On the heels of the S&P downgrade of Russian debt, as the global markets impatiently await the FOMC decision, today the Godfather of newsletter writers, 90-year old Richard Russell, discusses the big picture of the collapse in Russia, commodities, and a world flooded with liquidity.
Richard Russell: “Many years ago I predicted that in the future, the missing and most wanted item would be INCOME. Today, with interest rates scraping zero, I believe that wealth trumps income. The world is struggling in the face of deflationary pressures. And although everybody and every nation needs income, income today is as scarce as the proverbial hen’s teeth.
Great Stores Of Wealth And Life In The Great Depression
I believe in reducing the picture to its barest fundamentals. I lived through the Great Depression when wealth was almost nonexistent. Today, seasoned investors have all but given up on income and are settling for wealth. The great stores of wealth are silver, gold, great art, gem grade diamonds, and various collectibles.
Let’s step back and look at the big picture. Since WWII, the world has been on a leveraging and inflation ride. This powerful trend ended around the year 2000. From there the markets digested a change. The market built a five-year top, during which the fundamentals changed. From that time on, the trend changed to deleveraging and deflation. This can be seen dramatically in the collapse of oil, copper and many commodities.
A World Flooded With Liquidity
This has affected Europe dramatically. Europe is deflating, Russia is a basket case and Japan has been battling against over a decade of deflation. Finally Europe has had enough. The European Central Bank (ECB) is approving 1.3 trillion in bond buys. Thus the ECB is following the lead of the Fed in instituting Quantitative Easing (QE). The world monetary system is now dealing with a flood of liquidity. I have thought that this ocean of liquidity would levitate stocks and bonds and even real estate.
As I write, stocks are backing and filling as they try to digest the new conditions. In the US, QE levitated the assets of the wealthy 1% but it did little to help the man on the street. Whether QE will halt the rot in Europe remains to be seen. Japan remains in recession, Russia’s economy has collapsed, and China’s GDP growth is slowing. In the meantime, investors are frantic for profits and price appreciation.
Personally, I’ve chosen to stand still while not losing purchasing power. To do this, I’ve chosen to own physical silver and gold and to take a position in CEF, which holds silver and gold in Canada. Once again, I’ll turn to my old adage – In a bear market, everybody loses, and the winner is he who loses least. How long must we struggle in this world of deleveraging and deflation? My guess is that it should be over by 2019, assuming the Fed and the ECB do not prolong it.
In God We Trust As The War In Gold Continues To Rage
Each time gold climbs above 1300, it seems to me a force batters it down below 1300 again. Somebody does not want gold to hold above 1300 and continue to rise. In the end, I believe gold will be the island of safety. I have not lost any sleep since I established my position in physical gold.
Once again, I will state that the most valuable item you can possess is peace of mind. Live in the present, live in the day, and enjoy peace of mind.
In the meantime the US, land of democracy and hope, will be the place to take your stand. Only the US functions under the motto, “In God We Trust.” And in God I trust. Amen.”
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