We are getting multiple warnings from major banks like Morgan Stanley and Bank of America that the stock “markets” are overvalued and are due for a fall. Now, even the Fed is out there warning the same thing as in a recent whitepaper they said they expected “significantly lower profit growth and stock returns in the future”. This certainly is no surprise since the economy has been struggling for years and the collapse is increasing in momentum. In the past 2 years we have seen real wages DROP for 26 straight months. While some are making more “money” the inflation is outpacing any income increases. This information is using government numbers which are GREATLY massaged to make things look far better than they actually are.
We have our “leaders” telling us that inflation is slowing down. In reality, the PACE of inflation is somewhat down, but that is in large part because of the reduced price of oil which impacts most of our economy. This has been in large part because of most developed economies releasing strategic oil reserves. Here in the USA, we have released oil for 15 weeks in a row now. This is obviously not a long-term solution.
We are seeing commercial real estate going through a slow-motion train wreck as many companies are handing the keys to the banks and walking away mainly because of higher vacancy rates and higher interest rates which are a one-two punch that makes the transaction unprofitable. Consumer spending is down. If we were to take government spending out of the GDP numbers, we would be in collapse mode. Keep in mind “government” has no money- it has to be either taxed or conjured up out of nowhere. You can guess the path they are taking!
I am sure that many are sitting here and thinking that I must be crazy because it has been this way for so long that this just seems normal. The worse the economic news gets and the weaker the economy becomes the higher the stock indexes seem to rise. While that is true, keep in mind that most of the recent rallies have been on the backs of just a handful of companies. This hides the rot in many companies as most “investors” keep an eye on the indexes alone. Without those entities that have been propping up those indexes many people would have a different point of view. I also have to believe that over time either the economy has to explode higher to compensate for the stock valuations or the stocks will have to fall meaningfully to close the gap between the economy and the “markets” as the chasms are growing wider day after day.
What this comes down to is that the Fed and many other central banks have been rigging the “markets” higher by buying bonds and keeping rates artificially low and buying ETFs and stocks outright. Doesn’t it seem strange that, as the Fed is raising rates, every time the “markets” start to fall some entity that has MASSIVE cash firepower gets in there and lowers rates? Just as an example, last week the 10- year Treasury yield was 4.06 on July 7th. and as I write this on 7-13 it has FALLEN to 3.86. Since then, the “markets” have rallied. There are only a VERY few entities that could move rates like that because it would take billions to move rates like that. Another major red flag for me would be why would anyone buy a 10-year bond at 3.86 when they could get a T Bill with one year or less maturity with a yield of over 5%?
To me it appears obvious that “money” is being conjured up in massive amounts and the rigging is in full swing. While the central banks talk about their “tools” they really only have one tool. Print “money” and buy stuff. All else is fluff. The problem is that this creates all sorts of mal-investments and will likely cause a MASSIVE revaluation to real value at some point. I believe we are seeing the start of it in certain areas.
I believe we will be revisiting reality soon. At that point it will be extremely important to be doing your homework while trying to maneuver through a reality that we haven’t seen in decades. I believe that those who do their homework will have opportunities presented to them that could create life-changing wealth while others who believe that the Fed and others have their back will likely be greatly disappointed as companies with large debts and cratering earnings (if they ever had any) will cease to exist and will take many “investors” money to money heaven. (That means it will be wiped out with no chance of recovery).
I remember being in High School and sitting in a class where “The Wizard of Oz” was explained to us for the first time. I had no idea that the movie was actually about the Federal Reserve until then.
The actual “wizard” was a play on the money “printers” of the day. There was a time in our country when the masses understood that fiat (backed by nothing) “money” actually had no value on its own, but its value was derived from the fact that you could trade that piece of paper for something real- gold. Of course, that all changed in 1971 when President Nixon “TEMPORARILY” suspended the ability for creditors to trade the paper they held for gold. I have to wonder how temporary this actually is since it has now been 52 years next month since the edict was issued.
Since then, those “in charge” have done all they could to keep the price of gold and silver suppressed while trying to keep the US dollar propped up even as they have conjured up tens to hundreds of trillions of “money” backed by nothing but the ability to tax us to pay the interest. They have done a great job of fooling everyone that those units of debt that we hold- whether they be dollars, euros, yen or whatever that there is any intrinsic value there. The rest of the world is getting wise to the fact that they have been doing all the work and the money “printers” are reaping the rewards. The BRICS are meeting August 22-24 in South Africa. According to Russia- via RT they are going to announce a gold-backed currency. While this may not cause an immediate problem for our beloved (only by us) dollar the writing will be on the wall. I know that if I was producing a real good and can get paid back in real goods or at least with a currency backed by a hard asset I would take that over a paper promise any time. The clock is ticking.
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.