Chief Investment Strategist, The Freeport Society
Seems like we’re not the only ones who see trouble ahead for Uncle Sam…
On Friday, Moody’s stripped the U.S. government of its AAA credit rating.
The credit rating agency said the downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”
It also warned that the federal debt is on track to hit 134% of GDP by 2035, up from 98% last year.
My only question: What took them so long?
The other two big ratings agencies — S&P Global Ratings and Fitch — have already downgraded Uncle Sam (S&P in 2011, Fitch in 2023).
Apparently, you need to see the debt blow past $36 trillion before concluding that the U.S. might not be the global benchmark of fiscal discipline.
So, a heartfelt thanks to whoever at Moody’s finally stepped up to play Captain Obvious.
Let’s not forget: These are the same folks who rated junk mortgage bonds as AAA right until they detonated in 2008.
So, we probably shouldn’t be shocked that they clung to their AAA rating on U.S. debt for this long.
Now that the cat’s out of the bag (again) the real question is: What do we do with our money?
Remember, our mission at The Freeport Society is to help you not only survive the Age of Chaos — but thrive. We’re not here to help you merely weather the storm. We want you to come out the other side wealthier, freer, and smarter than you’ve ever been.
And that starts by steering clear of the delusions of the day… and putting your capital where value is still real — even if it’s ignored or unpopular.
So, should we just shovel our money back into the Mag 7 tech stocks (Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia), pretend everything’s fine, and carry on?
We could.
But as I explained in an interview I did last week with Yahoo! Finance, the Mag 7 trade is one of the most overcrowded trades on the planet right now.
Instead, I’d point you toward two of the big recommendations I’ve been pounding the table on: European stocks and gold.
Why?
Reprice the World We Live in
America is barreling toward a fiscal cliff — and nobody’s hitting the brakes.
We don’t know exactly when faith in the U.S. dollar and its bond market will give way to panic. But when that moment comes, you’re going to want exposure to these “anti-dollar” assets.
Moody’s downgrade is mostly symbolic. But symbols matter — especially when they come from one of the gatekeepers of global finance.
It’s another reminder that the foundations of the U.S. financial system are cracking… and more investors are starting to notice.
As the cracks widen, the price of gold and other anti-dollar trades won’t just rise — they’ll reprice the world we live in.
You can watch my full discussion on this by clicking the image below. Or, if you prefer, the transcript, click here.
To life, liberty, and the pursuit of wealth.
Transcript
Yahoo Finance: Investors have been in the throes of tariff policy whiplash, Fed decision, and earnings reports. Constant uncertainty keeps it interesting, of course, but uneasy when it comes to managing portfolios.
Our next guest is no stranger to navigating these conditions. We’re joined now by Charles Sizemore. Welcome, Charles to the show.
I’m going to start, Charles, where you see opportunity right now. We have, we do have some smart folks, Charles, strategist, CIOs, they come on the show and, and they do see opportunity overseas, specifically in Europe, and it sounds like Charles, you agree with that call.
Charles: 100%, and it’s not that I’m bearish on the U.S. and with the entire tariff trade war here essentially on pause for the next 90 days. The biggest impediment to the U.S. market going higher has been resolved.
But the, the bigger question of course is who is really in the wings waiting to buy the US market. Everyone is already overweight, whether you’re talking about mom-and-pop investors or multi-billion-dollar pension funds. The U.S. — and specifically U.S. tech — has been their biggest holding.
If you’re any investor, whether retail or institutional, you’re going to note that you don’t have a lot of exposure to Europe right now or to emerging markets.
Suddenly it makes sense to reallocate.
It is worth noting the like a broad basket of European stocks, you know, just take a Vanguard ETF for example, is up about 17% year to date, whereas the S&P 500 is flat.
Yahoo Finance: Is the European trade potentially being overplayed, because to your point we’ve already had a lot of gains year to date? And are there any specific stocks or sectors that you are looking at that you think still have a little bit more room to run in the Europe trade?
Charles: Yeah, sure, but before I get into that, I think it’s really untrue that the Europe trade is long in the tooth. Look at the 2000 to 2007 window. European stocks beat the pants off the S&P 500, and that was, that was a long stretch. We’re talking about seven years there. Whereas the outperformance today is measured in months. But drilling down, what specific sectors look really good?
Defense.
Europe and the US have diverged. Their interests are no longer aligned. If Europe wants to project power, wants to project influence, they’re going to have to do it themselves.
That means they are rearming.
Just this week, the various members of NATO were talking about increasing defense spending to up to 5% of GDP.
That’s a stretch.
I don’t know that they’ll ever get that high, but you are still, regardless, looking at a major investment in defense, and the European countries are going to be more likely to buy that at home.
They’re more likely to look to their domestic defense contractors as opposed to looking at ours.
Yahoo Finance: And Charles, let’s talk gold as well here. Maybe the U.S.-China trade truce is a boost to risk assets but put a dent in gold’s shine?
You still though like gold long term. How come?
Charles: Gold is a multi-purpose hedge. It’s an inflation hedge, of course. That’s less critical today because inflation’s starting to come down. Inflation is nearly to the Fed’s target.
Gold is also a crisis hedge, and we saw it really benefit from that in April, of course. When it looked like the world was ending, gold did phenomenally well. Well, now all that’s on pause for the next 90 days.
But what else is gold a hedge for?
The dollar.
It’s a hedge for currency risk. Similar to the factors driving portfolio managers to reallocate their stock portfolios, central banks and international players are also reassessing their currency risk.
You don’t have to have them flee the dollar. You just have to have them slightly diversify across other currencies and gold for that to really move the metal.
So, I’m still a gold bull and probably will be for the rest of this year.
Yahoo Finance: I want to get a check on another stock that I know you’re taking a look at here, actually a basket of stocks, and that’s the Magnificent Seven. I’m curious, how are you thinking about these names? Do you think that there’s still longevity in the tech trade?
Charles: The issue with the tech trade, and specifically the Mag 7, is that it is the market now. They so completely dominate the S&P 500 that they can’t really meaningfully outperform the S&P 500. They are the index now.
The companies are great. They’re wildly profitable. My only real criticism is that it’s a crowded trade and it has been for a while. I don’t know anybody that doesn’t already own the Mag 7 and already own them as a disproportionately large part of their portfolio.
Yahoo Finance: Charles, great to see you and have you on the show.