Harry Dent discusses the Economics of the Crash why we are in for a major crash just ahead, and a decade-long economic slump based on population demographics, an in-depth discussion on the current economic downturn and his book The Great Depression Ahead. Harry S. Dent Jr. is one of the smartest, savviest economic researchers around, and his track record for being RIGHT when conventional wisdom has been wrong cannot be ignored. If you want to make sure you have all your financial bases covered in the months and years ahead, you owe it to yourself to hear what he has to say. Dent predicted that real estate values will continue to fall another 20-30% between 2012-2015, before prices are stabilized. how the DOW will hit 3800? How GOLD will bust in the short term, and why you should invest in the dollar! Inflation fears, mounting budget woes, and stubborn unemployment continue to weigh on the economy. The equity markets marched higher in spite of these issues, but what now? Harry S. Dent, Jr. gives his outlook on what lies ahead! This guy got me into studying demographics and the lifecycle of a consumer. His predictions on the markets is almost always right
Saturday, August 20, 2011
Mining Share Ratio To Gold Back At Pre-QE1 Levels
The following ratio chart says in a picture just how severely undervalued the gold stocks are in relation to the price of bullion.
You might recall that as the credit crisis erupted in the summer of 2008 with the failure of Lehman Brothers and subsequent meltdown of other large financial firms, stocks and commodities plummeted as the Yen carry trade unwound and deflationary fears escalated.
The rumors began to circulate as the crisis deepened that the Federal Reserve was getting ready to implement some unorthodox policies in an attempt to stave off the deflation and prevent a credit market lockup. That was when the phrase, “Quantitative Easing” first began making the rounds in the markets.
So confident were traders that the Fed was not going to sit idly by while the entire US financial system imploded that they began covering shorts and bidding up the price of equities and commodities ahead of what was then announced with certainty in November of that year.
Look at the chart and you can see that while the HUI/Gold ratio is not at the depths it reached during the peak of the credit crisis, after today, it is now at levels last seen just before the QE1 was actually implemented.
If you look across the chart to the left and note the blue line reaching back to the end of 2001, you can see that the mining shares relation to gold had actually plummeted to levels last seen near the VERY BEGINNING of the now decade + long bull market in gold. That is how cheap the shares had become to gold bullion in the third quarter of 2008.
Quite frankly, we are not all that far off from levels seen at that time with today’s round of selling across many of the mining shares. This has occured in spite of the fact that we have spent more than $2.5 TRILLION between QE1 and QE2 and seen the gold price leap from $700 in November 2008 to over $1800 as of today’s close.
Based on this fact alone, either the price of gold is going to have to plummet quite sharply from current levels or the shares are going to be at levels last seen in relation to the price of gold bullion when the bull market in gold began and that was at a price level of $270-$290 gold. While gold may correct at any time from its strong rally, why in the world would the gold price be the one moving lower given the current state of the global economy and particularly with all the implications regarding the integrity of the currencies of many nations in the West? The only way to correct this glaring imbalance is for a very sharp and incredibly swift rally in the mining sector.
![clip_image001[1]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisfSd_t8aGiBD4tZSVoBZynBOTFgj-PQSwY0BqU08Y4Fj1BV5TzxSNV-fFUwC3TicXjy4kRVHIi_XtDD6rY2hptJfaqxSm8u4NAR7BdeNulaFdcSYsz1VeWECx9REDj_yh2Noy_FErn_0/s1600/snapshot-853.png "clip_image001[1]")
I have been detailing the ratio-spread trade being employed by the hedge funds across the mining sector for some years now. As a trader I understood the rationale behind that trade – why risk issues related to mines such as management changes, labor disputes, environmental lawsuits, hostile laws and regulations, aging mines, etc. when you can get leveraged exposure to gold by using the ETF’s instead. One could buy the ETF or Comex gold and sell short some of the weaker gold shares and laugh all the way to the bank. As an investor myself in the gold shares, I was not happy to see this trade but I could understand it.
I must say that it has now reached a point where those who ply the trade are treading on very thin ice. There is no longer a fundamental case that can be made to justify the trade at current levels of the shares in relation to the price of gold. Smart traders will run a trade as long as they can but they will leave the last 20% for the foolhardy and the novices who think that they are clever enough to pick exact tops or bottoms in markets. The pros do not practice such stunts – if they do, they do not remain pros for much longer but soon become, “EX” traders.
The first hedge funds out the door of this trade are the ones who are going to make the money in it. They will take their profits and they begin looking for another golden goose that may lay yellow eggs for them. The ones that stick around and think they are quick enough to exit before getting run over by all the rest of the funds in such a crowded, lop-sided trade will be the ones who overstayed their welcome and end up losing big when they could have retired the trade with decent profits had they not been so mindlessly greedy.
The first inkling we get of any acquistions by a major gold mining outfit of a quality junior and it is game over for this trade.
Wake up hedgies – the trade to have been in for the last few months was to be long the miners and short the broader markets. There was your money maker. How many times on this site did we mention this trade and urge you to get out of the wrong one? Stop relying on your damned computers and do some thinking and analysis on your own.
![clip_image002[1]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrKXouQ8eFvSJ4UesYIgF3BUYOKmkPMub5VWyd4Q4v9as1MSKl-AGKaDeqjFelI3Db9T0EXHFoxPHZbsBL_Fa9ZnwF0-I7lcbrntniIlLXc_tbfhWgYZk0NsTEv81jBo0xLr-anseynLY/s1600/snapshot-854.png "clip_image002[1]")
For more from Trader Dan check out his blog at www.TraderDan.net
U.S. Dollar, Gold and Silver Update
My last update on the long-term performance of the Dollar, Gold and Silver was posted on April 25th, just four days before the S&P 500 set its interim high (click to view).
Here now is a fresh look and the world's reserve currency and the two metals, starting with a 20-year timeline for the Dollar and Gold. Since late April, the Dollar has been in a narrow range with yesterday's close down 0.2% from our last inspection. Gold, in contrast, has risen 18.59%.
What about Silver? It has been more volatile than Gold, but over the same timeframe, it has a nearly identical gain of 18.11%.
The next chart starts the timeline in 1980, the earliest date my source, Stockchart.com, supplies data. Gold and Silver data are available across the complete timeline, but the Dollar tracking begins in mid-1983.
By starting in 1980, we see the downside of the historic bubble in Silver that peaked on Silver Thursday, March 27, 1980.
The circumstances surrounding the 1980 Silver Bubble, nicely summarized in this Investopedia article, were unique in modern history. In nominal terms, Silver is back in the territory of the 1980 bubble, but in real terms, and in light of the global financial distress, precious metals will doubtless remain attractive to many investors.
What about the Dollar? As of yesterday's close, the Dollar is down 55% from its 1985 peak. I won't hazard a forecast as to where it's headed, but I wouldn't be surprised to see the range of the past two years set the boundaries for the next several months.
Are You Ready For a Crash?
I warned that the rally of the last week was nothing more than a snapback move from oversold conditions.
Indeed, these kind of sharp moves are normal for market collapses. As I’ve noted, during the two months of October-December 2008 we had three sharp rallies of 11%, 17%, and 20% respectively. Every time the market rolled over hard soon afterwards.
We’re seeing the exact same sort of moves today. Indeed, this last snapback rally was about 10%. And the market has rolled since rolled over hard. Whiping out nearly all of the gains post the Fed FOMC meeting in just two days.1,175 didn’t offer any support for the S&P 500. By the looks of it 1125 won’t either, which leaves the next place for a likely bounce at 1,075 or so.
As I’ve pointed out many times, Crashes follow a well known pattern. That pattern is:
1) The initial drop
2) The snapback
3) The REAL Fireworks
This latest collapse is following this perfectly. The bounce is now ending and we’re going into the REAL fireworks.
Personal Financial SHTF Experience
Introduction
The reason I’m writing this is just to convey a personal financial SHTF situation that happened to us, and describe how my “preps” beforehand helped me sail through the experience with minimal impact. Just to be clear, this isn’t an exciting shoot-the-looters story, it’s just a tale of how the “boring” aspect of preparation are still important to ensuring stability.
My background: I’m a businessman. I earned my undergraduate degree and then an MBA, and have worked since then in professional services. In my spare time I’m also a gun nut with over 300 hours of tactical / self defense firearms and other fighting training, and am a serious shooting competitor. I suppose I became a “prepper” when I was a kid living in Miami and watched the riots in Liberty City (1980) and Overtown (1982) unfold on TV. I vowed even then that for the rest of my life I’d be ready for any type of calamity. But I didn’t get serious about it until 9/11 which left me stuck on the other side of the country from my wife.
After 9/11 I’d often visit “survivalist” forums (you know the ones). Although full of a lot of hot air, the forums did provide me with some useful things such as the idea of building a priority grid: the matrix where you sort out the most high-likelihood, high-impact events and prepare for those first. During my long flights I would work on the grid and eventually saw that my #1 priority was to prepare for a recession / layoff. Dang, and I had wanted so much to prep for an EMP strike. Oh well. But how to prepare? I’d weathered several recessions before, and had never been laid off in my life, so I had to think a lot about what it would mean, what the impacts would be to my life. And, how could I mitigate those impacts? I put together two lists to deal with this potentiality: stuff to buy and stuff to do.
· Stuff to do:
o Pay off all debt and save up cash for 6 months of expenses.
o Write down on paper what an “emergency budget” would be. It stripped out all nonessentials like lawn service, cable TV, restaurants, movies in theaters ,etc. And I was sure to go through it with Mrs Stryder to make sure we both knew what to expect and agreed to it BEFORE anything happened.
o Always be doing a job search. Reach out to networks, contacts, former clients, etc.
o Plant a garden
o Raise chickens
· Stuff to buy:
o Food storage, starting off with 30 days, built out gradually. I got to 120 days. I’d LOVE to have a year’s supply… still working on that.
o Water storage containers: started off with 7 gal water cans, would buy one a month, fill & store in dark area. Eventually Mormon family next store told me they had a lead on cheap 55 gal barrels & I got one of those. Approx. 3 weeks of water stored now, not including water heater + whatever we could store in Rubbermaid tubs given notice
o Energy production: my idea was to get small scale solar panels to reduce electricity costs during a layoff …. Never got around to doing this, the cost:benefit ratio was too high.
o Security: guns were already taken care of, as I suspect they are in any self-respecting “prepper’s” home. I took over 300 hours of self defense / tactical firearms training as well, in addition to edged weapon and mixed martial arts fighting. Also hardened home with better locks, security system etc.
Job Situation: bankruptcy and layoff
Fast forward to 2008. There were strong indicators in the Fall that my firm was headed for bankruptcy, and we employees knew it. So, I started to both “up my preps” as well as seriously look for a job. My company was laying off in droves and within six months, 75% of the company had been let go. I was still there in Summer of 2009, one of the last people left in the firm. I tell you it’s an odd feeling to be the one to turn out the lights in a corp. you helped build.
I started job searching in the Spring 2009, and had my first interviews before my official final day, which enabled me to credibly say in my first interviews that I was still employed. This was key as it was 2009 and it was the worst job market in almost 10 years, in a state (Oregon) with the 2nd highest unemployment rate in the country…. Not a good situation so I had to maximize every point of leverage I had. When I got “the call,” I was 100% mentally ready and prepared for it due to all my “preps.” I can’t say it felt good to be let go from a place I worked hard to create value in, but I had faced reality long before, so that when the time came it just felt like an emotionless business transaction.
From that point onward I put my job search into high gear, and put the whole emergency budget into effect. Fortunately my company gave me two month’s severance pay as well as all my unused PTO (six weeks! I told you I worked hard there…) so I made it my goal to not tap into my emergency fund. It became like a game for us: I took on the grocery shopping duties, always looking for the best deals, and we had weekly challenges to see how little gas we could use. I’d ride my bike to the store when possible and Mrs Stryder took the bus to work. We’d also shop at “that store” in “that part of town” where “those people” normally shop. Former colleagues of mine – who were themselves out of work – in contrast shopped at Whole Foods. I showed them how much cheaper it was to shop elsewhere but they still managed to rationalize spending 50%-100% more on groceries just because they like the decor. Whatever.
Each day I just kept myself busy, with a schedule. I devoted 4-5 hours of focused time to the job search and the rest of the time was spent on other worthwhile activities like shopping, tending the garden, home repairs, reaching out to friends & family, etc. Having productive activities each day enabled me to keep from feeling down and playing the useless “what-if” mental game.
Success!
Within two weeks of my last day, I had my first job offer. It wasn’t a place I really wanted to work in, so I held off committing to see if I would get any other offers. I had this leverage since I knew that I could survive / get by for 9-12 month before NEEDING a job. So I waited, and within three more weeks, I had two more job offers in hand that paid more, and better suited to me. It felt good to not have to take a job I didn’t want just because I needed a paycheck.
Lessons learned: Debt Reduction and Mindset
When I drove to my first day of work at my new job, I thought, “wow, my plan really worked!” OK sure I wasn’t in a life or death LA Riots type situation but … damnit we it was a real SHTF event for us, and we got through it with minimal impact, due in no small part to the preparations we had made.
Debt Reduction
When I first got out of B-school in ‘99, my mindset was way wrong, having bought into the image that “I have an advanced degree from a top school and work at a top firm. Therefore I must live in a ritzy neighborhood, drive a new car and belong to the country club, and golf every weekend.” I realized after some years that that just wasn’t me, and it didn’t jibe with my desire as a prepper to be secure & safe, and so I changed my mindset.
I switched from being a conspicuous consumer to being a saver, and focused on “reducing fixed costs” in accounting-speak. My work colleagues couldn’t & still can’t understand why I drive a 10 year old car, and live in a more affordable neighborhood away from the city. Whenever they ask, I answer honestly, “because it’s cheaper.” And that answer is almost always met with stunned silence, or some rationalization of why spending more money on a newer car or being closer to the city helps me enjoy living now. Ummm, I kind of enjoy my life actually!
So, Mrs. Stryder and I have long been focused on saving money and realized the goodies we normally enjoyed (such as maid service, cable TV, etc) could go away at the drop of the hat. And because I had socked away a good amount of $$, and because I was on top of things, the impact to our lives was minimal. Despite all that was going on: unemployed for the first time ever, terrible national economy, worse local economy, stock market crash, bank nationalizations, TARP, QE 1 & 2, etc., I slept well every night because I knew we’d be OK. And that last sentence is to me what the value of being prepared was.
Mindset
Mindset really is key. But what specifically did that mean for us in this case? It meant we simply had it in our minds that we would NOT be put down by this layoff. We knew who we were, and that this bizarre set of circumstances was just a bump in the road of life. Having the right Mindset helps you adopt a frame of mind that you keep with you daily. You thus train your mind to see opportunities and possibilities – and take advantage of them – when you otherwise may not have.
What I would have done differently
Honestly, I don’t know what else I could have done. I guess the only other thing I might have done in hindsight was to not be part of the big Obama Gun Buy of 2008. I spent a lot of $$$ on that. But on the other hand, I wound up getting all the things I had planned to anyway for “preps,” just earlier than I had planned.
Info that helped me along the way
· Financial: Millionaire Next Door, Dave Ramsey radio show. Rich Dad Poor Dad was OK but you can sum up the entire book in about a paragraph.
· Real world survival in an economic decline: FerFAL of course!
· Mindset: Listening to Katrina (“Keep Moving Forward”), Cody Lundin’s 98.6 Degrees and When All Hell Breaks Loose for his phrase “Party On”
· Gardening: Square Foot Gardening, Jack Spirko’s podcast.
http://ferfal.blogspot.com/2011/08/personal-financial-shtf-experience.html
The reason I’m writing this is just to convey a personal financial SHTF situation that happened to us, and describe how my “preps” beforehand helped me sail through the experience with minimal impact. Just to be clear, this isn’t an exciting shoot-the-looters story, it’s just a tale of how the “boring” aspect of preparation are still important to ensuring stability.
My background: I’m a businessman. I earned my undergraduate degree and then an MBA, and have worked since then in professional services. In my spare time I’m also a gun nut with over 300 hours of tactical / self defense firearms and other fighting training, and am a serious shooting competitor. I suppose I became a “prepper” when I was a kid living in Miami and watched the riots in Liberty City (1980) and Overtown (1982) unfold on TV. I vowed even then that for the rest of my life I’d be ready for any type of calamity. But I didn’t get serious about it until 9/11 which left me stuck on the other side of the country from my wife.
After 9/11 I’d often visit “survivalist” forums (you know the ones). Although full of a lot of hot air, the forums did provide me with some useful things such as the idea of building a priority grid: the matrix where you sort out the most high-likelihood, high-impact events and prepare for those first. During my long flights I would work on the grid and eventually saw that my #1 priority was to prepare for a recession / layoff. Dang, and I had wanted so much to prep for an EMP strike. Oh well. But how to prepare? I’d weathered several recessions before, and had never been laid off in my life, so I had to think a lot about what it would mean, what the impacts would be to my life. And, how could I mitigate those impacts? I put together two lists to deal with this potentiality: stuff to buy and stuff to do.
· Stuff to do:
o Pay off all debt and save up cash for 6 months of expenses.
o Write down on paper what an “emergency budget” would be. It stripped out all nonessentials like lawn service, cable TV, restaurants, movies in theaters ,etc. And I was sure to go through it with Mrs Stryder to make sure we both knew what to expect and agreed to it BEFORE anything happened.
o Always be doing a job search. Reach out to networks, contacts, former clients, etc.
o Plant a garden
o Raise chickens
· Stuff to buy:
o Food storage, starting off with 30 days, built out gradually. I got to 120 days. I’d LOVE to have a year’s supply… still working on that.
o Water storage containers: started off with 7 gal water cans, would buy one a month, fill & store in dark area. Eventually Mormon family next store told me they had a lead on cheap 55 gal barrels & I got one of those. Approx. 3 weeks of water stored now, not including water heater + whatever we could store in Rubbermaid tubs given notice
o Energy production: my idea was to get small scale solar panels to reduce electricity costs during a layoff …. Never got around to doing this, the cost:benefit ratio was too high.
o Security: guns were already taken care of, as I suspect they are in any self-respecting “prepper’s” home. I took over 300 hours of self defense / tactical firearms training as well, in addition to edged weapon and mixed martial arts fighting. Also hardened home with better locks, security system etc.
Job Situation: bankruptcy and layoff
Fast forward to 2008. There were strong indicators in the Fall that my firm was headed for bankruptcy, and we employees knew it. So, I started to both “up my preps” as well as seriously look for a job. My company was laying off in droves and within six months, 75% of the company had been let go. I was still there in Summer of 2009, one of the last people left in the firm. I tell you it’s an odd feeling to be the one to turn out the lights in a corp. you helped build.
I started job searching in the Spring 2009, and had my first interviews before my official final day, which enabled me to credibly say in my first interviews that I was still employed. This was key as it was 2009 and it was the worst job market in almost 10 years, in a state (Oregon) with the 2nd highest unemployment rate in the country…. Not a good situation so I had to maximize every point of leverage I had. When I got “the call,” I was 100% mentally ready and prepared for it due to all my “preps.” I can’t say it felt good to be let go from a place I worked hard to create value in, but I had faced reality long before, so that when the time came it just felt like an emotionless business transaction.
From that point onward I put my job search into high gear, and put the whole emergency budget into effect. Fortunately my company gave me two month’s severance pay as well as all my unused PTO (six weeks! I told you I worked hard there…) so I made it my goal to not tap into my emergency fund. It became like a game for us: I took on the grocery shopping duties, always looking for the best deals, and we had weekly challenges to see how little gas we could use. I’d ride my bike to the store when possible and Mrs Stryder took the bus to work. We’d also shop at “that store” in “that part of town” where “those people” normally shop. Former colleagues of mine – who were themselves out of work – in contrast shopped at Whole Foods. I showed them how much cheaper it was to shop elsewhere but they still managed to rationalize spending 50%-100% more on groceries just because they like the decor. Whatever.
Each day I just kept myself busy, with a schedule. I devoted 4-5 hours of focused time to the job search and the rest of the time was spent on other worthwhile activities like shopping, tending the garden, home repairs, reaching out to friends & family, etc. Having productive activities each day enabled me to keep from feeling down and playing the useless “what-if” mental game.
Success!
Within two weeks of my last day, I had my first job offer. It wasn’t a place I really wanted to work in, so I held off committing to see if I would get any other offers. I had this leverage since I knew that I could survive / get by for 9-12 month before NEEDING a job. So I waited, and within three more weeks, I had two more job offers in hand that paid more, and better suited to me. It felt good to not have to take a job I didn’t want just because I needed a paycheck.
Lessons learned: Debt Reduction and Mindset
When I drove to my first day of work at my new job, I thought, “wow, my plan really worked!” OK sure I wasn’t in a life or death LA Riots type situation but … damnit we it was a real SHTF event for us, and we got through it with minimal impact, due in no small part to the preparations we had made.
Debt Reduction
When I first got out of B-school in ‘99, my mindset was way wrong, having bought into the image that “I have an advanced degree from a top school and work at a top firm. Therefore I must live in a ritzy neighborhood, drive a new car and belong to the country club, and golf every weekend.” I realized after some years that that just wasn’t me, and it didn’t jibe with my desire as a prepper to be secure & safe, and so I changed my mindset.
I switched from being a conspicuous consumer to being a saver, and focused on “reducing fixed costs” in accounting-speak. My work colleagues couldn’t & still can’t understand why I drive a 10 year old car, and live in a more affordable neighborhood away from the city. Whenever they ask, I answer honestly, “because it’s cheaper.” And that answer is almost always met with stunned silence, or some rationalization of why spending more money on a newer car or being closer to the city helps me enjoy living now. Ummm, I kind of enjoy my life actually!
So, Mrs. Stryder and I have long been focused on saving money and realized the goodies we normally enjoyed (such as maid service, cable TV, etc) could go away at the drop of the hat. And because I had socked away a good amount of $$, and because I was on top of things, the impact to our lives was minimal. Despite all that was going on: unemployed for the first time ever, terrible national economy, worse local economy, stock market crash, bank nationalizations, TARP, QE 1 & 2, etc., I slept well every night because I knew we’d be OK. And that last sentence is to me what the value of being prepared was.
Mindset
Mindset really is key. But what specifically did that mean for us in this case? It meant we simply had it in our minds that we would NOT be put down by this layoff. We knew who we were, and that this bizarre set of circumstances was just a bump in the road of life. Having the right Mindset helps you adopt a frame of mind that you keep with you daily. You thus train your mind to see opportunities and possibilities – and take advantage of them – when you otherwise may not have.
What I would have done differently
Honestly, I don’t know what else I could have done. I guess the only other thing I might have done in hindsight was to not be part of the big Obama Gun Buy of 2008. I spent a lot of $$$ on that. But on the other hand, I wound up getting all the things I had planned to anyway for “preps,” just earlier than I had planned.
Info that helped me along the way
· Financial: Millionaire Next Door, Dave Ramsey radio show. Rich Dad Poor Dad was OK but you can sum up the entire book in about a paragraph.
· Real world survival in an economic decline: FerFAL of course!
· Mindset: Listening to Katrina (“Keep Moving Forward”), Cody Lundin’s 98.6 Degrees and When All Hell Breaks Loose for his phrase “Party On”
· Gardening: Square Foot Gardening, Jack Spirko’s podcast.
http://ferfal.blogspot.com/2011/08/personal-financial-shtf-experience.html
5 Money Moves 'Dr. Doom' (Marc Faber) Is Making Now
Mr. Market, the doctor will sell you now.
"Dr. Doom," that is — also known as Marc Faber, the Hong Kong-based investment manager, author, and publisher of "The Gloom Boom & Doom Report," his monthly musing about the state of global economics and geopolitics.
"Dr. Doom," that is — also known as Marc Faber, the Hong Kong-based investment manager, author, and publisher of "The Gloom Boom & Doom Report," his monthly musing about the state of global economics and geopolitics.
Faber is to financial-market optimists what the Grinch is to Christmas. He doesn't often like what he sees, and nowadays he finds even less to like about the world's economic situation than he did in 2008 — as if that wasn't bad enough.
"Financial conditions are today worse than they were prior to the crisis in 2008," he said in a telephone interview earlier this week from Thailand. "The fiscal deficits have exploded and the political system [in both the U.S. and Europe] has become completely dysfunctional."
Certainly, the unprecedented global stock market volatility in this hot August, including Thursday's rout, suggests that investors and traders alike are looking for someone, somewhere, to take the wheel.
Pin that against a backdrop of fragile economies, inflationary government policies, high unemployment, social and income disparity, military actions and geopolitical tensions in the Middle East and Asia, and you get a good picture of how Faber sees the investment map.
Faber (pictured left) doesn't take a contrarian stance in the strict sense; it's more of a constant vigilance — capital preservation over capital appreciation — so that one can live now to fight for investment gains another day.
"The way I look at it," Faber said, "I am ultra-bearish about everything geopolitically. In an environment of money printing, we have to ask ourselves, how do we protect our wealth? ... Where do we allocate the money?
Good question, but in fact a fairly straightforward one if, like Faber, you believe that Federal Reserve policy is stoking speculation over savings and debasing the U.S. dollar, hyperinflation is a real possibility, the stock market's recovery since 2009 has favored the rich and powerful, cash is trash, and gold and land in the countryside are the only true safe havens.
"The Federal Reserve is a very evil institution," Faber said with characteristic bluntness, "in the sense that they punish decent people who have saved all their lives.
"These are people who don't understand about stocks and investments," he added, "and suddenly they are forced to speculate."
Speculation is the opposite of investing — of which there is little of nowadays from the corporate sector, let alone government and retail stock buyers. Corporations are instead hoarding cash out of concern that slow global economic growth will slam profits.
Such a miserly attitude can become a self-fulfilling prophecy. Faber noted that corporate earnings will likely disappoint stockholders across the board, including commodity shares, with the exception of traditional defensive sectors such as health care, consumer staples and utilities. (more)
Two Easy Ways to Save Your Wealth From 1970s-Style Stagflation
The year was 1973.
I was just a toddler, so I couldn't fully appreciate the next-generation Camaro that had just come out or the release of the new Pontiac Firebird Formula.
But of course, very few remember 1973 as the year of the Firebird or Camaro. That's because something else was brewing that would push the U.S. economy off a cliff.
An organization that most Americans had not yet heard of called the Organization of Petroleum Exporting Countries (OPEC) was about to flex some muscle, and punish the U.S. economy.
As payback, they significantly cut back the flow of oil to the United States.
This cutback in oil production from OPEC lasted until March of 1974. This, along with other factors, helped to slow down our economic growth while inflation soared. Up until that point, economists had said "high prices" and "sluggish growth" were nearly impossible.
But there it was: a new phenomenon known as stagflation.
With oil prices rising, corporations had to pay more to transport their goods. They had to raise prices to cover transportation costs. Suddenly everything Americans bought cost more − practically overnight.
The economy went south. Corporate profits slowed, and stocks went into a two-year bear market. Companies also had massive layoffs, and unemployment rose to 8.8%.
Meanwhile, the new fiat dollar slumped in value.
All this happened just because some oil bigwigs decided to decrease our oil supply. After all, prices only rise either because demand increases or the supply decreases (or both). In this case, it was the decreased oil supply.
These problems persisted for quite some time, too. You see, even though the oil embargo was over in March of 1974, gas prices continued to soar until March of 1981. In today's dollars, the peak price was equivalent to $3.41.
Back in the 1970s there wasn't much the average person could do to fend off the effects of stagflation on their personal finances. Americans either had to sit in cash or watch their stock portfolios bleed money. (more)
I was just a toddler, so I couldn't fully appreciate the next-generation Camaro that had just come out or the release of the new Pontiac Firebird Formula.
But of course, very few remember 1973 as the year of the Firebird or Camaro. That's because something else was brewing that would push the U.S. economy off a cliff.
An organization that most Americans had not yet heard of called the Organization of Petroleum Exporting Countries (OPEC) was about to flex some muscle, and punish the U.S. economy.
OPEC Tries to Get Revenge on America
In 1973, the U.S. government re-supplied the Israeli military during the Yom Kippur war. The decision-makers at OPEC didn't like that one bit. So they decided to get even.As payback, they significantly cut back the flow of oil to the United States.
This cutback in oil production from OPEC lasted until March of 1974. This, along with other factors, helped to slow down our economic growth while inflation soared. Up until that point, economists had said "high prices" and "sluggish growth" were nearly impossible.
But there it was: a new phenomenon known as stagflation.
With oil prices rising, corporations had to pay more to transport their goods. They had to raise prices to cover transportation costs. Suddenly everything Americans bought cost more − practically overnight.
The economy went south. Corporate profits slowed, and stocks went into a two-year bear market. Companies also had massive layoffs, and unemployment rose to 8.8%.
Meanwhile, the new fiat dollar slumped in value.
All this happened just because some oil bigwigs decided to decrease our oil supply. After all, prices only rise either because demand increases or the supply decreases (or both). In this case, it was the decreased oil supply.
These problems persisted for quite some time, too. You see, even though the oil embargo was over in March of 1974, gas prices continued to soar until March of 1981. In today's dollars, the peak price was equivalent to $3.41.
Back in the 1970s there wasn't much the average person could do to fend off the effects of stagflation on their personal finances. Americans either had to sit in cash or watch their stock portfolios bleed money. (more)
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