The Next Big Bubble
As we enter May 2020, I can’t remember a time in my six decades on this earth (yes, I was born in the ’70s) when there was as little trust as there is today. So little trust in anything. “Fake news” makes fresh all-time highs on an almost daily basis, governments across the globe are rapidly losing the trust of their citizens, and even the “Leader of the Free World” has made a laughing stock of himself in the eyes of the world through ridiculous press conference theatrics and tweet storms.
2020 is unlike anything we’ve ever seen before. However, in a world where little appears to be sacred, truth and stability have never been more sought after than they are today. In financial markets, investors are staring at the prospect of negative interest rates in much of the developed world, as governments aggressively embark upon massive deficit spending. Global central banks are expanding their balance sheets and supporting asset prices in ways that we’ve never seen before. We don’t know how all of this will end, but we do know that we want to protect the purchasing power of our wealth, regardless of how much wealth we have.
It doesn’t take a PHD economist from Harvard to figure out that an economy built around $1,200 giveaway checks from the government and $600/week unemployment payouts to millions of furloughed works is unsustainable. Yet, this is where we find ourselves today.
COVID-19 is a catalyst to show the world many things that had been simmering beneath the surface. These things range from people’s daily routines, to the environment, to unsustainable imbalances in global economies and financial markets. From my vantage point, one of the biggest outcomes from this crisis will be a return to natural resources and tangible assets that are stable and hold their value over time.
Dollars can be created with a keystroke, checks can be printed by the Treasury Department, debts can be defaulted upon, but gold is gold, copper is copper, and soybeans are soybeans. Commodities come from the earth and take blood, sweat, tears, and capital to extract from the earth to then be sent to your dinner table or safety deposit box.
The post-COVID world will be characterized by a premium on truth, sustainability, and stability. As an American who will be voting in a swing state in November, I am disgusted with my current choices for President, and I am even more appalled that I feel my government cannot be trusted – with anything. The two-party system and partisan politics on both sides of the aisle is ruining this great country, and there doesn’t appear to be a near-term solution to fixing this virus, and I’m not talking COVID.
As an investor, I want to own truth. I want assets without counterparty risk that cannot go bankrupt. Gold and silver are at the top of the list. I want to own shares in the best mining and exploration companies that will benefit from the leverage they can provide in a precious metals bull market. I want to own these shares in cash accounts without using any leverage. I also like the idea of owning some farm land, or at least some land that could grow crops some day. I can also envision Europe, China, and the US all embarking on infrastructure stimulus programs over the next couple of years. This should provide a strong bid to things like steel and base metals such as copper, nickel, and zinc.
The 1930s was famous for government infrastructure building programs (“The New Deal”), I expect the 2020s will be very similar across much of the world. In fact, much of the NYC Subway system relies on 1930s-era technology. It’s time for the US to step into the 21st century with both feet.
If nothing else, the trends of US M2 Money Supply and the Federal Reserve Balance Sheet are the strongest uptrends in the entire world, and they are showing no signs of stopping anytime soon:
M2 Money Stock
Fed Balance Sheet
Make no mistake, this money will make its way into commodities and natural resources gradually, and then one day the pace will grow more rapid and commodities/natural resources will become the next big bubble.
Is it finally time for this trend to reverse?
CRB Index/S&P 500 Ratio (Monthly – Since 1999)
Buying commodities at all-time lows relative to equities (down ~90% from the 2008 commodity peak) doesn’t seem like a bad bet in a world that is facing overpopulation and increasingly scarce natural resources.
Perhaps the utopian future of the 21st century is to have a farm in a place like Colorado or Wyoming, gold bars stocked in an underground bunker (along with some weapons), and a big chunk of farmland from which one can grow multiple crops, not only to feed one’s family but also to sell to the rest of the world. I envision Amazon/Tesla electric-powered trucks coming to pick up products grown from the earth in rural areas and then delivering this food to the rest of the world.
The future will be a taste of the past (a return to natural resources and a cherishing of our ancestral human roots) with a large helping of the future (artificial intelligence and technology connecting the globe more than ever).
I can see it, can you?
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.