American Consequences - June 2019

amount of credit has artificially reduced the cost of capital across our entire economy – lowering it to almost zero. It’s as though the Federal Reserve suspended “gravity” in our economy. And not surprisingly, a boom erupted where this credit landed... For example, new-auto sales hit all-time highs in 2016 and have remained at heightened levels even as auto prices get more expensive and more unaffordable for many Americans who cannot buy them without taking on significant debt. Furthermore, capital has poured into higher education. Drive through any major university and you will see plenty of new buildings and construction cranes. Of course, tuition has gone up too... If you graduated in 2008, the average cost for a four-year degree at a private school was about $100,000. That’s expensive, but many folks thought it was worth it. Today, however, according U.S. News &World Report , a four- year degree would cost you about $176,000 in tuition. Has a college education become $76,000 more valuable in the past 10 years? Of course not. All this credit stimulating our economy was fake. Our nation’s problems haven’t gone away. Instead, they’ve grown much larger, which has set the stage for an even bigger collapse in the coming bear market. And so... we return to our first priority of surviving the coming financial storm. The goal of investors during a bear market is, first and foremost, not to lose anything. But in a complex world of paper currencies and

STRATEGY NO. 1 RAISE CASH During a bear market, nothing is more important than cash. It’s not hard to understand the basics of why cash is so important during a bear market. In fact, you could define a bear market as the rising value of the U.S. dollar versus financial assets. Likewise, when commodities... or real estate... or foreign currencies... go through a bear market, what you’re really seeing is the rising value of the U.S. dollar as compared with those other assets. Therefore, the most important factor in determining how successful you can be as an investor during a bear market is simply how much cash you have (and can raise) as asset prices fall. Of course, sitting in cash for too long creates an opportunity cost. So it’s also important to know exactly when market conditions are primed for a major fall. Today, investors aren’t just complacent... They’re more complacent than they’ve ever been in the past 30 years, including the peak of the dot-com bubble. It pays to understand the true economic fundamentals driving the bear market. For the past decade, we have been saying that a new bear market was inevitable because the economic gains made in America between 2009 and today were all part of a “phony” credit boom engineered by our central bank. Since the financial crisis, this immense

American Consequences


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