In a conversation posted at You Tube, GoldMoney’s brain trust — founder James Turk, CEO Roy Sebag, research chief Alasdair Macleod, and Vice President John Butler — discuss the market possibilities for the new year and how gold may figure in them. They seem to agree that big changes are in the air.
The comments above and below are excerpts from an article by Bernard Dozier which has been edited ([ ]) and abridged (…) to provide a fast & easy read
In the text below I have “hit the high spots” but I strongly encourage you to listen (several times) to the thoughts of this team which has to consider every fact, every trend, every politic, and every change to position their business to succeed in a challenging global climate.
- The U.S. is a welfare society. China, Russia, and SE Asia are not, so the U.S. must continue to borrow money, a lot of money, in the coming years when interest rates will be rising.
- That unimaginable amount of fiat hasn’t created hyperinflation (yet) because it has been held on the financial side of the economy, but will produce rampant inflation as it shifts to the labor side of the economy.
- Stagflation will become entrenched because industries will have profitability problems stemming from leveraged buyback of their own stock. Their lack of profitability will make their stock less attractive, and Wall Street will suffer accordingly. Complicating this will be a global banking industry that is far worse off than 2008, and far more likely to fail, possibly beginning from failures in Europe.
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- Problems no longer can be resolved by 8 or 9 central bankers so the result will be hyperinflation.
- Equities aren’t attractive.
- The global system is more insolvent than it was in 2008.
- Systemic default climate: they’re working on negative nominal rate and on eliminating cash to prevent bank runs.
- They’re talking about plans to freeze equity (stock) markets so investors can’t sell their stocks or ETFs.
- If you want to come through all this with tangible assets, you’ll increase gold holdings to at least 30% of your portfolio.
- It is conceivable that stock and real estate could go up 1000%, but the currency will lose 99% of its value, so you may look wealthy on paper, but you can’t afford a fresh tomato.
- Financial instruments, especially in the futures markets, may lose their value, so the point is to own physical assets.
- In Weimar Germany the value of the Mark was deteriorating so rapidly that foreign students studying in Germany were able to buy houses with their spending money because their pocket change was worth so much more than the people’s currency. Now, if you own shares in a company that survives, the value of your shares will rise substantially.
- In an age of consumerism possessions have been valued higher than money, but that will and must change. People have to buy essential things…food, clothing, housing, energy…not on discretionary purchases.
- Warren Buffet swore he’d never buy a railroad or airlines, but he’s done both. Why? He understands inflation and hyperinflation.
- He also understands gold as well as we do. He bought 10% of the world’s silver in 1999…as a counterbalance to monetization.
- He’s buying the best businesses you can own in a hyperinflationary economy…fixed contracts, you own your supply chains, and you control your exposure to energy costs.
- Energy costs are going to be crucial. Oil is going to $300.
- Fracking is a major farce, and should never have been permitted. Drilling into a pool of oil gives you low cost energy, but fracking is expensive and that expense will control the price of energy.
- Trump wants to rebuild a manufacturing base and the energy required for rebuilding and running 70,000 businesses is going to push the price of oil way up, as the yield from fracking diminishes.
- Inflation begins as interest rates rise. Rising rates scares people into consuming and hoarding…getting it while it’s still affordable.
- We no longer have the global economy where everyone knew what the rules were. We had a private sector economy, a private sector recession, a private sector financial risk, but all of a sudden we had the Fed printing money …and that has become policy…the way economies, recessions, and risks are handled by central bankers…and they will keep doing that and producing inflation until the system burns up because there will be no confidence in the economy until currency is backed by a commodity basket containing gold.
- As for the central banks being able to keep interests rates so low for so long – they’ve gotten away with it so far.
- Six or seven Trillion dollars has been destroyed because it benefited the financial side but was denied the investor and the saver. It’s created an imbalance benefiting the holders of paper assets, and saved them, but the rest have been hurt because they’re actually making less while paying more for the things they buy…so that’s why they’ve been able to keep rates low…and inflation hasn’t shown up as a huge problem.
- Before 1973 the price of oil was tied to gold. but the Petrodollar changed that. Now the Petrodollar is changing.
- Russia and China have a problem. Russia is now the largest oil export nation, and it doesn’t want to accept dollars from the US–whose welfare costs have no visible end – so Russia and China are completing a private exchange system whereby China can obtain Russian oil and receive payment in Yuan–the Chinese currency.
- In turn, the plan is for Russia to then redeem Yuan for gold, but China is sitting on a Trillion Dollars and wants to wind that down before starting the oil-Yuan-gold swaps, which other trading partners (which would rather have gold than dollars) would want to get in on.
- Will 2017 be the year when China lowers it’s Dollar holdings to half a trillion? (and what will be the US response when oil producing nations tell the U.S. that they want payment in gold instead of paper dollars?)
- The psychology will be very fragile this year. The Normalcy Bias is so strong that until a change is undeniable, people will tend to minimize it but the pace of change is accelerating – not just about politics, but corporate earnings are in decline, price/earning ratios, Case-Schiller ratios – all these measures of stock market health have been deteriorating for some time so the odds of a sudden reassessment are very high this year. Insurance matters more than investment right now.
- In the US M1 is stronger than M2, which means an awful lot of lending is being done, and that the underlying economy is quite strong.
- Along comes Trump, who wants to increase the fire under the economy. This will lead to a high level of price inflation so the Fed will have to raise interest rates higher than it thinks at the moment…but the Fed has its limitations. You have the debt so, at some point this year, I predict that some people will start talking about price controls.
- We know that doesn’t work, but in the face of rapidly rising prices (hyperinflation) and discomfort, you’ll hear talk about controlling prices.
- Can you imagine what talk about price controls will do to the stock market…what Tyson stock will do if they have to sell chicken at a certain price?
In all this volatility investors/consumers have to stay focused.
- Your cost of living has gone up. Your income probably hasn’t.
- In order to maintain your purchasing power you want to be heavily exposed to precious metals.
- Own property.
- There is a massive art bubble, so stay away from art.
- Don’t believe what’s going on the equity markets or the debt markets or the interest rate markets.
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