In 2017 Donald Trump gave the US stock market a big shot in the arm.
He dropped the US corporate tax rate from 35% to 21%.
That meant billions more in profits could flow from firms to dividends and stock buybacks.
The fiscally conservative warned that these cuts would increase the US federal debt and deficit.
And they did.
The US federal debt is now close to US$27 trillion.
And what do we see now?
President Trump is at it again!
Trump has announced an executive order to temporarily suspend payroll taxes in the US.
This is designed to put more money into the hands of American workers.
You can’t fault him for that considering the state of employment right now.
But I can’t help but wonder…how much more government debt can the markets swallow?
Don’t get me wrong, I’ve been reading concerns about the level of government debt in the US for a decade.
It’s possible we go another decade and we’re talking about a US federal debt of US$40 trillion, and the sun is still shining and we’re all going about our business like today.
The strain of the COVID-19 crisis is so big that the US government is almost certain to need to prop up American industries and workers with more stimulus spending before this is over.
If Trump keeps attacking the US tax base, there is only one place the money can come from.
You probably already guessed — the US central bank.
The US Money Supply
That means the level of money printing going on now could become even more extreme than it has been already.
Take a look at the latest figures for the US money supply…
Source: Centre for Financial Stability
Clearly we can see the market positioning in gold as this is happening.
Gold may fall back for a short period. It’s had a barnstorming run in recent months.
But US dollar gold prices look headed for higher prices long term.
My friend and colleague Shae Russell runs two investment services focused on gold.
Since 2018 she’s called this rally to a tee.
Shae told her readers last week…
‘Consider today’s all-time high as reminder to buy gold soon, but not the reason today.
‘After a spike the price falls, and that’s when you should call your bullion dealer.
‘You’ll get the chance to buy gold at a lower price. You just need to be patient.
‘Those new highs the market is getting all excited about are just a clue there are even bigger ones ahead.
‘But history says you’ll be able to get gold cheaper if you wait a few weeks for the rally to die off.’
Gold is not the only way to play this trend.
I’m talking about the digital equivalent of gold: bitcoin.
Bitcoin shares many of the attributes of gold: it’s a store of value, it has limited supply and is an acceptable means of payment all over the world.
It’s extraordinary to think that something that has risen so fast and dramatically in the last 10 years could still have such a bright outlook.
But bitcoin’s market cap is still only US$200 billion or thereabouts.
That’s basically nothing in the context of the global financial system.
There is over $200 trillion in cash, bonds and stocks trading worldwide.
Every single dollar, yen, pound and all the rest of it is looking for a home.
Bitcoin remains the key coin in the crypto ecosystem.
It has a unique attribute too: it’s uncorrelated to other asset classes.
This may not mean much to the average Joe, but it means an awful lot to fund managers and institutional investors.
It’s conceivable bitcoin could rally off this alone.
Make sure you think about gold and bitcoin today. You could buy a little of both if you haven’t before. If you want a helping hand on the gold front, let Shae guide you.
Editor, Profit Watch
PS: Our publication Profit Watch is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.