With just a tad more than three weeks left in the year it is time to start focusing on what 2014 will likely bring. Of course, what really happens over the next twelve months is likely to be far different than what is currently expected but issuing prognostications, making conjectures and telling fortunes has always kept business brisk on Wall Street.
End America’s central bank because it caused the crashes of 2008, 1987, and 1929 and will blunder again. That’s what many critics are saying about the Federal Reserve System (the Fed), which turns 100 on December 23. They note that on the Fed’s watch America has endured numerous bubbles, crashes, and inflationary cycles that have greatly devalued the dollar. The Fed, they say, has caused or aggravated several crashes. “If you say the goal of the Fed was to prevent calamities, then you have to say that it has been a failure,” says William A. Fleckenstein. “History and current experience,” Joe Salerno adds, “reveal to us that groups endowed with a legal monopoly over any area of the economy are prone to use it to the hilt to enrich themselves, their friends and allies.”
Below some leading economists and financial commentators give their perspective regarding the risks of bail-ins or deposit confiscation. If you manage money in any way, your own or others,it will be prudent to heed their warnings.
Bubbles are created when investors do not recognize when rising asset prices get detached from underlying fundamentals, but perhaps George Soros' perspective on bubbles is most prescient: "financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. The degree of distortion may vary from time to time. Sometimes it's quite insignificant, at other times it is quite pronounced. Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. When a positive feedback develops between the trend and the misconception, a boom-bust process is set in motion. Eventually a tipping point is reached when the trend is reversed; it then becomes self-reinforcing in the opposite direction. Typically bubbles have an asymmetric shape. The boom is long and slow to start. It accelerates gradually until it flattens out again during the twilight period. The bust is short and steep because it involves the forced liquidation of unsound positions." Does an asset bubble currently exist? Ask anyone and they will tell you "NO." However, maybe it is exactly that tacit denial which might just be an indication of its existence.
By standards of previous generations, the middle class has been stripmined of income, assets and purchasing power. So what does it take to be middle class nowadays? A recent paper used Census data to discuss what sort of income it takes to qualify as middle class but income is not the only the metric - indeed, it can be argued that 12 other factors are more telling measures of middle class membership than income.
The Hong Kong branch of Spink & Son, a British firm originally founded in the mid-1600s, was putting a series of Bruce Lee memorabilia under the hammer. When the bidding for the first lot opened, the price immediately surpassed the auctioneer’s initial estimates. It was a frenzy. Now, we know that modern auctions are supposed to be a pure form of the free market– buyers from around the world meeting for the purpose ‘price discovery’, with the item eventually going to the highest bidder. Further, economists and university finance often teach that such markets are ‘efficient’, meaning that prices always reflect the most relevant information and are hence an accurate reflection of an asset’s value. But in reality, nothing could be further from the truth. The auction was an emotional frenzy. It’s not an efficient market. It’s full of fear, euphoria, and aggression. The stock market is the same way. Even though just about every rational metric suggests that many global markets (especially the US) are absurdly overvalued, emotional investors keep bidding prices up.
Bitcoin could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers, BofAML notes in a report today, adding that as a medium of exchange, Bitcoin has clear potential for growth, in our view. Despite Greenspan's inability to find "value", BofAML prefers not to call the crypto currency a bubble, and assigns a maximum fair-value of $1,300, but does warn that the 100 fold increase in Bitcoin prices this year is at risk of running ahead of its fundamentals.
It is important that one owns physical gold and not paper or electronic gold which could be subject to bail-ins. Owning a form of paper gold and derivative gold such as an exchange traded fund (ETF) in which one is an unsecured creditor of a large number of custodians, who are banks which potential could be bailed in, defeats the purpose of owning gold.
Physical Gold, held in secure conferring outright legal ownership through bailment remains the safest way to own gold.
"In order for currencies to be 'exchangeable' they have to be backed by something," is the remarkably ironic initial comment from none other than debaser-of-the-entirely-fiat-dollar Alan Greenspan when asked about the "bubble in bitcoin," by Bloomberg TV's Trish Regan. Unable to "identify the intrinsic" backing of Bitcoin (or see bubbles in equity, credit, real estate, or greater fools) Greenspan is, apparently, capable of identifying Bitcoin "as a bubble," because "there is no fundamental means of "repaying' it by any means that is universally accepted." The farcical double-speak continues as the Maestro does a great job of making Bitcoin (which Ron Paul earlier noted could be the "destroyer of the dollar") look even better than the readily-printed fiat we meddle with every day.
First things first. Losing 39% of your purchasing power over the course of 13 years is criminal. This was purposely created by Greenspan/Bernanke and the Federal Reserve. We're quite sure that most Americans have not seen their wages go up by 39% since 2000; therefore the average American has lost ground. No matter how you cut it, Federal Reserve created inflation slowly but surely destroys the middle class and benefits the ruling class. Ben isn’t working for you. His mandate of stable prices has been disregarded. He does not have it contained.
The era of bondholder bailouts is ending and that of depositor bail-ins is coming.
In that context a move to increased allocation of savings including a prudent allocation of some 5% to 10% to precious metals, is a sensible policy.
Getting ready for Christmas? What’s Santa got in his sack for you this year? Well, if there’s one thing you should be preparing for, then it can only be the big crash of February 2014.
A world, in which former permabears David Rosenberg, Jeremy Grantham and now Hugh Hendry have thrown in the towel and gone bull retard, and where none other than the Chief Investment Officer of General Re-New England Asset Management - a company wholly-owned by Warren Buffett's Berkshire Hathaway, has issued one of the direst proclamations about the future to date and blasts the Fed's role in creating the biggest mess in financial history, is truly upside down...
Even if you don't have a Nobel Prize, it should be glaringly apparent to anyone with half a brain - the financial markets have been soaring while the overall economy has been stagnating. Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before. We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008. So precisely when will the bubble burst this time? Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point. Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble...
Faith in the current system is as high as it has ever been, and folks don't want to hear otherwise. If you're one of those people who thinks it prudent to have intelligent discussion on some of these risks -- that maybe the future may turn out to be less than 100% awesome in every dimension -- you're probably finding yourself standing alone at cocktail parties these days. A helpful question to ask yourself is: if I could talk to my 2009 self, what would s/he advise me to do? Don't put yourself in a position to relearn that lesson so soon after the last bubble. Exercise the wisdom to look like an idiot today.