American Consequences - May 2019

You could just focus on being very efficient... All of a sudden we are being disrupted. The brands owned by Kraft Heinz – a supposedly powerful brand-name company – simply aren’t as strong nowadays as they were in years past, just like Buffett and Lemann said. So it shouldn’t be surprising that Kraft- Heinz’s stock tumbled 27% in a single day in February after the company reported disappointing results. Today, it’s about 30% off its recent high. Kraft Heinz won’t be the only victim... The same thing will likely surprise the hell out of shareholders of other big brands. That’s why I’ve been cautious about recommending such stocks to my Extreme Value subscribers lately. Time will tell if I’m right, but the S&P 500 Consumer Discretionary Index currently trades at 24 times earnings, and the S&P 500 Consumer Staples Index trades at 20 times earnings. Those aren’t cheap. They’re the kind of prices you pay when you aren’t worried about anything. You can also see investors’ complete lack of concern in another place right now... Gold and related stocks . As longtime readers know, gold is the longest- tenured financial asset on Earth. It has been around for thousands and thousands of years. Ancient Egyptians used electrum (an alloy of gold and silver) 6,000 years ago. And yet, it’s still around as a real store of wealth today. Since President Richard Nixon killed the last vestiges of the gold standard in 1971, the

metal has risen roughly 36-fold in price. That more than adjusts for the 96% decrease in the U.S. dollar’s value since the Federal Reserve began managing the currency in 1913. Which one sounds like the best form of money and the best insurance against monetary or economic catastrophe? Would you rather have a fiat paper currency that lost 96% of its value in a little more than a century? Or would you rather have the most consistently sought-after financial asset that has maintained its value for the past 6,000 years? Despite that, gold is languishing. And so is the leveraged way of buying it – gold stocks... Since Nixon killed the Today, gold trades for around $1,280 per ounce, down about 30% from its 2011 highs. Meanwhile, the VanEck Vectors Gold Miners Fund – an exchange-traded fund that contains a basket of gold stocks – is down roughly 70% from its 2011 highs. If gold were as popular as it should be given its history and the fact that stocks are more expensive than they’ve ever been, there’s no way I’d be able to pound the table like this. But most investors just don’t seem to be concerned today... The Volatility Index (“VIX”) – the market’s “fear gauge” – is around 14 today. When investors are panicking, the VIX quickly soars... last vestiges of the gold standard in 1971, the metal has risen 36-fold in price.

American Consequences

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