This blog would not be one with the Phillip Carney stamp on it if it did not begin with the case for precious metals in any investment portfolio. Throughout this journey I will outline and prosecute my case for why I
feel there will be a precious metals price boom in the near future.
The history lesson begins for me looking at economic times that have prevailed during my 36 years on this planet.
Economic situations have ebbed and flowed, booms and busts, growth and recession. Cycles are what make for predictions, historical data, predictable behavior for the current period, form the future trends and
results for the future.
It is that last point that I want people to really think about. History, cycles, government and central bank policy for the current period, how they form the trends and results of the future.
As I type this blog, and you read it on the "internet" I want you to cast your minds back to its creation and launch. The beginning of the dotcom society, the boom that was going to propel the world into the best economic environment in history.
As the internet hype launched into the markets in the USA many people became wealthy overnight. Record technology listings on what is now known as the NASDAQ. Public offerings based on internet names selling everything from underwear to hotdogs using the internet as a platform. It had to boost sales right? It had to be a winner because more people could see it on the internet? Stock prices soared, banks provided capital, the public borrowed to ride this train to a better life. But where was the fault, the crack, or should I say gaping hole in the theory?
The answer is simple. The internet boom was sold on big ideas, a psychological feel good. The meteoric rise in the dot coms meant they had to be a good investment right? It was flawed logic, dreams built and money made on a wing and a prayer, built on big ideas and not a solid well thought out business plan. Soon people realized that sales were not going to be anywhere near estimates, many dot coms began burning through the money generated by the initial public offering. As the hype wore off, as hard financial results were reported it became evident that stock prices were not justifiable and the NASDAQ plummeted from a peak of over 5000 points down to just a tick under 1200 points.
Many people around the globe, in particular the citizens of the USA watched vast amounts of their savings and investment "paper wealth" evaporate.
Post the NASDAQ crash the USA economy, already struggling, began a slide into recession. People began holding on to whatever they had left as confidence was rattled to the core.
ENTER THE FEDERAL RESERVE
To try and curb this confidence problem the Federal Reserve began loosening monetary policy. It began reducing interest rates to try and stimulate the ailing economy. In conjunction with this the Federal Government in the USA set up Government Sponsored Enterprises Freddie Mac and Fannie Mae as they were known. The push was on to create a wealth effect through a booming real estate market. Government backed mortgages, assistance with down deposits and a reduction of interest rates to 1% caused real estate prices to soar. Growth topped 10% per annum as cheap lending rates and government backed programs triggered a speculative property market boom that could never be sustained.
As property values rose, people borrowed against that equity, banks policies fueled the problem as they offered 2 year "teaser" rates. Low rates for the first 2 years and then a ballooning rate thereafter. Banks could do this as loans were "guaranteed" by the government and so the banks bore no real risk for losses incurred in a loan gone wrong.
Soon these "teaser" rates reset, people that could not afford the repayments had to sell and the property market collapsed under the weight of itself. The Global Financial Crisis was upon us. It caused world wide
fear of an impending global market collapse.
It is important now to go back to my earlier statement. Current actions and behavior form the backbone for future results and trends. I say this because easy lending and monetary policy inflated the dot com
bubble which burst leaving many financially cripple. It was easy monetary policy and government policy again that created the housing bubble that burst causing the Global financial crisis. Now we are staring down the barrel of the loosest monetary policy the world has ever seen. 0% interest rates, the Federal Reserve buying
Government bonds and mortgage backed securities called quantitative easing or QE. Bank bailouts, stimulus packages and still the global economy struggles.
I would point out that this is the first time in history that all of the main central banks have eased monetary policy at the same time. Interest rates are at record lows globally. Just take a look at where Australia is
headed now.
People are again being forced to speculate, just like the dot coms, like the housing bubble. The issue as I see it is there is a global set of multiple bubbles that are being inflated.
The stock market in the USA has hit all time highs again. One may ask how if unemployment is still stubbornly high, if GDP is not growing?
It is Federal reserve monetary policy forcing people into the stock market. If putting your money in the bank earning 0% is one option people will speculate in shares to try and get a return.
This is not sustainable as company profits generate a return not justifiable relative to the speculated rise in stock price and just like the previous bubbles this will burst also.
The fear I have is that the negative circumstances that propelled the world into the Global Financial Crisis, are reinventing themselves today. It is now a world wide currency war based on easy monetary policy, as
each country tries to debase it's currency to make their exports more competitive to lower unemployment.
It is this currency war, the money printing, loose monetary policy across the planet that is setting the scene. Remember history, remember current behavior and policy form future results and trends?
Well the world sits on the edge of the loosest monetary policy in history, the same policies that caused previous bubbles to burst and the frenzy of the Global Financial Crisis.
If history is to be trusted, and today's policies and behavior are to be looked at to form a perspective of economic future results and trends.....
Well....
It has not turned out well in the past...
And this time the monetary policies and global central bank actions are much looser...
I have to think there can be no other result other than an even bigger collapse than before..
So I make my case for precious metals, Gold, silver. They are "Precious", much more precious than a piece of paper that comes off a printing press that says 100 dollars on it.
What do you think?
