Tag Archives: Fed

A Hopelessly Corrupt Financial System Plus Historic Bubbles – Got Gold?

“At the parabolic top of every financial bubble, thrilled investors lose their tether to
reality, and as the price of the speculative instrument rallies ever higher, investors’
expectations for additional price appreciation inflate ever more. Whether its Cisco Systems at a trillion-dollar market value, Qualcomm at $1000 a share, Oil at $200 a barrel, Bitcoin at a million dollar a piece, or Tesla at $7000 a share, these far fetched price fantasies are the fuel with which bubbles, and their beneficiaries, attempt to sustain themselves.

To the chagrin of the bubble chasers, history is categorical in this regard, the combination of a parabolic price move, a hype narrative, and the proliferation of wild price projections, is highly indicative of a topping bubble and an impending price collapse. Of course, Tesla shareholders will dismiss this article as irrelevant since history count little in the eyes of those who believe their company to be at the forefront of a new transportation and business paradigm.” – Nawar Alsaadi, “Is The Tesla Bubble About To Burst?”“Is The Tesla Bubble About To Burst?”

The Fed has re-inflated the biggest stock and asset bubble in history after the previously biggest stock bubble was punctured in March. Today the Fed will begin buying junk bond/leveraged loan ETFs using Blackrock as its front. There’s two obvious problems with this. First, how does this help the economy?  The money printed and used to purchase the ETF securities will never flow to the companies issuing junk bonds. Ask United Airlines, which had to abandon plans to raise a couple billion in the junk bond market after the market rejected its attempt to issue 11% coupon bonds.  Why didn’t the Fed just buy up that issue? It’s an odd-lot compared to what it’s printed and thrown at the big banks up to this point.

The second problem is Jay Powell’s conflict of interest. Powell has an $11 million equity stake in Blackrock. For its riskless efforts in buying ETFs for the Fed, Blackrock will be paid $15 million.  And guess what? The taxpayers are on the hook for the money the Fed prints and transfers to ETFs and to Blackrock when the trade goes bad – which it will.

“A recurring feature of a bursting investment bubble is the culmination of absurd statements and assertions by an otherwise seemingly reasonable individuals right around the parabolic top of such phenomena.” (ibid)

Shopify (SHOP) closed at an all-time high yesterday. SHOP now sports the largest market cap on the Toronto Stock Exchange.  SHOP didn’t start filing SEC financials until 2015. But going back to at least 2013, SHOP has yet to produce an operating profit.

The clowns on Wall Street and the financial media gushed over SHOP’s Q1 “blow-out earnings.” There’s just one glaring problem with that assertion.  SHOP didn’t even come close to anything that resembles “earnings.”  SHOP’s net loss before taxes more than doubled to $60 million from $24 million in Q1/19.  It’s operating loss also more than doubled to $73 million from $24 million in Q1/19.

EVEN IF you add back the non-cash expense from stock compensation, SHOP’s “adjusted” operating loss increased over 400% to -$20mm from -$4.6mm.  SHOP’s operating expense margin jumped 300 basis points to 70.2% from 67.5%. A lot of that is probably the extension to new customers of the free platform access beyond 90 days. This horrible financial performance is reinforced by the fact that insiders are dumping massive quantities of shares. The time from vest to sale happens so quickly one might think the share certs are infected with coronavirus. In fact, two days after SHOP reported, insiders unloaded another flood of shares.

SHOP now trades at 52x trailing sales and 28x book. Its trailing P/E is infinite (i.e. no earnings to use in the denominator). Wall St./ Bay St. shills are projecting a small net income for 2020. There’s just one problem with this – even the Company has withdrawn guidance. In other words, the “analysts” are merely making shit up.

Eventually the gap between SHOP’s valuation and reality will converge. Those who rented the shares to sell at a higher level will be burned badly. Those holding SHOP shares because “it’s a new economy and it’s different this time” will watch the value of their shares sink well below their cost. Want an “expert’s” view on this?  Ask Bill Miller (@B3_MillerValue) how quickly he ended up losing money for the investors in his Legg Mason Value fund in 2008. His fund, after 15 years in a row of beating the SPX fell below its value at the start of the 15-yr run.

“It’s all so openly corrupt but once again a smashing of gold couldn’t last more than a day.” – Chris Powell, GATA Treasurer

There’s a way to protect yourself from the interminable corruption at the Fed, Wall St and Capitol Hill. Move a large percentage of your investible cash into physical gold (and silver) – not GLD, not a gold investment account – that you safekeep yourself.  Gold has run up 16% since March 19th and 41% since May 22nd.  If the SPX put in a performance like that, they would be doing on naked cartwheels on CNBC, Fox Business and BloombergTV.

Fed Lies And Money Printing: Rocket Fuel For Gold

For central banks, monetary inflation is everywhere the solution. Bank rescues, payment chain failures, the furloughing of millions of employees, helicopter money to bail out whole populations, money to bail out governments, money to support all categories of financial assets: the list is endless in scope and infinite in quantity. The survival of the global financial system is at stake. If it survives, state-issued money will have been destroyed. But then what is the point of owning financial assets valued in valueless currency?

While this process of monetary destruction would have reasonably been expected to evolve over time, the coronavirus has accelerated it. The fate of the $640 trillion derivative mountain recorded by the Bank for International Settlements is sealed and will be settled through bank bankruptcies and state-directed elimination. – Alasdair Macleod, The Looming Derivatives Crisis

Phil/John Kennedy hosted John Titus and me to try and untangle The Big Lie that is the Federal Reserve and the real reasons behind the Fed’s massive money printing program:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

The Fed – Kicking People When They’re Down

“You [the public] are the sucker. Your role in the Federal Reserve System is to absorb losses [on the crappy assets the Fed buys off of bank and hedge fund balance sheets]…The Fed is there to facilitate your absorption of those losses and that’s going on right now…the taxpayer is going to eat the losses – not the bankers who will have already been paid to help the Fed collect the bad assets.”

My good friend and colleague, John Titus of Best Evidence productions, uses source documents from the Fed to explain how the Fed and the member banks are going to shift the enormous losses on bad credit market products to the taxpayer while the banks make huge fees assisting the Fed.

Stimulus Bill Gives The Banks $454 Billion In Taxpayer Bailout Money

The Government and the Federal Reserve are exploiting the virus crisis to implement another bailout – or attempted bailout – of the “Too Big To Fail Banks.”  The stimulus Bill approved 96-0 by the Senate gives the Fed a $454 billion taxpayer funded “slush fund” for Wall Street bailouts. Just as troubling, the Bill suspends the Freedom Of Information Act for the Fed until the earlier of the time at which Trump terminates the National Emergency declaration or December 31, 2020.

The latter provision means that the Fed can conduct meetings in secret,  is not under any circumstances required to disclose the meeting details to the public  and it does not have to keep a record of notes.   The public will never know how its $454 billion was spent or which banks and hedge funds (or individuals?) were the recipients of this taxpayer largess.

Wall Street On Parade takes a look at the implications of economic bailout Bill so far passed by the Senate.  It remains to be seen if this secrecy provision will be challenged by the House but I’m not hopeful.  You can read more on this here:  Wall Street On Parade

Extreme Disconnect Between Paper And Physical Gold

“The further a society drifts from truth the more it will hate those who speak it” – George Orwell

The western Central Banks, led by the BIS, are operating to push the price of gold and silver as low as possible.  It’s a highly motivated effort to remove the proverbial canary from the coal mine before it dies.  A soaring price of gold signals to the world that the Central Banks have lost control of their fiat currency, debt-induced profligacy.

“In the last 10 years,” George said, “the central banks have effectively shown that when there is a real crisis, gold actually goes down — and it’s so blatant, it’s a joke.” – Peter George, South Africa’s “Mister Gold,” at 2005 GATA conference

The signs of massive intervention abounded last week:   record levels of PNT and EFP transactions;  aggressive interventionary gold swap transactions by the BIS in January/February (per the monthly BIS statement of operations) – and presumably this month as well;  and a big physical dump of gold last Thursday at the p.m. London gold price fix which knocked down the gold price. These opaque Central Bank operations thereby triggered even more paper selling on the Comex.

The most overt signal of the disconnect between the physical and paper markets is coming from large international bullion coin dealers. I have seen three letters from large dealers (BullionStar, JM Bullion and SD Bullion) which detail shortages and an inability to replace what’s being sold.   Here’s insightful commentary from BullionStar sent out over the weekend:

“The bullion supply squeeze and shortages are getting worse and worse every day. We are working very hard to source metal but regret that we can not replenish most products as they sell out. We will be getting some additional inventory which is already on the way in transit to us by the end of March. Following that, our expectation is that we may not be able to replenish for months…

Paper gold is traded on the and on the in New York. Both of these markets are derivative markets and neither is connected to the physical gold market…By now it is abundantly clear that the physical gold market and paper gold market will disconnect. If the paper market does not correct this imbalance, widespread physical shortages of precious metals will be prolonged and may lead to the entire monetary system imploding.” – Torgny Persson, founder & CEO of BullionStar

The removal of supply/demand price discovery by the oppressive manipulation of gold and silver in the paper derivative markets has created a shortage in the availability of physical metal, with buyers currently willing pay 50% above the spot price of silver.

This is highly reminiscent of the price take-down that occurred in 2008, a few months head of Helicopter Ben launching his money helicopters AND the massive taxpayer bailout of the big banks.  Back then silver eagles were trading at 50-60% over the spot price. This preceded the remarkable 2 1/2 year price rally in gold and silver that took gold up to an all-time high.

Historically, official induced market intervention fails. And when it fails, it fails spectacularly.  Gold ran from $700 to $1900 and silver ran from $7 to $49 between late 2008 and mid-2011, before the bullion banks were able to gain control of  the price discovery mechanism.  This time around the systemic problems – notwithstanding the virus crisis – are far worse than the problems that erupted in 2008.

Barring some type of systemic debt and monetary reset – and I have no idea what something like that would look like –  gold and silver will eventually be trading several multiples higher than their current price.

Coming Soon: More Money Printing And Higher Gold Prices

Two economic reports were released which demonstrate that the money printing is not helping the economy. In the fourth quarter of 2019, U.S. household debt pushed over $14 trillion, reaching an all-time record high. This was fueled by a surge in mortgage and credit card debt. Much of the the new mortgage debt consisted of cash out” refis, which helped exacerbate the last housing bubble/collapse.

Second, the U.S. Treasury announced that the Government spending deficit for January was $32.6 billion. This was considerably worse than the $11.5 billion deficit expected. The cumulative deficit for the first four months of the Government’s Fiscal 2020 year (which starts in October), surged to $389 billion, or an annualized rate of $1.16 trillion. The four month cumulative total was 25% higher than a year ago and was the widest since the same four month period of time in 2011.

Make no mistake, the Fed is printing money to keep the fragile financial system glued together and to monetize new Government debt issuance. The economy will continue to contract with or without the help of coronavirus. The Fed knows this, which is why several Fed officials including Jay Powell are already telegraphing more money printing.

The good news is that you can benefit from this – or at least protect your wealth – by moving a significant amount of your investible money into physical gold and silver that you safekeep yourself. I joined up with Arcadia Economics to discuss why the Fed is compelled to further crank up the printing press:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Printed Money Blowing The Bubbles Even Bigger

The total US stock market valuation  at $33.9 trillion is 157.4% of the last reported GDP. It’s the highest market valuation ever. The more the policy-makers try to pump and jawbone the market higher, the worse the consequences will be on the downside when the rug is pulled out from under stocks. The trigger could be anything. Eventually the market will acknowledge and accept the fact that the economy is getting worse and earnings will continue to decline. But fundamental reality is just one of many possible catalysts that will cause a painful drop in the stock market.

For now the rising stock market is shaping the Wall Street narrative being  transmitted through the mainstream media that the economy is in good shape. Funny thing about that – the stock market is not the real economy. But this is:

To be sure, rising stock prices enhance the wealth and spending capacity of the top 1% who own stocks outside of their retirement funds. But that wealth does not “trickle down” to the average middle class household (everyone below the top 1% wealth demographic). Let’s look briefly at some facts.

I’ve been making the case for quite some time that freight shipping volume is a valuable tool by which to gauge the relative level of economic activity:

The Cass freight shipment volume index tanked nearly 8% YoY in December. This number includes the growth in online shopping fulfillment deliveries and would have been worse if online shopping was not taking market share from brick/mortar stores. The index has fallen to its December 2009 level, which is part of the time period that the NBER has declared the economy to be in a recession.

The Cass data is reinforced by the sharp decline in the Baltic Dry Index. The BDI measures global ocean freight shipment activity and is considered a leading indicator for global commodities and raw materials demand. This includes incoming/outgoing vessels to and from the U.S. Not only is the global economy, including the U.S. growing weaker, the IMF has slashed its global economic growth outlook for 2020 and 2021.

The Conference Board’s Leading Economic Index released Thursday showed a 0.3% drop vs the 0.2% decline expected. The index has now declined in five of the last six months of 2019. Without the large run-up in the stock market, the index would have fallen even more. Rising unemployment claims (hmmm…) were the largest contributor to the decline. YoY for December the index gained just 0.1% – the weakest YoY change since November 2009.

One of the false narratives being promoted by talking heads and Wall St. is the idea that the consumer is still strong. Wrong. Consumer spending over and above necessities is being driven by the easiest access to credit in my lifetime. Evidence of this is the rapid growth in auto, credit card and personal loans. And in fact more than a third of all households report using credit cards to make ends meet every month.

But as evidence of the deteriorating condition of the consumer’s financial health, Discover’s (DFS) stock plunged 11.1% on Friday despite “beating” earnings estimates. The dagger in Discover’s quarter was loan charge-offs, which jumped to 4% of the outstanding balance. This is the highest charge-off rate since DFS’ charge-off rate peaked at 5% during the financial crisis. Delinquency rates are also accelerating. On a YoY basis for Q4, 30+ day delinquencies were up 11% while 90+ day delinquencies jumped 13%. For credit card loans, 30+ day delinquencies were up 14% and 90+ day delinquencies soared 15%.

In fact, loan loss reserves are starting to rise at a double-digit rate at many banks and finance companies. The average consumer is stretched, a fact that shows up in the numbers that never get reported in the mainstream media or Wall Street. The last time bank financials evidence rising consumer borrowing distress like this was in late 2007. We know how that played out. This time around the bubbles are bigger, the fraud is better disguised and households and policy-makers are even less prepared for the inevitable.

This is why gold is up 24% since May 2019, outperforming the stock market and most other financialized or commodity investments. No, it has very little to do, if anything, with coronavirus fear. But it’s why the western Central Bank and bullion bank gold price managers are having a difficult time containing the rising price.

The Fed Is Going All-In To Keep The System From Collapsing

Gresham’s Law in action: The diminishing availability of physical gold from the market (per several different accounts in London) corresponds to the proliferation of fiat currency printing and paper gold derivatives.

Since September the Fed has increased the size of its balance sheet by $414 billion or 11% in less than four months. It’s the fastest rate at which the Fed has printed money in its history.  The Fed insists that this “repo” program is not the reinstatement of “Quantitative Easing.”  In one sense the Fed is correct. This money printing program is a direct bailout of the big banks. And now the Fed is proposing to start bailing out hedge funds:

Federal Reserve officials are considering lending cash directly to hedge funds through clearinghouses to ease stress in the repo market. But that could be a tough sell for policy makers  (WSJ).

Yes, liquidity in the inte-rbank overnight collateralized lending system dried up in September.  But it’s not because of a shortage of cash to lend. The reason is two-fold.  First, banks needed cash/Tier 1 collateral to shore up their own reserves. Why?  Because bank assets – especially subprime loans – are starting to melt-down – i.e.  rising delinquencies and defaults. This is provable just by looking at the footnotes in quarterly bank 10-Q’s.  Second,  hedge fund assets – primarily the bottom half of CLO’s, credit default swaps, leveraged loans – are melting down.

The banks know this because these are the same deteriorating assets held by banks. In order to induce overnight repo lending, it would require a repo rate many multiples of the artificially low repo rate in order to reflect the risk of holding compromised collateral  overnight. This is why the repo rate spiked up briefly to 10% in September. That rate reflected the overnight interest rate desperate borrowers were willing to pay for an overnight collateralized loan.  Banks pulled away from lending in the repo market because they no longer trusted the collateral – even on an overnight basis. This is why the Fed was “forced” to start printing $10’s of billions and make it available to the repo market.

The Fed created the problem in the first place by holding interest rates artificially low and leaving several trillion of its first series of QE operations in the banking system. This in turn fostered  a catastrophic level of morally hazardous investing by banks and hedge funds. Now the Fed will try to monetize this – it has already hinted that the “repo” bailout will be extended now to April.  Absence this Fed intervention, 2008 x 10 will ensue – which will happen eventually anyway.

Ultimately, it will be a tragedy if the Fed bails out the the banks and the hedge funds – especially the hedge funds. Who benefits from this?  Bank and hedge fund operators should be penalized for making reckless investment decisions – not bailed out by  what will end up to be taxpayer money.  We already saw in 2008 that banks take the bailout funds and continued to pay themselves huge bonuses despite making lending decisions for which they should be penalized.

And a bailout of the hedge funds would reward hedge fund managers for investments that would never have been made had the Fed let a free market determine the true cost of making those investments.

I said back in 2003 that the Fed would print money and monetize debt until the elitists had swept every last crumb of middle class wealth off the table and into their own pockets before letting the system collapse. The bank bailout in 2008 and now the bank/hedge fund bailout is an example of this wealth transfer process.  The only question that remains in my mind is whether or not the current bailout operation will be the last “sweep.”

QE Madness: Is It Worse Now Than In 2008?

Unequivocally, the “repo” operations by the Fed is “QE.” Well, let’s just call it what it is because “QE” was coined in place of “money printing.”  The socially correct posture to assume on Wall Street and in DC at the Fed is to label the current bout of money printing “repo operations.”  In fact, based on all of the underlying data I scour daily, let’s just cut to the chase and call this a de facto banking system bailout.

The technical details on why the “plumbing” in the banking system is getting “clogged” is mere surface analysis.  The underlying systemic problems are similar to the problems that pulled the rug out from under the financial system in 2008.  Bank assets, specifically subprime lending assets, are melting down again.

We’ve seen this movie before and the “regulators” were supposed to have blocked the banks from engaging in financial pornography. But, of course, just like teenagers who discover Pornhub, the greedy bankers undeterred by superficial legislation and an absence of independent regulatory oversight (every senior regulatory official has either worked on Wall Street or worked a law firms who get paid to keep Wall Street bankers out of jail) couldn’t help themselves.  CLO’s, 100% LTV lending, non-income verification consumer loans and OTC derivatives with orgasmic fees have re-emerged in full force.

As an example, Citibank is now sitting on top of nearly $1 trillion in credit default swaps – see this, which has the appropriate links:  Citibank CDS.   The article notes that:  “the New York Fed secretly hid from the public’s view that it had funneled $2.5 trillion (yes, trillion) to Citigroup and its trading units from December 2007 to at least July 21, 2010. That last information only became public after more than two years of court battles with the Fed.”

In the minutes released from the last FOMC meeting, the Fed is now discussing extending the money printing operations to April. Imagine that, what started as giving corporations a little help to pay quarterly taxes in September has morphed into and is on its way to half a trillion dollars of printed money handed over to the banks. Doesn’t seem strange that all the money created for corporate tax payments has not  found its way into the Treasury Department’s bank account? How do we know?  Because  a large portion of the money printed has financed new Treasury debt issuance.

Wall Street on Parade is making a motivated, if not valiant, effort to dredge up the truth with regard to to re-start of the Fed’s massive money printing operation. But I hope the Martens are not holding their breath on getting a response without an expensive legal battle:

On October 2, 2019 we filed a Freedom of Information Act (FOIA) request with the New York Fed. We requested “emails or any other forms of written correspondence from the Federal Reserve Bank of New York to JPMorgan Chase or any of its subsidiaries or affiliates containing any of the following words or phrases: ‘repo,’ ‘repurchase agreements,’ ‘overnight lending,’ or ‘reserves'”…

Our FOIA request was acknowledged by the New York Fed as received on October 2. We should have had a meaningful response on November 1. Instead, we received an email advising that we would not hear further from the New York Fed until December 5, 2019…Instead of the mandated 10-day extension that is allowed under law, we were given more than a month-long extension. On December 5, the New York Fed emailed us to say it was extending the time to respond to January 9. – Fed Balance Sheet Explosion

Make no mistake, the melt-up in the stock market, the majority of which is confined to just a handful of stocks – AAPL, MSFT plus a few insanely overvalued unicorn-type stocks (TSLA, SHOP, etc) – does not reflect a “booming economy.” Rather, it’s evidence that the financial and economic system is melting down beneath the propaganda.  With its bailout policies, the Fed has made a complete mess of the financial markets. And it’s worse this time  than it was in 2008.

Aside from some select shorts in stocks like TSLA and AAPL, buying gold and silver (physical bullion not paper derivatives – yes, GLD is a derivative) and mining stocks is the no-brainer trade of 2020.

The Dutch Central Bank Endorses The Gold Standard

“De Nederlandsche Bank (DNB) holds more than 600 tonnes of gold. A bar of gold always retains its value, crisis or no crisis. This creates a sense of security. A central bank’s gold stock is therefore regarded as a symbol of solidity Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis.” – DNB’s Gold Stock

The quote above is from the “Payments” section of the Dutch Central Bank’s website. Incredibly, it goes on to suggest the possibility of  a systemic collapse: “If the system collapses, the gold stock can serve as a basis to build it up again.”

It’s been 48 years since the U.S. Government unplugged the gold standard, thereby enabling the world’s Central Banks to plug in their fiat currency printing presses. This in turn gave rise to a series of asset bubbles and unfettered credit creation. Don’t forget that the junk bond bubble in the 1980’s led to an acceleration in the creation of paper money, which in turn fueled the internet/tech stock bubble, followed subprime debt/real estate bubble and  the current “everything” bubble.” Which may the last bubble…

The chart below,  shows M3/M2 vs the “real” GDP since 1971 and  illustrates the problem:

Note that the Fed discontinued publishing the M3 money supply data in 2006. The U.S. at the time was the only major industrialized country that refused to publicly disclose M3. Also note that “real” GDP is calculated using the Government’s highly muted measure of price inflation. A real real GDP line would be shifted down on the chart and project at a lower trajectory.

The difference between the two lines somewhat measures the degree to which the U.S. fiat currency has been devalued or has “lost its purchasing power.”  However, the graphic does not capture the creation of credit.  Debt issuance behaves exactly like money printing until the debt is repaid. Think about it.  A dollar borrowed and spent is no different than a dollar created by the Fed and put into the financial system.

But think about this:  since 1971, the U.S. Government has never repaid any of the debt it  issues. It has been increasing pretty much in perpetuity.  This means that $22 trillion+ issued and outstanding by the Treasury Department should be included in the money supply numbers – until the amount outstanding contracts – which it  never will…

Alasdair Macleod, in “Monetary Failure Is Becoming Inevitable,” summarizes the eventual consequence embedded in a morally hazardous currency system:

If history and reasoned economic theory is any guide, the demands for credit by the state will terminate in the destruction of government currencies. For the truth of the matter is inflation of money and credit has created the illusion we can all live beyond our income, our income being what we produce.

“Destruction of Government currencies” is really just a politically/socially polite phrase for “systemic collapse.”

Whether intentional or unintentional, the Dutch Central Bank has alluded to this possibility, which I see more as an inevitability, with just the issue of timing yet unresolved.  I would argue, however, that the financial system liquidity issues currently addressed by the reimplementation by the Fed of repo/extended repo operations – and the inclusion of foreign banks in the liquidity injections – reflects the growing instability of the global financial system.

Furthermore,  the suddenness of these systemic “tremors,” suggests that the Central Banks are losing control of a system dependent on fiat currency and credit creation that expands at an increasing rate in perpetuity.  Unfortunately for the paper money maestros running the Central Banks, the value of fiat currency approaches zero as the supply of currency and credit heads toward infinity.

In all likelihood, the recent rise in the price of gold, which has been driven by escalating demand for physical gold – notably by eastern hemisphere Central Banks – reflects the increasing visibility of an inevitable collapse in the global fiat currency system.  The Dutch Central Bank has made it clear that it sees gold as an ideal asset for wealth protection when the next crisis erupts.