I get really sick of the fearmongering pitches about the “death of the dollar,” but readers keep asking so I thought I should take a quick look today at one of them. This is a pitch from Nick Giambruno about a “Reset” of the US Dollar, and in many ways it’s effectively a repeat of the “IMF SDR Bogeyman” pitch that we saw in heavy volume from Jim Rickards about five years ago.
Here’s a little summary from Giambruno’s order form, to give you the general idea:
“Is the IMF moving in to… Raid Your Retirement?
“You could lose everything you’ve worked your whole life for….
“Unelected bureaucrats at the IMF and the World Economic Forum, along with radical environmentalists…
“They’re rolling out an alarming plan called the ‘Great Reset,’ to potentially control your life and destiny.
“Soon, the elites could issue their new world reserve currency and take down the U.S. dollar.
“Americans who worked all their lives could wake up and realize that their 401(k) and savings are slashed.
“You could be stripped of the right to own property or pay higher property and income tax… and a new ‘World Tax’….
“Here’s the most shocking pronouncement made by the World Economic Forum:
‘… You’ll own nothing and you’ll be happy… You’ll have to rent everything you need’
“Is THAT how you imagine your life or your retirement?
So you can see why people feel panicked, right? Especially if you’re at all predisposed to believe conspiracy theories about world governments and black helicopters and some Illuminati that’s keeping you down. That sends people into subscribing to the newsletter, in this case The Casey Report (one of their “entry level” letters, $49 renewing at $129).
Yes, the dollar is likely to lose value over time (as it has for decades, sometimes quickly but usually slowly)… yes, there are ways to hedge against that… yes, government policies may change and taxes might go up… and no, the World Economic Forum is not about to strip you of your property rights (that “you’ll own nothing and be happy” quote, which caused a panic last year, was a technological prediction about the Uberization of the economy… not a policy strategy), and you’re not going to wake up tomorrow and find that the IMF suddenly stole 31% of your 401(k).
Let’s go over what it is he’s pitching, you can think it over yourself, and maybe, once your heart rate comes down a bit, you can make a rational choice about whether or not you feel like subscribing to Giambruno’s newsletter.
“I believe the IMF … central bankers, economist, royals, and selected politicians…
“They’re all using the global pandemic to push for a reset of the entire financial system.
“To potentially issue a new global reserve currency.”
That’s all about the IMF’s Special Drawing Rights (SDR) program. SDRs are basically the tool that the IMF uses to help countries move money around, and to bolster the reserves of countries that are in trouble — a lot of them were created to “buck up” struggling nations after the 2008 crisis, and it wouldn’t be surprising if the recovery from the pandemic brings another wave of that. More from Giambruno:
“The IMF has set the official exchange rate between this currency and the U.S. dollar.
“In plain English, the dollar is valued almost 31% lower than the new currency.Are you getting our free Daily Update
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“And because your assets, savings, and income are valued in U.S. dollars…
“A 31% devaluation of the dollar is like a 31% pay cut.”
That’s ridiculous. The SDR is just a basket of currencies, if in some outlandish future the world’s governments decide to give up local control and return to something like a Bretton Woods agreement, which was effectively a global currency with fixed exchange rates, based on gold, then currencies would convert at whatever the ratio might be at that time. $1 wouldn’t turn into 1 SDR, any more than one Yen would turn into one SDR (you can’t really spend SDRs, but if you turned US$1 into SDRs you’d get about 1.4 SDRs today).
The SDR was originally based on gold, just like the US dollar, but after the Bretton Woods agreement was broken in the 1970s it became a freely floating representation of the combined value of the currencies in the basket. The biggest changes in the past few decades have been some shifting around to incorporate the Euro and, later, the Chinese yuan into the basket, but as of today one SDR equals about US$1.42. That value shifts around — each SDR is roughly 41% US$, 30% Euros, 8% British Pound, 8% Japanese Yen, and 11% Chinese Yuan. The prominence of the dollar has been constant for a long time, it didn’t even really change when the Yuan was added (the Yuan’s slice of the pie came mostly by snipping off a bit from the Pound and the Euro). The US Government also effectively has veto power over the IMF and over the composition of the SDR.
The pitch includes a chart to show that each SDR would be worth 69 cents, and implies that somehow the fact that this means the dollar is going to lose 31% of its value because we’re just going to turn a switch and say “nope, those US$ are SDRs now!” That’s one of those things that looks like compelling math, but doesn’t make any sense. The IMF lists the average exchange rates between various currency units and SDRs, and it so happens that an SDR would be worth 2 Kuwaiti Dinars — does that mean that Kuwait will suddenly switch to SDRs and their currency would double in value? No, of course not, that’s just a reminder that currencies are not all the same.
Much of the ad is more of the same, Giambruno brings in plenty of other scary-sounding stuff like a global tax, more funding for the IMF that would create more SDRs, perhaps to be used for climate change amelioration, the fact that other governments are showing signs that they might not want to keep funding the US budget deficit, etc. etc.
And probably the worries about the future of the dollar have some merit — we have tended to have a dominant global currency that everyone keys off of for trade for centuries, often set by military might and the expression of colonial power, and there has been a little bit of a pattern of rotation from one century to the next… with “roughly 100 years” being the average lifespan of global currency dominance (since the 15th century we’ve gone from Portugal to Spain to the Netherlands to France to the UK and, since either 1920 or 1944, depending on how you look at it, to the US$). Maybe the Chinese Yuan will be next, maybe something else, maybe Bitcoin or some other technological advance will usher in the end of a single-nation currency, I have no idea.
So I wouldn’t spend much time worrying about some magical “reset” of the US dollar, but if you have some rational worries about the US dollar losing purchasing power because of inflation (which just means the continuing depreciation of the value of the dollar), then perhaps it makes sense to try to hedge against that lost purchasing power. After all, it’s virtually certain that today’s dollar will indeed lose 39% of its purchasing power — that’s about how much purchasing power the dollar lost from 2004 to 2021, for example.
You’re probably already preparing for that in at least one way, likely the most successful way, by buying shares in companies that have purchasing power — companies that can raise prices, and therefore continue to make a profit even as the currency in which they work loses value. That’s not what this ad is teasing, though, so let’s see what he thinks you should do in the face if this panic.
More from the ad:
“Here Are Three Critical Steps I Believe You Must Take Right Now To Protect Your Assets….
“Step 1. You Should Own the World’s Hardest Currency…
“I’ll give you details on a relatively new asset that helps you move as much money as you like…
“Completely out of the U.S. banking and financial system…
“And potentially grow it at the same time.
“It has nothing to do with gold, silver, or any precious metals.
“And it’s not any other paper currency you’ve heard of.
“This asset is simply “hard money” that liberates you from government control.
“No central authority controls it. No country’s sanctions or laws can affect it.
“It’s not available in a central location for a SWAT team to raid, either….
“Folks who put their money into this hard currency have seen their stake grow more than 900% in 21 months.”
OK, so that’s just a reference to, you guessed it, Bitcoin. I own some Bitcoin, I think it’s an interesting way to bet on the further acceptance of Bitcoin as a “store of value” among large investors, since it’s that adoption rate that’s increasing demand and driving the price higher, but it’s certainly not a “hard currency.” If you owned Bitcoin for 21 months ending in February, which is when this ad seems to have pulled its data, then yes, you saw that increase in value by 900%. If you had bought a couple years before that, near the prior peak in 2017, you might have seen the value of your Bitcoin in US$ terms fall by about 75% into early 2019. If an investment can fall by 75%, in a year, I hope we can agree, we shouldn’t put too much faith in it as a “store of value.”
Bitcoin and almost all of the cryptocurrencies are near all-time highs now. Bitcoin prices are driven by people wanting to buy Bitcoin, to overstate the obvious, and some of that drive comes from worries about national currencies. That’s not based on purchasing power or fundamental change to the currency system, it’s based on sentiment about a new asset class — maybe that adoption of Bitcoin continues to increase and that sentiment continues to get stronger, maybe not, I don’t know. I’m holding some Bitcoin, but I also sell some from time to time — when you’re counting on sentiment, without any real foundational argument that makes logical sense for why Bitcoin should be at $1,000 or $100,000 or $1,000,000, well, you’re really betting on the feelings of millions of people around the world… and feelings can change very quickly.
You can believe that Bitcoin or blockchain or other cryptocurrencies are “the future,” but also realize that sometimes the future doesn’t move in a straight line. The internet was the future in 1999, too, but if you chose that moment to bet big and chose, correctly, two of the most dominant companies who seemed likely to be driving that future, Microsoft and Cisco, you would have had to wait 18 years to break even on Microsoft. You’d still be waiting on Cisco, which hasn’t gotten back to those levels yet. Sometimes when you get excited about buying the future, you pay too much.
So that’s one unsurprising recommendation for worries about the dollar, “buy some bitcoin.” Pretty easy to to, probably most of you have at least tinkered around with it a little. I wrote about two of the popular “on ramps” to cryptocurrencies here if you’re curious (Voyager and Coinbase).
His “Step 2” is all about how to avoid the “surveillance state” and keep your assets out of view, he doesn’t talk much about it but I assume it’s buying hard assets (land, gold, collectibles, etc.) that aren’t part of what the Fed or the Treasury can see, or maybe even opening an overseas bank account (there are a lot of rules and limits on that). I won’t go into that stuff… but then Step 3 is, again, no big surprise, it’s all about gold…
“Step 3: Buy the World’s Safest “Hold in Your Hand” Asset
“Gold is the world’s oldest money.
“Emperors and kings used it as far back as 500 BC as a store of wealth.
“In fact, gold prices have rallied through every historic financial crisis.”
Gold is surely not as exciting as cryptocurrencies, but those couple thousand years of historical human fascination with the shiny stuff, and acceptance that gold is pretty universally valued, does provide some solace. I’d be more comfortable putting gold away for 50 years than I would be putting Bitcoin away for 50 years, but over the short term, over decades, the movements of prices in all these things fluctuate a lot. The long-term charts make it look great over the centuries, but on a more immediate and human scale there have been plenty of times when an investment in gold lost value, even over long periods (10-20 years).
How does he recommend investing in gold? Here’s more from the ad:
“I’ll reveal a gold secret that historically turned $500 into $56,500 — a life-changing 13,200% gain.
“It’s not a mining company. And you don’t have to buy any gold bullion.
“Most folks have no idea this gold secret exists or how it operates.”
That “secret way to invest in gold” without buying a mining company is often a reference to buying into gold royalty companies… and this time is no different, the chart he shows is a perfect match for the 13,200% returns you would have gotten from an investment in Royal Gold (RGLD) over the past 40 years.
Now, it so happens that Royal Gold is the gold royalty company that has been publicly traded for the longest (Franco-Nevada is really the pioneer, but they were private for a few years in the middle), so it could be that’s why he shows this particular chart — I don’t know whether he specifically recommends Royal Gold (RGLD) shares, or is just pitching the concept. There are a half-dozen decent-sized gold royalty companies in the market now, and another half dozen small ones that have at least some revenue, so there’s a lot to choose from — if you want to go into more detail, I talked quite a bit about the sector when I dove into a teaser for a newer royalty stock back in February. Franco-Nevada (FNV) is the standard-bearer for that sector, and usually carries a premium valuation, the ones I own are currently Sandstorm Gold (SAND), Royal Gold (RGLD) and Nomad Royalty (NSR.TO, NSRXF).
Royalty companies are levered to gold when it goes up — they collect a small percentage of the output of lots of different gold mines, and when prices rise the value of that output rises. They’re also levered to gold when it falls, but not as dramatically as gold miners — they don’t have to pay to build mines or operate them when gold prices are falling, and they don’t usually have nearly as much debt as gold miners, so they don’t face as much risk of going out of business if gold falls by 40%. They are typically able to “ride out” bad gold markets, like from 2012-2016 or so, their share price will fall in those situations, but not as much as most mining stocks, and they’ll live to fight another day.
And they also tease a way to own physical gold with less hassle:
“I’ll also reveal another little-known gold technique.
“You can buy physical gold, without worrying about storage, or coin premiums.
“And here’s the kicker.
“If at some point in the future you want that physical gold shipped to your house…
“It can be done at your discretion.”
There isn’t any free lunch, I’m afraid, so you don’t get to buy gold without dealing with the hassle of storing gold — either you secure it yourself, put it in a vault somewhere, or you pay someone to do that for you. There are some ETFs that promise both to back up your investment in the ETF with physical gold that’s allocated to you, and some that will even redeem those ETF shares for physical gold bars or coins (and, naturally, they charge a little more than other ETFs). The Sprott ones have been pitched before (like Sprott Physical Gold Trust (PHYS)), but the redemption requirements there are pretty tough, you have to have at least 400 ounces worth (that’s one London Bar). There’s also the VanEck Merk Gold Trust (OUNZ), which will offer redemption fo smaller amounts with gold coins and such. They describe their process here, I haven’t ever bought either of those ETFs — they do offer some psychological solace in that redemption ability, whether real or just theoretical in your specific case, but they are therefore more expensive than the standard gold bullion ETFs (GLD or IAU).
And there are a million other schemes for buying gold through allocated storage, at widely varying fees, and lots of scammers out there trying to get you to convert your 401(k) to gold coins — don’t overthink it too much. If gold goes up, all the representations of gold will go up. I own some gold coins, I think they’re attractive and interesting and part of the appeal is that they’re a little bit of a hassle to sell, so I probably won’t sell them unless I REALLY need the money, but if I were going to bet on the direction of gold prices I’d use a cheap gold ETF like IAU, and if I wanted a little leverage to gold I’d buy gold royalty companies (or, if I really wanted to swing for the fences with a slice of my portfolio, dabble in trying to pick some junior miners). All of those things will move with gold prices, and we don’t get to know what gold prices will do over time… but yes, gold does tend to go up after market crashes (not necessarily during crashes, usually a ‘sell everything’ impulse hits gold as much as it hits stocks).
So there you go… Nick Giambruno would like you to panic about the IMF suddenly somehow taking over the US currency and converting your dollars to SDRs, and he thinks you should protect yourself from the globalist hordes by buying bitcoin and getting exposure to gold. I wouldn’t panic, but a little diversification away from full reliance on the US dollar is probably good for most of us. That’s just what I think, though, and what I’m doing with my money — with your money, well, you get to make the call. What’ll it be? We’d all like to hear, just share your thoughts in the friendly little comment box below.
Disclosure: I own Bitcoin, physical gold coins, and shares of Royal Gold, Sandstorm Gold and Nomad Royalty among the investments discussed above. I will not buy or sell any stock for three days after publication, per Stock Gumshoe’s trading rules.