Most people are aware that the Fed, ECB, BOJ and most central banks have been “printing and buying” assets for years. They are also likely aware that the central banks have been artificially suppressing interest rates for years. What many people may not think about, however, is how this actually works.

The central banks can’t just declare that rates be low. They actually have to conjure up cash out of nowhere and buy bonds which creates artificial demand that would not exist without this “money” from nowhere.

Not only does this mechanism reduce rates and increase the price of the bonds but it also allows themselves and their buddies (mainly their owners- the major banks, and hedge funds) to borrow capital at nearly no cost and leverage themselves up to the moon. Keep in mind that leverage is GREAT on the way up but serves as greased lightning on the way down.

This leverage has led to massive distortions -mainly overvaluations- in most “markets”. This is likely why many call this the “everything bubble”. I would agree to a point. If you include gold, silver and other metals that are manipulated lower by paper contracts (also conjured up out of nowhere) I would call them an “inverse bubble” so, in my opinion, these assets are in a bubble alright- the exact opposite of the bubbles in most other assets that appear to be popping as we speak.

My guess here is that foreigners are seriously questioning whether the USA is making promises it can’t keep. In addition, I believe that they are questioning the prudence of holding US dollars and US-based assets when the government can seize those assets the moment that you don’t toe the line. There are many signs that the sanctions imposed on Russia have already boomeranged on us.

  • In March, according to the US Treasury, foreign investors pulled $90 BILLION out of US equities. That is more than 45% higher than the previous record (January 2022). It appears to be accelerating.
  • China and Japan- the largest holders of US Treasuries sold over $60 BILLION in US notes and bonds since January. We used to count on them BUYING. By the way, how will the government continue to spend if the Fed actually reduces its balance sheet and purchases less bonds? Who else will buy the trillions of dollars we need to fund our deficits? Keep in mind to reduce its balance sheet they have to SELL assets rather than buying.  Who will buy their “assets” when they could get better yields in the open market?
  • Saudi Arabia’s holdings of US Treasuries fell to a 5-year low. It also appears that they are cozying up to China (Selling oil in Yuan to China) and Russia (Defense pact signed just after our Afghanistan embarrassment). Keep in mind that the Middle East and Africa rely on Russia and Ukraine for most of their food and farming supplies giving Russia a lot of leverage there also.
  • Inflation in the USA is in a relentless uptrend with no end in sight caused mainly by Fed “Printing” but made far worse by the isolation of Russia and their commodities upon which most of the world relies on for energy and food needs. As I wrote last week, the global fight for critical  foodstuffs, energy and components have likely just begun with many exporters stopping exports of what they consider critical supplies for themselves.
  • Many European countries are paying for oil and gas in Rubles (mostly through a mechanism that allows those countries to go around the sanctions but paying in Rubles nonetheless). While we here in the USA are paying FAR higher prices for energy and electricity Russia has been reaping the benefits. Russia had a budget SURPLUS in the last quarter because of the higher prices they are getting for their oil and gas.
  • Most are probably unaware that 20% of all our electricity is generated from Uranium. Everyone talks about Russia’s gas and oil BUT the USA imports 90% of that Uranium from Russia.
  • My guess here is that the sanctions on Russia may serve up the same type of outcome that happened after Richard Nixon severed the US dollar’s convertibility to gold in August 1971. I am also seeing the same misguided “answers” by those “in charge” like price controls and making price increases illegal (proposed by Nancy Pelosi). Some people never seem to learn from history. Many of our “leaders” were certainly around when Nixon enacted price controls and all that did was lead to more scarcity of goods. If someone can’t earn a profit – or may even be forced to take a loss, there is certainly no motivation to produce.

I have to seriously question whether it is the miniscule rate increases causing the pain in our “markets” or if it is the fact that foreigners are dumping US assets faster than the Fed can “print up” the difference.  I also have to wonder if, because of all the selling, many may be getting margin calls which begets more selling of ALL assets because the margin clerk sells whatever is available to get the money loaned out for leverage back.

In any case it appears that the central banks have no answers that do not lead to massive pain for us regular people who are living this financial nightmare they have created. Having said that I firmly believe all of this is being done on purpose. I believe that a crisis needs to be created so that the BIS-mandated central bank digital currencies by 2025 will be being begged for by a population that will have gone through hell and will take any answers that those “in charge” may suggest- or decree.

Keep in mind how 21 food and fertilizer plants have burned down or blown up in the US since January. Keep in mind that Union Pacific has stopped delivering fertilizer now right when the farmers need it most. Keep in mind that, as we pay the highest prices of all time for oil, gas and food more oil leases are being closed. Keep in mind that the drought in the west and Midwest is leading to water shortages everywhere but is being made FAR worse by California allowing the flow of water to the Pacific ocean to save 2 species of fish. Their short-sightedness may lead to the demise of millions of humans. Keep in mind that, as president Biden released oil from the strategic oil reserve most of it was shipped to Europe as our prices skyrocketed. Keep in mind that the baby formula shortage was also man-made as the FDA shut down Abbott’s plant. The CEO said supplies would be replenished in 2 months IF the FDA lets them reopen. Of course, the infants of illegal aliens have been taken care of before our own.

As Greg Hunter would say: “This is too stupid to be stupid- it is EVIL”.

A major question should be is: When this all plays out what will be left? 5000 years of history tells me that commodities of all kinds (hard assets like food, water and energy) and gold, silver and barterable goods will be highly prized while paper assets will likely be relegated to the dustbin of history. Plan accordingly.

My main question- as always- WHAT IS THE VALUE OF A PROMISE THAT CANNOT OR WILL NOT BE KEPT?

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.

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.

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.

Diversification does not ensure gains nor protect against loss. Companies mentioned are being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk regardless of strategy.