Weekly Article 02-14-2018
Wow! That is all I can say when I watch what is happening in virtually all markets right now. It is apparent to me that this current trajectory cannot continue much longer.
The stock markets have seemingly stabilized in the last few days- mainly on the back of further spending that we cannot afford- this time from an infrastructure bill. While rebuilding our infrastructure is, in my opinion, a noble idea it still needs to meet certain tests as to whether it can actually work.
After seeing the highlights my doubt-o-meter is on high alert. The “plan” includes $200 billion from the Federal government and will count on state and local governments as well as the private sector to actually pull off the plan.
I guess Mr. Trump didn’t think about the finances of most states which are crumbling under their own welfare payments, underfunded pensions, and rising costs for maintenance of what is already there.
Keep in mind that state and local governments can’t “print up” their own money which is a major reason I believe that a possible black swan event could start in any number of states when the bills truly can’t be paid. California’s governor Brown has already stated that in the next crisis pensions will be on the chopping block.
It appears to me that state and local governments as well as many in the private sector are at peak debt. That just means they can’t handle any more.
I have also said that the dollar is likely to become far weaker in the near future. These type of events lead thinking people that are looking ahead to expect money “printing” in massive quantities. This should lead to a far lower dollar and higher prices for hard assets. I also can’t believe that the politics of our once great nation, that makes us appear to outsiders as a Banana Republic, is helping the dollar’s value either.
I heard an interview with Jim Rickards- author and Lawyer discussing the IMF meeting in April that appears to be leading to more power in the IMF for the BRICS countries- the same countries that are already setting up trading and barter systems outside of US dollar influence. I have to question also if some of this US dollar weakness is due to selling in anticipation of a move against the dollar in the near future.
It appears to me that the world is now hip to the idea that the USA has gone far past any reasonable actions with their currency. It is not widely reported so many don’t know that $21 TRILLION is missing from the pentagon. $24 Trillion has been given to global banks. Guess what? These numbers show up nowhere on our debt sheets but yet they are out there. If not for Ron Paul getting GAO-11-696 Federal Reserve System report I wouldn’t have a list of who got the first 16 trillion. This was supposed to be a secret!
In my business a word I can’t use often is “guarantee”. I will, however, guarantee that we regular folks have NO idea what a precarious position our central bank has put us in. The sad part is that the world at large is in a similar position.
I also saw an article on King World News today which showed that hard assets are at an all-time low against financial assets. It’s not too surprising since the financial assets are being artificially propped up but the level is stunning. With inflation starting to ramp up commodities could be in for a large move.
According to the charts I have looked at there is a large chasm that has historically been filled in as cycles change.
I believe that as the confidence in our current fiat money system is questioned people will start to demand real goods in exchange for real goods. It will become apparent to many at some point that the “printing” of money has been used as a prop for some assets and as an anchor for others.
As bond yields continue to rise will the central banks sacrifice the stock market for the bond market?
Will they continue to try and prop both up? How much “money from nowhere” will that take?
It seems like a vicious cycle that the Fed and other central banks have created for themselves and unfortunately- also for us!
It appears that there are two choices- keep “printing” to infinity which I believe is most likely or pull back on the stimulus and there would likely be a reset in the price of assets that no one may ever forget.
I have talked for years about the suppression in the prices of gold and silver. Many are joining my chant that silver is likely the most undervalued asset on the planet.
It appears to me that in case they “print” to infinity it is a good idea to have some hard assets such as silver, gold, food, etc. Even if they stop I believe it could lead to a loss of confidence in most being able to pay off their promises. This would also likely lead to far higher prices.
If the bond rates continue to rise it will likely cause problems with bonds obviously because as rates rise the price falls. It will cause problems with stocks because margin is more expensive and share buybacks become more expensive. It will hurt real estate because rising rates mean higher payments. This means the price has to be lower to be affordable. Of course, incomes have not come close to keeping up with housing costs for years which leads to even more weakness.
More importantly, this system is so over-leveraged right now that a problem in any area could be enough to cause problems for everyone. I wrote a few weeks ago about muni etfs where any person buying it would expect it to be a conservative investment. Not quite when you have 100% leverage. In looking at many of these products companies are using leverage to get yields that APPEAR juicy but at what level of risk?
We are at an inflection point. I can’t say when but the world’s economy has got to come to grips with the fact that adding more debt on top of too much debt already to give an illusion of solvency can’t work forever even though it’s gone on far longer than I could have ever imagined.
Possibly some diversification would be a good idea at this time.
Mike Savage, ChFC, Financial Advisor
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