Exactly the opposite. That is what we seem to get every time we hear from our “leaders”. From former Federal Reserve Chairpersons saying that there would not be another financial crash in her lifetime to all of the bellicose claims that we would destroy the Ruble and make it rubble.
We are in the midst of what will likely be the greatest challenge of our financial lives. The Ruble strengthened AFTER our attempt to destroy it. Taxes were raised and instead of increasing the taxes collected we witnessed a $600 BILLION REDUCTION in payments. In fiscal 2022 taxes collected were $5 TRILLION, while in fiscal 2023 the amount collected was $4.4 TRILLION. (US Treasury)
We hear from many pundits and “experts” that deficits don’t matter. That is BS. Our deficit is getting so far out of hand that it is likely we will be paying over $1 TRILLION just in interest in fiscal 2024.
It is my opinion that to save the bond “market” and its owners which include foreign governments, pension plans, insurance companies, banks and major corporations, the central bank will sacrifice the dollar’s remaining “value”.
This is extremely important in my opinion because it implies to me that the “promises” made by pensions, insurance companies, etc. will be kept in DOLLAR terms but the VALUE received is EXTREMELY questionable.
If there was ever a reason to not have all your eggs in one basket this is it. Imagine someone counting on one asset or one company to fund their retirement. A collapse of that company or asset class could jeopardize your entire retirement.
WHAT IS THE VALUE OF A PROMISE THAT CANNOT, OR WILL NOT, BE KEPT?
Is the fact that you got the dollars promised to you paid back to you a promise kept if you can only buy a fraction of the goods that you had planned to buy with the proceeds?
FOOD for thought!
It has been reported by China that they have been selling US Treasuries and buying GOLD. This makes sense since they don’t want to be sanctioned like Russia but there is a more compelling reason that this is happening at this time.
Not only is the US dollar losing purchasing power but the way the “money” is stored is in Treasury Bonds. The Treasuries that were bought in the recent past at EXTREMELY low interest rates are seeing major losses as interest rates are rising. I looked up a US Treasury this morning which was purchased on May 15, 2016. If you purchased that 30-year treasury for $100,000.00 and had a coupon of 2.5%, the current asking price is $64,170.00 as of October 25, 2023, at 9:50 AM. The selling price is less. This is a double-whammy and is a huge reason that many central banks are taking the same course of action. Gold is an ASSET that has no counterparty risk, and those treasuries are backed by a “promise to repay” which is a debt instrument.
To save the bond “market” it is almost assured that it will take trillions of dollars to stave off a disorderly collapse. I say this because our major foreign buyers (China, Japan and others) are pulling back on purchasing our debt. Actually, China is divesting. Since we are issuing debt in unprecedented amounts, and many are already seeing MAJOR losses in their long -term bond portfolios, many are shying away from buying. That leaves the central bank to monetize (“print up cash and buy the bonds). This is EXTREMELY inflationary as we have seen in other major countries who have gone down this path.
I believe that anyone who is pushing a deflation narrative- as compelling as the argument may be- is barking up the wrong tree. I agree that the economy is collapsing and that, under “normal” circumstances deflation would be the outcome. It still may be in the long-term but until I see a central bank stop “printing” and I stop seeing manipulation in almost every “market” I can’t buy the deflation story.
Keep in mind that many problems start to show up in the weakest hands and then move to the stronger hands. Kind of like the canary in the coalmine.
#1 Subprime auto loans are surging to their highest default rates EVER- at least since we have records from 1994. (Fitch) I have to wonder how long it will be for standard buyers to run into trouble since the average price of a new car is over $50,000.00 and most other expenses are rising along with interest rates also.
#2 Famine and starvation is taking place around the globe, particularly in the poorest regions. Again, I have to wonder how long it will be before this reaches our shores. With all of the ridiculous mandates put upon farmers and actual land grabs in Europe, the shortages of necessary goods looks imminent.
#3 Corporate bankruptcies are skyrocketing. So far, many smaller businesses have been leading the way but there are MANY major brands that are carrying more debt than they have assets. This could be a toxic mix as the economy slows, interest rates rise and the cost of operating the business continues to be higher because of rising input costs and labor.
#4 The gig workers and baristas have been suffering for a long time but now we are seeing the UAW and many other unions striking for higher wages. This is a clear sign that the inflation that has ravaged the poor already is starting to move up the food chain. These “well-paying” jobs are still not enough to keep a lifestyle that the workforce has come to expect.
#5 Let’s hope I am wrong on this one but there are conflicts taking place across the globe. WW2 started with a proxy war in Spain prior to the 1939 invasion of Poland. It doesn’t take much imagination to see that we could have a major problem brewing with the southern border being a sieve and millions entering illegally- many of fighting age males and many from areas that hate the USA.
#6 Many countries have experienced or are experiencing massive inflation (Venezuela, Argentina, etc.) They all have one thing in common. “Printing” money to pretend that they were still producing real wealth when all they were “producing” was more debt. We have had a longer leash since the US dollar is the world’s reserve currency. It appears that those days are numbered.
To me, this all adds up to HAVE ASSETS and NOT LIABILITIES.
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.
