Darrell Delphen Macro

INVESTING
Buy something the world needs or wants—and buy it cheap, usually when market conditions are unfavorable and most people don’t want it.

Then wait.

The longer you extend your time horizon, the easier investing becomes. Most of the world is focused on the next quarter, the next month, or even the next trade.

You’re not gambling. You don’t need a dopamine hit from constantly buying and selling.

Investing is often really boring.

Buy value. Be patient. Let time do the heavy lifting.

The chart below is where we’re going.

Fiscal deficits
↓
More Treasury issuance
↓
Upward pressure on yields
↓
Higher government interest expense
↓
Even larger deficits
↓
More Treasury issuance
↓
Fed eventually pressured to intervene
↓
QE / YCC / negative real rates
↓
Currency purchasing-power erosion

So the ultimate issue isn’t necessarily that the U.S. literally cannot pay its dollar-denominated debt. Because the debt is denominated primarily in a currency the U.S. controls, the more interesting question is what happens to the purchasing power of the dollars in which bondholders are repaid.

It,s getting close! Price movement could occur after the elections.

China created paper money and this is what happened!

China experimented with paper money centuries before the West. Marco Polo marveled at how Kublai Khan could issue paper and exchange it for real goods and wealth.

Then came the problem that has plagued governments ever since every time: They Printed too Much!

The money initially created a boom. But eventually the supply of paper overwhelmed the gold and silver behind it, convertibility disappeared, and the currency lost its value.

Sound familiar?

The U.S. severed the dollar’s final link to gold in 1971. Today we have nearly $40 trillion of federal debt, persistent deficits, and enormous political pressure to keep financing the system.

History suggests governments rarely choose austerity when they can choose currency debasement.

Historically, paper money always goes to zero overtime.  I’m not suggesting that the dollar will cease to exist right now, but I do believe the debasement through money printing will continue and investors must protect themselves. 

That is a major reason I believe gold, silver, energy, commodities, and productive real assets will become increasingly important in the years ahead.

You can print currency. You cannot print scarce assets.

Diesel is now at an all-time high as expected. A direct result from taking refineries off-line in the Ukraine and Gulf states. Diesel is an input in everything. 

"Eat, drink, and make merry, for tomorrow we may die" .

The U.S. Treasury is buying back longer-term bonds while issuing more short-term debt, helping relieve pressure on long-term yields.The market loves it—for now.

Long bond yields world wide were going up as investors priced in out of control government debt. The US approaches $40 trillion!! We are currently paying approx. 20% of tax revenues on interest and that figure is growing fast as we overspend by $2-3 trillion per year in what supposed to be "good times". Wow!

Currently, Democrats want more social spending, and Republicans want more defense spending. As usual, I think they will compromise and do both. 😉

I guess they want to finance more of our deficit spending at the short end of the curve, where the Fed has greater control over rates.

The bond market was beginning to impose some discipline on Washington. This buys them more time to keep spending like drunken sailors.

Short-term gain. Long-term pain. Eventually, arithmetic wins.

Gold Miners

Gold miners are printing cash right now.

Free cash flow across the senior gold miners is roughly 10× what it was in 2020, while sector debt is about 50% lower than five years ago. Yet miners are trading near a 20-year relative low versus the S&P 500 and remain historically cheap relative to gold itself.

Meanwhile, the average investor has only about a 0.18% allocation to gold, according to Goldman Sachs, while the East continues accumulating physical metal. China alone reportedly bought 14.93 tonnes in June alone and has spent years reducing its Treasury exposure while building its gold reserves.

Do I know exactly what happens next with gold miners? No. This is not a recommendation.

But I have rarely seen a setup where cash flow is surging, balance sheets are improving, valuations are depressed, investor ownership is extremely low, and the underlying commodity is being aggressively accumulated.