The Money Spigots

QUESTION: What do you think of the closure of the ports due to the strike?

MY RESPONSE: I’ve been following it closely. In case you missed the news, the giant union that controls port workers on the East Coast, the Gulf Coast, Canada, Puerto Rico, Bahamas, major rivers and the Great Lakes — with over 85,000 members — has gone on strike. They are demanding an increase to their wages of $5/hr every year for the next six years, and an air-tight guarantee that shipping lines will stop all efforts to automate the ports.

This concerns us for two reasons. First, because we added container shipping line, Zim Integrated Shipping [ZIM] to the Official List a month ago. Zim is in the business of transporting containers, and many of its containers move through ports affected by the strike.

Whenever something disrupts the flow of containers around the world, shipping rates soar. We saw this with Covid and then with the Red Sea closure. This strike is just another potential bonanza for shipping lines like Zim.

This likely explains why Zim was the best performing shipping stock in September, rising 40.4%.

Our thesis for buying Zim had nothing to do with strikes or other disruptions. Zim’s stock looked mispriced relative to the profits it is making, and the giant pile of cash it holds on the balance sheet. If rates could stay high for another two months, we said, Zim would likely pay out a 30%-plus dividend early next year, based on our cost basis for the stock.

So a strike significantly improves the odds of us receiving a large dividend from Zim early next year…

Our strategy remains the same. We’re holding out for a 50% gain here, which based on our official entry price equates to a sell price of $27.89. If Zim’s stock touches $27.89, I’ll issue a sell alert and take the 50% gain. In the meantime, I’m moving ZIM to ‘HOLD’ and keeping ZIM marked “Sell at a 50% gain.”

The second reason the strike concerns us is because of our Big Picture view. In short, the longshoremen are at risk of becoming the next victims of globalization. If the shipping lines get their way, the ports will be automated, as they are in other countries, and the longshoremen will eventually lose their jobs.

But if the longshoremen get their way, US ports will become even more inefficient and expensive to operate, and ultimately US consumers will pay higher prices for the imported goods they buy.

In other words, this is a fight between globalization and onshoring. Cheaper consumer goods or protected US jobs. Political unrest or a weak dollar.

Our position is simple. They’re going to let the dollar go against gold. It’s already started. We call this the “synchronized global currency devaluation.” They’ll water down the real value of the debt. They’ll choose onshoring… and inflation… and protectionism.

The other aspect of the ports issue — which catches my attention — is whether supply chain bottlenecks ever did, or ever will again, cause inflation. Our argument is that the 20% expansion in the money supply from 2020 to 2022 resulted in the 25% shift higher in the entire price level. It wasn’t the lockdown policies that produced inflation. And it wasn’t corporate greed. It was the huge gusher of money spewing out of Washington.

However, if there WAS any truth that it was the supply chain that caused inflation — constrained supply meeting pent up demand — well then we ought to see that again in a prolonged port strike. In fact, that wouldn’t surprise us at all.

Any higher inflation numbers between now and the election, which is just now just 34 days away, will be blamed on the union’s strike. In the big picture, we know that inflation is now the deliberate policy in DC. The soaring national debt requires it. ~~ Tom Dyson, Bonner Private Research

Tom Dyson, Bonner Private Research

QUESTION: What do you think of the closure of the ports due to the strike?

This likely explains why Zim was the best performing shipping stock in September, rising 40.4%.

So a strike significantly improves the odds of us receiving a large dividend from Zim early next year…

But if the longshoremen get their way, US ports will become even more inefficient and expensive to operate, and ultimately US consumers will pay higher prices for the imported goods they buy.

In other words, this is a fight between globalization and onshoring. Cheaper consumer goods or protected US jobs. Political unrest or a weak dollar.

Relative to GDP, the net international investment claim on the U.S. economy was 20% in 2003. It had swollen to 65% by 2023. Practically every type of American company, bond, or real estate asset now has some degree of foreign ownership.

But it’s even worse than that. As the federal deficit has pumped up the GDP figures, and made a larger share of the economy dependent on government spending, the quality and sustainability of GDP have deteriorated. So, foreigners, to the extent they are paying attention, are accumulating claims on an economy that has been eroded by inefficient, government-directed spending and “investments.” Why should foreign creditors maintain confidence in the integrity of these paper claims? Only to the extent that their economies are even worse off. And in the case of China, that’s probably true.

As global government interest expense climbed, gold quietly followed it higher. The IIF estimates that interest costs on government debt now run at nearly $4.9 trillion annually. Over the same span, gold prices have tracked that burden almost one-for-one.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

Over that same period, gold prices have surged about 135%, while silver is up roughly 175%. Zoom out two years, and the divergence becomes starker still: gold up 114%, silver up 178%, while the S&P 500 gained 44%.

According to the American Association of Individual Investors, the average retail investor has about a 70% allocation to stocks. That’s well over the traditional 60/40 split between stocks and bonds. Even a 60/40 allocation ignores real estate, gold, collectibles, and private assets.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.

In a healthy economy, production and consumption communicate constantly. If a company builds something useful, customers respond by buying it. If they overbuild, inventories pile up and prices fall, sending a signal to slow down.

AI infrastructure, by contrast, is being built largely on faith. Companies are scaling up compute power without clear signs of sustainable demand. Unlike oil and gas, where prices adjust second-by-second, AI companies operate in a fog. They release tools, collect usage stats, and hope that paid conversions will follow.