At some
point confidence will be lost, and international investors won't want to own US
Treasury bonds. I mean for how much
longer, when the inflation rate has been (for the last 15 years), and continues to be, at least 2.5%,
would any sane investor want to own a five-year bond that's going to pay less than a 1% return on his
investment?!
So, if the central banks of the world ever stop
buying, or actually even begin to reduce their totally bloated,
abnormal, freakishly large balance sheets, all of these speculators are going
to sell their bonds in a heartbeat.
Indeed that's
what has already happened in Greece.
So here's the heart of the matter. The Fed is a patsy. It is a pathetic dependent of the big Wall
Street banks, traders and hedge funds. Everything
it does is designed to keep this rickety structure-of-their-making from
unwinding. If you had a former Fed
Chairman Paul Volcker running the Fed today -- utterly fearless and independent
and willing to scare the hell out of the market on any given day of the week --
you wouldn't have half, you wouldn't have 95%, of the speculative activity
that we are seeing today.
The bald but
largely unrealized fact is that we're facing a financial crisis far worse than the
one that followed the collapse of Lehman Bros. in 2008. When the real margin call, in the not-too-far-distant-future,
finally arrives, the carnage will be unimaginable.
So how can
investors protect themselves? In the
stock market? Are you kidding me? Personally, I wouldn't touch the stock market
with a 100-foot pole.
Some investors
argue that the stock market is trading cheap by some measures. It's valued at 12.5 times expected earnings
this year, while the typical multiple is 15 times. But the
typical multiple is based on a historic period when the economy could grow at a
standard rate. Therefore the idea
that you can capitalize this market at a rate that was safe to capitalize it in
1990 or 1970 or 1955 is a huge mistake. It's
part of a Wall Street sales pitch.
Capital preservation is what your first, second
and third priorities ought to be, in any system that is so jury-rigged, so
fragile, so exposed to major breakdown that it's not worth what you think you
might be able to earn over six months or two years or three years if they
can keep the bailing wire and bubble gum holding the system together, OK? Buying stocks or bonds right now is simply
not worth the risk.
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