Many times we discount what we have seen in the past because “this time it’s different!”.
Honestly, who is to say that it isn’t different this time until we look back at what actually takes place? So far, and in looking at history, it appears that is not really too much is different now than at any other time. Human nature seems to always take over, this lead to excesses (bubbles) and they collapse under their own weight because too many “in charge” are skimming profits without producing anything of value. .
I have been managing money for over 30 years and have been studying diligently over that time so I feel like I have a pretty good handle on the “markets” and their history.
As I sit back and review what I have learned I believe that there are many narratives out there that should not only be questioned but maybe even action should be taken to take advantage of the misinterpretation of our current scenario.
Many people have heard me say that I believe everything we see is fake. There is no price discovery for virtually any asset out there. The reason for this is that as central banks manipulate interest rates lower it seems to act like fake savings- making it appear that there is liquidity and savings that would not exist if not created out of thin air. It appears this way because they don’t wave a magic wand and the bond yields fall. They have to conjure up the cash and buy the bonds to create their desired outcome. They also abuse this privilege by buying assets and manipulating the prices of not only bonds but also stocks, commodities, and real estate. The fake “money” leads to increased demand that would NOT exist without the creation of this faux “money”. Therefore prices are artificially propped up.
There are a lot of people who think this can just go on forever and can’t see how it ends. Trust me- NOTHING lasts forever and I believe the signs that we are nearing the end of our fiat (backed by nothing and producing nothing) currency regime is rapidly approaching.
Over the past 50 years, and even more so in the past 20 years, the financialization of virtually everything has led to higher asset prices for financial and tech-type stocks and has led to lower valuations on companies that produce real goods.
How counterintuitive is it that bankrupt companies (Like Hertz and others) can skyrocket when the very act of insolvency makes the shares worthless? This is a great example of how people who follow others can get taken to the cleaners by those who actually have a clue as to what is happening and why.
The past 40 years have seen us have a MASSIVE tailwind for investing- a 40 year bull market in bonds (Lower yields and higher prices) that has led to cheap financing and easy-money for speculation.
I believe we are now on the other side of the hill and we will see rising interest rates for some time to come. Many Zombie companies that provided nice returns for speculators may find themselves bankrupt shortly in this new regime.
The days of “easy money” appear to be ending as the very act that supposedly saved us last time (conjuring up cash out of nowhere and buying assets to make sure prices didn’t collapse) could be the very act that destroys the entire economy this time. The “printing” of a currency unit that has created no other value but the ability to buy something else has led to a shortage of real goods and has zombified the economy. Instead of hard work and thrift we now see stimmy checks and speculation.
Instead of teaching our children the lessons they will need to succeed in life we are more interested in them following orders. How does this bode well for us in the future?
I only bring this up because as you debase the currency you also debase your culture. We have seen that in numerous places throughout history also. Right now, it appears we are not even taking care of our most precious resources- whether it be our children, our farmers, natural resources and even ourselves.
I believe these are a few things that should be questioned :
- By the Fed raising rates inflation will be stopped. Anyone wondering why they have been raising rates for over a year and yet inflation still rages? Because they are still “printing and buying”, they are still allowing the banks to hold reserve requirements of ZERO. I believe inflation will continue. This should be a MAJOR tailwind for all hard assets but mainly for the necessities of life along with gold and silver.
- Higher interest rates are bad for risk assets- including gold. First of all, gold is money- not a risk asset at all. The central banks can list 2 assets as “riskless” on their balance sheets. US Treasuries and GOLD. If higher interest rates were indeed bad for gold -and the central banks are saying that rates are going to continue to rise, why would they be BUYING RECORD AMOUNTS? Why would the BIS (Central Bank of Central Banks) just buy 500 TONS back? Why did China buy 300 TONS just in Q3 2022? I believe these are MAJOR signs that MAJOR changes are coming VERY soon. Stay Tuned! By the way in the 70’s when rates went from 5% to 18% gold went from $35.00 per ounce to $850.00 per ounce. How is that for “bad”?
- By raising rates demand will be crushed (BY A MAJOR RESCESSION OR DEPRESSION) and inflation will be tamed. Again, if it were a demand problem this tact might well work but because of the ridiculous amount of “printing” you have a SUPPLY problem where not enough goods are being produced and the nearly 8 billion people in the world still need food, water, energy, etc. that the money-changers have helped make uneconomical to produce. Too many dollars, Yen, Euros, etc , chasing too few goods = Inflation is going higher.
- If the “markets” crash everything will go down with it. I believe that in the very short-term that may be correct. However, in reviewing history from the Great Depression, as the stock market collapsed 90% and took until 1954 to get back to even if you bought at the top. In that time period 1929-1937 gold stocks RALLIED 525% and gold was revalued higher by 75%. This was with no “printing” to speak of. This time it could be exponentially HIGHER.
- Bonds are safe. If I am correct that we are witnessing the end of our debt-based fiat system bonds may be a lot more risky than many expect.
- The Fed has our back My opinion: Good luck with that! The Fed has its owner’s backs- THE MAJOR banks- who are also feverishly buying gold and silver. What do THEY know that YOU don’t?
- Hold on- the market always goes up! That is one of the biggest fallacies I have ever heard. If you buy at a low price and get high value you will likely have good returns going forward. If you buy high and get little value for the price you paid you will likely be very disappointed.
A lot of what passes for “advice” these days appear to me to be nothing more than “stick your head in the sand, keep your fingers crossed and we’ll check it out in a while. Not exactly a stellar plan in my opinion.
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.
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