Silver the pin that bursts the everything bubble?
I’m excited to welcome you to the very first issue of my newsletter.
Unquestionably, what we have seen over the course of the last week has been a credible threat to the entire financial system. The revival of the silver story arose to mainstream prominence as a consequence of the Wall St Bets move on GameStop and the infamous big silver short position.
But it was more than that. It was a story of provenance, sound money and the abuse wrought upon society as a consequence of financialization by the Wall St elite; backstopped by the Federal Reserve.
Just as when Ron Paul spooked Ben Bernanke by showing him a real silver coin, the sudden run up in the silver price spooked powerful officials. The immediate consequence was to force a massive fall in the silver price through the creation of 3 billion ounces worth of further short positions. It had the desired effect on the price, yet it simply serves to double down the position and potentially make further price increases even more damaging for the large bullion banks. It also forced an emergency meeting between Treasury Secretary, Janet Yellen, the SEC, the CFTC and Fed leaders.
They understand the threat that the silver market poses for the wider financial system. This is quite remarkable when you consider that the physical silver market remains tiny: only around 300m ounces available for investment per year. Yet a rising silver price would force silver shorts to cover their positions and buy back at far higher prices. This could jeopardise the financial institution itself and lead to far ranging financial contagion, which could precipitate a dollar crash.
Ultimately, the Bullion Banks cannot win. Unless they discourage physical silver investment through market volatility and other unscrupulous means. I thought it was interesting to note that Twitter’s auto complete adjusted the #silversqueeze hashtag to #silversqeeze. At a glance, they appear the same, but one reinforces a movement and the other disrupts it. Moreover, a viewer pointed out to me how a number of my videos on the silver squeeze theme are shadow banned on YouTube, making them largely undiscoverable for search terms. It seems that soon, the war on free speech will be extended to include proponents of sound money, so thank you for being here!
And so what can we expect in the macro world? Well, all eyes are on the yield curve. That is the interest cost attached to US treasury bills. As US treasuries sell off, yields rise. Shorter term treasuries attract a lower yield than longer dated treasuries. This is due to the relative risk in the longer term being greater and the need to incentivise people to tie currency away for longer durations.
Recently, we have seen the yield curve rise. From a conventional macroeconomic standpoint, this applies pressure to gold prices since gold yields no return.
But the rising debt interest costs are longer term bullish for gold. Consider that, currently, around 8% of US government spending goes towards servicing debt costs. That number could double by the end of the decade. It will rise even quicker if interest rates continue to rise, which will raise concerns regarding the solvency of the US economy. This is why I see gold as the only realistic way out of this mess, as I discussed in this video.
Meanwhile, many are sounding the alarm on the potential for a market crash. Certainly, the risks are all there: record long positions, record margin debt, record dollar short positions and record low short positions. Yet, unless a clear trigger event emerges, I believe we are set to see a ‘crack up boom.’ And a continued melt up in stocks. Risk indicators largely highlight a largely ‘risk on’ atmosphere. Consider treasuries: traditional safe haven assets are falling; the SPX is still on a tear; copper prices continue to move upwards; lumber prices are soaring; and gold has stalled, for now. In fact, only the rise in utility stocks gives me pause for thought here.
And so the reflation trade seems most likely to continue.
Here’s the link for the metals & stocks spreadsheet. A few instructions:
Go to ‘File’ and
‘Make a Copy’
Adjust for your own average stock or metal purchases. Notice the Google Finance stock codes & ways that they’re written. The third tab at the bottom has a breakdown for non US currency.
Hopefully, you can then adjust for your own country’s currency. I hope it’s useful; let me know. We can add additional tabs to this in coming emails.
Anyways, that’s it for now. If you have any questions, or if there’s something you’d really like me to cover, please get in touch with a reply to this message.
Once again, thanks for being here.