A take on the global economy and equities markets that paints a simple and
clear pictures I think.
The DJIA index has recorded seven consecutive down days in a row! These 7
distribution days are a sign that many institutions are taking profits or establishing
losses.
As we are entering the second half of 2015, financial panic is occurring globally.
Currently, this tremendous
financial devastation is happening throughout the world. Stock prices are
crashing in China, Europe and soon I feel the United States. Puerto Rico has
now defaulted on their debts. Quantitative Easing has been masking the symptom
of this endemic disease. The Greek Banks are still frozen and will continue
to stay this way; however, the mainstream media is not reporting on this current
situation in Greece. There is a limit on weekly withdrawals of 420 Euro per
(around US $455).
The corporate leaders of the major banks were left in place back in 2008/2009
and were allowed to continue receiving their huge bonuses. Their banks only
existed because of the unprecedented taxpayer subsidy. The system is still
essentially the same as it was before, due to any lack of meaningful reforms
that have been required. It is this lack of change in all the required global
fiscal policies that I am warning you of the coming collapse of this new "Asset
Bubble". This is where "profits" are Privatized and "losses" are Socialized.
The printing of limitless sums of virtually free money under various "Quantitative
Easing" programs and simultaneously slashing interest rates to their lowest
levels in history has created stock markets that have been artificially "levitated" for
many years now. This growth is based on virtually "free money". I am warning
you that the current business valuations and calculations are NOT accurate
and even NON-sustainable. Our previous "Credit Bubble" has now been leveraged
and replaced by an even larger and more dangerous "Asset Bubble".
The Federal Reserves easy money policies have left stocks and bonds on the
verge of a massive collapse. Their "Financial Engineering" has created such
a "horrendous bubble" that it will lead to the largest historical economic
deflationary depression that we have ever experienced. This bubble, when it
finally implodes, is going to be absolutely devastating to the global economies.
All irrational bubbles eventually burst.
What is actually required today is a universally respected reserve asset capable
of filling our current void with a reliable presence that serves as a "store
of value". We do not require a complex international committee to solve this
new future problem. This "store of value" asset is already in existence and
currently held by some central bankers and prudent individuals around the world.
It is known as gold. From the ruins of our chaotic financial crisis, a degree
of sanity will prevail. Gold, as a freely floating asset, will arise in stature
as the only element of global monetary reserves. The floating aspect is the
vital evolutionary improvement over all previous structural monetary failures
which tried to use a gold standard at a fixed price (i.e: unit of account).
When the global financial crisis hit in 2008, U.S.Dollar liquidity dried up
and international financial markets experienced widespread paralysis. First
to the scene was the U.S. Federal Reserve Board, pumping liquidity into the
system and establishing a series of large-scale bilateral swap agreements with
major central banks. This included several countries in the major emerging
markets. The International Monetary Fund (IMF) followed with a number of programs
for countries hit by the crisis and it adapted its financing toolkit to meet
the demands of the crisis. For the first time, policy makers looked to the
Special Drawing Rights (SDR) to provide much-needed liquidity throughout the
international monetary system.
SDR is an artificial "basket" of currency used by the International Monetary
Fund (IMF) for internal accounting purposes. The SDR is also used by some countries
as a peg for their own currency and is used as an international reserve asset.
The SDR was created by the countries participating in this system who needed
official reserves (government or central bank holdings of widely accepted foreign
currencies) that could be used to purchase the domestic currency in foreign
exchange markets where it is required to maintain its exchange rate. It is
a potential claim on the freely usable currencies of IMF members. The Special
Drawing Rights was created by the IMF in 1969 to support a fixed exchange rate
system.
The SDR is neither a currency nor a claim on the IMF. It is a potential claim
on the freely usable currencies of IMF members. Holders of SDR can obtain these
currencies in exchange for their SDR. The SDR is primarily a unit of account
for the purpose of accounting.
It is my view point that the SDR, which is a "Virtual Reserve Currency", will
never come close to achieving a status anywhere near that of "the principal
reserve asset in the international monetary system" as envisioned by The International
Monetary Fund for a future global reserve currency!
Gold has been declining sharply since its all-time high of $1,920/ounce
on September 2011. It is experiencing a historical correction that we forecasted
years ago. I am expecting much lower prices over the next few months. My predictive
trend and cycle strategy will inform us when we have roughly hit the bottom
of these two markets (gold & silver).
Today, the majority of investors now believe gold is dead and no longer relevant
and that cash and the U.S. dollar is King. With this type of "herd mentality",
investors will mostly likely miss the next historical buying opportunity for
metals, and miss the ultimate short-sell trade on US equities.