Three Key Trends That Will Shape the Future of America

Three Key Trends That Will Shape the Future of America

Notes From the Field By James Hickman / Simon Black  September 5, 2024

You wouldn’t be especially impressed by someone’s insight if they told you that the world today is full of turmoil. That’s obvious— from wars and cultural clashes to cost of living crises and a pervasive sense of negativity.

More impressive is that William Strauss and Neil Howe predicted that the 2020’s would be like this nearly three decades ago in their 1997 book, The Fourth Turning.

According to their theory, societies move through cycles approximately 80-100 years long, with each cycle divided into four distinct "turnings." These phases mirror the seasons, with the Fourth Turning representing the harsh winter—a period of upheaval and transformation.

Strauss and Howe predicted that the next Fourth Turning would begin in the mid-2000s, ignited by a crisis that would set the stage for significant societal change.

The 2008 global financial crisis marked the beginning of this period. Since then, governments and central banks have been in a constant state of crisis management, employing measures like low interest rates and increased government spending to prop up the faltering system.

Today, as Strauss and Howe foresaw, this phase is characterized by a collapse of trust in institutions that have dominated since the start of the current cycle, just after World War II.

From the media, to government bodies like the justice system and Federal Reserve, to global organizations like the UN and IMF, these institutions are increasingly viewed as ineffective, obsolete, or downright harmful.

Historically, Fourth Turnings are marked by intense turbulence, often culminating in major conflicts or transformative events, such as the Great Depression leading to World War II, or in the cycle before that, the American Civil War.

While history doesn’t have to repeat itself exactly, the growing dissatisfaction across the developed world is palpable. Issues like healthcare costs, immigration, and rising inequality fuel a sense that society is no longer functioning as it should.

This widespread discontent often leads to political upheaval. As voters lose faith in current leaders, new political movements and parties gain traction.

But none of these ‘saviors’ are going to win by promising to cut spending.

Until their hand is absolutely forced, politicians will continue to borrow and spend as much as they can in a desperate attempt to cling to power. But to be fair, the public is also to blame— they largely demand it.

As Howe writes in the sequel to the Fourth Turning which he published last year:

“Like addicts acquiring tolerance, policy-makers have backed themselves into a corner: The public braces itself for the dark hour when the Fed can no longer ease and Congress can no longer borrow no matter how badly the economy founders.”

This scenario highlights three key trends that are likely to shape the future:

1. Huge Deficit Spending

The US deficit reached nearly $2 trillion in 2023, a historic high outside of wartime or national emergency.

In theory there is no limit to the level the deficit can reach. After all, the US Government can issue the debt and the Federal Reserve can buy it all.

But the problems show up in the value of the US dollar. Not just against other currencies— other governments are devaluing their currencies in the same way. Instead, the value of what a dollar is worth, in terms of real goods and services that people need to buy, is diminished.

The Fed is acting right now as if the inflation problem is licked. But, given the trajectory of future deficit spending, we are really just in the opening stages of a larger, wider inflation problem.

2. Increasing Conflict

The intensity of global conflicts has escalated, particularly following Russia's invasion of Ukraine. This has accelerated a shift away from global trade and cooperation, as countries prioritize securing their own supply chains and others try furiously to develop parallel financial systems that leave them less vulnerable to the whims of US foreign policy.

This retreat from global integration is likely to increase tensions and create further instability.

3. Potential Monetary Resets

All of this leads to the potential for a monetary reset— typical during a Fourth Turning. The value of the reserve currency is being continuously debased and its status as a reserve currency can leave others vulnerable to the imposition of sanctions or even confiscation of their assets. That’s not sustainable.

There are so many possible permutations of how this could all play out that it’s difficult to say exactly what a global financial reset would look like right now.

But it would almost certainly mean the loss of the dollar’s global reserve status.

That is exactly why we always advocate having a Plan B, a solid backup plan to provide great optionality in tumultuous times.

That’s why we started Schiff Sovereign: Premium, a highly educational, month-by-month guide that is designed to help you navigate the world from a position of strength, both personally and financially.

In Schiff Sovereign Premium, we focus on what we think will work well amidst all the uncertainty, regardless of the sequence of events that occur.

It includes both Plan B strategies (such as maintaining your freedom of movement, and legally reducing your tax bill), as well as compelling investment research.

Our investment thesis focuses on real assets— the world’s most critical, valuable, and useful resources, as well as the businesses which produce them.

Real assets are a beneficiary of the huge debasement of currency that we are seeing. And right now, with central banks across the world starting to cut interest rates again, we should see that trend accelerate.

Gold in particular has already responded to the impending injection of liquidity that lower interest rates will bring, reaching all time highs on multiple occasions this year.

Gold mining stocks, however, haven’t yet followed suit... but are primed to do so. (In July’s issue, we explained why, and released research on two well-positioned companies in the gold mining industry.)

Commodities are also a beneficiary of the unfortunate trend of increasing conflict across the world. Not only are war-time economies typically inflationary, they also require a huge amount of industrial commodities.

But the chronic underinvestment in commodity supply over the past decade has set the stage for potential shortages. As these issues come to the fore, both prices and investment in production are likely to rise— a great opportunity for investors.

But even if these trends don’t play out exactly as expected, investing in companies that control some of the world’s most valuable real assets—especially including critical energy resources like natural gas and uranium—has very little downside.

To your freedom,  James Hickman   Co-Founder, Schiff Sovereign LLC

https://www.schiffsovereign.com/trends/three-key-trends-that-will-shape-the-future-of-america-151390/

How Genghis Khan Is Driving Your Grocery Bill Higher

How Genghis Khan Is Driving Your Grocery Bill Higher

Notes From the Field By James Hickman / Simon Black August 27, 2024

Over eight hundred years ago, in what is now northwestern China, the Uyghur people— long before they were carted off to internment camps by the Communist Party— ruled their own independent kingdom, known as Qocho.

Then, in the year 1209, Genghis Khan sent diplomatic emissaries to Qocho. The message was clear: the Great Khan wanted to avoid a bloody military campaign, and he proposed a peace offering instead.

Genghis Khan’s deal was simple: the Uyghur people would keep their rulers, their infrastructure, their religion, and their customs. Their soldiers would live. Their buildings would not burn. Their women would not be touched. They would even be granted a high degree of autonomy.

And in exchange, they would provide the Mongol Empire with administrative support, as the Uyghurs were famously adept in governance and literacy.

The Uyghur ruler, recognizing the military strength of the Mongols and the benefits of an alliance, voluntarily accepted these terms, avoiding destruction.

Genghis Khan is generally known to history as a butcher and conqueror. But he was also a fairly skilled diplomat; he understood that it was far better to talk and settle matters peacefully than to go to war.

Through peaceful negotiation, lives could be spared, resources conserved, and vital economic assets preserved— not just for his own empire but also for the kingdoms he sought to absorb. This meant more tax revenue for him, and prosperity for everyone.

Fast forward to the present day, and Genghis’s namesake— Federal Trade Commission (FTC) Chair Lina Khan— has taken the opposite approach. She wants to go to war... which in our modern era means lawsuits. She has no interest in diplomacy, discussion, or compromise; she just wants to sue businesses and take them to court.

Bear in mind, the FTC was created in 1914, back when a handful of huge companies wielded monopolistic control over key industries in America. So the government set up the FTC to protect consumers from being squeezed by these powerful monopolies.

But a century later, Genghis Khan is using the vast powers of her office to wage war on legitimate business... and even capitalism itself.

A few months ago, for example, Genghis decided to ban “non-compete” clauses from employment contracts. This is one of the fundamental principles of capitalism: a voluntary agreement between an employer and employee to protect a company’s investment and intellectual property.

But Genghis Khan wouldn’t hear of it. So she banned non-competes, even though she had absolutely no legal authority to do so. And this is typical of her— she just invents whatever authority she wants.

Another example we talked about a few months ago— Genghis filed a lawsuit against two major grocery store chains (Albertsons and Kroger) to prevent them from merging.

Her claim is that the merger will harm labor unions, though she offers absolutely no reasonable explanation or evidence to support this assertion.

More importantly, her job is to protect CONSUMERS.... not labor unions. But here we have it again: Genghis Khan has once again invented new authority for herself to be the Protector of Unions... even though Congress never tasked her with that mission.

The whole thing is so absurd, in fact, that the FTC has no reason to suspect that the merger of these two grocery store chains will harm anyone at all. If anything, consumers should benefit.

The supermarket industry is extremely competitive, with traditional grocers now having to compete with tech companies, co-ops, farmers' markets, delivery apps, big-box warehouses like Costco, and even Walmart and Amazon.

For Albertsons and Kroger, it’s clear that a merger makes sense; it helps them optimize their cost structure, achieve greater efficiencies, and thus deliver savings in the form of lower prices to consumers.

And lowering prices isn’t some altruistic act by these companies; lower prices will make them more competitive.

But Genghis Khan has no understanding of how capitalism works. In the sentiment of her fellow Marxists, she views capitalism as a zero-sum game, best encapsulated by AOC’s false logic: “No one ever makes a billion dollars. You take a billion dollars.”

This way of thinking is completely false. Sure, 1,000 years ago when the real Genghis Khan was conquering the world, economics was indeed a zero-sum game. Nations got richer by plundering their neighbors, and individuals became wealthier by taking from others.

But that’s not what modern capitalism is about. It’s not a zero-sum game. Capitalism is about making the pie bigger. It’s about value creation. It’s about making everyone better off— workers, customers, investors, even the government that collects tax revenue. Everyone wins.

But FTC Chair Genghis Khan acts like it’s still the year 1209. She doesn’t understand modern economics or the value creation principles of capitalism. So her tendency is to engage in warfare— not with soldiers on the battlefield, but with lawyers in a courtroom. Albertsons and Kroger never had a chance.

For example, the FTC initially howled that the combined Albertsons and Kroger company would have too many locations. OK fine. So the companies promised to sell off a percentage of their stores, and they even found a buyer.

Then the FTC claimed there wouldn’t be enough stores, and competition would suffer.

“Damned if I do, damned if I don’t.” Again, the companies never had a chance. There’s no satisfying Genghis Khan. She doesn’t want to talk. She doesn’t want a solution. She just wants to go to war.

The hearing started yesterday, and both sides showed up to court ready to fight. I’m keeping my fingers crossed that the case is quickly dismissed, or that reason prevails in court.

Either way, it’s not a great outcome. If Genghis wins, food prices are likely to rise. But even if she loses, she’ll just find some other business to attack, or some other pillar of capitalism to assault.

In Genghis’s mind, lawfare is always and everywhere the answer. And somehow we are all supposed to become more prosperous because of it.

That’s capitalism in the 21st century, folks: the federal government will sue its way into prosperity.

Unfortunately, Genghis Khan is not isolated in her way of thinking. In fact, one of her biggest cheerleaders is none other than Kamala Harris, who has applauded this lawsuit for taking on “corporate greed.”

This is the sad lie they always use try to explain inflation; rather than acknowledge that their own policies and profligate spending have led to higher prices, they blame greed. And promise to sue their way to lower prices. It’s genius.

And it’s not just Kamala either— Joe Biden, Elizabeth Warren, AOC, Bernie Sanders, and a whole bunch of other very vocal supporters (surprisingly from both parties) are all on board with this idiotic approach.

It represents an obvious risk to prosperity and success. And that is something that should be factored into the long term planning of anyone who wants to build anything of value in America.

To your freedom,  James Hickman  Co-Founder, Schiff Sovereign LLC

PS-

This doesn’t mean it’s impossible to build or maintain wealth in America. But in this type of environment, there are certain steps that are necessary to take in order to make sure you can come at the problems these people cause from a position of position of strength.

That’s why we started Schiff Sovereign: Premium, a highly educational, month-by-month guide that is designed to help you navigate the world from a position of strength, both personally and financially.. Click here to learn more.

https://www.schiffsovereign.com/trends/how-genghis-khan-is-driving-your-grocery-bill-higher-151339/

Can Elon Musk Save The US Dollar?

Can Elon Musk Save The US Dollar?

Notes From the Field By James Hickman / Simon Black  August 13, 2024

I was one of the millions of people listening to the live conversation last night between Elon Musk and Donald Trump.

And if you missed it, Trump was Trump. You pretty much know exactly what you’re getting with him, and there weren’t any major revelations.

Elon, on the other hand, came off as a genuinely concerned citizen who recognizes the problems facing the country and is exasperated why the people in charge aren’t implementing common sense solutions.

Honestly, I feel bad for the guy; Elon is blasted as a hard-core, right-wing nut job… and there are people who literally want to put him in prison because of his views.

But last night he said things like:

- “the legal system is supposed to be protecting the public from violent criminals”- “we want safe and clean cities”- “we want secure borders”- “we want sensible government spending”- “we want to restore both the perception and the reality of respect in the judicial system”- “I’m pro-environment, but I don’t think we should vilify the oil and gas industry”

These are clearly not radical values, and my guess is that most people in the country would probably agree with his values.

About an hour into the call, Elon outlined what he thinks would bring prosperity back to the United States:

1) “Solve government overspending”. He correctly explained that extreme government deficits create inflation… so if you want to really get inflation under control, you have to stop the spending.

In theory, this shouldn’t be hard.

The Treasury Department expects to collect nearly $5 trillion in tax revenue this Fiscal Year (which ends on September 30th). And $5 trillion is an absurd amount of money.

As recently as five years ago (FY2019), $5 trillion would have been enough to pay for ALL federal spending and still have a surplus of more than $500 billion to start paying down the debt.

So, if they had simply frozen spending in place at FY2019 levels, even after adjusting for inflation and higher interest rates, $5 trillion in tax revenue this year should still be sufficient to keep the national debt from growing any further. And that’s without making any significant cuts to government spending.

But spending has increased by nearly 50% in five years. Is the government 50% better? Do taxpayers receive 50% more service? Clearly not. They’ve just let spending spiral out of control with no commensurate benefit to the taxpayer.

2) Deregulate.

Elon’s second point was that a lot of regulations are destructive and make no sense. Volumes and volumes of rules hold back businesses from innovating, hold back citizens from being productive. And that’s what the country truly needs to be prosperous-- innovation and productivity.

And those were his two big points… and that if a government can do those two things, the future can be much brighter.

He’s right, and the math clearly supports this view.

Various Presidential administrations over time have increased, or decreased regulations. When there have been decreases in the number of regulations, US economic productivity tends to increase, and overall GDP growth rises. During periods of growing regulations (like right now), productivity wanes.

Higher productivity means that the economy grows faster. And a faster growing economy means more tax revenue for the government. Combined with spending constraints, this would leave plenty of money left over to pay down the debt… or simply set aside for a rainy day.

Imagine being able to obliterate a major threat to the nation, or shore up security to the power grid, or support an ally, without having to go into debt? It’s unimaginable given today’s national finances. But with real productivity growth and sensible spending, it’s absolutely a reality.

Failing to do BOTH of these things most likely results in a pretty bad outcome for the United States.

If the debt keeps spiraling out of control, and government regulators continue to constrain productivity, it’s extremely difficult to imagine the US dollar remaining the world’s primary reserve currency.

Continued deficit spending and a ballooning national debt will create even more inflation and cause foreign governments, central banks, and businesses to lose confidence in the dollar. It’s already happening… and one of the reasons why gold is hovering near its all-time high.

The US dollar’s global reserve status is one of America’s premier financial benefits. Losing it would be disastrous… and Elon’s approach is pretty much the only way to save it.

Will it happen?

To Read More:

https://www.schiffsovereign.com/trends/can-elon-musk-save-the-us-dollar-151290/

The Federal Reserve Is Missing What Seems To Be Obvious To Everyone Else

The Federal Reserve Is Missing What Seems To Be Obvious To Everyone Else

Notes From The Field By Peter Schiff  August 7, 2024 

On Wednesday, March 8, 2023, Fed Chairman Jerome Powell was sworn in for testimony in front of members of Congress to deliver remarks about the state of the US economy.

Inflation had been raging for well over a year at that point, and, in response, the Fed had rapidly increased interest rates to levels not seen since 2007.

But nothing happens in a vacuum. The Fed cannot expect to jack up rates without some major consequences. And concerned members of Congress asked the Chairman about these potential consequences.

But Chairman Powell played them off, practically dismissing any risk to their raising rates and ‘tightening’ monetary policy, saying “nothing about the data suggests we’ve tightened too much. . .”

Two days later, Silicon Valley Bank went bust-- in large part because of the Fed’s interest rate increases.

And it wasn’t just Silicon Valley Bank that was in trouble. In fact, the FDIC reported over $600 billion in unrealized losses across the entire US banking system, and most of that due to higher interest rates.

It’s not hard to understand. Banks typically invest their customer deposits in either loans or bonds. And rule #1 with bonds is that, when interest rates rise, bond prices fall.

Even a first-day intern at the Fed would have known that. The Fed chairman should have certainly known that.

It was also in their own data. Remember, the Fed is also one of the key supervisors of the US banking system, so they had access to all of Silicon Valley Bank’s financial records. They saw the losses piling up, they saw the risks.

This is what’s so bizarre. The Fed always claims to be looking at the data and says that their economic prognostications are based on data.

But again, the Fed had the data. It was glaring at them. But they failed to anticipate any consequences to their rate hikes-- even TWO DAYS before a major bank collapsed.

Sadly, the Fed chairman seems to have outdone even that bad call.

Last week he told a room full of reporters that economic weakness is “not what we’re seeing” and that the economic data are “not signaling a weak economy. . . ”

He went on to say that chances of a “hard landing are low” and that “the picture [of the US economy] is not one of slowing.”

Yet once again, literally days later, a meltdown in financial markets took place worldwide… because investors finally realized that the Fed has no idea what they’re talking about.

And everyone from Pepsi to McDonald’s to Heineken to Cartier to Porsche has been reporting slower growth or declines in sales.

This morning Disney reported a slowdown in its parks division-- which is typically rock solid. Proctor & Gamble reported a decline in sales of Tide laundry detergent and Charmin toilet paper. The list goes on and on.

Monday’s sudden market swoon has calmed. But in large part that sense of calm is because investors are now pricing in a near 100% chance of a 50-basis point (0.5%) rate cut at the Fed’s September meeting. There are even some expectations of an emergency rate cut before the September meeting.

Again, they claimed just a week ago that the chances of a hard landing “are low”, and that a 50-basis point cut is “not something we’re thinking about”. Yet just days later, it became clear that the economy is slowing, and unemployment is moving higher.

(It’s also notable that most of the growth in labor market now is with government jobs, which actually hurt the economy.)

So, the Fed is almost certainly going to have to reverse itself and start making big rate cuts. Frankly, they have no other option, if for no other reason than the national debt.

The US government has trillions and trillions of dollars of bonds which are maturing this year and next. And the Treasury Department clearly doesn’t have the cash to pay them back. So instead, they’ll have to reissue more bonds to pay back the old bonds. Sounds a bit like a Ponzi scheme to me.

Their problem is that the new bonds will carry a much higher rate of interest than the old bonds… which the federal government absolutely cannot afford.

Think about it: $10 trillion worth of bonds paying a 1% coupon costs $100 billion per year in interest. That’s a lot, but it’s manageable. If they have to refinance $10 trillion at 5%, the annual interest bill increases to $500 billion… which is showstopper.

So, the Fed HAS to cut rates-- not only to jump start the economy and prevent a recession… but to bail out the US government and give the Treasury Department the opportunity to refinance its debt at a lower rate.

However, these rate cuts, combined with yet another round of quantitative easing (i.e. money printing), will just end up bringing a LOT more inflation to the US economy.

Naturally the Fed is not forecasting any of this. They don’t see the inflation problem ahead. They keep claiming that they’re looking at the data… yet they consistently misdiagnose what’s happening in the economy.

It’s like an ER doctor who examines a patient with a gunshot wound and prescribes a course of stool softeners. They’re missing what seems to be obvious to everyone else.

Look, these guys are human beings too. They’re not perfect, they’re going to make mistakes. But that’s the problem with this monetary system: a handful of bureaucrats with bad track records are awarded the most powerful authority in finance and expected to be infallible.

It’s a deeply, deeply flawed system, and it’s bizarre that anyone has any confidence in it.

The Fed is not all-powerful. Not only do they not see the coming danger, but they’re powerless to stop it. And Monday’s meltdown is a sign that the market is starting to figure that out.

Peter Schiff  Co-Founder, Schiff Sovereign LLC

https://www.schiffsovereign.com/trends/peter-schiff-the-fed-prescribes-stool-softeners-for-america-151217/

This Is Why We Can’t Have Nice Things.

This Is Why We Can’t Have Nice Things.

Notes From the Field By James Hickman / Simon Black   August 5, 2024

Athenian general Miltiades was already a hero across ancient Greece when he set sail for the island of Paros in 489 BC.

Born into stardom as the son and nephew of famous Olympic champions, Miltiades made a name for himself as one of the most important and successful commanders in the Greek war against Persia.

In fact, Miltiades was responsible for devising the incredibly unique, surprise battle plan that confounded the Persian army at the Battle of Marathon in 490 BC. The Greeks were vastly outnumbered and outmatched... but they annihilated the Persians thanks to Miltiades’ tactical genius, making him an instant celebrity-hero throughout the region.

So, when he approached the Athenian government the following year and requested to lead a special mission to reclaim lost Greek territory in the Aegean Sea, they approved his mission without question. And the Hero of Marathon set sail a few months later with a fleet of 70 ships.

Unfortunately for Miltiades, his voyage was a total disaster; his fleet was nearly vanquished, he lost a great number of men, and he was unable to take the island of Paros. So, when he returned to Athens, all of his former heroics were forgotten… and people wanted his head. Literally.

It was commonplace in ancient Greece for politicians and military leaders to be held accountable for their decisions; many were even put on trial at the end of their rule and had their administrations publicly scrutinized.

These weren’t political witch hunts; rather, they were a form of checks-and-balances whereby anyone found to have been truly incompetent, disloyal, or duplicitous would be severely punished.

Miltiades-- again, the Hero of Marathon-- was charged with treason for causing such severe and embarrassing losses in his ill-fated Paros expedition. He was tried, convicted, and ultimately sentenced to death… however this was eventually reduced to a fine of 50 talents (roughly $10 million in today’s money) and a lengthy prison sentence.

Sometimes I feel like the Greeks were really on to something.

Sure, the world is complicated, and there’s never any guarantee of success in warfare, business, life, politics, etc. Decision makers don’t have a crystal ball and rarely have perfect information… so there can never be any certainty about future outcomes.

But leaders have a moral and legal obligation to always do their best… and to make rational decisions and take sensible risks. Most importantly, whenever there’s new information, they have an obligation to challenge their own decisions and adjust course if necessary.

Failure to do so is arrogant, deliberate incompetence.

We saw this all throughout the pandemic; at first, there was very little information available, and politicians’ knee-jerk reaction was to enact the most extreme measures.

But six-months later there was plenty of data. And politicians had plenty of opportunity to review the updated information, summon their courage, and make better, more rational decisions.

Some places (Florida) did. Others (New York, California) stuck to their failed, idiotic, destructive policies. They kept people locked down, they kept the schools closed, and they exacted an incalculable toll on their citizens.

But they will never be held accountable for their incompetence. Instead, they end up on lucrative speaking tours, awarded highly paid consulting or board positions, or advanced outrageous sums for their memoirs.

And this leads me to what’s happening in England right now.

As you’re probably aware, a sick-o teenager in northern England stabbed a bunch of kids last week in a horrifying rampage. Nine children were wounded, and at least three have died.

Rumors quickly circulated that the attacker was a Muslim refugee who had arrived by boat to England’s shores, and violent riots quickly broke out across the country.

The government and media were quick to correct the rumor; the 17-year-old attacker (he turns 18 on Wednesday) was born in the UK and is the son of Rwandan immigrants.

Then they further denounced the rioters as “far right” and “racist”, and the Prime Minister threatened to use the full force of the law against them.

Look, it’s completely inexcusable for rioters to engage in violence and destruction of property. But it’s also inexcusable for politicians to run their country into the ground.

The media has been quick to condemn the rioters. But they are completely silent, and frankly complicit, regarding the destruction of their country.

To Read More:  https://www.schiffsovereign.com/trends/this-is-why-we-cant-have-nice-things-151207/

This Is One Of The Only Ways They Can Tame Inflation And Save The Dollar

This Is One Of The Only Ways They Can Tame Inflation And Save The Dollar

Notes From the Field By James  Hickman / Simon Black  July 31, 2024

There are only seven countries in the world that have a GDP in excess of $3 trillion: the United States. China. Germany. Japan. India. United Kingdom. And France.

Microsoft’s current market capitalization is also right around $3 trillion… which means that out of the 193 countries in the world that are recognized by the United Nations, 186 of them have an economy that’s smaller than Microsoft. Crazy.

Of course, much of Microsoft’s meteoric growth has taken place over the past three years because of the AI boom. And just like Nvidia is considered the most important hardware company in AI, Microsoft has positioned itself as the most important software company in AI… and they’re pretty much betting the business on it.

According to the company’s earnings release yesterday, Microsoft has generated an unbelievable $118 billion in Operating Cash Flow (OCF) over the past twelve months.

(OCF, if you’re not familiar, is a much more useful metric than ‘net income’ or ‘profit’ because it strips out all the non-cash accounting nonsense like depreciation.)

$118 billion in operating cash flow is a staggering amount of money. But what’s even crazier is that Microsoft spent almost every penny-- more than $113 billion-- making new investments in their business. And most of those were AI-related investments.

In short, Microsoft is a profit machine. But it’s dumping 96% of those profits into AI, in large part to justify having a $3+ trillion valuation.

Time will tell if those investments pan out, and whether Microsoft is able to build viable products that generate a sufficient return.

There’s no guarantee; AI is an extremely competitive industry where budding startups and giant tech companies are both working on the next big thing. And I have to wonder how much upside is left for a business that already has a $3 trillion valuation, relative to the competitive risks against Amazon, Google, Facebook, Apple, etc.

Yesterday the company announced that growth in their cloud ‘Azure’ business (which includes their AI revenue) was 29% year-over-year. That growth rate was slightly lower than last quarter’s 31% growth.

But even a tiny, 2% decline in growth had the market freaking out. And Microsoft stock initially plunged more than 8% in after-hours trading-- roughly $250 billion in market value. That’s larger than the economy of New Zealand.

The stock recovered much of those losses this morning. But the mini meltdown is a clear demonstration of the risk involved: even a hint of a slowdown can trigger punishing losses.

Bottom line, AI is absolutely disruptive technology and a major game changer. But we’re still in very early days; there’s a long way to go, and it’s far too early to declare a winner. Yahoo looked like the dominant Internet titan in the late 1990s, but the landscape changed dramatically.

Maybe Microsoft ends up winning the race. But there’s a lot of uncertainty in drawing that conclusion right now.

One thing that’s NOT uncertain, however, is that AI someday going to be as integral to daily life as mobile phones and the Internet are today.

We also know that AI will continue to consume ridiculous amounts of electricity — electricity, which the US grid does not have right now (and Europe is in even worse shape relative to its electrical grid).

Thanks to horrendous government incentives and propaganda by the inspired idiots and climate fanatics in the media, electrical supply from “renewable sources”, i.e. wind and solar, has skyrocketed over the past few years.

It’s no coincidence that the country is simultaneously facing major capacity shortfalls and power outages… because, you know, sometimes the sun doesn’t shine, and the wind doesn’t blow.

The green fantasy is that wind and solar are going to save the planet. But if you’re honest about the math, they’re really not all that clean.

First, you must mine a lot of really dirty resources (like cobalt) in vast quantities from places in Africa which rely on child labor in extremely dangerous conditions. But you’ll never hear Greta Thunberg utter a word about that.

Then you have to manufacture 2-6x more solar panels and wind turbines… because, again, there are occasions when the sun doesn’t shine (like nighttime!) and the wind doesn’t blow.

In the end, wind and solar end up using a lot more resources per kilowatt-hour of electricity produced than many conventional sources, and a lot of the material used are really bad for the environment.

Nuclear is a far more environmentally friendly, far more efficient way to produce electricity. And hopefully that will make a comeback… though the nuclear renaissance is likely still some years away.

In the meantime, there is an incredibly cheap, abundant, and much cleaner source of fuel that can solve America’s electrical capacity shortages and power the AI revolution: it’s natural gas.

I wrote about this last week, saying that US natural gas is a ‘picks and shovels’ investment in the AI boom.

It won’t be clear for a long time who will win the AI race. In the late 1990s, Yahoo looked to be the dominant tech titan… but the landscape changed dramatically over the next decade.

But again, we do know that AI will consume more power than the US grid has available. And the ONLY viable option to supply that power right now is natural gas.

The US is one of the wealthiest nations in the world when it comes to natural gas reserves. In fact, supply is so vast that US natural gas prices are laughably cheap; relative to the amount of energy contained in a unit of US natural gas, it’s priced at the equivalent of about $15 oil. That’s cheap.

So cheap, in fact, that an electrical grid powered by natural gas can not only deliver the quantity of electricity necessary to power the nation (and AI boom), but it could dramatically reduce energy costs.

This is a big deal. Energy prices influence the price of everything. If electricity is cheap, consumers and families save money. Manufacturing costs less. Services cost less. Transportation costs less. Everything becomes cheaper and more efficient.

To be even more clear, a natural gas renaissance could generate greater US economy growth, potentially even leading to higher tax revenue and lower deficits.

In short, natural gas is one of the only ways that they’ll be able to tame the inflation problem and save the dollar. And with natural gas prices so cheap right now, it seems to me that there’s a lot more upside in the energy of the future, than in companies that are already selling for trillions of dollars.

To your freedom,  James Hickman  Co-Founder, Schiff Sovereign LLC

PS — If you want to go even deeper into this topic, we definitely want to encourage you to check out Schiff Sovereign: Premium. it’s packed with some incredible insights, including Plan B strategies and compelling investment research. The upcoming issue due out in a few weeks will go into far more detail about this trend, as well as some ways to invest.

https://www.schiffsovereign.com/trends/this-is-one-of-the-only-ways-they-can-tame-inflation-and-save-the-dollar-151198/

“Inflationary Forces”? Duh

“Inflationary Forces”? Duh 

Notes From the Field By James Hickman / Simon Black 7-16-24

Jamie Dimon is the CEO of JP Morgan Chase, one of the world’s largest banks. And last week he issued a stern warning on the bank’s quarterly earnings call that “multiple inflationary forces” are still lurking.

File that one away under “duh”. It should be completely obvious to just about anyone paying attention to the world that many of the key drivers that rocketed inflation higher are still with us.

The Federal Reserve, of course, desperately wants to pretend that inflation is in the rear-view mirror, never to return. And they keep insisting that the downward trend of inflation justifies their interest rate cuts.

But as Mr. Dimon points out, “large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world” all create high risk of substantial inflation.

We agree with him.

“Remilitarization of the world”, i.e. conflict, is very expensive. The very nature of war means consuming vast quantities of resources to produce munitions that will destroy your adversaries’ resources.

Most governments don’t have the money to do this. The last time the United States was able to fund a war without going into debt was the Spanish-American War in 1898. Every other war, or even preparation for war, required significant additional debt... which ultimately resulted in printing more money.

So, in the end, warfare means more money in the system, but fewer resources. This is the very definition of inflation.

Dimon mentions trade disputes as well, which are also very expensive.

Free trade creates wealth. It allows countries and producers to specialize in what they do best, and trade for what other countries do best.

Germany is great at high tech manufacturing, pharmaceuticals, and various other industries. But they can’t produce bananas to save their life.

Fortunately, Guatemala exists. Guatemala has no high-tech industry. But they’re great at bananas. It’s a sensible trade.

When nations are in dispute with one another, trade breaks down and they start having to produce goods and services where they have no expertise.

Sometimes it works out; in one of their endless wars with France, Britain boycotted French wine... and in the process, accidentally invented port. But usually, such inefficiencies create a lot of inflation.

Dimon also mentions infrastructure needs. And that’s a massive understatement.

The US highway system is deteriorating. Amtrak is blowing money without any serious improvements. California is tens of billions of dollars over budget, and several years late, for a high-speed rail it promised from San Francisco to Los Angeles.

It doesn’t help that they put $1 trillion in the hands of an incompetent diversity hire like Transportation Secretary Pete Buttigieg.

All of this money will need to be conjured out of thin air by the central bank, which, again, is inflationary.

Lastly, Dimon also references “large fiscal deficits”, which is putting it politely.

We’ve said it many times— the government’s own internal projections expect an extra $22 TRILLION in deficit spending (i.e. new debt) on top of the $35 trillion national debt, over the next decade. Most of that will come within the next five years.

Deficits are inflationary, as we have seen over the past few years.

To be fair, there are some potential deflationary forces as well.

Increases in productivity are very deflationary. Technology, driven by artificial intelligence, could be monumental in improving productivity and keeping prices down.

Yet there are also a lot of people in government (and even within the AI industry), trying to slow down development and hold back AI.

Capitalism— which encourages competition to offer the best quality goods and services at the lowest prices— is also deflationary.

Unfortunately, many people in power despise capitalism and rail against it as racist, misogynist, or bad for the planet.

To Read More:   https://www.schiffsovereign.com/trends/inflationary-forces-duh-151157/

3 Real Assets Primed For Growth In The Coming Inflation Bonanza

3 Real Assets Primed For Growth In The Coming Inflation Bonanza 

Notes From The Field  By James Hickman/Simon Black 7-11-24

After today’s inflation report showing ‘only’ 3% inflation, the Federal Reserve is all but guaranteed to start slashing interest rates.

The Fed Chairman essentially promised as much to Congress earlier this week, and has warned that if they don’t start cutting interest rates soon, “we could undermine the [economic] recovery.”

These guys still don’t get it. At this point it’s not even about 3% inflation (which is still too high) or 2% inflation. It’s about prices going back down to pre-pandemic levels… or just lower in general.

But that’s just never going to happen. The Fed doesn’t care about price reductions; they’re happy with a slower rate of price increases… which is totally out of touch with what people want and need.

They’ve been itching to cut rates for months… almost desperate. And in large part that’s because they’re terrified about the US government’s insolvency.

The national debt is about to pass $35 trillion. And high interest rates mean that the annual interest bill this year will exceed the US military budget-- more than $800 billion-- for the first time in nearly 250 years of American history.

The Fed knows that they have to slash interest rates as quickly as possible. With ultra-low rates (like 1.5%), the interest bill on a $35 trillion national debt is manageable… as long as the federal government can rein in spending and stop the debt from growing further.

Of course there are two key problems with this thinking:

First, there is zero evidence that the government will rein in spending. If anything, they seem primed to spend even more. I’ve mentioned several times before that even the US government’s own budget forecasts project more than $22 trillion in additional debt over the next decade.

Second, slashing interest rates will most likely result in significant inflation-- just like we saw in 2021-2022.

We’ve written before how real assets are a safe haven from inflation, and I wanted to briefly discuss three real assets that look especially promising.

The first is physical gold and silver, which serve as a store of value-- especially during inflationary times.

Higher inflation will likely trigger a surge in demand, making the price of precious metals not only keep up with inflation, but exceed it.

But there is another reason why gold will do especially well the worse inflation gets.

The worse inflation becomes, and the worse the US national debt becomes, the more likely the US dollar will lose its spot as the dominant reserve currency. And central banks all over the world-- India, Poland, Singapore, etc. have been feverishly buying up physical gold over the past few years, most likely to prepare for that potential change.

So if inflation picks up, it’s a good bet that central banks will keep buying up gold-- and driving prices higher.

Gold mining stocks should also do extremely well in that scenario due to their exposure to gold prices.

What’s interesting right now, though, is that despite gold being near an all-time high, share prices of many gold mining companies are incredibly cheap.

That’s because central banks-- which have driven gold prices to record highs-- only buy physical gold bullion. They do not buy gold stocks.

However, while the price of gold has already increased substantially, the stock prices of many great gold miners has not.

This is because most of the current demand for gold is coming from central banks. And central banks only buy physical gold— not gold mining stocks.

This means that gold stocks are currently a bargain-- with a LOT of upside potential.

Last, US natural gas is another compelling real asset primed for huge growth.

Right now, natural gas prices in the US are dramatically lower than they are in Europe… and it’s easy to understand why: the US has some of the biggest natural gas reserves in the world, while Europe has almost nothing by comparison. (This is why Europe is so reliant on Russian gas).

And since Joe Biden has banned new LNG (liquefied natural gas) export terminals from the US, it’s difficult to move that US natural gas to Europe.

This is why prices in the US are less than $3, versus more than $10 in Europe. If US producers were free to export, prices in the US would rise, prices in Europe would fall, and the global natural gas prices would be more or less the same, similar to oil.

In terms of energy equivalence to oil, $3 per million BTU natural gas is the equivalent of paying around $15 - $20 for a barrel of oil. That’s cheap. And it means US natural gas is the most underpriced conventional energy commodity in the world.

But it probably won’t stay that way for long.

First, large tech companies, which are building massive, energy-hungry AI data centers, are also looking at putting in their own power plants… which will most likely be powered by natural gas.

Second, the new export terminal ban probably won’t last. There are lawsuits, legislation, and an upcoming election, any one of which could restart new LNG exports. When this happens, US natural gas prices could quickly rise.

In either case, natural gas producers stand to benefit substantially from higher prices. And it just so happens that shares of many of the best quality producers right now are laughably cheap, with low multiples relative to earnings, book value, and Free Cash Flow.

Looking at the overall investment landscape now, with many conventional stocks and indexes near all time highs, these three sectors strike me as some of the most promising investments for an inflationary environment.

To your freedom,   James Hickman  Co-Founder, Schiff Sovereign LLC

https://www.schiffsovereign.com/investing/3-real-assets-primed-for-growth-in-the-coming-inflation-bonanza-151138/