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Friday File: Debt Ceiling, Gold, Fairfax and Ligand

By Travis Johnson, Stock Gumshoe, March 10, 2017

Hello, merry Gumshoe-ers! I’m going to be on the road next week to attend two conferences, the Grant’s Interest Rate Observer conference in New York mid-week, and the MIT Sloan Conference on Friday — so I’ll be sharing some notes with you with my thoughts on what I hear at those confabs, with fingers crossed that I’ll be swamped with wisdom and some fantastic new investment ideas. It may be that the commentary for Irregulars doesn’t necessarily come on Friday next week, but hopefully it will be interesting.

So what’s going on lately?

The debt ceiling and gold keep coming up in questions from readers, thanks largely to the constant ads from Jim Rickards urging us to buy buy buy his newsletter and get into some of his favorite gold trades before the debt ceiling officially becomes “real” again next week.

Will the reinstatement of the debt ceiling really cause gold to rise? Well, during some short periods of time, like a decade or less, the level of the debt ceiling and the price of gold appear to be somewhat correlated… but that doesn’t mean there’s a tight connection. The debt ceiling has gone steadily up over the past 50 years, and the price of gold has gone up over the past 50 years… both, in part, because the value of the currency they’re denominated in (US dollars) has fallen, but that doesn’t mean that debt ceiling increases or debates necessarily move the price of gold higher every time.

They might next time, of course. The impetus for all of this talk is that the debt ceiling gets reinstated as a statutory limit on March 15 (last time the debt ceiling became a big political football, it was put “on hold” until after the election — March 15 is the end of that “time out” period), though the Treasury Department can always tinker around with cash flows to keep the lights on for a few months after the debt ceiling is hit if they want to.

My baseline assumption is that absolutely nothing real happens — we have, at least nominally, one party rule in Washington right now, and that makes a standoff over the debt ceiling less likely, when push comes to shove… either the President or the Republican majority would have to be in a mood to exert substantial leverage and threaten a government shutdown, and that generally ...

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