Debt, Distractions and Dumpster Fires

We live in an age of overload. We are overloaded with information, with entertainment and with all sorts of distraction. It is often hard for investors in this environment to parse out the truth and determine the resulting implications for their money and their futures.

One way to get to the truth is to figure out the distractions vs what really matters.

For example, could Washington’s shutdown and the border wall be a distraction? $5 billion is a pittance for the government to spend given our $22 trillion debt. On the other hand, how effective can a wall really be? But it WAS a huge campaign promise, so here we are.

Both sides are digging in their heels and creating maximum drama. But, if YOU were responsible for the huge crushing debt elephant in the room, you might create massive distractions to avoid talking about it too. That’s what Washington does over and over.

Now the IMF is calling them out finally, and warning YOU about the real crisis headed our way, no elephants, no distractions allowed.

IMF Sounding Alarm Bells

The IMF is less concerned about border security and more concerned that the entire globe is “dangerously unprepared” for the next recession.

“The next recession is somewhere over the horizon, and we are less prepared to deal with that than we should be . . . [and] less prepared than in the last [crisis in 2008],” IMF Deputy Managing Director David Lipton recently told the Financial Times. “Given this, countries should be paying attention to keeping their economy on a level trajectory, building buffers and not fighting with each other.”

His main concern seems to be escalating global trade wars between various countries and a troubling China slowdown. He warns that the monetary tricks that got us through the last recession, like lowering interest rates and central bank swap lines have been undermined or exhausted, leaving the entire global economy vulnerable.

Carl Icahn "Almost 100% Hedged"

Billionaire investor Carl Icahn also sounded very concerned on Fox Business recently when he discussed corporate debt and China policy with Neil Cavuto. He made the case that if China relations break down, if a trade war heats up, we are facing an avalanche of inflation. Also, the levels of debt globally are absolutely astounding and unsustainable. Paraphrased:

“China is extremely important to our economy… we get cheap goods from China… China partially keeps us from having inflation because of the cheap goods… I think there is a deeper problem if you look at the whole picture. There is too much debt in the world today and you just can’t keep doing it. The debt is amazingly $250 trillion across the globe. You can’t continue to live with that. And there is certainly too much debt in our country... I am almost 100% hedged. I don’t know what the market is going to do. Sooner or later there is going to be a day, and I’m 98% sure of this, where we’re due to hit a wall... It’s not just the interest rates - sooner or later they have to unwind their balance sheets. They are borrowed to the hilt and sooner or later they have to stop borrowing and pay it back. Corporate debt is pretty high and coming due.”

Watch part 1 and part 2 of this important interview.

Icahn makes the case that he doesn’t try to predict what the market is going to do, but he DOES examine fundamentals very closely. If those fundamentals, like debt levels and rising interest rates, do not make sense, he hedges accordingly.

In other words, the rest of the market might still be at the punch, but investors like him who look at the full picture are sobering up. The warning signs are all there if you care to look.

The gold market as a whole seems undistractable from these global truths. While the mainstream news squabbles about how much more debt to take on, and whether our economy is great or awesome, gold as a safe haven quietly gained 7.2% in Q3 of 2018, with a 4.6% gain in December alone. Silver is up 7.7% in the last 30 days. Carl Icahn is clearly not the only one hedging their portfolio.