I want to write this book to help anyone who wants to invest wisely to know what they are up against and to enlighten them to what actions they may be able to take to protect themselves from misinformation and manipulations that are taking place daily in the “markets”. I use the “ “ in markets because we have not had real markets for at least decades. A real market would be where supply and demand between buyers and sellers is determined in each and every trade. While many may argue that is what happens with each trade today, they would be grossly mistaken.
Early on, in the late 1990s, the central banks got overly involved in the markets when Long Term Capital Management failed, and it threatened the entire financial system- or so they told us. They were bailed out with around $2 Billion- which today would be a rounding error. In the 2000-2002 stock “market” meltdown the fun really started when the Fed started lowering interest rates to stimulate the “markets”. Keep in mind that even though the Fed and other central banks can control overnight lending rates they actually have to intervene (conjure up cash out of nowhere and buy bonds) to actually have an impact on yields and bond prices. This action alone distorts virtually all prices for stocks, bonds, real estate, etc. because we are in a debt-based system where most assets derive their value from the debt “market”.
This action led to lower bond yields and higher bond prices. It also stimulated the “markets” to new highs from 2003-2008. Since the boom was built artificially it collapsed in 2008 and most of the gains from 2003-2008 were wiped out in a matter of weeks. At the DOW low of 6000 the Fed stepped in and has been manipulating the stock and bond “markets” in ever increasing amounts ever since. Keep in mind that each intervention has to be exponentially larger than the last one to get the same result. Also keep in mind that this action is HIGHLY inflationary. It is surprising to me at how long this took to play out.
The sad part to me is that so many people have been lulled into a sense of security because of the actions of the central banks and have been conditioned to think that during every downturn the central banks will be there to turn the tide and keep prices rising. I believe that this will be the undoing of many “investors” as we move forward. What seems natural- because it has been taking place for so long- is actually TOTALLY UNNATURAL. The actions of central banks has destroyed any price discovery and has led to massive chasms between VALUE and PRICE for virtually all financial assets.
My take on this is that stocks, bonds and Real Estate are likely to collapse in price in the near future. I also believe that their VALUE will be exposed as being FAR less than anyone imagines at this time. At the same time, other assets (mainly hard assets) and gold and silver in particular will likely skyrocket when their true VALUE is exposed. My friend, Andy Schectman of Miles Franklin I believe has said it best- The banks and central banks are using price as a distraction to keep the masses away from purchasing gold and silver as they buy it all up themselves.
I believe that we are moving into a massive inflationary event here in the USA and probably in the entire developed world. I believe it will likely be the worst here in the USA simply because we are the most indebted nation that has ever existed and the source of our power (the US dollar and our military) are failing us as we speak. The BRICS (Brazil, Russia, India, China and South Africa) are challenging the USA and their allies and they are picking up steam as most of the world is tired of the US meddling in their affairs and starting wars all over the globe. They have also seen the use of the US Dollar as a weapon and are now starting to trade in local currencies and setting up new payment systems to bypass the use of the dollar in settling most trades worldwide. The reason this is so significant is that the use of the dollar in trade settlements is what has created the great demand for dollars and has allowed us to conjure up an almost unlimited amount without destroying its perceived value. I say perceived value because it actually has no value because it is actually a liability- not an asset. This is a FAR cry from when you could trade your paper for a real asset- GOLD.
My biggest fear right now is that the entire debt-based system is likely to implode upon itself and the repercussions of that cannot be overstated. They have “printed” us to death. It appears now that the more cash that gets conjured up the higher prices people pay are going to go. This tells me we are VERY near the end of this system where it is likely that NO DEBT BASED ASSET will have any value- or at least VERY LITTLE. The biggest problem is that EVERYTHING is built on this debt. It just could be the greatest investors in the future are those that lose the least in what is coming next.
One large problem is that even good companies could be destroyed by a debt implosion. Being over-indebted is likely the greatest risk that we face going forward. Obviously, if bonds get defaulted on those unsecured creditors will expect to be wiped out. This would be the case for ALL bonds. With corporate bonds many new “investors” are likely unaware that an over-indebted company that defaults on its debt, the first loser is the common shareholder. That would likely mean that if you bought the stock and paid no attention to the balance sheet and the bonds were defaulted on you would be wiped out with a 100% LOSS.
What would real estate look like with little or no access to credit or credit at rates FAR higher than they currently are?
Keep in mind that we are “printing up” money right now to pay interest on our debt, retire old debt, funding current bills on and off-budget for the Federal Government and sending billions to cities and states that are in great economic peril.
Many companies have borrowed FAR beyond their ability to repay but as rates continued lower the costs remained manageable. Now that tide has turned and as Warren Buffett says- When the tide goes out you find out who has been swimming naked. My guess is probably FAR more than we imagined!
More to come shortly!
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion 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 not 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. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.
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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.
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