Brace for Economic Turbulence
Throughout recent history, every American President has campaigned on a slogan of change.
But the promised change never arrived. Until now.
Today the bloated federal government is being deflated by President Trump’s Department of Government Efficiency (DOGE).
An audit of U.S. gold reserves is in the works. And possibly an audit of the Federal Reserve, too.
Meanwhile a rift has split open between the EU and U.S. over the Ukraine war. Old alliances are crumbling as Elon Musk, Thomas Massie, and others openly call to disband NATO.
Trump has discussed slashing defense spending by up to 50%, the first time I’ve even heard an American leader broach this taboo subject. He’s even talking about removing American troops from Europe and elsewhere.
Trump is building bridges to Moscow, and signalling major foreign policy changes.
Never in my lifetime have we seen a shift so significant. It’s simultaneously terrifying and thrilling.
What are the implications for investors? Let’s dig in.
Change Ain’t Easy
Every reasonable person knows that dramatic change is needed for America to thrive.
We’ve been on a completely unsustainable path for more than 5 decades. Far too much spending, waste, and fraud.
Our nation has been ill, and Trump has decided it’s finally time to take our medicine.
Over the short-term, this means pain. It’s going to be painful eliminating hundreds of thousands of government jobs and scaling back spending.
Federal government outlays currently account for a shocking 23% of U.S. GDP, according to the St. Louis Federal Reserve.
We have become reliant on deficit spending to prop up our economy. It’s a horribly inefficient way to run the economy, but it does still have a significant effect.
Eventually, transitioning this wasteful spending and workforce to the private economy will bring massive benefits. The economy is far more efficient when private individuals and corporations are deciding where to spend capital.
But we’re going to have to weather a transition period, and I suspect it will be rather challenging.
Trump’s Treasury Secretary Scott Bessent was recently asked by a reporter if we’re in a recession.
Here is Bessent’s reply:
We’re seeing the hangover from the excess spending in the Biden 4 years. In 6 to 12 months, it becomes Trump’s economy.
Bessent is clearly preparing the public for a bumpy road over the next year. He’s essentially saying “what happens over the next year may not be pretty, and isn’t our fault.”
With American stocks still near all-time highs, we still have time to prepare.
Portfolio Prepping
The Daily Reckoning has been preparing for this moment since we launched in the late 1990s. Since then, we’ve been making the case for gold as an investment. When we first launched, gold traded in the $200s. Today it’s over $2,900/oz and we remain bullish.
Gold is an excellent way to prepare for economic and monetary turbulence. It’s a proven way to preserve wealth over thousands of years.
Precious metals are a critical part of any modern investment portfolio. I think it makes sense here to allocate more funds to precious metals, and less to U.S. stocks.
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