Updated 3/24/2022 0319 AM – updates in BOLD
I try and talk to some of my friends and they think I’m crazy. I then talk about gold and silver and the lights go out and the eyes glaze over. There’s a HUGE chasm between what I know and what they understand, and this piece here is to list the main concerns that are out there, and at the end I’m going to talk about risk assessment. I’m going to try and talk about tons of subjects below each one I can write 30 page papers on, but I have some links to expand if you are curious.
(Pictured above is Exter’s pyramid) – last week we saw the Nickel derivatives market blow up, and it will be the first of many in 2022 due to “banksters” who short things into oblivion getting blown out on real shortages. In case you are wondering, that $.05 piece in your hand is worth $.11 today. Meaning, you could go to the banks all over the country, buy the nickels for dollars, and more than double your money if you took them for scrap metal. Not financial advice – but you get the idea.
So here’s a list of the things off the top of my head you need to be worried about for 2022.
- Banks do not trust each other’s collateral. In 2019 the repo market “broke”.
- In the global financial crisis, “Quantitative Easing” was created for the Fed to buy treasuries to stabilize the markets and provide liquidity. The Fed’s balance sheet is now over $8T. In 2008, it was $1T.
- We owe over $30T. For every 100 basis points (1%) we raise rates, that is $225B more we have to pay. Over the last 40 years, we have taken rates down to near zero from 20% in 1980.
- We have inflation at 40 year highs.
- In 1980 and 1991, the CPI formula (how we report inflation) was rigged downward for “hedonic adjustments”. For example, if now steak is just “too expensive” you report on chicken. you aren’t capturing the steak price month to month.
- Because the formulas changed, you are led to believe this is the highest inflation since 1980. In fact, if you use today’s data with 1980 formula, you are over 16% inflation
- Inflation can be defeated in a few ways. One is to raise the interest rates above the rate of inflation. Paul Volcker did this in 1980. We have 16% inflation, and near zero interest rates, and the markets are down 15% on the idea of raising interest rates to 0.25%.
- Our national debt in 1980 was $300B and today it is $30T. Meaning, we have 100x more debt. We cannot raise rates above the rate of inflation because servicing that debt would require $4.5T. We collected $4T in taxes last year. Meaning, if we wanted to raise rates to 20% just to service the debt to stop inflation, we would need to collect $8.5T in taxes. Consider doubling your tax bill just to pay interest. Can that be done without destroying the economy as we know it?
- Another way to fight inflation is to inflate out of debt. Let inflation run hot for a few years. If inflation has you making 40% more money in 2 years, and everyone is making more money, that means more tax revenue collected against cheaper debt. Conclusion is they aren’t really in a hurry to fight inflation. This gives them more money to spend.
- By artificially reducing interest rates for 40 years with bogus inflation numbers and outsourcing all jobs to keep wages stagnant, this has allowed our government to continuously refinance the house with “cash out refi”. Consider the government now has a loan on a house in your neighborhood for $10 million that has a market value of $300,000. Who had allowed that valuation to get to $10m?
- Our “money” used to be pegged to gold and silver to prevent “printing money”. Gold and silver, in the Constitution are to be the ONLY money. Our $20 bill was a gold note good for one ounce of gold. Our $1 coins were 90% silver and $1 bills were exchangeable for $1 silver coins.
- In 1971, we went off the gold standard completely. In history, every non-backed fiat currency has gone to zero.
- If you had one ounce of gold in 1915, it was worth a $20 bill. Today, you would need 100 $20 bills to buy one ounce of gold. Gold did not appreciate in value, the dollar depreciated by 99% since then.
- We run a fractional reserve system. Banks can “print” money and lend out. 40% of all of the dollars ever created have been created in the last 2 years.
- “Inflation” historically has meant “inflation of the currency”. Politicians and many others try to use modern monetary theory and other gaslighting techniques to try and convince you that “inflation is good”.
- The issue with REAL INFLATION and not the FAKE CPI is your wages do not rise as fast as the rate of inflation, thus you find yourself getting poorer in REAL terms every single year. Consider your 2% wage increase but your medical plan went up 8% and food went up 20% and gas went up 100%. How has 2% wage increase helped you?
- The main issue with “printing” money is when you have a lot more of it, the valuation of the existing dollars are diluted. Meaning, those who hold all of this tend to put it into things like property, stocks, and “things” to lock in the purchasing power. By the time you get those dollars in your paycheck, they have been degraded in value several times over.
- During the 1970s, we saw historic inflation. During that time, gold went up 24x and silver went up 29x. Gold and silver are “giffen goods“. That means, as their value increases, the demand for them increase – this is counter to supply/demand theory. In order to make “the dollar” more attractive, you must do your best to keep the values of these goods from increasing or they can become a hockey stick up, and quickly.
- In Weimar, Germany – there was a hyper inflation after World War 1. In Jan 1919, gold was 170 German marks. Nov 5th, 1923, it was 8,700,000,000,000 (8.7 T). Just 2 weeks later, it was $87T marks. When high inflation times happen, people start to buy gold and silver to preserve “purchasing power”.
- In the 2000s, Venezuela was one of the richest countries in the world. By 2017 due to all kinds of socialist spending and issues – they suffered a hyper inflation.
- Currency collapses and hyper inflations happen throughout the world. Currently, there are problems with Venezuela, Argentina, Turkey, Zimbabwe, Sudan, and Lebanon.
- The US is thought to have 8100 tons of gold in reserves. While gold doesn’t “officially” back the currency, having gold reserves in central banks can help assure security of the debt. The last gold audit we had was 1954 and Rep Mooney cannot get a bill out of committee trying to do an audit. One must ask why we cannot audit this. IF the US has no gold reserves, at all, what does that do the value of our dollar and debt to the world?
- Historically, in the US, gold has been held by investors at about 1.5-2% of all holdings as a hedge against doom. Currently, it’s about .5%. It is said by those in the industry if wealthy folks one day woke up and just reverted to the mean of 2%, that inflow to the price of gold would be like putting the contents of hoover dam through a garden hose.
- Today, it is near impossible to get any gold and silver orders of any size. Bill Holter talked about massive clearing out a few weeks ago. To get any at the retail level, you are dealing with perhaps 40% premiums on silver.
- Every fiat currency in history has collapsed. At 50 years, we are well beyond the life of the US dollar.
- The USD is at the end of a cycle of world reserve currency status
- Just last week, Fed chairman Powell said, “There can be more than one reserve currency”. This is signaling that the US may welcome a rival or new system soon.
- The US is looking at a Central Bank Digital Currency dubbed “FedCoin”. This locks you into a financial system where, if you are targeted by an opposing political party, they may lock your wallet or seize your dollars, with no due process. I have written about the benefits of this, IF done correctly and federated identity handled outside of government. However, Canada has shown how governments cannot be trusted with this power.
- Ukraine makes 25% of the world’s wheat. They may not be planting this year due to war.
- Natural gas is used to make fertilizer. High natural gas prices are significantly increasing the price to make fertilizer. Take a look at how the lack of fertilizer may have an impact on world hunger.
- Significantly higher prices in fertilizer will lead to less fertilizer being bought by farmers due to the inability to pass these higher costs on to their customers due to prices being set by commodities exchanges. Higher food prices are still expected.
- Supply chain issues are a real thing, but COVID was only part of it. You have countries now refusing to export certain things because they want to ensure their citizens have it with shortages coming. Ukraine is banning wheat, oats, millet, buckwheat, live cattle, sugar, meat, and other “byproducts”. Ukraine is the “breadbasket of the world”. Pakistan urged to ban wheat exports. Russia bans grain exports to ex-soviet countries. In fact, this list is growing by the day and I only covered 10% of what I’ve been seeing.
- China now shutting down production all over the place due to what seems to be more virus issues. Adds to more inflation pressures.
- Ukraine makes 90% of all neon gas used to make semi-conductors. Russia makes 35% of the world’s palladium used in it.
- Taiwan makes 92% of all semi-conductor chips. China sees any recognition we have of Taiwan as an insult and it appears as if Xi has interest to take them back under Chinese control. China recently seized Hong Kong, despite the fact it was supposed to be separate for another 20+ years.
- Semiconductors are used in just about everything tech. Cars, smart phones, laptops, TVs, advanced medical equipment. You can see where most chips are made now, and not a ton in the US.
- If China/Russia controlled the supply chain of semiconductors, they could ban the sale to the US or any manufacturer that sells their products to the US. While it could be a nuclear move, it is a way to fight back against sanctions that hurt us terribly.
- Cost of energy is important in the price of all goods and services. Keeping the lights on, heating, air conditions, shipping products. The Western world is being pushed towards a “green agenda” prior to new sources of energy being able to take over. This creates gaps and drives fossil fuel prices much higher – hurting the poorest the most who cannot afford solar panels or electric vehicles. Companies have to pass on higher energy costs to their consumers – again hurting “average joes” disproportionally to those with means.
- The US has about 330 years of coal left. China has about 20 years. Australia is also a rich source for coal. Coal is important in creating the cheap energy needed to heat homes via power generation stations. Countries that can make goods cheaper than us tend to beat us at the market. I am concerned where China may be looking to get coal.
- Nuclear plants are a rich source for baseline power generation. No one wants a “nuke plant” in their back yard due to the Three Mile Island disaster of 1979. Fun fact, I live 7 miles from there and no one here talks about it except on major anniversary milestones. It appears China is making major moves to bring a lot of nuclear power plants online over the next 10 years to reduce their need for coal. On this list, the USA has 2 coming online in the next decade.
- Nuclear plants run on enriched uranium. The two largest uranium mines in the world are Cameco at Cigar Lake in Canada and Kazatprom in Kazakhstan. Remember the recent Kazakh fighting and Russia got involved? Apparently, Russia makes 16% of uranium and if Russian influence over Kazakhstan is sufficient, they may control exports of uranium to the West. Kazakhs control about 40% of the world uranium production and we come in 15th, with barely producing anything.
- Sprott SPUT (Canadian) is buying up all spot uranium in the world and buying the URNM ETF trust. There could be significant delays and shortages in getting uranium in the next few years and it is possible that baseload energy goes dark if people cannot produce enough. Nuclear makes 20% of all baseload energy in the country. Consider now that countries are stopping the export of strategic resources and the US makes barely any uranium for its 88+ nuke plants. It takes 10-15 years to build a mine, folks. Quick – name 5 US based uranium producers. Too hard? Quick. Name one.
- On day 1 of Biden taking office, he canceled the Keystone pipeline which would have helped us bring cheap oil to the US. Biden has frozen a lot of permitting and new drilling, but later permitted areas that no one drills at.
- Being reliant now on US imports of oil – Biden tried to strong arm the middle east into producing more to reduce the costs of gasoline here. They refused. Now, Saudis and UAE will not take Biden calls. We are negotiating with Iran (the only state sponsor of terrorism) to get them to produce 4m barrels a day. We are negotiating with Venezuela to buy from them – even though we do not recognize their president.
- Given we are in an era of increasing energy prices, with no appetite to produce more domestically, this will lead to continued price rises of products to American consumers. First, we saw shrinkflation where manufacturers try to reduce portion size but charge the same price, then when that can no longer be hidden, prices rise. Government officials want you to believe this is “greedy companies“, but the truth is it is their policies of printing more money and slashing energy production domestically that are contributing to higher input costs. The price producer index is showing the cost of things to make things increased 10% year over year.
- Inflation can be a doom-loop-death vortex higher. You have higher prices you see in everything. You want higher wages to pay for these things. The business has a choice to eat these costs or pass them on to the consumer. Businesses go under from lower margins, others go under due to higher prices lead to lower sales, and eventually – you have these higher prices passed on to consumers (you).
- Unemployment rate shows about 4%. But this is a lie. After you do not work for 12 months, they drop you off of the “willing workers” portion. Meaning, they think you volunteered out of the labor force. However, if you look at the labor force participation rate, we still haven’t gotten back to pre-COVID levels. And, we are 5% off from 20 years ago. So the unemployment rate may be higher than reported, by a lot.
- The east has been stock piling gold for years. We are punishing Russia with not allowing them to use the dollar with SWIFT. Luke Gromen suggests that Russia could sell oil in gold, and overnight re-price gold and break all of the commodity exchanges we have. The net effect of this could have gold re-priced significantly higher, and with that, all things are priced relative to gold and the USD can be devalued by perhaps 10x overnight.
- “Tools” are used sometimes to discuss inflation, and one of the tools talked about are “price ceilings“. This has an economic side effect of creating shortages. Probably best to have stockpiles of things ahead of price ceiling announcements.
- “Windfall taxes” are said to be sought to penalize oil companies for charging too much and getting crazy profits. These profits are used to fund new exploration and reward investors for taking the risk of owning the stock. What these taxes do is disincentivize new exploration – further straining our supply-side and relying on foreign oil. Problem is these companies do not set the price of Brent or WTI – exchanges do.
- With inflation, it is cheaper to buy a lot today than buy over time and experience those higher costs later. This leads to hoarding and supply issues – and shortages. It is reasonable to assume that by summer, food prices can be significantly higher than now, and Americans are sensing it. The additional buying stress of hoarding then leads to further supply chain issues and increasing costs to dampen buying pressures. Many will try and become self-sufficient and grow certain crops to offset food costs.
- Silver is used in thousands of products and is a key component in solar panels and EVs. It is estimated there is about 20 years of silver left. They want you to go to solar and EVs today, but they have zero clue how this stuff is made and how tight the supply chains are. Lithium has gone 10x over the last year, and nickel broke last week. The $.05 nickel in your pocket is actually worth $.11 now. It could take 15-20 years for Americans to catch up with solar and EVs just based on the ability to source the metals needed to produce the supply wanted.
- With the book the 4th turning – today it suggests we are at the end of the roaring 20s near the end of the 4th turning, about to see a depression and rise of the next hitler. This video talks about this generational theory.
- It is also possible we are at the end of the sixth stage of empire, and approaching the 7th stage of empire – collapse. IF we are at the end of the US dollar as the world currency reserve, it also means it’s possible there’s lots of less cheap credit coming up – and with credit freezing can go into a global depression.
- The World Economic Forum has this thing called “The Great Reset“. These “leaders” meet in Davos, Switzerland – and 300 private jets came in this year. They have an agenda to plan your world for you. In it, “you will own nothing and be happy“. I don’t like that world. Do you? They insist on stopping the usage of fossil fuels and even eating bugs as protein because of the sustainability of raising animals is too much.
- The BRICS countries are “emerging markets” of Brazil, Russia, India, China, and South Africa. You are looking at nearly half the world’s population there. The BRICS+16 or so are an additional group of countries emerging next, like Vietnam. The BRICS countries have thousands of years using gold as money and don’t share the Western agenda driven by the WEF.
- Today, China is talking to Saudi Arabia about paying for oil in Yuan. This is a sign that those that need to hold USD to buy things no longer need it. Dollars could flood back to our shores creating significant levels of inflation.
- Russia and Ukraine have significant, significant commodities produced between them. While Russia may overtake Ukraine – it is apparent their big issue is control of certain regions of Ukraine as well as guarantees they do not join NATO. They have willing buyers in China, India, Pakistan, former soviet countries, Turkey, Venezuela, middle eastern countries, and many south American countries – as well as Cuba. While Russia may not have access to the dollar, they can sell anything they want in rubles or their currencies – including gold. Germany said they cannot stop buying Russian gas and Turkey told NATO to pound sand with sanctions.
- 4 Fed governors had to resign recently due to being caught front running trades they were making policy on. The best stock picker in the world is not Warren Buffet, but Nancy Pelosi as she feeds information to her husband to buy tons of stocks with. She makes $220,000 a year as speaker of the house and her and her husband have a net worth over $100m. The people in charge are front running things and violating insider trading laws to enrich themselves – at your expense. Check out 57 members of congress who violated rules here.
EDIT – Risk management
So one of my friends asked me what my “prediction” was. I think it’s a dangerous business to be in, because no one has a crystal ball to predict what happens. Meaning – unless you say that “on June 23rd, 2023, gold will be $2623.89” you will be wrong – to some degree. You have to use a “cone of certainty” to use probability. Which brings me to risk management.
Step 1 – Identify the risk from above. What risk do you see? Currency? Food? Shortages?
Step 2 – Identify the LIKELIHOOD of the event happening. Is there a decent chance in the next 6 months there will be food shortages? Yeah. Currency collapse in 6 months?? No. But within 5 years? Ummm…maybe? So with this, you have to define your TIMEFRAME for that risk and the LIKEHOOD it would happen.
Step 3 – Identify the IMPACT if it happens. IF you have a basement full of food, food shortages have a low impact score for you. But if you are a farmer and there are jacked up fertilizer prices, this could be severe in lower crop yields with rising fuel costs.
Step 4 – Choose an action. You can AVOID, ACCEPT, TRANSFER, or MITIGATE
Step 5 – sleep better knowing you understood risks and addressed them based on YOUR personal risk profile.
Let’s use some examples….
AVOID – stock market is in a downtrend. Avoid adding new positions
ACCEPT – many of the items above talk about food shortages, and you may have a basement stocked, do canning for fun, and have a big garden. While a likelihood may be MODERATE, the IMPACT to you is LOW.
TRANSFER – this is insuring things, for the most part. I’m not sure hedging a position counts as this, but in a sense, buying precious metals is insurance for your dollar holdings.
MITIGATE – you realize you have bare cupboards and YOU think I’m a clown and risk of food shortages is LOW. HOWEVER – you recognize IF it happens, it SEVERELY impacts you. You then plan to buy more dry goods to stock up.
NO ONE CAN PREDICT THE FUTURE. That being said, in the game of your LIFE, treat this like a chessboard where you have to evaluate many possible outcomes and choose what to do about them. If you try and predict a direction, you can predict wrong, and in that case, if you did not have a plan for another outcome, you risk high exposure to a negative life event.
Please understand I do not have intention of fear mongering. The intention is to try and alert people of the big chessboard that is going on and where the pieces are moving. Most of the news you see today obscures the chessboard and pieces to have you focus on a topic du jour – this allows a lot of things to happen without attention or scrutiny. Those who pay attention to world events tend to be better prepared than those watching only a CNN/FOX – who are ratings-driven animals and need to focus a lot of time and commentary on popular events rather than important geopolitical events.
Where some of us metals guys can get in trouble is….”$3000 gold!!”. Then in the next 2 weeks, gold goes down $40 and you look like a schmuck. The best way I can tell you to address that is to NOT CALL for $3000 gold, but suggest doing the risk analysis. Follow me here.
IF you see $3000 gold as a more likely than not event, it most likely means that there are macro forces in play that have people moving money TO gold FROM something else. This is an upside risk to gold, but a downside risk to your equities/real estate/bonds. Meaning – you’d put your “risk on” items in the EVENT. Likelihood would be “more likely than not” and the risk is SUBSTANTIAL so to MITIGATE you buy physical gold, vaulted gold, GLD, OneGold gold, PHYS, and then after that buy gold miners as a portion of this to realize the upside. IF the event does not happen, you then lose on your gold play (which should be a small portion of your portfolio) you would be winning to the upside of your RISK ON play.
From here – you can then determine what level of participation you want with gold. 1%? 10%? This type of thing you should discuss with your financial advisor. Most likely, he knows nothing of gold and silver and bonds are his risk off choice. Ask him the strategy of putting your money into something that yields 2% during a 16% inflationary economy? Watch the look on his/her face, and digest the answer – but very few people alive managed money in the 1970s are still working today.
The big mistake may be thinking this is the time to buy bitcoin over gold. I wrote a YEAR ago that bitcoin’s chart was correlated with the Nasdaq, and I called it NUGT for Nasdaq, as it was a levered play on RISK ON. If you feel we are in a RISK OFF scenario, you have a LEVERED LOSS DOWN with bitcoin from here. Don’t believe me? Check the charts for bitcoin in the 1970s, dotcom bust, and global financial crisis of 2008. You seem to not be able to find data for then? Yeah – that’s my point. You have ZERO EVIDENCE that it will perform better than stocks in a downturn.
When the repo markets broke in 2019, it signaled a great unraveling was to happen. This led me to understand inflation CPI numbers, interest rates, market manipulation, offshoring, globalization, higher costs of energy leads to higher costs of fertilizers/transportation which leads to higher costs of all crops which leads to higher meat prices which could lead to worldwide famine. Using cheap energy is a way to reduce costs across the board and reduce inflation.
Given everything I wrote above, it is extremely reasonable to:
- Buy solar if you can, ASAP. Energy costs may only rise and the availability of silver or solar panels from China may be in doubt. If you can freeze your energy costs at today’s rates – you can also protect against grid issues and keep your freezers/fridges running and provide warmth/cool air during extreme weather times. If coal is getting cut by tree huggers, and no one is allowed to export uranium to us, and we aren’t allowed to drill – get solar on your home now while you still can. Soon, credit will freeze and no loans will be allowed for it.
- Stock up food. It is a non-zero probability food costs will continue to rise, leading to many to buy up existing stocks and create shortages – soon.
- Hedge a significant portion of your portfolio in physical gold/silver while you can (not paper gold and silver). These are being held down by banks/plunge protection team to assure everyone the currency is ok. Problem is, the East has been buying gold at this discount and is ready to blow up the dollar by using gold. Buying this can protect whatever wealth you have from a significant currency deflation like in Weimar.
- Plant food. Things like berries, zucchinis, and tomatoes are pretty easy and can shave some money off of your grocery bill.
- Cut back on stupid shit, now.
- Read my full piece on how to protect against a currency collapse here
March 15, 2022 at 8:29 pm
Very nice summary Nate !
Same thing here in my circle. If i point out the obvious to friends & family, all i get is blank stares.
Take care and keep writing – even if the wifey thinks nobody reads it 🙂