Many people are busy watching the mainstream media and financial game shows trying to convince everyone that the economy is “great” and the next boom is right around the corner. I was watching the financial game shows this week as they spun the GDP growth story. Little was mentioned HOW this growth occurred- through government spending. This is just one reason why I believe we are near the end of this illusion. Most of our “growth” and a MAJOR percentage of our GDP calculations are simply a rise in debt. This likely creates a doom loop where more and more debt is required to get the same result. Ultimately, the debt becomes unsustainable and the entire edifice collapses.
This will not be the first time this has taken place. This has happened in MANY countries in the past and, while not in our lifetimes, it has happened here in the USA also. “Money” became worthless after the revolutionary war as Continentals were issued to fund the war. The British, knowing that if they printed up (counterfeited) the Continentals it would dilute the value and ultimately collapse it. This was a war strategy. We are doing it to ourselves.
The illusion of growth is being kept alive by a mechanism which will lead to the system’s ultimate demise. The mechanism is to create more “money” and throw it at different industries (mainly green energy and defense these days) and count the newly created DEBT as wealth.
Something else that is disturbing is that all of this debt is being consumed and there are no assets left to show for this new debt. Green energy companies are collapsing, and the defense industry generally destroys rather than creates. In my opinion, this is the difference between China and the USA. Both countries are in deep debt. The difference is that in China they have infrastructure to show for it. Here we have a lot of bombs, fat bellies and only an illusion of the prosperity that this country once had.
While the talking heads tout the economy “growing” all of the economic indicators are HARD down and the Fed’s Beige Book is telling a FAR different story. Economic activity is cratering. Manufacturing, shipping, inventories and sales are all falling. In addition, people are still spending but are counting more and more on debt even as payment delinquencies are surging. The “growth” in spending can be explained in one word- INFLATION. So much for a “great economy”.
In the meantime, while the central banks are buying bonds and stocks also, people are fixated on the “markets”. They are witnessing one of the greatest interventions of all time- which will ultimately fail in my opinion because of the massive debts that are being created to keep the illusion alive.
The other illusion they are providing us with comes from the price of gold and silver. I have been watching this “market” for about 20 years. The level of intervention is OFF THE CHARTS.
I am writing this on November 30th. Today I witnessed 5 MAJOR selloffs before 9AM EST. There have been two more prior to 11 AM. This has been going on for decades, but it appears cracks are showing in the ability to keep the gold price down. After all of that, the price is down $5.60 at 11:04 AM.
The first sign was a few weeks ago when I noticed that the price for an ounce of gold in China was a full $100.00 more per ounce than in the USA. That should have been a sign. China settles all gold trade with REAL gold. The fake paper price that allows those “in charge” to manipulate the price of the actual metal very little, if any, actual gold changes hands.
In the past couple of weeks, the level of intervention has been very high, but the price continues to rise. Unnoticed by almost everyone is that in the past 60 days, despite the efforts of those “in charge” to keep the price capped, the price for an ounce of gold has risen from $1840.00 to $2040.00. That is a 10% rise in 60 days. While many may feel that they missed the boat I believe that there is exponential upside once those “in charge” get overrun. As a matter of fact, because of all the debt creation and “money printing” with no collateral to back it up I believe that gold is cheaper today in terms of VALUE than it was in the year 2000 at $250.00. Silver is even more undervalued when you realize it is used in almost all modern appliances, solar panels, medical, etc. Even though the demand is off the charts, there is a deficit in production (likely because of the price suppression and lack of profitability for miners) the silver price is at ½ of its all time high which was reached in 1980 and 2011. As Dr Paul Craig Roberts (Former Assistant US Treasury Secretary) has said: There is a way to explain high demand and a lack of supply where the price goes down -it’s called fraud.
Most people are unaware because those “in charge” are still buying in record amounts. If the price rises too much the investing public will become aware and jump on the bandwagon- making their purchases more expensive, Of course, they have about a 3-year head start on the general public.
I can’t emphasize enough just how important it is to have ASSETS and not liabilities- whether they be your debts, or someone else’s promise to repay that you hold. It is also IMPERATIVE to know what companies you are holding and if they have good cash flow, low debt to equity, and are in an industry that is growing or contracting. Things like this are no guarantee of winning or losing but I am sure that companies with lower debt, higher revenues and higher net income will survive better in almost any scenario then companies weighted down with debt and low net income, or worse are losing money.
Only in a situation where MASSIVE interventions are taking place like we have seen in the past 25 years or so could companies that have never earned a penny in profits be “VALUED” in the billions. Of course, there was probably little, if any real VALUE but the low interest rates and HYPE made the perceived VALUE FAR higher than any actual VALUE.
We are seeing what happens when the hype fades, interest rates rise and, as Warren Buffett says- when the tide goes out you find out who is swimming naked. Many companies are now filing for bankruptcy because there was never any real VALUE to start with. Just hype and hope.
Think of what people NEED and you will be well on your way to outperforming many who are focused on a fast buck and “stories”.
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.
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