Regardless of what your religious or nonreligious beliefs are, it's amazing how the free market is truly such a natural thing. The ability for the free market to discover true pricing and solve problems society faces in its most natural form is such an amazing process that, without any intervention, would work itself out.
The government has attempted to manipulate the free market for years by providing services and manipulating consumer buying patterns that alter the hand of the free market. It can be said that everything has been manipulated and altered by the government. At the moment, nothing is priced the way the free market would price it – and I mean nothing.
Arguably, the most important tool in our economy is something that the Fed meets regularly to decide what the price of it is going to be. What I'm talking about is money. This is the ultimate form of price manipulation, and the free market has not been able to naturally price discover.
On December 16th, we had a rate decision that will set the tone going forward for what to expect in the coming years. We've seen the Federal Reserve meet now for 9 years without a rate hike, and it's major news that they are now raising rates. The Fed funds rate has been raised 25 basis points, and is now at 0.5%, up from 0.25%. They are getting rather bold with their lingo, forecasting an appropriate rate of 1.375% at the end of 2016. This implies four quarter-point increases in the target range next year, which I don't believe will be good news whatsoever, no matter how you look at it.
What this is showing is a message that increasing systemic leverage is over. The stock market thrived every time there was QE, and there was an announcement of lower interest rates. In fact, for a while, the market would thrive each time bad news was reported because it ensured more stimuli. This is all coming to an end, and we are seeing the effects of the recklessness burst at the seams.
As I said previously, the free market has a very natural dynamic, and will ultimately work itself through the manipulation. These bubbles can only go on so long before the free market bursts, and the sad thing is that if untouched, the bursting would have been much less extreme, with potential to grow stronger with more fundamentals. We've seen the major bubble bursts in the economy in the past, and we are on the verge of what will be the bubble burst 2.0.
The end of the monetary experiment is upon us. When you have central banks going as far as implementing negative interest rates to stimulate growth, you know it's beyond repair. The free market will break its way through and correct the major imbalances that are being seen in the world today. This whole business of raising rates is simply a hope and pray moment for the Fed.
2016 Will be Extremely Interesting
Precious metals will be a major component you are going to want to have in your portfolio for profit and insurance. But understand this: a contraction in the system is inevitable, and many people don't like to hear it, but cash will be another component and part of what you are going to want to have as dry powder during the reset. We know the U.S. dollar will not be king forever, but during the correction of the market, I'm almost certain the U.S. dollar will actually strengthen against most other asset classes as the world experiences another liquidity event. The simplest way to put it is when everything is in panic mode, selling, your dollars will buy you more at that point than they will today.
This is very much a hedged approach to enter what is yet to come, because you will have your precious metals in the event of a loss of faith in the currency, and dollars if we do initially see deflation before major inflation.
I will keep you posted. Be sure to visit our interviews page to listen to some of our latest guests, who have been providing some major insight on what you can expect in the coming months and years ahead.