Another week. Another Fed meeting. More of the same. It is apparent that after the Fed meeting and the ECB announcement of raising their rates 50 basis points, (½ percent) as opposed to the Fed’s ¼ percent rate hike that the central banks are back at it- buying everything. How can I be sure? I can only look at the facts that the central banks are RAISING rates, yet global bond yields are FALLING.
The amount of “money” it would take to move “markets” the way they are being moved would have to be gargantuan. This is not mom and pop, this isn’t even hedge funds or major banks (although they may be helping). This is central banks. Who else would be buying debts that can obviously NEVER be repaid if the currency retains even a small percentage of its value? I believe that ONLY an entity that can conjure up cash out of nowhere would be so reckless. I guess it’s not too reckless when, if you wind up with 1 penny on the dollar, you still have more than you started with. In addition, they had to conjure that cash up out of nowhere and they are increasing the interest they earn on this “money from nowhere” so they are being enriched even more- at our expense of course!
I also find it quite amazing that our politicians can find billions and billions to fund wars around the world but can’t come up with a budget for their own citizens and have stopped funding Federal pensions because of a lack of funds. How is that?
Because the central banks are providing the illusion that the debt “markets” are stable it is giving the green light to the speculators. Even as our economy is getting horrible economic numbers in seemingly unending amounts the “markets” continue to rise in a manner that defies all logic. Of course, this illusion will be exposed at some point and the pain will likely be so bad at that time that generations will likely be shying away from most paper assets.
While most asset classes have been rising in tandem, I believe it is important to understand which assets are likely to stand the test of time and which are destined for the dustbin of history.
This is my take:
BONDS … There are many types of bonds out there so to lump this asset class into just “bonds” would not be fair. I will say, however, that I believe Many WILL BE DISAPPOINTED IN THE VALUE THEY RECEIVE FROM MOST BONDS because a bond is an instrument that pays interest and pays you back your principal at maturity. If you are getting paid back in a currency that has lost most of its value it is likely that even though the contract was honored you won’t be able to buy anywhere near what you imagined when the bond was bought. It appears to me the longer you have to wait for maturity the more that type of risk ramps up. All I would look at now would be high-quality short-term bonds. If the central banks ever lost control of the bond “market” most bonds would be toast.
STOCKS … There are probably even more types of stocks than bonds. I believe stock “markets”
will likely be hammered at some point- along with the bond “market” much like we saw in 2008 and 2022- but much worse. Having said that, I believe that there are many stocks out there that could prosper. Gold mining stocks, natural resource stocks, companies that provide necessities like food, water, energy, etc. Even these companies could suffer in a bad downturn but those with strong balance sheets and low debt levels would likely outperform and lead the way in a recovery. I trust good quality stocks more than bonds only because as we have seen currencies die around the globe (Argentina, Zimbabwe, Venezuela, etc.) we have seen stock “markets” rise dramatically in terms of the collapsing currency. I believe you would have a better chance at a decent outcome here than in bonds but ONLY if you are buying low-debt high quality companies over time. Bankrupt companies are lethal.
HARD ASSETS … I believe that the actual commodities will likely be the best performers over the next few years as the world shifts from figments of their imaginations to things that produce real world value. The world can’t function without energy, food and basic necessities. Since so much “money” has been conjured up out of nowhere- that has produced NOTHING in terms of anything useful and the trajectory is still pointing skyward, it is safe to assume that, as the supply of goods become more constrained, the prices for those goods could rise exponentially. I believe this is one of the few ways to mitigate the risks associated with depreciating currencies. Remember- prices don’t just go up- it is the purchasing power of the currency FALLING. We are seeing it in spades globally. Of course, those “in charge” need these current currencies to collapse so they can usher in the new CBDCs.
CRYPTO … While I think many have good intentions like having a non-centralized currency I believe that they will all be greatly disappointed. I have pointed out that these “assets” have no utility of any kind. That said, many have made a fortune with some cryptos but that is what happens in a PONZI scheme as I believe that is what this is. I am no expert but 1300 computer scientists from Google to MIT to Oxford wrote the US Congress a letter and espoused the same sentiment. I am all for an alternative system but I am highly critical of those “in charge” letting there be any meaningful competition in this space.
The BIS (Central bank of central banks) has mandated Central Bank Digital Currencies for all countries with a central bank by 2025. They are all actively pursuing this and many are already using it in national and cross-border transactions. I have read MANY BIS articles and white papers that suggest they will be the only game in town when it comes to digital currency.
I have heard many say that the BIS will use Bitcoin as their crypto of choice. They are GREATLY mistaken. I suggest that if anyone brings this up you have them look up Project MBRIDGE. This is the digital currency being established for all of the CBDCs by the BIS. I saw this back in October of 2022 and wrote “The BIS Hub Hong Kong Center, The Hong Kong Monetary Authority, The Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, and the Central Bank of the U.A.E. are working together to build a multi-CBDC platform known as MBRIDGE. A platform based on a new blockchain- the MBRIDGE LEDGER- was built by central banks to support real-time, peer to peer, cross border payments and foreign exchange transactions using CBDCs. Beware!
In the latest on January 12, 2023 in a BIS bulletin put out by Matteo Aquilina, Jon Frost and Andreas Schrimpf they say :
“Authorities may consider different-not mutually exclusive- lines of action to tackle the risks in crypto. These include containment or regulation of the crypto sector or an outright ban.” “A KEY OPTION IST TO ENCOURAGE SOUND INNOVATION WITH CENTRAL BANK DIGITAL CURRENCIES.”. While I am sure digital currencies are coming I wish they were NOT.
Personally, I believe the ONLY assets that will stand the test of time at least in the short (3-5 years) term is hard assets and solid companies that produce what is needed by all. Keep this in mind as we watch most assets rise as the economy sinks further and faster. When will it end? No idea but just like death and taxes it appears inevitable at this time.
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.
Bond prices and yields are subject to market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. There are special risks involved with investing in bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk, reinvestment risk, and unique tax consequences. To learn ore about these risks and the suitability of these bonds for you please contact our office. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk.
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