Do You Have an Exit Plan?

Do You Have an Exit Plan?

Dear Reader,

Melbourne has been in lockdown for three weeks already. Today marks the halfway point. Three more weeks to go…maybe.

Life in Melbourne has certainly changed. Days blend into each other. Streets are quiet, restaurants and cafes are empty. Famished rats are taking over the city. The few people out and about are — for the most part— wearing a mask.

Life has somewhat stopped.

Looking at it with a full glass though, there are some perks to having the whole world spending much of their time at home.

One of those is that you can get access to great events from the comfort of your own home. Events like the Sprott Natural Resource Symposium.

Market expert Shae Russell predicts five knock-on effects of the recent market crash that could be even bigger threats to the average investor’s wealth than the crash itself.

That’s where I spent most of my time this past weekend, at the Sprott conference. Last year the event took place in Vancouver, but this year organisers had no choice but to make it virtual.

The 2020 conference featured great speakers, interviews, and workshops with Jim Rickards, Rick Rule, and Nomi Prins, to name a few. And of course, our own Shae Russell.

The conference’s focus is on natural resources, and the timing couldn’t have been better.

At the time, gold was getting close to hitting an all-time high — which it did this week. Spot gold is now trading at over US$1,950. Silver is also starting to follow gold on a run. It’s more than doubled since the low in March.

Anyway, there was a lot of excitement about gold over the weekend, but also concern on how the pandemic will affect the economic system.

The pandemic was a complete surprise that stopped the world. So severe that governments and central banks started flooding the system with money even before the economic data started to come in.

I’ve argued before that the recovery from the 2008 crisis, at least in Spain and the US, hasn’t been real. We never got back employment or wage growth. It takes a long time to recover from a crisis and they can leave scars.

Author and journalist Nomi Prins had an interesting thing to say about this over the weekend. This is roughly what she said:

‘We are never really out of a crisis mode as long as the solution to the crisis is artificial, is central bank based because what that means is there’s always that backstop but there’s never really a way to get out of it. There’s never an exit plan.’

I think these are the two main issues.

Confidence in our system is crucial

How do we maintain confidence when the solution to the crisis is artificial? As I have written before, confidence in our system is crucial, it’s what it’s based on.

It will probably take increasing amounts of stimulus.

Yet the pandemic and all this money is already making evident the disconnect between the markets and the real economy.

But, what’s all this money really creating?

We are already seeing some doubts.

For one, there’s the price of gold and silver rallying. One of the big criticisms for gold is that it has no yield. But with massive amounts of government debt we’ll need to keep interest rates artificially low. This is good for gold.

Then there’s the falling US dollar.

And alternative currencies popping up. The US city of Tenino in Washington, for example, has brought out their 1890 printer from hibernation and have started printing their own currency, Tenino dollars. Or how they are also known, COVID dollars.

They are distributing them around the population to get money flowing around the city. It’s not a new idea, but something they already did in the past, in 1930.

The other main issue is how we dial back all this stimulus?

Remember the Fed tried to reverse their 2008 stimulus by increasing interest rates and quantitative tightening. But they had to revert course.

We are here waiting…stuck in time.

The way I see it, there is a massive financial change coming. Take this time to prepare and to plan how you decrease your exposure.


Selva Freigedo Signature

Selva Freigedo,
For The Daily Reckoning Australia