Many people are wondering if this latest bounce in stock markets is a dead cat bounce or if it is the start of another leg higher in the markets overall. While no one can be 100% sure of anything, mainly because of the central banks interference in the markets and their apparent disregard for any consequences they may bring about, I am pretty confident that this latest rally is doomed to fail- and soon.
While the financial game shows come up with reason after reason to explain why the markets are rallying or falling let’s keep a few things in mind. The economic news globally- including here in the USA now could be described as weakening, weak or even dismal depending upon which reports you are reading.
I have heard people like Greg Mannarino opine that we are back in the Obama days when bad news is good news and stocks rise because that appears to mean that the Central banks will continue their easy money policies and act as a backstop against any problems that may arise in the markets.
A good question in my mind would be where were they in December? Or in 2008 for that matter?
Now it could be that the central banks were actually starting to trim their balance sheets in December and the result was what we saw. Since then, however, it has been reported that the PPT was activated (More than usual) and led to the largest one-day gain in DOW history on December 26, 2018. It was also reported that $68 billion was injected into markets on that day by pension funds. Since then, I have seen charts which show that even though the ECB and Bank of Japan have supposedly stopped QE, their balance sheets are still exploding higher. (Jan. 16 Zerohedge) This means that they are still “printing” and buying assets on a massive scale.
Just this week it was reported that the PBOC (China’s central bank) has added 1.14 Trillion Yuan of liquidity into the markets with 380 billion coming on Wednesday alone. Is it any surprise that markets rally with this type of manipulation?
It seems obvious to me that without continued liquidity injections from almost everywhere the ONLY direction these markets (stocks, bonds and real estate) can take is DOWN.
In the meantime, while it is becoming more and more obvious that central banks are painted into a corner, it appears to me that now may be the time to get as much gold, silver and miners as you are comfortable with.
As I have said in the past, and I think that the action we are seeing today demonstrates, faith in this fiat currency system is on thin ice. Regardless of whether we see inflation, massive inflation, or deflation it appears to me that gold and silver will rise. If it is deflation it is likely that most will realize that as prices fall debts are harder, if not impossible, to repay. In this scenario the metals would likely rise in a flight to quality (or an asset that is not someone else’s debt or promise to pay). Who can be trusted to pay?
If the central banks try to “inflate the debt away” with falling currency prices then inflation should be rampant and gold and silver should shine in that situation also.
Many may ask- “that already has happened- why are gold and silver not WAY higher right now”?
I believe the answer is very simple. The same “money” used to keep paper assets elevated are used to keep the price of the metals contained to give the illusion that all is well in fiat currency land. Eventually the chasm between the reported numbers and reality becomes so large that even the most disinterested person can see that something is not right. I believe we are very near that tipping point.
As we have seen in the past few weeks recently, and throughout history, gold and silver generally perform very well when confidence in the fiat currency systems wane as they appear to be in the beginning stages of doing right now.
I have said many times I would rather be years early than seconds late in being positioned for major changes. It appears that major changes are underway and when a majority realize it- it just may be too late to do anything about it.
Mike Savage, ChFC, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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