There are many times that I think that my business is similar to trying to predict the weather. Unforeseen circumstances can always change the forecast. In watching major hurricanes, we can sometimes notice a weather pattern that keeps a major storm at sea or the lack of any resistance and landfall takes place.
Meteorologists always have models that they refer to and usually give a multitude of outcomes based upon the path of the storm and other moving parts that could impact the movement of the system. Many in our industry use what they call a Monte Carlo simulation which figures out a multitude of different outcomes based upon the information put into the system to make a guess as to what chances a given portfolio will reach the goals that have been set up.
Every once in a while, a major event takes place that seems to change everything.
Imagine a beautiful sunny day in the South Pacific and you are lounging on a beach without a care in the world. Life is good. Now picture a few hundred miles offshore an earthquake that you have no idea took place. Where you are is a tropical paradise with no end in sight to that beautiful day. All of a sudden, a large wave appears in the distance. It piques your interest but there is little cause for concern. The beach is wonderful! A few minutes later, it appears that a HUGE wall of water is on its way and try as hard as you may to get away it is too late.
The forecast was for a beautiful, sunny day and it appeared that the weatherman made a great call- until the unforeseen event took place and ended the day in disaster.
As we watch the financial game shows, our mainstream media and even many of our so-called “leaders” we are constantly being reminded that the economy is always a sunny day without a care in the world.
Just a few days ago Janet Yellen (Treasury Secretary) who was a former chairperson of the Federal Reserve and is somewhat famous for quotes such as “I don’t expect another financial crisis in my lifetime” in 2017, Inflation is temporary”, “Inflation is transitory”, and possibly her most head-scratching yet. “ I see no evidence that the US economy is in a downturn”. Let’s just look at how many pieces of evidence I see that we are likely already in a depression and TRILLIONS of currency units are being created out of nowhere to keep everyone oblivious to this.
- We have the most inverted yield curve of all time. Keep in mind that prior to EVERY recession or depression there was an inverted yield curve (short-term rates higher than long term rates)
- All leading economic indicators are pointing lower. Manufacturing, sales, transportation, etc. (Fed Economic reports)
- Inflation is surging higher far faster than incomes are rising. (BLS)
- Tax receipts are cratering as spending is surging higher. (USDebtclock.org)
- There are record loan defaults across the board. (Zerohedge)
- There are record amounts of people becoming homeless. (Zerohedge)
- Our national debts are skyrocketing at DOUBLE the expected amount in just the last 12 months. (Projected deficit $1 TRILLION, Actual deficit $2 TRILLION- and that excludes all off-budget items like wars, Ukraine aid, etc. (USDebtclock.org)
- World debt “markets” are selling off. This is an ominous sign for both the economy and financial “markets” (Gregory Mannarino)
- Taiwan Semiconductor just told suppliers to postpone deliveries. They are the major suppliers to Apple, Qualcomm, Nvidia and AMD. If there was an expected uptick in activity, they would be ordering more chipmaking equipment- not less. Some are speculating that the AI bubble may also be popping. (Reuters)
- The US national debt just went over $33 TRILLION. I took a picture last Friday at 11:04 and the debt stood at $32.96 TRILLION (US debt clock) On Tuesday Sept. 19th. at 11:00 AM it now reads $33.41 TRILLION. That is 80 BILLION DOLLARS in increased debt in 5 days. As this is happening income tax receipts on Friday stood at $2.339 TRILLION and on Tuesday at 11 AM it is $2.335.8 Trillion. That is $3.2 BILLION less in expected income taxes. If the economy was ok tax receipts would be rising – not falling!
In my opinion, the earthquake struck in 2008. Since, central banks and their buddies at the major banks, have been doing their best to hide the damage with not only conjuring up massive amounts of cash from nowhere but buying assets to elevate prices and selling other assets to suppress prices. In other words, there has literally been little to no price discovery since at least 2008. Almost all prices are manipulated in one way or another.
While the tsunami has been on its way for quite some time the central banks have met that great wall of water with a great wall of paper (actually debt-based computer blips). The problem is that while the central banks are building their wall of debt higher and higher, those debts are becoming more unpayable day after day, particularly since rates are now rising meaningfully. Behind the great wall of debt, the wall of water keeps rising. Once that wall is breached the outcome will likely be similar to the beachgoers who were so enamored with the beauty of the beach, they didn’t anticipate any problems. Once the dam breaks the damage will likely be swift and lethal to most people’s finances. Those who are unprepared are most likely to suffer the most.
The cracks in the debt- based paper dam are obvious to anyone who is paying attention. Unfortunately, far too many are living under the notion that the sun is shining and the storms that are appearing in the distance will stay there because we are exceptional or different. Pride comes before the fall. Corruption weakens and destroys. Fake “money” leads to fake prices and fake SHORT-TERM outcomes that must be reconciled with reality.
As in most historical cases, there are many warning signs that many disregard and then it seems like all of a sudden everything changes.
Don’t bury your head in the sand. Your future plans are riding on your ability to see the challenges and take them on.
Be Prepared!
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.
