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398: Massive Transfer of Wealth - Tax, Debt, Inflation and Savers

10-20-2011 team  

Massive Transfer of Wealth - Tax, Debt, Inflation and Savers


Massive Transfer of Wealth: There is a massive transfer of wealth from savers of cash to people with debt and to people taking risking in the money markets. There is also a massive transfer to banks in a desperate hope they can “re-balance” their books – in other words – pay for mismanaged loans and financing – bad loans. Let us explain:

*    Base rates (interest rates) remain close to 0.5% in the UK and the USA

*    UK interest rates for loans for mortgages remain at ~5.5%, a gigantic 5% above base rates

*   Interest rates for business loans remains at ~9%, a gigantic 8.5% above base rates

*   Interest rates for savers remains at ~1.5%, a meagre 1% above base rates, a gigantic 4% below mortgage rates and a gigantic 3.7% below RPI inflation

From Savers To Debt Holders And Banks:  This means money over time is shifting away from savers to people holding mortgage debt. Hence if you have high rental yield property, your interest rates will be reasonably low, but rental prices will be rising sharply and you should be pulling in a fair amount of cash.

Capital Gains Tax On Inflation Is Absurd: But on the downside, because inflation is high, and even if property prices rise with inflation, because the government increased Capital Gains Tax to a straight 28% with no inflation adjustment or tapered relief in 2010, over time, you will have made no inflation adjusted asset increase, and any price increase will have a gigantic 28% tax applied to it. That means, as we advised in 2010 when this ridiculous tax was first mooted by Vince Cable, it would lead to tax on inflation (not tax on asset price increases). This is one of the key reasons we believe rents are sky-rocketing. Because buy-to-let investors can see that they are heavily taxed on inflation, and therefore do not want to buy more properties – thereby leading to a massive shortage in rental property in the South of England, particularly as banks are reluctant to lend – and are hoarding their cash. They probably need this hoarded cash to pay for bankruptcies and bad loans further down the line.

Debt Depreciation: The more positive point is that any mortgage debt will be depreciated over time by the affects of inflation, and the proportion of equity should rise – but only as long as house prices keep pace with inflation. Regrettably this does not seem to be the case in most areas.

No Capital Gain But 28% Tax: So we are likely to see a scenario over a ten year period from say 2010, that inflation adjusted house prices will have dropped. But you will have to pay tax at 28% despite a house price drop!  That’s what we call daylight robbery and something the Treasury must be aware of. No wander there are so few long term property investors out there. The longer you hold property, the more you lose in inflation adjusted asset prices, only for you to get a 28% tax bill on the inflation. Barmy.

Inflation Is Out Of Control: Another disturbing thing is that as inflation rises sharply to 5.2% in the UK, base rate interest rates remain at almost zero – even though the Bank of England’s main role is to keep a check on inflation – keep inflation at or below 2%. Has anyone not noticed that inflation is now 3.2% higher than target? The BofE have been promising for 3 years that inflation would drop back to 2%, but despite stagnation in the economy, it has not happened. Don’t believe the Governor of the Bank of England – it’s smoke and mirrors.  In a recent speech in Liverpool, he had the audacity to blame inflation on global influences (China), oil prices (Libya), Eurozone jitters (Greece, mainland Europe). The BofE claim things will improve after the affects of the VAT increases (Tories) work their way out. They say energy prices have risen (global influences). Meanwhile the Treasury has massively increased North Sea oil taxes that have led to a collapse in North Sea oil production and collapse of exploration-development activity and investment in the UK North Sea – further increasing oil and gas import costs. Hasn’t anyone in the Treasury noticed? Yes, they put the same tax on gas believe it or not – even though gas is barely economic and rapidly declining in aging gas fields – gas production has collapsed recently in the Southern North Sea. Imports have skyrocketed from insecure sources in Russia and the Middle East.



















Not So Green: Firstly the Coalition said they were the Green government. Then they recently took away subsidies for wind energy and solar panels on homes. Their Energy Policy is no-existent and non-sense.  A collapse in oil production has had a severe impact on manufacturing output numbers – putting the UK in a manufacturing recession once more – mainly because of this tax increases for the North Sea. Killing the goose that laid the golden egg springs to mind.

Inflation Expected: Does anyone really think inflation will fall back in 2012? We think inflation expectations are now starting to be built into wage increases and all manner of different price increases. Public sector wage increase are 2.8% despite a supposed wage freeze! That’s higher than the private sector! No wander they are shedding jobs – they need to shed more jobs because the remaining people are giving themselves wage rises and bonuses. Just when the government should be stopping printing money because inflation is out of control, they announce another round of printed money. The whole problem is too much debt, too much printed money, too much leverage, too much inflation and they have just put some more rocket fuel on the fire. The BofE are probably saying they expect inflation to drop back next year just to make everyone settle for 2% wage increases. But they know it will rise well over 5% - and hence your annual earnings will drop 3% and more like 5% when extra taxes are taken into account. Inflation is just about to make the average “middle class” person feel poor. The poor will get poorer. And the rich will likely be the only benefactors – because they will be the only ones being proactive and knowledgeable and shifting their money into gold and silver.

Clueless Short Term Treasury:  Bottom line is – the Treasury doesn’t seem to have a clue what they are doing or what is happening. They are way too optimistic on inflation predictions, as they have been for years. And we think the scene is now well and truly set for a gigantic inflationary spiral starting now in the UK. Only a severe recession would stop this. If a company had the predictive performance of the BofE – the Board would all have been given the sack a long time ago. 

Gold and Silver: This is why we are buying up gold and silver, keeping property (high yields), and getting out of cash. We also advise getting out of stock markets in general (unless they are stock in agriculture, oil, gas commodities or mining). And staying well clear of government bonds and treasuries – these will implode one day.

What Will Happen:  The bottom line is:

*   Inflation will sky-rocket

*   Unemployment will rise

*   Interest rates will have to rise

*   Insolvencies will increase

*   UK stock markets will move laterally and a bit down

*   Stocks will crash by 40% in inflation adjusted terms over the next 5 years

*   Recession with inflation will occur

*   Oil prices will rise

*   Food prices will rise

*   Gold prices will rise sharply

*   Silver prices will skyrocket

*   Sterling will depreciate as more fiat printed money appears

*   Government will want to print their debt away and savers will be destroyed

*   Bond markets will implode as sovereign debt defaults spread

*   Cash and savings will become pretty close to worthless

*   Pensions will be cut, retirement ages will be increased

Simple Investment Strategy: So it’s a pretty simple investment strategy from now onwards, for the next five years:

*    Buy gold

*    Buy silver

*    Keep high rental yield property

*    Get out of cash (but leave some in reserve in case interest rates sky-rocket)

High Returns: This is not “safe haven” investing strategy. Instead – it is “maximise returns” strategy – but also safe haven. There is no other investment anywhere in the world that we can see rising tenfold apart from silver. We see gold rising may be three fold, oil doubling – but silver could go up tenfold. There are silver shortages already and the electronics industry uses silver in manufacturing. But stockpiles are only 60% of these of gold, and it is consumed. So why is it only $32/Troy ounce? We can only guess that some influential large investors are keeping the price low – trying to mop up the silver – before a big bull run starts.

Clueless Political Elite: This Euro Summit coming up on 23 Oct is a farce. These mandarins will get together and decide to print more money to bail out the underperforming governments and public sectors. It will only delay the day the real crisis happens, but when it does, it will be a whole lot worse. They will regulate, socialise and destroy capitalism by interfering in the markets. They are kicking the can down the road. The more they do this, the more money they print, and the longer they leave it, the more vigorously and higher gold, silver and oil prices will sky-rocket one day.  The politicians that attend these conferences have not got a clue about business, finance or how inflation works. Many cannot even remember inflation – think back to the last 1970s. They think they can print their way out of the problem – borrow even more money. It won’t work. They should be printing less, borrowing less, saving more and cutting back public expenditure and taxes. But they do the opposite – only because they are so desperate to cling to power. But it will only make matters worse. We all know this. That’s why high inflation has started and will almost certainly continue and increase.

Deal Delays The Day: So in a way, if a deal is agreed and the volatility index drops on Monday 24 Oct, along with gold and silver prices, this will be the perfect time to buy gold and silver. Just when everyone thinks temporarily that the problem has gone away (for a while anyway).  Thinking inflation will drop back in 2012 is a joke. It’s possible everyone believes this, and that’s the reason gold and silver prices are so low. When inflation takes hold and panic starts, gold and silver will skyrocket.

Gold and Silver: Because the US Fed has quadrupled the money supply since 2008, we have calculated gold should be about $6000/Troy ounce.  Because the historical gold to silver price ratio is about 1:16, then silver prices should be about $350/Troy ounce. Currently silver is $32/Troy ounce. When we say that silver prices are low – we mean – they have a downside of say -25%, and an upside of over 1000%. Yes, we are serious when we say you could see your silver investment value increase by ten-fold. And your gold investment value triple in the next five years.

Don’t Believe Them:  Frankly – we have given up believing anything the central banks or governments tell us. It’s simply not true. It’s some story to keep everyone happy or quiet. The simple truth is – a crisis – a big crisis – will break out sometime in the next few years. And when it does, gold and silver prices will go ballistic in a final blow-off bubble starting when the herd piles in, in a blind panic.

Get In Now: That’s why we are quietly getting in now – before the herd arrives. When they finally turn up – we’ll aim to be out like a flash – before this final parabolic blow-off bubble goes pop at the end of the 17.5 year commodities bull run that started in 2000.

Secular Bull: If you can recall, we are about 60% of the way through a secular bull market in commodities and 60% of the way through a secular bear market in stocks and shares. The final phase is when inflation takes hold, oil, commodities, gold and silver prices skyrocket whilst unemployment rises, stocks drop by 40% in inflation adjusted terms and stagflation takes hold.

Recession Every Five Years:  Every 4-5 years in a stock bear market, there will be a recession, but overall – it’s a depressing miserable period of stagflation. And it will end in a whimper when so many people will have lost their savings through inflation, and stock equity value through inflation, that many will end up poor. After the crash of 2000, there was a brief recession end 2002, then a big recession in 2008. We are now close to four years on. Yes, we are due another recession even though it only feels like yesterday that we were in a big one. In fact, it hardly feels like we left it. But in 2012 there should be a recession. This will be the final period of massive money printing - then inflation by end 2012 will go ballistic along with gold and silver prices. Just when the US 2012 election takes place. The timing of the US Feds final money printing spree will be perfect to enhance Obama’s chances of re-election, controlled by Ben Bernake – because realistically the only way Ben will retain his job is if the Democrats get back in (which looks unlikely).

Agriculture: Beyond any doubt, food prices will also sky-rocket. Food shortages will break out. Transport of food will become more difficult. Land prices will rise. Fertilizer will be in short supply. Diesel will be in short supply. Aging farmers will retire and the new generation of farmers will once more make serious money – but farming skills will be in short supply. For the first time since the 1970s there will be a farming boom. Bankers will be laid off. Being a farmer and an MSc in Agricultural Technology will be the prestige occupation – not being an investment banker – someone that shuffles worthless fiat paper around. A failed banker. The trick will be to monitor the number of people quitting their jobs to go independent into gold and silver investoring/traders – and when it gets trendy and hits a peak – get the hell out of gold and silver – likely sometime around 2017. This will be a sure sign a bubble has developed – but for now, have you ever come across a gold and silver trader? Have you met anyone that owns bullion? Answer is probably no – a clear signal to buy before the herd arrives. 

Paid By Silver and Gold Coins: The smart investors will have shifted many years in advance into gold and silver and have the only thing really worth anything at the end of the day, when money is worthless, banks have folded and governments have defaulted.  We are serious. One day, inflation could be so bad that the only way to buy something of serious value will be with gold and silver coins. They will become legal tender for purchases once more. This has started to happen already in preparation in places like Utah.  

The New Saver: Why would anyone want to save cash when interest rates are 1.5% and inflation is over 5% and governments print more money? Buying gold and silver is not only investing, its saving as well. It is real money, being saved. Its tangible, real, has never lost its value, and can be used to trade with. Get real – get out of fiat cash – get into gold and silver. Money is getting worthless. Gold is not. It’s simple.

Easy: Its gold, silver, oil, agricultural commodities all the way for the next five years – and out of the worthless Dollar and Sterling.  It will be like the 1970s all over again – with 2017 = 1980 – the final recession and end of the commodities bull run.

Severe Ramifications of Worthless Printed Fiat Money: If you can consider this report – and all is ramifications – deeply – you should conclude that there is an amazing investment opportunity – a way out – to make serious money. And it’s so simple. You just have to buy gold and silver coins then store them in a safe bank vault!

If you have any comments, please do not hesitate to contact us on We hope you have found this Special Report helpful to frame your investment decisions.

















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