This article was written for Miles Franklin by Gary Christenson.
Markets rise into unsustainable tops and correct. It is comforting to believe every correction is a pause in a larger rally. However, stocks, bonds and commodities rise and sometime collapse. The “everything” bubble shows signs of a progressing crash.
Past examples of peaks and crashes from the last 40 years suggest caution with current markets.
October 1987 Crash: Consider these peaks around the 1987 stock market crash (daily closes):
The dollar peaked, followed by bonds and the Transports, DOW, S&P and NASDAQ.
2000 Crash: Consider these peaks around the 2000 stock market crash (daily closes):
The Dollar peaked, followed by the Transports, DOW, NASDAQ, and T-Bonds.
Possible current crash: Consider these peaks (daily closes):
Bonds peaked, followed by the dollar, Bitcoin, Transports, DOW and NASDAQ 100.
SO WHAT?
- Market tops persist for months as they rotate from sector to sector.
- The current sequence of tops resembles the 1987 crash. Bonds and the dollar peaked first, followed by stocks.
- Once a market peaks it takes time for “buy the dip” to transform into “sell the rallies,” which becomes “get me out at any price.”
- A typical investor buys late in the cycle, holds too long, and sells near the bottom after the crash. Human nature encourages us to follow the herd which is often dangerous.
- Past performance is no guarantee, but we can learn from it.
- The purchasing power of fiat currencies declines with time. Hence stock and commodity prices rise. Wait long enough and prices will exceed previous highs. Most people find this difficult.
- AFTER MARKETS PEAK THE COLLAPSE CAN BE SEVERE.
Past Collapses: (How Severe?)
Gold Jan. 1980 high $873. Low in 1982 of $297. Collapse of 66%.
DOW Aug. 1987 high of 2,746. Low in December 1987 of 1,733. Collapse of 37%.
Nikkei Dec. 1989 high of 38,957. Low in Aug. 1993 at 14,154. Collapse of 64%.
Dow Jan. 2000 high of 11,750. Low in Oct. 2002 of 7,197. Collapse of 38%.
NASDAQ 100 Index March 2000 high of 4,816. Low in Oct. 2002 of 795. Collapse of 84%.
Crude Oil Aug. 2008 high of $147. Low in Dec. 2008 of $35. Collapse of 76%.
S&P 500 Index Oct. 2007 high of 1,576. Low in Mar. 2009 of 666. Collapse of 57%.
Bitcoin Dec. 2017 high of $19,343. Low in Mar. 2018 of $6,824. Collapse of 65% (so far).
Examine this graph from John Mauldin on Ten Year Interest rates. Each time the rate has reached the trend line, a crisis occurred. The 10 year rate at the end of March 2018 is 2.74%, well above the trend line.
THOUGHTS AND QUESTIONS
- The current stock market rally will not last forever, and may be done.
- Higher interest rates on LIBOR, Treasury Bills, Notes and Bonds are important. If the world has $230 trillion in debt and rates rise 2%, the annual INCREASE in interest payments is over $4 trillion. This hurts sovereign governments, individuals and corporations.
- Central banks are not as powerful as many people believe. If they were so powerful, would crashes occur? Or are crashes planned? Would the financial crisis of 2008 have happened?
- Massive global debt cannot rise forever. Official US national debt has risen about 8.8% per year since 1913. At that rate $21 trillion in national debt grows to $50 trillion before 2030. An average interest rate of 5% means interest only expenditures of $2.5 trillion per year on $50 trillion in debt for the US government.
- Will the Fed “print” $3 to $5 trillion per year to cover the ever-increasing deficit? How much food, energy and silver will the mini-dollar buy in 2030 after that inflationary debt hits the economy?
- Why have Russia and China accumulated so much gold?
- Past collapses were 37% to 84%. Will this time be different?
WHAT COULD GO WRONG?
- President Trump has appointed what people call a “war cabinet.”
- Perhaps the powers-that-be will encourage a crash and blame it on President Trump.
- North Korea, Ukraine, Iran and growing tensions with Russia.
- Trade wars, currency wars and shooting wars.
- Dollar weakness or dollar crash.
- Rising interest rates create more bankruptcies, reduced resources for current spending and marginal businesses will collapse.
- Confidence declines in government, the military, institutions, and currencies.
- Social unrest.
WHAT CAN WE DO FOR FINANCIAL PROTECTION?
- Buy silver and gold.
- Avoid most stocks and bonds—they are late in the cycle. Risk is high.
- Plan for another stock market crash, and trust it will be mild.
- Plan for a correction in bond markets and currencies, and trust it will be mild.
- BUY GOLD AND SILVER!
WHY BUY SILVER?
Silver prices hit a deep low of $4.01 in November 2001. That low is like $16 in March 2018. The St. Louis Federal Reserve states total U.S. debt securities increased from $16.7 trillion in 2001 to $44 trillion in 2018. Commercial banks and the Fed created an “extra” $27 trillion of DEBT. The piper must be paid… one way or another.
Silver is inexpensive, has thousands of industrial and medical uses, and has been valuable for several millennia. Much higher prices are coming.
WHY BUY GOLD?
Gold prices hit a deep low of $256 just before the 9-11 disaster. Spending, debt and craziness have exploded since then. A gold price of $1,320 in March 2018 is like $256 in 2001.
Miles Franklin can’t prevent the stock market from crashing, they can’t levitate the bond market and they can’t prevent a nuclear war. They sell silver and gold at excellent prices so you will be more secure while politicians and central bankers do what they will with stock markets, bonds, debt and nuclear weapons.
Call Miles Franklin at 1-800-822-8080 or go online.
Gary Christenson
