Central Bank Folly: Blame The Boomers…

“Destroyers seize gold and leave to its owners a counterfeit pile of paper.” – Ayn Rand

The baby-boom generation, of which I am a less-than-proud member, blew it.

There was a time long, long ago when the mention of the word “baby-boomer” evoked a sense of pride of membership. Amidst the prosperity of the post-WWII era, birth rates in North America soared while the sons and daughters of many men and women that fought in the war became the dominant demographic force by the year 1966. When I was in Grade 10, I wrote an essay that pointed to the defining moment where the excitement and unbridled optimism of the Space Race, advances in modern medicine, and unparalleled economic growth was snuffed out forever by an assassin’s bullet in Dallas in the autumn of 1963. With the end of Camelot, the boomer generation suddenly began to question things. They threw away the Beach Boys “Surfin’ Nirvana” lifestyle to the darker messages of Bob Dylan, CSNY, the Doors, and Hendrix as they watched while the Viet Nam war claimed over 58,000 U.S. servicemen and caused massive civil unrest to permeate the inner cities and the campuses of America. Through the unwillingness of the baby-boomers to accept the garbage spewn out by the radio and print media as well as the fledgling television industry, young people rose defiantly to implement an end to a war that had become a national embarassment and political nightmare. I arrived in Saint Louis in the fall of 1971, a mere four years before Saigon fell and by then, the historically-conservative (pro-war) city of Saint Louis had seen a demographic shift in camps as the campuses and high schools were filled with long-haired radicals heavily recruiting the youth of the era to “tear it all down” in order to effect the much-needed political and social changes that were so overdue by then. On the other side of the demarcation line were the rednecks, the police, the National Guard and, of course, the military. The sidebar to all of this is that the boomers also took down a president in the form of Richard Nixon so to say that the boomers had serious “stroke” is an understatement. The medium was FM radio, Rolling Stone magazine, and weed and that was all that was needed to effect change and it mattered not where. We, as a generation, were a FORCE.

However, and very sadly, ending the war in Viet Nam by non-violent protest and by their sheer numbers (it was nothing to see 20,000 young people at anti-war rallies), that was just about where the great metamorphosis ended. We, as a generation, as we had done with the Beach Boys, threw away the old protest albums of the ‘60’s and ‘70’s and opted instead for a different type of optimism from that which empowered our parents in the ‘50’s. A former movie star arrived on the scene in the form of Republican Ronald Reagan (nicknamed “Ronald Ray-Gun” by Country Joe at Woodstock) in 1980 and despite the non-violent, intellectual approach of opponent Democrat Jimmy Carter, they swept Reagan into power with the largest popular vote in history. From that moment on, my generation shifted focus from morality to money and with that shift, the largest voting demographic in world history has continued to act in a self-serving, sycophantic mode of behaviour most foul to those that dare try to recall the ethical bravery of the 1960’s. Famous cofounder of the Students for a Democratic Society (SDS), Jerry Rubin, went from bell-bottomed blue jeans to blue pin stripes by taking a job on Wall Street and that punctuated the generational sentence of the boomer tribe.

We boomers now look at our offspring and we cry for their future. We don’t lament for how THEY are voting or why they are voting or even IF they are voting because deep down, we all know – every one of us – that their decisions are the ones crafted for them by their forbearers. The parents of we boomers were were indelibly etched by the Great Depression of 1930-1933. I recall my father’s tales of delivering “Day-Old bread” to houses up in Rosedale for “a penny a loaf” in 1931 and what hit me was that after he passed at the grand age of 89, as I was sorting his affairs out, there were countless cubby-holes and bookshelves filled with all sorts of coins and currency. They might have totalled perhaps $1,500 but the fact they were stashed away, insulated from the thievery of Depression-Era desperation was a testimonial to the imprint it left upon that generation. By contrast, the newly-empowered Millennial Generation has no compassion nor comprehension as to why any human being would need to store anything; they are most comfortable in storing all of their net worth in the digital vault of the cyber-world. That may (or may not) be sound thinking but the point remains that the boomer generation had a chance to restore fiscal sanity by bringing Bretton Woods back with a vengeance. We didn’t. We opted for the status quo. We voted for our short term wealth and voted against our long-term health. We sold out.

There has never been a time when “hoarding cash” ever resulted in an enhanced lifestyle. Theoretically, had you gone to cash in 1928, you at least had a few years to activate that cash as asset prices collapsed so perhaps the Great Depression might serve as a one-off. However, I urge you all to join me in celebrating the legacy of what we boomers have bequeathed upon you all. Your savings (if you have any) are going to have minimal purchasing power as time passes and your expectations of the same are going to be worth the same as the paper one finds in public lavatories. However, the financial media celebrates and rejoices every time one of the averages hits a new high but the astounding fact remains that they cannot see the forest for the trees. Stocks are rising because their replacement value is running for its life from debasement and while it would appear to be a “good thing”, it is not. Wealth gravitates to proper treatment; it flees abuse. Wealth is gravitating to gold and silver; it is fleeing cash.

“Historically, the Zimbabwe Stock Market reached an all time high of 773.06 in June of 2019 and a record low of 93.39 in June of 2016.” – Bloomberg

When you think of places to invest, Zimbabwe is cerainly not one of them. Once heralded as “the breadbasket of Africa”, it is now a net importer of grains as the prolific immigrant European farmers had their land expropriated by the Mugabe Regime in an effort to restore tribal ownership to the native inhabitants. Forgetting the moral argument for a moment, the point here is that Zimbabwe stocks are screaming to all-time highs despite an inflation rate exceeding 175%/annum. This is the example of what happens when societies distrust and, in fact, detest cash. Zimbabwe citizens will jettison cash as soon as it arrives in their hands providing a prime example of the “replacement power of equities within an inflationary spiral”. We are seeing stock markets around the world print new highs with increasing regularity and the MSM would suggest that the stock markets are barometers of impending economic expansion and financial well-being. The problem with that is that it is the $14 trillion in new wet-ink debt that “rescued the financial system” (read: bailed out the criminal banks that blew it up) that is now surfacing in the form of excess liquidity, sloshing around the world markets and chasing equities higher. Some 65% of global bonds now yielding negative returns is also shepherding cash to equities but the media would have us believe that it is a policy “miracle” that is creating the boom. It is not. It is Modern Monetary Theory debasing the purchasing power of cash. In currency terms, stocks are rising because the value of savings is crashing. Prudence in personal money management is being punished by central bank profligracy and just as the Zimbabwe markets convey a false message of prosperity, the middle and working class citizens of Europe and North America are certainly not feeling the warmth that a 3,019 S&P 500 level should be instilling.

Until recently, investors largely ignored the precious metals, the historical defense mechanism against debasement because of the countless and incessant interventions and interference capping any and all advances but here in the Summer of 2019, investors appeared to have warmed up to the notion of owning a little gold and silver and given the relatively puny size of those markets, even the slightest of attention can drive prices higher. When gold penetrated the $1,400 barrier in June, it altered the configuration of asset allocations around the world and as can be seen in the HUI’s breathtaking advance off the lows and silver’s abrupt about-face after months (if not years) of underperformance, the utility of precious metals ownerhip is gathering both popularity and momentum. It is a most-welcome occurrence for the grizzled metals enthusiast and comes at a most-opportune moment in history.

Near-term, I must confess that the power of this advance in gold has surprised me with its uncanny ability to stay overbought or near-overbought for what seems like weeks. RSI readings hit nearly 90 in June on the first ascension through $1,440 with levels not seen since 2010-2011. I am fully invested in the conservative portfolio which has zero leverage and is evenly split between gold, silver (physical), senior miners (GDX) and junior miners (GDXJ). I took a trade on half of the ETF’s in late June and luckily was able to buy them back a hair below where they were sold. The portfolio is ahead 30.13% YTD based on all trades. The only leveraged position I currently hold is the SLV October $15.50 which was purchased with the proceeds of the triple I made on the SLV August $14 calls on the move from $.60 to $1.80. The October $15.50 calls were bought at $.48 and are now $.69. Would I add to the SLV position? That is a very tough call to make because despite the new paradigm in which we now reside, I simply cannot buy into the near-80 RSI level which SLV currently sports. I also learned a lesson from my early exit from the GLD calls in early July that RSI can offer a misleading signal because while it saved my arse in the rangebound markets of 2017-2019, avoiding nearly $400 of drawdowns in gold, it rocketed to nearly 90 last month and has remained elevated as prices have continued to rally. I am long SLV calls and very nervous but am also mindful of its potential to do a gold RSI repeat (a move to 90) taking silver into the mid-$18 level and the calls to $3.00. We shall see.

I have also added Aftermath Silver Ltd. at the July 11th closing price of $.095 to the portfolio, joining Great Bear Resources (up 131%), Western Uranium ( down 36%), Stakeholder Gold (down 20%) and Getchell Gold (down 22%) (all YTD numbers). You can see how the market rewards discoveries (GBR) and punishes either no news or bad news (GTCH/WUC/SRC). I added Aftermath (AAG.H:TSXV) because it has an established silver resource in Chile capable of increases in size through exploration so it holds leverage to both the silver price and exploration results as potential drivers of price. As we progress further into this rampaging bull, I am going to be far more attentive to companies that have existing discoveries or ore bodies that eliminate the exploration risks that were necessary in the past when the metal prices were stagnant. With metal prices anything but stagnant, I want to capture the upside of the move in the metals and avoid being left out of the spoils of victory because exploration results were less-than-stellar (or non-existent).

I leave Sunday for my annual voyage into the “waters unknown” of northern Georgian Bay, which contains the finest freshwater boating in the world. I hope to get to the Bad River Channel by next weekend, an anchorage of immense beauty, great fishing, crystal-clear water, and more hidden and very hazardous rocks than any place on the planet (as I so painfully discovered two years ago). I leave you all with this You Tube clip of one of the many dinghy tours we take into the back country which includes the mighty French River.

I will not be posting another update until after I return mid-August but I will be providing updates via Twitter so you can follow me at @Miningjunkie to see how I am navigating the waters and the markets.

Disclaimer

This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

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