How can we prepare for the financial future? When properly prepared, some can make it out ahead in case a crash in stock and bond markets occurs. Read advice from Mike Savage, a financial consultant in Pocono Summit. Contact Mike today if you have any questions about your own financial future.
Weekly Article 10-10-2018
Last week I had a bit of a rant about how our economic condition and how our standard of living has deteriorated over the past 40 years or so. I also said that this week I would attempt to put forth a few ideas about how some planning may help us prepare for the next chapter in this saga.
Keep in mind that over the past 40 years or so we have seen larger booms and larger busts taking place as we have gone along. Many lessons that should have been learned by these booms and busts were not learned because of bailouts, easy money and a larger bubble taking the place of the previous one in each instance.
Many people should have learned what happens when companies you own stock in fail. You generally lose your ENTIRE investment. Many bondholders SHOULD have learned that same lesson particularly in 2008 and 2009. Of course, because of the magic of “printing” money from nowhere companies that should have failed survived and many that took a more prudent path were not helped. Indeed, many smaller, leaner firms that could have been today’s leaders were choked off by the largesse of those in charge.
It appears to me that many believe that because the illusion has held for so long that negative consequences will never arrive. The fatal flaw with this thinking in my view is that while the massive amounts of “printed” wealth that has provided cover for a lack of economic activity and commerce in the real economy, it has had to grow exponentially to keep up. It appears to me that we are at a point where all of this excess debt is starting to impact the real economy in a way that instead of providing stimulus is actually starting to be a drag. As rates rise that drag will become far more pronounced.
Just imagine what rates might be for all types of debt had it not been for tens of trillions of dollars (and other currencies) being “printed” up and deployed into stock, bond and real estate markets. But most of all the bond markets. Once central banks pull the plug on price discovery for particularly government debt the price of all assets become detached from economic reality.
It appears to me that we are headed for an asset price reset. What that means is that the artificial prices that have been a part of our daily life for the past 10 years will likely reprice themselves to a more historical norm. In my opinion that will be WAY DOWN from where those asset prices sit now.
Based on the past couple of days trading it appears we may be approaching that reset. I am not holding my breath, however, because I have thought this in the recent past also. I am content in my belief that it will arrive at some point and am prepared for that event.
Many ask me “should I short the market?” Regardless of which market they may be asking about- assume S&P 500- my answer is no. Many may wonder why, if I expect the market to actually crash, why not short it. My answer is simple. We have central banks conjuring up money out of nowhere in virtually unlimited amounts and many are buying stocks as well as bonds. In addition, I believe these people know where shorts are going to have maximum pain inflicted on them and they can drive prices to make those short the stocks pay. In other words, I believe the market has been rigged higher and those in the way- in my opinion those looking at actual economics- have been left as road kill. The shorts have been decimated by free money and virtually no limits on the central banks.
My thinking here is that there are some great companies that, at current levels, are overpriced. Some by a lot. Personally, I would rather be patient, wait for the price to come to me that I am waiting for and buying some of the best companies around when they finally go on sale. This has tested my patience but I still believe that my price targets will be hit at some point and I will be happy to own some fine companies for what will likely appear to be bargain prices even though they will be fair prices in my opinion.
Many have asked why not go into massive debt and repay with a cheaper dollar in the future.
My answer is that this is a scenario that MAY play out and may not. If you don’t get to that cheaper dollar in time you may default on the loan and the assets you thought you owned will revert to the real owners- the banks that lent the money out. My opinion is that this is the path they would like us all to take!
Many know that I believe gold, silver and the companies that mine them will be winners when the price reset takes place. I believe the returns will be larger than many can imagine because the price suppression has been going on for so long. Again, central banks, major banks and governments around the world are loading up as we speak. What do they know that they don’t want us to know?
Other assets that I expect will be great things to own- again not necessarily at current levels- are companies that produce things that are needed for human life. These assets would include food production, water production and delivery, energy production and delivery, and housing.
I also believe that we should all try to be as self-sufficient as possible. This means being able to produce at least some food, be able to filter water and if possible have access to an alternative energy source.
Let’s keep in mind that the same underlying conditions that existed in 2007-2009 still exist today but are far larger in scope. The debts were never retired- as a matter of fact they have more than doubled since 2008. This is globally. There really isn’t any safe haven when it comes to paper assets anywhere. The world is drunk on debt and leverage. Some places will likely outperform going forward- most likely those with the least amount of debt to encumber them. Hint: It’s not the developed markets.
I have said in the past I believe in a system reset you may not have access to your assets for a period of time. I have also said that I believe the authorities know that this is inevitable and are likely ready for it. This is why I don’t believe it will be weeks or months but likely days that we will have to be prepared for with extra food, water, cash, etc. Remember in 2008 when deliveries were stopped until a bailout was constructed.
I also believe that in a situation like this many will panic and the incivility that we have seen so far will look like a walk in the park. I have heard it said that in a crisis your assets become your liabilities. Those who know you have assets just may come looking for them. I believe it is far better to have everyone believe you have nothing. Prepare in silence!
While the idea of what may appear to be a crash in stock and bond markets can be daunting to think about, it is actually a time that will likely create great opportunities for those that have been thinking ahead and have purchasing power at that time.
Mike Savage, ChFC, Financial Advisor
Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Any opinions are those of Mike Savage and not necessarily those of RJFS or Raymond James. Expressions of opinions are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do n ot guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. There may be sharp price fluctuation even during periods when prices are overall rising. Precious metals, including gold are subject to special risks, including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.
Diversification does not ensure gains nor protect against loss.