I would increase my allocation to cash I'll stick with cash but let me kind of put that in context the most powerful investment tool we have is diversification problem is people don't understand what diversification means so I run into people all the time they say well I'm completely Diversified I own 50 different stocks in 10 different sectors you know semiconductors consumer non durables minerals you Etc and I say you're not Diversified you may own 50 stocks in 10 sectors but you have one asset class stocks which are subject to conditional correlation in calm markets they
idiosyncratic but in panics they all go down together or in bubbles they all go up together so you're not Diversified so what is diversification diversification is having slices of asset classes that are minimally correlated there not probably not zero but as close to zero as you can get so what would that be you'd have a slice of gold but I recommend 10% and people have some strong views on gold and I've written a lot about it but people are surprised to hear me say 10% Like Jim why isn't a 50% or 100% if you believe
all this well I do believe it I wouldn't say it if I didn't but you don't want to be 100% in anything you don't want to be 50% in anything 10% is fine if I'm wrong you won't get hurt and if I'm right you're going to make so much money that it'll actually kind of be the insurance on the rest of your portfolio but that leaves 90% so I would have a large slug in cash maybe 30% and people say well wait a second bank's paying me 25 basis points you know stock market's going up
why I want to be in cash is horrible a couple things number one the stock market might not always go up cash is the opposite of Leverage so leverage increases the volatility of the rest of the portfolio you'll get much bigger returns but you'll have much bigger losses if you have a slice of cash and say you've got a volatile asset over here which are stocks another volatile asset over here Gold's fairly volatile if you got that volatility and you have cash it will reduce the overall volatility so you can sleep better at night cash
is a great asset in deflation and talking about inflation which is here you got to deal with that but don't rule out deflation if we go into a recession because the FED over Titans or you know the thing about the inflation just a quick side it comes in two flavors there's cost push and demand pull demand pull is when individuals are worried about inflation and they start accelerating purchases like hey better go buy that washing machine right now because the price is going up or better go buy that house right now because the price is
going up that's demand pull cost P comes from the supply side not the demand side and that's what we're seeing because of what we talked about supply chain energy cost the FED can't drill for oil you know raising interest rates doesn't get you more oil or natural gas so the FED can't do anything about it except kill the economy yeah and that'll cool it off but when you pay uh put gas in my car I don't just read about this stuff you know it used to be $45 now it's about $75 multiply that by 200
million cars Across America what happens is it reduces your discretion income if you're paying another 30 bucks at the pump twice a week then you're not going to go out to dinner Friday night you're not going to you know take a a vacation whatever it may be so that depresses all those other areas so there is this recursive function so don't rule out deflation down the road not right away but you know maybe next year so cash here's the biggest value of cash it gives you optionality people don't understand this what if I said to
you hey I'll sell you a call option at the market call option on every asset class in the world he go yeah sounds kind of valuable you know well that's what cash is when things are crashing you're the one who can go shopping and nobody's better at this than Warren Buffet he's got his cash level vir halfways at an alltime high so there's a place for that you can have some stocks but I would look at the energy sector I actually built and I own the largest non-commercial solar module field in New England and I
run my house off it produce about 7.5 um kilowatt hours so I know a little bit about it and uh what I know is it doesn't work at night it doesn't work in snow it doesn't work in rain it doesn't work in really cloudy days by the way you don't run your house off with solar modules you run your house off of batteries yeah then the modules charge the battery so you watch the battery level that's how you manage it so it works fine but if you think you can run cities with that forget it
so it's just not practical at that scale even if you thought it was and it isn't that's very clear But Here Comes you know wind turbines and SE I'm not against it like I say I own one but they're not scalable they're intermittent and they don't give you the Baseline power you need to run a modern power grip meanwhile here's Global demand okay so the Gap the gap's getting bigger it's not getting smaller Renewables whatever the pros and cons are not closing the Gap the gap's getting bigger there is no substitute for oil and natural
gas and uranium you got to put uranium in the mix and hydro if you live in quec that's great a lot of hydro but not so much in the desert and I've spoken to you know without mentioning names I would say you can go no higher in terms of who knows a board members of the five biggest oil companies in the world who said yeah he said we talk about that but we we can't say it publicly because we'll be you know uh Chained and dragged through the streets but those are just the facts so
therefore if you have an oil sector that's been bashed by the climate alarmist but you can't do without it which is true buy some oil companies you know so there's your stock portfolio private Equity Venture real estate uh not commercial but residential yes and you know Farmland that's one of the hottest ass categories and gold so that's diversification and that's the kind of portfolio you want the kind of seasoned to taste so the question is will the FED go down that path do what they have to do do the only thing they can do to
subdue inflation at the cost of a very severe recession and something like a stock market crash or will they see that coming they'll be the last to know we we'll all see it before they do but they'll be the last know it's because they rely on flood models and they're kind of in their own economic forecasting bubble and they're very defective ways of thinking about the economy and they're very much a creature of inertia there a whole lot of reasons why the FED is not Nimble it's kind of quite the opposite but they'll see it
eventually probably when it's too late and will they block at that point and stop rate hikes and maybe even reduce rates that could save us from the recession but that will just amplify the inflation so rather than say which one's going to happen I prefer to lay out those two paths and then just watch it very carefully but more to the point we've seen this movie before this is a replay and I think it's on um like you hit the remote control for double or triple speed it's going to happen faster but this is a
replay of everything that happened from 2013 to 2019 and then to 2020 which was I'll just go through it quickly so 2013 May banki says we're going to taper asset purchases that's money printing quantitative vising whatever you want to call it the market you know tanks bonds go down everyone's like oh it's over but finally in November 2013 they said okay the taper begins they were still printing money but at a slower rate in that matters that went on until late 2014 the taper was over they stopped buying new assets they said okay here come
the interest rate hikes except they didn't G for another year it wasn't until December 2015 that then Janet Yellen finally raised rates and then another year for the second rate increase it was December 2016 so it was really really slow took two and a half years but they got to to raid hikes but then Here Comes J pal and then like Cloud boom boom boom 25 basis point hikes every meeting and all the Fed was trying to do was to get back to normal they were trying to get interest rates to maybe two and a
quarter two and a half get the balance sheet down to you know something like 2.5 trillion they never specified it that would have been a reasonable level okay now interest rates are kind of normal two and a half balance sheets down around 2 and a half trillion we're back to normal we finally got through the global financial crisis of 2008 we undid all that stuff well what happened from October 1st 2018 to December 24th 2018 the stock market dropped 20% the Christmas Eve Massacre stock market went down 3% in one day but the Fed was
tightening into the weakness as they always do and the last interest rate hike it was uh December 16th or 17 within a day or two but mid December 2018 they were still hiking and raised rates and that was the last draw and then the market just tanked and finally J pal got that message first week of January 2019 he says okay that's it we're going to be patient use the word patient it's one of these code words you have to get the code book out and see what it means but patient means we won't raise
rates again without giving you Advanced warnings so you can get out of your carry trades or whatever and then he went further said huh looks like we got a cut rates and they did and then by early 2020 here comes the pandemic and then they took rates all the way back to zero and then they started QE I don't know 67 call what you want they took the balance sheet to 7.5 trillion doll after getting it down to three and a half trillion so look at that whole sequence from 2013 to early 2020 including the
pandemic what happened they tapered the asset purchases they raised rates they sank the stock market then they said okay no more rate hikes then they cut rates and then they started QE and by April 2020 where were we zero rates back down to zero and the balance sheet was 7 and A5 trillion after getting down to about three and a half trillion so that was a big circle they ended up back where they started from but the point being they failed to normalize they failed to get rates where they wanted they failed to get the
balance sheet where they wanted they did sync the stock market okay by the way I don't have a crystal ball the FED told us this I mean that's the thing about the F they may be wrong but they're transparently wrong so they tell you what mistakes they're going to make in EV event so that's the FED forecasting is actually fairly straightforward because you just have to believe them they're going to announce a reduction in the balance sheet whether they actually started 100 billion a month reduction in asset purchases so that's QT quantitative tightening in other
words they're running the same Playbook they tried to run or they started to run in 2013 2014 they failed the last time why do they think they're going to be any more successful this time why do they think they can get out of this and the answer is they cannot without a recession they can normalize rates in the balance sheet and they can stop inflation but not without causing recession and not without causing a stock market crash so the big question for the next year is will the FED do that and they may or will
they B again at which point you might rescue the market but the inflation is just going to go wild that's the debate but the thing is about framing it that way you've got two paths and we'll get signals along the way we won't be the last to know the FED will but we won't you'll be able to see this coming it's going up it's going up a lot and let me just back that up a little bit because that's easy to say I don't say things like that without a lot of analysis there are three
different ways to think about it one is just some technical analysis this is the third great bull market in gold in history and uh when I say history I'm only going back to 1971 because prior to 1971 gold was money so you didn't have a bull market or bare Market it was fixed to the dollar people who buy the table and say give me a gold standard I like well be careful what you wish for cuz in a gold standard you're not going to make any money on gold because it's fixed it's pegged to the
dollar if you want to make money on gold you would actually be against a gold standard because they keep going up the currency and the gold goes up but we had a bull market from 1971 to 1980 and gold went up 27% then we had a bare Market from 1980 to 1999 and gold went down from $ 800 $ $250 and do the math that's 60 or 70% then we had the second grade bull market from 1999 to 2011 and gold went up 670 then we had a bare market so funny how these things go
in Cycles from 2011 to 2015 but you can call the bottom it was December 16th 2015 Gold was $1,050 an ounce I'm talking US dollar that was the bottom and and I saw it at the time and I I called it at the time based on a conversation I have with Jim Rogers who's the greatest Commodities Trader in history and we were down in the Dominican Republic At Cost compo during the bare Market I said Jim I you think about gold he goes well I own it but I'm not buying more at the moment I'm
waiting he said I'm not selling it but I'm not buying more I'm waiting and he said to me something that just hit me right between the eyes he said gold is going to the moon but no commodity goes to the moon without a 50% retracement along the way there comes a time when it drops 50% and then there's like the second liftoff and then it goes to the move now take the bottom in 1999 was $250 an ounce the top was $1900 an ounce in August 2011 so that's uh $1,750 half of that so 50%
retracement would be down a25 so, 1900 minus 825 put you at 1075 well Bingo 1050 that's close enough for government work as we say when I saw 1050 I talked to Jim Rogers about this earlier when I saw 1050 I said okay there's your 50% retracement using 250 is you have to have a base using 250 as your Baseline up to 1900 take that gap down 50% boom 1075 we were 1050 I said that's the low now it's uh getting close and actually on an intraday basis I think it just kind of kissed the all-time
high it was like right there so there's the full retracement of the bare mark Market but this bull market the third grade bull market started December 2015 we are up almost 90% but bear in mind the last two bull markets remember what I said 2,700 and 670 per. so 85% is great but when you get into like 600 700 800% or 2,000% you're talking about $115,000 by 2025 so if we just did the average of the two prior bull market I'm not even talking about the higher of the two take the two bull markets average
the duration and the gain and then apply it to December 2015 you get to the exact number is $155,000 by 2025 $115,000 nowc by 2025 to get to from 2,000 to 15,000 you got to go 3,000 4,000 5,000 6,000 you can make a ton of money so that's where it's going now could it go down tomorrow sure I mean the goal's volatile I don't get too hung up on it because I'm kind of a Buy and Hold person I don't get too euphoric when it goes up but I don't get depressed when it goes down
fact when it goes down I like to see it go up for our listeners and our readers but personally I don't mind when it goes down because you can buy more at a cheaper price because I know it's going up I know where it's going so the answer is again sixth grade math is usually sufficient when you get to higher levels a fixed dollar increase is a smaller percentage increase so people go oh it went from 1,800 to 1900 it went to 2, 21002 and that's a big deal good for all of this but those
$100 increments get to be more and more frequent and more and more common because they start looking like 1 half of 1% 1 half of 1% is not a big deal in the market so you're going to see that on a daily basis so my advice to people of course is buy gold but I said that at 1100 1200 1300 said it all along and people don't buy it people also accuse me they say well Jim you're just talking your position you know you're just trying to sell gold I'm not a dealer I don't make
any money if you buy gold good for you but I'm not in the business I'm a writer I'm an analyst but uh I'm not a gold dealer I'm actually one of the few analysts apart from yourself and a few others who are not gold dealers but I think I think that gives you more credibility because you're not selling gold you're understanding gold but for anyone who hasn't bought it yet course people denial is a powerful thing they'll say well I missed the boat now it's up to the side's going to go down you haven't missed
the boat I mean again 80 90% is a good run but this is going to go multiples of that
