Do NOT Be Wall Street's Road Kill (Again)

by Lear Capital EditorialOctober 05, 2015

Where were you when the dotcom bubble and the real estate bubble popped? Do you remember watching the DOW sink and your portfolio disintegrate? It’s like watching your retirement go from cruises and dream cars to budgeting and scraping by right before your eyes - Poof!

It’s like being road kill on Wall Street.

And yet, here we are again. Wall Street and the Fed have blown another massive bubble right when another wave of people HAVE to retire. Only this time, when the bubble bursts, it could be about surviving and eating, let alone budgeting.

It’s tragic how central banking has distorted our economy. What’s most tragic is how all these distortions can affect your family when it all comes to a head in the not too distant future.

After the last FOMC meeting the Fed punted again on raising interest rates, but the watch continues as NY Fed President William Dudley teased the other day that the economy is still on track for a rate increase this year. Fed Chair Janet Yellen herself said as much at a speech at the University of Massachusetts last Thursday, Sept 24. What could that mean? And how do we time our portfolios around Fed thinking?

Are you doing all you can to defend yourself against the possibility of very bad judgment on their part?

We’ve seen how loose, inflationary monetary policy can make fiat dollars seemingly evaporate in the blink of an eye. But why does this keep happening, and more importantly, how do you defend yourself and your portfolio against it?

To understand that, you have to understand how markets should work.

Ideally, lending and credit in free market capitalism springs from a pool of savings. Interest rates are just the price of money. Crucially, interest rates act as a signal about risk tolerance and appetite. Low interest rates normally signal that capital savings are plentiful. Borrow and spend away because the time is right for reinvestment and building. This serves to encourage borrowing for riskier business expansions, because we have saved enough, as an economy to cushion the blow should any of those risks not go our way. Risk, and interest, is therefore cheaper. Higher interest rates are a signal to be extremely frugal – we can’t afford much risk or loss right now. Low interest rates are for good economies. High interest rates are for bad economies.

Are you starting to see how messing with this dynamic might cause havoc?

Instead, that important signal has been falsified and reversed by the Fed, but the same activities are still encouraged. Low interest rates encourage borrowing for business expansion; high interest rates tell the market to work hard and save more. The problem is the economy does not actually have savings and capital accumulated to absorb losses from risky investments, even though interest rates are signaling the opposite.

THAT is why the stock market is so rife with risks these days. As an economy, we are set to lose what we can’t afford on investments that never should have been made in the first place.

These losses are headed toward Wall Street like a big honking Mack truck. Will you turn around and look up at what’s coming in time to get out of the way? Or will you end up being road kill again?

Look, we know you just want to save wisely for retirement, and not see all those saving evaporate in an instant on a bad trading day on Wall Street.

Gold doesn’t evaporate. That’s why it makes such a good backstop against these perverse forces in the market. I certainly hope you get lucky with some good trades and get the retirement you deserve. But in these days of wild swings, you need more than hope. Gold is solid and tangible. It’s a great buy right now. Call Lear to strengthen your position in precious metals or to get started if you haven’t already.

Do you have friends that look at you like you have three heads when you talk about gold and the economy? Maybe they only listen to their broker who assures them everything is fine and they should BUY BUY BUY more risky stocks. If you care about them, maybe it is a good time to share this article because it simply explains what is wrong with the economy and why portfolio diversification in the form of gold is such a wise idea right now. Please share this with them.

You’ve already got someone in mind that needs to read this. Why not share it with them right now? Their future could depend on it.

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