by Gary Christenson of Deviant Investor
Predicting the end of the world, physical or financial, is seldom helpful.
If the prediction is correct, how do you profit from the insight? If the prediction is wrong and the “end of the world” is delayed (typical), you lose credibility.
An estimate of risk versus reward based on an analysis of current information is more useful.
Assessment: The 2018-2020 risk for most asset classes, such as stocks, bonds, corporate debt, and real estate is high while the potential reward in those asset classes is low. Gold and silver are opposite. Their long-term risk is low (September 2018) and their long-term potential reward is huge.
From Goldman Sachs:
OPINIONS AND FACTS SUPPORTING RISK/REWARD ASSESSMENT:
The central banks and the financial world created an “everything bubble.” This includes the stock market, bond market, housing, student loans, sub-prime auto loans, emerging markets, fiat currencies, and central bank credibility.
Low interest rates enable bubbles!
Bubbles always burst or implode. People want to believe “this time is different,” but it usually isn’t. Bubbles will implode and cause huge damage, especially to the middle and lower classes in the United States. Remember the crashes of 1987, 2000 and 2008. Each one seemed more destructive and broader in its reach than the previous crash. What will the crash of 2018 – 202? create?
If it can’t continue, it will stop – someday. Total debt – national, household, corporate, sovereign and more – has increased exponentially since 1913 when the Federal Reserve… you know the drill.
Use national debt for example. Begin the calculations in 1913, 1971, 1980, 2000 or whenever. The rate of increase in the official national debt varies but on average the debt increased by 8% to 9% every year and doubles every eight to nine years. Consider the implications of runaway debt, out of control spending, and no political will to manage spending, debt, or expansion of government, Medicare, military expenditures etc.
Year Official National Debt Projected
2018 $21 trillion doubling every 8.5 years
2027? $42 trillion
2035? $84 trillion
2044? $168 trillion
2052? $336 trillion
Outrageous! Of course, these projections are only based on 100+ years of debt history and could change. Congress might become fiscally responsible, global powers could “make nice,” greed and fear might take a vacation, the Tooth Fairy…
The banking cartel (commercial banks and central banks) will create trillions of dollars of debt in the coming years and will feed it into the economy. However, debt creation cannot continue forever. Either the dollar crashes (think Venezuela, Argentina, Turkey, and others) or the financial world resets.
From Jim Sinclair:
“Federal Reserve Gov. the Hon. Powell has only one of two moves he can make. Flood the world with dollars by active debt monetization (QE) internationally, or have the experience of presiding over the greatest depression in the history of man as his legacy. What would his boss have him do? The debt clock is ticking towards the reset by June of 2019.”
Predicting the “End of the World” is, financially speaking, predicting the reset. Yes, something must occur, but what, why and when?
WHAT IS THE RESET?
Debt must be paid or defaulted. Much of global debt can’t be paid so it will default. That debt is someone’s liability and another person’s asset. Default reduces or destroys both the liability and the value of the asset. Imagine $100,000 of thirty-year bonds being repaid in full, except the $100,000 buys 100 gallons of gasoline in thirty years.
It can’t happen here… It can! Argentina lopped 13 zeros from their pesos since 1945. Interest rates in Argentina reached 60% in 2018. Venezuela and Zimbabwe created recent hyperinflations by central bank printing. It can happen in the U.S., in Europe, in Japan and elsewhere.
When massive defaults occur, will global central banks sit on their hands and watch the collapse, or “do something?” What will they do? It is likely they will print currencies, or as Jim Sinclair says, “flood the world with dollars by active debt monetization.”
WHY WILL A RESET OCCUR?
There are many reasons. Some are:
The $20 trillion in created central bank monetization has made the financial world less stable. Which snowflake causes the avalanche (Jim Rickards) or which grain of sand initiates the collapse (John Mauldin) or which bank collapse will force the global reset? The condition of instability is more important than the apparent cause of the collapse.
The yield curve is declining. Recessions are consequences of excess credit issued by the fractional reserve banking system and central banks. A recession has not occurred for years, but the yield curve indicates a recession is close. Government revenues will collapse, marginal borrowers—corporations and individuals—will go bankrupt and the financial world could reset to a 2008 crisis during the next recession.
Stock markets have been too high for years. Apple and Amazon are trillion dollar companies. The NASDAQ 100 fell over 80% after the 2000 crash. Could it repeat? Yes, but crazy can become crazier to suck in more speculative dollars. Fundamentals are irrelevant compared to central bank liquidity pumps.
The “everything bubble” and excess debt will weaken currencies. Interest rates must remain low so debtors can afford the interest payments, which will weaken currencies. Or interest rates will reset higher and the bankruptcies will weaken currencies. Our central banks and governments have led the world into an ugly currency trap. Rig for stormy weather!
Quantitative Easing (QE) or “currency printing” or monetization is like an anti-anxiety drug or cocaine or hard liquor. Use it enough and you create addiction. Central banks created over $20 trillion in QE, enough to produce a substantial addiction. Chairman Powell of the Fed may attempt to “kick the habit” by taking baby steps to reduce the addiction. Based on 100+ years of history, the Fed will monetize more, not less, and probably soon.
WHEN WILL THE RESET OCCUR?
Read part two in a few days!
CONCLUSIONS FROM PART ONE:
- A risk/reward analysis for 2018 – 202? points toward gold and silver, not stocks, bonds, corporate debt, student loans or most asset classes.
- The “everything bubble” will burst. Consequences will be dire for many individuals, businesses and governments.
- Debt and spending are “out of control.” Fiat currencies will devalue, particularly if they are needed to “paper over” massive defaults.
- Hyperinflation, defaults and resets occurred in many countries and could (will) happen in developed countries such as the U.S.
- Rig for stormy weather! Gold and silver bullion and coins are “insurance” against the inevitable currency devaluations that must occur in our debt based fiat currency systems.
Courtesy of Gary Christenson of Deviant Investor
News and Commentary
Gold inches higher as Asian stocks slip (Reuters.com)
Gold Prices Advance on Rise in Dollar (Investing.com)
Govt sets up $100m gold sector fund (Herald.co.zw)
India’s gold imports rise on new duty concerns (Mubasher.info)
Gold markets: Asian stocks, Saudi Arabia, Italy, Brexit in focus (CNBC.com)
The last time gold speculators went from that short with a huge cover was March 1999. Source: ZeroHedge
Gold Shorts Suffer Biggest Squeeze Since 1999 As Specs Abandon VIX-Selling Spree (ZeroHedge.com)
This Is What A Paper Gold Short Squeeze Looks Like (DollarCollapse.com)
Dollar Libor at a 10-Year High Adds to Global Funding Headwinds (Bloomberg.com)
Italian Bonds Don’t Have History on Their Side (Bloomberg.com)
Italy’s Banks at Risk From Widening Spread, League Official Says (Bloomberg.com)
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Gold Prices (LBMA AM)
19 Oct: USD 1,228.25, GBP 942.44 & EUR 1,073.12 per ounce
18 Oct: USD 1,224.60, GBP 933.76 & EUR 1,062.83 per ounce
17 Oct: USD 1,226.75, GBP 933.68 & EUR 1,061.38 per ounce
16 Oct: USD 1,228.85, GBP 931.35 & EUR 1,061.73 per ounce
15 Oct: USD 1,233.00, GBP 937.70 & EUR 1,064.45 per ounce
12 Oct: USD 1,218.75, GBP 922.11 & EUR 1,052.15 per ounce
Silver Prices (LBMA)
19 Oct: USD 14.61, GBP 11.21 & EUR 12.75 per ounce
18 Oct: USD 14.52, GBP 11.06 & EUR 12.60 per ounce
17 Oct: USD 14.65, GBP 11.16 & EUR 12.69 per ounce
16 Oct: USD 14.76, GBP 11.16 & EUR 12.74 per ounce
15 Oct: USD 14.74, GBP 11.19 & EUR 12.71 per ounce
12 Oct: USD 14.60, GBP 11.04 & EUR 12.60 per ounce
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