Update - August 17, 2021
50 Years and Still Mourning
The financial world is mourning a death this week.
It happened 50 years ago… President Nixon killed the ties that bound the American dollar to gold.
It’s a well-covered story. It’s all over the financial news this week. And still most folks – and almost all reporters – get it all backward.
They say the move let the dollar’s value float on its own – that without a tether to gold, economic expansion could be infinite.
They’re right about that.
But they’re very wrong about something else.
Until the evening of August 15, 1971, the dollar had no value. It was merely a symbolic notion – an easier way to transfer gold from one person to another. Its price moved with the price of gold… not the other way around.
When Nixon made his move, though (a move, by the way, he promised would merely be temporary), it automatically gave the dollar a value.
It’s a price that has fallen ever since.
In 1971, for example, it took just $35 to buy an ounce of gold. Today, it takes nearly $1,800.
We all know it’s not gold that’s worth any more. In many ways, it’s worth less. After all, there’s a lot more gold in the world today than there was 50 years ago.
But while there may be more gold these days, there are trillions upon trillions of new dollars in the world.
So, yes, Nixon was correct when he told the world that his move would allow for unfettered economic expansion. But what he didn’t tell viewers on that warm Sunday night was that no growth is free. Eventually, it will come with a cost.
This is nothing new, of course.
I’ve written about it many times. Lots of folks have.
But what most folks get wrong, getting to the heart of our philosophy, is the role interest rates play in all of this.
A Different – and Profitable – View
As money gets cheaper and cheaper (whether it’s because demand is lower or because supply is higher), free market economics tells us folks are willing to pay less to get it.
It’s why interest rates, as I’ve said so many times, are dead.
They’re never returning to normal.
They can’t… at least not until the economy reaches an equilibrium with all this freshly printed money.
But that takes us down a very dark path – a path that’s quite technical and complicated. That’s not my intent with this note.
My intent today is to remind you why I recommend you invest the way I do… to put interest rates at the center of it all.
The idea that led to me creating Modern Asset Portfolio theory was born 50 years ago this week. That’s when the ideas that came before it perished. When Nixon cut the ties between gold and the dollar, the philosophies that once made great sense suddenly vanished.
Sadly, many folks still haven’t realized what’s happened.
After all, 50 years goes by quickly. It’s especially easy to see why so many folks missed this revolution when we consider that the politicians behind it told us it was temporary and, in Nixon’s words, would mean little to the average American.
Whether he meant it to be or not… it was a lie.
It was a momentous event in the world of economics, one that most folks are realizing the full potential of only today.
But I (perhaps selfishly) argue that Manward has been quite attuned to what’s happening, its effects on our money and our ability to build more capital.
Our portfolio is in tremendously good shape.
Free Money, Big Profits
Just yesterday, our position in Gartner (IT) surged to a fresh all-time high. We’re up more than 30% on the play… in a little more than eight weeks.
This is no surprise. Its buyback program is quickly gobbling up shares of the company, making each one that remains worth that much more of the company’s growing bottom line.
The death of interest rates has made buyback stocks some of the greatest wealth generators on the planet.
But we can’t forget about what is perhaps the biggest revolution to come out of all this money madness: crypto.
Digital currencies and the tokens that represent some of the most innovative technology on the planet have caught a bid once again.
As real yields on the 10-year Treasury sit at record-low levels, it is no surprise that Bitcoin is once again trading near $50,000. With rates this low, the speculative nature of the asset class wanes. It doesn’t make crypto a safe, widow-and-orphan play, but for most investors the risk is well worth the reward.
As I write, our remaining position in Monero (XMR) is up by 185%.
With gains like that, it takes only a small stake to make a big difference.
Nixon knew killing the gold standard would have huge effects on the nation and its economy.
But even he underestimated just how far and wide the ripples would spread. The market continues to evolve today because of a move he made 50 years ago.
We’re playing it like no others… and we’re playing it well.
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