I am more convinced than ever that we are nearing a point where all that we have been anticipating for quite some time now is starting to play out. It appears to me that massive amounts of cash are being deployed to prop up bond “markets” and, in turn prop up stocks and real estate also.
In addition, even though gold has risen substantially there is plenty of proof in the daily charts that show the “off the charts” attempt to keep the price of gold capped. Many days there are dozens of smackdowns that cap the price. Even with all of the intervention the price of gold has risen 20% YTD. All of the tricks that worked in the past appear to be being undermined by the physical demand for the metals.
In addition, even with all of the effort going in to kicking the asset bubble even further down the road the stock “markets” appear to be in a managed implosion state which in reality is far superior to an outright crash. Markets do not like uncertainty and uncertainty abounds!
As far as housing goes, I really do not care if rates go up or down the prices have to fall. Why? Because regular people holding regular jobs cannot afford the prices where they are today. In addition, the proposed “solution” is lower interest rates. Keep in mind if interest rates are lowered the cost of EVERYTHING will rise making home affordability WORSE- not better. It is not just the price of the home that makes ownership unaffordable but rising costs for taxes, food, electricity, gas, insurance, maintenance, etc.
Many people had the idea of buying homes and renting them out short-term. My opinion is that this WAS a great idea. Today, with the economy in freefall and layoffs growing exponentially a lot of those short-term renters will not be showing up. A few friends who have some of these properties are already experiencing a slowdown. Bottom line: If you own a property that is unencumbered (no debt) you have an asset and will likely be fine in a downturn. The more debt that an “owner” has the more likely that “asset” will be more like a liability and the property may have to be sold.
I firmly believe that we are entering a period where financial assets are in a situation where the upside appears limited, the downside could be FAR lower than anyone would dare mention. On the other hand, it appears to be the exact opposite for gold, silver and other commodity and natural resource positions.
In looking at history just about everyone has read about the Great Depression from 1929-1937. It was the first time that the government and central banks REALLY went all-out to try and manage their way out of a depression. What is RARELY mentioned is that there was a more severe depression in 1921 where virtually NO action was taken. In 1921 unemployment was WORSE, wholesale prices plunged 36.8%, consumer prices fell 10.8% and farm prices fell 41.3%. Keep in mind virtually NO ACTION was taken and the economy recovered so fast that nobody even brings it up. (Source: Goehring and Rosencwajg)
The point? All of the intervention by central banks, governments and major banks actually hinders the economy from cleansing itself and creates booms and busts. This is important to understand when we look at the booms and busts in the last one hundred years (The Fed has been around since 1913).
History does not always repeat itself, but it often rhymes …
Great Depression 1929-1937
Speculative frenzy of new technology- mainly radio stocks with RCA rising from $1.50 in 1920 to $505.00 in 1929.
Stocks dropped 90% from their highs and did not recover from that high until 1954.
If you bought commodity (hard asset) stocks at the absolute high your investment would be up 100% in 1940 while the S&P was still 50% below its all- time high. Gold stocks rose 525% during the period from 1929-1937.
Removal of gold backing of the US dollar 1968-1980
While gold-backing was officially removed from the dollar in August of 1971 the writing was on the wall with “guns and butter” policies. During this time, the S&P moved up 50% but natural resource stocks rose 500%. The mania of the time was semiconductors with Fairchild and Intel leading the way.
Dot-com boom and bust.
Led by Cisco which had 100% returns year after year in the 1990s. The Nasdaq fell 80% and took 15 years to get back where it was in the year 2000. Anything with a .com after their name skyrocketed- even many companies that never earned a penny in profits- EVER. In the aftermath commodities outperformed traditional assets. Actually, in 2000 the other indexes did quite well until the 9/11 jolt in 2001.
Financial Crisis of 2008
Just about everything was impacted by the seizing up of the credit markets. When the DOW hit 6000 and the S&P hit 666 the Fed stepped in and have pumped trillions- and hundreds of trillions if we include the other central banks into propping up asset prices- mainly stocks, bonds and real estate (what those “in charge” own and what is used as collateral for their loans). What is the actual VALUE of these indexes? I do not believe anyone knows but if insider selling tells us anything- or Warren Buffett holding a record amount of cash- more than likely the PRICE has no correlation to the VALUE at all. Between 2007-2022 the Fed’s balance sheet exploded from $900 BILLION to $9 TRILLION. This means they bought over $8 TRILLION in positions. This does NOT include the $29 Trillion given to their owners- the MAJOR banks during this time. These actions have led to …
The Everything Bubble
It appears to me that all assets are being manipulated and there is literally no price discovery at all. This leads to greater and greater malinvestments in the latest fads and stories. Today it is eerily similar to the 1990s NASDAQ situation where AI is now the mania. There is speculation that Deep seek has undermined the AI story and may lead to some serious disappointment in this space. Trends forecaster Gerald Celente has stated that Dotcom bust 2.0 has begun. Time will tell.
The point is that in every case where a mania is exposed the assets that make up the mania and the financial assets that prop it up fare poorly in the aftermath while hard assets perform exponentially better.
Today, even though we are in the late innings of this latest mania gold has already been the #1 performing asset class since the year 2000. This is because gold just keeps it VALUE. The price indicates that the currency you are using to buy it is FALLING.
This is one major reason so much effort goes into keeping the gold price suppressed so that those that see it do not get a clear picture of how the fiat currencies are being destroyed. Rising prices are not a natural occurrence. It is man-made by debasing the currency. As advancements are made prices should FALL- not rise. A great illustration off this would be from 1800-1900 with all of the advancements in farming and transportation a basket of goods that cost $200.00 in 1800 cost $100.00 in 1900. Why? The currency held its VALUE and advancements in technology allowed greater productivity and supply.
Most people do not see a paradigm shift until it is WELL underway and most miss the best opportunities because they are still expecting the same outcomes that have taken place in the recent past.
Those who fail to see this change coming are likely in for a long, hard ride.
Be Prepared!
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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