Between the fourth round of QE – which Fed Chairman Jerome Powell insists is not QE – and the announced ramp-up in repo operations into at least next year, even seasoned economists are stunned at how much money the Federal Reserve has been pumping into the banking system lately.
I’m beginning to think our call for Dow 50,000 and gold $10,000 may be a little conservative.
The central bank is buying Treasury bills like there’s no tomorrow, knowing that banks are short on cash and bond yields need to stay ultra-low for the foreseeable future; after all, the central banks of Germany, Japan, France, and Belgium are issuing zero- and negative-yielding debt, so why can’t America do it too?
While the past month has seen the most aggressive Fed stimulus activity, the pivot actually came in August when the central bank ceased QT entirely. Since then, interest rates have been cut by 35% and the Federal Reserve’s balance sheet has expanded by more than $260 billion.
And so the race is on, and the U.S. is stepping it up: ignoring the inflation rate (which the Fed used to use as an excuse to cut interest rates, but they don’t even bother with that now), injecting massive amounts of liquidity into the financial system, and pushing the fiat money printing press to its limit.
Meanwhile, the public is deceived into hearing about the dollar’s relative strength against other declining fiat currencies, when the reality is that all asset classes are rallying together… It’s a melt-up.
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Gold continues to outperform equities annually and has done so over the past 2 decades since we started on this path of constant Fed interventions every time the stock market looks like it’s going to decline.
Sovereign debt levels are marking some dubious milestones: $1 trillion in calendar year 2019 and $23 trillion in total. Keeping the Fed funds rate at rock-bottom levels could, I suppose, make it fractionally easier for the U.S. to pay the interest on its debt, but that’s just delaying the inevitable as the magnitude of the debt is growing much faster than the government could ever pay it down.
And while Jay Powell puts on a confident face in public, a truly confident Fed wouldn’t feel the need for such aggressive intervention. Behind the measured tones of the FOMC meeting transcripts is sheer panic, leaving little doubt that the federal debt funding will not only persist through 2020 and beyond, but will increase in pace and volume as debt issuance becomes less and less effective but more and more necessary.
More than ever, you want to own real assets like gold and real estate. Businesses are real assets too, but for preservation we prefer assets that aren’t royally screwed up managements’ reactions or easily repriced by a panic in the markets.
In the last month, we’ve suggested two phenomenal gold stocks: Sandspring Resources (SSPXF) and Triumph Gold (TIGCF). Consider taking positions sooner, rather than later.
One of our top private commercial real estate funds, FundRise, recently announced new acquisitions: 3 new apartment developments in Los Angeles. We continue to rate them as our #1 suggestion for cash flow.
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
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This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.
The owners of this website are invested in all of the ideas mentioned in this letter.