By E.B. Tucker, editor, Strategic Investor
The U.S.-China trade war has ratcheted up.
After China announced a new round of tariffs on U.S. goods in August, President Trump reacted with fury.
Starting October 1, Trump plans to raise the tariff on about $250 billion of Chinese goods to 30% from 25%. The president also indicated that tariffs on an additional $300 billion that kicked in on September 1 will be 15% instead of 10%.
He even took things one step further, saying:
I could declare a national emergency. I think when they steal and take out intellectual property theft, anywhere from $300 billion to $500 billion a year, and when we have a total loss of almost a trillion dollars a year – for many years, this has been going on – and in many ways, that’s an emergency.
Despite both sides backing off their remarks recently, the standoff between China and the U.S. isn’t going away anytime soon.
Unless Something Drastic Happens, We Could Be in for a Long Winter
Investors hate uncertainty.
The trade war gives them that. That’s why we’re seeing a flight to safety and a flight out of assets like commodities.
When afraid, investors tend to dump commodities like copper, which just hit a new yearly low. Demand for copper usually falls in a slowing economy. Investors often favor safer assets, like gold and U.S. Treasurys, both of which recently hit new highs. While gold is technically a commodity, investors hoard it in times of trouble.
Trade tension also has central banks around the world forcing interest rates as low as possible. In a growing number of countries, that means sending rates below 0%.
Take, for instance, the recent 30-year bond auction in Germany. For the first time in the country’s history, Germany sold nearly $1 billion worth of bonds with a negative yield. That means for the privilege of loaning to Germany, investors will receive less than $1 billion when the bonds mature in 2050.
Today, nearly $16 trillion of worldwide debt is trading with negative yields. It’s become a race to the bottom. Japan, long the standard-bearer in low rates, no longer holds the crown, even with rates of minus-0.1%.
That title now belongs to Switzerland, with minus-0.75%. When the country long considered to be the world’s safest banking destination goes negative, the rest of the world almost has no choice but to follow.
That’s why Sweden and Denmark aren’t far behind. In Denmark, even homebuyers can get a “good deal,” with Jyske Bank A/S, the country’s third-largest lender, offering mortgages with a minus-0.5% rate. And a couple weeks ago, the Bundesbank, Germany’s central bank, says it’s open to negative-rate mortgages.
Before you head off to the Scandinavian countryside, we may not be far behind here in the U.S. Just last month, the benchmark 30-year U.S. government bond hit an all-time-low yield of 1.907%. Thirty-year mortgage rates are near historic lows, averaging 3.8%, according to Bankrate.com.
That’s not enough for President Trump.
This morning, he called on the Federal Reserve to take rates to 0% or lower if possible.
Government debt under Trump is up $2.6 trillion, according to CNBC. Trump wants to refinance the nation’s debt load with lower-interest, longer-term borrowing.
The president went on to call the Fed “boneheads.” We expect he’ll keep it up until he gets what he wants. (I’ll have much more to say about this in tomorrow’s Dispatch. Stay tuned.)
Trump Might Be the Star but There’s More to the Show
From violent protests in Hong Kong to disputes over Iranian oil tankers and a no-deal Brexit, investors are worried.
Seeing trouble ahead doesn’t mean sell everything, however. In the age of central bank market intervention, it’s essential to own quality assets.
In our alert to Strategic Investor subscribers on August 16 (subscribers can access that here), we highlighted one of those assets. It’s a company that caters to America’s growing underclass. It makes a profit. It pays a healthy dividend. Best of all, it finances its growth on the back of third-party investors desperate for investment income.
The Federal Reserve’s radical money experiments created a perfect situation for this company. We expect the good times to continue, even if the economy can’t find its next gear. We saw that last month, when the company reported earnings and increased its outlook for the year. Shares surged 10.5% that day.
As an investor, it’s important to know how to handle uncertain times. Lurching in and out of the market on a whim is no way to build an empire. Instead, this is a time to have a few more chips in your pocket than usual. Keep playing, but maintain less exposure to loss until the picture clears.
And there’s another option you should consider…
It’s Time to Add Gold and Silver to Your Portfolio
This uncertainty trend will only continue in times of financial turmoil.
That means the recent surge in the price of gold and silver is likely the start of a larger trend.
So far this year, gold is up about 17%, but long-neglected gold mining stocks are up even more. Since mining stocks are a leveraged bet on gold, the Philadelphia Gold and Silver Index (XAU) is a good measure to track these stocks. XAU is up about 31% this year. (Please note: We’re not recommending you buy XAU. It’s just a way to look at the overall mining sector.)
Meanwhile, year-to-date, silver is up about 17%. But in the last three months, silver is up 24% while gold is up 15%. Despite its run, silver is still historically cheap right now compared to gold. (I explain why, and what the critical gold-to-silver ratio is telling us, in this Dispatch.) We think that trend continues in the short term.
Now’s the time to take advantage. We see both metals continuing higher from here.
To start, you should own some physical gold and silver. Physical coins are a good starting point because they represent a real, hold-in-your-hand asset.
If you don’t own any physical gold or silver, we’ve arranged for Dispatch readers to get a big discount on select coins through our exclusive partnership with Gainesville Coins. Go here to access the site.
(By the way, we asked them to create this page as a starting point for my Strategic Investor subscribers who are new to physical gold… But because of gold’s recent moves, we’re making it available to all Dispatch readers. We do not receive any compensation from Gainesville Coins for bringing you this offer.)
If you already have some physical gold and silver, you can speculate on gold and silver mining stocks. They offer “leverage” to rising prices.
In other words, when gold and silver moves an inch, gold and silver stocks can move a mile. They can give you a real shot at multiplying your money in a precious metals bull market.
Just remember, they’re extremely volatile. Like in any industry, the stocks of stronger companies will go up more than those of the weaker ones. So never bet more money then you can afford to lose when speculating on mining stocks.
Editor, Strategic Investor
Chris’ note: On top of gold and silver, E.B. says there’s another unique type of security that can help you make 1,000% gains from big and small companies alike – without touching stocks or options.