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In the past month:
Long Bonds (using TLT etf) up 16%
Gold up 13%
Silver up 23%
This morning’s announcement regarding inflation out of the United States provided some adrenaline for the Buy and Hold crowd, that group that believes the stock market will never crash again even after 14 years of almost unfettered growth. At the opening, stock markets were up over 2% at one point. The reason for the excitement was a lower-than-expected inflation report.
But like a child on sugar the high was fun while it lasted but soon reality kicked in and the rush was over. At time of writing this the Toronto stock exchange and the Dow are both in the red and the S&P 500 is flat, while the beleaguered Nasdaq is up 0.35%.
What is up, even after a surprise drop in the inflation numbers is Long Bonds and Gold. Add oil to the sectors gaining as well, which is somewhat expected given the heavy sell off it has experienced since June, down 40%.
I believe the key takeaway from today's action, so far, is that the rush to safety continues while the stock market struggles even with favorable news. I spoke of this yesterday, that you need to watch what is going on in the Bond and Precious metals markets to understand what will likely happen in the stock markets. They are what you might call leading indicators or, “where the smart money is going.”
The other extremely important sector I never spoke about yesterday, that is another leading indicator for the stock market and the economy is the largest asset class in the world and that is Real Estate. Tomorrow is another high anxiety day for traders as the US Federal Reserve announce their decision on rate hikes. Last week the Bank of Canada raised 1/2% and that is what is expected tomorrow in the US as well.
Real estate sales dropped 50% in British Columbia in November and prices are starting to show cracks in the bubble. Vancouver and Toronto are considered two of the most over-priced markets in the world and debt servicing mortgages has risen by 50%. A $250,000 mortgage at 2% with a monthly payment of $1,000 is now $1,500 at 5.5%.
That last paragraph when coupled with the coordinated run up in the safe havens of Bonds and precious metals might be the canary in the coal mine. No one is suggesting we have anything as extreme as 2008 in real estate, but it is still massively inflated in many parts of the world and when marry that to the excessiveness in the stock market you have the potential for a crash.
Most retail investors do not have a money management process let alone one that protects them. This is daunting to say the least as the potential for a massive wipeout of generational wealth exists for those unprepared. I cannot express loudly enough how important it is to have an exit strategy should things turn south in a hurry. I urge everyone to ask their adviser what their exit strategy is. They are being paid to protect your nest egg not just reap the befits when the markets are going up.
As mentioned, we have had 14 years of unabated growth, but the party does not go on forever. We have $65 trillion of worldwide debt counting derivatives, perilous and inappropriate printing of currency that has diminished its value and a world divided by East and West as the BRICS nations rise to prominence with their gold backed currencies and independence from the Western world’s centuries old hegemony. The collapse will come quick, and we have no idea how deep it will get. But never before have we had such excesses in all asset classes except precious metals at the same time the Eastern world along with Russia and numerous South American and African countries that represent 75% of the world’s population and 50% of its GDP challenging the pompous arrogance of the liberal dominated western world by doing their own trade backed by gold without the use of the US Dollar which is backed by NOTHING.
The following charts help describe a place in time that we are now. History doesn’t always repeat itself, but it rhymes, and we need to learn from history.
For more information on precious metals and anything else written here today you can call me at 306-343-7800 or email me at daryl@preservation-capital.com
If the white line moves up as the blue line from 2008 that is bad news for stocks and it correlates with the second chart showing the white line of today trying hard to detach itself from 2008 which was the big crash.
Who says history doesn’t repeat itself? The white is today, the blue 1935-38, the orange 1998-2002 and the yellow 2006-2009.
1929-32, an 89% decline but note all the rallies. We have 3 such rallies in 2022.
A dollar invested in 1929 never returned to be $1 until 1954. 25 years !
A close up look at the Lost Decade plus 3 years.
This is often referred to as “the lost decade” , a time where the US treasury bills did better than the US stock market. I managed people’s money through this time. By being properly aligned with certain asset classes we were able to make money.
A dollar invested in April 200 never became $1 again until June 2013. 13 years!
A chart by GoldPredict.com. I don’t make predictions; these are their predictions.
Note, Gold is up 540% since January 2000 or on an annualized basis, 24.5% per year.