The answer to nearly every problem in the past few years is “print” money. I remember when Covid first came out the central banks conjured up trillions of currency units. As far as I know, it didn’t stop the spread of the disease. As people’s incomes were decimated the central banks conjured up even more trillions with the click of a few buttons. This “money” is being sent out to make sure the masses don’t revolt- at least not for a while longer anyway.

This has all led to a massive chasm between the “haves”, the billionaires who have added $13

Trillion in “wealth” since the last meltdown and the “have nots” who are struggling to maintain their

lifestyles and has left those on the lower rungs already struggling to survive. This is a toxic situation.

The sad truth appears to be that we may just be in the beginning of the hard times that appear are coming

our way. In my trips to the grocery store and hardware stores I am seeing a marked increase in prices.

I am also seeing a lot of “We’re Hiring” signs. This conjured up “money” has a lot of people sitting around

collecting more than they have been earning by working. This is one of the large problems I see going

forward as industry after industry is getting impacted by a shortage of supplies or parts necessary for

production. If any part of the supply chain breaks down it can impact the entire chain as we are seeing.

It has been pretty well reported that there is a chip shortage that is impacting global automobile

production leading to higher car prices. Possibly more importantly, there is another industry that is getting

hit hard in multiple ways. Farming.

While cars may be a necessity these days it pales in comparison with our need for a stable food supply.

A silicone chip shortage has led to farm equipment manufacturers halting shipments to dealers.  This

means that the equipment dealers cannot even give a reliable estimate of when certain products may

become available. This is bad timing as most planting should be happening right now. In addition, in the

West, and now creeping into the northern plain states, is a megadrought condition that is reminiscent of

the dustbowl of the 1930s. This time is actually worse, because, according to NOAA the soil

moisture in Southwestern states is the lowest in 120 years.

There are many farmers in California (major produce producer) that are making decisions to destroy

certain crops so that others can survive or possibly not planting at all because of a lack of water.

This not only may cause a lack of product, which could lead to FAR higher prices but it is also destroying

current jobs on top of it.

This is not only happening here but also in Africa (Locusts destroying crops), Brazil is experiencing its

worst drought in over 20 years and the impact on coffee, sugar and oranges could be substantial.

Many companies have already announced future price increases and the increased cost of raw

materials and rising labor costs have not fully worked through the system yet.

Needless to say, if production is down and people still need the necessities of life prices are likely

to rise substantially- and soon. In my opinion the more the central banks “print” the higher the prices

will be and the faster monster inflation will arrive. We could be near a moment where we will see how

“printing” too much money becomes the disease- not the supposed cure.

There is one element that I believe could throw a wrench into the plans to “inflate away”. REPOS.

The Fed has basically been monetizing the debt for quite some time. They have been able to make people

believe that this is not the case because the major banks (owners of the Fed) would buy the newly issued

debt and would hold the asset collecting higher interest than was being paid for the bond. An easy way

to make a quick buck for the insiders. Currently, as of May 20,2021 the Fed’s reverse repo facility has

exploded to $351 billion. That is higher than at any time during the Covid crisis and the 5th. highest usage

of all time according to Zoltan Poszar of Credit Suisse. He also believes that this is an ominous sign that

the banks have run out of room to take on the massive amount of new debt being issued. If he is indeed

right there could be some major problems for financial assets- particularly domestic bonds and the US

dollar shortly as the illusion that the Fed is not buying virtually all of the newly-issued debt gets exposed

as untrue. A falling US dollar would cause inflation in the magnitude of the drop in value. While I believe

this is the Fed’s ultimate goal it could prove disastrous to all but the top 5% or so as common goods may

become scarce or unaffordable.

Many people are blissfully unaware of how close we may be to a meltdown of a magnitude we have not

seen in our lifetimes- not here in the USA anyway. There are plenty of examples in history which show the

outcome of our dangerous economic path. Many still believe that you can “print” your way to prosperity.

Or you can get something for nothing. History tells us a different story.

Personally, I believe those that see what is happening and understand it are going to buy real assets or

good solid companies that produce those goods.  Of course, there may be some value in bonds but my

guess is that the only real value left in bonds may be in emerging markets since they can’t just “print up”

whatever amounts they need to pretend they are solvent like the major economies.

As a matter of fact, there are many companies in the precious metals, industrial metals and energy

production and transportation that have great numbers now. If inflation continues higher those great

numbers may turn to really great numbers and outsized returns like we saw from 2003-2007.

For anyone thinking they may have missed out because of recent gains my guess is that you likely only

missed the first inning as it appears the only way to feign solvency is to conjure up exponentially more

and more fiat (backed by nothing) currency units.

Notice I call them currency units and not money because our Federal Reserve Notes are a unit of debt

Owed back to the issuer. That is why JP Morgan once said “Gold is money. Everything else is debt”

Doesn’t it make sense to have a decent part of your portfolio in hard assets that are not someone else’s

liability? Personally, I will take an asset over a liability any time.

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.