PropertyInvesting.net: Property Investment Special Reports

475: US collapse very close

PropertyInvesting.net team

Rolling Over: Things appear to be starting to roll over now. What we mean here is that:

• The US stock market has probably topped out - 21 April 2013
• Interest rates on bonds are start to rise and bond yield-prices drop
• Economic recovery data in the USA is starting to disappoint
• The waves of printed money are failing to keep interest rates at all time lows
• The volatility index has risen sharply in the last few weeks 
• Only the blue-chip stocks have risen recently

Danger: We are well into very dangerous territory now in the USA. A stock market crash could happen any day now. The stock market has been in bubble territory for some time based on a fantacy of continued ultra-low interest rates, continued waves of printed dollar currency, a dollar that has kept its strength compared with competitor currencies only because others have been doing so badly, and an expectation of US recovery and growth.

Sequence: What we should now experience is:

• $3 Trillion of printed money failing to establish any meaningful growth – zero growth or recession  
• Unemployment starting to rise in the USA   
• US stock market declines
• Bond interest rates starting to rise
• Dollar declining
• Inflation starting to rise as the dollar decline
• Gold prices rising sharply over the summer

About to Look Worse: In the USA, it’s really not going to look better then this for some time to come in our view. The US like most western economies is due for a recession - since it's five years since the last one - and oil prices have stayed high. A bond market crash is on the cards. If people sell their bonds and stocks, they will move swiftly into gold – gold prices could sky-rocket very quickly if or when panic sets in.

US Recession: A recession is not priced into the market – stocks prices could easily crash 30% in the USA if a clear recession starts once more. The ability to pay back the $17 Trillion direct debt and $77 Trillion of unfunded liabilities (pensions, military, Medicare and Medicaid) will be called into question if growth evaporates, the dollar will then decline sharply, interest rates rise, inflation rise and gold prices sky-rocket.

Gold: We believe it is prudent to have a significant proportion of your wealth in physical gold bullion at this time, with some in silver, to hedge against this crash.

Property: prices could go in either direction – property is likely to lose value against gold but could stay the same – possible some lose value against the US dollar currency, simply because if interest rates rise, people will find it:

• Very hard to pay their interest charges
• Mortgage lending will become very difficult
• Foreclosures will become more prevalent

All eyes should now be on the US dollar (decline or not), bond prices and interest rates.

US Bond Market: The US bond market is likely to go pop very shortly - its the end of a 30 year bull market – and this mirage of safe haven stability will go up in smoke. With it, any lasting confidence in the dollar. As the dollar declines, waves of dollar debt should flood the streets and drive up inflation. In this situation, property prices could actually rise in nominal terms but drop in real terms as the debt is inflated away.

Mirage: Let’s be quite clear – there has not been a US recovery. The Fed claims there is a recovery because:

• Stock market prices are up – but this is because of trillions of free-cheap dollars
• Property prices are rising – but this is because of trillions of free-cheap dollars, suppression of interest rates and the Fed buying its own debt
• Growth as inflation stays low – but inflation is manipulated approx. 3% lower than it should be – hence growth of 2% is actually a recession of -1%
• Payrolls rising – but this is because people are taking many low paid or part time jobs
• Unemployment is dropping – but this is because people have given up looking for work

The whole US economy is a sort of Fed and Wall Street created mirage - supported by the US Administration – the deficit stays at about 5% of GDP and without the printed dollars, the financial system would collapse. The US economy is propped up only by confidence in the dollar – but this will evaporate once the true extent of the phoney economy becomes transparent. This is about to happen.

Shale Oil and Shale Gas:  What’s saved the US economy in the last 2-3 years has been huge quantities of shale gas and shale oil – without this, the bond markets would have collapsed years ago. But this boost in oil and gas has only delayed the inevitable. The Fed has no exit strategy from QE3 or unlimited QE. The debts are just too high. The only thing they can do once growth is seen to have disappeared is to keep printing until the dollar collapses – to pay debts in a devalued currency.

Collapse: Our feeling is – the collapse is getting very close – we cannot prove it and really don’t know precisely when the collapse will be with any certainty. But what we would say is – with gold at $1380/ounce and silver at £22/ounce - you will never get a better opportunity to buy these physical precious metal assets at rock bottom prices. They look like real bargains to us. The whole charade is about to end. Time to stay well clear of the stock market, get into physical bullion and be very careful with property purchases – as the turbulence is just about to start again.

Japan has started a huge printing binge for the last 6 months – to fight back against US printing – and currency wars started some time ago. Our view is that Japan and US will be hit hard over the summer as confidence evaporates in their respective currencies together. The Japanese debt levels are gigantic, they are suffering from increasing energy costs, a declining Yen and lack of reform. Simply printing more Yen will not help solve any of their problems. The USA and Japan together are about to look very stick in our view. The Japanese currency printing is something relatively new - from Dec 2012 onwards - and was not really predicted in mid 2012. The extent of printing is colossal. It's almost as if they are competing with the Americans - and it will help to boost US printing as both compete to keep their currencies at values that stimulate exports. But eventually, we think there will be some form of currency collapse for both Japan and USA - partly because of the gigantic debts, degree of printing, heavy social regulation and miserable growth. As exports slow to places like China and energy prices remain high, balance of payments will deficits will increase and currencies decline.   

We hope this Special Report has helped you frame which direction the US economy is heading – and given some insights for your property investment portfolio. If you have any questions or comments, please contact us on enquiries@propertyinvesting.net

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