The “We are in the worst economic climate since the Great Depression” wackadoos sure put up a good fight.  But now more folks are finally seeing through their flawed logic. 

From a recent Newsweek article: 

The specter of depression stalks America.  You hear the word repeatedly.  Are we in a depression?  If not, are we headed for one?  The answer to the first question is no; the answer to the second is “almost certainly not.”  The use of “depression” to describe the economy is a case of rhetorical overkill that speaks volumes about today’s widespread pessimism and anxiety.  A short history lesson shows why.

Continue Reading »

When talking about the stock market these days, it’s easy to be wooed into becoming a long-term pessimist.  Last Friday, the S&P 500 closed at 1239.  Contrast that to where the index was trading at 10 years ago - 1164 - and you end up with a gain of about 6.4%. 

So why am I still so enthusiastic about my “stocks for the long run” philosophy? 

Take a look at history. 

The last time we went through a similar market environment was from about 1969 to 1982.  Not only were the returns middling but inflation wiped out the gains that investors had earned leaving many with a real return in negative territory. 

But people who maintained their discipline and continued acquiring equity positions were rewarded for it. 

From 1983 thru 2001, vast sums of wealth were created because certain people understood the gift the financial gods had given them and knew how to take advantage of it.  Or there were others who prospered simply from dumb luck for being in the right place at the right time. 

You see, tangible assets - real wealth - does not vanish in a market decline.  Instead, uninformed investors panic and sell their wealth while savvy investors go bargain hunting.   

And that’s the way it has been throughout history. 

Continue Reading »

(G. Edward Griffin)

On our next two radio programs (June 29th and July 6th), the guys and I will be joined by my pal, Ed Griffin.

We will be discussing topics from Ed’s longtime best-selling book, The Creature from Jekyll Island. 

By listening in, here is what you will learn:

• How money is created out of thin air.
• What the Federal Reserve System really is - Hint:  It’s not federal, there are no reserves, and it’s not a system.
• The true story behind the creation of the Fed and its hidden agenda of serving the political and monetary interests of America’s ruling elite. 
• Why inflation is the most unfair tax you pay.
• How to protect your personal wealth against the shenanigans of politicians and bankers controlling our monetary system.

Regardless of how well versed you are in current events, you will never fully understand real world financial safety until you’ve listened to Ed’s fascinating discussion. 

Tune in with an open mind on Sunday morning at 9AM Central on 1110 AM on your radio dial.  If you are outside the Omaha area, you can download the program from the Manarin Investment Counsel website.   

Related Post - What is the Job of the Federal Reserve? 

Recommended Viewing - America:  Freedom to Fascism

A question I often get is, “What, in your opinion, is the biggest threat to the global financial markets?”

The mainstream media never touches on this but I believe that financial derivatives are the biggest threat.  These highly speculative instruments, most often used by big money center banks, are what I think would most likely trigger the collapse of the world’s debt structure.

Here’s the story.

A derivative is simply a man-made bet consisting of two parties.  Party A enters the bet in hopes of earning massive profits but in order to create the derivative, they need a counter party to wager against them.  This is where Party B comes in.  They enter the bet looking to hedge against some form of risk.

Say you are a derivative trader.  You can speculate (or hedge against) the movement of interest rates, commodity prices, exchange rates, or just about anything else you wish to gamble on.

Those who participate in this global casino are required to place only a fraction of their bet down thus enabling derivative traders to control an enormous amount of assets using a tiny amount of money.  This is where the danger comes in.

While traders can make big bucks being on the right side of the bet, there is also the risk of crushing losses.

This is what happened recently when a rogue trader for the second-largest bank in France made a bad bet totaling over $7 billion in losses, the largest in banking history. 

But despite instances like these, the monstrous growth of derivatives continues.

Over 20 years ago, with derivatives trading around $1 trillion on a daily basis, I upped the gold hedge position in our portfolios to offer additional safety.  That decision protected us during the huge stock market crash of 1987 brought on by derivatives.

Today, on the same daily basis, derivatives are trading at $500 trillion.  To put that number in perspective, the U.S. has an annual GDP of $14 trillion.  That means a 3 percent decline in the derivatives market would be greater than the total annual economic output of the world’s richest nation.  Scary stuff.

If the derivative dike ever breaks, a panic would sweep the financial world.  Bonds, money market accounts, bank CDs, cash, and all other dollar-based assets would plummet in value instantaneously.

History tells you that in these cases gold, common stock, and other tangible assets not linked to paper money become a source of value for investors.  Derivatives alone are reason enough to keep a small portion of your wealth in gold-related assets. 

For the remainder of your serious money, globally and geopolitically diversify it across ownership positions for maximum safety.

How large the derivative mess will grow to before the bottom falls out is anyone’s guess.

I predict we’ll continue muddling through just as we always have but just in case this house of cards one day comes crashing down, I know my investments will be safe when the dust settles. 

That’s what I call peace of mind - and real world financial safety.    

Everyone wants to be financially independent.

Everyone wants a safe investment portfolio.

But not everyone has real world financial safety.  Do you?

If I give you the choice between conventional financial safety and real world financial safety, which would you pick?  Or didn’t you know there was a difference?

Let me explain.

As a rookie stockbroker in the 1970s, I was instructed by my superiors to follow the conventional model of financial safety.  They said to me, “Roland, if you have a client that is 65 years old, you need to put 35 percent of their money in stocks and the remaining 65 percent in bonds and other dollar-based investments that are guaranteed and insured.”

For the mainstream this was (and today still is) considered the safest way to manage money, especially for retirees.

Here’s the conundrum - in the real world “safety” has a totally different meaning.  In the real world, financial safety is NOT the preservation of my principal.  It’s the preservation of my buying power.   

If you are old enough, you will remember the price of a new Mustang convertible when it debuted in the 1960s.  About $2,395.  In that day gold was trading at around $35 an ounce so it took about 69 ounces of gold to buy the Mustang. 

In the late 1960s, $5,000 would have bought you two new Mustangs.  If you had instead put your $5,000 in government bonds for “safe keeping” and taken the out in today, you would no longer be able to buy two brand new cars since the interest on your bonds has not kept pace with inflation and taxes. 

However, if you had invested your $5,000 in a tangible asset such as gold, your buying power would have been maintained since 69 ounces of gold will today still buy you a new car.  (Note: Gold is a terrible investment and I only recommend it as a hedge against inflation.) 

And now for a quick history lesson.

For the last 100 years or so, the financial industry has considered dollar-based investments such as bonds, bank CDs, and fixed annuities to be among the safest options available.  There was a time when this actually was true.

Over a centruy ago when the federal government issued U.S. Savings Bonds, those bonds were backed by gold and investors were certain their buying power would be preserved. 

As long as the dollar was on the gold standard, it was.

Then came 1971 and Richard Nixon removed the final link between gold and the dollar while the Fed continued creating dollars out of thin air to pay for the Vietnam War.

But what remained was the common belief that dollar-based investments were still sound, long-term assets.

Important Point For Investors: History teaches that when a currency is no longer backed by a tangible asset and its value is at the mercy of government decisions, all investments that are claims on that currency must be viewed as speculations.

Most people today have limited background in monetary and economic history.  They fail to understand that those dollar-based investments they own carry a risk level that would have scared the bejeezus out of people living when the dollar was on the gold standard.

Perhaps a nice way to summarize this article is: Real world financial safety is so simple that most investors fail to apply this little rule of wealth preservation to their financial decisions.  Then one day they wake to realize the buying power of their portfolio has been confiscated and they have no clue why. 

Sad.

My hope is this will never be your personal fate.  So long as you stay informed, I like your odds.

There was a time in our nation’s history that gold was the basis for our monetary system.  And it wasn’t just us.  Most other currencies around the world have had some link to gold at one time or another. 

As long as a currency is linked to gold, the value of people’s paper money savings is maintained since gold cannot be created on a printing press.  But that’s not how the system is set up today.  We no longer have a link to gold and the dollar is now just a piece of government paper that can be printed without limit.

Consider this:  Since 2001, the dollar exchange rate has been on a downward slide and the price of an ounce of gold has climbed from $271 to about $860.  That means seven years ago the dollar was worth 1/271st an ounce of gold whereas today it is only worth 1/860th an ounce of gold. 

How much lower can the dollar go?  I have no clue but what I do know is that when it comes to a hedge against our currency’s depreciation, there is nothing I like better than gold.

But not many people today view gold as real money.  I’m not shocked because you would have to be at least 74 years old to have lived during a time when a gold coin was commonly accepted as currency.  The rest of the public continue to view money as the paper variety that slowly loses value year after year. 

This may explain why investors often flee tangible assets during a stock market correction for the perceived safety of dollar-based investments, namely cash and U.S. Treasuries. 

To me, the idea of a dollar-based asset offer any level of long-term financial safety holds as much reliability as Hillary Clinton tomorrow announcing her allegiance to the Libertarian Party.  But I digress . . .

Other investors hedge the risk of a falling dollar by investing in the Euro.  It’s a strategy I don’t want to use with my money because then the portfolio is tied to the far-left European economy and if the dollar is on the verge of extinction, by no means do I want the safety of my wealth resting on a paper money managed by foreign politicians. 

So here’s the truth:  Gold is still the world’s defacto currency. 

If tomorrow a financial panic breaks out in the corner of the world that takes out the dollar, I am highly confident that the haven investors will flock to will be gold-related investments and other non dollar-based assets.  Investors who are broadly diversified in those areas will likely be heavily rewarded. 

The way I see it, you and I have no control over the government decisions that impact the dollar’s value so we might as well continue profiting from Washington’s blunders.