Sunday, March 22, 2020

No Place to Hide

Markets continued to collapse this week with stock prices falling 15%-30% as the new pandemic has swept the land.

I struggle with figuring out where to go from here.  I have gone through all mental gymnastics and conclude that the only possible investment to make at this point is gold.

I think that much of it may depend on how you view the political situation and the technicals.  If you are in the camp that we will recover from the current situation and rise from the ashes, then I put forth the above chart.  SPX prices can expect to find support at the 50% retracement level around 2,000.  Or prices may continue to fall as far as the 250-week Exponential Moving Average, 1,700.  This in the past has shown solid support.

But upon reviewing my thoughts and charts, the reality is much worse than one can imagine.  

As we move ahead, we see that the Federal Reserve has been adding massive amounts of money to the system to keep things afloat.  The Congress has also been putting together a package to provide cash to everyone to keep the system afloat.  This has long been termed "helicopter money" where the government drops money onto everyone to keep the system going.  This has often been cited as the precursor to a Venezuela or Zimbabwe financial situation and is doomed to fail.

While many applaud the Central Bank and government for these money adding policies, it does mark the beginning of the end of the fiat currency system that has dominated the world for more than 40 years.  The US Dollar.

The M1 money supply illustrates the growth of the money supply that has been required to keep the financial system afloat.  And now, we continue to see exponential growth in the policies being currently discussed.

But currently, we do not easily see the inflationary effects of this "money printing" in our daily lives.  While such dramatic evidence of inflation as illustrated in this chart shows may not be occurring right now, it's more than certain that it will be soon.

How does this expanding MI affect you?   As an investor, it may affect you in this way.  If you are an owner of stocks, you may be thinking that oh my, this downturn is wiping me out.  But the real truth is that the money printing has been wiping you out all along.

This view shows you what the S&P 500 looks like when divided by the money supply.  In the end, over the past 20 years, you have slowly been getting wiped out.  The worst is yet to come.  With this in mind, it's hardly worthwhile to recommend stocks for the long term.  Not sure that there is anything we can do to hold off the monetary expansion and what is yet to come.

Here is gold versus the M1.  It has fared much worse but appears to be more on an upward course.  I suggest that owning gold is a superior alternative to paper money.

One also needs to be aware that the price of gold in terms of paper dollars is not quite realistic.    Gold and silver prices plummeted in the past week as fears of deflation have taken hold.  And while one may think that all assets are alike so one should stick with stocks instead of the ancient relic that many claim that gold is.

Here is the reality.  SOLD OUT.  Those who claim that when the crisis hits, they will then turn to gold.  The truth is though that the gold and silver markets are tiny compared to the world of paper currencies and investments.  Paper financial instruments can be created at the touch of a keystroke.  Hard assets on the other hand are labor intensive and have real value.

My final though for the week is Silver.  Silver got smacked down to multi-year lows and now the gold:silver ratio topped at 120 this past week.

I've heard miners say that the actual production ratio is now at 8:1 silver to gold.  This makes silver quite possibly the best investment opportunity available.  

Something has got to give here.  These are my best thoughts for the weekend.  Stay safe and good luck.

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