Stackin’ Wood

Approximately eight months ago, after I was shown some Christmas 2020 family photos that (unfortunately) included this humble opinionator, I decided that carrying a strong resemblance to Orson Welles at my age was not exactly a smart way to defy the insurance industry actuaries so I decided to “get ready for training camp” as I did some forty-three years ago. With little fanfare nor melodramatic preparation, I downloaded a book on “Intermittent Fasting” and put a titanium lock on the booze box, hiding the key in my Fido’s collar before sending him after squirrels. Here we are in September and while I have shed a considerable amount of unsightly bulk, I am proud to announce the local charities strike up the band when they see me coming with my “throwaway clothes” because the double-X stuff is barely a year old and some of it was really high-end, which is exactly what one buys when one is trying to paint lipstick on a very ugly pig. ZZ Top once had a hit called “Girls Go Crazy For A Sharp-Dressed Man” but if the fat around his neck is overflowing the $200 collar, I beg to differ.

This morning, I had my local firewood guy show up in his RAM 2500 and the biggest hydraulic trailer I have ever seen and proceeded to dump a full bush cord of wood into the middle of my driveway to the extent that neither vehicle could exit the premises nor would the garage door open. Now, for those of us that hate it to hell every time a joint that never aches starts to ache, the site of a half ton of wood hemming in your vehicles is a terrifying situation so I had to make a spur-of-the-moment decision: Do I stack this mountain of winter necessity myself or do I fire off a Robert Borden to the local college kid to do it for me? (For my U.S. friends, the “Robert Borden” is the Canuck equivalent of the President Grant (Ulysses S.) $50 bill.)

Well, as the saying goes, “Lord hates a coward” so I tackled that three-cord Everest with a vengeance just to flip the proverbial bird at those nerdy, self-aggrandised actuaries who would have me trembling at the presence of my own shadow let alone a half ton of wood.

Now, before you ask me to explain the relevance of these introductory paragraphs to managing money in this LaLaLand of Behavioural Finance, I want it to be known that it is during the period of physical exertion that I have had my best ideas literally explode out of nowhere. Chinese mothers hold there babies upside down in order to accelerate cerebral development and understand the concept (as do I) because there is nothing better for humans than accelerated blood flow to increase the efficiency of our organs, particularly the brain, with honourable mention going to feet, digestive system, and other important areas that for now shall remain anonymous.

As I was sweeping up the bits and pieces left behind after the wood got stacked, it occurred to me that stacking three face cords of wood requires not so much strength but rather patience and stamina which are the precise qualities that are required to hold on to large positions in precious metals. Just as the muscles in one’s lower back scream out in protest at the constant bending over, straightening up, bending over, straightening up over and over again for two and half hours, gold and silver investors have had to put up with the same torture for the past year despite the widening gap between nominal interest rates and inflation as well as the never-ending flow of monetary engorgement.

I am constantly DM’d and emailed questions like “When will this all end?” and “What’s wrong with the precious metals?” and it has gotten to the point where I have to throw up my arms and say “uncle” because if you own gold and silver for the right reasons, there is nothing wrong but if you own them for the wrong reasons, there is a lot wrong with them. Take the #silversqueeze movement back in February where the promoters of silver (you ALL know who they are) successfully recruited the services of the Reditt crowd to attempt a Gamestop-type of short squeeze in the silver arena. Rather than emphasize the longer-term attributes of slowly building a large physical cache of coins, bars, numismatic sets, and shares, the Millennials and Gen-Exers were lured over the silver wall by the promise of a short-term windfall which is exactly what the past twelve years of central bank largesse has created in terms of expectations. In late January, they charged the walls of the bullion bank silver fortress, egged on by a legion of boomer-aged “stackers”, most of whom sell newsletter subscriptions or run junior silver companies hoping beyond all rational thought that the sheer volume accompanying these kiddies could do to the bullion bank behemoths what fifty years of effort has yet to do – which is to wrest control of the silver price from the clutches of the big boys.

Unfortunately, by suckering the newbies into that trade back in the winter of 2021, an entirely new generation of eager stock buyers have returned to meme stocks and crypto with their hands bound in burn ointments and gauze bandages.

In contrast, investors that enter an investment position with a reasonable understanding of the pros and cons are better suited emotionally to deal with poorly-timed entry points, delays, and changes to the narrative. This is in my sexagenarian opinion, why gold and silver are having difficulty achieving the imputed target prices that several trillion dollars of debt creation should have created. It is not a surprise for many of us when fund managers and wealth advisors are constantly harangued by impatient, youthful clients as to why the manager holds no crypto or uranium or whatever flavour of the month is flashing up on BNN or CNBC each morning.

Central banks have created a Pavlovian condition whereby the ringing of the opening bell immediately kindles expectations of wild-eyed riches usually before the end of trading that very day. In fact, new people entering the investment arena since 2009 have not seen as much as a year-to-year bear market and certainly not a “granddaddy” bear market like the 1973-1974 excruciation that made millionaires out of billionaires and gold bugs out of stockroaches.

I consider all markets except commodities fully overpriced, especially those assets that act as collateral for bank loans, such as real estate, corporate buybacks, and U.S. high yield bonds. In fact, all bonds in most countries should be viewed with the same disdain as Evergrande debt, now officially halted in China with no bailout in sight, a fate that should have beset most of Wall Street thirteen years ago.

U.S. common stocks are massively rich, as illustrated in the above chart of the Buffett Indicator but nowhere is anything more precarious than valuations for U.S. high-yield debt. By comparison, Chinese high-yield debt has yields north of 12% while the same asset in the U.S. yields 2% because the communist, state-run country refused to bail out the delinquent actors while the capitalist “free-market” country does exactly the opposite.

The prices for U.S. high-yield bonds yielding somewhere around 2% versus inflation at 5.3% factors in zero neither default risk nor duration risk but the abomination lies in the fact that certain Fed Governors owned corporate debt even as the entity for whom they toil was buying the same securities with taxpayer-protected leverage. To put this in perspective, they threw Martha Stewart in jail for five months for avoiding a loss of USD $45,673 by taking “material non-public” information and selling her shares in ImClone Systems. How in the world is trading S&P futures as a Fed Governor not a conflict of interest when your job mandates that you are the actual source of that very “material non-public” information? As in FED POLICY?

I have a hammer in the garage that I use to tap my logs into line in the stacks in which my firewood resides and it weighs about thirty-five pounds. In recent times, as in last week, when I witnessed the hideous and malevolent actions of the bullion bankers in trying to drive gold lower, all that I want is to take that lovely tool and bash it against the frontal lobe of my brain that controls all cognisance. As over-reactive as that may appear, please understand that I have a partner that has three “safe rooms” in my house and a dog (Fido) that lives under my tool shed six months a year waiting for me to “regain control”. The politicians and bankers that have this malodorous alliance fuelled by egregious self-interest and unregulated malfeasance have driven many of us to either abject despair or simmering outrage but what encourages me more every day that goes by is that dedication to history – as in understanding how and why Weimar Germany devolved so quickly – is no longer lost upon the Millennials and the Gen-Exers as they seek out their own solutions to what has become a total disrespect for the practice of “saving your money”. After all, why would one allow one’s savings to be eroded by inflation by leaving it in a bank or one’s mattress? The New Generation were raised on video games and software “apps” so as the Children of the Technology Age, they might as well avoid the purgatory that has plagued their parents who thought that “In Gold We Trust” was a near-biblical avocation to be worshipped upon and bestowed the moniker of investment sainthood. Pavlov be damned.

The picture you see is a shot of the countryside around which I walk every single morning and as a kid that grew up in farm country (Malton in the 1950’s) and educated in the middle of the ghettos of urban Saint Louis in the 1970’s, I can tell you with absolute resolve that I will take either over suburbia any day of the week. I spent nine years in the Town of Aurora, a bedroom community that used to be largely farmland surrounded by high-income family homes whose neighborhoods had miles of walking trails and tennis courts and baseball diamonds and, of course, a prime hockey rink that has produced at least two NHL Stanley Cup champion players and more than a few coaches and NHL alumni. I drove through Aurora today and was astonished at the changes since I departed in 2007. The land that housed those walking trails is now peppered with “townhomes” and the farmland that used to send wonderful aromas our way during Fall harvests is now the site of construction companies slapping up cookie-cutter homes place literally five feet apart on ninety-foot frontages at CAD $1.7 million per 1,600 square-foot home.

Ladies and gentlemen, this is absolute madness.

I wish I had another fifty paragraphs in which to narrate the causal nature of my total distrust of literally anything related to government but, alas, I fail. All I have upon which to rely is history and by that very nature, we as citizens are forced to leap-frog, not forward, but rather backward into the lessons of historical punishment to ascertain how we must invest capital. The repercussions of the period 2009-2021 in the context of central bank interference and interruption should serve to alter irreparably the notion that government has answers. Quite simply, they do not. Preservation of wealth is now the primary objective and we must all pay strict attention.

If you deem “wealth” as eternal and “money” as ephemeral, logic favours gold for the conservative and silver for the aggressive and healthy dollop of both for the visionary.

MJB

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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