While the financial game shows and corporate media are trying to keep the masses fat and happy with propaganda the real world is telling a FAR different story. It has been said many times that the “consumer is strong.” They point out that people continue to spend and run up their credit card balances as proof.

If we take a step back, we can see that, because of inflation, people have NO CHOICE but to spend more for either the same amount of goods or less. As far as the credit card balances increase, I cannot imagine anyone carrying a large amount of that type of debt except out of necessity. The fact that the citizens of the USA have over $1.2 TRILLION in credit card debt at an average interest rate of over 20% is VERY telling about the actual state of the consumer. Actually, the University of Michigan sentiment indicator which measures consumer sentiment is at record lows. That is more realistic than the propaganda that all is GREAT!

The “markets” are also used as “proof” that all is well. Is it really when the S&P 500 has 440 companies down 20%+ in the last 12 months? Obviously just a few names are giving the illusion of a strong market. With interest rates rising this illusion is in grave danger.

While the Fed and Treasury work to keep rates low- AT OUR EXPENSE- it appears the dollar will be sacrificed to save the bond and stock “markets.”

While there are MANY other examples of how close we may be to that cliff I have been writing about I think it is important to keep our eyes on not only how to survive what appears to be coming but how to prosper in the aftermath and recovery.

I expect the next bust to be one for the ages. This is simply because of the extraordinary size and scope of this EVERYTHING bubble. It is in virtually every corner of our economy, and it is global in scope.

Having said that, I also believe that with great danger there could also be a great reward. Many may think I am suggesting shorting certain things, but I gave up trying to short anything in 2011 when it became clear that it was a fool’s game to try and outsmart those “printing and buying”. I am sure there are a few people who could pull it off, but they are FEW AND FAR BETWEEN.

I believe that we need purchasing power when there is opportunity to be had. Personally, I believe hard assets will produce this outcome as paper currencies are being debased in historic numbers. While hard assets can fall in price, the VALUE is always there. Paper assets can, and often do, go to ZERO. There is no recovery from that.

I believe history can give us some clues as to when opportunity may present itself to us. The one thing that does not seem to change is human nature. The booms and busts have striking similarities over time. Here are just a few examples:

Railroads. The buildout of railroads in the 1860s and 1870s led to tens of thousands of miles of track being laid, speculative financing, land grants, and a general mania about future returns. In 1873 the bubble popped, over one hundred railroads went bankrupt, many banks failed and “investors” were wiped out.

Utilities. In the 1920s central station utilities were the rage. Revenues grew drastically. Holding companies financed the growth and capacity was aggressively built. In 1929, as the market collapsed, it was revealed that there was major leverage and opaque financing schemes. Investors were wiped out.

Dot Com. The most recent example of a bubble was a telecom fiber buildout that carriers and infrastructure firms poured hundreds of billions of dollars into fiber optic networks, switches and related equipment largely financed by DEBT. Capacity was greatly overbuilt and there were the circular financing deals that were exposed as the edifice collapsed. Investors were wiped out.

AI. Many of the same traits that existed in the dotcom bubble appear to be reappearing in AI. Circular financing, enormous amounts of debt being deployed without any guarantees of future demand being anywhere near what is anticipated. Rising interest rates and debt downgrades are threatening the entire structure.

With each innovative technology it appears that there is a common theme.

While most of the railroad companies went bankrupt, the survivors often bought the infrastructure that was produced for pennies on the dollar and made life-changing fortunes in the aftermath.

Utilities were a bit different as the government passed the Public Utility Holding Company Act and broke up the largest structures. Anyone who was astute enough at the time was able to get existing infrastructure for pennies on the dollar and, if held over time, made a LOT of profit and collected major dividends.

The dotcom outcome was similar also. Bankruptcies and recapitalizations led to assets being purchased for pennies on the dollar and led to cheap broadband that allowed companies like Google, YouTube, Facebook, and Apple to scale on the excess capacity. This also allowed these companies to take advantage of lower costs that would have made the buildout prohibitively expensive.

With AI, we will see. Personally, I believe that there is a strong possibility that there will be bargains but the government may intervene. In that case, there are other avenues to pursue like energy, hard assets, utilities, etc.

There is also another similarity between all of these manias. The credit market ended EVERY one of these manias.

Railroads- 75% of capital was raised through bonds. When the bonds failed the stock market closed for ten days and within two years 33% of bonds stopped paying interest.

Utilities were financed with layers of debt and loans against the stock of the companies themselves. (Circular financing). When the banks refused to refinance in 1932 the entire structure collapsed.

Dotcom was financed with vendor financing and circular deals to keep the money flowing. When lenders stopped the funding, the overinvestment ceased and a collapse began.

AI shows the same fundamentals that we saw just before March of 2000 when the bottom fell out.

Now is not the time to fear or despair but it is time to take stock and have a plan moving forward.

When confidence collapses what are the assets that YOU trust?

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 prove 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 dependable, 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.

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