Last year ended on a near-euphoric note for stock market bulls and optimists about the Trump administration economy.
President-elect Donald Trump had been driving growth expectations and moving markets as if he already was in office, implementing his much-vaunted policies.
With so much "good news" already priced in, investors would be wise to hedge themselves against the risk of an eventual disappointment.
As Americans, we certainly should give the new president and the Republican Congress an opportunity to make good on their promises. But as investors, we need to prepare for a variety of economic scenarios, not just the ones that we hope will come true nor just the ones that align with what GOP pundits are spinning.
Of course, gold bugs have a reputation for being pessimistic. It is true that gold tends to thrive more on fear than hope.
However, one need not hold a doom and gloom view of the economy to appreciate the value of including gold, silver and other hard assets in a portfolio.
If the economy picks up speed this year, then so likely will inflation. That, in turn, could cause investors to flee bonds and other interest rate-sensitive financial assets.
The flight from bonds has actually been well under way since the third quarter.
As of yet, there hasn't been any flight from the dollar or U.S. stocks. Both the U.S. Dollar Index and the S&P 500 finished last year near multi-year highs, respectively.
With the Federal Reserve telegraphing three rate increases this year, the conventional wisdom is for continued dollar strength.
A stronger dollar could throw Trumponomics off course. A rising U.S. currency versus the rest of the world makes it harder for exporters to compete in the global marketplace.
Trump campaigned on promises to revive manufacturing jobs. He has repeatedly called for China to let its currency appreciate versus the dollar in order to help U.S. manufacturers.
The big surprise this year could be that Trump actually gets what he wants: a weaker dollar. His tax cutting and $1 trillion in infrastructure spending agendas will, absent a surge in federal revenue, expand the $20 trillion national debt that he inherits from President Barack Obama and predecessors.
Trumponomics figures to be an expansionary ideology. Don't expect the term "austerity" to be part of the Trump administration's working vocabulary.
He will inherit an economy that by many measures has been under-performing but that has nevertheless continued to expand month after month.
The expansion is in its 92nd month, though the average length of a gross domestic product growth cycle is about 60 months. History suggests that we may be overdue for a recession.
The surge in GDP the second half may be just a statistical blip.
Late last month, the government revised third-quarter GDP growth upward to 3.5%. Few economists expect that to be sustained.
Forecasting firm Macroeconomic Advisers estimates that the economy is actually growing at just a 1.7% rate.
Fed economists forecast 2.1% GDP growth for this year, well below the growth rate that Trump said that he can achieve.
If the economy should falter on his watch, get ready for a Trumpflationary flood of stimulus measures. Candidate Trump may have taken stabs at Fed Chief Janet Yellen and her compatriots at the Fed, but President Trump will need the central bank's easy-money policies to persist in order to implement his spending plans and keep the stock market afloat.
With official inflation rates still below the Fed's 2% target and oil prices finding a happy equilibrium in the $50s per barrel, a little extra shot of Trumpflation won't hurt, at least not initially. It is when oil prices hit $100 per barrel that consumers start feeling the pain and investors start worrying about inflation.
When inflation concerns start making headlines, we can bet that gold and silver prices will have already made huge advances. Contrarians who position themselves early stand to reap the biggest profits when the bull market in hard assets resumes in earnest.
In the meantime, metals investors need to be patient and resilient in the face of any adverse market machinations. There will at times be orchestrated take-downs in the futures markets that test their mettle.
How the economy and currency markets respond after Trump takes office remains uncertain.
"Uncertainty" was one of the big themes in Yellen's remarks following the Fed's rate increase last month.
Fed policymakers don't actually know what is coming economically or politically or how they will respond. Maybe they will raise rates three or four times this year, or maybe they won't do it at all.
Too many investors have a false sense of certainty about an invincible and ever-rising stock market. Stocks are historically expensive.
Precious metals may not be historically cheap, per se, but they are cheap, relative to stocks and most other asset classes. A sizable allocation to gold and silver behooves anyone who wants to survive the uncertain times ahead.