Welcome to the Last “Year of Plenty”

21.07.2017 • Switzerland

Henry Bonner – Strategy and Council Letter (Switzerland) –

If you reach retirement age these days, or if you are already there, then you have benefited from an advantage that you should not underestimate …

In the four decades before today, approximately since 1980, we have seen an increase in the value of assets, up and down markets …

On the bond market, stocks have risen since 1981. Look at the graph of interest rates we pay:

When rates fall, the value of bonds climbs … In short, you could have bought bonds at any time since 1981, and you would have made profits of size …

Look at the valuation of these bonds since 1980, according to the Federal Reserve …

You can see that the valuation of assets has increased by about 1,400% …

In other words, you would have multiplied your stake by 14 by leaving it in the bonds … not counting the interest you would have benefited … and that you could have reinvested …

Similarly, in the equity market, stocks rose in France …

Here is the valuation of the assets, in multiples of the GDP of France, calculated by the Bank of the World:

As you can see, the valuation of our stock has climbed about 10 times faster than GDP since 1980 …

In short, if you had done nothing but leave your money in a range of bonds and shares on the stock exchange … without selling during the panic of 1987 … or 1998 … or 2000 … or the crisis of 2008 … then you could easily multiply your money by 10 … or more, especially if you had reinvested your dividends and interest …

In short, our era of prosperity in assets – bond and stock – would have allowed you to build a capital of size …

During the four decades that we have just known, you could also multiply your capital through real estate … you will see in the graph below (in black) the index of real estate in France, published by the Ministry Of the Ecological and Solidarity Transition:

You will see that after price stability between 1980 and 1998, prices went up … the price index doubling between 2000 and today, despite the crisis of 2008 and its impact on real estate in France.

In short, we have experienced almost 4 decades of rising values ​​… in the stock market … in bonds … and in real estate … offering the opportunity for some to build up a significant portfolio during their lifetime …

Of course, nobody buys just when it takes … and nobody knows how to sell stack when the shares have reached their peak …

If you are like most French people … who have their assets divided between real estate, their bank account, their life insurance, shares on the stock exchange, and perhaps gold or metals, then you could Benefit from highs and lows … and your returns have followed more or less the average …

Even if you had hired a stock advisor, studies indicate that you would not have had far-reaching returns in the end.

In the end, when you subtract the costs of an adviser for your finances, the client who entrusts his money to an expert installed at the Defense actually underperforms the futures market …

In short, whatever decisions you have made with your money, you may have benefited from an upward wave in assets, allowing you to benefit in one way or another …

Little do we realize for the moment … but we are perhaps arriving at the end of this period … and in the decades that come, we could no longer benefit from this trend … which allows us to see the value of our heritages Climb from year to year …

In short, we have just known 4 decades of “years of pomp” in the markets …

As the Parable of the Bible explains, after the pomp comes famine …

What will the years of “famine” look like in the area of ​​economics and finance …?

Well, know that most of the French, it seems, is already preparing for this kind of scenario …

According to a study by the Legg Mason Group, most French people give up their savings in investment products, for fear of needing cash in the future …

You did not expect to learn that most French people remain in “defense” mode since the crisis of 2008 …?

… despite the fact that our state bank, the ECB, claims to have fixed the situation … and to have put the train back on the rails …

On the other hand, Janet Yellen, who heads the Fed – the equivalent of the ECB in the United States – said she did not expect to experience any other crisis during her lifetime.

If Mrs. Yellen believes in it … should not we also trust …?

After all, with all the tools at her disposal, Mrs. Yellen herself could make sure that a crisis does not happen … right?

Well, for now, most of the French, it seems, continues to doubt … although on the surface, everything seems “in order …”

Since the 2008 crisis, our stock market shares have only risen steadily … and on Wall Street, we are constantly learning that the Americans are breaking all records … with profits and valuations in Stock market still rising …

Yet … you may also feel that something is wrong … at least not quite … and that you should not totally rely on what the Fed says, or Wall Street, or even experts from the City of London or the Defense.

After all, every time Wall Street jubilates, a crisis seems to occur shortly after …

Do you remember for example the excitement for Japan’s actions in the 1980s …? Do you remember how Japan was to become the # 1 power of the world …?

Do you remember how Internet actions should go up forever … just before starting an unprecedented fall …?

And then, remember the craze for real estate that packed the markets just before the collapse of 2008 …

Could it be that we are at the dawn of something of this sort … seeing it past … if the experts are wrong again …?

Of course, if you were one of the experts, you would be well advised to ignore the danger that might be found nearby …

Would not you like to have their work …?

… allowing you to collect premiums just by investing the money of your customers in a panoply of assets … which climb from year to year … without you have to lift a finger …?

Ask yourself what would become of all these experts in the case of a “famine” like that which could occur in the markets …

Do you think that most people will continue to entrust their money to them while they see their yields collapse …?

Do you think these experts will continue to be able to afford their sports cars … and their luxury apartments in the heart of Paris …?

Of course not…

As a result, you can imagine that most of these experts prefer to forget that a major threat is hanging over their business … that they only manage to collect their premiums year after year because the markets – and the assets of All kinds – have only been climbing for 40 years …

In truth, almost no one can tell when exactly our era of “pomp” will come to an end … but we know in any case that the situation today depends on stock market upwards … bonds Higher … and lower interest rates …

My intention is not to make you think that you should withdraw your money from the bank … or stock markets … at all costs, or sell all your bonds and go somewhere in the country, away from it all.

On the other hand, to tell you the truth, we are on the verge of major changes … we will have a world more like the depression situations we have experienced in this country – just after the Second World War Government rationed basic goods), or after the 1929 Crash …

We have experienced situations in this country where real estate is no longer growing … and, as a result, builders stopped working … you had fewer and fewer homes built … and you had fewer and fewer purchases And consumption … you had households looking to save at all costs rather than spend … in order to have food to eat …

Meanwhile, you had factories closing their doors … and leaving their employees to the tile … while on the shareholders side, the magnitude of the losses they were suffering compelled them to block their funds … and to try to repatriate their loans …

You may not believe it … but the United States War of Independence against England – in which France played a major role – began after the massive repatriation of debts by the British Had just suffered the bankruptcy of one of their banks … and tried to raise taxes on trade with the colonies at the same time.

In short, when you suffer a loss of scale in the field of banks, you can quickly destabilize a situation …

Here in France, you will agree that our country already has “tensions” beneath the surface … which, it seems, are just waiting to explode at any moment … be the “difficult” areas in The suburbs … or the quarter of young people who are unemployed … or the hundreds of thousands who get allowances without ever working …

In times of difficulty, when the government suddenly has to lower its support for the population because it can not afford it, then you can trigger a mess … something like the turmoil between 1789 1800 …

As for what the government must do to resolve the situation, think again … Our state does not have the capacity to help things …

You may have heard that the state has put an end to the crisis of the 1930s by massive intervention … with increases in taxes on wealth … and programs of work and hiring by the State …

Well, imagine that this interpretation of history does not describe reality at all …

In fact, the government started its programs to support the economy after the crisis hit bottom … and that it has already begun to resume–

Indeed, state intervention – far from helping the situation – has only slowed down the return to growth … and this intervention has produced far-reaching consequences – particularly in Germany – where State, to put people to work, control prices, and devalue the currency, have driven the country more and more into a slump that led to the rise of the Nazies …

Now, at this very moment, the government is making the same mistake … with a major intervention in the economy … and in our finances …

You may already know that the government represents 60% of the economy in France … a figure that has been rising since the 1970s … period when the state accounted for about 40% of the economy …

You have in it the companies that the state owns – such as EDF, Areva, SNCF, or Airbus, for example … as well as all the expenditures on civil servants, teachers, or French medicines …

Realize that our leaders are also issuing more and more debt … and that this debt is circulating in our economy, infiltrating the assets of banks, insurers, and companies …

Our state bank, the ECB, promises to support the value of these debts … to such an extent that the government believes it can still issue … without fear of breaking its obligation to repay …

Because of the ECB’s hand in the game, we hesitate to say that bonds – and stocks – will collapse every time …

After all, when you are the ECB, you can create as much money as you want … and nothing prevents you from buying bonds, paying the debts of states, or even buying shares Stock Exchange…

You may be aware that Japan already buys shares on the stock exchange through the Bank of Japan … and that the ECB buys bonds issued by companies, allowing them to access forever the funds they need…

What will happen to put an end to this scenario …?

Well, as long as the euro is our currency, the ECB can – legally – administer its care on the economy … even if the “sick”, our economy, suffers …

For the ECB to lay down their weapons, we would need the euro zone to abandon the euro, or to start using an “alternative” to the euro – like the dollar, or the Yen …

We have seen this kind of scenario in countries like Zimbabwe in the 1990s, or Venezuela these days – where people are looking for dollars to protect their savings …

Here in France, given that the inflation rate hardly reaches 1%, we are not going to see the ECB stop working right away … not before the situation is much more to the rout …

So, given the state of affairs, should you invest thoroughly in the stock market anticipating an upward explosion …?

Will we see the ECB announcing the mass buying of shares of companies to support them …?

Well, that kind of scenario could happen – we saw it in Japan.

Yet, even with the ECB behind, will bonds continue to grow forever …?

Can they …?

Well, already, we are beginning to feel the eddies that should worry you …

See, our economy is not growing … at least not in the proportions we would need to reduce the size of the debt … or so that the ECB can begin to reduce the size of its assets …

Meanwhile, the equity market is starting to pitch … with markets now focusing on rising corporate profits in the last quarter of 2017 to justify the rise in prices …

What do you want…?

When we can no longer rely on support from the ECB … nor from the State … nor from the IMF …

What will we do in this case …? What will happen to the country where we live …?

You may imagine that the stock market could plunge … even see that the value of your home would drop …

Are you thinking about the possibility that your bank will no longer open …? Wherever your local supermarket will stop serving you …? That you go to the pharmacy but will find that they have no stocks, because they can not pay their suppliers …?

What will you do to move when the petrol station has no more fuel at the pump …?

Remember that your supermarket … like your delivery person … or your pharmacist … can only pay because his bank account works … which depends on the assets of their banks …

In the end, it all depends on the ECB and the value of the assets in our system …

We are so used to paying for our shopping by card that we do not know how this system allows us to pay … We believe we have euros in our bank account … but we only have promises … that figures on screens … Which depend on asset markets … which receive the support of the ECB …

Should you do something to protect yourself …?

Some of the experts we observe recommend to have Bitcoin … or put your money in real estate – the “physical …”

We do not know what will happen to Bitcoin in a situation where our bank accounts are no longer working …

We can assume that they would continue to walk … but we would also recommend that you have a little gold … because gold has always kept its value in times of crisis …

As for real estate, you can be certain that real estate would collapse if the market were to fall …

On the other hand, having at least possession of your home could save you some of the problems associated with falling assets …

Realize that many French people hold a mortgage on their home …

Imagine that the value of their housing falls below what they owe to the bank …

You can imagine that, especially when many French people suddenly lose their jobs, many of these credits could be delinquent … pushing the banks to repatriate their loans – or take possession of the housing …

In such a scenario – resembling what happened in Ireland, or cities in the US in 2009 – the value of housing in some places could drop by 90% …

With this kind of deflation in the value of real estate, the bank would stop borrowing …

In fact, this kind of thing could quite possibly represent the final blow to the whole system – for banks, insurance companies, and defense institutions where experts work …

To deal with it, the ECB will have to further increase the size of its assets – panicking … to buy back billions of euros from these mortgages …

Imagine the scenario: Macron goes on TV to say that the ECB “takes the situation in hand …” and that the State intends to implement “emergency” measures that will enable them to revive the economy …

You see that more and more people are striking – and paralyzing the cities. You have the feeling that no one in the government – Macron, or Mario Draghi, or anyone else – has any control over the problem …

Once the disaster begins, you feel like you are going down a slope … you go faster and faster …

Sooner or later, you realize that your entire country is no longer as before …

Perhaps the state will decide to buy debts in delinquency, banks in bankruptcy, and even businesses in difficulty …

From what you probably read, we were able to “contain” the crisis of 2008 thanks to this kind of intervention …

Could we not do that kind of rescue again …?

Well, know that the intervention – about 360 billion euros – of the State in 2008, here in France, was only a “drop of water” compared to the problem that is currently looming …

In fact, according to many sources, the system has recovered by then not because the state has intervened to buy banks in difficulty, but because the ECB – like the Fed and the Bank Of Japan – have reduced interest rates to the bottom … which has resulted in inflating the value of the banks’ assets … saving many of them from bankruptcy.

For others, the system was not even in danger of collapsing in 2008 … and the intervention of the State was nothing but a “gift” to banks …

According to an expert in the matter, David Stockman, the banks – or at least the system itself – was never involved in 2008.

According to Stockman’s research, bank clients themselves were never in danger of their savings disappearing.

Why did the state banks intervene so as to “save it”, if the system was not in danger …?

Well, because of the relationship between bank executives and state-owned banks – especially the Fed – that allowed banks to take advantage of panic, and the media, to get money from the government, And to use them to extend their margins.

Of course, if the banks would have gone bankrupt without the assistance of the state – we can not know …

On the other hand, we know that everything that has taken place since 2008 has put France’s economy on a path that leads to disaster …

We have almost doubled our debt … We have more unemployed than before the crisis … and today we have stock market valuations – and bond values ​​- that are reaching record highs … while the economy itself does not Still does not …

What can we expect …?

First, we could see the value of the euro falling … inflation climb … and some credits start to pose problem – because rates are rising …

After three or four months of this kind of scenario, we could see a “cash freeze,” as we began to see in 2007, when BNP Paribas froze some of its investment funds … citing the “lack of Cash in real estate. ”

In my book, “The End of France: Your Survival Plan,” you will find the original explanation of our system – and the “flaw” in it – that goes back to 1971 and the end of ‘Gold standard under Richard Nixon …

You may not know, but France played an important role in the end of the gold standard … because France held dollar-size reserves …

We had accumulated them since the Marshall Plan and the expansion of trade in the 1950s and 1960s …

In 1970, with the US wars in Korea and Vietnam, the dollar was beginning to show signs of weakness … and the bankers here in France saw that the United States could at any moment revoke their promise of ” To exchange gold for gold

In short, the United States did not have enough gold to meet the gold standard … and we tried to get rid of our dollars before it was too late …

In August 1971, the government of Pompidou sent a warship to the port of New York, in the United States, filled with dollars, to exchange them for their gold equivalent …

The same month, President Nixon announced the end of the redemption of the dollar in gold … ending the system of the gold standard once and for all …

After the end of the gold standard, the US government accelerated the pace of its debt issuance … taking Europe and Japan in the same current …

Truly,

Henri Bonner

-Read more at www.lettre-strategie-conseil.com (French)-

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