The World Has Changed

Miles Franklin sponsored this article by Gary Christenson. The opinions are his and are not investment advice.

BREAKING NEWS:

Silver (COMEX) rose $3.60 during May 2020.

Gold (COMEX) rose $42.70 during May.

The DOW was up 1,037 for the month.

THE BIG PICTURE:

Debt: US official national debt climbed to $25.7 trillion, up from $20 trillion in September 2017. 2020Q1 marked the beginning of huge deficits. Phrases that come to mind: out-of-control, outrageous, never-ending, unsustainable, unpayable, inevitable default, and corruption.

Central Banks: The Fed’s balance sheet (dollars created from nothing) rose to $7.1 trillion, up $3 trillion in a few months. We’ll see $10 trillion soon. Phrases that come to mind: corrupt, unsustainable, and Inflate or Die!

Interest rates have been artificially reduced to near zero. They levitate the stock market, reduce government and corporate interest expenditures, promote stock buybacks, encourage deficit spending, and boost Wall Street bonuses.

Stocks: The DOW peaked in February, crashed in March, and has rebounded since the bottom on March 23 (2020Q1). Liquidity from central banks levitates stocks. Sustainable: No!

Precious Metals: Both are rising, partially due to the devaluation caused by the dollars-from-thin-air creation at The Fed. Silver bottomed at $11.77 on March 18, 2020Q1

THE WORLD HAS CHANGED SINCE QUARTER ONE OF 2020:

We know the world will recover slowly from the shutdown (2020Q1) and will not return to the “normal” of 2019.

RATIOS SHOW WHAT?

The DOW to gold ratio for 35 years shows this ratio trends for years. It is trending down in 2020. Gold will outperform the DOW for several—probably many—years. Note the broken trend line.

The gold to silver ratio shows the preference for gold versus silver. For decades, this ratio has shown:

a) A high ratio (rolling over) indicates long term bottoms in both metals.

b) A high ratio indicates that silver will outperform gold when the ratio turns lower.

c) The ratio peaked in March (2020Q1) at 125 (highest in history) and has since dropped below 100. Expect silver to rise faster than gold for several years.

d) Expect both gold and silver to rally in this decade, as central bank “printing” and government deficit spending will devalue fiat currencies.

These are difficult to quantify, but rising gold prices suggest a lack of confidence in central bank policies, excessive printing of currency units, fear for the future, uncertainty, and declining faith in the central planners who occupy the Eccles Building in D.C. Much changed in 2020Q1.

WHAT ABOUT STOCKS?

Option A: Central bank liquidity injections will push stocks higher for many years. It worked since 2009, but 2020Q1 looks like a turning point. Dangerous!

Option B: Debt and stocks can’t rise forever. The S&P 500 Index may need several years to correct and consolidate when measured in nominal dollars. Based on the inevitable dollar devaluations, the S&P may take many years to return to purchasing power parity.

Option C: Don’t ask. Don’t tell. Buy silver instead.

The above graph shows that silver is inexpensive compared to the S&P. That ratio suggests that silver, even at $17+, is as inexpensive as it was in 2001 when it sold for $4 and change. The ratio could rise by a factor of ten. Silver could sell for over $100 in a few years without hyperinflation.

The NASDAQ 100 Index has been strong for decades. It rises high and then falls hard. After the 2000 crash it fell more than 80%. A repeat of the 2000 collapse, even with Fed liquidity support, is possible. Measured in purchasing power, the collapse could be larger.  The Powers-That-Be want a correction followed by another multi-year rise.

Don’t ask. Don’t tell. Buy silver instead.

Examine the ratio of the (narrow) NASDAQ 100 to the (broad) Russell 2000. This graph shows a blow-off top where the “Everything Bubble” imploded.

Note that the Russell 2000 has a “high” P/E ratio. This is NOT sustainable.

WHAT ABOUT NATIONAL DEBT?

Consider the log-scale graph. Do you see any reason to expect that massive debt will level off or decline? Nope! Business as usual means debt increases forever. In the “Newer Normal” debt explodes until the economic system “breaks” and a reset occurs.

THE RESET:

When the reset occurs, assuming you do NOT have senators on speed-dial, where would you prefer investments for your savings and retirement?

a) Dollars that the Fed and US government are devaluing.

b) Cash under your mattress.

c) Bonds that will eventually default.

d) Commercial real estate that looks shaky.

e) Retail businesses in the Age of Amazon.

f) The NASDAQ 100 Index after a ten-year runup.

g) Russell 2000 stocks with a P/E near 70.

h) Gold with a 3,000-year record for preservation of wealth.

i) Silver, selling near lows against the ultimate currency – gold.

CONCLUSIONS:

• The world changed in 2020Q1. Few would suggest it improved. For a hint at the economic future, look at Argentina.

• COVID-19 shutdown was the “pin” that deflated the “Everything Bubble.” If it had not been the COVID shutdown, something else would have popped the bubble.

• The DOW to gold ratio shows that gold should rally for years.

• Fed “printing” and government deficit spending will create a “tailwind” that supports gold and silver prices for three – ten years.

• The gold to silver ratio hit an all-time high. History suggests higher silver prices for three – ten years.

• The silver to S&P 500 ratio is near 2001 lows. It shows silver prices could rise much higher, even if the S&P collapses.

• The NASDAQ 100 to Russell 2000 ratio shows a “blow-off high” occurred in early 2020. The advance was narrow. Expect both indexes to decline further.

• National debt—you know the drill. Inflate or die! Manage the narrative. Control the media. Feed the huge corporations and large banks. Bailout everyone, including state governments, state and local pension plans, student loans, unemployment funds, Wall Street banks, and more. Every bailout adds to debt, dollar devaluation, and systemic fragility.

Attributed to Adolf Hitler:

“Make the lie big, make it simple, keep saying it, and eventually they will believe it.”  What comes to mind are: fake money, fiat currencies, central banking, fractional reserve banking, The Fed has your back, invest in stocks for the long term, gold is useless, silver will never again reach $50, digital dollars are necessary, there isn’t enough gold to back the currency, Fort Knox, etc.

Miles Franklin will convert digital and paper dollars into honest money—gold and silver. Call them at 1-800-822-8080. You are insuring your savings and retirement funds from the predations of central banks, devaluations, and government nonsense.

Gary Christenson