Paul Singer says investors don’t hold enough real money…

Singer runs Elliott Management, a hedge fund that manages $27 billion. Singer generated an average 14% annual return from 1977 to 2012. Remarkably, he only had two down years during that thirty-five year span.

Yesterday, at a hedge fund conference in Israel, Singer said that gold is the only “real money.” He also said he’s surprised more investors don’t own gold right now.

Like us, Singer thinks every investor should own gold:

I like gold. I believe it’s under-owned. It should be part of every investment portfolio, maybe five percent.

•  Casey readers know that gold is the ultimate form of wealth insurance…

People have used gold as money for thousands of years. It has protected wealth through every kind of financial disaster imaginable, including economic depressions, stock market crashes, and world wars.

The price of gold hit a three-month high on Monday. In fact, gold is up 7% in the last month alone. That includes a 1.3% jump yesterday.

•  At the conference, Singer also said central banks’ easy money policies have “levitated” stocks and bonds…

In December 2008, the Fed dropped its key rate to effectively zero. It’s left it there ever since.

The Fed also launched its first quantitative easing program, in November 2008. QE is when a central bank creates cash and injects it into the financial system. It’s basically another term for money printing.

The Fed followed it up with two more rounds of QE. When it finally stopped its last round of QE in October 2014, the Fed had pumped $3.5 trillion into the U.S. financial system.

Like us, Singer thinks the Fed’s easy money policies are a big reason why stocks and bonds have rallied over the past seven years…

The S&P 500 has climbed 126% since November 2008. Meanwhile, yields on 10-year Treasuries, corporate bonds, and municipal bonds are half of what they were seven years ago (bond yields fall as bond prices rise).

•  Singer says investors now expect central banks to “solve” every financial crisis…

He calls this “the cult of central banking.”

But Singer isn’t confident central bankers will be able to fend off the next crisis. He shared his doubts in Elliott Management’s second-quarter letter:

Central bankers may not have the tools to combat a renewed slump. After all, with interest rates already at or near zero almost everywhere in the developed world, what would be the effects of new rounds of QE, other forms of money printing … in more places?

Like us, Singer thinks easy money policies have completely warped the economy. If history is any indicator, Singer says seven years of easy money will leave a scar:

Unfortunately, history has shown that governments that have abused the power to create “money” have always, eventually, paid a huge price for their profligacy.

•  Singer says say things will “go to hell” if central banks decide they haven’t done enough…

With interest rates already near zero, central banks only have one way to keep the easy money flowing. That’s more QE.

But more QE would probably only lead to more bad financial decisions. Easy money policies have already made it ridiculously cheap to borrow money. Americans have borrowed trillions of dollars to buy stocks, bonds, houses, cars, and college educations.

The Bank of International Settlements says U.S. household, corporate and government debt jumped from 218% of gross domestic product (GDP) in 2007 to 239% last year.

•  Eventually, easy money policies could erode the value of paper assets…

But central bankers can’t destroy the value of gold. This is a big reason why Singer thinks it’s so important to own gold right now:

Gold would do well if people felt they needed some real asset to protect against inflation, government policy and/or diversification from stocks and bonds.

•  Smart investors know that owning gold is only the first step in crisis-proofing your wealth…

We recently published an entire book about safeguarding your wealth against financial disasters. It’s called Going Global 2015, and it includes some of the best research we’ve ever published.

This book is jam-packed with easy-to-understand tips and strategies you can use now…no matter where you live or how big your portfolio is.

We normally sell Going Global for $99. But right now we’re practically giving this book away. We only ask that you pay $4.95 to cover our processing costs. Click here to claim your copy.

•  Switching gears, Walmart (WMT) just delivered some bad news…

Yesterday, at its annual investor day, the retail giant said it expects profits to fall 6-12% next year. Walmart’s stock plummeted 10% on the news.

This was Walmart’s biggest single-day drop in nearly three decades. The sell-off erased $21 billion in market value.

In a company note, Walmart’s CEO said that rising wages are eating into company profits. Walmart gave raises to 500,000 employees earlier this year. The company started paying its entry-level employees $9 per hour, $1.75 above the federal minimum wage. Next year, the company plans to lift starting wages to $10 per hour.

But Walmart’s sales aren’t growing fast enough to cover its rising costs. Walmart’s sales grew just 2% last year. This year, Walmart doesn’t expect sales to grow at all.

•  Walmart also announced a $20 billion share buyback program yesterday…

A buyback is one of the only ways Walmart can reward shareholders right now…

A share buyback is when a company buys its own stock back from shareholders. Share buybacks cut the number of shares a company has on the market, which ups its earnings-per-share (EPS).

Buybacks can make a company’s financial results look better on paper. This can help push a stock’s price higher…but it doesn’t create any real value.

For the most part, buybacks only create the illusion of higher earnings. They’re a way for management to goose EPS figures without actually improving the business.

Plus, money spent on buybacks is money that can’t be spent building new stores or developing new products and services.

Share buybacks don’t actually help businesses grow. But regular readers know that companies in the S&P 500 are on pace to buy back nearly $1 trillion worth of their own stock this year. That would be an all-time record.

•  In today’s mailbag, we share how the collapse in oil prices is affecting readers…

Yesterday we told you about Williston, North Dakota, a once-booming oil town that’s quickly turning into a ghost town. Several readers wrote in with first-hand accounts of how the collapse in the price of oil is hitting the Bakken Formation and the rest of the U.S. oil industry.

Craig W. says:

I work in the production services side of the oil and gas business. My job requires me to crisscross the Basin, so I know it’s huge.

Williston has been through a lot of booms and busts, and this is one of the biggest [busts].

Highway 85 was a lethal nightmare. Just a year ago it was busy, congested, and dangerous, with a lot of very tired drivers. There is so little traffic running now you can tell the impact of the slowdown.

Donald G. says:

I’ve worked for BP/Amoco for the past 34 years. I have lived on the western end of Houston since 1996.

Houston has been hit very hard regarding layoffs. Work is conducted in Houston for every sector of the industry around the world, and all those sectors have been hit hard. But, there seems to be an interesting “economic momentum” pushing housing starts and small business openings here in the energy corridor.

I recently asked my homebuilder why he was still building spec homes in the area, given all the layoffs and company consolidations taking place.

His response was, “It’s what I do.”

I took that to mean that if the banks are willing to loan him money for each house, he will build it.

Chart of the Day

Walmart’s stock just nosedived…

Today’s chart shows the performance of Walmart’s stock over the past month. As you can see, Walmart’s stock had been climbing for the most part. Then it plummeted 10% yesterday…

This was worst day for Walmart’s stock since 1988. It’s now down 30% this year.


Justin Spittler
Delray Beach, Florida
October 15, 2015

We want to hear from you.

If you have a question or comment, please send it to [email protected]. We read every email that comes in, and we'll publish comments, questions, and answers that we think other readers will find useful.