I love listening to a ton of people in interviews – David Brady being up near the top. I had listened to his interview from the other day on Palisades, and I wanted to discuss one of his bigger picture items he mentioned near the end – what to do with the fiat from selling miners.
I think Tom could have on some guests just to even pontificate what to do with your money then?
Before I go further, I do want to mention that David is a human being like everyone else. He makes best guesses on things, and is closer to the right side of things than not. I bring this up because 5 months ago I was discussing with an investment chat with friends how David was calling for oil to go down – my buddies were skeptical. Then, Russia invades Ukraine and oil went way high. Had I shorted, I would have been blown out. However – this is why you have stops. I bring this up because NO ONE has a crystal ball, and we have to find people we like listening to for a variety of reasons. To me, David is the closest to having the most “right” calls – but his logic and tools resonate with me – the FIPEST is a group of tools, rather than just relying on a chart. Remember – this is a RISK and PROBABILITY game. I have been blown out on my miners like the rest of you reading this, so we can commiserate together – but occasionally you get that glimmer again, and this interview can provide that.
He says that gold and silver miners may moon. We know this – but then he presented a problem – what to do with the fiat from that sale. I’d like to have this problem someday. In THIS piece, I attempt to unpack some of what he says, then look at what options might be out there to do with this fiat.
Overall, he talks about how he feels the Fed can only go so far before it has to stop the QT, etc. That once the reversal happens, gold will skyrocket, and silver will outperform. He talks of it happening before or at the Sept/Oct timeframe. He cites things like rising unemployment for a reason. One thing that also could be a factor I was listening for and didn’t hear him say would be the 2022 elections. Politically, it seems they can’t crash the economy right before it. Additionally, he said perhaps a few months of a “disinflation” CPI where instead of 8.2, perhaps it’s 7.9, then 7.6, then 7.4, etc – which might be evidence of them “doing the right thing” to then perhaps have wiggle room to soften up.
I’m not so sure this pivot will happen, but he’s the expert that makes the big bucks. I wrote in January or so, “Could they let it burn“, in which I talked about how they COULD continue as is – until they get where they want to go. Now, mind you, this is all about probabilities. I didn’t say “THIS IS WHAT THEY ARE GOING TO DO”, but rather explored a scenario in which they could do what they promised to do. Brady (and many others) believe a pivot is coming similar to 2018. I could see that, but I could also see a “war” of the far left here against “the rich” and tearing down stock prices to make them sleep better at night. Rising interest rates? No matter – they will just talk about higher capital gains taxes, taxing the rich more, and enacting the evil “wealth tax”. So there is a path where the pain could go on for some time. And – I believe these are globalists at heart, so the idea of shitty gold prices makes them sleep better at night while they print massive deficits.
That’s a long-winded way of saying, “he might be right, but who knows”.
What is telling is how he’s been preparing for what he talks about as another Depression coming, perhaps in 2023. He has sold all of his properties, it seems, and is renting where he’s living now. He makes it sound like he’s heavily invested in metals, but I didn’t hear him discuss other things. Near the end, he talks about how the miners are going to go up tremendously – especially silver. I share this with him, as I believe the “green” movement is a globalist movement – and with this, you need a ton of silver. But the silver COMEX prices are hellbent on crushing supply from “primary” silver miners. And, if we do hit a depression-like time, the 85% or so of silver that is mined as a byproduct of other metals like copper, lead, and zinc, may crater. At the same time, you may have investment demand skyrocket. That mix would have the price of silver mooning. And, with it, the miners who are left to produce it.
The reason I wrote this article was to explore the silver miners more as part of his ending statements. He then talks about – “so what if you then sell them, you are left with fiat”. In a sense, he’s more or less talking as if you do not want to hold fiat here. I get it. But I wanted to unpack something. Let’s envision the below scenario.
Scenario: An investor has $100,000 of gold/silver miners. Mixes of majors, mid tiers, juniors. It is possible that if gold hits $3,000 and silver hits $50, that his portfolio could go to $500,000 – depending on how it’s crafted. IF you have majors doubling, you may have certain under-valued mid-tiers hitting a 5-7x and some juniors might go 8-12x. Or more.
Question: IF you feel a high is in (my highs I’m thinking are summer 2023), what do you do with the fiat?
What I want to explore here is the minefield all of us are wading through right now. HERE is a good time to remind you this is not investment advice, and to work with your financial advisor. What I’m doing here is thinking out loud what I might do with something like this. MY situation is DIFFERENT than your situation. And everyone else’s. So I’m going to unpack the thinking.
Macro forecast at this time: The idea is that summer 2023 might be “the end” before everything breaks. The ponzis end. Melt ups happen. Then – rug pull. Why? Perhaps the “build back better” or some form of it is passed when unemployment hits 6% and inflation is still over 6%. The easy money has no foreign buyers of substance, which sends rates much higher and the DXY even lower. This gets tacked on to a Fed balance sheet which continues to run out of control. They had engineered lower housing rates when the housing market stopped in its tracks – and took rates down to 2% to re-spark the markets. More homeowners re-financed, again, but this time they didn’t spend more, but started saving. Everyone could see that debasement of currency is in full effect, and the Fed’s $14T balance sheet can no longer accept and more additions. Rates jump, and stock market crushed.
What to do?
Hold cash – If this was a David Hunter deflation scenario, it might be prudent to hold a lot of cash here. If you sold that $500,000 in stocks and holding cash, you are watching the sticker price of everything around you going down, rapidly. In THIS scenario, this is the deflationists’ wet dream, and THIS is the scenario you could be seeing the dollar rise. Housing markets will crash as liquidating events happen. Everything is sold. Unemployment tops 8%. S&P zombie companies finally crash.
This is very tempting, until you realize that it’s also possible in this situation that the powers that be that are globalists and love MMT, that they think they can tax you retroactively on your stocks at stupid rates. Banks that may be failing could have “bail ins” and take your cash. You then also run the risk of a crash higher – where the deflation event doesn’t come into play – yet. Imagine where I sold all of those miners for $500k, expecting a deflationary crash, but instead money bombers come out and we get a form of hyper inflation. Had I held those miners for 6 more months, I could have sold them for $2m. Meaning – the stocks didn’t appreciate by 4x, but the purchasing power of the dollar declined by 75% in that 6 month time frame. The sudden realization that the melt up could continue now means everyone must be in the stock market or else the value of your dollars goes to nothing.
Risks – bank bail ins, melt up and lose value of purchasing power.
First – I’m going to start with the major asset classes, then ideas to spend money to live longer.
Buy bonds – I don’t like this, but the Burger King guys out there that know infinitely more about the bond market than me might like it. I see an end to 40 years of low rates. But, they may see a form of hyper inflation to be short term and if the 10yr hits 5%, they may pile a lot of cash into this, even if inflation is 20%. Why? Hyper inflations tend to go violently, but be shorter term. If you are holding for 10 years, you might see pain in years 1 and 2, but you might make a killing in years 8-10. Especially in an environment that is very deflationary. The values of everything are declining, but you are getting 5% yield? There could be strong move up here to 6% or so and the bond guys dump tons of cash here, taking it down to 3 or 4%. These guys could make a killing in a deflationary scenario.
Risks – steady inflation or stagflation or hyperinflation has cash locked into a 4% yield when inflation is 20%+. You could get murdered here.
Buy PMs – to me, if I just sold miners when gold is $3,000 and silver is $50, this might be an end to a cycle for me, so why would I take $500k and put in gold and silver which I could see coming back down to $1700 and $27? In this case, this is buying high. Still – if the currency is going to continuously be debased over a 2-4 year time frame to inflate out of debt, that gold could run to $8,000 and silver $100 by end of 2026. Meaning, you would have missed out on super strong moves higher while your cash was debased over and over.
Buy Stocks – If I’m selling all of my miners, it means I think the world is about to collapse, and it will take everything down with it. I DO see a time down the road I may buy into the indexes again for a reflation trade, of sorts, but to me, I think once this thing crashes, it could be a decade or more before you see stocks anywhere near these levels. I’d get out of the markets probably for 1-2 years – but where I’d probably re-enter would be where I see lows in energy, uranium, gold and silver, copper, and battery metals.
Buy real estate – If the everything bubble is about to pop, I don’t want to be a buyer here. I bought one of my properties in the peak of 2007, and I’m not sure the value is even back to it yet. Meaning, I’m unsure who will be a buyer at the stupid high numbers we might be at – but I think this is predicated on very low interest rates. To me, I could see us back down at 2.5% for a short time to juice markets, but then could see a rapid rise to 10% when the plug is pulled – which could take housing prices down 50-75% or more from highs into a great deflation. In my particular case, I could pay off my rentals, and with that, have stupid high free cash flow with no debt. IF I have a mortage at 2.8% for $300k on my house, it might be stupid to put that $300k into that house when I could take that cash and perhaps make 10% with it. However, the rentals could clear significant Free Cash Flows if paid off and reduce my risk of default. Brady talks about how high unemployment could also lead to high property taxes where people bulldozed their houses to avoid taxes. In my particular case, if you pay $60k to pay off a property and no longer have that mortgage, your ROI on that may be 20%. However, if I paid off my primary residence my ROI might be 4.8%. Meaning, while I might run the risk of default by losing my job, I could keep 2 years of payments in the bank (or in metals) and mitigate that risk whilst not having to commit $300k towards it.
Buy crypto – in this case, I’m referring to unbacked crypto. To me, this is a lever on the tech stocks and when liquidity issues occur, I believe this is the first item liquidated. It doesn’t mean 20 years from now your BTC won’t be worth $1m. It just might mean during a liquidity crunch, your BTC could hit $3k. Unfortunately, you don’t realize this because pumpers have gaslit you into the $1m thing. But make no mistake, when liquidity problems occur in the next 12-24 months, this is the first asset class mostly going to zero. AVOID. However, at $3k BTC, I might buy one. IF it is going to $1m like the pumpers want to sell you, then that is a 333x I will have as an upside. Could the $3k go to zero? Yeah. That’s like a 100:1 reward/risk ratio.
Now we go for “other”. Maybe you don’t wait until you are sitting on a $500k pile before doing some of the below.
Buy energy – this is something I did starting last summer. I bought 31 solar panels and 2 Tesla powerwalls. I saw a situation where there could be rolling blackouts and stupid high energy prices. I financed this over 20 years. Where my electric bill averaged $150, my payments for this – minus credits and other things – comes out to be $175 a month or so. While a deflationary shock could take oil down to $20 a barrel and make gas/electric cheap, there’s an inflation risk over those 20 years which can be stupendously high. What I did was more or less guarantee energy for 25 years to my house. With that $500k, it might be of interest to look into buying energy in the form of solar/battery. I financed, but you may see a crash in the economy and the price of solar crater and find good deals where no one else can afford them. IF you feel energy prices can soar in the next 20 years, pre-buying your energy here is of interest.
Buy food – I have about 2 years of food here, and my freezers/fridges run easily on the solar/powerwalls. So – for the most part, I can get along with rolling blackouts just fine. I’d say with the food shortages predicted, you might be able to get a good food stock going for $2,000 or so. Quarter cow, quarter pig, 50 pounds of chicken, veggies, and tons of grains. I bought 50 pound bags of rolled oats for $56 at Webstaurant store. Things like rice, oats, beans, pastas, canned sauces, etc can stay for a very long time. Last week, I made up a vat of chili with the pinto beans I bought (dry) and ground beef from the local farmer. With that $500k, you should consider stocking up for 2+ years of food for your family.
Plant food – I spent about $500 in garden supplies this year (fancy fence was most of it) and went to Tractor Supply to get planter potatoes. I bought a 4 pound bag which MIGHT help me yield about 40 pounds of potatoes in the fall. I have had raspberry bushes for some time, and in the summer get about a cup a day which I can use in my daily oatmeal. I planted a ton of tomatoes as well, as these work extremely well on burgers, sandwiches, and salads. Also, I have zucchini and cucumbers. With the zucchini, I make zoodles, zucchini boats, and zucchini lasagna. This is a far lower carb solution to pastas, and I REALLY like my zoodles now. A box of pasta was about $1 a few months ago, those prices have gone vertical, and with wheat being an issue vis-a-vis Ukraine, pasta costs could skyrocket. The idea here is the garden and pots may help augment my grocery needs – I can’t see how it would replace them. IF grocery bills go up 3-5x in 1-2 years in a high inflation scenario, buying food above for the long term while planting some to augment that can help a ton.
Buy land – I had dreamed here of buying some vacant land, but the wife kinda sorta threatened divorce. So, we won’t be going to this extreme – YET. The idea was that perhaps my country is going to hell, and it might be worth it to have some rural land to get to in a hurry. The problem is, that with any form of Brady melt up, land is going to melt up too. For ME – this is something down the road I’d like to buy during a collapse. But many of you may have the ability to buy land in the middle of nowhere to hold in the event of emergencies.
Buy lead – While I know there is a lot of anti-gun sentiment, in a situation where we face a civil war, riots, or extended times of turmoil, police may never come. IF there’s a situation where a city’s police force needs 50% reductions due to budget cuts, you may face a situation of hours of response times – which could signal a free for all for criminals to steal from those who have something. A .22 semi-automatic rifle uses bullets that are about $.06 each. The rifle may be $400-$500 and this may save your family’s life. An AR is about $700-$1000 and has more of a punch than the .22 – bullets cost more, but this gives you greater stopping power than a .22. You can buy used 30-06’s relatively cheap, as well as shotguns – and these can be used for a hunting scenario down the way if things get difficult. A handgun like a 9mm or a .40 could give you quick reaction in a home invasion scenario and it is easily concealable if you are on the move with your family in danger. The .22 rifle can then be used to hunt small game.
Buy a pickup truck – if you have $500k sitting around, it might be worth buying a pickup truck. You don’t need a fancy $80,000 new one, but perhaps one that’s 5 years old you might get $20-30k and with this, you can haul things if needed. This might be very important down the road. Moving in a hurry. Transporting wood/bricks, furniture.
Buy an RV – this is something I REALLY want, but may also buy during a collapse. While I bought a Ram 1500 last summer and love it, I knew nothing at the time of hauling abilities and the idea of an RV hadn’t set in until AFTER I had bought a pickup truck. The idea here is that IF you have to bail in a hurry, you could take your family with the RV to a remote rural area where you own land and you can wait it out there. Imagine a situation where riots happen and suburbs are burnt to the ground by angry city-goers who blame them for their life’s issues.
Buy fishing equipment – This you might be able to do for about $100 now. But with $500k, you might get a small fishing boat with this as well, depending on where you live. Imagine being able to go out every day and catching your family’s food for the night or week? With this, you might want to buy a good knife for not only defense, but cleaning the fish.
Buy camping equipment. Like with the RV, you might need to be mobile. However, if you look on the east coast of the United States near water for hotels, you often see $300-$400 a night. Who the hell can afford this? When I was a kid, we had a tent, stove, etc and camped 15 minutes away for $7 a night. The camping equipment also can be axes, knives, rope, tents, tarps, cooking stoves, and utensils.
Buy rentals – this is something that I feel I may get at bargain basement prices 24 months from now, and I WILL be shooping. To me, I don’t have a 401k. In my career, you have to be mobile and moving from company to company always made 401ks hard. Given my largest investment by a mile is properties, I would want to continue to buy some of these. During a complete collapse, I might get a property around here listed at $120k today for $35k during a collapse where they need cash. To ME, this might be where I focus a lot of my efforts down the road because even if rents are reduced a lot, I might get a yearly 10% ROI from this. My one property now I have negative FCF due to buying it at the peak of the housing market in 2007. However, the second property with 2 units is somewhere around 25% per year. I can pay off the first unit, turn that into an 8% ROI, and then buy more rentals with a 10%+ profile.
Buy water – whether it is a giant blue drum you can buy from Tractor Supply or bottles/gallon jugs, it’s not a bad idea to have water around.
Buy clothing/shoes – most don’t realize that if there’s a prolonged situation with inflation/deflation, you can run into a problem of clothing having holes in it, shoes getting worn down, etc.
Buy cryptometals – I called these “asset backed digital currencies”. If you are in a situation where gold is $3,000 and silver is $50, the premiums from a local coin shop may be insane. IF you think there’s a potential “melt up” situation, you might buy in here with Kinesis, Load, or Cache. I have KVTs from Kinesis, which I think will pay off nicely over 5-10 years, but to each their own. IF these things become big as trust in fiat collapses, you might get almost infinity returns on the KVTs. Perhaps the melt up with metals tops around $6k for gold and $100 for silver. You can sell there for fiat OR take your metals off the exchange to hold.
Buy your health – If you sold stuff for $500k, what is more important that buying years on to your life? Buy a fitness tracker. Get some tennis rackets and balls. Buy hiking shoes. Buy running shoes. Buy a gravel bike with a Garmin – and bike shorts and shoes with clip ons. Find parks in the area you can walk your dog at. Go on family walks around the neighborhood. Fix up your basement to make a gym down there. Buy used olympic weights and start training. Buy a used exercise bike. Buy a used rowing machine or a used Bowflex. If you end up losing your job, have 12-24 months of bills in cash in the bank (after paying debt below) and take a year to get your health at peak performance and come back to the work for refreshed, and healthier than ever. While others may be sweating the terrible market and barely getting by, you are investing time into your health and body. You have stocked fridges. you have emergency stashes of metals. You have little to no debt.
Now – what about paying debt?
My general rule here is this…can you do better with keeping that cash and investing in something else? Generally speaking, credit card debt at 20+% should be paid. The questions then come with lower interest items like rentals, student loans, vehicles, and primary residences.
Pay off debt – While paying off my rentals is high on my list, so is paying down credit card debt. If you use credit a certain way, you can get things “for free” – but that might require some luck, planning, and really good understandings of how to work with money. If you have $50k in credit card debt, it might cost you $24k a year in carrying costs just to pay the interest. But when you used that $50k, you avoided paying cash. I used a good deal of this to fix up my one rental and finish my basement – so the uses of credit here were to improve the valuations of homes and the increased rental prices of the homes. Assume you put that $50k into miner that would go to $250k over 2 years. That means you paid out of pocket $50k for the stocks, $50k for carrying costs, and then paid off $50k in principal with the sale of $250k in stocks. You wind up $100k the better in the situation using other peoples’ money for 50k of that, and wind up with improved home values and rental incomes. Or, your miners go down 50% and you are screwed. There are risks involved with using credit, so you need to understand what you are doing. I also use margin with miners, and that can be tricky as well.
In the above scenario, if I paid off my three rental units, it’s about $180k. But doing so will allow $33,600 in FCF or about 19% ROI. So for me, this is a smart move to do. Then, I potentially have 30-40 years of rental income that most likely will only go up over that time. If you took finance, you understand future values of cash flows and that 19% now over 40 years, assuming a 3% inflation rate might be something like 50% ROI averaged over that time. THAT is a good usage of cash.
Avoid stupid shit – I can tell you that I think over the next 12-24 months, a lot of shit is going under. Services that operate on advertisement revenue only may go belly up. How many of the Netflix-like services may consolidate due to operating costs that ran crazy? Remember 30 years ago when there was essentially ABC, CBS and NBC as the dominant channels? Fast forward and you may see Paramount, Disney, Amazon, Fox, YouTubeTV, and Comcast as the 6 dominant who swallow up all other smaller online services. We have already started to see this – go on Disney and you see Star Wars, Marvel, Disney, NatGeo. With Paramount you got tons of other sub-channels. HBOMax has a ton now. My point is that I believe massive consolidations are about to happen due to people cutting back on discretionary spending. While the “work from home” trade of PTON and the like may be dead or dying, I think this is going to go much further and hit all kinds of other frivolous services that people need to cut in order to buy food.
Stop eating out – while I don’t mind recommending to go out occasionally to support local businesses, I think my country is spoiled rotten with chain after chain after chain after chain. In my city, it’s a Friday night feeding fest of the local shitty chain restaurants that are understaffed, use low quality ingredients to drive down costs, and use pre-packaged foods they heat up for you. Spend that money on things like crock pots, instapots, cutting boards, stand up freezers, dry beans/rice/pastas and learn to cook. I rarely go out – but when I take my 13 year old to McDonalds, I see a quarter pounder meal at like $9.50. When I was in high school, it was $3.20. So the price of “discount” food has gone up 3x in my lifetime. And ingredients from these places will make you have poor health. You can thus avoid heart attacks, diabetes, cancers, and other grave illnesses by preparing your own food. If you do want to go out, make it a rare treat – support local businesses who are more likely to be using fresh and higher quality ingredients with a chef.
Overall – I would like to have the problem of my miners taking off and being stuck with massive quantities of fiat. I can put it to good use. Others might hold onto it and see the value of it vanish. My finance professor in my MBA said, “always have 6 months of bills in the bank as an FU fund. If an employer ever asks you to do something unethical, you can then quit and find another job”. The same principal holds true for losing your job due to layoffs or a job market. If you are 22 or so and living with mom and dad, always understand this – as you make more and more money through your career, your bills go higher and higher as your standard of living increases. AS such, always ensure you have at LEAST 3 months of bills in the bank, but shoot for a year of liquidity. This could be stocks, metals, etc that you can liquidate if needed in an emergency. Long term assets like housing may be somewhat illiquid in a given market.
NO ONE KNOWS what is going to happen – BUT we can try and prepare for downturns AND come up with a game plan as to how we might deploy our mining stock profits – IF they come.
June 3, 2022 at 5:07 pm
Great article as usual. We all like to buy low and sell high but the biggest challenge is knowing when things are cheap and when are expensive.
I use the Dow to gold chart to provide usable info. Where it is right now, 16 roughly, shows that PMs are cheap at present. When it falls to around 5 , I will know that stocks are cheap relative to gold. I will sell at that time and buy dividend aristocrats that will be cheap at that time.
This strategy worked last cycle and I intend to use it again this cycle.
Sent from my iPhone 416 419 5192