There are many people who are concerned about the trajectory of our economy and are expecting the price of goods to fall because of declining demand. In the past I would have likely agreed- but NOT today.
I believe that most people are taking the central banks at their word that they will continue to raise rates and start selling off assets rather than buying them. While rates have risen slightly the balance sheet of the Fed has GROWN $30 BILLION in the last 30 days. That is NOT shrinking but growing. I also believe that with stock “markets” having miraculous rallies at the end of down days, and BOJ, ECB and Fed all admitting to rigging the debt “markets” for lower interest rates, the numbers on the balance sheet we are NOT allowed to see is likely orders of magnitude higher.
There are others that believe our interest rates could rise to 20%- and they just may BUT the Fed would have to lose all control for that to take place. Many bring up Paul Volcker and his 18% interest rates as an example. The main reason I can’t buy that argument is that, at the time, the USA has a national debt of LESS than a trillion dollars. Debt to GDP was 30% while today it is more than 4X higher (admitted to) at 122%. The 122% is likely FAR understated.
In addition, cities, states, companies and individuals didn’t have ANYWHERE NEAR the amount of debt being carried today. Basically, raising rates to anywhere near where there would be a chance to tame inflation would wipe out most of the economy.
Basically, I believe-as I have stated many times, that the USA and indeed the entire developed world is now a banana republic where the only real solution (if you can call it that) is to try and inflate the debt away by “printing up” what is necessary to give the illusion that the country is still solvent and can pay its bills with what it produces. That has NOT been the case here in the USA for decades.
Just to give an example the year over year interest payments for the US government was just under $900 BILLION at the end of May. That is just interest- not ONE PENNY of debt reduction. As a matter of fact, our debt is GROWING exponentially.
The bottom line is that all we are seeing is an illusion and we are nearing a time when the truth will be exposed- that there is NO WAY mathematically that our (or the rest of the developed world for that matter) debts can EVER be repaid with our currency retaining almost any value at all.
TRANSLATION- The developed world NEEDS INFLATION to inflate their broken promises away.
For me, this means that those selling commodities- and in particular gold and silver will be greatly disappointed in the near future. Many people are asking me to time this and that cannot, in my opinion, be done. It is a rigged “market” like just about everything else. I will bring up, however, that Goldman Sachs has a $2500.00 price target for gold by the end of 2022. That may give us some idea of what others “in the know” believe.
Gold and silver miners have been slammed across the board despite being some of the most solvent and profitable companies on the planet. Again, anyone selling at this point is likely to be GREATLY disappointed going forward.
I believe that if you just look at the USA you see a country in total disarray and if that were all there was to it, I could buy the deflation story. The world is FAR larger than just the USA. We have entered into a paradigm where the world will be bidding for food, fuel, and finished goods at a time when supplies are tight, but “money” is loose all over the globe. In addition, the producers of such goods are getting tired of taking orders from those who create NOTHING of value but create chaos in the economy with their manipulations. In addition, those producing are realizing that they are doing the labor and those clicking a few digits on a computer are determining their fate.
This will likely lead to a major devaluation of fiat currencies and a major re-valuation of those currencies that have some type of physical backing or are produced by major commodity producers- like Canada, Australia, Norway, Russia, etc.
At the end of the day, I believe we are nearing the end of unbacked currencies and entering into a new paradigm where currencies backed by hard assets will be the currencies that will rise in value and get the goods that are being offered.
I don’t believe there could be a worse time for this to happen for us in the USA.
By definition, if this happens, everything that has tangible value will rise in price. I believe that the necessities of life may rise higher than we can imagine at this time. I also believe that there will likely be deflation in goods that people WANT rather than NEED as the basic necessities will be taking up most of the earnings of average folks.
For anyone contemplating giving up and going to cash keep these few things in mind.
For FDIC insured banks
- Money deposited is no longer your “money” but is an asset of the bank and a liability to you.
- There are bail-in rules in place so that in the next downturn the bank can turn your cash into stock of the bank- erasing their liability.
- With inflation at 15% real (8.9% admitted) you are losing purchasing power at a huge rate with the interest rates being miniscule.
For other forms of cash
- Here in the USA and across the developed world all currencies are units of debt- not YOUR asset but an asset of the central bank.
- There are no guarantees of the value of that currency and there could be large fluctuations in price vs other currencies and hard goods.
- Basically, with the situation as it is, there in NO WAY to preserve your purchasing power with a fiat currency.
Paper assets can, and often do, go to ZERO. There is no rebound from ZERO.
Hard assets, while they can fluctuate greatly in price, they always have VALUE. If you retain VALUE, then the price can always come back.
Personally, I have no faith in the central banks, their “printing” or computer blips. I do have faith in hard assets, companies and countries that produce them and in those that are looking to end the domination of the few over the many. What is the value of a promise that cannot, or will not, be kept?
The world is changing right before our eyes.
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.
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