Now the Fed wants us to believe they aren’t doing more quantitative easing to help with liquidity. Meanwhile, they are increasing their balance sheet, which you guessed it is another round of QE. Yet, they don’t want to call it QE and they want investors to go along with this charade.
The currency markets aren’t falling for it, recently the USD index has taken a pretty healthy dip when the Fed started their latest round of Not QE/QE. The next step in their QE.Infinity efforts will be to keep lowering interest rates to negative as they move below the stated rate of inflation. In reality, we are already seeing negative rates as the real inflation rate is much higher than the wishful thinking one the government uses to keep us in the dark.
The biggest question for investors to ask is why are they cranking up their balance sheet purchases to help with short term liquidity issues and lowering rates to more negative rates. The not so technical answer is, they are scared shitless. They are seeing numbers that have them worried that the economy is slowing rapidly and they need to get ahead of it. The secondary important question for investors is will it work?
Since 2008 when they had to socialize capitalism by bailing out Wall Street, they have also effectively socialized the business cycle. This is very expensive as we can see with the Fed being a huge buyer of debt and now active in the overnight Repo market as well. As they are trying with all their might to socialize capitalism and the business cycle, the government keeps spending money like a drunken sailor.
We have long passed the point with debt that the Fed and government have painted themselves into a debt corner they can’t get out of. The debt is so high that they will never, and I know never is a long time, be able to raise rates much. The level of debt, government and individual just can’t handle it.
What this means is we will be in a situation of long term yield issues, which might one day eventually cause the government to show some discipline with spending. The bond vigilantes have not been showing much vigilance of late, but they are going to realize we will be in a yield starved world for a very long time.
The key to the best course of action for investors is in my recent commentary that in a yield starved world, gold will be king. The Fed and the government have thrown away the old playbook since socializing capitalism and socializing the business cycle.
It is time for investors to do the same with the old asset allocation playbook as well. It has always been good advice for investors to have a certain percentage of their portfolio in gold as a defensive insurance policy against economic calamity. But, we are no longer in a rational economic situation with debt through the roof and QE.Infinity.
Investors need to flip the script and crank up their gold asset allocation. The central banksters are already buying gold, they can see the writing on the wall. Investors should be way ahead of them and increase their gold holdings aggressively.
Look at the alternatives, bonds will give you negative interest rates with inflation eating away at your spending power while Wall Street stocks are priced for perfection, but perfection ain’t coming.
Shorting Wall Street is a great strategy while increasing your gold holdings. But, I wouldn’t stop at gold as silver is also very attractive. No matter how you feel about global climate change, there is for sure a change happening to move to alternative energy sources and electrifying everything. Copper to get the energy to run things is crucial as will batteries be, so owning some battery materials like nickel and others is a smart move.
While investors have been drinking the Wall Street Kool-Aid and the not so vigilant debt markets, there has been a chronic underspending on the supply chains of many metals. As gold, silver, copper and other metals increase in price, the lack of spending on the supply chains of those metals will keep them moving higher.
Long term supply chain underspending on exploration and new mine development will keep the supply weak and incentivize these efforts with much higher prices. We are coming into a golden era for metals prices. Gold is always a leader, silver doesn’t take long to join the party and then the base metals get in on the action.
The last time I was this bullish on gold, silver and other metals was back in the early 2000s. We saw them perform exceptionally well over the following decade and when 2008 came along, gold was the first asset to come out of the calamity.
As always I like to look for the best bang for the buck and that is in the gold and silver stocks, especially those farther down the food chain than the majors. This is always where you find the highest mispricing.
In recent reports, I’ve mentioned several that I like, you can find them on my website. In the next report, I will do an update on current picks and maybe have a new pick or two to add to the shopping list.
All the best,
Allan Barry Laboucan
Allan Barry Reports
Advance Gold (AAX.V)
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.
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