Weekly Article 01-03-2019
Many people use this time of year to make predictions for the year ahead. While it is interesting many times I don’t see much use in my making predictions about prices of assets particularly trying to pin down a time that a certain asset will reach a certain price.
What I do think makes sense is to review what it is we are seeing, try to understand why we are seeing what we are seeing, and then make some informed estimates of where the markets may go next.
Of course, with all of the interference from central banks, sovereign wealth funds and governments it has been a fool’s errand to try and understand where markets may go based upon both history and valuations. As I have written many times in the real world 2+2=4. In the new central bank dominated world 2+2= whatever the guy (or gal) “printing” the money says it is.
Anyone who, like me, thought negative interest rates were impossible were shown that anyone who can “print” money out of nowhere can manipulate anything if the manipulation is large enough. Nobody will buy an investment that guarantees a capital loss over time right? Well, if you conjur the money up out of nowhere at virtually no cost- whatever you get back in the future is a profit- quite a different paradigm from us working folks who actually have to earn the money and then after paying bills, if we have any left for investment, we can try to sock away money for our future. Of course, in our situation we CAN’T afford to buy an investment that would guarantee us a long-term loss- before inflation! If this doesn’t shed some light on how destructive this type of intervention is to regular people then I can’t really say anything else.
I believe we are now seeing major cracks in the bond market where deals are being cancelled and some deals that are going through are seeing a buying strike by the public and banks are having to hold these deals when they had assumed they could offload the “assets” on to the public.
Many people talk about the yield curve flattening or even inverting but possibly more important at this time is the yield spreads blowing out on high-yield bonds which shows risk-aversion rising. In addition, the repo rates (rate at which a central bank of a country lends money to commercial banks in the event of a shortfall of funds) has been spiking lately. On Monday, according to the GC Repo rate spiked to 6.125% on Monday after trading at 2.5% last Friday. That is a historic spike and is the highest General Collateral interest rate since 2001. This is almost 4% higher than the Fed funds rate.
This might just explain the Christmas Eve call from the Caribbean to the major banks by our Treasury Secretary letting them know to not worry about liquidity- because he likely KNEW there was a liquidity problem which has since manifested itself.
The stock markets are gyrating wildly and in my opinion it appears that the stock markets sense a problem and are trying to do their only job- determine fair value. In the meantime it appears that the PPT (Plunge Protection Team) or the President’s Working group on financial markets, which was set up just after the 1987 market meltdown to prevent another one by President Reagan, are doing their best to make sure that getting to what may be fair value doesn’t happen too fast. It seems every day lately the futures are down, the markets open down and voila! Buyers appear during the day to stem the rout.
If anyone was wondering if we have free and unfettered markets your answer is clear- NO and we haven’t for a LONG time. All the prices are fake. They are managed by a few entities that can make bets large enough to determine price and direction.
So, is there any good news? I believe the answer is YES.
While the economy is turning down- of course not in the mainstream media- all is well and it’s time to buy! Like always! Keep in mind some of today’s headlines that DON’T get reported on the financial game shows.
“Manufacturing ISM CRASHES Most Since Financial Crisis” Zerohedge
“Construction Layoffs Surge Most On Record” Zerohedge
“Global Economic Slump Imminent as Korean Export “CANARY” Crashes. Zerohedge
Yeah- all is well!
One area where there appears to be a glimmer of hope is in the gold and silver markets. Of course, I have reported MANY times about those “in the know” loading up on these assets and possibly preparing for a change in direction in the prices.
While stock markets are plunging globally gold has risen 4% in the past 30 days while silver has risen 7.46% in the past 30 days. Even the mining companies have come off the deck a bit.
The reason many are giving is that investors are seeking a “Safe haven” from financial assets. To some extent that may be true. But keep in mind that the same “money” from nowhere that has been artificially propping up stock, bond and real estate markets for years and shows signs of drying up- that same “money” has been used to keep the price of particularly gold and silver low. In my opinion this was done to mask what was really happening not only with the US dollar but most currencies- that they were being “printed” into oblivion. A rising price of gold in particular would have alerted investors to this so the price had to be kept low at all costs to keep the confidence in fiat currencies.
This is, in my opinion, another reason why bank after bank is fined for rigging the gold and silver markets but no one is being held criminally liable (so far) because they are likely doing the bidding of a higher authority like central banks, governments or both.
It appears to me that we may finally be seeing what we have been expecting for years- an end to the ability of central banks to control all prices. It appears that the debt burden that was placed upon all of us has reached its apex. Even “printing” “Money” to pay current interest and rolling over existing debt cannot mask that the debts cannot be repaid with currencies having the value they appear to have today.
As I have said many times before they can stop the “printing” and buying of assets and the stock, bond and real estate prices will likely crash. Or they can keep on doing what they are doing- getting larger and larger ALWAYS to get the same result and the currencies that are backed by nothing will become worth nothing at some point- as ALL fiat currencies in world history have proved.
I believe the US dollar is in a precarious position as we not only have used the dollar as a weapon against virtually all of the rest of the world but because of our politics we are becoming the world’s laughing stock. It appears this may about to become worse. In addition, many who have felt the effects of sanctions are actively working to not use the dollar in trade. Many countries are actively looking to NOT use the US dollar in trade. Some of the most active and vocal critics are China, India, Turkey, Iran, Russia and now even the EU.
Again, I will say paper assets can, and often do, go to zero. If you have real assets, the prices may fluctuate a lot but real assets rarely, if ever, go to zero. If you have only paper assets and your fingers are crossed that those “in charge” will have your back you may need a better plan than that.
It appears that 2019 will usher in many changes. Politically, Geopolitically, Financially and possibly even militarily. Don’t bury your head in the sand!
Mike Savage, ChFC, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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