While there is PLENTY to write about this week I believe it is imperative that I write about what makes the most sense to me with virtually all assets collapsing at the same time.
First of all, I believe that ALL we are seeing is a carefully crafted illusion. The dollar index (DXY) is giving the illusion of a “strong” US dollar. Of course, it IS strong against what it is measured against- like the plunging Euro and Yen. This gives those who manipulate the “markets” the headlines they need to promote their agendas. In addition, it helps them keep the paper price of gold suppressed because many hedge funds and programs will be programmed to buy dollars and sell gold- paper gold, of course. This helps the price-suppression scheme by putting downward pressure on the gold paper price.
In all reality the US dollar is losing value-just at a slower pace than its competitors. If the US dollar was, in actuality, STRONG would they admit to nearly 10% inflation? In reality, it is closer to 20%!
This leads to the conundrum of trying to avoid losses in risk assets as they are clearly under pressure at this time and sticking your “money” into a bank or money market where you can’t earn anywhere near enough to keep up with the relentless inflation that is taking place.
This is the reason that I believe that hard assets- mainly gold but also silver can play such an important role in what appears to be heading our way. Even though they have joined the downdraft party recently it is my opinion that the downside remains limited while the upside potential is astronomical- particularly when the SHTF which could happen at any moment.
To me, silver is the most undervalued asset on the planet as it is utilized in most modern technologies and has also been used as money in the past. If the idea is to buy low and sell high silver seems to me to be a screaming bargain.
Gold has been money for 5000 years. As fiat currencies have risen and fallen, the one constant throughout history has been the value of gold and its ability to retain purchasing power over time. This is likely the reason that families that pass multi-generational wealth have done it mainly with GOLD, Art and Real Estate.
As citizens of countries that have seen their currencies collapse can attest, gold and silver were extremely important to have. I have written in the past where in Venezuela you needed 3 MILLION Bolivars to buy a cup of coffee a couple of years ago while an ounce of silver would feed a family of 4 for a month. By the way, this was when you needed over 80 ounces of silver to buy an ounce of gold in US dollars.
As we speak, the US dollar looks strong because the two currencies that are most heavily weighted in the DXY, Euro and Yen are collapsing. Forget that the DXY shows them falling and just look at the inflation rates in the Eurozone in particular.
For those in bonds I would be very specific which bonds to own and I doubt that I would find many in the developed “markets” that I would be comfortable owning. Even with massive (unprecedented actually) interventions by central banks “printing and buying” there is upside pressure on rates which generally lead to LOWER bond prices.
For those in stocks, I believe that there are many stocks that have a great opportunity to recover and actually provide solid long-term gains. In my opinion, the most likely to fit this bill are companies that produce the things we humans need to survive and those assets that people may crave in a crisis scenario- like gold, food, energy, etc.
I also believe that the days of throwing darts and thinking we are “smart” is over. I believe that those who will recover from this will be those who know what they are buying and are focusing on good fundamentals, strong balance sheets and good management. There are MANY companies that meet that criteria- it’s just not the ones most people have been buying.
Finally, I was on a call with Goldman Sachs (Thanks Susan Torrisi for the invite) and there was a segment on commodities where many of my thoughts were confirmed in my mind. Their “experts”, including, Brad Kline, who has over 30 years experience and over 50 years of data to go by mentioned that in those 30 years and 50 years of history he has NEVER seen a supply deficit in so many commodities- many at all time record level lows of inventory.
One main point was that he said that over his entire career he has never seen a scenario where a supply deficit has not led to higher prices. I guess there is a first time for anything but history is pointing to far-higher commodity prices and in my mind collapsing currencies will likely add fuel to that fire.
I also believe that a stronger dollar is putting pressure on those that produce those commodities and could lead to even further shortages going forward.
I guess what I am saying is that in a situation like this it is easy to get scared into making decisions that, in hindsight, you may regret. I believe it is likely that many good companies that are down have a good chance at recovery that may far outpace the few cents you may make in an interest-bearing account. Of course, there could be some downside first but timing the “market” is in my opinion- a fool’s game.
While gold is down around 5% in dollar terms as I write this (it has large gains in other currencies) it is still my #1 idea for preserving wealth and allowing me to own an asset that I don’t have to count on anyone else’s promise to pay or repay. It also gives me the opportunity to recover any losses over time which, at this time, fiat currencies do not.
What is the VALUE of a promise that cannot, or will not be kept?
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.