Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Friday Stock Market CRASH Following Israel Attack on Iranian Nuclear Facilities - 19th Apr 24
All Measures to Combat Global Warming Are Smoke and Mirrors! - 18th Apr 24
Cisco Then vs. Nvidia Now - 18th Apr 24
Is the Biden Administration Trying To Destroy the Dollar? - 18th Apr 24
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Tough Time for Investors During the Credit Crisis and Monetary Inflation

Forecasts / Investing Dec 13, 2007 - 08:28 PM GMT

By: Andy_Sutton

Forecasts As the current credit crises continues to deepen, much of the focus is on illiquid assets, seized markets and how the Fed and other central banks will attempt to bail the world economy out of this storm. Much of the debate has centered around whether or not the United States will be able to avoid a recession, whether consumer spending will fall off a cliff, and how likely it is for the economies of emerging countries will be able to decouple and survive a slowdown in the US. While these are certainly important questions to be asking, an even more important observation must be made.

Where does the small investor turn in these troubling times? For the first time in a generation, there is truly no safe haven within the status quo system of investing and asset management. Reliable stores of wealth have been pulled from the table as investors have had to take on increasing amounts of risk recently to garner the same returns as recently as a few short years ago.

For all intent and purposes, the stock market has done nothing in the past 7 months. Particularly in terms of the major indices for long terms investors. Traders have made plenty during that time if they were on the right side of the swift and violent ups and downs of recent market action. However, for the person who faithfully sends a contribution to his or her retirement plan every quarter, the past few months have meant little or nothing. This reality is enhanced by the fact that many traditional investment vehicles offer a mere pittance in the way of dividend income so there is no money coming in while the markets gyrate.

Bond markets have been awful for traditional investors in recent months. For those people looking to buy and sell bonds, there has been much money to be made. However, for the coupon-clipping public, bonds haven't worked out too well as the coupons are worth less and less moving forward. The news that import prices shot up a mammoth 2.7% in October ALONE should underscore the point that a 4% annual yield on a 10-year Treasury Bond is an affront to common sense.

With much talk coming from the Fed about even lower interest rates going forward and the PPT working diligently to buy the long end to create and maintain (hopefully) lower mortgage rates, the bond market is not the place to be for anyone who is looking to maintain a standard of living. Double that for anyone who is looking to increase wealth.

This morning, we saw a 3.2% increase in the PPI for the month of November. Naturally, this was blamed on high energy costs. The spin here is that this is only producer-price inflation and has nothing to do with what people see in their day-to-day cost of living. We will get that report tomorrow. I am sure that when you take out everything that matters like food and energy, the report will be somewhat ‘tame' and totally incongruent with the experiences of Main Street. Why mention price inflation in a discussion about bonds? The fact is that many people use fixed income investments to create cash streams for income in later years. The value of these cash streams is eroding and absent borrowing, part-time employment or drastic increases in Social Security, these people are seeing a dramatic reduction in the purchasing power of their fixed income investments.

There really isn't much of a need at this point to even talk about real estate as a viable investment. There are still a couple locales where the economics of buying rental units makes sense, but prices clearly have a ways to go in terms of correction. Talk of a soft landing is gone and has been for a few months now. The Fed may still try for nominal price gains in real estate, but the state of public confidence doesn't seem to be supporting that right now. In all likelihood, home values will continue to fall and with it the cause of much of the recent exuberance in the economy.

During times of trouble, another traditional response of investors has been to seek the safety of cash. However, as opposed to acting as a store of wealth as it is supposed to, cash money has become the ultimate destroyer of wealth, losing its value at a frightening clip. It is no longer feasible for the average investor to store substantial portions of their portfolio in cash. Savings accounts, CD's, money markets and other types of near-cash investments are also not prudent in significant quantities at this time either. Currency ETF and CD's have provided some protection, but only in the short term. Fiat money cannot be considered a hard asset in the long term.

Where to go for safety? These aforementioned situations will not only continue, but are likely to get worse as central planners around the globe throw more gasoline on this already out of control fire. All major fiat currencies are now suspect as the Banks of Canada, England, Japan, US, and European Union are openly coordinating their monetary inflation. This will help to ensure that they all lose value together. While this may cause the illusion that the dollar is stabilizing, in reality it means that all fiat funny money is falling in lock step. There is little solace in the knowledge that it won't be just savers in the US who will be fleeced in favor of enriching the banks and other financial institutions.


By Andy Sutton

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. He currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar.

Andy Sutton Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in