Advisers Emphasize Calm as Global Depression Gathers
By Staff News & Analysis - September 20, 2011

Advisor's Top Job: Helping Clients Stay Cool, Survey Says … In hot markets, it's crucial for advisors to do plenty of hand-holding and other work, say most financial advisors polled by Russell Investments … The latest quarterly survey of advisors by Russell Investments found that helping clients keep their cool when markets heat up was the most important role for FAs, the company said Thursday. – Advisor One

Dominant Social Theme: The euro is collapsing, the dollar reserve system is failing, China is deflating and NATO military actions continue to expand. Investors should simply ignore the "noise" and concentrate on the soundness of their portfolio allocations, which have been made with the help of true investment professionals.

Free-Market Analysis: It used to be that stock drummers were more than happy to share a hot tip with their clients. Today, more than half (55%) of advisors say the most valuable service they provide to clients in or near retirement "is helping the client maintain perspective and think clearly about events and trends," according to a survey by Russell Investments.

These are not happy times for investment advisers. While it is true that stock markets have not entirely collapsed following the financial crisis of 2008, the headier estimates of equity advancements have been discarded. With the US in a permanent slump and Europe headed into an ever greater depression, only Asia (and China in particular) are holding up the world's economy.

When China has what will likely be some sort of hard landing, it is hard to see how the world can avoid a generalized depression of the sort that afflicted it in the 1930s. Advisers and their clients are spectacularly unprepared for this sort of occurrence as neither group unfortunately seems to have the psychological fortitude or the mental capacity to accept the increasingly grim reality of the 21st Century.

The projections of "Dow 20,000," so popular in the late 1990s and early 2000s, have shrunken to a whisper, replaced by campaigns that promote the effectiveness of financial advice regardless of the markets. Charles Schwab, which makes hefty fees as a custodian of assets, is rolling out one such campaign starting this week, a multimedia marketing campaign for advisers, according to Advisor One.

"The campaign will include sharable, digital banners with the tagline 'RIA-Stands for You. Discover the difference with a registered investment advisor,' and an affiliated website,"

It is easy to see why advisers may be in need of promotional support. While the advent of the personal computer and putative advancements in Modern Portfolio Theory contributed to the theoretical arsenal of financial advisers, the fundamental weakness of the financial industry continues to be its refusal to recognize that modern money itself is flawed. This has led to all sorts of conclusions that have simply not held up in the 21st Century from an investment standpoint.

The fundamental one has to do with the creation of currency. Almost no modern advisers will admit that central banks fix the price of "money" – or that money itself in the 21st Century, delinked from an underlying asset, is suspect. This gives rise to terrible misjudgments in the industry, mostly having to do with not comprehending the business cycle, which is controlled by the inflationary afflatus of the central banking mechanism.

Central banks inevitably print too much money in good times and bad. They are virtual inflation manufacturers, though the rhetoric that surrounds them has to do with "controlling" inflation. Inevitably, there are said to be central banking "hawks" and "doves" – with the hawks wanting a severely restrictive monetary policy and the doves wanting a looser one. This obscures the real issue, of course, which is that there would not be modern monetary inflation without central banking.

The business cycle itself is generated by this overprinting of money. First central bankers print money to inflate staggering economies and then, when economies inevitably "overheat," central bankers print even more money to cushion the inevitable bust.

Over time this distorts the free-market price mechanism so grievously that people cannot tell a healthy business from one propped up by government subsidies and central banking favoritism. When this happens, economies basically freeze up. No one hires or sets aside funds for expansion because the free market itself is being held captive by an elaborate contraption of regulations, tax distortions and monetary favoritism that makes capital formation impossible.

Most Western financial advisers doubtless missed much of the runup of gold and silver, advising their clients to hold paper assets while precious metals valuations grew tenfold during the fiat-money collapse of the early 2000s.

Financial advisers, even independent ones, serve as distribution arms for financial product companies. These financial product companies, some of them massive indeed, are the logical outcome of a central banking economy that has reorganized the investment industry around paper-based securities (and now electronic digits).

Central banking blows up economies regularly, and during economic contractions the middle class becomes increasingly unprosperous while more and more wealth is centralized in the hands of great Anglosphere banking families. These families then use their wealth to create dominant social themes – fear-based promotions featuring scarcity memes – that are intended to push Western middle classes into surrendering wealth and power to the globalist solutions (UN, IMF, WHO, etc.) that the familial elites have already prepared.

One of the dominant social themes that was remarkable successful in America during the late 20th Century was the idea that various forces were conspiring to erode middle class wealth. The only way to address this potential ruination was through "investing" in a menu of pre-prepared investment solutions featuring rigid, fragile and highly controlled "public" money pools.

Of course, the available solutions such as mutual funds and limited partnerships never work very well because the central banking business cycle itself precludes their ongoing viability. Every few years, what passes for money itself becomes unstable, stock markets deflate and public investment structures themselves lose altitude and in some cases crash. Regulation only makes the structures more rigid.

Over time, the constant inflations and deflations caused by central banking give rise to entirely dysfunctional economies. Stock markets are decimated; credit freezes; economies seize up. This happened in 2008, when central banks around the world rushed in to inject something between US$20 and US$50 trillion to prevent an entire liquidation of the global fiat-money financial system.

People still don't understand that the dollar-reserve system of the 20th Century likely ended in 2008. And today the ruination has continued and even expanded. Central banks are again, in a concerted effort, printing yet more money to liquefy a system that basically doesn't exist anymore. It is impossible to maintain a monetary system for a lengthy period of time that is divorced from an underlying asset such as gold and silver.

Most financial advisers, unfortunately, are not much more sophisticated when it comes to money than their clients. Financial advisers may manage lots of money, but this does not mean they understand the underlying history of money or what money actually is today. Additionally, their clients may have made a great deal of "money" but this doesn't mean they understand it any better.

Financial advisers, even the best of them, are caught up in the modern investment meme. It is one that mandates "allocation" across a personal portfolio, with distribution in numerous types of paper assets – and a determined refusal to consider an overweighting in physical assets even during an appropriate time in the business cycle.

Advisers, in fact, do not realize that they are ultimately in the employ of the great banking families that want to create one-world government and are doing so through the boom/bust mechanism of central banking. They would consider such a statement to be "conspiratorial" and reject it outright.

Thus it is that Western financial advisers remain in the grip of this merciless system, trying futilely to protect their clients from the worst of its depredations by advising aggressive allocation of assets using the somewhat flawed applications of Modern Portfolio Theory. Unfortunately, this doesn't protect their clients from the overall deflation that central banking causes on a regular basis.

The collapse of the dollar-reserve system has made the advisers' job that much harder. Most advisers believe that the cyclical nature of the fiat-money system – which they have experienced historically – will eventually lift asset valuations once again. They seemingly do not understand that there has probably been a terminal dollar-reserve blow-off and that the cyclicality they count on may not occur in ways they and their clients expect.

This is why there is so much emphasis on "keeping clients cool and calm" in the industry today. Both advisers and their clients (having failed to understand the underlying malevolence of the system) are like children holding hands and looking up at the night sky with awe and wonder as a large meteor bears down upon them.

After Thoughts

They mistake the distant glow for the promise of better times.

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