Steve St. Angelo was on Palisades yesterday, and I watched early this AM struggling with my 1 year old getting him ready for day care. I love all of Steve’s work, and he’s one of the people I watched closely on YouTube when I started. I hope some of these don’t seem like I’m picking on him, but I find points of interest with his clear communication that I can dissect and ponder. I find myself disagreeing with him on a number of things these days, and I LOVE living in a world where you can have polite disagreement with someone on ideas and respect the hell out of each other in the process. Steve does this shit for a living, and I am an amateur, so 98% he’s probably right. However, my observations here should at least count to poke holes in a theory (if valid) – and with this, it could help him either strengthen his arguments or even refine them, if he feels there’s ANYTHING here of interest.

In my world of 10 years of college with two masters degrees, you want to have people challenge your assertions. Not because you want people to be jerks – but because in the name of science you want your items peer reviewed for any flaws or items perhaps missed. I’m taking an approach of academia here and trying to do some peer review, so I’m not out to say “he’s wrong”. Merely, I’d like to point out where I differ, and why. And, I reserve the right to be wrong!!

He is in the deflation camp with a lot of people now, including Hunter, Dent, Rickards, Johnson, Maloney, and many others. He feels there’s a great deflation coming, followed by inflation. He points to lumber as something that was temporary, but just a few days ago we saw a great video that shows that as a one off – and not a sign of “transitory” inflation.

Fed buying – They are printing money and buying shitty bonds and MBSs that are garbage. So they hand over dollars and take these bonds. Banks have all of this extra liquidity they aren’t lending out, which is then coming back in reverse repo temporarily. This is about $1T now, but there was something like $7T spent. One thing Steve doesn’t mention is that the treasury is buying tons of these things and propping up the debt market – buying many of these when no one wants them, at that price. This artificial demand is inflationary to the price of the bonds, and I think this point is missed with QE. If QE does not exist, bond prices would collapse and be deflationary. So, QE is inflationary to the bond market.

Stimmy – what he misses here is that there were trillions of dollars created and sent out to spend. In the Keynsian sense, this in inflationary. Maybe this went into YOLO stocks, housing prices, or other asset prices. This inflated the system.

Spending – lets not also forget the government spending which then gets into the real economy. This is inflationary.

He makes mention of TEMPORARY inflation with a storm coming, and price of plywood. Then he refers to lumber as the shining example. The logic here – which I feel is incomplete – is that inflation IS temporary, and when this is realized, somehow we have a great deflation, which then runs into obvious hyper inflation. I would contend the opposite – that the realization of “oh shit” with inflation being real is the pin that pops everything. You MAY have outliers like lumber and chips being something that are super high and come down, but we have seen 16 months of steady price increases and shrinkflation at the grocery stores.

The CATALYST it seems for a deflationary event is perhaps the day where people understand all of this inflation (to me, M2 supply and credit creation) is REAL and all determine that holding a 10 year at 1.2% is not really a good deal in an environment of 5% inflation. They need to sell that bond (to get to cash and increase the DXY) and chase something with yields. That moment they realize the storms have passed and prices continue to climb IS the deflationary light bulb moment where the debt bomb explodes. These rates aren’t naturally decreasing because the “market” thinks inflation is temporary, it’s a form of yield curve management going on by the fed to buy bonds. If the Fed wasn’t buying any of this, do you still think rates would be going down? If we are in such a healthy recovery, why do we need $120B a month in bonds and MBSs being bought? Once people realize that the base effects of inflation have subsided but the MoM effects show REAL inflation, this is when shockwaves hit everyone……4%, 5%, 6%? THIS is when the market dumps debt, which sends rates much higher and the fed cannot buy it quickly enough and is overrun. Which in turn is what is the catalyst for a Hunter deflationary event. So my thinking here is not that people agree inflation is over, which Steve suggests, but it’s that once they realize inflation is real and much worse than they thought, who the hell wants to hold bonds at 1.2%?

Meaning – for a deflationary event to occur, there will be a concurrence amongst almost everyone inflation is real and not going anywhere, and much worse than they thought. THIS is your catalyst for a bust. From what I understand, they have now changed the terminology of “transitory” to “temporary”. This should start to get your spidey senses tickled.

When this bust happens, is when milkshake guy gets his vindication and everyone runs to cash, for a time – as stocks propped up by cheap cash tank as rates climb quickly. Those first out will have the big piles of cash. Those left, shredded by margin calls and a disappearing account, are bag holders and cannot sell, or sell at great loss to get to any cash. Credit will seize up, and this is where you get shockwaves into the housing market. If your house on paper went up 50% in 2 years, but no one can get a mortgage to buy it now, at that price, your house price will have to come down. With the stock market in the tank, layoffs are abundant. People have to declare bankruptcy and housing market glut starts. This is where your velocity almost stops, despite people having trillions on the sidelines. This is where your house price that went up on paper 24% in the last year loses those gains in a week, then another 25% come off the top when you lose your job, have no savings, and need to short sell your house because no one can afford the price now that rates have marched up and lenders are only lending to those with the best credit.

This is where Maloney says the money bombers come out, because the above is the everything bubble collapsing and can make the Great Depression look like a cartoon. This is where to prevent massive collapse, they need to go really big. THIS is where you get stimmy on steroids, and THIS is where the DXY goes down to 40 or 50 with money printing and handouts, and THIS is your catalyst on the other side to Hunter’s $300 silver and $10,000 gold by end of decade. This is also where trillions come out of the couch cushions and reflate the whole damn thing again – as people are now buying their favorite stocks at 80% discount. However, think about who is buying – all of the rich insiders that got out early now. This creates even more wealth distribution issues.

Meaning….the deflationists may be getting it wrong to try and insist this inflation is transitory. Their deflationist idea is a transitory one that happens when the debt market bomb hits when people realize inflation is not transitory and all of these 8-12% Chapwood numbers are real. And have been for years. And now CPI will be running hot and everyone will see it with their own eyes at the grocery store, every week.

This did not happen BECAUSE of the Fed. I believe the core, rotten issue, has been the incorrect way to calculate and report inflation. THIS has caused massive wealth inequalities. The insidious inflation that has been going on for 40 years to get cheaper rates is about to get cleansed. We have to see higher rates, or else we risk hyper inflation.

However, hyper inflation may be the end game they want to reset everything. If you are a debt holder, you are going bankrupt and may want to try and sell this off. Think about banks lending me $300k for a house I pay $2k a month for. In a hyper inflation scenario, the bank is getting $2k a month on the $300k lent out, and the value of that $2,000 they are getting is devalued more and more each month. Debt will be paid off by hyper inflated currencies. I put $5,000 into the crypto gum ball machine, get $300,000 out, and pay off my house. But the $300,000 of value that I just paid back in a hyper inflation scenario doesn’t have the spending power they lent it out to me at. Meaning, those debt holders are holding a depreciating asset that gets increasingly devalued as currency is debased and inflation rises.

If hyper inflation is the end game that markets sniff out, that is also a catalyst for people to dump treasurys and bonds at 1.2% or so. Boom goes the debt market, and THAT is what causes your “transitory deflation” event. I like that. Transitory deflation. Consider the possibility that for the last 40 years, real inflation was under-reported, which then led to artificially low interest rates. Everything got re-financed for lower values, destroying the original loan and replacing them for less value. The bond prices artificially were inflated by this mis-representation of inflation.

I believe the chickens are coming home to roost and you can only rig the fake inflation numbers until you can’t anymore. And this is where this great deflation that will happen that all of these deflationists are talking about. But what this is, is the debt market popping, interest rates going way back up – asset prices deflate as people run to cash – but this cash, in a high inflationary environment, needs to be rapidly re-deployed to not lose its value. Those insiders selling now, those in vast piles of cash plan to start the bidding war when a bottom is found, and thus unleashes the real inflation that has been hidden for 40 years.

Pop. And nothing will recover back to their tops for a long, long time – as PRICE may increase but value decreases. Meaning, a share of Tesla might be $600 now, go down to $50, but 2 years from now when it’s $600 the value of the dollars of $600 may be worth 50% what they are now. Understanding how price decay will happen is going to be a new art form for people in the financial world.

Be prepared for savings accounts to pay 5%-8% again at some point. Many people/banks/pensions/401ks are about to lose their ass when the sell off of all bonds begin. Why would people hold paper for 1% interest if it is now well known inflation is actually 10% and increasing 1% MoM? When the world’s reserve currency is hitting 1% MoM, that’s an issue.

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Energy

I did a whole series of videos on his energy cliff theory, so I won’t go into it too much here. What I want to mention about this is that shale and the like need $55 oil to be profitable. When oil crashed, it was due to the Saudis and Russians colluding to drive price down to screw the American oil production up. This is what led to -$37 oil.

He feels that oil is important for energy, and makes mention that wind, solar, hydro, and nuclear come up with about 25% of energy. Coal is massive for electricity production, and he feels you need oil to extract the coal. I feel he’s spot on with a lot of this, but is missing one massive elephant out there. Battery technology. The problem you have with hydro is that you have to dial back how much you generate at times so you don’t fry the grid. With battery technology growing leaps and bounds every year, there’s promise to capture this excess energy and not dial back generation on non-peak hours. It would be steady state generation, similar to nuclear. Excess energy would be stored in batteries.

Battery technology also promises to move a lot of cars to this technology in 5-10 years. ICE cars guzzle all kinds of oil products in the US, but electric cars have the promise to reduce usage of oil. He then points to electric generation with coal (and oil) to produce the electricity to charge the cars. But if homeowners are doing solar and the battery storage with this is improving, we may lessen our need on coal electric generation.

With COVID, most of the US also found out that telework can actually work. Many companies are abandoning their expensive office space and shifting to virtual offices. Again, less and less commuting.

Nuclear has a promise to also improve base electric generation, but it costs a lot of money and time to get these going. Perhaps in 5 years, more projects are started when the realization of Steve’s energy cliff becomes reality.

Overall, I think the sky is not falling with the energy cliff. I feel it’s the nudge needed to focus more on battery storage, nuclear, and solar – while harnessing MASSIVE amounts of excess energy generated by hydro (I worked at a Hydro Electric company for 4.5 years in IT, we built the giant turbines). Additionally, more electric cars with charges from solar, less commuting into the office, and more focus on nuclear could put off this cliff 10-50 years.

Lastly with this, I feel battery technology moves towards mining equipment and factories. I worked at a steel mill in security in college, and there’s a tremendous amount of power needed. IF we are powering these by excess hydro electric energy AND the mining trucks are running on batteries with electric generated from hydro or solar, AND the existing coal we use is mined with trucks powered by batteries – there is a good chance this energy cliff doomsday scenario can be mostly avoided.

I do agree though, that this could see higher energy prices and point to inflation. What Steve made mention of was high oil prices caused inflation in the 1970s, and I saw another analysis that it was the weaker dollar that drove up energy prices as well. Steve may hit the trifecta, because if the DXY hits 40 or 50 as I think it might when the money bombers show up, this could double the price of oil from the middle east. This could see $120-$200 per barrel of oil in 2025-2030. THIS is also a catalyst to push forward with batteries and nuclear. So THIS inflation may be transitory as we absorb high energy prices for awhile until we move towards non-petroleum based energy. This could essentially crash the oil market at the end of the decade. Why? At $200 per barrel, you will have tons of companies join in, and when demand subsides substantially, prices could crash down with built up supplies.

Kinesis Yields

This week, Kinesis announced yields, and the apps saw a yields tab show up populated. These yields will roll out over time, and what I am now seeing is about $22 per KVT in a month, or perhaps $264 per KVT per year at this point, before mass adoption. This is a great return, with potential returns of over $10k per KVT per year.

Additionally, you are also seeing the yield being paid out to holders. While this may not be crazy high, the big picture is instead of paying to vault your allocated metals, you are getting paid for them to hold them. THIS could be a game changer in the big picture sense for ABX to take over a lot of the vaulting worldwide. If I was a vault company right now, of course I’d be spewing FUD about this. IF Kinesis is successful with this model, it will, over time, assimilate all vaulting worldwide.

Why I am bullish AF on PMs right now

I laid out a case about 14 days ago when gold/silver crashed, and then went bananas buying options. I then detailed all of my options for the world to see, and I went nuts. Too much. Wayyyyy too much. I also begged people NOT to do what I was doing, as I was making an attempt to time the bottom with a lot of different indicators. This never usually ends well, and I may get lucky. I know, these are words you use when gambling. However, I felt there’s a LOT going on right now in my favor.

Low RSI – it was below 30. I then did a study and the last 10 times the RSI for gold was THIS low, 9 out of 10 of those times, the RSI went over 70 on average within 58 trading days. 2 of those times, it was 100 days. The 1 time out of 10, the RSI went up a little, went below 30 again, and if you had just waited and held, was then part of the other 9 times it went to over 70. I felt this is a great BTFD event, and people recognize this. This is what propels it to over 70 – I think because with the strong moves sub-30 RSI, you get the MACD crossing not long thereafter, which then defines your uptrend. So I LOVE the sub-30 RSI buy, if NO other fundamentals changed. They did not.

DXY overbought – you can clearly see that RSI over 70, dip, and now back to 70. Also hitting a trendline resistance. Expecting to fall.

DXY triangle – I don’t hear ANY analyst talking about this, so hoping I got some original research here. Doubt it, but here’s what I’m seeing. Large triangle looks to be resolving, and X marks the spot above. Below 89.5, and it seems this will resolve down, hard, then perhaps have a false breakout down and propel up as the stock market tanks due to debt bomb hitting.

I also did a gold July sentiment chart. I wanted to know if I’m on an island, or how other metals analysts are seeing things. One below, Don Durett, is currently bearish but said he may change if a few things happen. I added Bubba Horowitz as bearish over lunch when I heard a Kitco interview while walking my dog.

Now, this is not Reuters or WSJ, but a decent indication that I’m not high. I am not using this to take hundreds of thousands on leverage – I’m using it to see if I’m at least not alone. Last summer, these same people were warning at the end of summer to take profits and saw a big draw back coming – as the handle was starting to form and we were WAY hot on RSI. Many of these people above nailed this. I did not. I got lucky, as I was in half cash for an entirely different reason. However, if a lot of these guys who know what they are talking about are mostly bearish or mostly bullish, it gives me a good indication to start trimming profits or looking to buy in. That’s it.

My sentiment index above shows only 19% bearish with 63% bullish. It tells me that whatever I’m smoking is not hallucinogenic. If this was 70% bearish, they are telling me they don’t like the looks of things. This is what I saw last summer at $2000 gold when everyone was thinking $3000 is next. This is why the index is important to me. At 50-50, it’s a coin flip. At 63%, I like. If we are at low RSIs and 80% bullish, I’m backing the truck up.

Options

I had gotten out of a lot and taken a lot of profits when I saw RSI of gold over 70. That really served me well. I’m going to use those same instincts on my sub-30 RSI buy. On half of my items, they are silver options which expire on Jan 21 2022, and half are WPM/GDX options expiring on Sept 17th. I have a few odds and ends with MTA and SILV, but overall, this is a LARGE options position that is SUPER RISKY. A stock market crash of 10-15% could wipe out all of these options, so I’m walking a tight rope here. DO NOT DO THIS. I wanted you to follow along to either troll me or give me a slap on the back when it’s over. The goal was to show people how to play options and how I time them – so this is for educational purposes only, as I have a lot of people asking me about call options and I’m NOT a professional trader and BEG you to seek out experts. I’ll give you the 50,000 ft view and how I play them. Did I say yet – DO NOT DO WHAT ID DO? The upside here is I look like a genius in a bull market. Not hard to do. downside is you guys get some good “loss porn” and learn why options are dangerous.

What you see from above is most of the loss are with the SILJ, but most of them I bought the first 6 months this year as price was retreating and I was buying the dips. Silver and gold miners sold off much worse for a few days after the blood letting stopped with the metals prices. Those prices are starting to reverse now with the metals, and the miners are lagging. I believe once the MACD crosses in the metals and shows a clear up trend, the miners will play catch up.

I saw this last summer where metals kept going up, and miners stopped moving up. Some days metals were up big, and miners were way down. Scratched my head. This was the guys above warning to get out as metals were about to correct. In that case, you could see the miners lead. however, in a smash down of metals prices like this, the metals led, the miners lagged, and sold off hard. Had I waited 1-2 days more, I perhaps could have gotten a better deal on my GDX options.

However, anyone that has done this for 10 minutes realizes that if these metals charge up for the next few months, it might only take 1-2 sessions for everything you see here to be green.

Usually with my options, I might have a 25% or 50% cut off where I sell them and cut my losses. Due to WHERE I bought them, I decided to hold through any short term pain. Again, a gamble, of sorts, but based with probability.

When looking at the gold or silver charts, you see sharp moves up usually met with sharp moves down, and vice versa. Part of my play here was trying to play a strong quick V recovery, as I felt it was an overreaction to the fed speak. Additionally, I was seeing an inverse head and shoulders forming, just as many others did. You could also see the move down bounced off of the long term trend line. While it COULD break down, to me, this was just touching the bottom of the triangle and moving back up to mean reversion – and soon.

So – options are risky. Don’t do what I did, but I want to continue once every week or two with where I’m at with these. If gold and silver is flat for 8 weeks, I’m losing my ass here. One of those listed as bearish, Gary Wagner, said he was bearish for July, but in August we should see a move up.