Aug 20, 2020 by - Saul Klein & John Reilly

Your Financial Future…Economics 101

Gold? Stock Market? Real Estate?

Ask Warren Buffett. He just made a huge bet on gold. I have been a student and teacher of the economy and economic principles since the late 1970s, when we were looking at what we believed were enormous deficits, coming inflation, and a great recession.

Remember Howard Ruff and his book “How to Prosper During the Coming Bad Years?” It was a best seller in 1979/80. Ruff believed that the United States was headed for a hyperinflationary economic depression and that there was a danger that both government and private pension plans were about to collapse. His ideas were based in part on the continued growth of the National Debt and the year after year budget deficits. His predictions did not materialize the way he believed they would.

So, should we worry about our current state of the economy? If the market crashes, how much time will it take to come back? Depending on your age, this is an extremely important consideration. The current national debt dwarfs the 1970s and 80s numbers. If we thought it was bad then, it must be disastrous today. Yet we made it through that period, partly because of ERTA, the Economic Recovery Tax Act, and the resilience of our economy.

With all of the uncertainty today, where is the economy heading up to and after the election? What assets should be you investing? Will new taxes and more regulation affect your investments? With all of the capital being pumped out by our government, what about inflation? Are you concerned?

During times of uncertainty, gold has served as a safe haven. Gold is now at a high, but will it go higher? Ask Warren Buffett. I read the following in the Wall Street Journal Yesterday. This is news: Last Friday, Berkshire Hathaway (Warren Buffett) disclosed that it held a $565 Million Stake in Barrick Gold Corp, the world’s second-largest gold miner at the end of the second quarter, making it Barrick’s 11th largest shareholder. This comes while Berkshire unloaded billions of dollars in bank stocks such as Wells Fargo and JP Morgan Chase.

How much gold do you own, and how do you hold it? In what assets are your retirement plans invested? These are important considerations during these uncertain times. Some are saying that there is potential for a 25% drop in the stock market before the end of the year. The stock market dropped dramatically a few months ago because of the pandemic, lockdowns, and unemployment. It has since made a stunning comeback. Will it keep going? During times of high inflation, which we might see return because of the government rescue plans pumping trillions of dollars into the economy, “equity assets” typically do well.

What about real estate as an investment? I have always been an advocate of real estate ownership, but I have some doubts as my state, California, moves forward with new debt, new regulations, and perhaps new property tax increases. I am not making predictions, but I am looking closely at my portfolio and making what I believe to be proper adjustments. I may be leaving some “money on the table,” but as the old saying goes: “Pigs get fed, hogs get slaughtered.”


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