A few weeks ago, I received a call from one of my favorite and most successful American clients. In his very matter-of-fact and Texan way, he told me that he wanted to set up his personal “Swiss gold credit line”; he used this very term. Like you, I wasn’t entirely sure what he meant by it. However, the conversation that followed was as much illuminating as it was fascinating. More than that, it resulted in a uniquely simple, but also uniquely effective setup that we have jointly implemented.
The conversation roughly went something like this:
“Frank, we’re headed for a perfect storm and I’ve been waiting for this moment for a long time. Instead of getting crushed by what lies ahead, I want to adjust my positions and make sure we benefit from it.”
“Back in 2008, I was heavily invested in real estate. I remember how, as my collateral dropped, the banks came knocking on my door. Fortunately, I had liquidity, so I did not become one of the many unfortunate foreclosure victims. But I still remember swearing that I would never again be dependent on banks for credit in the future.”
I asked him what he had in mind instead. He simply replied: “Financial markets - stocks and bonds and real estate - are all headed for a bear market. China is running out of steam and the global economy is slowing down. A lot of companies are already feeling the pain. The markets are only now beginning to suspect how treacherous the next few years will be. So, I want to position myself before they fully realize just how grim the situation really is.”
“Do property and stock prices seem to you like they might be reaching a peak? That’s because they are! And if so, what else can we invest in? Well, here’s what we’re going to do: I want to buy gold and set up a Swiss Lombard credit line against that gold.”
And that is exactly what we did. My client now holds a (large) stack of 1-kilogram bars of gold and 5-kilogram bars of silver in Zurich. Through the services of a Swiss bank, we have arranged for a Lombard credit with the gold as collateral. The interest terms are incredible. Thus, as gold starts moving up and other assets lose value, my client will be able to keep his gold but make use of the liquidity of his low-interest loan to buy real estate and stocks as opportunities arise.
The simplest plans are generally the best!
The perfect storm ahead
You might be asking: “What perfect storm?!?!”
If so, you need to do your homework and turn off your tv… You are being “bamboozled” by the mainstream noise and all the self-soothing “expert” voices that repeat “Everything is fine” in tandem and ad nauseam. Everything is not fine…not by a long shot! A serious crisis, long in the making, is approaching its boiling point and sometime in 2019 or 2020 it will be arriving with a vengeance.
What will the trigger be? I don’t know and it hardly matters. It could be a lot of things. Similar to a mountain side with lots of snow piled up, the trigger for an avalanche could be many things – another skier, a strong gust of wind, a slight change in temperature, or merely one too many snowflakes falling on a snowpack primed and ready for disaster.
Financial conditions tightening rapidly
Bloomberg Financial Conditions Index (FCI), average of US, EA, UK and AXJ
Source: TS Lombard, Bloomberg
The signs are abundantly clear and impossible to ignore anymore. As reflected in the chart above, the financial parameters and conditions that companies see themselves confronted with are deteriorating rapidly around the globe. The Bloomberg Financial Conditions Index (FCI) combines a variety of factors of the money, bond and stock markets to form an index that can be used as an early alarm. You can also see from the chart that the index for the US, the Eurozone, Great Britain and Asia (excl. Japan) is sending a very strong signal. While the index was still comfortably positioned in the positive area until mid-2018, it has now dropped sharply into the negative zone, to lows unseen since the Euro crisis in 2011/2012.
It does not matter what ultimately triggers the crisis. The fact is that the system is primed and ready for one of the biggest crises since 2008, or possibly even since the 1930’s. And no one can really feign ignorance or surprise this time around. The signs are everywhere: mountains of debt; interest rates that are far too low, even negative in some countries; China is slowing down; geo-political tensions are building up; we are seeing an increasingly dogmatic and unpopular EU; stock and real estate markets around the world are sliding into a bearish territory. Meanwhile, gold is quietly gathering momentum and already ascended from the low-$1200’s to $1300.
Let us help you prepare for what lies ahead!
Despite the flashing warning signs, it appears that very few investors are mounting a solid defense for what lies ahead or, at the very least, trying to get out of harm’s way. Even fewer can see the “perfect storm” ahead as the “perfect opportunity” it actually presents. It is during times like these that fortunes are made and legacies are built.
What the storm will precisely look like is not clear at this point. However, as the US government continues to drain liquidity from the global markets and as debt and interest rates continue to climb together, the global economy and financial markets will inevitably crack under the pressure. Stock markets will face extensive losses against gold and silver.
As a result, we will witness another round of stark government and central bank intervention, or at least a hopeless attempt at one. Because this time, contrary to 2008, the “rescue” tools available are very limited and their impact severely weakened. Still, whatever can be done will be done to finance defaults, rescue failing banks, and stave off imploding derivatives, which will once again result in rapidly rising government expenditures, including Social Security payments, imploding pension funds, collapsing tax revenues, etc.
Ultimately, things will morph from a deflationary or stagflationary environment into an inflationary depression, or even a hyperinflation in many economies – both small and large.
As stocks and other financial assets begin their race to the bottom, I have not been this confident about gold’s outlook in a very long time.
In this context, you need to consider creative (but not necessarily complicated) plans to protect yourself and benefit from the crisis ahead. At Global Gold, we have developed several ways to help you make the most of it. Contact me and my team to discuss suitable options and strategies for you.