Bill’s Blog | March 30, 2023
I wish I could provide better news, but I will provide an honest appraisal and actions you can take to protect your wealth. I see April & May as high-risk months.
To understand the unfolding chaos of the last few months, we need to look back at 2022 to set the stage. Then, central banks did the fastest rate hikes in history, taking rates from near zero to 4.5 to 5%. I shared last year that the CBs would raise rates until they broke something; that has come to pass. Hundreds of banks worldwide did not hedge their business against the risks of rising interest rates. As we witnessed last week, several regional US banks and Credit Suisse (2nd largest bank in Switzerland) collapsed. I suspect more to come. The Wallstreet Journal reported last week that over 180 US banks are in danger of default. To put this in perspective, the US has over 4000 banks. US banks lost over 675 Billion with the rapid rate rises! Many banks in the EU are also in trouble. Japan is also a basket case. For now, the Canadian banks have faired better, and only time will tell how well they managed risks as this story unfolds.
The second consequence of CBs is the severe problems in the bond markets, causing massive price fluctuations. The bond market is much larger than the stock market, and as this breaks down, significant problems arise. Credit can freeze up, and we could have another 2008 event again. Also, when things are risky, banks tighten credit, making borrowing harder. With restricted credit, this becomes a problem as our system is debt-based.
Third, with over 15 trillion in US debt from emerging markets and the rapid rate rises, I suspect sovereign defaults may occur in the coming months and years. As I have warned many times, there is too much debt in the world. We are at 365% global debt to GDP, the highest debt level in history.
Fourth is the continued high inflation that I and many others warned would be sticky. Food prices continue to be double-digit in Canada and many nations. We have had a temporary reprieve at the gas pump, but as excellent energy analyst Josef Schachter shared in my recent webinar, prices will rise based on many factors as the year unfolds. Please let me know if you want me to send you his recent presentation. Finally, last year we had the largest immigration in Canada’s history (over 1 million people), which has added massive stress to an already severe housing crisis. I am all for well-planned immigration, but when there is no plan for housing, infrastructure or the medical crisis with long wait times (Doctor and nurse shortages), I shake my head at what Ottawa is thinking!
In the 1970s, the last time we experienced high inflation, stagnation, recession, and energy crisis, there were three waves of inflation and high unemployment. It took CBs over a decade to crush inflation; depending on how the CBs play their cards, we could experience similar. Will they all pause soon, continue to hike or reverse course? If they lower rates quickly, expect the next wave of higher inflation. As I have said, CBs are trapped based on decades of poor policies and making wrong forecasts. As a note, the Canadian governments (Fed & Prov) love inflation and have received over 100 billion in added revenues over the last year. With the recent Canadian Federal budget, no surprise, massive deficits (32 Billion) and more tax rises. There is a complete disconnect between the burden Canadians face (debt issues, high inflation, lack of wage growth, and slowing economy) and the current government.
My biggest concern. The longer this war drags out, the greater the danger of expansion and escalation. Putin just placed warheads in Belarus, which is not a good sign—lots of threats back and forth and no sign of a peace deal. As I have warned, we are in a 100-year war cycle, and as I reflect on history and the growing turmoil in multiple places, I fear the next few years will be dangerous to humanity. The US is quickly losing its grip on the king dollar status in global trade. Many countries choose to align themselves with China and the BRICS, and a major war will most likely be the outcome if history repeats itself. Empires do not like competition!
The bond market is signalling a recession. So how will the Fed and other CBs respond? Canada’s central banker has put rates on pause for now. But, on the other hand, the Fed just raised rates another quarter percent. So this whole exercise is a confidence game and a credibility issue (from my perspective, CBs have lost both). The CBs have kept creating these extreme boom and bust cycles for the last hundred years. Change is needed, but the solution of CBDC (Central Bank Digital Currencies), which they are pushing for, is quite frightening. These CBDCs are 100% programable, and if they follow the Chines model, you and I will lose control of how we spend our money! Also, watch out for banks to push for digital ID, a precursor to CBDC.
So what is one to do?
Benefactors of this crisis have once again been gold and silver. Gold has shot up $200 an ounce, and silver jumped a couple of bucks last month. Physical precious metals are one of the best insurance policies you can own to protect your purchasing power and wealth. However, it is not too late if you still have not taken a position in gold and silver. Both metals have significant upside in the next few years as the markets have many risks. Don’t hesitate to contact me if you are interested, as I have helped clients for over 12 years and have a preferred arrangement with one of the top bullion dealers in Canada. I can help clients Canada-wide and in the USA with precious physical metals (consult, help purchase/sell and vault storage).
I like a short list of crypto’s long-term, but cryptocurrencies have gone up fast (70% in the last few months), but they are still very volatile, and unless you are a good trader, I would still hold off. If we have another significant drop in the markets, crypto will follow. I still see Bitcoin at 12K or less in this event.
Canadian real estate in many markets has had extremely low listings and slow sales, which has artificially kept prices from significant drops. Also, approximately 17 to 19% of mortgages renew each year, and many will find the cost of housing will be between $500 to $800 more per month. The increased mortgage costs will be a problem for many owners. Still, housing prices historically are far too high and unaffordable. Be cautious when entering the housing market, as there is still much uncertainty about how things will play out in the coming years.
I continue to help clients add money to GIA’s with a 4.45 to 4.75% depending on deposit size and the high-interest-rate account 4.25% yield. Both are 100% guaranteed (outside of the banking sector) and provide a beneficiary designation to keep your money outside your estate and the added benefit of creditor protection. I also like several other life insurance strategies for clients, depending on their needs. BC clients only. Proper diversification will be critical in this current cycle.
I continue to like many commodities and a select group of private equity deals outside the stock market. I have a referral arrangement with trusted friends in the exempt market. If you are interested, please let me know, and I can introduce you. I have also been sending client money with my trusted friend Mark Taucar, a very experienced and active portfolio manager focused on defence. He will start with 100K of family or individual assets (Cash, RRSP, RRIF, LIRA, and TFSA). I can help clients Canada-wide with my referral arrangement.
So, in conclusion, I continue to see significant risks in the coming months and volatility, and I strongly recommend you become more defensive if you have not already. If you do not have a trusted and knowledgeable advisor, don’t hesitate to contact me, as I provide a wide range of solutions and education for my clients.
All the best,
Bill Westmacott, Owner