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Consumer spending is up! This is being touted as a great sign that the economy is improving by many on the financial game shows. It is my opinion that spending is up for many reasons but that none of them have anything to do with an improving economy.

While personal incomes are actually decreasing, we are somehow supposed to believe that increased spending is a good thing. Actually, it appears that increasing PRICES are one of the major components of more spending. This would also be confirmed by the fact that personal indebtedness is rising also. It appears that some people are having to depend upon credit to get by.

Just last week the BLS (Bureau of Labor Statistics) reported that our US dollar is losing 1% of its purchasing power MONTHLY. If anything screams BUY HARD ASSETS more than that I can’t think of what does.

Another possible reason that spending is going up is that with inflation raising its ugly head many are trying to get ahead of the trend by buying things today that will likely cost more tomorrow. As prices continue to rise this trend is likely to pick up steam and lead to more dollar weakness and higher prices for virtually everything. I believe that the “dump the dollar” trend just may be starting in earnest.

This is likely the reason why, in my previous research on past hyperinflations- like Weimar Germany, it was noted that the German Mark was losing value consistently but slowly at first and then it was described as “all at once”. The signs were all there but were ignored by most. When the public woke up it was game over. The currency was losing value so quickly that people were demanding to be paid daily. This was because it was likely that the pay would not purchase tomorrow what it purchased today.

While we are not witnessing price increases like this yet, it appears that the inflationary pressures are picking up steam and are now viewed by most as a major concern going forward. Add to that the supply chain disruptions and the warnings of goods not being available for the holidays and even more future spending is being done today rather than in the future.

If you take a step back you will realize that many are feeling the pinch of higher prices and are exchanging their (depreciating in value) fiat currencies and buying things they need or may need in the future. When I speak of buying hard assets this is what I am talking about. It appears there is a trend that is picking up steam.

What is likely to benefit from this trend?

Commodities of all kinds. As it takes more and more dollars, yen, euros, etc. to purchase goods, the cost of those goods go higher. The companies that produce those goods are also a good bet to move higher as the products they produce are fetching more dollars, yen euros, etc. which should lead to higher profits.

These commodities would include but would not be limited to Food, water, natural gas, coal, oil, electricity, and metals of all kinds. Already, there are many companies in this space that are making windfall profits but the investing public is all-in on companies that have good stories or are the hot stocks of the day. Many have NO earnings and future prospects may be bleak but that doesn’t stop the crowd from piling in and driving the prices higher.

It may be a good idea to do some research on some of these companies that are not overvalued- as a matter of fact I would argue that many are undervalued- some are grossly undervalued.

It has been shown throughout history that when you buy stocks at high valuations (and today the valuations are so high there is NO historical precedent) the future returns are likely to be not only lackluster but may be negative for quite a bit of time.

A perfect example to me would be Rivian, an electric car manufacturer that is valued (11-16-2021) higher than GM and Ford combined even though they have NO revenue to report. It is also valued higher than Volkswagen which delivered around 9.3 million cars in 2020.  This is similar to Tesla- the supposed most valuable US car company which has not made a penny selling cars but only turned a “profit” by selling carbon credits and government subsidies. While the prices could still go higher short-term I believe MAJOR caution is warranted going forward. Why is Elon Musk selling heavily now?

I am not expecting any help from the government as they are partially to blame for this mess. Spending trillions of dollars that are conjured up out of nowhere by the central bank is highly inflationary. This is now DEBT that is owed back to the Fed and in most cases, we have nothing to show for it because we are just spending “money” we didn’t earn to pretend we did. How long can that last? We are likely to find out real soon as the numbers are so gigantic that a normal mind can’t even comprehend the numbers being conjured up and spent.

If the BLS is correct and we are actually seeing our purchasing power drop 1% per month (by the way that jives with what John Williams of Shadow Government Statistics has been reporting as the REAL inflation rate without the government’s massaging) then doesn’t it make sense to own assets that can retain the value you have today well into the future?

As usual, I am coming back to gold which has fulfilled that role for over 5000 years. Despite the daily paper games being played to keep the price low and give the illusion of RISK- even though the ONLY assets that the central banks can list on their balance sheets as “riskless” are US Treasuries and GOLD, it has still retained its purchasing power over time. It would be FAR more obvious if it was allowed to freely trade. Of course, I don’t believe there are many assets that have ANY true price discovery as the big boys have figured out a way to rig almost all prices and even when they get caught red-handed they pay a fine and go right on their merry way and start all over again.

Of course, as I have written many times- every fraud has its own demise built in. This one is no different. Whether they “print” too much that their source of power (in our case the US dollar) becomes virtually worthless, or whether the masses revolt because all of the manipulation is wiping them out for the benefit of the VERY few the game will end.

At that point I would suggest that it would be a good idea to know WHY you are holding each and every position you hold in your portfolio and WHAT would be the expected outcome for that holding in the event of a re-pricing of assets. Particularly if you are holding assets that are being artificially propped up with nothing but a few strokes on a keyboard.

I don’t believe the central banks have bought gold in record amounts for the last 4 years because they think this game will go on forever. On the contrary, regardless of what they say (barbarous relic) their actions (massive buying) tells their true thoughts.

I believe that we are in the beginning of the most important financial times of our lives. It is likely the decisions that we make today, and in the near future, will impact our lives FAR into the future.

Be Prepared!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.

Precious Metals, including gold, are subject to special risks including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.

Diversification does not ensure gains nor protect against loss. Companies mentioned are being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk regardless of strategy.

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