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“This is the way the world ends

Not with a bang, but a whimper.” – T. S. Eliot:

Miles Franklin sponsored this article by Gary Christenson. This is his opinion, not investment advice.

The world as we have known it has ended—with several enormous bangs and many anxious whimpers.

Breaking News:

  • The DOW rose 2,666 for the week ending April 10 in a bang-up bear market rally.
  • COMEX gold rose to $1,681 spot and $1,752 on futures for this week. Premiums on physical gold coins and bullion, if you can find them, are high. Premiums on Silver Eagles are huge—a COVID-19 Bang.
  • Confirmed U.S. cases of COVID-19 exceeded 530,000 on April 11. People are frightened and worried. However, the exponential increase has slowed.
  • New unemployment claims for three weeks were 17,000,000. Many people tried to file and could not because of crashed web sites and overloaded telephones. Too many people are desperate—a COVID-19 Whimper. One projection expects 47,000,000 new claims for 2nd Qtr.
  • New York City has over 6,000 deaths from the virus.
  • The Federal Reserve jumped into action by stating they have an unlimited capacity to create dollars—fake money backed by unpayable debt and the deteriorating credibility of The Fed. They can create headlines and debt, but not wealth or growth. There is no return from this nonsense.

BANG: The Federal Reserve:

Print dollars, monetize debt, embrace QE4ever, and create loans as needed for Wall Street, hedge funds and foreign banks. Main Street people and businesses are damaged by the inevitable inflation, higher prices, evictions and foreclosures.

Wall Street will snap up foreclosed properties as they did in the 1930s Depression and after the 2008 financial crisis.

The Fed increased their balance sheet by $1.77 trillion in four weeks to help Wall Street, large corporations and the US government. This “QE Big Bang” supports financial interests.

Financial assets are enormous compared to GDP.

Special interests will receive bailouts, inexpensive loans, and a blind eye from regulators, as usual. What should we expect from a congress that did not read the 800-page bill, but passed a multi-trillion-dollar bailout package (CARES) written by lobbyists? How many payoffs for special interests will be included in the next multi-trillion-dollar bailout package?

Analysts have speculated about the increase in the Fed balance sheet. Will it take an additional $5 trillion or several times more to re-inflate the “Everything Bubble?” Will the Fed balance sheet reach $25 trillion by the end of the decade? By the end of 2020, $10 trillion would not be surprising.

This is a “Big Bang” of newly “printed” dollars which will increase consumer prices. The tsunami of fake money will boost the stock market for a while, maybe until the 2020 election. Call this extravaganza of QE4ever the “Federal Reserve Big Bang.” See below from the Visual Capitalist.

JOBS AND UNEMPLOYMENT:

Reports say that 17,000,000 people have lost jobs and filed for unemployment. That three-week total is low based on the number of people who couldn’t file because web sites were down, and phones were overloaded.

In fairness, a few hundred thousand in a week was large in previous years. However, the U.S. experienced 6,000,000 in one week, which overloaded systems. It’s a big bang of unemployment claims by people who need rent and food money. The human tragedy is a Whimper regarding poverty and worry.

The situation will resolve itself eventually, many more Americans will claim unemployment compensation, and thousands of jobs will be permanently gone. The “Newer Normal” will not be kind to wage earners, the middle class, the poor, homeowners, pensioners, and “gig economy” workers.

Unemployment claims will rise to levels last seen in the 1930s—the Great Depression. When renters can’t pay rent, landlords and homeowners miss mortgage payments, business and government revenues decline, and the economic ripples swell to hurt many people. It’s an economic Whimper.

WHAT ABOUT GOLD AND SILVER?

  1. Gold and silver retailers are mostly sold out of inventory.
  2. The US Mint and Canadian Mint are closed or out of some products.
  3. People will sell gold and silver back to retailers only if they receive a large premium over the COMEX spot price.
  4. Retailers, if they can obtain products, must resell at much higher premiums than two months ago.
  5. The “Newer Normal” may include higher premiums until well after gold hits an all-time high price measured in US dollars. Gold already sells for all-time high prices in most other currencies.
  6. Global silver mines are closing. Reports indicate supply is down 40%.
  7. Demand is much higher than two months ago.
  8. There is much speculation regarding delivery failures, cash exchanges and other unusual activities on the COMEX and LBMA. The futures premium over London Spot price is large and erratic. Are they having delivery problems converting paper gold into real bars?

During the past 25 years the price of gold bottomed in 1999, 2001, 2008, and 2015. It rose to an all-time high in 2011 and is headed to another all-time high in 2020—2021.

The Felder Report graph shows the 3-year change in the Gold/SPX ratio versus the price of gold. I have circled the “buy signals” based on his 3-year rate-of-change indicator.

That is consistent with high premiums, QE4ever, retailers out of stock, and delivery difficulties at the LBMA.

Silver crashed to a daily low of $11.77 on March 18. The closing futures price on April 9 was $16.05.

The gold to silver ratio is a good indicator:

a) High ratios indicate buy zones for gold and particularly silver.

b) High ratios often show important price lows that are followed by years of price increases.

c) During the past 20+ years the ratio peaked (weekly data) several times over 80. Silver prices rallied thereafter.

d) The weekly ratio high of 119 in March 2020 was the highest ratio in history. The daily high exceeded 125. Call it The Big Bang of the Gold to Silver Ratio. Weekly data shown below.

Date             Ratio         Silver Price        Date        Silver High Price

5/20/03           80.37              $4.54          3/14/08     $20.94

11/21/08         83.52              $9.48          4/29/11     $48.58

2/26/16           83.08              $14.69        2/21/20     $18.53

3/20/20           119.87            $12.39       

Average silver rally from the 2003 and 2008 lows was a factor of 5. From the March 2020 low a factor of 5 rise would put silver prices at $60.  Based on a Fed balance sheet of $10 – $25 trillion from QE4ever, silver prices at $50 to $100, or far higher, are plausible.

Additional reading:

Sven Henrich:  Takeover

“Coronavirus is the virus that infects our bodies, but the Fed is the financial virus that has infected our entire financial and economic system. And there is no cure, except for the Fed to lose control…”

Schectman: “Stagflation

Christenson: Hammers and Nails and Golden Vaccines

CONCLUSIONS:

  • The Fed is “printing,” making loans, engaging in Repo Madness, monetizing federal debt, and buying ETFs. More craziness will occur when Fed actions fail to re-inflate the bubbles for Wall Street.
  • Unemployment claims banged higher, 17,000,000 in three weeks, with more unemployment claims coming.
  • Congress passed the CARES act and will bail out Wall Street, large corporations, small businesses and families. Expect more bailouts for the financial and political elite.
  • The Fed will create $5 trillion, perhaps $20 trillion, to re-inflate debt bubbles and fund US government spending. Ugly consequences will occur.
  • Fake money can’t create wealth. It does increase income inequality.
  • Gold and silver prices are rising, premiums for real metals are high, inventories are sold out, global silver supply is shrinking, and investment demand is expanding. Investor demand will skyrocket when the dollar tanks after the Fed balance sheet reaches more ridiculous levels.
  • Expect higher gold and silver prices for many years.
  • We can ignore real money (gold and silver), but we can’t ignore the consequences of ignoring real money. Those consequences include a “Big Bang” of QE4ever, monetization, dollar devaluation and whimpers from the people.

Miles Franklin sells gold and silver coins and bullion. Prices in early April look expensive compared to three months ago but will look small compared to prices on the day of the 2024 election. Call 1-800-822-8080.

Gary Christenson

The Deviant Investor