I had a meeting this week with two prospective clients and had a conversation that is getting more and more common. A few meetings have started with ”What do you think of the stock market?” I believe that this question is asked because they expect me to give a positive answer and to detail why buy and hold strategies are the way to go as most in my profession do.
As in many cases, these prospective clients were a bit floored when I give them my take on the markets and the artificially inflated valuations of stocks, bonds and real estate. I also explained that there is likely an inverse bubble in precious metals that are being artificially repressed.
The reason that this conversation was different to me this time was, that in talking to these folks, the husband had already started purchasing some physical gold for himself and was pretty up to date on the current state of economic affairs.
I was surprised to hear that the news that the consumer was “doing great!” resonated in a way I didn’t expect when the wife told me that she thought since credit card balances were at an all time high in July that it appeared to her that people were using their credit cards for daily living expenses. I congratulated her on her observation and agreed that since credit card interest rates are at an all-time high and people are carrying record- high balances it was a sign she was probably right-on!
I believe that most people astute enough to purchase even a small amount of the metals have educated themselves enough to see the value of having an asset that generally moves in an inverse direction of the stock market and has been used as money since the beginning of recorded history.
His wife, while somewhat onboard, was concerned about the gold but perfectly content with having “money in the bank”. It got me to thinking that even I sometimes view US cash as real purchasing power rather than my gold and silver. I guess it is because all transactions are done with cash or a derivative of cash and we have all been programmed to view the US dollar as the “real” money.
Of course, after a few minutes I realized that even though we have all been conditioned to view our dollar as real money it is not very real at all. It can be conjured up in the trillions at virtually no cost. Actually, Dr. Mark Skidmore of Michigan State University discovered $21 TRILLION missing just from the Department of Defense and HUD from 2000-2015. So far, no one has an answer on that one.
That “money in the bank” that you see on your statement is, according to the FDIC, an asset of the bank and a liability of the bank. Once you make that deposit the bank owns the money and simultaneously owes you the money. Oh- by the way- less than 10% has to be available as they do their fractional reserve lending. As a matter of fact, again according to the FDIC, you are an UNSECURED creditor of the bank. That means that in the event of a default you will be one of the last to be repaid. Of course, first would be the derivative bets of the banks which COULD render the banks insolvent right there.
Don’t worry though- they won’t just keep the money- you’ll get shares in the bank!
I recommend going to the FDIC.gov website and educating yourself about the bail-in procedures that are in place for when the next downturn occurs. As Jamie Dimon, CEO of JP Morgan said a few years ago It is not a question of if there will be another financial crisis- only when.
Mr. Dimon is as connected as you can get. His company, according to Ted Butler back in April had amassed 20 million ounces of gold and over 850 million ounces of silver in their vaults for themselves. I have also heard from friends in the physical gold and silver business since then that getting physical metals from the smelters is next to impossible because a “major bank” is taking all of the supply.
Next, looking at those stocks and bonds that I mentioned above we can clearly see that virtually all price discovery has disappeared in these areas because of the massive “printing and buying” schemes of the developed markets central banks. They have basically become the buyer of last resort and lender of last resort. The central banks are on a trajectory that would have them own most all of the world’s assets in the next few years if they keep the same trajectory up. I know I would if I could legally conjure up money out of nowhere and get real stuff for it. Who wouldn’t?
The problem is that prices for stocks and bonds have been bid up so high that the risk being taken at this time- and indeed for many of the past 5 years is, in my opinion, far greater than any rewards you may receive by the markets rising from here.
I believe we are quickly getting to a point where it will be obvious to everyone that we have reached debt saturation (we are carrying all the debt we can). Actually, we reached that plateau all the way back in 2008 and have been “printing and buying” the illusion of solvency ever since. Anyone who cares to question this let me ask you a question. If all really was “great!” why are we running trillion dollar deficits (grossly underreported), lowering interest rates here and globally, “printing up” money to pay bills, issuing new debt (from nowhere) to retire old debt and getting economic reports that look like they are from 2008?
Why are interest rates collapsing across the globe?
Why are gold and silver rising? Why, with all of the central bank “printing and buying” stocks, while near all-time highs, are still about where they were 18 months ago? Why can Japan buy etfs and stocks in the trillions of yen and yet the markets fail to rise meaningfully (6% over 4 YEARS!) (Marketwatch) My opinion is that the central banks are well aware of the situation. They stop- markets collapse. Keep going- look out for falling fiat currencies. While I believe they would like to stop I also believe they are too afraid of what might happen if they actually tried it- like that 20% drop in December when most central banks were still “printing and buying” up a storm. Really, just the Fed tightening was the catalyst for that. As I wrote at the time- It is now obvious that the central banks are trapped.
Further confirmation of that took place just today as the ECB has re-started QE again and will be lowering rates deeper into negative territory. Good luck with that. To me, this is an admission of abject failure- even though I am sure some hedge funds are doing some front-running trades as I write this which should give an illusion of a boost short-term.
I am pretty sure the Fed will be forced to show its hand at their meeting next week. It was reported by Gregory Mannarino that the Fed has already re-started QE but has not made that announcement as of yet. (They haven’t admitted it in public but their records show that it is taking place).
All of these actions are, in my opinion, very bullish for hard assets (REAL STUFF), particularly for gold and silver which have served as real money for 5000 years.
I believe that eventually the bond market will force the central bank’s hands. Lower and lower rates could negatively impact the economy by undermining pension funds and banks in particular or they could let rates go higher and the losses that will be taken by those same entities (and most everyone else) could also undermine not only the bond but stock and real estate markets also.
While we can’t be sure what scheme will be unveiled next I am pretty sure that whatever it may be will, at best, be a band-aid put on a broken leg. (It won’t help much- if at all).
Financial Advisor, Raymond James Financial Services, Inc.
2642 Route 940
Pocono Summit, Pa 18346
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