Welcome to the 03-14-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike analyzes the state of jobs and the effects of market volatility.
The stock markets have been volatile lately and the last few days have not been any different. On Friday the major averages took off higher after a great jobs report. While I have questioned the authenticity of those reports for years Friday’s report was especially interesting.
It is no secret that the retail industry is struggling here in the USA. More than likely the increased costs for healthcare, health insurance, higher oil prices and food prices are putting pressure on people’s discretionary budgets. Iconic stores like Toys R Us, Sears, JC Penney, Macy’s, etc. are closing many stores or going bankrupt.
Still, somehow, I am supposed to believe that as stores close- some for good- that the retail industry ADDED 50,000 jobs in the last month. Sorry but I find that to be ridiculous. It still didn’t stop the financial game shows from falling all over themselves at how “WONDERFUL” the economic recovery is. I’ll bet most, if not all, of the shills on TV read the headline and went no further.
I also saw in the last week ended that billions have been redeemed out of ETFs and stock mutual funds.1 Supply and demand says the market should have likely fallen last week- not rallied. So what happened? Stock buybacks- that’s what. According to CNBC on March 12th. So far in 2018 stock buybacks have averaged $8 billion per day. The tax cuts have been a great help with this. Just think about those numbers. $40 billion per week in stock buybacks so far in 2018. That’s about $180 billion per month and, if continued at this pace, would equal around $2 trillion per year. The actual forecasts are for the buybacks to slow down later in the year and be around $1.2 trillion- still $100 billion per month average and a stunningly large number.
So is the economy getting better or is it just a picture painted by those in power to give that illusion?
The whole problem with this is that many get deceived into thinking all is well when, in my opinion, this entire “rebound” is nothing but an illusion based upon ridiculous amounts of debts that cannot be paid if the fiat currencies retain their values. Let that sink in.
The world is awash in debts that, at this time, appear to be serviceable because central banks are “printing up” cash from nowhere to pay the interest on the existing debt. Notice I didn’t say anything about paying down the debt- they are not actually solvent (without “printing” money) if they service their interest payments in many cases.
So what are the options? First, they could default by not paying and see a deflationary depression the likes of which the world has never seen. Second, they could continue to “print” ever increasing amounts of fiat currency until the currency is no longer trusted or accepted because there is no scarcity. It would be highly likely that anyone that has or produces real goods would want real assets in return- not a promise from a perceived bankrupt entity whether it be a person, a company or a country. Many countries, namely China, Russia, Iran, Venezuela, and others are already trading in their own currencies and hard assets with each other.
Many have argued that there could be a third option- a debt jubilee which is a forgiveness of debt and a reset of the entire system. I guess that could happen. However, there are a whole lot of people who own that debt and are counting on not only the interest payments but a return of their principle. To me this sounds like massive credit deflation and could have the same effect as a default unless there are other contingencies built in to replace what is lost. Again, that would likely lead to more “printing”.
In any of these options it is likely that confidence in our current financial system would be lost. This could likely lead to any new system being backed with real assets like gold, silver, farmland, oil, or any other tangible asset. Could it be a good idea to consider having some of these assets in your portfolio BEFORE others catch on?
It appears to me that it won’t be too long until the majority of people will wake up to the fact that the current trajectory of our markets, debts and unfunded liabilities is not sustainable. I believe that one day in the near future people will realize that there are far more currency units than actual real goods that we need to live on. When that day comes I believe those that are positioned correctly will have a far better chance at getting through the coming potential chaos and may even have an opportunity to purchase assets at prices that we think would be ridiculously low today.
To be able to purchase those income-producing assets you need purchasing power. I often talk about how gold holds its purchasing power over time and have given many analogies over time. I would also like to include silver in that discussion today.
While it appears that gold and silver are in a perpetual state of being beat up every time they attempt to rally I believe that there will come a day when the games to keep the price suppressed with paper contracts-not real silver or gold will fail. This will likely happen when an entity is unable to deliver the gold or silver that is promised and it is possible this could create attractive gains in a short period of time. The reason that I am more bullish on silver right now is that silver is a commodity that is used in most modern electronics. This is not just a monetary metal like gold but has many uses and I believe that makes it a better candidate for not only upward price moves but also it is likely to become more scarce as existing stockpiles are used up in solar panels, cell phones, tvs, etc.
In addition, the amount of silver ounces you need to buy an ounce of gold is currently near an all time high of almost 80. While the wait has been grueling I believe it will be well worth the wait.
As most assets that I look at appear to be in the nosebleed section of valuations (stocks, bonds, real estate) some commodities along with gold and silver appear to be in a place that could lead to major outperformance over time. If the idea is to buy low and sell high- which it is- what makes more sense to consider buying today?
Mike Savage, ChFC, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Any opinions are those of Mike Savage and not necessarily those of RJFS or Raymond James. Expressions of opinions 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 n ot 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.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. There may be sharp price fluctuation even during periods when prices are overall rising. Precious metals, including gold are subject to special risks, including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.
Diversification does not ensure gains nor protect against loss.
1- Tyler Durden ZeroHedge 3/9/2018 US Stocks suffered Massive outflows as the S&P Jumped