While the Federal Reserve and other central banks continue to flood the financial markets with hundreds of billions in stimulus PER DAY many are of the opinion that good times in markets are here again.

For a short time, they may be right. Probably for a very short time based upon most people’s time horizons.

This attitude is reinforced on the financial game shows as they trot out “experts” to give their always bullish views.

Last week, billionaire Ron Baron showed up on CNBC and opined that the DOW would reach 650,000 in 50 years. To many, this would seem to mean buy and hold and I’ll be rich.

If only it were true! Lance Roberts of RealInvestmentAdvice.com pointed out in an article on Zerohedge that if we got a 7% compounded return in the last 50 years, we would ALREADY be at 650,000 in the DOW.

A GREAT question would be with the way the Fed is conjuring up “money” out of nowhere what would that 650,000 actually equate to in 50 years anyway?

And yet, here we sit at 28,000. Why?

Because it is easy to just project compounding interest and come up with a number. The hard part is realizing that average annual returns are NOT compounding returns.

I sat with a client yesterday and he was thrilled that the market was up over 25% this year! By the way, it isn’t even up double digits- even after this last fake run-up in the past 12 months because it was DOWN 20% in December for those who choose to forget. The only part of his portfolio NOT up in the last 12 months was his stock fund!

Losses have to be accounted for. Many will look at a fund fact sheet and see that in 2008 the fund lost 35%. They will also see that in 2009 it gained 30% and many will assume that they lost 5% over 2 years and that’s not so bad. Let’s look at the math.

$100,000.00 starting balance. A loss of 35% takes the account value down to $65,000.00. A 30% gain the next year brings the account value to $84,500.00. This is a loss of 15.5% in 2 years- over triple the assumed loss. Losses are DEVASTATING. The larger the loss the more gain you need to make it up. A 50% loss and you need a 100% gain to get back to even. This is why trying to project future values in anything is quite a challenge.

I bring this up now because I believe we may have just entered the final “melt-up” of the major stock averages. Where is “the top”? I have no idea. All I am pretty sure of is when it ends it will end badly. I also believe anyone who is not preparing now is going to be awfully disappointed going forward. While everyone has different time horizons, goals and risk tolerances my best advice is to reduce exposure where it appears most risky and at least try to protect against an adverse economic shock which appears to be starting already. (The Fed’s and other central bank’s actions are what is signaling serious financial plumbing problems in the global economy RIGHT NOW)

I am also looking at what many central banks and major banks are doing. Not only are they purchasing massive (and record amounts) of gold but appear to be preparing for quite a shock to the economic system. Possibly a complete overhaul. We’ll see. There is a LOT of talk about central bank cryptos and Tukey just announced that they will have their testing done by the 2nd quarter of 2020. Russia, China and others have also signaled similar intentions and, as I wrote last week, the BIS (central bank of central banks) want central bank cryptos by 2025 and have a plan to achieve it. To me, this means the US dollar must be devalued and likely replaced as the main currency used in international exchange.

This likely portends FAR higher prices on all of the goods that people like you and me need to survive and thrive. Plan accordingly!

I also have to refer to the dismal economic reports that have been getting worse and worse throughout the year as shipping, manufacturing, exports, hiring, etc. are all signaling a deepening recession. By the time those in charge admit to the recession/ depression it will have been causing economic hardship for quite some time already. If the economy really were good the banks wouldn’t have needed an average of $190 billion per DAY last week and $90 billion per week in 14-day loans and the Fed would likely not be re-growing their balance sheet (over $4 trillion again) and buying $60 billion per month in treasury bills- would they?

This also brings to mind how dangerous what the Fed is doing is. By artificially lowering rates you are taking the most important part of retirement planning (compounding interest) and rendering it useless. This will ultimately adversely affect everyone either personally or through plans like pensions, insurance and others that count on a stable compounding and income stream.

My take is as it has been. Once they went down this path (“printing money” and buying stuff – artificial demand) there is no turning back. Stop and the system would collapse under the crushing debt with no buyers to keep rates anywhere near normal or keep going and destroy the currency being used in the “printing” and buying. We are WELL on the way!

Keep in mind that those who don’t know history are doomed to repeat it. In 2003-2007 virtually ALL ASSETs rose together. In 2008 into 2009 they all collapsed together. Since 2010 those assets being artificially propped up like stocks, bonds and real estate have all risen together while other assets being artificially restrained like gold, silver and other commodities have lagged. It appears to me that when this ends those artificially propped up prices will all fall together. Those assets that were held back will likely rally VERY hard. This is most likely why the central banks, billionaires, large banks and countries are buying record amounts of gold even as they talk it down as an asset. Watch what they do- NOT what they say.

Be Prepared!

Mike Savage

Financial Advisor, Raymond James Financial Services, Inc.

2642 Route 940

Pocono Summit, Pa 18346

Phone 570-730-4880

Fax 570-243-8141

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