There are many stories out there about many famous investors who got “schooled” by markets in the past. The legendary Jim Rogers told a story about how he had a group of stocks that he was sure were all going to go bankrupt because their fundamentals were so bad. In the end he was 100% correct and all of the companies did indeed go bankrupt. The only problem for Mr. Rogers was that the “market can stay irrational for longer than you can stay solvent”. While he was correct in his call, he also let us know that the trades he put on were a disaster because his timing was off.
This happened a long time ago and provided a great lesson which probably helped him immensely as he went forward.
There is another story out now that Carl Icahn may be losing tens of millions in trades that are shorting malls and retail space. I have no doubt that in the end this will likely be a huge win but the question has to be how long will it take. My guess is NOT long, but my track record is nowhere near either Mr. Rogers or Mr. Icahn so- so much for that!
When you have legendary investors who have trouble timing events it is no surprise that most people have a problem with reading the tea leaves and making decisions. Adding to the confusion is the central bank’s interference in markets and now it is painfully obvious that fundamentals have meant nothing for quite some time.
It has become commonplace for news, which historically would have markets crashing, to have the opposite effect because it is telling investors that the Fed and other central banks are being forced to prop the markets up artificially. Fake or not- they have moved higher and may continue a while longer. The problem is that the “markets” (I use the term loosely!) are conditioned to react this way.
One day, and my guess is that it is very soon, this may fail to work. The foundation of our current system is confidence. Since our “money” is backed by NOTHING but the full faith and credit of the US Government ie: Taxpayers, how close are we to the world realizing that our massive debts are unpayable with the US dollar holding anywhere near its current value?
What do you think will happen to the artificially inflated prices at that time and what might happen to those assets being artificially repressed?
My guess is that the rest of the world is on to us and are taking steps to go forward without US leadership. Vladimir Putin, in a recent interview, cited the US using the US dollar as a weapon and concluded that the “US dollar will collapse soon”. This from the leader of a country that has been the largest gold purchaser in the last two years and has a currency (the Russian Ruble) that is 94% backed by physical gold and a country with $50 Billion in reported debt. To me, that is a healthy balance sheet.
There are many other signs that show things are about to drastically change. Every time we turn around the Repos get larger. QE (or not QE) is larger now than in 2009 and will likely also have to grow from here as the REPOs have in the last 2 months. It appears to me that they are masking something troubling that they are aware of and want to make sure that everyone else remains in the dark. In the meantime, those in charge continue to buy gold in record amounts and the price remains suppressed.
China, Russia and many other countries are selling off US assets rather than buying them. This has picked up in the last few months and is likely a large part of the reason for the Fed buying $60 billion per month in Treasury Bills. Basically, they are monetizing the debt without admitting to it. Monetizing means they are conjuring money up out of nowhere and purchasing Treasuries so the government can keep going deeper and deeper into debt and not get caught with rising rates.
Economic reports continue to surprise to the downside.
Projected growth for the 4th. quarter is expected to be less than ½ %. This is a drastic cut in expected growth. Anyone who reads this should not be surprised since virtually all of the economic reports have been horrible for the last year or so and are getting worse as time goes on. Global shipping has fallen for 11 straight months. Retailers are getting hammered as I write this and it is estimated that over 12,000 stores have already closed in 2019- an all-time record which beats out last year’s all-time record. (Fitch Ratings) These are records we would prefer to avoid because not only does this impact job losses but also bonds that have been issued and are expected to be paid back with rents that, if a company goes bankrupt, will be unlikely to get paid.
As a matter of fact, Fitch Ratings has downgraded some classes of notes in CMBS (Commercial Mortgage-Backed Securities) just last week. It appears they are getting out ahead of what they see coming.
Another sign of “All is not well” took place on Monday as Treasury Secretary Mnuchin, Fed Chair Powell and President Trump met in the White House. Why? The last time I remember a meeting like that was around 2008.
It is a telling sign that many headlines read “The lowest growth” or “The Worst Reading” since 2008 (or in a decade). No matter how anyone tries to spin it hundreds of billions be conjured up out of nowhere just about everywhere in the developed world is FAR from normal. In 5000 years of recorded history only once- RIGHT NOW- is there a history of negative interest rates. While financial engineering has been taking place since the beginning of time this episode has a whole lot of new plot twists.
My guess is that in the near future we are all likely to find out that UNLIMITED “money printing” in a finite world creates problems that, when exposed, will change the very fabric of our lives. Because of the faux “money” farmers are going bankrupt in record amounts. Manufacturing is contracting globally as demand falls. Shipping is falling as demand falls. Stores are closing as demand falls. All of this money and demand is falling, banks have no liquidity and income inequality is hitting record after record. Homelessness is becoming a national scourge.
What could possibly go wrong?
As the central banks toil to keep us clueless they are busy buying hard assets with their freshly “printed” currencies. As they try to get people “all in” on stocks in particular, company insiders are selling shares at record amounts and CEOs are leaving companies at a record pace. This usually doesn’t happen in “the greatest economy of all time”.
It just might be a good idea to start thinking like they do and take the actions that they are taking rather than following the herd towards a cliff that appears to be fast approaching.
Don’t let fear stop you from thinking clearly and planning for a more confident future.
Financial Advisor, Raymond James Financial Services, Inc.
2642 Route 940
Pocono Summit, Pa 18346
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