Published January 31, 2017

“It’s Going to Get Really, Really Ugly”

“If you don’t prepare now, you’re going to get hurt.”

If this warning sounds familiar, it’s because it appeared in yesterday’s Dispatch. It’s a direct quote from Casey Research founder Doug Casey.

As you may know, Doug thinks politicians have set us up for a huge disaster.

He says their “stupid government economic policies” have completely warped the global financial system. There are now huge bubbles in stocks, bonds, real estate… you name it.

Sooner or later, these distortions will come undone. Doug says this will trigger a financial crisis far worse than what we saw in 2008. It will usher in the “Greater Depression.”

According to Doug, this crisis may already be underway…

• The bond market is unraveling…

The bond market is where companies borrow money. It’s about twice as large as the stock market.

Many investors consider bonds safe. After all, bondholders are first in line if a company gets into trouble. The law says that they get paid before shareholders.

Bonds have also been in a bull market since the 1980s. Investors are used to them going straight up. But that looks like it’s coming to an end.

• Bond yields have skyrocketed over the last few months…

The U.S. Treasury market is a perfect example.

Last July, the U.S. 10-year Treasury bond yield hit an all-time low of 1.37%. Today, U.S. 10-years yield around 2.5%.

In just six months, the 10-year yield has nearly doubled. That’s an enormous move for such a short period, and a serious warning sign.

You see, a bond’s yield rises when its price falls. In this case, yields spiked because Treasury bond prices nosedived.

• The world’s top bond experts say this is only the beginning…

A few weeks ago, Bill Gross and Jeffrey Gundlach—Wall Street’s “Bond Kings”—both said bonds are entering a long-term bear market.

Most investors aren’t ready for this.

Remember, bonds have been in a bull market for almost four decades. According to Doug, the bond market is now “the biggest financial bubble in world history.” And we all know how bubbles end.

But bonds aren’t the only asset investors should be nervous about.

• Practically everything is in a bubble these days…

Don’t believe us? Look at the chart below.

Print this out. Keep it on your desk. Look at it every day.

This chart compares the value of U.S. financial assets (stocks, bonds, and real estate) to the disposable income of a typical family.

You can see that this ratio is in uncharted territory. It’s now higher than it was during the dot-com and housing bubbles.

• This is a serious red flag…

The S&P 500 plunged 41% when the dot-com bubble popped. The Nasdaq, which tracked many popular internet stocks, plunged 78%.

Seven years later, U.S. stocks crashed again. This time, the S&P 500 plunged 57%.

These back-to-back crises are the reason many investors refer to the 2000s as a “lost decade.”

You see, you would have actually lost 9% of your money if you bought the S&P 500 on December 31, 1999, and cashed out on December 31, 2009. That’s assuming you reinvested dividends, too.

These days, many investors couldn’t stomach another financial crisis. It would clean them out…

• The Federal Reserve got us in this mess…

Since 2008, the Federal Reserve has held its key interest rate near zero.

The Fed thought this would “stimulate” the economy. It didn’t work. The U.S. economy is “recovering” at the slowest pace since World War II.

All rock-bottom rates have done is fuel an epic borrowing binge.

You see, interest rates aren’t just some arbitrary number. They’re the price of money.

When rates are high, it’s the economy’s way of telling us that it’s a bad time to borrow money.

When rates are low, it tells us the opposite: It’s a good time to borrow money.

But here’s the thing…

• Interest rates only work when the government leaves them alone…

When the government holds rates near zero, everyone thinks they should borrow money.

No business idea is too dumb to fund. No house or car is too expensive.

Companies rack up huge amounts of debt. People buy everything on credit.

In short, the Fed broke the economy’s most important traffic signal.

This encouraged a ton of reckless borrowing. It blew the biggest bond market bubble ever.

• The Fed’s easy-money policies inflated the stock market, too…

For the last 2,885 days, U.S. stocks have been rallying. The current bull market in stocks is now the second-longest in U.S. history.

On its own, this isn’t anything to worry about. But you have to realize something…

U.S. stocks have rallied against all odds. They’ve kept rising despite steep valuations, weak corporate profits, and growing geopolitical uncertainty.

Commercial property has defied gravity, too.

Since 2009, commercial real estate prices have more than doubled. According to Real Capital Analytics, they’re now 21% higher than they were at the peak of the last real estate boom.

Like bonds, stocks and real estate prices will eventually fall back to earth.

• Now, we didn’t write today’s issue to scare you…

We wrote it because it’s easy to lose sight of the big picture.

You see, the Dow Jones Industrial Average just topped 20,000 for the first time ever. The S&P 500 and Nasdaq also hit record highs last week.

When stocks are at record highs, a lot of investors throw caution to the wind.

They chase stocks higher. They ignore their stop losses. They sell their gold.

But this isn’t the time to be greedy. As we’ve seen this week, the market can take away gains much faster than it gives them.

• If you haven’t already, we encourage you to “crisis proof” your portfolio right away…

Here are three easy ways to get started:

  1. Set aside more cash. Holding extra cash will help you avoid big losses if stocks fall. It will also put you in a position to buy stocks when they get cheaper.

  2. Own physical gold. Gold is the ultimate safe-haven asset. It’s survived every financial crisis in history. It will certainly survive the next one.

  3. Close your weakest positions. Start by selling your most expensive stocks. They tend to fall the hardest during major selloffs. You should also get rid of companies that need cheap debt to make money. If problems in the bond market continue, these companies could be in trouble.

To be clear, we don’t think you should avoid all stocks. Just be extra careful about the ones you own.

• Many investors won’t take these simple steps…

They’ll wait until stocks start crashing to take action.

By then, it will be too late. It will be like trying to escape a crowded theater during a fire. Some folks will make it to the exit. But many will be engulfed in flames.

Don’t be one of those victims.

If you’d like to know other great ways to protect your wealth, check out this presentation.

It explains how Doug “flipped” some of history’s worst financial disasters into huge gains. More importantly, it explains how you can do the same during the next financial crisis. Click here to learn how.

Just don’t wait too long. We’re going to pull this video down after midnight.

Chart of the Day

The U.S. dollar is having its worst start to a year since 2008.

Today’s chart shows the performance of the U.S. Dollar Index since last July. This index tracks the dollar’s performance against major currencies like the euro and Japanese yen.

You can see it’s down 2.4% since the start of the year. That might not sound like much, but it is for the dollar. The dollar is the world’s most important currency. When it makes big moves, it impacts everything from stocks to bonds.

But even with the recent drop, it's important not to lose sight of the big picture…

The index broke out of a 30-year downtrend in early 2015. Since then, the dollar has been on an absolute tear. A few weeks ago, it hit a 15-year high.

This is all very bullish. It suggests that the dollar will keep rising over the long term.

Still, we’re going to keep a close eye on the dollar, especially with the Fed’s February meeting right around the corner.


Justin Spittler
Delray Beach, Florida
January 31, 2017

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