Gold Macro

The show goes on in financial Lala land! It took less than a week for the “new” US Biden administration to announce an immediate 2 TRILLION dollar, “interim”, economic stimulus program. 

The numbers, globally, are just so large now they matter little to most. That is, until they do! The “when” of when it matters is actually more difficult to discern than the “what” consequence. More on this down the page.

In the name of Covid Relief, Climate Change, Interest Rate Suppression, Defence, Welfare and Economic/Racial wars, you can rest assured this US administration will do more than the previous two, everywhere!!

They’re just going to keep handing out freshly printed loot, what could go wrong?

The costs of the above commitments matter little to anyone anymore, Central Banks, Free Money, no one LEFT behind, at any cost. 

Then lack of commentary on potential financial blowback, or worse, is just so lacking its laughable, and for those investors that also lack the instinctive fortitude to pay attention, maybe this chart below helps.

Naturally, those that exited this bubble early are up for criticism, depending on the performance of their remaining investments!

Those that are piling into the poster children of this current mania are going to pay a serious price.

It’s not too hard to see where the hype is now.

It was fascinating to listen to Paul Singer on Grant Williams’ “End Game” podcast recently.

The Crypto and Tesla “Bulls” will call someone like Paul Singer a relic of a bygone era, like gold.

To us, he’s an experienced investor, a realist, understanding centuries of economic history.

He is bamboozled by the unwavering current belief of ,“the many”, that nothing can go wrong with central banks distorting the price of money for as long as is necessary.

The effects of this distortion are becoming more obvious by the day, as are the Central bank and .Gov policy responses.

It’s for this reason we completely agree with Mr. Singer on a vital point. The inevitability of something going completely “haywire”, driving a “spanner in the works” of the financial system, under its current construct, is 100%.

But what will it be?

We generally hesitate to discuss Bond market machinations in these notes for fear of sending readers further to the “Twilight Zone”, but Bond markets matter.

Mr Singer’s conclusions that the systemic breakage will be first confirmed in the bond market is traditionally correct. Why wouldn’t Bond investors they want to protect their capital?

But for one small problem. If he thinks rates will rise, as has been signalled in the first half of January, he is seriously underestimating the global central bank commitment to interest rate suppression (capping capital losses for Bond holders).

Then reasoning is simple, if Bond rates (Sovereign and Corporate) rise THERE IS NO CAPACITY TO PAY THE EXTRA INTEREST without further printing monetization!! Earnings you say?, who cares about earnings when you can ALT-Print, you have to when the debt is too large.

The inflationary conclusion Mr. Singer comes to is correct, but you won’t see it in Bonds rate rises. To those that don’t know about “inflation”, it’s been happening under your very nose for the last 10 years, in ASSET markets, including, and especially Bonds.

This is precisely what central banks wanted, asset price inflation, “hoping” the wealth effect flows “down” to the general economy. We argue, it didn’t. And because the inflation has manifest in rising asset markets, many people (without assets) have been left behind, hence, the growing wealth inequality gap and its social manifestations.

We feel most investors instinctively feel “something” is going to break. They’re right about that, what they’re wrong about is confidence in their own ability to exit before it breaks. Seeing the “vivid sign” that everyone misses!!

So, if you made it this far you may be interested in what we’ve shared on our own portfolio movements in the previous month to subscribers, or not!! We believe more than ever that the reflation trade is on, you only need to go back to previous posts to see the thesis.

Back to macro matters, the ineptitude of the previous US Trump administration to do anything they were elected to do (MAGA, Balanced budgets, fiscal responsibility) has simply given the Green light to the current elected administration to do whatever they want. And they will. Did we mention Covid Rescue Stimulus (build back bitter), Climate Change/New Green Deal, war on Economic/Racial inequality, Interest Rate Suppression and Defence?

All of this matters and the flow on effects to investors, globally (this includes Australia) are better flagged that ever! We reiterate, it’s the timing you don’t know and our view is its happening now!!

If inflation is the manifestation of this mess, what do you do?

Well, the first thing is don’t wait to read it in in main stream economic media, and, physical assets have always stood the test of time.

On the topic of Inflation, you must re acknowledge that rising bond rates and precious metal prices are the surest sign of inflation expectations from serious investors!! 

Hence, why would Central Banks not want to control Bond rates/prices as they do,  through interest rate suppression. Bond holders lose capital when rates rise and this cannot be allowed to happen!!

There are other inflation signs that have been around for a few millennia, like precious metals, specially gold and silver! To think that the gold price is not on the radar of central BIS types, in the same way Bond rates/prices are “managed”, through outsized derivative leverage is just naïve.

Like below, as usual this dump was on no news. 2.6 BILLION USD in a minute, preparation for more stimuli??

We are not saying this is co-ordinated manipulation, the chart above is not ours. We don’t want to be cancelled, but Smoke/fire??

Regardless, for those underinvested in the inflation protection of gold and silver, you just need to say thanks for the price you can buy the metals and miners at now!!

The set-up has never been better.

Particularly for Silver, the cheapest metal (it used to be precious) you can get!

In other commodities related “unintended consequences” of this Global Build Back Better thing, how’d you like to be a “fossil” fuel energy producer going to capital markets for money? Unintended consequences abound, like rising energy prices!! Haha, the irony!

And as we’ve covered before, you can see the price manifestation of the not so new green deal in Copper, Nickel, Manganese, Platinum and Rare earths, everywhere. Don’t you think, relative to equities, commodities are a good position? No advice here.

Bonus Chart:

What the hell would those sneaky Russians know anyway?!?!

Peace.

After 12 years of “fixed”, for a financial system that blew up in 2008, 2020 certainly provided a nice back drop to make it even more “fixed”.

Stimulus turned to recovery funding and no amount has been too large.

For those closest to said stimulus 2020 has proved to be at minimum a minor hinderance and, for many, an absolute gift of financial largesse (see IPO’s and market size of companies mentioned below).

With more and more “stimuli” looking for a productive home and a global backdrop of 18 TRILLION of negative interest rate paper, investors are just being pushed further and further out the risk horizon in search of return, so far in fact, they’ve truly lost sight of land.

Nothing describes it better than last week’s IPO fever.

Last week was classic 2020 as US Private equity Firms exited billions of equity to unsuspecting “investors”. FOMO investors piled into the latest Unicorn IPO’s of Doordash (restaurant food order and delivery) and Airbnb.

The day one IPO result of these two loss making enterprises?  Dordash, a 75% lift to a market cap of 38 BILLION and Airbnb soared to a day one close market capitalisation of USD100BILLION.

To put this in context for Australian investors, Airbnb is now the same size as CSL but bigger than BHP!

Neither of these companies hold a candle to the USD530BILLION market capitalisation of the incredible loss-making Tesla. 

Poor old Toyota just isn’t woke enough, must have too many legacy issues, like real profit, for a market capitalisation of 190billion, even with a suite of Hybrid and EV’s rolling into production each year for the foreseeable future!!

As each week passes the insanity of financial markets sends more short seller wannabe’s to the mad house for psychological counselling. Their shorts have been torched.

Remember folks, the worse the economic numbers get, the better it is for stocks as the bigger the dose of next “stimulus” is going to be. 

Buckle Up! Things are going hyper!!

Nothing like a spot of Covid Euphoria

And what in the hell is going on here??:

From March 16th to April 27th, the U.S. M1 Money Supply increased $773 billion… six weeks.  Why on earth has the M1 Money Supply increased $810 billion… in TWO WEEKS!!!

Again, something very serious must be going on that we don’t know about because this is certainly unprecedented.

Do you know how much $810 billion equals?  That turns out to be four years of global gold mine supply totalling 440 million or 40 years of global silver mine supply of 32 billion oz.  This is beyond stunning to see this much of an increase without any news release by the U.S. Treasury or Federal Reserve.

Of course, it made sense to see the M1 Money Supply to increase after the pandemic shutdowns and stock market meltdown… BUT WHY NOW???  

We’re going to leave the theme’s of 2021 investing with this backdrop (in the pictures above) for our next note but we somehow think, where CBanks may have “failed” in the past, 2021 may just be their year.

Even China is well in on this act. In their words, “to keep the banking system ample”!

There’ll be no rest for this bloke over Christmas!

The most important part of the above pictorial backdrop of this week’s note is its ramifications for investors in 2021.

Needless to say, if you think 2020 was busy for central banks imagine what 2021 will be like with the three main mandates of:

• Interest rate suppression at any cost, too much debt for rates to rise, print any amount.
• As much recovery/stimulus as possible, print any amount.
• New Green commitment to everything, no matter what cost, any amount is good. (by itself the, according to a Bloomberg report this morning, the US thinks it’ll cost them 3 trillion over the next 2 years alone!!)

We’ll let you ponder this backdrop before dropping to subscribers how (and what) we are looking at for 2021 asset allocation.

If you got this far, we hope you’re thankful for the early Christmas present of more pictures and less words!!

Until next time.