Find your refuge in this financial storm

Friday, 26 August 2022 — Burradoo, Australia

[6 min read]

Dear Reader,

Are you feeling that balancing your budget nowadays is more difficult than last year?

Do you sense that the economy is struggling and that it could get worse?

Central banks around the world are aggressively raising interest rates, causing many to feel the screws tightening on them.

There’s already rising food, electricity, gas and petrol prices, and now there’s rising mortgage repayments to contend with.

Renters are not feeling much relief either, as properties quickly disappear off the market and rental prices are spiking.

I believe most of the population would agree that the economy is heading in the wrong direction.

To those who can balance their budgets better now than last year, drop me a line as I’d love to learn your secret!

As would many of us, I’m sure.

Everything in the wrong place

It’s not difficult to point out who is responsible for the situation the world finds itself in right now.

They’re the ones who told you that inflation was transitory and that there’s no recession because they changed the definition.

They’re the people who told us to make sacrifices amidst rising prices and a global shortage of necessities.

And they’re the people who told us that this is the perfect time for The Fourth Industrial Revolution and to bring about a new future to save the world from the ravages of climate change.

The absurdities of what I would call ‘the global ruling class’ are what brought us here.

They promise us a thriving world but deliver quite the opposite.

A thriving world is one of an abundance of resources, healthy trading between nations, businesses and individuals increasing wealth for the broader proportion of the population, equal opportunity for all, and a bright outlook for the future.

We instead have inflation, a crippled global supply chain, the shift of wealth from the vast majority to a tiny minority of rent-seekers, false equality (equality of outcomes) that leads to division and strife, and a dim outlook for the future.

It’s literally everything the world shouldn’t be…

But you won’t feel a thing because they’ll control the flow of information and act as the arbiter of what is the truth.

If you feel something’s wrong, then it’s your problem. You mustn’t disagree because they know best. After all, they control the scoreboard and the field.

The withering power of fear

The ruling class has long used their media machine to breed fear into the population. It’s meant to steer us into a mindset that eventually drives our actions, instinctively drawing to short-term survival rather than long-term peace of mind.

And there’s no shortage of it.

Nowadays it’s on the ‘monkeypox pandemic’, supply chain shortages, increase in violence and social unrest due to ‘racial discrimination’ and ‘right-wing extremist views’, the existential threat of climate change, and the increasing number of people who believe in ‘fake news and misinformation’ (whatever goes against their official narrative).

And until people in greater numbers snap out of swallowing this fear, it could get worse.

The world is currently holding its breath on what to expect regarding our current financial system.

Doesn’t matter that it’s built on unsound money.

Never mind that a cartel takes something of lower value and pretends it’s worth more (fraud and counterfeit). Or that it lends this to others with interest attached (usury).

The longer it remains in the system, the greater the debt and enslavement of many by the few.

These days, such is the weight of debt in this world that the slaves are beholden to every utterance of their masters who got into their position through deception and its perpetuation.

The Jackson Hole Summit and why market investors should stop listening

There’s no Federal Reserve monetary policy meeting this month. Instead, there’s a summit held at Jackson Hole, Wyoming, to discuss future plans and the direction of monetary policy.

Investors, whether institutional or private, are glued to what these bankers will say about when interest rate rises will end, their economic projections, and other issues. The markets will no doubt move to respond to their speeches.

The people perpetuate the disasters that the experts create through their central planning and its poor track record. It takes two hands to clap.

Consider this...

You make your financial decisions to borrow and take positions in the asset market by taking the guidance of these central bankers.

The central bankers have a poor track record of making projections — whether by incompetence or malice. They’re also likely to act in their own interest and for those that got them into the position, which you have literally no part in.

You can imagine the outcome, right? It won’t be pretty for you.

So you double down and listen to them once again, hoping this time things will turn out in your favour. By now, you’re likely deeper in debt and have less at your disposal.

What’s that saying about insanity — doing the same thing while expecting a different result?

There’s a better way to play this game.

More of us ought to stop listening to central bankers.

Your refuge is where they don’t want you to go

The only reason you ought to pay attention to what the Fed (or any members of the ‘global ruling class’ for that matter) say is to know what they want, and then take the opposite direction.

The Fed and other central banks have plans for a central bank digital currency (CBDC). It’s basically fiat currency in a digital blockchain but complete with tracking and controls to ensure you can participate only if you fully submit to them.

It’s a digital dog-leash.

The threat to its success is if people choose not to take part and participate in an alternative economy.

The central bankers have talked down on gold, decentralised cryptos, and demonise anyone who sees a future in these.

I guess you have your answer already.

But you don’t want to go it alone.

Why not let us link you up with fellow travellers on this journey in search of a refuge in the upcoming storm?

If you like gold, join me here.

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

From Bloomberg: ‘Home Sellers Are Slashing Prices in Pandemic Boomtowns’:

‘Redfin found that 70% of homes for sale in Boise, Idaho, had their price cut in July, the highest share of 97 metros.’

The US middle class stores its wealth in its houses. But now termites have gotten into the woodwork. In July, new house sales hit a six-year low. Existing house sales are down 20% from last year. And the median sales price has already dropped 5% since last year.

The housing market is slower to register changes than the stock market. It takes time to match buyers with sellers and for trends to express themselves. The supply of houses for sale has already risen to almost 11 months’ worth of inventory. That is the highest level since 2009. This suggests that house prices will fall a lot more before they find their bottom. And the US’s middle class will be poorer.

But wait. Really? So, what if prices go down? A house is still a house…with the same sagging gutters…the same cracking paint…and the same leaky faucets. What has changed?

Today, let us ramble around in monetary wonderment; maybe we’ll see something useful.

Supply and command

The Fed caused the mortgage finance crisis — 2007–09 — by leaving interest rates too low for too long. In response, central banks lowered interest rates still further…and left them there for even longer.

Naturally, asset prices soared again — including house prices. The median house sold for US$220,000 in 2009. Now, it is about US$440,000 — twice as much.

An asset is a claim on money. And money is a claim on the output of others. If you own a stock of the Ford Motor Company, for example, the stock itself is of no use to you. It’s only because you can convert it to money that it has any value. And the money only has value because it can be exchanged for goods and services.

When the Fed poured US$4 trillion of new money into the asset markets (by buying bonds) after 2009, it multiplied prices for Dow stocks by five times…giving stockholders five times as much buying power (demand).

But the Ford assembly lines didn’t produce five times as many cars and trucks. GDP only rose by 60%, not 400% (five times). The stockholder could buy more cars, houses, or Chinese-made gadgets; he had five times as much money. The poor assembly-line worker did not.

This left an imbalance — and an inherent unfairness — that had to be corrected. Sometime…somehow…the books must balance out. For every credit there must be a debit…every buyer must find a seller…and for every naif with $5 in his pocket, there must be some shyster ready to take it from him.

And then came the COVID shutdowns, supply chain disruptions, mass resignations, and the Ukrainian-Russo war to make the supply situation worse.

More and less valuable

So, near the end of 2021, consumer prices were on the rise. ‘Inflation’ was in the news…and the Fed vowed to do something about it. But the markets were already doing something, matching up supply and demand, by raising consumer prices and lowering asset prices. In the first half of 2022, investors suffered some of their worst losses ever. And consumer price inflation hit levels not seen in the last four decades.

That is where we are now. Like a half-wit defusing a bomb…the Fed is hoping to bring things back somewhere close to ‘normal’. Without blowing up the whole economy.

The Fed is raising rates. This has the effect of driving up mortgage rates…and lending rates generally, with the 10-year Treasury yield back at more than 3%. This is why the dollar hit parity with the euro yesterday; between a 3% yield in dollars or zero in euros, the choice was easy. Investors moved their money to dollars…and the dollar rose. And it’s why house prices are now in decline; as mortgage rates rise, prices must fall.

So, where are we? The dollar is becoming more valuable…and less valuable at the same time. Stocks are going up and down, direction, uncertain. Consumer prices are going up at an 8.5% rate per year…with several countertrends. Interest rates are going up. And the economy is in recession.

But the Fed has barely begun a serious ‘tightening cycle’. At 2.5%, its key lending rate is way below the CPI (consumer price index). And the Fed’s balance sheet is still expanding, albeit very slowly.

Yes, the Fed is tightening…and not quite tightening too.

What to make of it? Stay tuned…

Regards,

Bill Bonner,
For The Daily Reckoning Australia