Creating generational wealth

  In the early 1980's the State of Illinois wanted to build a toll road. So they did the only thing they could do in order to raise the necessary funds, they floated bonds. I was fresh out of High school & had a friend working at the local bank where it was his job to sell these bonds. At the time you could purchase one for 15 grand. The state of Illinois would use the 15k to build the toll road. The bonds payed no yearly interest on the money - but at maturity - in 30 years, the state of Illinois promised to pay the holder of one of these bonds a Million dollars. 15k in 1982 would get you $1 million in 2012, which works out to 12.2% return every year - and yet my friend could not sell those bonds to anybody. Inflation had been running so high for so long, people were conditioned to believe 15k would buy more products & services in 1982, than a million dollars in 2012.

  What makes this story interesting, is today the interest on the 30 year bond issued by the federal government is about 2 percent. These bonds are so strongly bid, so widely bought today, and so universally owned, in order to get $1 million dollars 30 years from now, it will cost you about 545k today.  Why is it nobody wanted the 30yr - million dollar return when it cost 15k, but now that it costs 545k, everyone wants them?  The explanation resides in the financial elite’s ability to multiply wealth at the expense of the conditioned masses.  Their trick?  Create lopsided trades, stand opposite the masses and watch their wealth grow. It is really that simple.

   Multiplying wealth is childs play if you are on one side of a trade, while the masses are on the other.  For example, Bill Gates is rich because he had an operating system for computers which nobody had, but almost everyone wanted. Gates and his company were on one side of the trade (with an OS), the public was on the other side (without an OS), and when they started to pile in, Gates's net worth shot into the stratosphere. In the investing arena, most of us plebes are relegated to spending our time trying to spot the next Microsoft early. Then we pile in and hold tight, all the while praying the masses awaken to the trend, pile in themselves, propelling the asset price higher - and paying us off for getting there early. While you and I are playing spot the trend, the financial elites are busy creating the trend. They are world class experts at getting 99.9% of the investing public on one side of a trade, while they are on the other.

  How do they do it?  They do it by creating circumstances, which leads to universally accepted conventional wisdom. That "wisdom" conditions the masses to all bet one way.  The 1970's were the worst decade on record to own both stocks and bonds thanks to persistently high inflation. So when those toll road bonds were available, the masses all passed. They were conditioned into believing there was no upside in locking up a 12% annual return. Sounds crazy, but back then everyone thought that way. The conventional wisdom was inflation would just shred those returns.

   Meanwhile the best performing assets in the 1970's were commodities and precious metals. Residential housing did see some gains in nominal terms, but not near enough to compensate for rampant inflation. So in the early 80's the public, conditioned with a decades worth of rising prices; thought those things would go up in price indefinitely. So they sold their stocks and bonds - right on cue - at generational lows and piled into houses, commodities, and precious metals with every dollar they could scrape together. Of course, with the public long, commodities & precious metals tanked for the next 20 years. While again, housing prices did go up in nominal terms, they did not go up anywhere near enough to cover the 15% interest rate on the average mortgage.

  What were the financial elites doing in the early eighties while the public was selling their stocks and bonds to buy commodities, metals, and houses? They were standing opposite the public, and buying all the stocks and bonds they could. They were locking up annual returns of 15% for 30 years by carrying the mortgages on the houses the public was buying. Simply put, they were on the other side of every trade the public was making. Financial elite banksters on one side - and the masses on the other. You do not need 40 years of hindsight to see who won those trades.

  Fast forward to today. Once again the financial elite have everybody leaning one way. The bond market is at all time highs, and yet people are still buying, because conventional wisdom says US treasuries are the safest investment on the planet. The Stock market is at all time highs, and yet people are still buying, because conventional wisdom says over the long term, your best rate of return is in the stock market. The real question is how do the financial elite plan to take advantage of this imbalance. If history is any indication, they are planning to throw a decades worth of soaring inflation at us, just like they did in the 70’s.

  With Stocks and bonds currently at generational highs, and commodities/precious metals just coming off generational lows - the smart move for the financial elite would be to get long commodities (Which JP Morgan has been doing in spades for years now). Then they break out the pin of inflation to prick the stock and bond market bubbles, sending the masses for the exits - and into anything they can find not plummeting in value. Bagholder suspects that will be commodities and precious metals - the very things the financial elite have been building a position in at generational lows for the last decade. Can these guys ball, or what?

   Compared to the stock market and bond market, Precious metals and commodities are microscopically small markets. As with all small markets, they are highly volatile. Meaning when the public starts piling in, it is not a question of whether the financial elite (who got there first) will 10x their wealth, the only question is how many times will they 10x it. There is still time to stand opposite the herd, sell stocks and bonds at these generational highs - and get long physical Gold & Silver. Do this now, and maybe you can get one of those 10x multipliers for yourself.