If anyone is still interested in the financial markets, now is the time to prepare for the next leg of the long-term bull market in gold and silver – while reducing your exposure to risk assets such as stocks. Bonds will be safe, though not very rewarding, and are still your best bet for money you might need in the near-term. If you’re immediately thinking of the counter-cyclical argument that the time to buy is when the markets panic, please look at a 5 year chart of the S&P 500 and you’ll find it’s pretty close to a high.
The big news as financial markets go is not the terrible tragedy of Sunday, but the fact that the European Central Bank is expanding QE to purchase 800 billion of corporate bonds while announcing an end to prining the 500 Euro note. Meanwhile, some major European banks have expanded their vaults enormously to house physical Euros (to avoid negative interest rates), and they will most certainly be considering assets like gold when they want to store physical wealth. This may sound strange, but they are really struggling to find loans that they can make profitably. The economy is weak worldwide, which is why commodities are currently struggling despite the massive QE.
Plenty of people here in the US have noted voter anger in pushing both Bernie and Trump and showing anger toward political insiders. Many wonder why the country has gone mad in pushing people who tout such radical policies. To many, the struggles of the middle class – especially the younger generations – is barely visible among flowery headline numbers on both employment and inflation. If you own a home or rented for years, how would you know if rents shot up? If you work for a secure government or corporate job, how would you know how much healthcare premiums rose – along with painful tax penalties. The truth is that QE by any central bank is devastating to the middle class. I’m not going to expound on this right now, just switch to how it applies to the European voters.
The European Central Bank has been pushing QE much harder than the US Federal Reserve, punishing the middle class even more while rewarding the asset-rich. The massive bubble of youth unemployment has hammered an entire generation while migrants from the chaotic regions of North Africa and the middle east have been surging in. This is a certainly a brew for future nationalism. Britain has a vote in a couple weeks on whether or not to exit the European Union, and many polls show an exit vote winning. Meanwhile, all major political parties and candidates are against an EU exit and many people are just stunned that people are even considering it. To any with wealth to protect, it is certainly a frightening concept … stock markets might crash, the financial center in London will have a lot to work through, many companies will be in tough situations as trade agreements are reworked in ways that change their business models, difficult changes will have to be made. However, to a disgruntled and invisible middle class that sees nothing but lower pay, higher costs, and a frighteningly uncertain future any change can seem positive. Don’t discount this as stupid or irrational behavior – people who feel they have little hope in the current system will want it to change, and they won’t feel bad at all if it hurts the wealthy class.
Keep in mind that I’m not predicting a UK exit from the European Union … I think that even a Yes vote (particularly a close one) would be overcome by those in power – slowed and ultimately reversed before it takes affect. I am just trying to point out two things really. First, we will have some very interesting times ahead as fringe politicians are more and more favored by a struggling middle class. Second, that there IS a struggling middle class that is all but invisible to those with wealth or solid, stable and well-paying jobs.
As for anything else about market dangers and rising gold, read about John Mauldin’s conference and the opinions of some of those big players – they’ll make more convincing arguments. That’s all on the financial/political world we live in for now – just note that the two are intertwined more than ever.
It’s been a crazy few months for me … I lost a loved one, lost my apartment, my old car finally broke down for good … now I save some renting in the informal sector, I drive a newer car, and I’ve been on two amazing and long-planned vacations … Costa Rica for a friend’s wedding and an Alaskan Cruise for my parents’ golden anniversary. Meanwhile work has been unyieldingly busy as construction still booms in Los Angeles. I figure I got a couple more years here then who knows … hopefully the next leg down won’t be as bad as the last one.