My regular readers are familiar with my friend Kevin Duffy who is a brilliant analyst and macro-strategist and who is also the editor of The Coffee Can Portfolio (www.coffeecanportfolio.com), a highly recommended newsletter.
He recently sent me an essay entitled, Mercantilism in America: The Trouble with Self-Sufficiency(first published at www.mises.org) and concluded that,
“The political right, like the left, thrives on fear, casting China, immigrants, and progressives as threats to America’s way of life. Trump’s protectionist policies exploit this angst, promising simple solutions to complex problems. Yet his approach ignores economic realities: trade benefits all, job destruction fuels progress, and self-sufficiency breeds inefficiency.
Trump inherited a $37 trillion debt ($8 trillion of which he added in his first term), with $10 trillion resetting in 2025 at 4% interest rates, 7%-of-GDP deficits, and rising entitlement costs. He has no margin for error. His capricious tariffs flummox entrepreneurs, disrupt markets and burden consumers, while subsidies like the CHIPS Act waste billions.
Blaming global trade and a prospering China for America’s woes misdiagnoses the problem and diverts attention from the elephant in the room—a bloated government and unsustainable debt. By desperately chasing their past—the legacy of the ‘greatest generation’ —Americans gamble their future on a flawed, bygone system. True prosperity lies in free markets, not mercantilist delusions.”
MF: I consider the unwillingness to make sacrifices by the public and by politicians to be one of the major shortcomings of democracies. As former Secretary of the Treasury (1974 – 1977), William E. Simon opined: “I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.” The reality about price increases is that “the only cure for inflation,” as Milton Friedman said, “is to reduce the rate at which total spending is growing. There is no way of slowing down inflation that will not involve a transitory increase in unemployment, and a transitory reduction in the rate of growth of output. But these costs will be far less than the costs that will be incurred by permitting the disease of inflation to rage unchecked.”
Unquestionably, Friedman has it right when he says that the costs of making sacrifices now by cutting expenditures or by increasing taxation (or both) would be far less than the costs that will be incurred by “permitting the disease of inflation to rage unchecked.” But I doubt that this is the way the Trump administration looks at the government’s expenditures and at monetary policies, and, therefore, far higher inflation rates (and interest rates) should be expected in future.
Over the last two years, I repeatedly warned investors that US the indices strength was not indicating widespread economic prosperity because the indices were soaring only because of handful of stocks (the MAG 7). This year, this seems to have changed. US Indices are lagging while neglected sectors and stocks including European equities and emerging market stocks whose valuations are much lower than for US stocks are shining. In my opinion, we need to focus on finding depressed stocks, which have been neglected for the last few years in these markets. As I explained in earlier reports this would include Hong Kong property stocks.
Last month, we noted among others that, a special situation had arisen in the platinum market, with the platinum-to-gold ratio reaching a 122-year low. Looking at the four major asset classes which I use in our portfolio allocation (stocks, bonds/cash, real estate, precious metals) the only truly depressed sector in which I consider increasing my position significantly is the mining sector and especially in physical platinum and related securities.
Lastly, please consider the words of Friedrich von Hayek who maintained that: “What our generation has forgotten is that the system of private property is the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves.”
With kind regards
Yours sincerely
Marc Faber
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