In less than three months 2020 has quickly become a year that many would like to forget. The gravity of the COVID-19 crisis has reached unprecedented levels as it has now become a global health crisis the likes of which the world hasn’t seen in a long time. Bob Moriarty of 321gold has been warning us about what was coming since January and his analysis couldn’t have been more correct up to this point. Normally Bob and I speak once every 4-6 weeks, however, given the unprecedented circumstances and rapidly evolving crisis I felt it was time to check in again. Even after yesterday’s big rally, the S&P 500 is down ~25% year-to-date and the Russell 2000 is down ~35%, meanwhile gold has held strong and has risen more than 7% since New Year’s Eve. In a conversation on the afternoon of March 24th, 2020 Bob and I discuss why this is the most dangerous market environment he’s ever seen and how investors should position for what is coming, a depression and a return to sound money.
Goldinger: Bob, we last spoke less than two weeks ago, but it feels like a year ago at this point. Since then the COVID-19 crisis has considerably worsened and the deaths are piling up. Much of the world is now either on a mandatory shelter in place order or being told to strictly follow self isolation and social distancing protocol. We are seeing markets have a pretty big rally across the board today after being beaten to death over the last few weeks. Is this a one day wonder that will quickly be given back or can we look for a multi-day rally?
Bob Moriarty: This is the most dangerous market i’ve ever seen. I wouldn’t advise anyone to chase rallies in stocks because I think you’ll find that the rallies won’t sustain much more than a few hours or a day. Anyone who wants to get cute is going to find that the danger is not of catching a falling knife but catching a falling safe. Remember our last conversation? How much did the Dow fall during the Great Depression?
Goldfinger: I believe it was 89%.
Bob Moriarty: Exactly right. This market is going to fall at least as much as it did during the Great Depression. We’re down 42% so far, so there is a long way to go before a bottom is in place.
Goldfinger: The US Congress is working on passing a multi-trillion dollar stimulus bill. Will this make a difference at all in the long run?
Bob Moriarty: They are going to try 15 different things, but in the end none of them are going to work. Where is this money actually coming from?
Goldfinger: The taxpayers and bond holders who hold US Treasury debt.
Bob Moriarty: The government is broke and this is just more of the same deficit spending with no end in sight. Doing more of the same isn’t going to deliver a different result. They should let everything crash and rebuild the economy based upon a real money system. We need to go back to sound money, not more of the same which got us here.
Goldfinger: Let’s talk about gold and silver. I’m not sure if you read my morning email but I was talking about how gold has rallied about 15% in less than 36 hours and I don’t think i’ve ever seen anything quite like this. It seems to me that investors are realizing that the world is heading for stagflation (an inflationary period accompanied by rising unemployment and lack of growth in consumer demand and business activity), very similar to what we experienced in the 1970s when gold went from $35 an ounce to nearly $1,000 an ounce. Do you agree that stagflation is coming?
Bob Moriarty: Well it doesn’t have to be stagflation. What happened in Weimar Germany in the 1920s?
Goldfinger: Well, that was hyperinflation after Germany had lost World War 1 and their economy was devastated and nobody wanted their currency. This is a bit different isn’t it?
Bob Moriarty: Actually, Germany didn’t lose World War 1. Everyone, the French, British, Germans etc. were exhausted and everyone was tired of war so they agreed to the Versailles Treaty. But Germany didn’t actually lose the war. The war ended by both sides calling for an armistice. Hyperinflation is a very real possibility, as is stagflation.
Goldfinger: From my estimation gold is the place to be right now. Remember how for the last few years there was this “TINA” theme in investing i.e. there is no alternative (to stocks). Now it seems to me that there is no alternative to gold.
Bob Moriarty: Actually there is, and we’ve discussed it many times.
Goldfinger: You’re talking about silver?
Bob Moriarty: Yes, silver is much cheaper than gold here. The gold/silver ratio reached nearly 126-1 and that means that silver is extremely cheap relative to gold. In fact, it’s never been this cheap before.
Goldfinger: You’re correct, but I think an investor should own both gold and silver. I’m a gold guy because I believe it’s a more widely accepted store of value and currency alternative. Global central banks also seem to agree.
Bob Moriarty: You’re missing the point. The central banks won’t matter in what’s coming. The masses will buy silver and the price will rise much higher than it is today.
Goldfinger: I think both gold and silver will do very well. We could see gold at $2,000 and silver at $25 or something like that. The gold/silver ratio would then be about 80-1.
Bob Moriarty: That’s absolutely correct.
Goldfinger: What about mining shares? Have we seen the bottom? And if so, what would you buy?
Bob Moriarty: Yes, I think we’ve seen the bottom in the miners. Novo (TSX-V:NVO) is up 19% today, Irving (TSX-V:IRV) is up 18%, Lion One (TSX-V:LIO) is up 46%! These are all stocks that I own large positions in and they are all cheap. You want to own resources as we return to real and sound money. Natural resources are scarce and this sector will go much higher as reality sets in.
I recently bought more Irving for a trade, but I already own a very large position here. There are a lot of high quality junior resource stocks out there, and I anticipate that this sector will rise much higher over the coming months as investors realize it’s time to return to sound money.
Goldfinger: So gold and silver and resource shares are going higher, while blue chips are going to drop another 60%+. Is that right?
Bob Moriarty: That’s correct.
Goldfinger: The US Congress is working on a stimulus bill that looks to be about $2 trillion of fiscal stimulus with $4 trillion of loans to corporations in distressed industries. Is this enough and how does this get paid while tax revenues are falling off a cliff?
Bob Moriarty: As I said, they’re going to try 15 different things and ultimately none of them will work because the solutions are more of the problem, not the solution. They don’t want to recognize that the system is bust and the only solution to the problem is a return to sound money.
How do they pay for it? The Fed will buy the bonds and the US will destroy their currency.
Goldfinger: There is this economic theory called MMT (Modern Monetary Theory) which basically says that a sovereign government can’t go bankrupt, they can always issue more currency. Essentially a government can’t default on debts denominated in its own currency, which is true. However, what about the value of that currency if it becomes too plentiful.
Bob Moriarty: Yes, i’ve heard of this theory. Zimbabwe proved how well it works.
Goldfinger: (Laughs loudly) But isn’t the US different than Zimbabwe? The US has rule of law, intellectual property rights, massive natural resources, land, infrastructure, a large population, a huge economy. Certainly the two countries aren’t the same.
Bob Moriarty: The US is going the way of Zimbabwe right now, and the only way to reverse is to return to sound money and natural resources. You are correct, natural resources, land, and infrastructure are all valuable. And it all starts with natural resources.
Goldfinger: Switching topics, these are incredible times. I don’t think either of us have lived through anything like this, certainly I haven’t. This COVID-19 crisis is revealing areas of the world where there is a void of leadership. It’s interesting that Trump has long used the tag line “Make America Great Again”, I think it’s ironic that Trump may be actually responsible for doing the opposite because he has irresponsibly flouted the COVID-19 as a hoax for so long, and continues to downplay it at every opportunity including saying that he hopes to have “the churches packed on Easter Sunday”. Could this guy be any more out of touch?
Bob Moriarty: People work for government because they are too lazy to work and too nervous to steal. I am an equal opportunity anarchist. I despise all governments equally. The virus and the resulting economic chaos are both real problems and frankly governments, all of them, are hopeless at solving real problems.
Goldfinger: Last Friday afternoon I was heading home and happened to see a large shipment of M1-Abrams tanks and Bradley fighting vehicles being shipped on the Florida East Coast Railway south towards Miami. While there are military bases in South Florida, this was an unusually large shipment and it made me wonder if the government is putting in place a contingency plan involving the National Guard enforcing a nationwide lockdown.
These are crazy times and there is the prospect of martial law taking hold. Citizens taking the law into their own hands and fighting over resources and food etc. I have a friend who has never owned a gun in his life, last week he bought a Colt AR-15 with 500 rounds of ammo and five 20-round magazines. He is concerned that people will become lawless and begin fighting over resources, robbing each other etc.
Is he insane?
Bob Moriarty: I saw that and I suspect the Federal Government is preparing some sort of martial law. Americans have been conditioned to believe the government will solve all our problems. Frankly it cannot and when they find that prices of everything has shot through the roof, look for chaos and the guns to come out of the closet.
Goldfinger: I want to say that you made the most accurate, most impactful, and most timely market call i’ve seen in my life. I wish I had paid more attention to your words in February and reduced my market exposure more than I did. I feel like you benefited a lot of your readers by saving them money, and perhaps even making some money for a few who may have placed some bearish bets.
In the market, timing is everything and your timing on this call that a new depression was beginning was as perfect as anything i’ve ever seen. Now, if we really do get an 89% drop in the Dow you will have to write another book about this market episode and how people should invest to survive and potentially thrive during the inevitable rebirth, in a sound money economic system.
Bob Moriarty: In a depression and we are in a depression, this is not a recession or a temporary decline in the standard of living, everyone gets hurt. I wish it wasn’t true but millions of Americans will lose everything they own and be out of work. Ultimately they will learn that you cannot rely on governments to bail you out. The government caused the problem in the first place with a lot of stupid laws and financial skullduggery. How can you possibly solve a debt problem by going into more debt? You cannot.
Goldfinger: It certainly doesn’t make sense that more debt can solve a debt crisis, but there are others with PHDs in economics who seem to think otherwise. It’s also important to note that governments never practice fiscal restraint or run surpluses because such policies do not win elections. We are in an out of control debt spiral with no end in sight.
I would like to end by saying that I’m offering a special to new subscribers to receive my daily morning email for 30 days free of charge. You can email me at email@example.com or private message me on CEO.ca @Goldfinger to request to be added to my list.
Bob Moriarty: I think that’s wonderful. You have been very casual and never mentioned it but CEO.ca held a stock picking contest last year with nearly 1000 people submitting entries. You won it. And I didn’t. So I may make a good call now and again with the tools I use, the stocks you were recommending went up a lot. We have entered a new world, the old one burned down and people are going to make fortunes who own resource shares. I highly recommend readers at least try the trial. I get it and it’s better than 98% of what I read.
Goldfinger: Thank you Bob, I think that’s a perfect place to leave things. May everyone stay healthy and keep others safe by practicing social distancing and self isolation during this challenging time. During a time like this it’s important that we all have compassion for our fellow human beings.
Disclosure: Lion One Metals Ltd., Novo Resources Inc., and Irving Resources Inc. are sponsors of 321gold.com and have no affiliation with Energy & Gold Publishing Ltd.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.