from Silver Doctors:
Silver must rally now for confirmation that something more ominous is not in the cards…
When I was a very young boy, schoolchildren were not driven to school or to the bus stop; they walked from their houses, usually in groups, with older boys instructed to look after both the younger ones and the girls, lest they get lost.
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In my case, I had to trek about three miles on the shoulder of Airport Road, with cars and buses and trucks rumbling by on their daily commutes, beside a sizeable ditch that every spring was filled to the brim with a six-foot deep torrent of floodwater that gushed toward Etobicoke Creek several miles away. Being a curious young whippersnapper, before the melting snow had a chance to completely thaw and turn the frozen ditch into a mini-rapids, not unlike the Niagara River, I used to build mini-dams out of mud, ice and snow to try to block the trickle of water, just like I would look at in the encyclopedia Mum kept in the living room.
Alas, no matter how industrious I was nor the density of the materials, there was nothing that could ever stop that water from finding its way downstream. It would either creep around the edges of my cleverly conceived obstruction or it would just blast its way forward, taking shards of wood and mud and ice with it.
I was reminded of this last weekend while going for a drive up into the Kawartha Lakes. Driving through the little town of Buckhorn, the melting ice in Buckhorn Lake was cascading down a rock chute into Lower Buckhorn, making such a din that you could barely hear the person in the passenger seat telling you to “Slow the **** down!” As I am prone to do, I was driven to analogies to the financial markets, and watching this thunderous wall of water crashing through everything in its path, what sprang to mind was how this thunderous wall of stimulus money being thrown at the American economy and financial system could ever prevent a devastating flood of hyperinflation in its wake.
Digging deep into my bag of economic and financial market trivia, I find that there is simply no amount of “productivity gain” that can offset the massive pressure being exerted on prices, and no matter what the former stock salesman Jerome Powell tells you, Fed policy has only one concern (as in “master”), and that is the banking system.
The late Richard Russell, whose “Dow Theory Letters” was my market “bible” for over 30 years, until his passing six years ago, used to always tell his readers to “follow the money.” That was especially true when he spoke of Fed policy. Were he alive and writing today, he would surely point to the banking system as the ultimate beneficiaries of this larcenous largesse being bestowed upon holders of bank collateral through Fed bond buying and governmental interventions. After all that has been said and done since those insidious REPO actions started in late 2019, it is residential real estate that has been blown into a bubble of epic size and proportion, with countries such as Canada and Australia leading the way in “bubbliness.”
Here in my native province of Ontario, it is impossible to afford a single-family detached home for anything less than $500,000, and anywhere within the Greater Toronto Area (the GTA), $1,000,000 gets you a postage stamp. Sadly, it is the wealthy immigrants who are buying up all the land, with second- and third-generation Canadians relying on parental or grandparental financial assistance in order to own lodging. The net intent of pro-inflation policies of the Bank of Canada is to protect the collateral that underpins mortgages, because with workers no longer needing to sit in the petri-dish cubicle next to a coughing coworker, commercial real estate is in big trouble. So as long as housing remains buoyant, the gaping balance sheet hole represented by leaking commercial loan portfolios can be plugged at least for awhile. Otherwise, there is nothing good about a housing market that forces young families to be in debt for the rest of their lives just to have a roof over their heads.
The only way this plays out is with wages. The average wage of workers in countries whose central planners are promoting higher bank collateral values is going to rise dramatically to increase affordability and serviceability. And therein lies the trap for the policymakers the world over. The 1% that own all the stocks and bonds and all the real estate and all of the banks around the world are going to face a day of labor market reckoning, and the last time we saw wage demands out of control was in the 1970s. To wit, it was the 1970s “stagflation” that saw muted economic growth against rapidly rising prices that drove gold and silver (and copper and oil) into the stratosphere. And there is no amount of wood and mud and ice and snow that can prevent that very torrent of inflation from proceeding down to Etobicoke Creek.
Gold prices have been acting somewhat better since I called the first bottom on March 9 at $1,680, and then again on March 30, at the same price level. Despite the fact that I have taken two nice trades out of those $70 bounces that have helped to keep the wolf away, I am not that “happy.” While many of you will be dismayed to read this, I am worried about the precious metals looking out to the second half of 2021. Rather than staring at bark, I am forced to rise above the trees and look down at the forest below me in order to make a rational assessment of the current state of the precious metals, given the stark reality of the situation.
Here we are, in the spring of 2021, after trillions upon trillions of phony stimulus dollars have been injected into the system, with another US$3 trillion in “infrastructure spending” (managed by the banks, of course) looming on the horizon, and gold sits 16.5% off its all-time high. Silver is trading at around 50% of its 2011 high despite massive demand and physical offtake. In fact, if we are to believe the pundits, physical offtake of gold and silver is at record levels. So, if that is the case, why, pray tell, are neither of these monetary metals at all-time highs?
Oil and housing are in full recovery mode; Bitcoin is at nearly $60,000 per coin; stocks are at record highs; technology is booming, yet the two historical safe haven assets, with 5,000-year roles as “guardians of wealth,” cannot seem to mount anything vaguely resembling a sustainable rally. Since gold’s top last August, we have been wallowing in the dentist’s chair for an eight-month root canal (sans novocain), having to listen to clueless bubbleheads brag about their new $100,000 driverless Tesla, paid for with their cryptocurrency winnings that also pay for the $30,000 repair job caused when the driverless Tesla rammed into a bread truck. “Maddening” is an understatement.