6/16/17: ANDY HOFFMAN - PRECIOUS METALS VS. CRYPTO-CURRENCY AND MAINSTREAM INVESTMENTS - "REVISITED"

Andy Hoffman

PRECIOUS METALS VS. CRYPTO-CURRENCY AND MAINSTREAM INVESTMENTS - "REVISITED"

Two days after the most suicidal, hubristically arrogant policy statement in FOMC history, by an institution desperate to maintain the dead propaganda meme of "growth"; and with it, the Cartel's "response" - gold remains less than $20/oz below its 5½ year downtrend line, and $20/oz above its 200 week moving average; whilst silver - in my view, more undervalued than at any time in history - is just a buck below its 200 week moving average, but a full $0.65/oz above its 5½ year downtrend line. In both cases, despite all the Cartel has thrown at it, in the three days since gold hit a 2017 high of $1,295 - and one week after silver briefly touched $17.75/oz.

Again, it cannot be overstated how ludicrous the Fed's decision to pretend all's well was; given that the quarter point rate hike, to a still historically low 1.1% - which neither borrowers nor savers will benefit from - only makes an economy already on the brink of (officially recognized) recession that much more vulnerable; as evidenced, in spades, by the horrific housing starts and permits data published this morning.

Before I get to today's principal topic - of the "risk/reward profiles" of Precious Metals versus other assets classes, like crypto-currency, stocks, and bonds - I can't help but list the huge, and diverse, list of PiMBEEB, or Precious-Metal-bullish, everything-else-bearish headlines from the past 24 hours alone. You know, as the Cartel was attacking PMs following the Fed's "hawkish policy statement"; which, I might add, have only caused market-based rates to rise by three basis points from the post-Election low set mere hours before, following the triple-whammy release of contracting retail sales, wholesale inventories, and (government understated) consumer prices.

1. The NAHB Homebuilder Index - which never declines due to its obvious upward bias - plunged from 70 to 67

1. Despite collecting record taxes in May, the Federal government still recorded an $88 billion deficit, which won't be helped any by higher interest rates

1. Goldman Sachs reported that China's capital outflows are far larger than reported

2. The EU agreed to "bail out" Greece yet again - which should last a few more months, before another is required to prevent instantaneous bankruptcy

3. The Bank of Japan maintained its -0.1% interest rate, 0% target for the benchmark 10-year JGB, and $700 billion annual QE target - with the best propaganda it could muster for the dying Japanese economy, that it "has been turning toward a moderate expansion."

4. Despite the "shocking" UK election result, 70% of Britons still support BrExit

5. The U.S. imposed additional sanctions on Russia - which Germany loudly condemned

6. Oil prices collapsed to $44.50/bbl - as OPEC's days of relevance; and perhaps, existence; rapidly approach their ignominious, debt-destroying end

7. Two days after being downgraded to one notch above junk status, the State of Illinois - unable to pay its bills, and "growing" at a rate less than in the 1930s - halted construction work, and was dumped by the Power ball lottery system

10.Nike, who's business never weakens, is laying off 2% of its global workforce

11.The U.S. is on pace to see nearly 9,000 retail stores close this year, shattering the previous record by more than 20%

12.To that end, this morning's Amazon.com purchase of Whole Foods has caused the entire grocery store stock sector to crash - given the massive amount of layoffs they will endure, when Amazon mercilessly destroys this archaic dinosaur of an industry - which for all intents and purposes, is amidst a massive recession - as it has with countless other retail sectors

13.Canadian home sales crashed nearly 7% in May

14.The Trump "obstruction of justice" crusade was dramatically stepped up

15.Chinese debt issuance crashed more rapidly than at any time in history

16.A draconian "anti-money laundering" bill was introduced by the Senate - which, if passed, would dramatically escalate the ongoing "war on cash"

17.And finally, the "fun facts" that 1) over the past 20 years, seven of the eleven days in which the VIX Volatility Index has closed below 10.0 have been this month; and 2) just ahead of the economy-killing rate hike; whilst economic data, across-the-board, accelerated its collapse; Wall Street experienced its second largest weekly capital inflow, to stock and bond funds - ever!

But don't worry, despite horrific across-the-board economic data, Trump claimed "I think this quarter's GDP numbers are going to be shockingly good, given all the facts we're seeing"; and "I think some very good numbers are going to be announced in the very near future, as to GDP." To which, I can only respond incredulously, given that a) considering that essentially all economic data has been either weak or horrifying, why on Earth would anyone expect this to suddenly change - particularly now that the Fed raised interest rates?; b) does Trump not realize that, if he was indeed in possession of knowledge about "some very good numbers," he is admitting to having inside information, and selectively disclosing it - in both cases, criminal offenses; and d) what "very good numbers" could he possible be speaking about?

I mean, after today's horrific housing starts number, the only material economic data scheduled for publication in the foreseeable future are May existing and new home sales, next Wednesday and Friday. Hardly market moving data to start with, and likely not even calculated yet. Moreover, given last month's horrific existing and new home sales declines; today's equally massive housing starts and permits plunge; an ongoing collapse in mortgage purchase applications; and oh yeah, the fact that the Fed raised rates yesterday, the odds of next week's housing numbers being "shockingly good" aren't just slim, but none. In other words, not only is Trump lying, but doing so in an extremely careless, blatantly obvious manner that will only undermine his Administration - and America's Banana Republic-like economic data reporting process - further.

OK, now that today's "housekeeping" is complete, let's move on to a discussion of the relative risk/reward profiles of Precious Metals versus other asset classes, including "mainstream" investments like stocks and bonds; crypto-currencies; and "paper PM investments" like mining stocks and ETFs. Which I describe as a "revisitation," simply because back in March, I did a "special podcast" with Bix Weir discussing this very topic.

To start, let's look at stocks and bonds. Not that I'm making any dramatic revelations, as I have discussed for some time their historic overvaluations, on essentially every qualitative and quantitative metric imaginable - culminating in last month's "dotcom valuations in a Great Depression Era." Which, since its publication six weeks ago, have gotten significantly more egregious, given the accelerating collapse of economic data, and yesterday's ludicrous, economy-killing rate hike. Not to mention, the Fed's suggestion that it might allow its $4.5 trillion bond portfolio to start "running off" later this year, putting significant upward pressure on interest rates, at a time when the dying economy - and historically overvalued stock and real estate markets - desperately require the ultra-low interest rates history's largest, most destructive fiat Ponzi scheme typically produce.

Next, we have crypto-currencies - which whether or not you believe in their long-term outlook, as I strongly do, or not - have had a monstrous, historic run in the past three months. Nearly all such "assets" are centralized projects with no real use cases; i.e, the equivalent of dotcom stocks with outrageous valuations, relative to unfathomably high risks. And while I believe with all my being - and a significant investment, to boot - that Bitcoin will dramatically transform the monetary future, it is currently amidst a raging "scaling debate" - potentially, "influenced" by the Chinese government itself - that should last through at least the next few months; and certainly through August 1st, when a potentially disastrous collision between the scheduled "user activated soft fork" and a countering "miner activated hard fork" could cause significant damage to the crypto network; and consequently, heavily inflated crypto-currency prices. For the record, wild horses couldn't tear me away from my Bitcoin investment, particularly given the extremely low price I acquired it at. However, I'd be terrified to invest in it further ahead of August 1st; and significantly more terrified of the second and third tier "investments" known as ICOs, from Ethereum to the most blatantly scammy "altcoin."

Speaking of second and third tier investments, is there another person in the Precious Metals sector who has spent as much time warning investors of the dangers of "paper PM investments," like mining shares, ETFs, and closed end funds like the Central Fund of Canada? This, going all the way back to 2011 - when I sold my last paper PM investment, after having spent nine years owning them, and five years working in the operationally treacherous, historically suppressed mining industry. To that end, last month's disastrous re-balancing of the GDXJ junior mining index; and yesterday's equally catastrophic announcement by the South African government - that going forward, all mines must have at least 30% black ownership; are two glaring examples of how much risk is entailed in holding such investments. Which, aside from a handful of extremely brief windows of out performance, such as the first half of 2016 - have decidedly NOT been Precious Metal price proxies for the past decade.

Last but not least, we have physical Precious Metals themselves. Which, while dramatically under performing their fundamentals - and rigged stock and bond markets - for some time, have clearly bottomed; and subsequently, are "holding their own" amidst the most egregious suppression in financial market history. Amidst the most bullish supply/demand, monetary, and "Black Swan" outlook in modern history, global demand is near its all time high; supply is expected to decline for years to come; and above ground, available-for-sale inventories have never been lower. Moreover, whilst gold is trading at its all-time lowest inflation-adjusted price - and in most non-dollar currencies, at or near its all-time high, both silver and platinum, quantitatively speaking, are more undervalued, relative to gold, than at any time in decades.

In other words, physical Precious Metals are not only dramatically better "values" than any other asset class - care of the aforementioned, historic Cartel suppression; but are so, at a time when the time-tested insurance they provide has never been more necessary. Only you can decide what your optimal asset allocation is; but as for me, physical Precious Metals - safely stored, outside of the banking system - will continue to remain, by far, my largest investment position.