During my 24-year financial market career, equities have received the lion’s share of headlines – as they have been more “exciting” than other asset classes, providing a better chance to “get rich.” However, they have experienced several momentous crashes during this period; let alone, the 1987 crash that occurred just before my career started – in which the Dow declined by 22% in one day, and 36% that month.
In real terms, stocks haven’t increased all that much since I graduated college in 1992; and given the catastrophic plunges in 2000-2002 and 2008-09, I’d guess the large majority of investors sold at or near the lows – making equities a decidedly negative proposal for the past 13 years. In fact, retail participation in the post-2008 equity “boom” has been as low as we’ve seen in our lifetimes; as said “small fry” were forced out of the markets to preserve what little wealthy they still retained, whilst “the 1%” that directly received bailout funds were given essentially FREE equity profits as a reward for destroying the world.
It’s ironic that the latest, Fed-supported equity surge occurs at America’s low economic point of the century. But then again, in the early stages of hyperinflation – particularly when government “plunge protection teams” become staples of daily activity – stocks can indeed rise in nominal terms. Just ask the Venezuelans; whom are suffering horrible inflation, unemployment, and food shortages – amidst a quadrupling of the Caracas stock exchange! And by the way, last month’s 40% annual inflation rate represents its highest level since the Venezuelan government introduced a “new methodology” for calculating its Consumer Price Index in 2008. Sound familiar?
Now that I’ve established equities as a net worth killer over the past decade-plus, let’s move on to the next largest asset class of the average citizen – real estate. Some would argue that real estate was actually a larger percentage of U.S. net worth at the peak of the mid-2000s housing bubble than equities; and given how many people I personally knew that engaged in real estate speculation, I believe it. Living in New York at the time, I saw many of my friends load up on condos – and even single-family homes – in Florida. Every one of them lost their shirt; and now that I’ve been in Denver for some time, I’m learning just how many Coloradans unsuccessfully speculated in Las Vegas and Arizona.
As for me, it was very difficult to convince my wife that buying a home in New York would be a bad long-term decision; but in the end, she wisely relented, enabling us to continue renting until we moved to Denver in 2007. My view was, is, and always will be that one’s home – like Precious Metals – is not an investment. Your home is where you live, and gold and silver are where you save. This should be the driving force behind such major life decisions; particularly as financial woes have historically been among the top reasons marriages break down. Once we determined Denver was the place we wanted to live, we were happy to buy a home; and in our case, were lucky enough to do so in May 2007 – literally, at the top of the junior mining share market (yes, it was that long ago). I sold many a mining share to pay for my house – that I otherwise would have held – and that is why I am here, writing to you today. Oh, I lost my shirt as well during 2008 – as I still held plenty of mining shares; but by stabilizing my future with my home, I was able to weather the storm and “live to fight another day.” Moreover, as long-time readers know, I sold my last mining share in the Spring of 2011 – to move 100% of my liquid net worth into PHYSICAL gold and silver, much of which is stored at Miles Franklin’s Precious Metal Storage Program operated by Brink’s Canada.
Unfortunately, the majority of American’s “bit” at Bernanke’s bait – of post-“tech wreck” ultra-easing, in which the Fed Funds rate was dropped from 7% to 1% from 2000-03; by utilizing whatever remaining savings they had to participate in the budding real estate bubble. Worse yet, the Glass-Steagall had just been repealed in 1999; and thus, the newly empowered “mega-banks” were embarking on a “financial engineering age” featuring derivatives, subprime loans, and non-existent regulation.
In sheer value, the 2005-11 real estate crash wiped out as much U.S. net worth as the 2000-02 and 2008-09 equity crashes; and thus, today’s MSM talk of housing “recovery” is insulting at best. This year’s real estate gains pale in comparison to the past seven years’ losses; particularly in light of the fact that those gains – and the subsequent losses – were achieved with maximum leverage. Already, the recent interest rate surge – of a whopping 1% – has stated to reverse the past six months’ gains. Moreover, this time around, it was Wall Street that was doing all the investing – NOT the “small fry” public that’s been struggling with record REAL unemployment; surviving only via massive expansion of the burgeoning U.S. “welfare state.”
Thus, I think I’ve made it clear that the average person has decidedly NOT benefited from the equity and real estate markets over the past decade-plus. But how about fixed income? You know, the world’s largest asset class – which has quietly been in a bull market since 1980.
By and large, the average U.S. investor – and likely, international investor as well – holds the large majority of his or her net worth in equities and housing. After all, investment advisors and real estate brokers have been brainwashed by decades of PROPAGANDA that these asset classes can only go higher over time; which I suppose is true over VERY long periods of time – like centuries – but not necessarily in any given year, or decade. Moreover, when fiat currency rules the land, is a nominal gain equal to a real one?
The days of “coupon clipping” – and even “digital ownership” – of individual bonds are long over for the retail public. However, many Americans still hold bond funds in their 401k and IRA plans – given the limited choices proffered by plan custodians. Fortunately, these funds have been great performers through even the worst of the equity, real estate, and overall economic crashes of the past decade – particularly for older citizens seeking income for retirement. My parents, for example, are 70 years old; and both view their bond funds as unquestioned nest eggs. There’s not a chance that even I – the former “Ranting Andy” – could convince them to sell even a small percentage to buy something as “risky” as PHYSICAL gold and silver; as in their eyes, bonds have become as “foolproof” as stocks and real estate were a decade ago. As proven by the self-destructive “buy high, sell low” mentality of the past decade’s equity and real estate busts, human nature will gravitate to whatever optimism they can find. And thus, what has already started in the U.S. fixed income market – i.e., an historical bear market – may well be the “straw that breaks America’s back.”
While the MSM crows each time the Dow gains a few nominal points, they neglect to even mention the TRAGIC losses accumulating in the aforementioned bond funds that millions of citizens are clinging to as a lifeline. You can bet Food Stamps, Disability, Medicaid and other entitlement programs will see dramatic participation increases as the fixed income bear market gains steam; and if the Fed fails to stem the tide of selling with the inevitable QE5, 6, and “infinity” announcements of the coming months, tens of millions of citizens will go from DIRT POOR to BROKE. And don’t forget the Fed itself, which owns upwards of $2 TRILLION of long-duration Treasury and mortgage bonds; let alone the world’s #2 and #3 Treasury holders – the governments of China and Japan.
I don’t have a crystal ball, so there is simply no way of knowing what sequence of events will play out before the inevitable END GAME of dollar collapse and Precious Metals re-monetization envelops the planet. However, the “first phase” will likely commence in the coming months – when the Fed will likely be forced to announce QE5. Frankly, I would be quite surprised to see it work – other than a short-term, knee-jerk reaction by momentum-based hedge funds. Ultimately, I believe China, Japan, and other large holders will utilize any such strength to DUMP U.S. financial assets with all their might – as they have already started doing; but particularly, their cancerous cache of Treasury bonds.
When this occurs, there is NOT A DOUBT that even the most unsophisticated, flag-waving senior citizens will realize their bond funds are doomed; at which point, even they will join the “smart money” in divesting ill-fated PAPER assets for the historical safe haven security of REAL MONEY. Sadly, by this time the limited PHYSICAL gold and silver supply will likely be rationed, with the majority of hopeful buyers NEVER getting the opportunity to PROTECT their life’s savings. Hopefully, you will not be one of “the 99%” yet again; as truly, I believe there will only be enough supply to save one or two percent of the population.