Individual Stocks or Index Funds - 2019 may be a pivotal year!

Picking Stocks VS Index Funds in 2019

2019 does not bode well for Stock Indexes and therefore, Index funds.  Buying Index funds has been the go-to investment of individual investors (and some institutional investors) for years now.  Since 2009, many have done very well with this simple strategy which has outdone many money managers over that time.

2019 may be different for a number of reasons! This bull market we have enjoyed since 2009, is getting very long in the tooth and 2019 is beginning to look like the end is in sight.

The macro picture is a mishmash of poor decisions and poor leadership from Central Banks and world leaders alike. The news is dominated by trade war talks, Walls, Brexit, German (read Euro) downturn, and Debt, beyond anything we have witnessed in the past. Real war cannot be dismissed either as the USA and North Korea are at a stalemate, and (nuclear armed) India and Pakistan are shooting down each others fighter jets, to the cheers of their domestic audiences.

With Britain on the verge of a "no deal" Brexit, Italy may be becoming a financial basket case, German output is inching into negative territory, and in France, the Macron government has done nothing to right that ship.

Some believe that, Deutsche Bank may well be the "Lehman Brothers" of the Euro zone this year as creditors close in and a bailout partner is not in sight. The two largest economies on the planet, USA and China are at serious odds over trade AND both are in serious DEBT!

As the USA begins to withdraw from the world under this administration, it owes $22 Trillion dollars and that debt is now growing at 1.5 Trillion per year under Trump.

There are two ways to handle such a debt burden, 1: Default
2: reduce the dollar to a nickel.  There is no other way to pay down such a massive debt! (my bet is that, if it were entirely up to Mr. Trump, he would pick door number 1)

There are now more refugees on the move across the world than WW2 and most countries are putting up barriers to entry. Euro zone countries from Spain to Greece are doing whatever they can to keep out refugees, instead of welcoming them. Climate change, inept governments and wars are the reasons for such a migration.

Witness the debacle in the USA on the southern border as this president continues to threaten to shut down government if he does not get his wall. This argument is a hideous sidelight to what is truly going on in the world. This same administration seems to admire despots while scorning democracy, whether it is in it's own constitution or that of valuable allies.

The USA has now walked away from trade agreements, peace treaties and most recently, a nuclear arms agreement with Russia. None of these things bode well for markets, or indeed, humanity, going forward, but the pied Pipers of Wall Street keep on playing!

On a lesser, and personal financial note, while most index funds have very low fees, they are paid annually, and therefore, add up over time, eating into profits.  As the value of your investments go up, so do your fees. This is a built in strategy that will eventually eat away at your gains. If these investments go down, the fund still gets paid, every year!

Conversely, Buying individual stocks is now usually done online for less than $10 per trade! (One time). When an index tumbles, not all stocks are included. Some stocks actually go up at such times.

 The drawback:

Now you have to do homework!  Stocks are not index funds! They require you to do some investigating of your own, unless, of course, you want to keep all your money in cash, gold and silver, and buried in your back yard!

IMF selling gold usually dampens demand, but this strategy may backfire bigtime.

Image via Wikipedia

The International Monetary Fund is again selling gold to bolster it's cash so as to be positioned to help (read bailout) more troubled economies, which seem to be propping up at present, all over Europe. When the IMF sells gold, it usually has a dampening affect on the price. Often, that is the real reason for selling in the first place. However, with China and India in the hunt for more gold reserves, the strategy is set to backfire.
Even though China has the 6th largest gold reserves in the world at this writing, it constitutes merely 1.5% of it's entire foreign reserves of over 2 $Trillion. Compare that to European countries like Germany who's gold reserves constitute over 60% of total foreign reserves. France= 61.5% etc etc.

China's gold reserves add up to a measly $29 per citizen, a paltry sum by the standards of developed countries. As China looks to diversify it's FR funds, gold will become a growing part of it's acquisitions. Even if China was to double it's gold reserves, that will only constitute 3% of total FR funds in it's huge and growing piggy bank.

This auction will be moved to the open market, however the IMF will honor bids from Central Banks and China will no doubt be a focal point. India may also look to bolster it's gold reserves, for the second time in 6 months, at this auction. They may even try to hide their intention using a surrogate possibly. Chinese investors will also play a role as their government is telling it's citizens to invest in the precious metal for their savings and as a hedge against inflation.

Gold as a hedge against inflation? Now there's a novel idea! However, there are smart people who believe that such sales are a drag on gold prices. They use history to bolster that argument.

“When the IMF sells, that’s bad news for gold,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Gold goes lower because there’s more supply.”

In the past this has certainly been the case, however, that past did not include the Peoples Republic of China as a buyer, nor the largest democracy on earth (India). It did not include their citizens, 2.5 Billion in total, as individual investors in gold either. As these two behemoths grow their middle class, and then tell those people to invest in gold, well that changes the dynamic, forever, especially when the known gold reserves currently above ground can fit into a space the size of two Olympic swimming pools.

In a gold rush, that supply can get eaten up in a heartbeat! As Government after government print more fiat currency and pump it into their systems, the argument for gold may turn into the biggest gold rush in history.

There is a trend here that investors should not ignore. It's no secret that countries like China, India and others, as well as their citizens, are wanting to diversify their FR funds away from the U.S. dollar, the Yen and the Euro and gold is in their cross hairs. If you don't hold gold or gold stocks in your portfolio in the current environment, then you are not paying attention.

For a more informed opinion on these matters you should read this interview with John Embry, Chief Asset manager for Sprott Asset Management.

Put some gold in your portfolio, now, before the rush!!

Article: If China buys IMF Gold

Soros and Hedge funds betting on gold

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