April 2021 Newsletter: Repo Market and Housing Market Destabilize U.S. Economy; Gold A Sleeping Giant?
We live in strange times, full of both insecurity and opportunity. The Fed is printing free money and the repo market is lending free money with reckless abandon—with all this free capital going around, it's a small wonder why the 10-year Treasury has been in steady decline.
The repo market—the part of the economy that pumps liquidity into circulation—smells fishier than ever. Due to a loophole called rehypothecation, repo borrowers are using money owed to them as collateral for their agreements. This is an extremely precarious situation that could have dire economy-wide consequences if any party defaults on its obligations.
In fact, the hedge funds have caught onto this and are already shorting the 10-year bond market. Right now, there's a very bearish outlook for government bonds due to ultra-easy monetary policies, rampant fiscal stimulus, and a flood of risky rehypothecated repo agreements.
What does this mean for you? It means the U.S. economy isn't on stable footing. Right now, the prospect of an economic crash should be thought of in terms of “when” and not “if”.
To make matters worse, there are currently 3.5 million mortgage delinquincies in the United States. Yes, you read that right. If even half of them go to foreclosure, we'll see 1.75m homes flood the real estate market after the eviction moratorium ends.
We could see a massive correction in the real estate market that could destabilize large segments of the economy. To get ahead of it, consider spreading your wealth across a variety of alternative assets including annuities, precious metals, and cryptocurrencies.
The Silver Lining: Buying Opportunities in Precious Metals
Fortunately, it's not all doom and gloom. The upside is that we're now looking at a rare buy opportunity for gold. If you've been looking for an entry point into the precious metals market, now might be the time to strike. The yellow Is metal is currently at multi-week lows around the $1,700 mark and is due for a price breakout when the U.S. dollar and government bond yields inevitably turn south.
The same is true of silver, which is poised for a breakout year on the heels of President Biden's announcement of a $2 trillion infrastructure project. The solar industry is set to soar as the Biden Administration plans to massively decarbonize the U.S. economy. Notably, the bill includes a 10-year extension of the Investment Tax Credit for solar and renewable energy projects, which has been a boon for the solar industry.
What's good for solar is good for silver since the production of photovoltaic (PV) cells is one of the key drivers of global demand for the white metal. In fact, solar PV panels account for at least 10% of silver demand worldwide. Thanks to President Biden's infrastructure announcement, we should expect to see significant upward price action on the price of silver.
In today's economic climate, precious metals and cryptocurrencies are some of the few stable financial assets available to investors. To defend your wealth against systemic collapse, consider diversifying your portfolio with Bitcoin, Ethereum, silver or gold in your IRA. Get ahead of the market today—before the house of cards comes crashing down.