Financial Contagion Continues to Spread

Last week a major warning signal came out from the UK pension funds.  They alerted financial officials that without immediate monetary intervention the funds would become insolvent, sending a shockwave of epic proportion throughout the entire global market.  It has since come out that UK pension funds were mere hours away from total collapse that would have left most Brits without the pension they have worked their whole lives to build.  This situation rings eerily similar to the 2008 financial crisis when it came out that the entire global financial system would have collapsed in a matter of hours if the U.S. government hadn’t promised a $250,000 deposit guarantee through the FDIC to insure each bank deposit for every American holding over $100,000 in their accounts to stop the bank runs that were taking place.

Further adding to the pension drama was the announcement that the planned 65bn GBP of printing the Bank of England has committed would not be enough.  This caused the Bank of England to add an additional 35bn GBP (totalling 100bn GBP) to their stimulus efforts to help pension funds stay above water.  However, it was announced this morning that pension funds in the UK have warned that if market life support were to end on Friday as planned, there would be further chaos that ensues.  The result: the British Pound continued to plummet, pushing citizens toward silver and gold at a quicker and quicker pace.  If the longest standing fiat in history, the GBP, can die – they all can.

Another area of the global financial system that is firing off warnings to the greater public is the global bonds market.  Historically, government bonds were one of the safest places to park your currency as betting on governments to pay back their debt was pretty well a sure thing.  Especially when they can use the money printers to fund bond purchases and debt repayment to other entities that have purchased government bonds.  However, we seem to be reaching a point where the overall confidence that investors used to have in governments to repay their debts is rapidly waning.  A major contributor to this deterioration of confidence is the rapid increase in government debt itself.  During the 2008 financial crisis the U.S. government had over $6T in debt and the Federal Reserve balance sheet held just over $2T in assets.  This gave them far more runway to do the inevitable bank bailouts through massive money creation.  This time around, the Federal Reserve balance sheet has ballooned to almost $9T in assets with the U.S. government debt over $31T!  To say they are in a tougher situation this time around is an understatement.  This has caused the overarching public to lose mass confidence in governments ability to repay their debts and it has results in one of the largest bond crashes the market has seen to date, with the caveat that the real collapse hasn’t even taken place yet.  Below is a chart that highlights the value of all global bonds together in one chart:


You really do not need to be a technical analysis expert to realize this chart is trending downward in an aggressive way.  Just last week alone the value of global bonds lost another $696bn, while stock losses were in the trillions of dollars.  It is also very important to keep in mind the old adage from Mike Malony in times like these, “wealth is not created or destroyed, it is merely transferred” – that means that as value gets sucked out of one asset, it must go into another.  It is clear there is a rush for cash as the USD continues to gain strength as the Fed tightens, but that too will soon pop.  The dangerous thing most investors do is they chase gains into different asset classes, however, this 99.9% of the time will lead to you missing the true gain in any one asset.  The key is to be early and beat the rush to an asset you know is coming up.  These assets at current times are silver and gold as they have historically absorbed the value that rushed from other assets during financial calamity.  Recognize, it is far better to enter an asset at a low price than to rush in after prices have began taking off – this will ensure you end up with far less protection than if you were early and patient.

For those exercising patience, it appears you may not be waiting for much longer as to start the week we had announcements come out from Jamie Dimon at JPMorgan that recession was 6-9 months away, the UN warned if the Federal Reserve kept hiking rates it would cause other emerging markets to collapse, the IMF warned “the worst is yet to come” and the World Bank capped it off by saying 2023 would be a difficult year with high risks of “danger” for the global markets.

If you wish to avoid the entire incoming financial calamity and sleep soundly knowing your money is also sound – look no further than silver and gold.  While they are not flashy investments, when flashier monetary investments begin to implode, the lustre for silver and gold rapidly returns.  With the 1 oz Gold Button out of the Perth Mint, you not only secure your wealth with gold, you do it in a style not seen very often as these buttons are highly sought after by bullion lovers around the world.

1oz Gold Button