BY MAULDIN ECONOMICS
Looking at the global economy today, you can’t help but notice several worrying developments.
On the one hand, we have currency devaluations and negative interest rate policies: on the other, slow-to-no economic growth in both developed and developing economies.
Even experienced investors don’t know what to make of today’s financial markets.
Given the ongoing turmoil and the potential fallout, where is your money safe? Here's what investment legends James Grant and Grant Williams had to say at John Mauldin's Strategic Investment Conference last month.
Cash Is Still King, but Gold Is a Timely Investment Today
In an interview at the 2016 Mauldin Economics Strategic Investment Conference, legendary investor Jim Grant noted, "Cash simply enables one to retain wealth, with an eye towards being opportunistic."
Raising cash and reducing your exposure to volatile financial markets in turbulent times obviously make sense. The key, of course, is finding a safe, profitable investment opportunity to deploy your cash.
The founder of Grant's Interest Rate Observer believes gold may be that investment. In the interview, he went on to say, “Gold isn't so much a hedge against Armageddon… as it is against monetary shenanigans.”
He also noted he expects gold to continue moving up: "When the economic establishment encourages the idea that gold is ‘good for nothing,’ it’s almost always a good time to buy [gold].”
Check out the full interview with James Grant below:
Keep in mind that holding onto cash itself will not make you wealthy. That’s because central banks can devalue a currency by simply printing more money:
Cash, however, is an opportunistic asset class, which gives you much-needed flexibility during volatile times. Crises bring many once-in-a-lifetime investment opportunities that you can seize… but only if you have enough cash or other liquid assets at your disposal.
Why Gold Is the Best Hedge
History says that paper-based currencies will eventually fail.
The clock is clearly ticking on the dollar. It has now been 45 years since the US dollar became a completely paper-based currency. Gold, on the other hand, has been a preferred medium of global exchange for over 5,000 years. That makes gold the ultimate hedge against monetary collapse.
Despite its long-term record of stability, gold as an asset class still makes up less than 1% of the average investment portfolio. Negative sentiment from the public and media is a key reason why gold continues to be under owned and mispriced.
As Grant Williams explained in a recent interview with Mauldin Economics' Jonathan Roth, "Every day, the picture is becoming more and more discernible It is not quite clear as yet, but it is getting there. The credibility of central bankers is slowly fading away."
Things will go bad when the general public finally realizes that global central bankers have lost control. When this happens, we will end up with either a sharp breakdown in financial markets or a slow-rolling panic. Either way, the price of gold will soar.
The Second-Most Overvalued Stock Market in History
You have to be concerned about stock market valuations today. For example, the Wilshire 5000 Total Market Index—which is a composite of all the public companies currently listed on major US exchanges—is now greater than the country's overall GDP by over 20%.
The total market cap to GDP ratio is now at the second-highest point ever (only the dot-com bubble of 2000 saw a higher total market cap to GDP ratio).
The Fed’s balance sheet has never been bigger… at $4.5 trillion and counting. And interest rates have never been this low for this length of time. Something has to give, and relatively soon.
Grant and Williams suggest that now is the time to raise cash. They also note that gold is the best hedge for turbulent economic times. This metal will certainly soar in value when the global central banks can no longer hide the fact that “the emperor has no clothes.”
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