Welcome to the 11-08-2017 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike discusses the illusions surrounding employment and business finances in the US.
All the way back in the 1800s Mark Twain (famous American Author) wrote that those who do not read newspapers were uninformed. Those who did read newspapers were misinformed. It appears to me that not much has changed in the last 120 years or so as today’s stories are massaged or possibly even made up to promote certain agendas. This is true of political stories, human interest stories and possibly most of all the economic stories that litter the main stream media.
Like clockwork the financial game shows release the reported numbers by those in charge and state them as facts. With just a little common sense anyone can see that many of these numbers just don’t add up. In the latest jobs report (October) it was reported that 261,000 more people were added to payrolls in October. That made the unemployment rate dip to 4.1%- by any measure a fantastic number. Of course, it was also reported that 365,000 people lost jobs. That is more than those that got new jobs but unemployment percentages improved?
Of course, not reported on the financial game shows, is that in October the labor participation rate decreased to 62.7%. That is near all-time lows. Keep in mind that these readings that they are being compared to are back in the 1970s when many women had not entered the workforce. Of course, the improving numbers were just arrived at by increasing the amount of unemployed people that are no longer counted. According to USDebtclock.org that number sits at over 95 million people who could work but do not. Many have been unemployed so long they have simply given up. But hey- look at the numbers. All is well!
In my opinion this gives people a very skewed view of what is actually happening in the marketplace.
Does it make any sense that business revenues are falling, more businesses are closing than being created (extremely unusual in the USA), retail stores are closing in record numbers but companies are hiring? The financial game shows will tell you that sales are going on-line. While more and more people shop online it is still only 10% of sales- not enough to explain away record bankruptcies and store closings nationally. It’s seems pretty simple- it appears people are being squeezed with higher prices for healthcare, taxes, food, etc. and are spending less on “things” and buying necessities.
It is also surprising to me that there is little mention of central banks buying up all sorts of assets now far beyond the purchases of government bonds. They are now buying up corporate bonds, stocks and other assets. In some cases these central banks are becoming majority shareholders in some major companies and major shareholders of ETFs. The central banks are on pace to add over $2 trillion into the stock and bond markets just in 2017. I rarely hear this mentioned as a likely reason that stocks have not had a meaningful correction in years. Of course, they can continue and they will own all assets as their purchases become larger and larger over time. If they stop, however, the entire system could seize up because this market appears to me to be addicted to “free money” to chase asset prices ever higher.
Look out when the drug addict (the market) can’t afford the drugs (virtually free financing) anymore. That could happen if interest rates rise in a meaningful manner, if companies, countries or states over borrow and default because they can’t service the debt, or any other number of reasons.
I am also looking at the situation in Saudi Arabia. It is reported on Zerohedge that $33 billion in banks accounts have been seized and many Saudi princes arrested. It is being reported as a coup- and it well may be. I also believe that the $33 billion will likely help the kingdom pay their bills as the price of oil has not risen enough to allow the royals to pay their bills and keep their promises to their subjects.
In an article in the Wall Street Journal it states “the crackdown could also help replenish state coffers. The government has said that assets accumulated through corruption will become state property, and people familiar with the matter say the government estimates the value of assets it can reclaim at up to 3 trillion Saudi Riyal, or $800 Billion”. (WSJ: Saudi Crackdown Targets Up To 800 Billion In Assets)
While many may think that this is just an isolated situation keep in mind that “bail-in” rules are global. In similar situations governments have been known to act in similar ways.
Of course the BIS (Bank for International Settlements) has been warning for some time that the level of global debts are dangerous and likely not sustainable. According to David McIlvaney the level of debt is 40% higher currently than it was in 2007. Does that sound like our problems have been solved?
The price of gold, which has been weak recently has seen gains since the Saudi situation has taken place. Could it be that people are viewing this latest action as a bail-in of sorts and want to get some assets outside where others can just abscond with their assets? Are people starting to realize that there are apparently no good answers of how to withdraw stimulus from the markets without disruption and they want to have exposure to an asset that is not correlated to the stock market?
There was a headline on Zerohedge which said that the largest individual buying of gold is taking place in Germany. That was surprising to me but then there are a few alive over there who remember the Weimar era and their paper money becoming worthless. One point I always remember when people are asked “How did that happen?” A shockingly simple answer but one worth heeding today. “Gradually and then all at once” There are many signs pointing to a market correction, a demise in the value of the US dollar, pressure on bond prices and at the moment they seem relatively benign. Remember that saying- it happened gradually and then- all at once.
Keep in mind that in Michael Belkin’s latest report (Hyperpyron) he has stated that the Nasdaq has moved to an absurd 60% higher than its 200 month moving average. Any way you look at it this is historical overvaluation.
Meanwhile, as I have stated many times gold and silver are being artificially repressed.1 Also keep in mind that, as a few are suppressing that price, many are taking advantage by buying as fast as they can. This list would include China, Russia, India, and many other central banks. It has also been reported that many large banks have also been adding tons of gold and silver to their vaults (for themselves).
As I have said many times- watch what they do- not what they say. If the people who are supposedly in the know are loading up does it make sense to have some sort of exposure to that asset?
Personally, I believe everyone should have some exposure to the metals if for no other reason than it will generally move in an opposite direction of traditional asset classes. If all heck breaks loose it could also help preserve your purchasing power.
I saw an interesting video where a pre-1964 dime was given away. They told the person who received it not to mix it up with their regular dimes because this dime (90% silver) was worth 13 of the current dimes or $1.30. This got me to thinking that this shows how silver has held its value. In 1964 you could have gotten a LARGE candy bar for about 10 cents. Today, that candy bar would cost between $1.00 and $1.50 depending upon where you bought it. That pre-1964 dime would still buy it because of the metal content. We value everything backwards- by the dollar price. We have been conditioned to believe that prices go up- not that the value of our currency is being devalued by “printing” it with reckless abandon.
I urge everyone to look past the “stories” and dig a little. The truth is hiding in plain sight. You just have to look for it.
Mike Savage, Financial Advisor
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1- Seeking Alpha “The Big Long- Goldman Sachs and HSBC buy 7.1 tons of physical gold” Also Ted Butler and others have done research on JP Morgan buying up huge amount of physical silver for themselves. Many other articles could be cited.