and not
without causing a stock market crash so
the big question for the next year is
will the FED do that and they may or
will they B again at which point you
might rescue the market but the
inflation is just going to go wild
that's the debate but the thing is about
framing it that way you've got two paths
and we'll get signals along the way we
won't be the last to know the FED will
but we won't you'll be able to see this
coming it's going up it's going up a lot
and let me just back that up a little
bit because that's easy to say I don't
say things like that without a lot of
analysis there are three different ways
to think about it one is just some
technical analysis this is the third
great bull market in gold in history and
uh when I say history I'm only going
back to 1971 because prior to
1971 gold was money so you didn't have a
bull market or bare Market it was fixed
to the dollar people who buy the table
and say give me a gold standard I like
well be careful what you wish for cuz in
a gold standard you're not going to make
any money on gold because it's fixed
it's pegged to the dollar if you want to
make money on gold you would actually be
against a gold standard because they
keep going up the currency and the gold
goes up but we had a bull market from
1971 to 1980 and gold went up
27% then we had a bare Market from 1980
to 1999 and gold went down from $ 800 $
$250 and do the math that's 60 or 70%
then we had the second grade bull market
from 1999 to 2011 and gold went up
670 then we had a bare market so funny
how these things go in Cycles from 2011
to 2015 but you can call the bottom it
was December 16th
2015 Gold was $1,050 an ounce I'm
talking US dollar that was the bottom
and and I saw it at the time and I I
called it at the time based on a
conversation I have with Jim Rogers
who's the greatest Commodities Trader in
history and we were down in the
Dominican Republic At Cost compo during
the bare Market I said Jim I you think
about gold he goes well I own it but I'm
not buying more at the moment I'm
waiting he said I'm not selling it but
I'm not buying more I'm waiting and he
said to me something that just hit me
right between the eyes he said gold is
going to the moon but no commodity goes
to the moon without a 50% retracement
along the way there comes a time when it
drops 50% and then there's like the
second liftoff and then it goes to the
move now take the bottom in 1999 was
$250 an ounce the top was $1900 an ounce
in August 2011 so that's uh
$1,750 half of that so 50% retracement
would be down a25 so, 1900 minus 825 put
you at 1075 well Bingo 1050 that's close
enough for government work as we say
when I saw 1050 I talked to Jim Rogers
about this earlier when I saw 1050 I
said okay there's your 50% retracement
using 250 is you have to have a base
using 250 as your Baseline up to 1900
take that gap down 50% boom 1075 we were
1050 I said that's the low now it's uh
getting close and actually on an
intraday basis I think it just kind of
kissed the all-time high it was like
right there so there's the full
retracement of the bare mark Market but
this bull market the third grade bull
market started December 2015 we are up
almost 90% but bear in mind the last two
bull markets remember what I said
2,700 and 670 per. so 85% is great but
when you get into like 600 700
800% or
2,000% you're talking about
$115,000 by
2025 so if we just did the average of
the two prior bull market I'm not even
talking about the higher of the two take
the two bull markets average the
duration and the gain and then apply it
to December
2015 you get to the exact number is
$155,000 by 2025 $115,000 nowc by 2025
to get to from 2,000 to 15,000 you got
to go 3,000 4,000 5,000 6,000 you can
make a ton of money so that's where it's
going now could it go down tomorrow sure
I mean the goal's volatile I don't get
too hung up on it because I'm kind of a
Buy and Hold person I don't get too
euphoric when it goes up but I don't get
depressed when it goes down fact when it
goes down I like to see it go up for our
listeners and our readers but personally
I don't mind when it goes down because
you can buy more at a cheaper price
because I know it's going up I know
where it's going so the answer is again
sixth grade math is usually sufficient
when you get to higher levels a fixed
dollar increase is a smaller percentage
increase so people go oh it went from
1,800 to 1900 it went to 2, 21002 and
that's a big deal good for all of this
but those $100 increments get to be more
and more frequent and more and more
common because they start looking like 1
half of 1% 1 half of 1% is not a big
deal in the market so you're going to
see that on a daily basis so my advice
to people of course is buy gold but I
said that at 1100 1200 1300 said it all
along and people don't buy it people
also accuse me they say well Jim you're
just talking your position you know
you're just trying to sell gold I'm not
a dealer I don't make any money if you
buy gold good for you but I'm not in the
business I'm a writer I'm an analyst but
uh I'm not a gold dealer I'm actually
one of the few analysts apart from
yourself and a few others who are not
gold dealers but I think I think that
gives you more credibility because
you're not selling gold you're
understanding gold but for anyone who
hasn't bought it yet course people
denial is a powerful thing they'll say
well I missed the boat now it's up to
the side's going to go down you haven't
missed the boat I mean again 80 90% is a
good run but this is going to go
multiples of that
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