I’ve written a lot about inflation here, but I wanted to speak here to some newer people as to what I see. Why? You need to understand WHY us gold and silver bugs are out of our minds pounding the tables.
First, you can easily look around and see:
- Inflated housing prices.
- Inflated stock market
- Inflated bond market
That last one eluded people like me for a long time. I’m not someone who is an expert on this, but taking you on this journey, you learn that these rates are inverse to the price. For example, if you see the 10yr go down, it means more people are buying it and it is more valuable. The rate decreases upon high demand. Likewise, if people sell these bonds, the rates increase to entice more people to buy.
See – this is the missing piece to the whole damn puzzle for everyone. To many who are in to bonds, what I’m saying might not be earth shattering. However, I want you to do a mental walk through of this scenario.
In 1980, inflation was at an all time high. See below…
To combat inflation, they jacked up the interest rate to 20%. This stopped inflation in its tracks. However, we had $908 billion in debt then. Over that decade, we ran up 3x our debt!
But look at the debt to GDP ratio. While we grew the debt, we also grew the GDP. Not so much today. Look at this preceding decade.
What this shows you is that in order to stop runaway inflation, they had to increase rates. The problem is, our debt is now 30x what it was in 1980, so trying to increase rates can potentially have a nasty side effect of the government defaulting. In reality, they will NOT…NOT pay their debt, they will just print more. And tax more.
Why I’m bringing up all of this is because this is what the 10yr interest rate looks like over the last 40 years.
This shows it decreasing consistently. What this is TELLING you and others, is that inflation is under control, so there’s less risk and in this situation, rates can go lower. In a situation with higher inflation, rates are supposed to go up to slow the growth of the economy.
I think this is a brilliant design. Wow.
The problem is this. Politicians found a way to juke the system. All of this is essentially predicated on how inflation is measured. The government uses the CPI. However, this is something else that I learned in my studies to be extremely fraudulent. This index has been changed a few times, and the big knock on this is that from a macro perspective, it doesn’t count a lot of expenses that you and I might see day to day. Food, energy – and even my wife’s healthcare plan which seems to go up 8% per year, but provide less coverage – while her raises don’t even cover the increased cost of health insurance, let alone gas, food, and other items.
This got me thinking….
If the masses are convinced that the rate of inflation is 2%, THIS is the trigger to allow the chart above.
It then got me wondering, what if the masses then do not trust this number? What if this number is found to be far higher?
If you go to the chapwood index, you can see that clearly inflation is higher than what the CPI tells you. This is saying that of the 500 products most bought, this is the percent change year over year.
So let’s assume right now that most people are seeing this inflation. A few weeks ago, the fed then backed off the “transitory” term and now use “temporary”.
Then, I’m seeing more like the below several times a day, every day…
So let’s step back.
When you have low CPI, it then allows rates to decrease.
This allows people to refinance their house and remodel. It also allows you to buy “more house” because rates are lower. All people care about is the monthly payment.
This has also allowed more cheap margin usage and businesses to expand faster using cheap money.
What if all of that was based on lies???
I mean, you really, really need to understand this last line. FULL STOP.
This then means the current VALUE of the bonds has been artificially propped up. Last I saw, other country’s foreign reserves are now 60% USD, down from 65% a few years ago. Countries are looking to de-dollar. Russia is out of dollars and buying gold. China is importing gold and holds over a trillion in US debt the last I looked. India imports gold. Many countries are re-patriating their gold.
It is clearly apparent, worldwide, that inflation is here. It’s BEEN here, but it’s been masked just enough to get by on reports. When you see your chicken up 50% in a month, people start to panic buy.
What I would contend is a concept I have written about that I would love to get Rickards informed on – dinner table inflation. This is Joe Sixpack seeing his cigarettes, beer, chicken, gas, rent, and healthcare costs go up faster than his rate of income. Rickards is a deflationist, but he’s partly correct. He is a wickedly smart man that somehow believes the cost of education has gone down. Maybe it blipped for a second with COVID, but since I was an undergrad in 1994-1998, that school now costs 4 times as much as it did then. And when I was in school, the costs were 4 times what my mom had paid in 1970. Essentially, the cost of schooling could be 16x in 50 years. But no, that’s 2% per year inflation.
What Mr. Rickards might want to take a look at is my mom’s cost of schooling in 1970 and add 4.8% yearly inflation to it, you get today’s education cost. Don’t believe me? Look – my mom’s schooling at $2,500 in 1970. That is roughly my schooling cost in 1994, and roughly the schooling costs today.
|Year||Cost||Inflation||End of Yr|
|1970||$ 2,500.00||1.048||$ 2,620.00|
|1971||$ 2,620.00||1.048||$ 2,745.76|
|1972||$ 2,745.76||1.048||$ 2,877.56|
|1973||$ 2,877.56||1.048||$ 3,015.68|
|1974||$ 3,015.68||1.048||$ 3,160.43|
|1975||$ 3,160.43||1.048||$ 3,312.13|
|1976||$ 3,312.13||1.048||$ 3,471.11|
|1977||$ 3,471.11||1.048||$ 3,637.73|
|1978||$ 3,637.73||1.048||$ 3,812.34|
|1979||$ 3,812.34||1.048||$ 3,995.33|
|1980||$ 3,995.33||1.048||$ 4,187.11|
|1981||$ 4,187.11||1.048||$ 4,388.09|
|1982||$ 4,388.09||1.048||$ 4,598.72|
|1983||$ 4,598.72||1.048||$ 4,819.46|
|1984||$ 4,819.46||1.048||$ 5,050.79|
|1985||$ 5,050.79||1.048||$ 5,293.23|
|1986||$ 5,293.23||1.048||$ 5,547.30|
|1987||$ 5,547.30||1.048||$ 5,813.57|
|1988||$ 5,813.57||1.048||$ 6,092.62|
|1989||$ 6,092.62||1.048||$ 6,385.07|
|1990||$ 6,385.07||1.048||$ 6,691.55|
|1991||$ 6,691.55||1.048||$ 7,012.75|
|1992||$ 7,012.75||1.048||$ 7,349.36|
|1993||$ 7,349.36||1.048||$ 7,702.13|
|1994||$ 7,702.13||1.048||$ 8,071.83|
|1995||$ 8,071.83||1.048||$ 8,459.28|
|1996||$ 8,459.28||1.048||$ 8,865.32|
|1997||$ 8,865.32||1.048||$ 9,290.86|
|1998||$ 9,290.86||1.048||$ 9,736.82|
|1999||$ 9,736.82||1.048||$ 10,204.19|
|2000||$ 10,204.19||1.048||$ 10,693.99|
|2001||$ 10,693.99||1.048||$ 11,207.30|
|2002||$ 11,207.30||1.048||$ 11,745.25|
|2003||$ 11,745.25||1.048||$ 12,309.02|
|2004||$ 12,309.02||1.048||$ 12,899.86|
|2005||$ 12,899.86||1.048||$ 13,519.05|
|2006||$ 13,519.05||1.048||$ 14,167.96|
|2007||$ 14,167.96||1.048||$ 14,848.03|
|2008||$ 14,848.03||1.048||$ 15,560.73|
|2009||$ 15,560.73||1.048||$ 16,307.65|
|2010||$ 16,307.65||1.048||$ 17,090.41|
|2011||$ 17,090.41||1.048||$ 17,910.75|
|2012||$ 17,910.75||1.048||$ 18,770.47|
|2013||$ 18,770.47||1.048||$ 19,671.45|
|2014||$ 19,671.45||1.048||$ 20,615.68|
|2015||$ 20,615.68||1.048||$ 21,605.24|
|2016||$ 21,605.24||1.048||$ 22,642.29|
|2017||$ 22,642.29||1.048||$ 23,729.12|
|2018||$ 23,729.12||1.048||$ 24,868.11|
|2019||$ 24,868.11||1.048||$ 26,061.78|
|2020||$ 26,061.78||1.048||$ 27,312.75|
|2021||$ 27,312.75||1.048||$ 28,623.76|
So the narratives of low inflation over 50 years is a pile of dog shit.
However, the deflationists are not wrong about what is to come. I call this “transitory deflation” to sort of go in line with what Hunter, Rickards, and that whole crew discuss coming.
At issue is this….
If ALL debt is artificially priced high, and all of the sudden this DEBT is re-priced overnight by the realization that inflation is perhaps 4.8% yearly and not 2% yearly, could this cause tidal waves with people selling debt?
People are selling debt, and the Fed is the buyer of last resort.
Now, imagine a day when they are the only buyer of resort because they cannot let rates get too high.
A choice is then made:
- Let rates run hot, buy what you can to minimize the damage
- Buy baby buy, and absorb ALL debt to artificially keep interest rates low.
In scenario 1, we default on debt unless we literally print dollars, or, borrow at a higher rate for 30 years to pay off shorter term debt.
In scenario 2, EVERYONE sells while they can as no one will ever buy the debt again under this system. Who would buy 1.2% 10 yr treasurys if inflation is 8%?
Let’s go further….
This effectively ends the housing market overnight. Not only would rates shoot up, but houses would have to drop in price significantly due to the higher monthly payments of interest. Those people who have bought a house in the last year end up 25% underwater overnight. Anyone with an ARM is about to be homeless. This halts all new construction. Liquidity is already tight on lending, as only 5% of Canadians right now can even qualify for a house. The US market is much better equipped, but still, the value of the housing market evaporates instantly. Hundreds of thousands of construction workers are out of work. Lumber plummets. Commodities like copper take a deep hit.
All of these companies that have been borrowing cheap money to expand, those days are gone. With interest rates higher, suddenly businesses stop expanding. Last I heard, there was something like 38% of the S&P 500 companies that were Zombie companies. Maybe it’s lower than that, but the 38% is stuck in my head. Perhaps margin might cost more, and less people are borrowing on margin. Higher rates, by a lot, could decimate the market. This also can lead to layoffs of the largest companies in the world.
Overall, you start to see a lot of layoffs. Lots of unemployment.
Money bombers are gassed up.
I believe the grenade pin has been pulled. All that is left now is for the general population to understand that inflation is here, and real. Once this “transitory” narrative is clubbed like a baby seal, THIS is when I expect the rates of interest to start exploding higher, at which the Fed will have to step in and start seriously buying, and quickly, to prevent a 3,000 down day on the Dow.
I believe in Hunter, et al with their deflation. However, we are in a highly inflationary environment, and the deflation is what is about to be transitory. Remember, as the sell off starts, there will be many people with TRILLIONS on the sideline. Money bombers begin deploying more currency units.
The Risk On play is people chasing equities for yield. The Risk Off play is then people selling equities to get to bonds. Gold is a competitor to the 10yr, at times. Don Durette likes to say it’s a “fear play”. While that may be true, I want you to ask yourself what level of fear you might have to wake up an announcement of 10% inflation, and see the 10yr up .5% and rising. This means people are dumping debt. My guess is the DXY rises, and people are selling everything not nailed down.
At first, gold won’t catch that bid. As Hunter predicts, gold and silver might retreat 45% or so. However, he sees this blow off top coming and gold runs to maybe $2500 and silver maybe $45 – and his retreat levels are about what they are at now.
Then….after the deflation, high levels of inflation on the backend.
How do I play this? At that $2500 gold or $45-$50 silver, perhaps pull the plug and get to cash – assuming I have metals bought when no one wanted them a year ago – I have lots of cash. LOTS of cash, in a deflationary environment.
This means, for a time, my spending power is really good.
I feel that all of this takes place soon, when real inflation can no longer be denied. All of the jawboning in the world will not get the American public to be calm after grocery prices double in a few months. There will be calls to congress. Congress will posture about how unfair inflation is, and this is where UBI starts to come in to action.
The root fix for this may not be addressed for years…
- Accurately calculate inflation, and include everything a consumer sees. Your macro views do not work at the dinner table. This higher level of inflation then demands higher levels of interest.
- Reduce government expenses by 60-95%. You need to draft business leaders into government in order to document what can be done by the private sector and what needs to be done by the government. This significant decrease in expenses allows for higher rates to service the debt and pay it down more quickly. At issue is the government should have a minimal footprint in our lives, and this is the culmination of 40 years of expanding budgets in order to pay for things we shouldn’t be paying for.
You and I can make a fortune off of the deflationists by riding this up, starting to get to cash when you hit price targets, and buy a shit ton of good stocks, assets, and housing when the bottom is in. The problem with this? What if you get to cash and they continue this charade for another 5 years up 10x? Your cash lost all of its spending power. Or, what if you are all in cash after you get out at the perfect time, then buy back in at the low, only to find that the low goes another 90%?
There are flaws with the deflationists thinking. The first is Rickards assuming things today are actually deflationary, when they are not. It has been inflationary since the rates came down enough to start rigging the system again. I had read that in 1991, they changed the CPI to rig things lower. This is about 10 years into that system, and Clinton took office in 1992 – and he supposedly had all of these “surpluses” (which weren’t, in reality, but an accounting gimmick). Point is, the 1990s is when you saw great levels of increases in living standards – which then led to the dot com bubble in 2001, then the housing bubble in 2008, then now – the shit storm of the everything bubble.
Where does gold and silver fit into this? On the reflation side of things after this, I think it will be widely known there are trillions on the sidelines and the money bombers are papering everyone with “free” money. This will have the WORLD running to gold and silver, and it’s not going to matter much what the fed wants to say at that time. And, Macron will be made a fool for selling France’s gold. The COMEX markets, which were designed essentially to be suppression vehicles, will no longer have a say in the prices of things. It will be a joke that spot price of silver might say $27, but you can’t get silver for less than $60 in physical form. This then all ends with literally hundreds of people taking COMEX long silver positions to strip 1,000 oz bars out and draining the COMEX to nothing – as they are able to get the bars for less than $30, and sell for $60 cut up. Gold will no longer be delivered on the COMEX, as everyone that sold, settles in cash. Miners no longer sell for spot, and instead create private contracts with manufacturers and banks, bypassing COMEX markets.
Mike Maloney’s thoughts of unobtanium and unaffordium come true. No one can find it, and if they do, no one can afford them.
I just don’t give a #@$%@% about a $.50 move in silver today or next week.
This is what I really see, that many of you do not. Notice how that big ass cat has no idea he’s ended? Yeah. The silver squeeze is not about a “short squeeze” of silver contracts, it’s about squeezing the markets into capitulation.
Note: The LBMA claimed a member bank accidentally mis-counted by 110 million ounces. Amazingly enough, that was about the exact same amount that JPM said they put into the vaults in 3 days, at the exact same time they changed their prospectus to say the metals may not be there.
I now want you to go back into the wayback machine. Imagine a headline that instead reads “JPM could not source metal, went on open market and bought 110m ounces of silver driving spot price up to $90 overnight”. Instead, SLV appeared to tell everyone that they indeed added 110m oz in 3 days, but may not have added it at all. This would coincide with the prospectus change. Just imagine, for a second, that this was public knowledge at the time? Yeah – silver would have been over $50, and quickly. Possibly $125. Just think of that order size? Just as I laid out in my video. However, it appears they may NOT have added 110m oz, and this possible fib may have bought them and the market some time.
Oh well. When the lawsuits come out, I was an SLV options holder at the time, so I’m going to love my nice pay day in a few years when the lawsuit comes out. I had a TON of call options and it’s going to look real nice on my wall. Or, I’ll take a nice payoff for a few hundred k to shut up. I don’t need the money now, so I’ll wait a few years. No worries.
So…the everything bubble is popping with the mass understanding of inflation is here to stay. I wrote the below in pseudocode just to get the point across how an IT person might make logic rules on this. The REAL program I could write would be a few dozen pages, but I figured I’ll keep this short and fun to show the beatings at 830 AM and how clueless the population is with “morons” at the end.
July 10, 2021 at 8:46 am
Nice one Nate – Thanks.
July 17, 2021 at 11:31 am
English isn’t my first language so I might not get it. I’ve got one doubt.
When you say “At first, gold won’t catch that bid. As Hunter predicts, gold and silver might retreat 45% or so. However, he sees this blow off top coming and gold runs to maybe $2500 and silver maybe $45 – and his retreat levels are about what they are at now.”
That 45% when do you see it? when DXY goes up because rising rates and then going back up to 2500 gold?
I would love to see a clear timeline of events because I am very confused.
I certainly don’t see that 45% pullback in gold in this scenario.
Sorry but I am really confused
July 17, 2021 at 11:43 am
No prob – David Hunter has talked about perhaps $2500 gold as all markets melt up in a sense. When rates snap higher, this is the trigger for market sell offs. This has people demanding dollars, sending dxy up. Some of the deflationists see the rise up in the dxy to 120-140. This push up with the dxy has a negative effect for gold. Many selling out of the market may also have margin calls and sell their paper gold. This is the retreat he discusses, perhaps 45%. I think in one example he mentioned like 35%. Point being that from $2500 maybe it corrects to $1600-$1700-$1800.
He feels this will be one of the first to recover, and we saw this with the march 2020 sell off when gold rebounded in about 3 weeks.
I have no timeline. No one does – but the series of events make sense IF this path continues.
I am heavily invested in the theory that gold will hit $2500 and silver $45 by year’s end. This is because I can see these events playing out as hunter calls them. He can be very wrong. So can I. I have a ton of call options on this very scenario I may get torched by. Be very careful about listening to anyone on the internet, including me, for any kind of investment advice.
What we try and do is predict the future based on past behaviors. However, no events are exactly the same, and they are said to ‘rhyme’. However, this is a 40 year debt bubble that may pop and all of the other bubbles seem to be sourced from this bubble of easy access to cheap money. This will be like nothing we have ever seen and no one can precisely predict what’s about to happen. No one. Good luck to you and your investments.
July 17, 2021 at 11:55 am
Somehow I understood a near meltdown and gold 45 from 1800$.
I was surprised because I dont see a near crash with the FED backing up any minor drop.
What I don’t see it clearly is how you think gold is going to 2500 by year end with the paper market manipulation. I can see the Gov and Banks work together in that so they keep the public quiet and they keep saying their story. Banks are given whatever they ask and the Gov keeps the lie rolling
I am also very well invested in gold