Buy Low and Sell High. Pretty simple sentiment that very few are actually able to pull off.

Some traders will say buy high and sell higher. Of course, they are counting on the “greater fool theory” that even though an asset is grossly overvalued someone will come along and pay more at a future date.

Many who have employed this theory in the past decade or so have done pretty well actually because the stock “markets” are at heights NEVER seen before. How long will it last? I guarantee it won’t last forever as many seem to think.

As a matter of fact, according to one of Warren Buffett’s favorite metrics to determine if the “market” is overvalued or undervalued is the total market capitalization in relation to the overall size of the economy. Currently, that stands at 270%. Compare that to March of 2000 when it was at its prior all-time high of 188% at the peak of the dotcom bubble. You might also want to compare the leverage (loans used to purchase assets) which is more than double what it was in 2008. As I have written many times in the past the leverage used to spike prices and enhance gains will also grease the skids on the way down. To me, this is the most dangerous “market” I have ever witnessed. Having said that it will likely continue to climb- until it doesn’t. Then- watch out!

Another fly in the ointment here is that the Fed and other central banks with all of their “printing and buying” are destroying currencies across the globe. It is disguised by comparing falling currencies to each other and managing other prices like gold and silver to mask what is actually happening to the purchasing power of virtually all fiat currencies. They are all falling- just at different rates.

The debasement is getting SO bad that it is getting harder and harder to hide. As a matter of fact, the central bank’s “solution” to print and buy everything just may be the pin that ultimately pricks this epic “everything bubble”.

There is mounting evidence that there is a lot of pain ahead in the form of inflation. My concern here is that corporations will attempt to pass these costs along. We will see if it prices out many consumers.

I believe we are all seeing a LOT more inflation than the 2.6% the Fed reports. It appears that the REAL inflation has not yet shown up. Inflation is happening virtually EVERYWHERE- except where the “markets” are manipulated lower day after day (gold and silver are prime examples).

The cost of almost all inputs are not just rising -they are skyrocketing. A few examples:

These are year-to-date figures!

Gasoline has risen 47%, Crude Oil is up 31%, Heating Oil up 8%, Propane up 26%, Natural gas up 15%, Lumber up 70% (If you can find any), Corn up 54%, Wheat up 41%, Sugar up 14%, Cotton up 12%, Lean Hogs up 56% and beef up 12%. The concern here is that much of these price increases have not gone through the system yet. Add to that crop failures globally and a severe drought in the southwest USA and we may have not seen anything yet and plenty of people are already struggling mightily.

It appears to me as prices rise the profits of many companies could get squeezed far more than most are anticipating at this time. At that time the central  banks (or governments) will have to make a decision on whether to let many corporations fail or “print” more cash to prop them up for a little longer.

If they hold true to form they will likely conjure up the cash leading to even higher costs and inflation.

To me, this is the backdrop where we need to look for companies that produce real goods. Food, water, energy, and virtually anything that we need to live and can’t be “printed up”.

In addition, this is a perfect setup for gold and silver in my opinion, as the inflation will lead to increasingly negative real interest rates and the lack of supply should become a real issue at some point in the near future.

I have looked at many small miners balance sheets recently and was stunned to see revenues higher than assets in some cases and the last 12 months NET income being enough to extinguish most if not all debt that they have incurred. I have looked at other large companies that produce a lot of natural resources. It’s been a while since my interest was piqued as it is now and I am seeing great revenue, great net income, decent (in some cases excellent) dividends and the valuations are still not sky-high as many other companies are.

While this space can be a little more volatile it goes both ways. If the timing is right (think 2003-2007) you can make a lot of hay in a short period of time.

Getting back to buy low-sell high. According to GoldMoney the price of gold vs. the quantity of fiat “money” is as cheap as it was when gold was $35.00 an ounce in 1970. It is also as cheap as it was in 2000 when gold was around $250.00 per ounce. Gold went from $35.00 in 1970 to near $800.00 in 1980. It also went from $250.00 to $2000.00 last year. This time could be even more spectacular because of all the money “printing”. I also believe that silver is even more undervalued and just may be the most undervalued asset on the planet.

Many will continue to chase the high-flying stocks that have likely been artificially inflated with unbelievable leverage made possible by cheap money. Personally, I will look forward and try to “buy low and sell high”. It may require more patience but sometimes that is what is needed to accomplish long term goals.

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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