Politicians Like to Spend … Profit From It

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Have you ever thought a movie would be super boring, but it was actually great?

That’s how I feel anytime I write about tax-loss selling.

It doesn’t sound exciting, but it can be very lucrative.

We’ve been able to use this strategy at the end of recent years with gold stocks. But this year, gold stocks are up, even after Monday’s drubbing.

So, what should we do now?

Using the Tax Law to Make Money

First, let’s assess where we are.

The Sprott Gold Miners ETF (NYSE: SGDM) and the Sprott Junior Gold Miners ETF (NYSE: SGDJ) own large-cap and smaller mining shares. These two exchange-traded funds (ETFs) are up 27% and 36%, respectively, so far this year.

Most of the names in these funds are up as well. That provides fewer tax-loss selling opportunities in this space.

Here’s why.

When you sell shares that have fallen during the year, you can apply the losses to offset other gains in your portfolio.

If you want to buy back the same stock though, you normally have to wait to do so … often a month. This is a rule of the tax authority in most countries.

If you don’t wait, you can’t use the losses to offset other gains. If you buy the same name back too early, it’s called a “wash sale.”

So, this year, we have fewer gold-related tax-loss selling opportunities.

In the past week though, we have seen a new golden opportunity.

Gold and Gold Stocks Sold off Post-Vaccine

When Pfizer Inc. and BioNTech SE announced that their vaccine prevents COVID-19, some stocks fell.

For example, work-from-home stock Zoom Video Communications Inc. (Nasdaq: ZM) fell 25% from Friday to Tuesday. The logic is that people won’t need the service as much if they go back to work.

Another asset class that fell was gold and gold stocks. The gold price was down as much as $100 an ounce on Monday.

The market is suggesting that if we have a vaccine, then we won’t need as much stimulus.

And stimulus is bad for the dollar. This is good for the price of precious metals.

I don’t believe it.

Politicians can’t help themselves.

When President Barack Obama was in office, the national debt rose more than $9 trillion. I don’t expect his former vice president to be more prudent. Do you?

His successor, President Donald Trump, was even worse. The national debt is up more than $7 trillion on his watch in only four years versus Obama’s eight.

And these numbers don’t count the money the Federal Reserve created.

My friends, in a nutshell: We’re screwed.

Politicians Will Continue to Spend Money We Don’t Have

When he takes office, President-elect Joe Biden will hand out money we don’t have to lots of people.

Many think it doesn’t matter. Interest rates are low, they say. We can service our debt.

And we have the world’s reserve currency. We can print as much money as we want.

Yes — until our currency loses more value and printing doesn’t solve the problem.

If you think it doesn’t matter, all you have to do is look at the price of gold.

It’s up more than 50% since the last inauguration — almost as much as the S&P 500 Index. But we don’t hear our politicians celebrating that, do we?

Think about it. What have you heard about Biden’s plans?

  • “Biden Announces $2 Trillion Climate Plan” (The Wall Street Journal).
  • “Biden … has no plans for major defense cuts” (Stars and Stripes).
  • “Biden already has a stimulus plan” (CNet.com).

Those are just a few. Mark my words: There’s more spending to come.

Even when the economy was humming in 2019, Trump oversaw a $984 billion deficit.

If our next president improves on that, we’re still likely to bleed cash.

What You Should Do

Whenever the price of gold falls, take advantage of it. It’ll come back.

Since last Friday, gold is down as much as 5.1%. SGDM and SGDJ fell 9% and 6%, respectively.

This is a buying opportunity. Seize it.

And with respect to tax-loss selling, I encourage you to look into value names. Many of them are still down for the year but are moving higher with the vaccine.

This includes banks, energy, real estate and travel-related stocks.

Good investing,

Brian Christopher

Editor, Profit Line

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