Picto Diary - 09 February 2016 - Dormatory for millenials?

Above: New construction. Flagstaff Mountain, Deer Valley, UT. 09 February 2016.

Said to be over 30K square feet. Maybe its a dormitory for millenials?

TIMDT and Mwah skied in bluebird, spring weather between Deer Hollow and Flagstaff. Saw 'Cake and Maui and their friends at Cushings. Coffee with Comic Mom at Cushings plus a few runs together after. Joined neighbor JimNan for a couple of runs before leaving the mountain.

(DV 41)

Above: Roger Lipton speaks to La Societe Deux Magots (LSDM). Wasatch Bagel, Park City, UT. 09 February 2016.

This is Roger's third appearance at LSDM.

Hat tip: 'Cake.

Note: Note taker is fallible. Mistakes are his. Roger Lipton is welcome to make corrections/clarifications to these notes.


The Restaurant Business.

Roger, now a gold fund manager, started his career on Wall Street as a restaurant analyst. He stays in touch with the restaurant business and provided LSDM ROMEOs some current insights.

That's how I met 'Cake at IHOP. I traveled to CA to review IHOP. Their CEO didn't present well and analysts weren't giving the business much push. I looked at the numbers. They were good. I gave them a buy rating. Stock tripled.

Restaurants... a great leading indicator on the economy. Before you buy a car or a house... you are going to go out to eat.

Same store sales compared period to period is how we measure restaurant performance.

Today? Restaurants? Same store sales sluggish. No bounce. No signal of recovery. Everything is promotion driven. McDonalds - all day breakfasts; Wendy's - 4 for 4; Burger King - 5 for 4... and so it goes... they are all out there trying to out promote each other. I continue to write on this. Check my website: www.Rogerlipton.com I don't work for anybody, so my reviews of the restaurant business are considered pretty objective.


LSDM: Chipotle?

RL: Disaster. Same store sales down 30% in December; another 37% in January. Center for Disease Control has finished their review, prompted by, first ecoli and then Noro virus.

Many restaurant chains have come back from problems... but, its going to be especially difficult for Chipotle. They had a lot of people believing in their virtuous non GMO, "food with integrity" shtick. Many of the customers who bought off on the "virtuous" approach feel betrayed.


General Comments on Economy

World economy stagnating.

Money velocity at an all time low... money is out there, but it is parked most of the time.

The public knows this. That's why they're holding back on things like restaurant spending. They perceive lack of government direction. Consumers have no confidence in the administration.

The US economy has been supported by stimulus and is operating at 0% interest rates. Still no bounce! 7 years of sub 2% economic growth, despite 0% rates!

People are not even spending the "gas dividend." Ie. savings from lower gas prices are staying in consumer pockets and not being spent. With a $5000 deductible on their Obama Care health insurance policy, they're reluctant to spend "extra" money. They save. They have to protect their family in case of medical problems.

When the government gets involved in the economy, you get huge distortions. There are consequences to government involvement in the economy.

Stanley Drukenmiller is arguably America's best macro-trader. He says, to the effect: "All this government manipulation... if you don't think there is a price to be paid.... the end game is going to be nasty."

Resulting from the distorting effects of government manipulation of the economy is a mis-allocation of capital.

There are trillions of dollars of outstanding sub-prime debt... student loans.... auto loans.

Do you know what a trillion dollars is? LeBron James makes $40 MM a year. How long, then, would it take LeBron James to make $1 trillion? 25 thousand years!

There is $5 trillion of sovereign debt out there at negative interest rates! Japna, Swiss, Chinese are all out there buying equities to support their currencies.


Gold

I'm still long. I was wrong two years ago. Its been a tough road. Its never easy to lean against the wind.

Today gold is a reviled asset class. 1/2% of investable assets are in gold related securities... down from 20% in the 1920's.

Physical gold has moved from west to east.... ie. away from US/Europe to China.

We may be at a turning point. The EFT GLD has declined in value since 2011. Yet, for the first time in five years, over the last five weeks GLD has started to increase in price.

China has stockpiled 400 tons of physical gold. Trade denominated in Yuan has doubled in the last five years... still, trade in Yuan accounts for less than 10% of all world trade.

Above: Roger Lipton explains to LSDM ROMEOs that an ounce of gold today has the same purchasing power that it had in 1913. By contrast, a 1913 dollar, in purchasing power, is worth $0.13 today.


Gold Notes

European dynastic wealth has been preserved via land, art and gold.

Over the last 5000 years gold has protected purchasing power.

On US dollar of purchasing power in 1913 is worth $0.03 today. Yet, an ounce of gold has the same purchasing power today as it did in 1913.

Gold is scarce. $1 billion worth of gold is mined annually. Yet government's produce trillions dollars worth of paper currency annually. If you have a fifty year time horizon, which do you want to put away to preserve wealth? Gold? or government fiat currency?

Can you trust government's to protect your purchasing power? Japan has been doing stimulus and 0% interest rates for 25 years. It's still not working. Central banks need inflation. You can tax inflation. Central bankers hate deflation... but, notwithstanding central bank actions over the last decade, we are closer to deflation than ever before. Central bankers have to weaken currency to stimulate inflation.

Politicians like to print money. That's why, to minimize economic distortions, political propensity to go overboard in printing money can be attenuated by requiring currency to be backed by something that is scarce.

Stimulus and money printing haven't worked in the US either. The US, seven years after the beginning of "the great recession," is still lumbering along at 2% growth, first sub 3% "recovery" in the nation's history.

My view of the next three years? Only gold will be sitting there with any value. The hyper-indebted economies are like a coiled spring, ready to explode in deflationary spiral. Its just a matter of time.

Gold and silver have been consistent stores of wealth over the millennia. Why? They are the fifth and sixth, respectively, scarcest elements in the earth's crust. Elements one through four are gaseous and unstable.


LSDM: How did we get from a gold backed currency to where we are today?

RL: In 1900's, gold was selling for $20.00 an ounce.

In 1934 FDR declared it illegal for citizens to own gold and pegged the price of gold at $34.00 an ounce.

Post WWII, world leaders met at Bretton Woods, NH to work out a scheme to resolve the world's debts. The US dollar was declared the world reserve currency. Our obligation, was to make sure we ran a sound economic house.

Post WWII the Bretton Woods scheme worked OK. US ran budget surpluses and trade surpluses.

In the '60's, the US started spending into deficits to finance the Vietnam war and the Great Society.

Still, we hadn't gone negative.

But, other countries began to suspect US debasement of its currency... backing away from its Bretton Woods obligations "to run a sound economic house."

DeGaulle, for one, started buying gold.

Nixon closed the gold window.

Deficit spending resulted in inflation. Carter brought in Volker. Volker raised rates. The Fed stuck to its guns.

Then "Reaganomics." Reagan and Volker held the line - the US had to go through a recession to bring its budget back into control post the Great Society.

From 1980 to 2000, post Reganomics, was a healthy economy. There was no panic to own gold.

Will someone like Reagan and Volker step up to clean up the current mess... a much more serious mess than when Volker and Reagan held the line in 1980?

I'm not optimistic. There is no political will anywhere.

Soon US indebtedness will reach 100% of GDP, a level which most economists say will result in a significant drag on an already sputtering economy.

Central banks do what they can to keep the system going... but, distortions and disruptions caused by government intervention in the markets will eventually be the source of system collapse.

Gold has done well inversely to the confidence that people have in central bankers. We may be on the cusp, therefore, of a rise in the price of gold.

Central bankers are in a jam. They don't know how to get out of the current situation. They have more tools. They have already printed too much money. And they have no more room to maneuver with interest rates.

Gold will be the last currency standing. Everything else is frivolous.


Thank you

LSDM thanks Roger Lipton for his informative presentation.

Addendum:


Calf is doing much better. Went to the clinic after I last saw you. Injury was diagnosed as a "calf strain". Spent the remainder of Monday on crutches. Calf was swollen to double the normal size. The PA at the clinic suggested a break from skiing.

Woke up Tuesday and felt significantly better. No crutches needed. Leg was kept wrapped, iced, and elevated. About 1500, I realized I'd not had my cup of Canyons coffee for the day. Not wanting to disobey medical advice, against skiing, I loaded the Red Pine Gondola with my coffee cup and snowboard. Took a run on the beginner run and felt decent. Coffee was good as well.

Gave the skis a go on Wednesday. Stuck to slow skiing off of Saddleback and the Bubble. Still felt achy, but not bad. 12 runs. Coffee was also good. Will try the skis again today.

Guzzi,
Park City, UT


State Road Tavern is the new eatery that I was trying to think of on Friday.

http://dishingpc.com/state-road-tavern-opens-in-kamas/

Guzzi,
Park City, UT