October 2024 - Week 3 Edition

Inflation Isn’t Dead Yet – Gold Rallies On Hot Wars and Hotter Inflation

The Labor Department reported, this past Thursday, that the Consumer Price Index (CPI) rose 0.2% in September and 2.4% in the past 12 months, above economists’ expectations. The core CPI, which excludes food and energy, rose even more, by 0.3% in September and 3.3% over the past 12 months.  The 12-month totals have been stubbornly high since May: +3.4% in May, 3.3% in June and now it’s still 3.3%.

Meanwhile, as we face an election in less than three weeks, “real” (inflation-adjusted) weekly earnings remain well below where they were in January 2021, when Biden and Harris took office. Most voters know what they are paying at the grocery store but they may be seduced by a short-term decline in the cost of gasoline at the pump. Republicans may be secretly pulling for an “October Surprise” in the Middle East war. If Israel launches its long its long-awaited reprisal against Iran for that nation’s rocket attack on Israel, the price of oil and gas could rise sharply within a few days, which could have an impact on who is elected President of the United States – Donald Trump or Kamala Harris. Most indicators show voters are going to the polls with their pocketbooks top of mind.

The Wall Street Journal printed an editorial last week, “Kamala Harris is Eyeing Your 401(k).” It stated she wants to raise the corporate tax rate to 28%. When added to the average 5% state tax rate, that means one-third of all corporate profits go to Uncle Sam, cutting into stock dividends and profits. Then, when you go to sell a stock, she has favored raising the capital gains on any appreciation in that stock from today’s 23.8% to roughly 32%. Add in state capital gains taxes and that’s 36% of gains that are mostly due to inflation, phantom gains, after the IRS already took one-third in corporate taxes.

In other news, we learned – as I had predicted – that the Biden Administration found a way to report that the fiscal year 2024 budget deficit was under $2 trillion: $1.83 trillion, even though the national debt grew by $2.3 trillion in the same 12 months.  Still, that $1.83 trillion deficit is 13% larger than the fiscal year 2023 deficit, even though we are not fighting any wars. We are not in a pandemic, or a recession and we don’t have any unusual threats other than the border crisis, inflation, debt and a long spending spree of the Biden team’s making.

Part of the problem is structural: Interest payments on the federal debt came in larger (at $950 billion) than the entire defense budget ($826 billion) or Medicare ($869 billion). With Treasury rates rising again over the past month -10-year Treasury bonds yielded 3.6% in mid-September, but they rose to 4.1% last week - those interest payments will stay high. Interest payments made up $14% of the 2024 budget.

Tax revenue was not the problem, as we have said here. When tax revenues rise rapidly and the deficit increases even faster, you have a spending problem. That’s what those in Washington DC refuse to face or address. Total revenue reached $4.92 trillion, up 11% over 2023. Individual income tax revenue also rose 11% but here’s a shocker: Corporate income taxes rose by 26%, and corporate tax rates were lowered the most under the Trump tax cuts. Those are the tax rates that Harris wants to raise the most.

Gold and Silver in Popular Music

My friend Gary Alexander has been a music DJ for about 40 years, starting at WWOZ in New Orleans in 1983. For the past 17 years, he has been on the radio near Seattle, where he likes to play groups of songs with a theme, so I asked him (as a former editor of Gold Newsletter) to give me some songs about gold.

He said he has been playing songs about autumn and the most popular autumn song of all time begins:

“The falling leaves drift by my window
The falling leaves of red and gold.”

I’m sure you recognize the song “Autumn Leaves” there. I’ll let Gary pick up the story from here:

Silver was featured more often in songs than gold early in the 20th century. A popular barbershop quartet song celebrated “Silver Threads Among the Gold,” referring to the aging of a loving married couple:

Darling, I am growing old,
Silver threads among the gold
Shine upon my brow today,
Life is fading fast away

Over in Europe. Johann Strauss was Vienna’s “Waltz King” in the golden era but Franz Lehar was next in line, dubbed the “King of the Silver,” so at Princess Metternich’s big dress ball of January 1902, she commissioned a dual tribute, “The Gold and Silver Waltz,” which became Lehar’s best-known waltz.

At the end of World War I, there was a massive pandemic, the Spanish flu, plus inflation followed by a deflationary depression in 1920-21 but in 1920 Jerome Kern wrote this popular song of hope.

Look for the Silver Lining

“Whenever a cloud appears in the blue
Remember, somewhere the sun is shining
And so the right thing to do is make it shine for you”

From Kern’s 1946 biopic, Judy Garland sings this song when faced with a large load of dishes to wash:

"Look for the Silver Lining"- Till The Clouds Roll By (HD Quality) (youtube.com)

There are several great movies with gold in the title.  One is “Golden Earrings” (1947), by Victor Young

“If you wear those golden earrings,
Love will come to you.”

Student Prince, starring Mario Lanza, brought Golden Days to popularity, though it was written in 1924:

Golden days, in the sunshine of a happy youth
“Golden days, full of gaiety and full of truth”

Who can forget Gert Frobe playing Goldfinger in the 1965 James Bond film, and Shirley Bassey’s vocal?

Goldfinger, he's the man

“The man with the Midas touch
He loves gold, He loves only gold”

I know your space is tight, so let me close with a Silver Dollar song.  Merle Haggard wrote “Silver Wings,” but he was more explicit about the value of money in “Are the Good Times Over For Good?”

“I wish a buck was still silver

As it was back when country was strong
Back before Elvis and before Viet Nam war came along
Before the Beatles and "Yesterday"
When a man could still work and still would
Is the best of the free life behind us now?
And are the good times really over for good?”

There’s no need to be complete here – there are dozens of songs with GOLD in the title* and 50+ if you include silver – but this is a beginning. If readers have nominations, go ahead and send them in.

* Samples: When the Blue of the Night Meets the Gold of the Day (Bing Crosby, 1932), The Gold Digger’s Song (Ginger Rogers, 1933), When My Blue Moon Turns to Gold (Elvis Presley, 1956), Silver and Gold (Burl Ives, 1964), Golden Slumbers (Beatles, 1969) Silver Threads and Golden Needles (Linda Ronstadt, 1969) Heart of Gold (Neil Young, 1972), All the Gold in California (Larry Gatlin, 1979), She Got the Gold Mine, I Got the Shaft (Jerry Reed, 1982), Silver & Gold (Dolly Parton, 1991), Fields of Gold (Sting, 1993)

The Future of Gold Is Still Shining

Gold soared to another high of $2,685 on the futures market Tuesday, October 15, up $30 from a $2,655 low the same morning. Its high spot market price was $2,670. In a strange confluence, crude oil prices are down on the news that Israel may restrict its retaliation against Iran to military targets and not strike oil facilities but the gold market seems to be betting that there will be more escalation in that war, as well as, with the continued war between Russia and Ukraine. Bank of America and Citi analysts and I all agree that gold should surpass $3,000 an ounce in 2025. I implore you to regularly add gold to your investment portfolio.

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