Can the Stock Market Protect Wealth Better Than Gold and Silver?

Trying to stay ahead of the government printing press is the modern citizen’s constant worry. There are no hard money central bankers, let alone politicians. Central bankers have stood the idea of present value on its head in attempts to stimulate dead economies and zombie enterprises while providing interest bills to governments with the possibility, although remote, of actually being serviced.

In the United States, in the attempt to outrun the Fed and the Treasury, individuals have taken to the stock market. Investor’s Business Daily’s Matt Krantz tells us, “Meet a new force in the markets: An army of mostly young, highly engaged beginning investors looking to outmaneuver the pros.”

Krantz attributes time and technology to the new burst in stock market trading by novices. “Online brokers are reporting a surge of new accounts and trading activity from individual investors and traders — many with little or no experience but an intense willingness to learn,” he writes.

“The trend could put more Americans on a path to greater wealth and financial security,” Krantz writes, presumably with a straight face. “But it remains to be seen if the beginning investors will stick around for the long haul — or if they’ll have the investing skills to avoid losses when stocks take a tumble.”

With the Fed pushing rates to zero, individual investors figure they should cash in on the roaring stock market. Trading by individuals has grown since 2017, but  Krantz writes that “The trend is now on hyperdrive. Trading volumes at the big three brokers spiked in the first quarter, hitting nearly 270 million shares, Alphacution Research Conservatory says, citing the most recent data available. That’s more than double the trading activity in the first quarter of 2019.”

It’s not just young people who are risking capital in the boom market. Krantz explains,

The momentum keeps going, and not just because of young people. “We’re seeing high levels of investor engagement in the current environment — increased trading levels and (net new assets) across all age groups,” said Michael Cianfrocca, spokesman at Schwab.

Investors like Melanie Melville, 69, started buying and selling individual stocks more seriously this year, “fulfilling a dream I’ve had a long time. She added: I retired last year, found some free money and decided I would try again.” Her father followed markets and paid for her college with profits from CAN SLIM stock investing.

In his book The Ethics of Money Production, Jörg Guido Hülsmann explains, “Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets.” Hülsmann reminds us of the old (and simpler) days when “Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.”

While stock trading is the craze in the US, in Turkey, where the currency (the lira) is under great duress, Turks are doing what they’ve always done, trading the paper their government relentlessly depreciates for gold.

“Turks are piling into gold, long their favorite investment, as the country’s financial system unravels,” write David Gauthier-Villars and Caitlin Ostroff for the Wall Street Journal.

When Istanbul’s Grand Bazaar reopened in June, long lines of people waited outside the its many gold shops to buy gold coins (favored by older Turks) or mini-ingots (favored by the young).

Demand for gold was so strong this summer that the national mint asked employees to work overtime, on weekends, and even during Ramadan to fill orders, Gauthier-Villars and Ostroff write. While Americans are buying FAANG stocks on their phones, Turks are taking an old-school approach.

Gold plays an outsize role in Turkey, both in the financial system and as households’ preferred “under-the-mattress” way to protect their savings against a weakening currency and historically high inflation.

The pile of gold Turks keep at home is estimated at between 3,000 and 5,000 metric tons. That’s between $190 billion and $310 billion at current market prices, or between 25% and 40% of Turkey’s yearly output.

The Turkish central bank “allows lenders to keep up to 15% of their mandatory reserves in the form of scrap gold collected from depositors, as well as 20% in standard gold,” the WSJ reporters write. “The Turkish treasury regularly issues gold bonds while banks have opened gold accounts and experimented with gold credit cards and gold ATMs.”

Turkish residents have $33 billion in gold deposits at banks. But the government raised its sales tax on gold from 0.2 percent to 1 percent, pushing buyers to the Grand Bazaar and other “gray markets” where the tax isn’t charged.

Gold has outperformed domestic stocks, bonds, and real estate over the past ten years. Safe-box maker and seller Mustafa Tuzcuoglu has seen a 50 percent increase in demand. His customers “keep half of their savings at the bank and half at home. That’s what I’m doing too.”

Hülsmann provides the best reason to hoard gold and silver. “Most importantly, they…[are] extremely suitable for ordinary people.”

You can’t say the same about shares of Tesla.