It’s as if North American investors are following Europe’s example and simply dropping out for five or six weeks this summer…
Equity markets are quiet. The junior resource sector is a shell of its former self, and that’s being generous.
Our advice for you today, as we head into the final weeks before the kids go back to school and life resumes its normal pace, is to become a little more ‘French’ for the rest of the summer.
Take some time off. Enjoy life. Spend an afternoon in the hammock. Go to the beach.
Rest assured the Feds are on the job, controlling the economy like a continent-sized Hindenburg — inflating, deflating, turning, twisting. Where she lands, nobody knows!
We’re told that rates will be held down — or zero bound — for at least the next two years (more on this in a moment).
One thing to keep in mind is that these things, this overriding trend, can stay in motion for far longer than it seems it could or should.
Furthermore, everyone’s focused on the last war, meaning the expectations are that we’ll experience another episode like the 2008-2009 unpleasantness… but it will be different.
We can take a breather and remain confident that our savings — our dollars — will continue to lose value, regardless of what we’re doing.
How so? you ask.
The art is to hide the change and debasement from market participants until it’s too late.
A key to this is to employ a glacial mindset when implementing these policies — that is, they happen so slowly that people don’t notice.
As long as there’s an illusion of wealth (think: housing bubble), the system works.
The average shlub can wrap his head around the idea of inflation in terms of prices rising over time, but feels it’s more of a rising tide phenomena.
Heck, if his dollar buys less, no big deal — so long as he seems to be getting ahead somehow.
But the larger trend of a decline in the value of a currency — and the insidious erosion of both savings and standard of living — grind on unseen, well beyond his consciousness. It makes it very difficult to focus on the currency itself.
So leave it to us to ask the question…
Will the Dollar Collapse?
Ha! It already has. In fact, it’s been in a slow-motion collapse ever since you drew your first breath.
Let’s arbitrarily choose the year 1965 — 47 years ago — as our baseline.
With LBJ as president, you would have spent about 30 cents per gallon to fill up your tank.
Your car would have cost you about $2,500 on average, with a new Mustang going for $2,300.
A dozen eggs set you back 52 cents.
A new home came in around $13,500, versus an average income of about $6,500 per year.
My friends, the dollar has already collapsed.
The question we must consider now is: Will it disappear?
Debts and Deficits Don’t Matter… DO They?
Inflation is always and everywhere a monetary phenomenon.
What that means is it is a currency thing: By diluting the currency, issuing new units in excess of real economic growth, central bankers erode its value.
Just remember, something that is not sustainable will, by definition, fail.
It must. And it will.
When you hear the talking heads say debts and deficits don’t matter, understand that you’re listening to crazy talk.
Whether it’s your checkbook, a small business, a local government, a city, state, or nation, deficits and debt DO matter.
Based on what we can see, the odds favor inflation at some point — not the creeping sort described above, but the galloping, destructive kind seen at inflection points throughout history.
High interest rates encourage personal austerity; high rates, or the cost of capital, encourage a more realistic and conservative approach to money.
This is how the market functions.
It’s a part of the price mechanism.
Let’s look at what governments across the world, particularly the West, are doing: artificially suppressing rates in order to encourage more debt.
It makes no sense. And of course, they’re doing this at precisely the wrong time.
I’ve said before this is the nervous system of the market, the price function.
There’s no accurate reading, so the market and its participants are compelled to do things they wouldn’t otherwise do.
Is this a good thing?
Is it a good thing that the state is the biggest participant in almost every market?
Some good questions to ponder during your French vacation…
We sure will be.
Brian Hicks
Check us out on YouTube!Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.
