The gyrations in the markets this year have been unprecedented. Historically, this means Wall Street is about to see a very LARGE decline! Or as the news indicated after the 1929 crash, Wall Street Lays an Egg!
The culprit – DEBT! MASSIVE DEBT! This past week, the International Monetary Fund warned that debt levels are too high, and urged governments to get their budgets under control. They WON’T! (Global Debt is at Historic Highs)
The U.S. Treasury bond market this week sold off hard, sending interest rates on the 10-year Treasury bond to the highest levels in 4 years, and in turn this is causing every rally in the stock market to get sold.
With the bond and stock markets both near 100 to 200 year peaks in valuation, there is a VERY LONG way to fall! The outcome will not be pretty! As a result, just this week, surveys are showing that 75% of the ultra rich are forecasting a recession in the near future. (75% of Ultra Rich Forecasting Recession)
Unless you were alive in the 1930s, the fallout of this impending recession will be the worst of our lifetimes. We will see the recession we “should” have had during the last downturn, before the government bailed out major banking centers – which by the way, are still living on the brink. Pundits of this viewpoint look around and they see an economy moving along quite nice. The stock market, which LEADS the economy by many months, is now saying otherwise.
We will NOT see a recession like the 1930s. In the 1930s, the dollar was tied to gold, and we saw deep deflation. Although President Roosevelt devalued the dollar relative to gold in 1934, he was limited on how much dollar-printing he could do because of the gold standard. Today, no such standard exists.
Already, the United States is printing dollars at an unprecedented rate – when things are supposedly good. What will happen when things get bad? Or really bad? The answer is simple. The floodgates of dollar printing will burst open, causing inflation like we have never seen! This scenario caused Jack Dorsey, Founder and CEO of Twitter and Square, to predict that in 10-years Bitcoin will replace the dollar as the world’s reserve currency. (Bitcoin to Become The World’s Currency) Physical assets, such as gold and silver, will also be in very high demand.
The dollar printing over the past decade is causing a real estate crisis in America, one where prices just keep moving higher and higher. This past week, I read an article showing that home prices in California were rising at $68/hour, when the average wage in the same area was only $36/hour. This cannot go on forever, and it won’t. As the dollar printing increases, the value of the dollar will continue to deteriorate, causing you to have to pay more of them to get a home! Eventually, wages cannot keep up.
Inflation (i.e. The printing of dollars, or inflating of the money supply) drives the price of the dollar lower. It then takes more dollars to buy the same stuff. Workers and savers are harmed, as the value of their paychecks and savings deteriorates. The best way to protect your life savings is to get out of dollars! Protect your earnings by storing them in assets that preserve value – like gold or silver.
One note of caution: Wall Street makes money by keeping you IN stocks and dollar denominated assets, and more so by trading them. The brokers and bankers will ALWAYS tell you there is never a better time to buy! Just take a look at these quotes from history when the market dropped significantly on Oct 24, 1929, and fell through the floor on Oct 28/29 1929:
“This crash is not going to have much effect on business.”
– Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
“There will be no repetition of the break of yesterday… I have no fear of another comparable decline.”
– Arthur W. Loasby (President of the Equitable Trust Company), quoted in The New York Times, Friday, October 25, 1929
“There may be a recession in stock prices, but not anything in the nature of a crash.”
– Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929
“This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
– R. W. McNeal, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.”
– R. W. McNeal, financial analyst in October 1929
AFTER the 1929 crash stabilized in November 1929, the stock markets bounced into March of 1930, and then continued falling another 80% over the next 2 years!!! Everything was wiped out!
The same conditions which caused the Great Depression, and also presaged the 1929 crash, are again upon us. It is not difficult to look around and see wealth disparity, excessive bond and stock valuations, massive debt at both the government and individual levels, trade disputes, and an unpopular president and political environment. Only fools believe that history doesn’t repeat itself!