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Financial Fitness & Life Planning

Eerie Calm

The stock market’s January advance and eerie calm were reflective of a seemingly firming economy as Europe appeared to stabilize somewhat. Such stabilization, however, was really simply the product of the European Central Bank’s “Long Term Refinancing Operation”, which is nothing more than a scheme or a fancy name for money printing. The ECB’s balance sheet has ballooned as it exchanges freshly created Euros for bad collateral from European banks, which then turn around and use the money to purchase sovereign debt to make the debt auctions appear well-received and their interest rates low. The LTRO possesses the pretense that it is not money printing, because it is supposed to be unwound in three years, but it is obvious that that will not occur. Like all other artificial interventions, the medium and long term have been sacrificed for the immediate short term, while the true problems have not been addressed in any meaningful, durable manner. In short, with developing world growth also slowing, I anticipate a Europe-led global economic downturn. The consensus view that recession risk is off the table seems wildly fraught with danger. 
Moving from the stock market to the precious metals market, it experienced a sharp snapback this month as the Federal Reserve extended the period of zero rates to at least another three years and announced that it will target a higher inflation rate. Just as discussed above with the ECB’s LTRO, there is no way out of the Fed’s policies of zero rates and quantitative easing. If it were to withdraw monetary stimulus, then the fragile economy would experience a deflationary collapse. More ominously, without the Fed providing liquidity or making outright Treasury purchases, interest rates would skyrocket and the United States would find itself in the same position as Greece. With our nation adding as much to the national debt every six months as it did in its entire first two hundred years of existence, policymakers will never voluntarily end zero rates and QE, thus rendering these perpetual policies. At some point, however, the inflation caused by monetary debasement will become too burdensome and force a change.
Precious metal related investments (gold, silver and mining stocks) can serve as the counterweight to the government and in particular the Fed’s recklessness. The two biggest and most liquid gold and silver trusts, however, may be dangerous because of their inherent conflicts of interest with their bank custodians and fears of potential fraud. Instead consider mining shares (which are very cheap right now), physical bullion, or some of the lesser known trusts that trade on the exchanges.
Michael can be contacted at and at (631) 629-4928 .
The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.


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Today is: January 21, 2019 - 1:56pm
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