For years- at least since 2009- there has been a sense that our financial problems that were revealed in 2008 were magically “fixed”. Many times, in the years since then, I have written that the “fix” was merely an illusion that was made possible by the Fed and all central banks “printing and buying” schemes. That basically allowed us the illusion of solvency when, in actuality, we couldn’t even service the interest on our debt without “printing it up” and be able to have a functioning government. For that matter, we likely wouldn’t have anywhere near the companies that we do, many cities and states would have already succumbed to their crushing debts and many more people, if unable to go further into debt, may have gone bankrupt already. And likely most important to many is that a lot of pensions, which are drastically underfunded, may have imploded already if not for the Fed’s levitation act.
I have also written many times about the chasm that exists between the economic reality that we all live day to day and the fantasy numbers that are put out by “those in charge” to keep most of us as clueless as possible as to what is likely coming our way.
Just like all asset prices are an illusion so are the economic numbers being peddled by Wall Street and their masters at the banks.
Now that chasm appears to be so wide that it can’t be hidden anymore. Once people start paying $5.00 per gallon for gas, see their food prices skyrocket from 5-75% based upon what you are buying the “all is well” meme is blown up.
According to Bank of America’s Fund Manager Survey the sentiment on Wall Street is at its lowest level since July of 2008. What happened mere months after that I wonder? In addition, profit expectations are now as low as they were during Covid. The fund managers have done quite an about-face since last month. Currently 62% of fund managers are forecasting stagflation- more than double the amount from last month. Also last month they had 65% of managers expecting an economic boom in the USA (I don’t know what they are smoking but I have to get some of that) and this month only 35% are delusional.
Why do I say many of these people are delusional? They are SUPPOSED to be “experts” but just disregard the information right before their eyes. They spout less than 4% unemployment when it is actually 25%+. They spout the 10% inflation rate when it is over 15%. They are always surprised when mostly all of their projections are way off. The latest was the retail sales number which came in lower than expected but, possibly more important, and not mentioned in most places, is that if you take out gas and automobiles the actual number was in CONTRACTION. Sounds like a booming economy to me!
Remember over 70% of our economy is dependent upon retail sales.
For anyone paying attention to history the three biggest factors that have driven past recessions are an inverted yield curve, oil or commodity price shock or the Fed tightening monetary conditions. I guess it is apropos that, as we are in the largest “everything bubble” we have ever seen that ALL 3 may be taking place at the same time.
In the meantime, as big players are getting crushed with the volatility in commodity “markets” and a few entities have multi-billion dollar losses, those “in charge” are up to their old tricks. When the people losing are your buddies- you change the rules in the middle of the game. The LME was shut down for nickel trading for over a week. Not only was it closed but many trades were cancelled.
As it opened today it closed almost immediately at 5% down limit. Those that “thought” they made a life-changing fortune got a rude awakening in reality- the “market” is no market at all but a gambling casino where the house always wins.
So, let’s get this straight. If you have your money in the bank you are exposing yourself to a bail-in and you are losing purchasing power at 15% minus your interest rate.
If you have your money in bonds you have to count on whomever is making the promise to repay, that they are able to actually repay. In addition, you are expecting repayment in the future in an “asset” (US dollar) that is losing 15% of its purchasing power annually as we speak.
If you are in stocks some will do very well. In a rising market most will do well. In a falling market it is likely that only the companies with great balance sheets and great businesses will perform well. It is also likely that many companies in the next downturn will not survive. The estimated 20% of zombie companies (those that can’t service their debts with earnings but need more debt to survive) are most likely to go to ZERO. There is NO recovery from ZERO.
How sure are you that what you are holding won’t go to ZERO? How sure are you that you won’t have your assets confiscated? Can you be sure of anything since those “in charge” are changing the rules as they go and either freeze or confiscate assets of anyone who may disagree with their point of view?
All stocks, bonds and paper assets all have that one characteristic in common. They can, and often do go to zero. While hard assets can fluctuate wildly in value, they don’t go to zero.
Many may dispute that and say just last year oil traded at minus $40.00 per barrel. True. But that was traders in paper who actually had to take delivery and had nowhere to store it. Not real.
Isn’t it amazing that these “traders” produce NOTHING but create tremendous volatility, cheat people out of hard-earned income by manipulating the prices to their advantage and most times distort natural prices that allow for profitable production and wages? They “skim” and we pay.
Right now, it appears that there is massive stress taking place beneath the surface of these “markets” and it may be more important now than ever to be sure that anyone who is making a promise to repay actually has the ability to do it. I’m sure that a majority of investors will be stunned at the realization that there are tons of companies, cities, states, individuals and indeed countries that are making promises that have little chance of being fulfilled.
I’ll take gold, silver, the companies that mine them and other hard assets. With gold and silver I don’t have to worry about a counterparty and I have no fear of going to ZERO.
Confiscation? That we have no control over but I see a lot less risk here than in a place where my assets can be wiped out with a mouse-click.
What is the value of a promise that can’t (or won’t) be kept?
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.
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