January 18, 2016
What we would love is a good, solid bull market in gold without a lot of draw-downs. Of course, what we would love has nothing to do with what we’ll get. That said, we’ll get the bull market – unless it turns out that massive deficit spending by the government, malfeasance by the large money-center banks, and a Fed running out of tricks have no negative consequences. However, this bull will not provide an easy or smooth ride.
I think it most likely that we get a re-run of 2008, only a bit more pronounced this time. I remain bullish on precious metals, although volatility is guaranteed. This will be an interesting market to navigate. So far the equity markets have been taken out and beaten with the ugly stick.
- The current occupant of the White House has done nothing to improve our national balance sheet.
- The current occupant of the White House has done nothing to improve our security or relations with important nations.
- The Fed is out of dry powder, and has a huge balance sheet filled with questionable assets. It is very possible that the Fed could lose credibility across a wide spectrum of the population. Wonder what that would look like? An impotent Fed.
- The money-center banks are leveraged to the extreme. Off-market derivative bets are well into the trillions, perhaps hundreds of trillions, and are likely to trigger – for example, if crude drops much more, that alone could set off a derivative catastrophe as those instruments would be called upon to perform, something they are unlikely capable of doing. Wonder what that looks like.
- We’ve had essentially zero rate short term interest rates for seven years with only tepid growth in the economy, So that hasn’t worked.
- Those receiving pensions are seeing those monthly payments cut – some Teamsters/UPS guys have taken a 50% haircut in monthly benefits according to the WSJ. Apparently there is legislation proposed to allow the federal government to nationalize private pensions? I can’t confirm that, but I could see that becoming a real possibility if we were to have a financial crisis.
- The same policies that have kept interest rates at historic lows to try to ramp up the economy and keep the real estate industry going have been a terrible penalty on savers. Imagine what it was like when my grandparents earned over 10% on their savings at the local bank in their golden years. Low interest rates have caused individuals and pension funds to chase returns by taking on risk that is imprudent. They may find themselves recalling Mark Twain’s statement that he was “more concerned about the return of his money than the return on his money.”
- The possibility of a bear market in equities has not been repealed. I don’t know if we’re going to have one this year, but I do not believe they have been relegated to artifacts of past years. A 50% correction in the overall equity markets would not be an unheard of occurrence.
- Could it actually be that we could have “bail-ins” in this country where bank depositors are changed from the status of depositors to general creditors of the banks??? Hence, if a bank went belly-up, depositors would be dumped in with other bank creditors and thus would only receive a fraction of their deposits. Of course, the FDIC could only bail out maybe 1/2 of 1% of the deposits it supposedly insures. I don’t even want to think about what would happen if deposits were proven to be insecure.
So, gee, with the quality leadership we have, what could possibly go wrong?