Weekly Article 08-15-2018
Will we be facing a currency problem in the US? Countries around the world are stocking up on gold, so what does this mean? Learn more from the financial consultant at Savage Financial. Mike Savage has your best interest at heart. Call us today for a consultation.
As I woke up this morning, I saw on Fox Business that the FBI is warning of a hack that could take place on bank ATMs. After wondering why, if they know about the threat, it is still a threat, I couldn’t help but remember an obscure email that came out from Wikileaks as part of the data dump prior to the 2016 election.
In it, a Deutsche Bank executive wrote to his daughter that if she sees the banking system closed on a Friday with the caveat that it will all be ok and reopen on Monday to not bet on it and instead get to a safe place because he believes that martial law could be imposed on that following Monday.
It is interesting to me because Deutsche Bank has seen its stock price dip to levels that are lower than during the last crisis. Indeed, the financial indexes have all been suffering. Let’s not forget that if there are problems with sovereign borrowers (Turkey, Venezuela, Italy, Spain, Argentina, Brazil – to name a few) someone lent them the money. In most cases, it was the world’s major banks. (WSJ 8-10-18) 1
In my opinion, this is a large reason why, as we are seeing the emerging market currencies getting hammered and the debts that they owe in dollars increase by the loss of their currency’s purchasing power, we are also seeing the share prices of the major banks decline at the same time.
This is just one reason that the headline on Fox Business hit me particularly hard this morning. All of the world’s markets appear to be falling at the same time. To me, this looks like there could be an entity or entities that are having to raise cash and may be selling assets to raise that cash. Let’s not forget that margin in stocks has never been higher. Whether this is just a healthy correction or something a little more ominous – I believe it bears more watching.
I am also noticing that gold and silver continue on their downward trajectory. This appears to me to also be a warning. With all of the geopolitical problems as well as the emerging market problems, I believe gold should be performing far better. However, if an entity or entities are needing to raise capital then basically all assets held can be sold with generally the most liquid assets being sold first- particularly if there is a margin clerk involved. There was a report on CNBC on Monday that some major banks may have been selling. I have heard nothing since and cannot confirm that at all.
Many may wonder if I am still as bullish on these assets as I have been. The answer is yes and here is why.
While many may believe, particularly here in the USA, that gold has been performing poorly I disagree. I have highlighted the many interventions in this market daily to keep the US dollar looking good and it appears that this activity has been ramped up in the recent past. According to David Schectman of Miles Franklin, there are 2,500 tons of gold mined yearly. On Monday, 1,045 tons were dumped by traders. By the way, the dollar was weaker on Monday so the large takedown was the reason, in my opinion, for the falling price.
There is no chance that even a fraction of that amount of gold changed hands physically. This is a paper price being manipulated by trading fictitious gold in my opinion.
Even so, it appears that gold is performing poorly. I will agree that it appears so here but gold is doing exactly what it is intended to do in places where they are already seeing stress in their currencies.
Keep in mind that all of the places that are suffering from major inflation or even hyperinflation got there by getting into too much debt and making too many promises. In order to service the debt and not renege on their promises they “printed” money to give away, purchase assets, and fund the government to give the illusion that all was ok- until it wasn’t.
In an extreme example gold priced in Venezuelan Bolivars is 292,719,500.00. Yes, that is over 292 MILLION bolivars for an ounce of gold. Remember it takes a million bolivars for a cup of coffee in Venezuela and an ounce of silver will fetch a month’s supply of food.
In a less extreme example in Russia gold is up 76.4% in the last 5 years and has risen 575% in the last 13 years. In Argentina gold has risen 61.43% this year and is up 362% in the last 5 years and 3000% in the last 16 years. Here in the USA gold has risen 280% in the last 16 years- games and all. (That is 17.5% per year whether it feels like it or not). (Goldprice.org) In my opinion, if the suppression was not taking place the price in US dollars would be exponentially higher.
In the locales that are seeing their currencies suffer the most is where you see the greatest rises in the price of the metals- protecting the purchasing power for those insightful enough to see what was coming and getting prepared for it.
This is why I continue to be bullish about this asset at this time.
It appears that gold is doing its job. When countries “print” too much currency it eventually leads to inflation, massive inflation or even hyperinflation. It seems to be human nature that when some at the top determine that they can get something for nothing they keep expanding their “rights” and keep on “printing” until the public becomes aware of what is going on and don’t trust the currency anymore.
In my opinion, it is not a question of “if” we will have a currency problem with our US dollar only “when”.
We have been not only poor stewards of the world’s reserve currency- going so far as to “misplace” $21 trillion just between the department of defense and HUD- but we have also run up debts and deficits that can never be repaid without a major devaluation of the currency.
Anyone who thinks that there is anything normal about the economy we are living in right now is not paying attention. All prices are manipulated, winners and losers are not determined by the markets and facts but by a few who can “print up” cash and buy assets. Something for nothing if I have ever seen it!
Of course, each time this is done you and I lose purchasing power in a myriad of ways and while not one in a million understands it fully many are beginning to realize that this is not anywhere near right.
There will come a day when the manipulation will be forced to end. On that day all of the fake prices will be obvious and those who have planned well will have the opportunity of a lifetime to buy assets that we can’t imagine owning today- if our purchasing power is intact when needed.
Remember- wealth doesn’t evaporate it just changes hands- possibly at far different prices than we see today.
Mike Savage, ChFC, Financial Advisor
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1- EM, China Contagion Goes Systemic -Zerohedge 8/15/18