- Gold and Bitcoin are becoming correlated for the first time in history
- Stocks in the US are beyond overvalued
- The Fed may ease monetary policy further
- The US Dollar is losing reserve currency status
- Gold continues hitting record highs against major fiat currencies
Safe-haven assets are seeing massive capital inflows. This has been forecasted for a long time by many people, including GSB and its readers and subscribers. Let’s examine some of the details of this development.
Bitcoin vs Gold: Safe Haven Assets Now Correlated
The whole “bitcoin vs gold” or “drop gold, buy bitcoin” feud is nonsense. And now data is finally emerging to prove that.
BTC and gold are moving together more and more as safe-haven assets become more attractive.
This only validates what many in the crypto community have known for years: as global volatility increases and fiat currencies begin to collapse, hard money like gold, silver, and bitcoin will be increasingly bid.
Fake Markets: Stocks in America
The US stock market is being propped up. The market has been artificially inflated for a decade through quantitative easing, zero percent interest rate policy, and corporate share buybacks. The market also continues to be engineered to bounce back every single time there is a drop.
This pattern has been repeating for some time, and there’s no question that honest price discovery mechanisms have ceased to exist. Just look at the following chart showing the correlation between stock buybacks and the S&P 500:
Most of the market is extremely overvalued. Look at price to earnings ratios, for example.
Historically, stocks have averaged a P/E ratio of about 15 – 20. A ratio of 40 is generally considered very high, while 7 and under is considered low.
The P/E ratio of Amazon (AMZN) in 2018 was 89.65. And that’s nothing compared to some other tech stocks like Hubspot (HUBS) and Square (SQ), with P/E ratios of 388 and 1052, respectively.
At the same time, companies that are not even making a profit are seeing sky-high valuations. Uber, for example, has a P/E ratio of just 0.04. Yet the stock has a market cap of $55.6 billion and is trading above $32 per share.
All of this shows that the stock market no longer reflects reality. Financial engineering has gone on for so long and to such an extent that stocks are no longer a valid indicator of economic activity.
With free money at 0% interest from central banks, companies have bought back their own stocks to outrageous degrees. Despite this, the return of holding stocks has paled in comparison to that of safe-haven assets.
Yearly Returns of Stocks, Gold, and Bitcoin
Let’s compare the year-to-date returns of stocks, gold, and bitcoin. These figures reflect the global economic slowdown and the steady failure of fiat currencies.
Stock Market Returns: <1%
Despite lots of volatility, the S&P 500 index has been almost completely flat for the past year.
Year-to-date returns look pretty good at over 16%. But that’s only because of the deep dive stocks took in Q4 2018.
Over the course of the past year, the return on the S&P 500 is a meager 0.36%. That doesn’t even keep pace with inflation.
Gold Returns: 27%
What about gold?
Gold is up more than 27% in the past year as investors seek shelter from overvalued stock markets, rising debt, negative-yielding bonds, FED rate cuts, trade wars, and rising geopolitical tension.
Bitcoin Returns: 35%
And bitcoin? Well, that’s another asset story entirely. The best performing asset class of the last decade hasn’t disappointed.
Returns on BTC exceed 35% in the past 12 months. Year-to-date returns are an astronomical 150%!
There’s asymmetrical upside in crypto, with potential returns far exceeding potential losses if you allocate even a small portion of your portfolio there.
While it’s wise to reduce your overall equity exposure and rotate into non-correlated safe-haven assets, dips can also be used as an opportunity to buy dividend-yielding stocks. Soon there won’t be anywhere else to earn a regular return, as the rising tide of negative real interest rates consumes global capital.
Negative Interest Rates
It’s possible the Fed could take rates into negative territory in America at some point. With such a massive debt load, there eventually becomes no other option.
Outright default or hyperinflation have been the historical outcomes of crippling debt. But that was before modern financial engineering courtesy of massive central bank intervention.
(Notice how over the past year, as negative-yielding debt has soared, so has the price of gold).
Negative interest rates amount to a soft default. This has no precedent beyond our current time frame. The central bank of Denmark was the first to go below zero, in 2012. To the surprise of many, it did not result in stress in the financial system. In 2014, several of Europe’s central banks followed suit. Two years later, so did the Bank of Japan. Beyond this current experiment, negative interest rates have never been attempted.
With the Fed Funds Rate now at 2%, the Fed doesn’t have much room to move when the economy worsens, as it already has. A big move downward in rates leads to negative territory – there are no two ways about it.
And now President Trump is urging the Fed to cut rates by as much as 100 basis points. And yet he also claims that the economy is doing great. Why is a rate cut needed if things are just fine?
The whole political stage on both sides has been a bad reality show for decades, but that’s beside the point. Despite his pronouncement at the beginning of every press conference that everything the Fed does is “for the good of the American people,” Jerome Powell isn’t helping anyone.
Central banks got us into this mess, ensured the problems that led to the last crisis would continue, and now have set the stage for stealing everyone’s money in the name of saving the monetary system as it begins to fail.
Many other countries aren’t buying it. They’re smart enough to ditch the fake debt-based currency that is responsible for a lot of the world’s problems.
Dollar Losing Reserve Currency Status
President Trump has said that the American economy is “the best in the world” right now. Even though this might be true in some ways, being the cleanest shirt in the dirty laundry is nothing to brag about. And why does America enjoy a heightened standard of living despite being the biggest debtor nation in the world?
The answer is simple: The Fed gets to print as many dollars as it wants for whatever it wants.
How can they do this without causing runaway inflation?
Because those dollars get exported to other countries who are forced to use the dollar for international trade. Countries who don’t comply meet untimely ends, whether through violent regime change, internal revolution or civil war, or a soft coup.
As Paul Krugman once said, the dollar is “backed by men with guns,” therefore it’s more valuable than any other form of money.
Is this a valid metric for measuring the worth of a currency? What happens when the rest of the world revolts against this form of monetary tyranny? Not by taking on the US military, but by using alternative payment systems?
This has already begun and the trend is increasing.
Everywhere you look around the globe, examples of de-dollarization can be found.
In Latin America, Venezuela has begun pushing for greater use of its Petro cryptocurrency, a unique kind of stablecoin pegged to the price of oil. Venezuela has faced harsh sanctions and repeated attempts to overthrow its government from within.
In the Middle East, Iran has been pursuing alternative payment methods as a means of bypassing American sanctions. The same goes for North Korea.
In the Far East, major superpowers are making big moves away from the dollar. Russia, China, and India have made agreements to cut out the dollar by not using SWIFT, the dollar-based global financial gateway.
Even Europe is in on the trend, with countries like Germany, France, and the UK also participating in the elimination of SWIFT.
And let’s not forget that in April 2016, China launched its own gold price fix. There are two prices for gold, one in USD and one in Yuan, another monetary situation without precedent.
We are entering uncharted territory with everything that has been happening. Events will escalate quickly from here. There’s no better example of this than what’s been happening in the gold markets.
The Gold Bull Market of the Millennium Has Begun
The price of gold has been skyrocketing this year. While the dollar price of gold is still far from record highs, the price of gold as measured against many other fiat currencies has already reached all-time highs.
In fact, even as far back as January, gold had already hit all-time highs in 72 currencies!
Here is a partial list of currencies against which gold has hit an ATH this year:
- Australian Dollar
- Argentine Peso
- Algerian Dinar
- Mexican Peso
- Swedish Krona
- Syrian Pound
- Egyptian Pound
- Brazilian Real
- South African Rand
- Russian Ruble
- Turkish Lira
- Indian Rupee
This rally has gotten so strong that it’s hard to keep up. Just a few weeks ago, I mentioned gold consolidating over $1,450. Now it’s hovering near $1,530 at the time of writing.
Jason Hamlin of Gold Stock Bull recently increased his 2019 price target for gold from $1,600 to $1750. If the current price trajectory continues, this estimate could end up being rather conservative.
Safe Haven Assets Are the Endgame
We are entering the end of an unprecedented monetary experiment involving negative rates and trillions of fake currency units. It is not in the distant future but is kicking in the front door at this very moment. This becomes obvious when looking at the tanking velocity of money.
A worldwide global depression is underway, and many millions of people will be caught off guard. Don’t be one of them.
We believe it is important to allocate an increased percentage of your capital to safe-haven assets like gold, silver, and bitcoin in the current environment. Some commentators are even urging as much as a 30% allocation to physical gold in light of negative-yielding debt going parabolic.
Junior gold mining stocks are still undervalued as well and provide leveraged gains versus holding gold alone. These stocks will see even bigger growth as this crisis continues to unfold.
There’s still time to protect yourself and profit from this crisis.
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