Note: This is not financial advice.  I’m not a financial advisor and I’m wrong 100% of the time.  Investments are risky and nothing mentioned here should be considered financial advice.  Invest at your own risk.

 

This might be the best idea I’ve ever had.  Maybe not.

By now, you’re all in the know that I like miners.  Check.  These are not 40 year stocks for me.  What am I doing to exit this space?  Well – to really understand the future, you have to look at the past.  And I think I may have stumbled on to something that can be used for the reader to highly profit on the upcoming recovery.

First – I’d like to say there’s a lot of parallels between 1929 and now.  Mostly, you’re dealing with cheap credit that led to bubbles and a sudden crash.  Then, there was a recovery – like now, before the bottom then dropped out of the market.  I don’t feel the bottom will fall out like it did 90 years ago – simply because the issue that caused the deep bottom 90 years ago was a freeze in liquidity.  While we do see a strong downside coming, the “cushion” that liquidity offers may help the landing.

The unintended side effect of all of that liquidity is eventual inflation, and perhaps hyperinflation.

 

Let’s review what the history books tell us about the Great Depression and how we recovered:

  1. Stock market crashed in 1929.
  2. It was a decade of shit, oh – and that dust bowl thing happened
  3. 25% unemployment and food lines
  4. Hey – that war really took us out of the Great Depression!

 

So the history they taught us in school was imperfect.  Below, I’m going to address the main items I saw getting us out of the Great Depression and leading to the baby boomer generation and unprecedented growth.

 

  1. Liquidity – in 1933, they made gold illegal for citizens to have, and quickly unpinned the dollar from gold.  This pin had left us illiquid, and by unpinning this, the fed could then create programs to help our citizens, immediately.  This was the first step – and this is the one real good thing our current administration has done.
  2. Infrastructure – the highway program anyone?
  3. Power – What was this called – Tennessee Valley River Authority?  This created a lot of power lines and hydro dams
  4. Gold accumulation – more on that later, but we stayed out of the war in Europe and sold goods at the cost of gold.  We got a massive stockpile of this because of our sales.
  5. Conflict – I’m not advocating war, but this war led to resolution of many disputes on land and resources.  What many don’t realize was that Hitler was also trying to plunder gold from European nations and invaded Russia due to scarce oil resources.
  6. Manufacturing – World War 2 led to a lot of manufacturing and bringing a lot of women to the work place.  Provided more labor and productivity.
  7. Inflation – as a result of World War 2, the US dollar became the world’s reserve currency and pinned it to gold, but we also inflated away debt.

 

Today – there’s this great debate on globalization versus isolationism.  Each have their own sets of pros and cons.  In the 1930s, the US was in a depression – and was mostly isolationist.  Today, arguably, COVID has brought on another great depression and we are more globalist than ever.  So I don’t think arguing one or the other is the answer to our current issue….

But let’s UPDATE the old blueprint for today’s issues.

  1. Liquidity – given the current circumstances, I think the one thing both dems and republicans agree on is that we are in a shit storm that needs to provide a lot of people out of work an immediate safety net.  Nothing much to change here – EXCEPT – there needs to be a long term plan in place.  “Liquidity to infinity and beyond!” is not a plan, it’s a triage measure to stop the gashing aorta.  This is already in motion and mimics 1933.
  2. Infrastructure – I heard Trump might unleash a highways program like in the 1930s, like a $1 trillion type of thing.  Dems like this, Republicans are worried about cost.  Don’t worry about cost, that is step 7 below.  Right now, get this done
    • Physical highways – this is upgrading roads and bridges.
    • Digital highways – I feel the age of the teleworker is now here, forced by COVID.  The next 12-24 months may mean a complete shift in how brick and mortars work with office space.  This needs more “Zoom”-type of softwares.  There may be a lot of competitors out there.  This needs more cabling, wiring, switches, routers, cloud backbones.  And…cybersecurity baked into this version of the internet.  I see a new internet coming from this.
  3. Power – I see nuclear and solar picking up steam.  Nuclear is a clean energy, and despite nuclear accidents every decade or two, 15% of our power is nuclear.  We need strategic uranium stockpiles (only 4% of our uranium is produced in the US).  Solar has mostly been too expensive for consumers without government programs.  Let’s get all houses in the country fitted with solar over the next decade.  Subsidies, zero interest loans, etc.  If all houses have solar power, this reduces the power needs on the grid.  This then leads to less coal needed with increase of nuclear.  More electric vehicles can be built as more charging stations should be built across the country.  This has a reduction in the need for fossil fuels.  With better power generation, delivery, and efficiencies – this has us less dependent on the middle east for oil.  Or less dependent on the Kazaks for uranium.  Or less dependent on coal or gas for power generation.
  4. Gold – central banks already have massive gold stockpiles.  However, if they are going to digitally print money at will, they need to accumulate gold stockpiles in order to pay off their debts.  I believe nation states should be paying nation-state debts in gold, not in fiat.  This can have the ultimate control of being over-leveraged between nations.  Perhaps it’s not a 1:1 pin, but even a 10:1 fiat to gold pin in a fractional reserve beats today.  By the time Nixon took us off of gold in 1971, we were at a 40% pin.  I believe any future reserve currency may be digital, crypto, and backed by gold.  Sorry Bitcoin fans – I strongly believe nation states one by one will make bitcoin illegal.  Russia already has.  China has already developed a crypto backed by gold, and I would be the US isn’t far away from it.  When the US rolls this out – you can say goodbye to Bitcoin.  The government will not yield its monetary authority.  Period.  No real discussion on that.   The US has 8800 tons of gold currently.  Russia and China have been full court press over 10 years adding to their piles trying to “de-dollar”.  A lot of nations who aren’t our friends have been using gold to go around the dollar.  Gold will be the reserve currency of the world shortly, and cryptos in a nation’s local currency will be pinned to their provable gold reserves audited by the world bank.
  5. Conflict – I’m not advocating war, but we have identified areas of contention with trade that have merit.  Whether you hate or love the orang haired scary man, this was a populist point he won on, which could have been executed cleaner – but the point is indeed valid.  Here’s how this is supposed to work.  We buy Chinese goods in dollars.  China takes the dollars to the forex and exchanges dollars for Yuan.  This increases the demand for the Yuan.  Instead, what they did was take those dollars and buy treasuries directly with the dollars, bypassing the forex.  What this has done for many years was devalue the Yuan against the dollar.  This made US goods too expensive for a lot of the world to buy – depressing our manufacturing and increasing our trade deficits.  Additionally, China has stolen literally hundreds of billions in intellectual property from us.  There are healthy differences here between nation states that are doing actions to serve their best interests of their people.  With Nixon and China – we realized we could tap into China’s vast population and sell them McDonald’s and Coca Cola.  They flipped the script on us, and now feel we are a rich nation that can buy all of their cheap goods.
  6. Manufacturing (and technology) – I believe strongly that our robotic automation is going to take away a lot of the cheap manufacturing jobs we sent to China and Mexico.  These can be here and operated by our people.  Many strategic items like chips and computers I believe will come back to this country.  Some of our manufacturing may move from China to a perhaps more modern Vietnam, Taiwan, India, or other emerging market nations.  The conflict that is resolved above will lead to a boom in these nations.  It’s more or less hitting a reset button on new supply chains.  This can be good for commerce and building new relationships.  Additionally, I feel with the information superhighway construction above, it’s going to give us an entire generation of skilled labor in telecommunications, robotics, software, collaboration, and cloud computing.  This is the backbone of ALL US fortune 500 companies moving forward.  Unfortunately, with COVID, a lot of smaller businesses may not make it out of the other end of this.  High tech manufacturing may be an area where some of these businessmen now migrate to.
  7. Inflation – the ultimate endgame here is a monetary reset.  However, I don’t see this happening until all of the items above are in motion.  For example – they supposedly may owe me $3,000 per month with social security, which today might buy a decent used car.  They won’t default on this.  But by adding trillions of dollars and having all kinds of debt obligations, they will “inflate” us out of debt.  So they will pay me that $3,000 when I retire at 118 years old, but that $3,000 may buy a week of groceries by then.

 

What all of this is telling me from an investment perspective.

  • NOW – If mass inflation is coming, I want metals…NOW.  In theory, as inflation happens, metals will keep pace with the value.  So if I have $3,000 in silver, today, which could buy me a decent used car – when inflation does happen and that used car costs $300,000, the small pile of silver I have will be worth that $300,000 to buy the used car.  However, if I have a mortgage now on my house for $300,000 – the mass inflation of a fixed asset like silver could then inflate and I can then use that to service old debt, like a $300,000 mortgage on my house.  This is how you inflate yourself out of debt.  And this is how they did it after World War 2.  And this is how you get out of your student loan debt, your mortgage, your pool, your 8 cars – you buy metals.  As inflation launches into orbit, trade in those assets to wipe out your debt that was fixed.  Done.  Silver has a dual purpose of being a technology metal as well as a precious metal which fights against inflation.  Silver is critical in all electronics, electronic cars, solar panels, and 5G.  So I’m heavily weighted in silver, silver stocks, and gold stocks.
  • 6 months from now – 6 months from now, some plan will be hatched to address power and infrastructure above.  While there may be value in buying large construction firms – it’s nothing I know about.  Where I’m going?  I’m not cashing in anything yet – this new investment money will stop going into the miners and go to the below:
    • Copper and nickel miners.  I’m very familiar with this sector now and believe this will explode in a recovery.  Copper currently has a gaming issue that silver has, but to a lesser extent.  Some of my silver and gold miners also have massive copper holdings.  Something to consider when looking at a miner
    • Uranium – Japan should at some point be bringing 19 of their reactors back online and China has a bunch being built now.  With recent COVID issues, the largest uranium producer, Cameco, cut production from the largest uranium mine they have, Cigar Lake.  It costs them $50 to make, and spot price is $33.  Kazahkstan was the cheapest producer, thought to make it at $15 per pound in situ, but their “easy” uranium has now been mined and they are turning to the spot market to satisfy their contracts.  The US just passed a bill a few months ago to focus on building a US strategic reserve of uranium due to us getting 96% of our uranium from outside the country.  If we are to have a strong nuclear power generation program for years to come, we cannot be held hostage by countries refusing to sell to us.  They pledged $10 billion over 10 year to US manufacturers.  By now, there’s only a handful left.  This is a good buy.
    • Cisco, Intel, AMD, Microsoft, Webex, and cloud services like Amazon, Microsoft Azure, etc.  I am waiting for these stocks to hit the shitter and will buy them cheaper 6-12 months from now.  If possible.  I believe with telework never really going away now, and remote schooling possibly being more of a thing – we need better infrastructure to service this
  • 1-2 years from now – I’m looking at the field and seeing what is still on the table of value.  I think new home sales will slow, but there will be a lot of money put in to repairing existing inventories.  This could be good for Home Depot.  I think we need to look at Ford, GM, Tesla and see where they are with manufacturing and profits.  Ford might not make it out of this cycle.  There will be a lot of M&A I believe, where you might have things like GM and Ford merging, then reducing their fleets from 800 models to 8, with making half of them EVs.  Steel production.  3M.  Dow chemicals.  I’m looking at things we make here which service the backbone of our core needs to start picking up.
  • 2-5 years from now – inflation.  This is when gold and silver will absolutely go parabolic.  THIS is what I’m holding to.  THIS is when people will start to see the prices of all of this shit go skyrocketing.  When gold hits $10,000-$50,000 per ounce and silver hits $300-$1200 per ounce, at that point, the US can pin currency to these metals and simply service the old debt with metals, if needed.  If the US has 8800 tons of gold, and buy gold for the next 2-3 years, the US might end up with 20,000 tons of gold and 3 billion ounces of silver.  This is then a fractional reserve system on these metals, and the cycle resets.

 

Where I’d stay away from…

There are index funds out there that have things like the Dow but subtract the worst performers.  Same with S&P 500.  maybe that fund is all 500, but they remove the worst 50.  Well, in the next 3-5 years, these are the industries I’m worried about:

  1. local restaurants and bars.  No bueno.  In our development, local food trucks from some of the good local restaurants have formed.  If they don’t adapt to COVID, they will be extinct.  Food trucks going to richer suburbs daily may be the best way for these restaurants to continue.  150 people being packed into a confined area may be problematic for years to come.  They have to adapt.
  2. Commercial retail -If you are target and walmart and have significant online presences, you will be fine.  However, many, many, many other stores are going bye bye.  Malls are going to be ghost towns.
  3. Office spaces – so many offices are going to draw back their footprints and do a lot more telework.  No one has any idea of how bad this is about to get for office space rentals.  No fucking clue.  Atom bomb.
  4. REITs – I know there are all kinds, but I really think anything associated with commercial retail and office spaces are going to go to the shitter.  A lot of these properties are going to be vacant.  This means less new construction and falling incomes on those they do rent.  This is highly deflationary.
  5. New home construction – some higher end companies like Toll Brothers may be fine because for the most part, the richest of the rich may not be overly affected by what’s going on.  However, most new homes in the 2000-3000 sq ft range may take a shit for a decade.  You have a lot of guys like me in these homes and seeing for sale signs go up everywhere.  Deflationary.  Lots of job loss means evictions.  Deflationary.  Glut of homes.  Less construction needed.  Less wood.  Less nails.  Less concrete.
  6. used cars/new cars – I think people may hold on to their cars longer.  With Hertz going bankrupt, the expectation is that in Sept, there will be a glut of used cars.  It might be a good time to buy a pickup cheap.  But the problem with Ford is you have a $75,000 pickup truck at $900 per month to a soccer dad who really only needs a pickup truck a few times a year.  All of these cars are on gasoline.  I strongly see a massive, massive, massive shift to electric vehicles in the next 5 years, and it’s quite possible that with all of the stimulus coming, that it makes sense for the government to then subsidize EVs and solar panels in order to combat global warming.  Tesla has the solar roof/battery components to go along with their EV.  You have Ford who has plants all over the world and is slow to adapt, with 42 makes/models.  Back in the day, Henry Ford more or less invented the assembly line.  He said, “you can have it in any color you want, as long as it’s in black”.  Now – you go to a dealer and if you want the car you really want, you have to special order it and it’s 8 weeks.  Otherwise, the dealer never has on hand exactly what you want, so you pay enormous amounts of money for a car you fully don’t want.  I believe Tesla only has show rooms. so any car you buy is designed for you.  Less overhead.  That business model is a winner.  No mechanics you go to – they come to you.  I HATE going to get a service and they tell you that you need $300 blinker fluid and your rack pinions need to be lubed for $1400.  Scams.  EVs have less moving parts, and with engineering principles, they should last longer.  Battery engineering also uses a lot of silver. and once you can get reliably 600 miles out of a charge, there will be a sudden, mass exodus from ICE cars.

So what do you do with all of this loot?

Assuming what I say happens, the gold/silver miners are going to print money.  Literally.  My best guess is that all governments inside of 5-10 years will be back on some form of metals-backed currency, even fractional.  For example, if they wanted to take our debt today and divide it by the gold we have, I heard it’s $55,000 per ounce.  But – we all like our fractional reserve systems, so if the government could get the price of gold in 5 years up to $5,500 per ounce, they could then pin our currency to gold at a 10% fractional reserve system.  I believe that is the answer to every single debt problem we have.  Silver will tag along for this with the precious metals – but everything I mentioned above more or less needs silver in a technological situation.  The military even uses a few hundred ounces of silver for missiles.  We used 3 billion ounces of silver to enrich uranium in the 1940s.

So – if the assumption is correct that these metals will continue to go up for 3 years, and as much as 10 years, what do you do?

  1. Take some profits.  If does me no good to be sitting on $1 million in unrealized gains in my etrade account.  Take half off the table, send it to your bank account, and let the rest continue to grow.  When you feel the top of the market has been hit, transfer to less appreciated asset classes.
  2. With some of those profits you just moved to your bank account
    • Add to core positions that are less risky.  Bonds, physical gold/silver
    • Buy stocks with higher dividends, but are less volatile
    • Invest in other asset classes like real estate to rent out houses and collect rents.  Take these rents and buy more houses.
    • Have some cash, but not too much.  The value may be inflated away
    • speculate a little.  With a small percentage, that’s where you might buy bitcoin.  Buy a pot stock.  This is money you won’t mind losing and is higher risk.