2021 Forecast Issue: Financial Navigation In Uncharted Waters

As I sat down in mid-December to formulate the draft outline for my 2021 Forecast Issue, I was immediately engulfed with a feeling of impending dread, not by way of dissatisfaction with the investments currently being held in my portfolio and trading accounts but by being confronted with such a vast array of possible outcomes in the upcoming year 2021. Adding insult to injury, it is also the uncertainty of outcomes that places forecasts directly in the crosshairs of failure and embarrassment, resulting in fewer and less happy subscribers.

In contrast, during the same period one year ago, I knew that the single greatest issue facing us was managing the rapidly approaching debt monster which allowed me to assume that markets would not look kindly upon the U.S. Fed chairman Jerome Powell and his sudden about-face in monetary policy. When the REPO fiasco began in Q3/2019, it was as plain as the nose on his face that Powell looked into the crystal ball and was horrified with what he saw, his vain (and lame) attempt to “normalize” the Fed balance sheet earlier that year had laid to bare a pitifully fragile debt structure teetering on the brink of implosion to which he and his global central bank brethren sprang to action, flooding the world with wave after wave of counterfeit cash otherwise known as “liquidity”. As a strategist, it was an easy call to construct a portfolio of gold and silver and their corporate offspring (gold and silver miners) with the result being a range of year-to-date returns swinging from GDX:US (Senior Gold Miner ETF) up 27.36% to Getchell Gold Corp. (GGLDF:US) up 195.83% and Norseman Silver (NOCSR:US) up 400% (as of Dec. 27th, 2020).

However, sitting in my office overlooking the Kawartha swamp, I find myself without a chart, no GPS, and night clouds blocking the stars rendering the vessel’s sextant impotent. Between the pandemic and the absurdity of bumbling bureaucratic responses, the global currency system has been turned upside down by the simultaneous pressing of panic buttons in treasury department boardrooms, central bank think sessions, and government policy politburos. Alas, despite being bereft of navigational apparatus, there remains a certain consistency in the global economic “condition”. Not only has the debt monster remained a factor, but it has also since grown into a leviathan of epic proportion and threat and what makes it so lethal is that those that contributed to its obesity are the very ones telling us that it no longer matters. “Modern Monetary Theory” allows government employees to receive weekly paycheques while small business owners are shuttering not only their operations but sadly and outrageously, their lives.

If the basis for investment strategy in 2020 was debt, then the explosion in its size and universal acceptance has now become my primary theme for 2021. With the cyclically adjusted price to earnings ratio (or “CAPE”, as it is known) now higher than the 1929 peak, it has become a matter of public policy to ensure that citizens are educated to the wonders of central bank charity. In a manner not unlike the famous “Emperor’s New Clothes” literary folktale, there can never be a young lad pointing to a naked monarch lest the entire financial system unravel. With interventions rampant across all asset classes regardless of borders or nationalities, the citizenry is now being schooled in the art of Ponzi-scheme management by way of daily doses of propagandist doctrine crafted by Wall Street for the benefit of Wall Street but to the detriment of retirees and savers the world over.

In the 2020 Forecast Issue, I posted this chart of the ratio of national debt to gold reserves amongst the top holders of central bank gold and while I would have loved to provide all of you with an updated version, I cannot because there are no longer any reliable sources for the data available last year. For example, Canada, whose central bank sold all of its gold decades ago, has a debt level that has grown by an estimated ten times the USD $1.5 trillion it sported in 2019.

The U.S. was pegged at USD $25 trillion, but their revised number is estimated to be $35-45 trillion and that is BEFORE the release of the stimulus package in 2021. Europe and Asia are no better. To say that governments the world over are insolvent is an understatement but the real question that remains to be answered is: Will it matter?

There are cases in history where serial debasers of domestic currencies assumed the practice of convincing their citizens that it “did not matter” and they would be Rome circa the invasion of the Barbarians, Weimar Germany 1921-1923, Zimbabwe 1980-2000, and Venezuela 2000-2020. Inflation rates in Venezuela approached 300,000% in 2019 and things are no better today. These are historical events that occurred because the people in charge of the issuance of credit and currency sacrificed the integrity of their currencies’ purchasing power in return for the adulation of the electorate. In other words, in every instance, they opted for votes over fiscal prudence. In the case of Canada and the U.S., where 10% of the citizens control 90% of the assets, reflating the asset bubble in 2020 with phony stimulus money has further impoverished the 90% now without jobs and in lockdown while further enriching the 10% whose stock portfolios and multiple properties continue to hit new highs.

Given the ferocity of debasement spurred on by the fear-mongering media, government officials are now scrambling to appease the 90% as visions of guillotines in public assemblages dance in their heads. One of the interesting side effects of the pandemic is how it gave the police and the National Guard an excuse to descend upon public protests like BLM and Antifa and implement legalized disbursement trumping First Amendment rights in the name of “public safety”. I wrote in 2020 that the surge in public protest actually had nothing to do with racial injustice or left vs. right politics; it was solidly grounded in the astronomical rise in wealth inequality as wealth redistribution becomes “the nobler cause” rather than “theft” which is far more accurate. For me, this is one of the major themes for 2021; having your wealth close by is far more soothing than having to log in to a website owned and operated by a stranger to see how many digital coins I hold or how many shares of the latest Robin Hood deal have traded. Call me old fashioned or call me clueless but there is something infinitely satisfying about opening the safe and counting silver and gold coins and bars while the Smith & Wesson stands next to the wine rack, ready, willing, and able to dissuade some unemployed philosophy graduate from “redistributing” my hard-earned wealth to his (or her) pocket.

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