One of these days we are likely to see the true state of the economy mirrored in the stock and bond markets. The only question is “WHEN?”. The reasons I believe we are getting very close are many.
Let’s start with the fact that, according to the Wall Street Journal over 100 MILLION debt payments have been missed since the start of the virus. (Around 3 months). In addition, over 106 MILLION have entered into either forbearance, deferment or some other type of relief. Let me ask you, in a GREAT economy would weakness be exposed this fast? In my opinion, not a chance. In an economy where everyone is living beyond their means this would be expected.
I am not expecting ANYTHING like a V-shaped recovery. I am pretty sure we are in the first inning of a nine-inning depression that could last years.
There are many talking about supply chain disruptions and since my wife is still afraid of the virus, I have been doing the shopping. I have noticed less meat being available and at far higher prices. I have noticed that the stores or not as stocked as they have been in the past. As prices are rising what might the fall look like when the “extra” stimulus money isn’t coming in for those who are now content to be making more on their couch than they did while working? Will their jobs even exist at that time?
If anything, it appears that the Fed will have to be firing up the money creation to even higher levels if you can imagine that.
Tweets about threats to China, or the China trade deal is going well, can move the Dow 500 points in either direction. Whenever the “markets” are falling a new headline (picked up by the algorithms) is put out to cause buying and stem the tide.
When things look really bad it appears that Treasury Secretary Mnuchin gets on the phone and tells “the boys” to start buying. I’m sure the trillions being conjured up out of nowhere by the Fed is not meant to sit idle but to help continue the illusion of a recovery. Don’t get me wrong- the economy is better than it was a month ago but if it were a patient in a hospital it would still be in the ICU. Remember my charts from last week showing the true state of the supposed V-shaped recovery. There was a V, but it was FAR below any normal economic activity and was only “way up” against an April print that was virtually non-existent.
The numbers are growing exponentially to keep the illusion alive. Trillions to foreign central banks in swap lines, trillions to banks to keep liquidity flowing, Trillions in Fed purchases increasing their balance sheet by $2.5 Trillion in a few months, purchases of all sorts of corporate bonds and bailouts of people, cities, states and nations. The ECB, Bank of Japan and virtually all of the developed market central banks are all doing the same thing. Let’s also not forget the massive debts being run up by the governments across the globe. Just here in the USA we have increased our national debt (that they admit to) over $2.2 Trillion in less than 6 months. I wrote a few weeks ago that we would be at $30 Trillion by the end of the year. At the time many thought that was far-fetched. Still think so?
The result- they are capping the price of gold to hide the fact that they are grossly debasing virtually ALL fiat currencies and they are preventing a collapse in the stock and bond markets- all with “money” from nowhere. Again, I have to ask, what is the value of an asset that is deriving its value from a virtually valueless asset? To me, conjuring up tens of trillions of anything at virtually no cost has to be deemed nearly worthless. Particularly when this “asset” creates NOTHING but cash for the insiders to buy existing assets with, or provide new “money” to pretend we can actually carry the debt we are already being crushed by, or keep the promises we made to the people who spent their lives building this country. This “printing” is stealing the fruits of their labor and enriching VERY few.
At the same time gold continues its ascent and the stock and bond markets are flailing around as the “markets” attempt to do their only job and discover true, value while central banks, banks and hedge funds “print and buy” to defer the ultimate reveal to a later date.
In the meantime the much of the rest of the world (those not getting cash from the Fed like the 50 central banks that have SWAP lines are) like China, Russia, Iran, and many others are preparing for the new reality that is likely coming our way.
Looking back at history we can see that every world reserve currency has had a lifespan. The US dollar has outlived most of the prior holders of that distinction already. It appears that with the reckless “print and spend” mentality we are hastening our own demise and inviting an alternative structure to take the place of the current dollar-dominated system.
The IMF, via Christine Lagarde in 2014, has hinted that a new system should be in place by 2021. Currently, they are also warning about a far more severe global slowdown than they had forecast just a month ago. In April it appeared to the IMF that global “growth” would be -3%. Today they estimate minus 4.9%. This is with central banks FLOODING the system with cash from nowhere. Can you imagine what it might be without that?
The EU, Russia and China have all set up alternative payment systems to bypass the SWIFT payment system that the US uses to impose its economic will on the rest of the world.
It was just reported that Italian banks will be participating in tests for a CBDC (Central Bank Digital Currency). In the same Zerohedge article it was also reported that the USA, UK, Sweden, Thailand and China are all studying this also. It should come as no surprise since if you are going to offer zero (or less) interest rates you wouldn’t want a bank run. With digital currencies the “authorities” call the shots.
If the banks need a bail-in? They take the money! Want to withdraw- they’ll likely tell you IF, When, and what amount they may be willing to let you have- assuming they deem you reason for wanting it meets their criteria of need. My opinion is that this is a dangerous road we are traveling down and most are totally unaware that our freedoms are at stake here- far more important than your cash balances.
Those who are getting the picture- like billionaires, central banks and major banks are preparing for a far different future than our recent past. Many are loading up on gold, silver, and life’s necessities. Those who are looking even further into the future- like the Chinese are buying up gold miners. They are already the largest gold producer in the world and are buying up assets across the globe. I guess if you can “print up” whatever you need at virtually no cost and someone will still accept it the right thing to do would appear to be to change the faux money into the real thing. ONLY gold has a monetary history that spans 5000 years. Just recently it was reported by GoldTelegraph.com that the Chinese bought Continental Gold with its main mine in Colombia, TMAC Resources in Canada, Guyana Goldfields in Guyana, and Cardinal Resources.
How many regular people thought to buy real money (gold or silver) with their “stimulus” checks? My guess is not many but if you follow what many at the top are doing you could have done at least a bit of what they are doing for themselves.
Anyone who still thinks that we will be back to “normal” anytime soon should really wake up, do some research, and figure out that things have fundamentally changed. A change in behavior may be in order. Old spending habits, old investing habits and even complacency should probably be addressed right now. The debt defaults that appear to be coming down the pike will likely change the landscape of our investments, our homes and even our country for a long time to come.
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