by Gary Alexander
November 26, 2024
I’ve just returned from the 50th anniversary edition of the New Orleans Investment Conference (NOIC), my 41st consecutive as speaker, panel moderator and/or MC. In summary, the attendees and speakers were celebrating a decisive election, a superb year for gold and stocks and especially the quick recovery of gold after its initial post-election dip. They also eagerly anticipated the promise of an aggressive reduction in waste, fraud and abuse in government spending by the Department of Government Efficiency (DOGE), co-chaired by stellar business leaders Elon Musk and Vivek Ramaswamy, but in last Thursday’s economy panel, James Grant, venerable editor of “Grant’s Interest Rate Observer,” also in its 41st year, reminded attendees that the first thing you do to bury an idea is to “appoint a panel.” Then he asked if anyone could recall a successful company headed by two CEOs. You generally must select one CEO and let him run.
In my closing geopolitical panel, I also reminded attendees that I was present for the announcement of the first such cost-cutting mega-committee by J. Peter Grace at the 1984 New Orleans conference, including a super-summit of leading businessmen. That was a time of peak pro-capitalist sentiment after Reagan’s 1984 landslide win (49 states to one), yet Grace could only get a few cost-cutting measures passed in DC.
Others were more hopeful – saying that Musk and Ramaswamy wanted to “cut the Gordian knot” rather than nickel-and-dime the departments to death. They specifically promised to abolish whole Departments, starting with the Department of Education, or force workers to work in Siberia, by moving Departments to flyover states and say, “move or lose your job,” which would force change in a more dramatic manner.
Money manager Adrian Day was MC of the economics panel this year and last year, when he promised to “eat Mark Skousen’s hat” if gold were not over $2,000 at this year’s conference. Well, Dr. Skousen’s hat remained firmly on his bald head as gold soared to over $2,700. Several panelists said gold soared due to the fact that inflation is not dead. Jim Grant said inflation is a fire, banked but still burning, like an underground coal fire, fueled by bond vigilantes, who keep bidding long-term rate up to fuel our deficits.
In his own talk, just an hour later, called “The Ring of Truth,” Adrian Day used Wagner’s Ring to remind us that gold was there at the beginning of the opera and continued through the 16-hour saga, prevailing at the end, when the gold Ring was engulfed in flames in the Twilight of the Gods, but gold survived the flames. That is one reason gold survived thousands of years as a symbol of wealth. He pointed out that gold is up over 70% in the last two years based on a huge increase in central bank buying, two new wars, inflation, Chinese buying and (finally) U.S. buying since July 2024, but U.S. buyers (as usual) were the last to buy.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The Rising Debt Time Bomb – A Recurring Theme
“We must not let our rulers load us with perpetual debt.” – Thomas Jefferson
Several speakers – too many to single out one in particular – pointed to our mountain of federal debt on the books, with more to come, plus the hidden burden of unfunded liabilities, with fewer children and likely fewer immigrants to fund our draining Social Security and Medicare accounts, which are transfer payments from the young to the old (not savings accounts). It’s a demographic time bomb. The current liabilities of the U.S. federal government are $36 trillion, and the net present value of unfunded liabilities are over $100 trillion. That’s the bill young folks must pay to grandma and grandpa. As this chart shows, our heirs may inherit $100 trillion from Baby Boomers and older generations, but we’re going to spend some of that first, so if you subtract $136+ trillion in debts, there’s nothing left in the till for young ‘uns.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
,It’s great that our net worth is rising, but what if assets tumble and federal unfunded liabilities surpass this nest egg?
Each number gets bigger each year – the annual deficit grows by $2 trillion, and unfunded liabilities by another $3 trillion. Usually, net wealth also grows, but that’s due to a huge infusion of M2 money supply and stimulus spending creating “sugar high” asset bull markets in stocks, gold, bitcoin and other markets. What if that number starts shrinking? (This is why the bond vigilantes keep bidding up long-term yields).
This is what happened when the New Orleans conferences began – and WHY they began. In the 1970s, nothing on Wall Street worked – not stocks, not bonds, not our dollars in the bank. In the 1970s, a dollar became a quarter in purchasing power and gold rose 24-fold. The dollar fell 3- to 4-fold to the mark, yen and Swiss franc. We couldn’t earn more than 5% on cash during a time of 12% inflation, 15% mortgages and 20% prime rates. Those times won’t likely come again, but they are a warning of what could happen if a future political opportunist decides the only way to pay off this debt is to inflate it out of existence.
Ed Yardeni opined last week that, “A fundamental flaw in the Constitution is that it doesn’t provide for any limit on our national debt. A balanced budget requirement would have forced Congress to raise taxes to pay for more spending. Politicians long ago recognized that raising taxes is not a good way to get re-elected, while spending more on their constituencies is a winning strategy for sure. In other words, they discovered the magic of deficit financing their ever-increasing spending to win the next election.”
One of Ed’s charts also shows that household debt has also risen from $14 trillion to $18 trillion since COVID, despite trillions poured into financial assets. Credit card debt has also soared in the Biden era.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Another major theme of this year’s conference is buying industrial metals – things that run what we need most – since there are eight billion humans who will always vote for their needs, regardless of ideology.
We have made great strides against poverty, but one billion humans still don’t have electricity, and two billion more are well below the poverty line. Industrial commodities – most notably oil and copper – will fuel our need for more electrical plants. The stuff to power energy is what most humans buy first, and in the last 40 years (when I have come to the New Orleans conference), after 40 years of investing $5 trillion in alternative sources of energy, we have reduced our percentage of reliance on fossil fuels from a high of 82% in the mid-1980s all the way down to a low this year of …. wait for it… 81% in fossil-fuel reliance.
We will also need more nuclear power plants. Five years ago, speakers at this conference were begging investors to buy uranium at $20 a pound; then it surpassed $80 last year and was an “easy sell’ in a bull market (it’s now $65). Natural resources may be unpopular at times, but they fuel the energy we need.
I’ve always recommended this conference for its ambience in a city of great food and music, but mostly for its exceptional presentations of alternative investments and forward-looking thinking for 50 years.
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