Nothing Is Real In Markets: We Are Seeing a Sucker’s Rally In Stocks

“I believe investors are focusing too much on the short-term movements in the precious metals. Gold is up seven times in 13 years, and it’s likely to go up much more than seven fold in the next 4 years.

So the fact that we’ve consolidated near the highs for 17 months is only positive. That will generate massive energy for the next move, and that move is coming soon. So instead of looking at the short-term, we must step back and analyze what’s actually happening in the world.

My conclusion is that nothing is real....

Just look at the stock market. For a few months I predicted in these interviews that we would see new highs in stocks, and this is exactly what is happening. But this is a sucker’s rally. It will draw everybody in and we will see new highs before we see a secular bear market starting. That bear market will last for many years. 

This rally we’re seeing now has many signs of a bubble. Margin debt is at a high, and mutual fund liquidity is at a record low.  So this rally isn’t real, it’s a rally based on QE and money printing. What we are seeing now is exactly what we have seen in many hyperinflationary economies like the Weimar Republic and Zimbabwe. Initially stock markets surge before they collapse along with the economy.

The next major market which is unreal is the bond market. This market is totally manipulated by governments as they set interest rates at zero and then buy their own debt. The Fed holds over 30% of the 30-Year Treasury bonds which have been issued since 2009. The Fed also holds 29% of the 10-Year bonds.

Even worse, in February of this year the Fed will buy 75% of the 30-Year bond auction. Well, as I’ve said many times, you can’t issue unlimited credit and have zero interest rates. Eventually the law of supply and demand will prevail, and will always prevail in the long-term. 

So rates might stay low for a while and remain under pressure as investors begin to sell the stock market after it begins to decline.  But when the dollar starts falling, and it will fall, it will eventually collapse along with bonds. This will lead to much higher interest rates. I know many are convinced rates will remain low as long as there is QE, but I have to disagree.

Another unreal market is the property market. It’s based on massive credit creation and artificially low interest rates.  The property market is still overvalued in virtually all countries, even in places like Spain and the US where it’s down 30% to 50%.  New home sales in the US are currently running at a rate of 400,000. Well, 400,000 is the same level it was in 1967, and that was back when the US population was only 200 million.

If we look at GDP, it’s not real either. GDP would be negative without the massive QE and credit creation we’ve seen.  But even with this, credit expansion is what is fueling GDP. However, GDP is still not going up. It shows how weak the economy really is.

What I’m saying is we have a US and world economy with no foundation. The whole world rests on an extremely fragile house of printed paper money. This cannot and will not prevail. It simply cannot provide a solid base for a sound economy which can recover.  So the world economy will not recover. Just look at the US debt.  The debt, including unfunded liabilities is now $86 trillion. Look at that debt vs a $16 trillion GDP.  It’s totally unrealistic that the US can ever repay the debt of $86 trillion in today’s dollars.

Sadly there will be an end to the illusion that we are living under now, but before that time there will be more money printing as governments desperately try to kick the can down the road. This is why the next phase will be hyperinflation.  I think this hyperinflation will start in 2013.”

Greyerz also added: “In my view it’s absolutely critical for investors not to be seduced by a rising stock market or information from the mainstream media that we are on the road to recovery. Nothing could be further from the truth. We are on the way to perdition.

We are on the road to reality, but this reality will certainly be one where a large part of the world’s population will suffer.  For the privileged few that have savings such as gold and silver, these metals will continue to reflect the destruction of paper money. But remember, precious metals must be held in physical form and outside of the banking system.”