The Great Reset, You and Your Money

In the November client newsletter “The You May Not Know Report”, I wrote about a proposed “Great Reset”.  The World Economic Forum, a group of world elites, meets each year in Davos, Switzerland to discuss and purportedly solve the problems facing the world.  The Great Reset is an openly stated goal of this group.  (Reference:  https://www.weforum.org/agenda/2020/06/now-is-the-time-for-a-great-reset/)

I would encourage you to read about the goals of this group on your own and do your own research.  For purposes of today’s discussion, here are some excerpts from the World Economic Forum’s website regarding the desired goals of the “Great Reset”:

The Great Reset agenda would have three main components. The first would steer the market toward fairer outcomes.

Moreover, governments should implement long-overdue reforms that promote more equitable outcomes.

The second component of a Great Reset agenda would ensure that investments advance shared goals, such as equality and sustainability.  this means, for example, building “green” urban infrastructure and creating incentives for industries to improve their track record on environmental, social, and governance (ESG) metrics.

The third and final priority of a Great Reset agenda is to harness the innovations of the Fourth Industrial Revolution to support the public good, especially by addressing health and social challenges. During the COVID-19 crisis, companies, universities, and others have joined forces to develop diagnostics, therapeutics, and possible vaccines; establish testing centers; create mechanisms for tracing infections; and deliver telemedicine. Imagine what could be possible if similar concerted efforts were made in every sector.

Admittedly, I view the world through the lens of liberty and honest capitalism.  I also readily acknowledge that there are problems with the system of capitalism in which we now find ourselves; namely a playing field that is not level due to special government favors offered to certain businesses and specific industries.  However, the socialistic goals of the World Economic Forum which can only be achieved through additional massive spending programs funded by freshly created currencies won’t solve any problems; instead it will enrich the elite who may end up paying nominally higher taxes while the working class suffers.

That is what the current Federal Reserve system does.  Pursuing the goals of “The Great Reset” as described by the WEF would only further exacerbate the wealth gap.

Past radio show guest, John Mauldin, in his newsletter “Thoughts from the Frontline” commented on this proposed “Great Reset” by the WEF.  Here is an excerpt from his letter this past weekend (emphasis added) (Source:  https://www.mauldineconomics.com/frontlinethoughts/the-great-reset-vs.-the-great-reset):

WEF calls this effort its “Great Reset Initiative.” For the record, it has nothing to do with my conception of The Great Reset. In fact, I think much of what they propose will make the version that I see even worse. I agree capitalism has gone off track and needs some adjustments, and not just minor ones. The current morass of crony capitalism and lobbying for special government favors is abhorrent. But “revamp all aspects of our societies and economies” sounds ominous. Especially coming from the people already nominally running the global economy.

Furthermore, what they really propose is that we change our lives while Davos Man continues undisturbed, maybe paying a few more taxes but with the brunt of the change affecting those further down the food chain. And, of course, they are not long on specifics.

When you start talking about resetting the educational and social contracts and working conditions, you are talking a radical social agenda. I believe we are going to have to have considerable change in the social structure of this country. That is what the current partisan politics is telling us. Too many people on both sides feel the current “social contract,” whatever you might think it is, is not working for them. Income and wealth inequality are very real. I am not convinced a WEF-style “Great Reset” is the answer.

One of the world elites calling for a reset of capitalism is Canadian Prime Minister, Justin Trudeau who recently said this about the reset (Source:  https://torontosun.com/opinion/editorials/editorial-trudeau-sees-pandemic-as-an-opportunity) (emphasis added):

If it wasn’t coming from the horse’s mouth, nobody would believe it.

Prime Minister Justin Trudeau thinks the pandemic is an “opportunity” to enact a reset upon the Canadian economy, one that’s in line with a United Nations project called Agenda 2030 and consistent with his climate change goals.

It sounds like the stuff of conspiracy theories. It sounds like it can’t be true.

But it is.

Building back better means getting support to the most vulnerable while maintaining our momentum on reaching the 2030 agenda for sustainable development,” says Trudeau. “This is our chance to help your pre-pandemic efforts to reimagine economic systems that actually address global challenges like extreme poverty, inequality, and climate change.”

While I would again encourage you to do your own research on Agenda 2030, here are some excerpts from the United Nation’s document describing the initiative (Source:  https://thenewamerican.com/un-agenda-2030-a-recipe-for-global-socialism/):

(Agenda 2030) calls on the UN, national governments, and every person on Earth to “reduce inequality within and among countries.” To do that, the agreement continues, will “only be possible if wealth is shared and income inequality is addressed.”

By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources.

“We commit to making fundamental changes in the way that our societies produce and consume goods and services,” the document states. It also says that “governments, international organizations, the business sector and other non-state actors and individuals must contribute to changing unsustainable consumption and production patterns … to move towards more sustainable patterns of consumption and production.”  

In plain English, this could mean global wealth taxes and more government control, if not outright ownership of the means of production.  History teaches us this never ends well.  For example, ask the people of Venezuela how they fared once the country’s oil industry was nationalized.

While the objectives of eliminating poverty and closing the wealth gap sound noble enough, higher taxes and socialism just make the problems that much worse.

Past radio program guest and former Presidential candidate, Ron Paul had this to say on this subject (Source:  https://www.silverdoctors.com/headlines/world-news/class-warfare-fed-counterfeiting-lockdowns-hammer-the-poor-and-middle-class/)  (emphasis added):

The Fed’s counterfeiting of dollars hits the poor and those on fixed incomes like a sledgehammer. Inflation leads to there never being enough money at the end of the month. To make matters worse, unnecessary COVID lockdowns have slammed middle class small businesses, while crony politically-connected corporations made out like bandits. Free markets and sound money are desperately needed to return to an economic reality that has been lost on America since the Fed was founded in 1913.

Indeed, when reviewing a list of attendees of the WEF 2019 meeting in Davos, one finds most attending are world government and business leaders.  Small, independent business owners are not represented.

While a reset is inevitable, and a planned reset would be preferred, the “Great Reset” proposed by the WEF will only widen the wealth gap and lead to more money printing.  This will lead to another reset.

Dr. Paul’s comment about a return to real free markets and sound money would be essential components in a planned reset in my view.

As I have noted in the past, current financial and economic trends are unsustainable.  Lockdowns make matters worse.  Absent a planned reset with sound money, current trends will only intensify and inflation or hyperinflation will be the inevitable result.

To that end, we have been developing strategies that can be used in the ‘two-bucket’ approach to managing money.  The second bucket in the two-bucket strategy is designed to contain assets that will perform well in an inflationary environment.  While we will be contacting clients about these additional strategies after the first of the New Year, once the dust settles on politics and possible policy changes, we will, in the meantime, offer some of our perspectives and observations relating to these strategies.

For many investors, we believe it makes sense to add to silver holdings at this juncture, particularly on more speculative assets.  We conclude this for two reasons.  One, Standard Charter Bank, an Indian Bank, has begun to aggressively purchase 1000 oz bars of silver competing with JP Morgan.  Standard Charter is paying an exceptionally large premium to spot to acquire significant amounts of silver.  (Source:  https://www.silverdoctors.com/silver/silver-news/jp-morgan-faces-new-competition-in-the-physical-silver-market/)  Two, increasingly, precious metals investors are standing for delivery on their metals which creates additional demand for physical metals.

          As we develop, monitor, and research strategies on both strategic and tactical investments, we like holding some silver as a tactical investment.

Two Economies?

To a casual observer, the economic news is mixed.  Depending on the story one is reading, you would conclude that we are in a severe recession, even a depression, or, on the other hand, we are seeing a quick recovery from the economic fallout from the lockdown response to COVID-19.

Some analysts have reported that the new claims for unemployment benefits are declining which translates into better economic news. 

While initial unemployment claims are indeed falling from their peak, “The Wall Street Journal” reported last week that new unemployment claims were 884,000 (Source: https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-09-10-2020-11599685724).  This from the article:

Unemployment claims were unchanged at 884,000 last week, the Labor Department said Thursday. Claims fell steadily for weeks after hitting a peak of about 7 million in March, but the pace of descent has slowed and claims remain above the prepandemic record of 695,000.

While this level of jobless claims is an improvement, it is far from a healthy job market.

Another area where one finds conflicting stories is housing.  As I discussed in last week’s post, there is a massive movement away from less desirable large cities to more attractive suburbs and rural areas.

Digging into what is taking place in the housing market, you find two stories.

The first story has 32% of all Americans delinquent on their mortgage or rent at the beginning of August.  This from CNBC (emphasis added) (Source:  https://www.cnbc.com/2020/08/06/32-percent-of-americans-had-outstanding-housing-payments-at-beginning-of-august.html)     

As Congress debates what to include in the next coronavirus relief package, almost one-third of households, 32%, owed money for missed rent or mortgage payments from previous months at the beginning of August, according to a survey by Apartment List, an online rental platform. 

Seven percent of all active mortgages are in government or private sector mortgage forbearance programs according to Black Knight a mortgage technology and data firm.  That seven percent amounts to about 3.7 million mortgages.  Two million of these mortgages will have the forbearance programs expire at the end of this month. 

CoreLogic reported that the number of seriously delinquent mortgages (more than 90 days past due) doubled from May to June.

I have predicted that 20 percent of all outstanding mortgages could end up delinquent; these numbers point to that forecast being accurate.

The second narrative one discovers when looking at the housing market is that houses are selling like hotcakes due largely to the migration mentioned above and record low interest rates.  Cheryl Young, a senior economist at Zillow, had this to say on the subject, “Home sales are currently stronger than they were pre-pandemic and show no signs of slowing.  Demand is being fueled by low mortgage rates. We’re also seeing deferred home buying as the economy and housing market pressed pause in the spring.”  (Source: https://www.forbes.com/advisor/mortgages/fall-real-estate-market-mortgage-rates-break-records/)

The median price on single-family homes jumped for the 17th consecutive week with the latest year-over-year number increasing 10.8% from the same period last year.  As Ms. Young suggested, mortgage rates are at all-time lows.  Freddie Mac’s recent Primary Mortgage Market Survey found the average rate on a 30-year fixed mortgage was 2.86% and the average rate on a 15-year mortgage was 2.37%.

The housing market represents the extremes that now exist in the market.  This from “Zero Hedge” (Source:  https://www.zerohedge.com/economics/tale-two-housing-markets-mortgage-delinquencies-spike-450-yet-refis-boom-while-borrowers) (emphasis added):

As we noted last month, the US housing market is reflecting the extremes of the economy right now – between those who can’t make ends meet due to the pandemic, and those who are either still employed, are sitting on a pile of equity, or both.

On one end of the spectrum, you’ve got affluent borrowers locking in record-low rates, while mortgage originations reached a record $1.1 trillion in the second quarter as rates on 30-year mortgages dipped below 3% for the first time in history in July, according to Bloomberg.

What’s impressive is that the quarterly spike in new mortgage originations occurred while under nationwide public health measures that restricted home showings, appraisals, and in-person document signings, according to the report. That said, refi’s accounted for around 70% of home loans issued during the period.

Also notable is that the average loan-to-value ratio is above 90%, as borrowers are having no trouble securing loans with just 10% or less down.

The chart , reprinted from “Zero Hedge” illustrates.

The blue line on the bottom of the chart represents the ratio of the loan amount to the home purchase price.  Notice that it is higher now than at any point in the last twenty years including during prior to the subprime mortgage crisis.  Combine that statistic with a year-over-year price increase of nearly 11 percent and the stage is set for another housing market crash.

The “Zero Hedge” article also had this to say about the delinquencies that now exist among homeowners with a mortgage (emphasis added):

At the other end of the spectrum, mortgage delinquencies are up 450% from pre-pandemic levels, with around 2.25 million mortgages at least 90 days late in July – the most since the credit crisis, according to Black Knight, Inc.

“The money is in the homes and people with college education are still working, but the pain is being felt where people are unemployed,” said Wharton real estate professor, Susan Wachter, adding “Covid-19 will drive an increase in the already high income-inequality gap, and wealth inequality, actually, which is much more extreme.”

A fact that many analysts may be missing is that many homeowners who are employed and who have equity in their homes may be refinancing to get access to cash. 

Finally, on the whole topic of inflation and deflation, one gets two vastly different stories depending on which story you’re reading.

“Bloomberg” reported that core inflation, measured by the very flawed Consumer Price Index soared more than expected, rising 1.75% year-over-year.  (Source:  https://www.zerohedge.com/markets/us-consumer-prices-accelerate-august-used-car-furniture-prices-spike-rent-inflation-slows).

Breaking down the more specific price indexes, one finds deflation and inflation.

The index for used cars and trucks increased by 5.4% in August.  That was the index’s largest monthly increase since 1969.  The index for household furnishings increased .9% which was the largest monthly increase since 1991.

Interestingly the prescription drug index declined .2% while the index for new vehicles was unchanged.

Finally, the education index decreased .3% which was the first decline in the history of the index which dates back to 1993.  We look for this trend to continue as education costs, driven by easy credit, have bubbled and are now set to burst as many institutions of higher learning are attempting to charge ‘normal’ tuition rates for remote classes attended by students that are under lockdown.

Economic extremes will continue as the Fed continues to pursue easy money policies that will result in inflation where demand exists.  Deflation will occur where demand wanes.  Standards of living for many Americans will decline.

Dr. Ron Paul, former radio guest on my radio program, wrote this last week (Source:   http://www.ronpaullibertyreport.com/archives/the-feds-brilliant-plan-more-inflation-and-higher-prices) (emphasis added):

 Once the lockdowns end, the Fed’s actions may lead to a short-term boom. However, the long-term effect will be even more debt, continued erosion of the average American’s standard of living, and the collapse of the fiat money system and the welfare-warfare state. The crisis will likely be brought on by a rejection of the dollar’s reserve currency status. This will be supported both by concerns about the stability of the US economy and resentment over America’s hyper-interventionist foreign policy.

The question is not if the current system will end. The question is how it will end.

Economic Fallout and a Desperate Fed

As I have been repeatedly forecasting, it is my belief tht the Dow to Gold ratio will eventually fall to two, or perhaps even one.  This would potentially put the Dow at about 5,000 and gold at about $5,000 per ounce.

That prediction seemed radical when I made it 5 years ago and while it may still seem “out there”, it’s now far more realistic.

At the present time, my favorite asset classes are precious metals, cash and highly rated corporate bonds.  Many insurance companies invest their portfolios in highly rated corporate bonds as well.  Given that since the end of March, banks have a zero percent reserve requirement, some financial vehicles offered by insurance companies can be a viable alternative for some aspiring retirees.  Tread carefully though and do your homework.

I would continue to be extremely cautious about stocks at these valuations.  The economy has experienced a huge hit the extent of which is still somewhat unknown.

Evidence is beginning to emerge, however.

In March 3.8% of all US mortgages were delinquent.  That number rose to 7.76% in May, more than doubling in just two months.

This from “Housing Wire” (emphasis added):

The U.S. mortgage delinquency rate rose to 7.76% in May as Americans struggled to pay their bills during the worst public health crisis in more than a century.

The rate rose from 6.45% in April and was 3.39% in March, the month when states began issuing stay-at-home orders to try to stem the spread of COVID-19, according to the report on Monday. Black Knight counts loan in forbearances – meaning they have an agreement with the servicer to suspend payments – as being delinquent, as does Mortgage Bankers Association.

Measured as a number, rather than a percentage, there were 4.12 million mortgages in the U.S. that had payments more than 30 days overdue in May, Black Knight said.

          It’s important to put these numbers in context.  Mortgage delinquencies at these levels are alarming but it’s important to remember that this level of delinquencies has occurred while stimulus checks have been mailed to Americans and while combined unemployment benefits have been around $1,000 per week in many states.  The federal benefit of $600 per week runs out at the end of July.

          When many households cease collecting an additional $2,400 monthly, how many more delinquencies will we see?

I would forecast that a minimum of 20% of mortgages will become delinquent; 30% is not out of the question.

          Real estate prices will be affected.

          Lockdowns imposed as a response to COVID-19 are devastating the economy which was weak going into the crisis.  The full economic effect of the lockdowns remains to be seen in our view.

          There are many industries and institutions that will be even more adversely impacted than they already have been.

          Higher education is just one of a myriad of examples.

          Tuition rates, already in a bubble due to massive amounts of credit extended to students (about $1.5 trillion), will have to come down and as they do, many colleges and universities will cease to exist.

          This from “Campus Reform” (Source:  https://www.campusreform.org/?ID=15129) (emphasis added):

Scott Galloway, professor of marketing at the New York University Leonard N. Stern School of Business told Hari Sreenivasan on PBS’ “Amanpour and Co.” that many colleges are likely to suffer to the point of eventual extinction as a result of the coronavirus.

He sets up a selection of two-tier universities as those most likely not to walk away from the shutdown unscathed.  During the pandemic, wealthy companies have not struggled to survive.  Similarly, he says, “there is no luxury brand like higher education,” and the top names will emerge from the coronavirus without difficulty.

“Regardless of enrollments in the fall, with endowments of $4 billion or more, Brown and NYU will be fine,” Galloway wrote in a blog post. “However, there are hundreds, if not thousands, of universities with a sodium pentathol cocktail of big tuition and small endowments that will begin their death march this fall.” 

“You’re gonna see an incredible destruction among companies that have the following factors: a tier-two brand; expensive tuition, and low endowments,” he said on “Amanpour and Co.,” because “there’s going to be demand destruction because more people are gonna take gap years, and you’re going to see increased pressure to lower costs.”

Approximating that a thousand to two thousand of the country’s 4,500 universities could go out of business in the next 5-10 years, Galloway concludes, “what department stores were to retail, tier-two higher tuition universities are about to become to education and that is they are soon going to become the walking dead.”

          The reality is that many families had already begun to question the value of higher education given the costs.  Now, with classes taking place on Zoom, it will be even harder to justify tens of thousands of dollars per year for a degree that costs a lot more than it used to and arguably delivers less.

          In that respect the college and university tuition bubble, funded by easy credit, will likely behave like any other bubble – it will burst.

          The Federal Reserve, in response to the deteriorating economic conditions is becoming more desperate as I’ve discussed here often.

          As noted above, banks now operate with a zero-reserve requirement.  Last fall, I reported to you in this blog that the Fed was propping up the repo market, the overnight lending market between banks. 

          Ron Paul, past guest on my radio program, commented:  (Source:  http://www.ronpaullibertyreport.com/archives/the-federal-reserve-is-getting-desperate) (emphasis added):

In a sign that the Federal Reserve is growing increasingly desperate to jump-start the economy, the Fed’s Secondary Market Credit Facility has begun purchasing individual corporate bonds. The Secondary Market Credit Facility was created by Congress as part of a coronavirus stimulus bill to purchase as much as 750 billion dollars of corporate credit. Until last week, the Secondary Market Credit Facility had limited its purchases to exchange-traded funds, which are bundled groups of stocks or bonds.


The bond purchasing initiative, like all Fed initiatives, will fail to produce long-term prosperity. These purchases distort the economy by increasing the money supply and thus lowering interest rates, which are the price of money. In this case, the Fed’s purchase of individual corporate bonds enables select corporations to pursue projects for which they could not otherwise have obtained funding. This distorts signals sent by the market, making these companies seem like better investments than they actually are and thus allowing these companies to attract more private investment. This will cause these companies to experience a Fed-created bubble. Like all Fed-created bubbles, the corporate bond bubble will eventually burst, causing businesses to collapse, investors to lose their money (unless they receive a government bailout), and workers to lose their jobs.


Under the law creating the lending facilities, the Fed does not have to reveal the purchases made by the new facilities. Instead of allowing the Fed to hide this information, Congress should immediately pass the Audit the Fed bill so people can know whether a company is flush with cash because private investors determined it is a sound investment or because the Fed chose to “invest” in its bonds.


The Fed could, and likely will, use this bond buying program to advance political goals. The Fed could fulfill Chairman Jerome Powell’s stated desire to do something about climate change by supporting “green energy” companies. The Fed could also use its power to reward businesses that, for example, support politically correct causes, refuse to sell guns, require their employees and customers to wear masks, or promote unquestioning obedience to the warfare state.


Another of the new lending facilities is charged with purchasing the bonds of cash-strapped state and local governments. This could allow the Fed to influence the policies of these governments. It is not wise to reward spendthrift politicians with a federal bailout — whether through Congress or through the Fed.


With lending facilities providing to the Federal Reserve the ability to give money directly to businesses and governments, the Fed is now just one step away from implementing Ben Bernanke’s infamous suggestion that, if all else fails, the Fed can drop money from a helicopter. These interventions will not save the economy. Instead, they will make the inevitable crash more painful. The next crash can bring about the end of the fiat monetary system. The question is not if the current monetary system ends, but when. The only way Congress can avoid the Fed causing another great depression is to begin transitioning to a free-market monetary system by auditing, then ending, the Fed.

          Dr. Paul’s comments are spot on in my view.  His remarks are even more unnerving when one keeps in mind that the Federal Reserve is a private group of bankers.