The Canary in the Gold Mine; Certain Trump-Promised Policies*

The Canary in the Gold Mine

It wasn’t until 1913 that miners were first urged to bring caged canaries down into coal mines. They became the early 20th Century’s biological early warning system for detecting the presence of carbon monoxide, a deadly killer of coal miners. A canary’s rapid breathing rate, small size, and high metabolism meant that canaries in dangerous mines would succumb before the miners, which gave the miners time to evacuate.

Carbon monoxide occurs naturally in coal mines, which is why the phrase “the canary in the coal mine” connotes an early warning sign of danger. Carbon monoxide does not form in gold mines.

So why the title, The Canary in the Gold Mine?

The gold mine of the 21st Century is the global economy. And the canary is the price of gold.

Bond King and 2019 Barron’s Roundtable panelist Jeffrey Gundlach worries about the global economy. He sees a 40-45{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} chance of a recession within 6 months and a 65{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} chance within the next year. He points to a “soaring” U.S. deficit which could get “much, much worse” and interest on U.S. debt, which is about to hit a record. He’s closely watching gold.

Paul Tudor Jones is similarly nervous. “We’ve had 75 years of expanding globalization and trade and [America] built [its economic] machine under the belief that that was the way the world was going to [continue to] be and now all of a sudden it’s stopped…. It would make one think that rates in the United States [will] go back down to the zero bound level….” He, too, is closely watching gold. He believes that if the price of gold pierces the $1400 level, “gold is going to scream. It will be the antidote institutionally for people with equity portfolios.”

Gundlach and Jones are not the only Market Wizards paying close attention to the price of gold … and there’s a good reason why there are so many gold watchers. Gold is the canary in the global coal mine. The price of gold is likely to provide an early sign that the global economy is tipping over or that the risks of global geopolitical instability are likely to become realities … or both.

Of course, Gundlach and Jones (as well as Stanley Druckenmiller, David Einhorn and others) have believed for some time that the global economy has been running on fumes, that economic and/or geopolitical danger lies immediately ahead, and that the global distress itself is the canary that everyone should be paying attention to … and that gold the proper hedge. They’ve therefore held gold (futures and/or equities) for some time against what they’ve perceived to be a potentially imminent global economic meltdown. To date, they’ve been premature. At some point, they will be right and the cycle will turn. Until then, value comes from paying attention to the canary. Timing most often is the most important thing …, although sometimes it’s everything. We may be approaching one of those times.

Certain Trump-Promised Policies (Updated from the 3/15/19 TLR)

Cut Taxes/Enact Tax Reform – Succeeded

Appoint Conservative Supreme Court and Federal Justices – Succeeded

Reform the Criminal Justice System – Succeeded

Move American Embassy to Jerusalem – Succeeded

Withdraw from Obama-Era Iran Agreement – Succeeded

Reverse Cuba Policy – Mostly Successful

Defund Planned Parenthood – Mostly Successful

Executive Appointments – Mixed successes and failures

Reduce Regulatory Burdens – Mixed successes and failures

Have Allies Pay for Defense – Mixed results

Overhaul NAFTA to America’s benefit – Minimally successful

Eliminate Obama Immigration Amnesties – Not successful

Withdraw from Foreign Military engagements – Not successful

Arrange an Israeli-Palestinian Peace Settlement – Not successful

Increase American Manufacturing Jobs – Not successful

Build a Wall and have Mexico pay for it – Failed

Eliminate/Reduce Deficit – Failed

Repeal Obamacare – Failed

Eliminate U.S. trade imbalance – Failed

Cut Funding for Sanctuary Cities – Failed

End Birthright Citizenship – Failed

Invest in Infrastructure – Failed

Achieve Improved Trade Terms with China – Failed

Achieve Venezuelan Regime Change – Failed

Achieve Iranian Regime Change or, if not, Iranian Denuclearization – Failed

Denuclearize North Korea – Failed

When asked in June about American intelligence reports that North Korea has been violating his agreements with Kim Jong Un, President Trump responded, “I don’t know. I hope not. He promised me he wouldn’t.” Not exactly the threatened “fire and fury.”

Finally (from a good friend)

*┬® Copyright 2019 by William Natbony. All rights reserved.

No Comments

Post A Comment