“It’s a very dangerous time” to be an investor.
You might think is a quote from Casey Research founder Doug Casey. But Paul Singer actually said this last week at the Delivering Alpha conference in New York City.
Delivering Alpha is one of the most anticipated investing conferences of the year. Investors from around the world attend it to hear from the “who’s who” in the investing world.
This year, many of the world’s top investors agreed on one thing: the markets are very dangerous.
Singer, who manages $28 billion at Elliot Management, said investors are in more danger than they realize.
Ray Dalio, who runs the world’s biggest hedge fund, said the bond market is “in a dangerous situation.”
Carl Icahn, one of the best traders ever, said there are “tremendous risks” in the market.
Singer, Dalio, and Icahn are Wall Street legends. It pays to listen to them.
Today, we’ll take a closer look at why these all-star investors are so worried. As you’ll see, you need to take steps to protect your wealth if you haven’t already.
• Stocks have lost touch with reality…
A month ago, the S&P 500 hit a new all-time high. It’s now up 216% since March 2009.
If you’ve been reading the Dispatch, you know stocks have rallied against all odds.
They’re trading at record highs despite a weak global economy. The U.S., Europe, Japan, and China are all growing at their slowest rates in decades.
They’re rising while profits fall. Profits for companies in the S&P 500 are on track to fall for the sixth straight quarter.
And they keep climbing despite sky-high valuations. The S&P 500 trades at 18 times “forward” earnings. U.S. stocks haven’t been this expensive since 2002.
Normally, these problems would drag down stocks. Instead, stocks are trading at record highs.
• Easy money has levitated stocks…
Central bankers have cut interest rates more than 670 times since 2008. They’ve pumped more than $12 trillion into the financial system over the same period.
This massive “stimulus” effort stoked a historic rally in stocks. But it did nothing for the “real” economy.
Singer says this disconnect between stocks and the economy has put investors in serious danger:
Eight years of ever-declining rates and ever-increasing radicalism in other monetary policies have not created a sustainable, accelerating uptick in growth. What they have done is created a tremendous increase in hidden risk, risk that investors don't exactly know or have faced about their holdings…
• Singer’s warning might sound familiar…
We’ve been saying for months that central bankers have made the world a very dangerous place.
You see, interest rates aren’t some arbitrary number. They’re the “price of money.”
When rates are high, people know they should save money. When rates are low, folks know it’s a good time to borrow money.
Normally, the market sets interest rates. But we aren’t living in “normal” times.
Thanks to aggressive central bankers, global interest rates are now at the lowest level in 5,000 years.
• The economy’s most important signal is broken…
As a result, investors have made some very poor decisions.
Right now, an Italian 10-year pays just 1.3%. That’s less than a U.S. 10-year, which currently yields 1.7%.
So based on its low interest rate, Italy looks like a safe place to invest. But the country has SERIOUS problems.
Its economy is 10% smaller than it was before the 2008 financial crisis. Unemployment is around 12%. Worst of all, its banking system looks like it’s about to implode.
In a normal world, Italy’s government would have to pay a high interest rate to get people to buy its bonds. But, thanks to years of easy money, its bonds pay almost nothing.
And that’s just one example. Today, everything looks safe…even complete garbage.
• According to Singer, central bankers don’t know how to clean up the mess they made…
Singer told the audience at last week’s Delivering Alpha conference:
With roughly $15 trillion on the major central bank balance sheets, with all of these rates at zero or even crazily below zero, you have a very delicate situation… Central bankers and policymakers have gotten themselves deeper and deeper.
Carl Icahn also thinks central bankers are in a tough spot, particularly the Federal Reserve…
• For the past eight years, the Fed has held its key interest rate near zero…
The Fed dropped rates to zero to “stimulate” the economy.
But as we said above, eight years of easy money have done nothing for the “real” economy. Instead, all the Fed did was encourage people to borrow, spend, and invest money recklessly.
The entire financial system is hooked on easy money.
The Fed knows this. It’s now trying to figure out how to ween the financial system off easy money without knocking over the apple cart.
Last December, it lifted its key rate for the first time in almost a decade. It’s been saying all year that it wants to raise rates again. Every time it got close to doing so, it stopped short of pulling the trigger.
Many investors are now worried that the Fed could finally raise rates again…
• Icahn says it doesn’t matter what the Fed does next…
He told attendees at last week’s conference:
I don't think it matters, because either way there's a problem…
If they don't raise rates, I think we're in a major bubble.
If you still have “skin in the game,” Icahn says you need to be very careful.
You look at the environment, and I think it's very dangerous. You're walking on a ledge and you might make it to the end, but you fall off that ledge and you're really going to see trouble.
• For months, we’ve been saying the global financial system is incredibly fragile…
Many of the world’s best investors are now saying the same thing.
If you haven’t taken steps to protect your wealth, we recommend you get started today.
Start by looking at your portfolio.
Get rid of expensive stocks. They tend to crash harder than cheap stocks in major selloffs.
You should also avoid companies that will struggle to make money in a prolonged economic downturn.
Cashing out weak positions will help you avoid big losses. This will also put you in a position to buy stocks when they get cheaper.
• We encourage you to own physical gold too…
As we often say, gold is real money. It’s preserved wealth for centuries because it’s a unique asset. It’s durable, easy to transport, and easily divisible.
It’s also survived every financial crisis in history. You can’t say the same thing about paper currencies.
Singer also thinks you should own gold. At last week’s conference, he said gold is the “the only money and store of value that has stood the test of time.”
• If you’ve been wanting to buy gold, now is your chance to buy some for cheap…
As you probably know, gold stormed out of the gates this year.
It soared 28% through the end of July. It was gold’s best start to a year in decades.
After hitting a two-year high last month, gold has since fallen 5%.
This recent selloff has some investors worried. Not us.
You see, we don’t buy gold to make a quick buck. We own it for insurance against financial chaos.
Also, bull markets never move in straight lines. It’s healthy for gold to take a breather after such a hot start to the year.
• Still, we don’t expect gold to stay this cheap for long…
If you haven’t bought gold yet or would like to buy more, watch this short presentation. It talks about a little-known “loophole” in the gold market that E.B. Tucker, editor of The Casey Report, recently discovered.
Simply put, this is THE cheapest way to buy gold coins that we know about. According to E.B., it could save you hundreds of dollars on every ounce of gold you buy.
To learn more about this incredible offer, click here. Just don’t wait to act. According to E.B., this offer could “last another year, or only a few months…I have no way of knowing.”
Chart of the Day
Gold rose the last time interest rates rose.
Right now, many investors think the Fed could raise rates soon. Now, this doesn’t just concern people who own stocks. It also worries some folks who own gold.
You see, gold doesn’t pay interest like bonds and some stocks. Because of this, many investors think higher rates are bad for gold.
But the conventional wisdom is dead wrong. Last summer, the global banking giant HSBC published research showing that the price of gold has increased after the last four Fed rate hikes.
History shows that gold prices also fall leading into a rate hike and generally rise, though sometimes with a lag, after the first rate hike… Investors are apt to unload gold in anticipation of tightening monetary policies. This negative pressure is sustained until the Fed announces a rate hike, which then eases the negative sentiment towards the yellow-metal. This explains the subsequent rallies in gold that occurred shortly after the Fed announced the first rate hike in the last four tightening cycles.
Today’s chart shows that the price of gold went up when the Fed started raising rates in 2004. It jumped about 20% in just six months.
And, as Casey readers know, even if the Fed doesn't raise rates, gold will still perform well as the world's ultimate safe haven asset.
In short, if you own gold today, you'll be prepared no matter what the Fed does next.
If you still haven't bought gold, watch this presentation. Again, it reveals one of the best deals on gold we’ve ever seen.
Delray Beach, Florida
September 19, 2016
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