Central banks worldwide have now blown up the largest speculative bubble of all time, in all things. And we get to watch its slow-motion collapse. It will be one default... one layoff announcement... one foreclosure notice... one crypto… one soft data point… one “limited withdrawal” at a time. Numerous crucial dominoes have fallen in just the last 30 days alone.
Unless you have been living under a rock as of late, you have probably heard the name Sam Bankman-Fried, born March 6, 1992 (30 years old) or his initials on social media "SBF." Same controlled the FTX cryptocurrency exchange, which at its peak in July 2021, had over 1 million active users. FTX, until recently, was one of the most prominent places in the world to park and exchange cryptocurrencies. It was endorsed by everyone from Major League Baseball to Kevin O'Leary, Shaq, Tom Brady, and many more. FTX has now collapsed in less than a few weeks. Money all gone, missing, stolen, vanished, unaccounted for. No arrests as of December 5. With it went many smaller crypto exchanges and crypto assets. And now, the contagion within the crypto space is growing. Many of the more significant exchanges are more than likely hiding or scrambling to protect themselves considering this colossal breakdown. You will hear more about these problems in the coming months, and we can, at least for the time being, lay to rest the notion that cryptocurrencies, in any form, are or have been or will be a replacement for gold. Cryptocurrencies were by far, in my humble opinion, the most frenzied, most speculative of all the bubbles... and, therefore, the first bubble to implode.
We also got a weaker Consumer Price Index ("CPI") print in the U.S. – which is the only one that matters for our purposes because everything else follows. Core U.S. CPI prices were reported as gaining "only" 0.3% in October compared to 0.6% in September. In Canada, on a monthly basis, the CPI rose 0.7% in October, following a 0.1% gain in September, driven mainly by increased prices for gasoline. This was the largest monthly increase since June 2022. On a seasonally adjusted monthly basis, the CPI was up 0.6%. It remains a very inflationary economy in both the U.S. and Canada.
As many of you know, I have been on about inflation for many moons. In fact, I can look back at my stint with AM radio giant AM640 in Toronto and sight at least one or more references dating back as far as 2016, in which I am talking about inflation as part of the "everything bubble."
I expect inflation to collapse more than likely post-2023, like everything else. Most of the intelligent investment analysts I follow think we've entered a new era of high inflation, and I agree. I think they're right. But they'll be surprised by how much consumer prices remain stubbornly higher.
In 2023 we will be talking about higher wages and food costs. There could be less foreign and more domestic travel, like in 2020-2022. There will be far less disposable income, which will be matched against rising rent prices, higher gas prices on average, clothing, post-secondary education, new vehicle leasing and financing costs. I would concede that service costs may be one of the areas where we see a break. Shipping might be one area, in particular, both container pricing and domestic package delivery, that could fall lower to stay competitive.
In the next 24-36 months, I expect to see much more inflation unpredictability. That is, a period of high but unstable CPI readings as both the Canadian and the U.S. economies wobble between deflation, stagflation, and currency debasement.
If central banks raise rates enough to incentivize creditors to hold cash or debt-related assets, they will punish those holding debt-based assets with higher servicing costs. Those who carry debt-based assets will be pushed to default because their ROI goes negative with higher carrying costs.
There are two reasons why assets will be dumped in this environment. One, servicing costs are too high to provide any acceptable ROI, and two, the asset values themselves will be collapsing as market participants unload them (look at bonds over the last 18 months).
The only way this doesn't happen is if wage growth accelerates to keep up with those higher servicing costs, and in a “stagflationary” environment, this never happens. Real wage growth is always lower than actual inflation. Therefore central bankers and politicians lie about real inflation numbers. No matter how you slice it, the central banks are in the proverbial rock and hard place. Stagflation lies ahead, in my humble opinion.
In the private sector, the accessibility of credit will contract, which has already begun to happen, leading to a very long wave of less purchasing of goods and services. The resulting stagnant economy will result in consumers losing purchasing power via inflation/currency debasement. Oh, and I've not mentioned taxes. They're going up because the intellects who got us into this mess will NEVER self-reflect or reduce their living standards/cutting the size of government.
The third big domino that fell last month was in the world of government debt, the biggest bubble of all. In a U.S. Treasury press release published on October 31 that didn't get much attention, the U.S. government raised its borrowing requirements over the next six months to $1.128 trillion, up about 13% from what it had said in August. (No surprise there)
Government borrowing is unchecked. The day of reckoning will arrive when investors realize the U.S. government won't be able to meet its obligations and will have to default on its debts and some of its future promises. Canada is no different in the grand scheme, having amassed more debt in the past seven years than in the previous 148 years and all other Prime Ministers combined. Debt failure will be the shockwave felt around the world. But we're not there yet.
What to do?
Until then, our near-term tactic remains our best defence. We are not reinventing the wheel because history has proven unequivocally that gold and silver are among the most trusted resources for protecting and insuring our purchasing power during unstable economic times. Look at this broad range of assets and place yourself on the spectrum of gain and loss. Where do you stand in 2022?
If You're Going to Beat the Averages, You Need a Plan
I'm an investor, a speculator, and a risk taker. I am conservative 85% of the time with my money and the other 15% I put out to work hard for me. No, I am not your planner, advisor, bank manager, or accountant. If you require professional support for your finances, you can seek advice from any number of people. If you want to know about buying, selling and storing actual physical bars and coins of gold and silver the world over, then Delta Harbour Assets is a true leader you can trust.
I spotted the opportunity in gold in 2004 before it soared more than 400% over the following eight years. I was there holding clients' hands when silver rose from nearly $9 in the fall of 2008 to $49 plus in the spring of 2011, and I am here today doing the same thing for thousands.
I do not believe in the single asset strategy more than in holding nothing but paper. I believe in an approach that considers all possible economic outcomes, not just the good ones. I believe in hard assets—land, resources and commodities, luxury collectibles, and physical gold and silver.
Why am I sharing this with you? Because I will never be satisfied making the average 5-7% return that you get from a 60/40 portfolio or some other passive market strategy. I have watched the folks who, despite having the best overall 60/40 portfolios, fail to keep up with inflation and continually have their purchasing power robbed. It is the goal of great political nations to redistribute wealth and to tax hard-working folks without equal representation (Hard working people always pay more than their fair share). In gold and silver, your hard work never goes unnoticed. They cannot be duplicated physically or printed. They are finite in availability. They have exceeded expectations for thousands of years. And the greatest hidden truth of all? They are considered "top tier" assets by central bankers worldwide, unbeknownst to you, the reader.
One of the reasons why most investors fail to make money in the markets is that they don't have a plan. They don't know what they're trying to do. They buy stocks impulsively. And as a result, their portfolios are a ragtag collection of hints, handouts, and the latest crazes. Let's stop doing that and start investing in ourselves.
There are four main reasons I like gold and silver for 2023, and these are them.
Central Banks continue to buy Gold
The U.S. dollar loses value (Gold is the antithesis of the U.S. dollar, historically.)
Rate Hikes will be over
In 2023 the average person will seek protection and insurance for their wealth, and when they do, the floodgates for gold and silver and what they represent will already be opened to them. It will be too late when the average investor starts to buy gold and silver. There will simply not be enough to feed even 10% of the population of investors, let alone the historical average of 20% at peak market.
Your turn now. The ball is in your court…
Yours to the penny,
Darren V. Long
Delta Harbour Assets Inc.