Return to real, silver’s perfect storm, and Yellen’s conflict of interest
Notes From The Inside
This week we explore:
The country’s “Return to Real” and how investors could profit from the economy’s path forward
How Janet Yellen’s tangled interests play out in her new role as Treasury Secretary while investigating market manipulation
Why we’re witnessing the dawn of a new Golden Age for precious metals
Less than a month into his presidency, Joe Biden’s administration must deal with a ticking time bomb in the battle between retail and institutional investors.
Our first prediction was a blue wave, then we called out an investigation into the practices of Wall Street. Now we’ve got another bold prediction.
How did we know what would happen next?
It’s the exact same formula that played out 88 years ago when another blue wave happened, during another major crisis.
You see, massive change is happening. The Fed’s goal and mindset over the past forty years has been to prop up financial assets in order to create a “wealth effect” that will then “trickle down.”
It started with Reagan. Unfortunately for investors with financial assets, it ended with Trump. The goal of the new Fed is to redistribute wealth. They’re the new “equality” regime. The new words and actions of the Treasury and the Federal Reserve are now to punish the wealthy for the benefit of the masses.
The Fed and their QE program ensured that stocks and bonds were a one way street. The result has been a market that has exploded higher. It also created the biggest wealth gap in human history. The “haves” can be sure they’ll be giving a lot back to the “have nots” in the coming administration and under the new agenda.
This doesn’t happen overnight. But make no mistake, it is happening. Do not fight the Fed on this one. Just beware of the signs and play along to benefit. “The world has changed” is Yellen’s latest argument for aggressive stimulus. This is code for “the agenda has changed” and we are going to focus on equality.
The first thing that has to happen is that Wall Street must be villainized.
Market manipulation over the last decade coming directly from the Fed was all good. Printing trillions, lowering interest rates to 0%, and increasing their balance sheet 10X wasn’t considered manipulation. (Not when their agenda was to prop up financial assets).
But their agenda has changed. They’ll never admit to it publicly of course, but their guilt needs a patsy. Just like the Pecora Commission in 1933 led to the creation of the SEC and the passing of Glass Steagall, new investigations into the “rigging” of Wall Street are up next after Reddit’s WallStreetBets formed a collective of retail traders who turned the tables on the hedge funds and institutions who previously perfected the strategy. And when that strategy worked, rather than allow market forces to run their course, the lights were shut off and traders were unable to move forward.
Now, Janet Yellen has been tasked with investigating the market’s recent moves to “protect investors.”
But which group of investors is she protecting?
One of the key names under scrutiny is Ken Fisher and his hedge fund Citadel, a firm which effectively owns all of the retail order flow from Robinhood. It’s also the same firm that paid Janet Yellen nearly $1 million in fees over the past four years. Former Fed Chair Ben Bernanke is a Special Advisor to Citadel and also extracts fees that are reported to be in the hundreds of thousands. And now it is Janet Yellen herself calling for investigations to protect consumers.
Yellen’s seeming conflicts of interest could lead to an expedited timeline for financial reform not seen since FDR’s New Deal. We can anticipate what happens next by looking back at FDR’s progressive Blue Wave and its effects on investor portfolios.
This is all clear as day when looking through the lens of The Great Devaluation because it’s the same story one supercycle later. This time, instead of FDR and a New Deal, it’s Biden and a New Green Deal. The new legislation that comes won’t be called Glass Steagall, it’ll be called something like “Cortez Sanders.”
Whatever the rhyming of the past is called today, current market theatrics and the Fed’s ongoing economic manipulation highlights numerous weaknesses in an artificially inflated stock market. The momentum promises sweeping (and rapid) changes, and exposes several key facts that savvy investors can leverage to generate huge profits over the next few years.
The first big lesson? When Congress steps in to corral Wall Street, it’s never good for financial assets. Higher taxes on corporations is next, along with taxing the wealthy. It’s a slippery slope from there and one that we recognize in advance can prevent us from breaking our necks when the slip and fall occurs.
The BIG Picture
Donald Trump spent the past four years unraveling his predecessor’s regulations and loosening restrictions on the financial industry. Now Joe Biden brings a “return to real” for the financial industry with a focus on increasing financial regulations. Meanwhile, the Fed has backed itself into a corner with negative real rates, and a new wave of progressive programs is set to launch in the coming months.
This NEW new deal is only possible due to the country’s current crisis, much like the Great Depression fueled FDR’s programs in 1932.
We’ve already seen:
Just this morning after an all night voterama, and through a process called Reconciliation, the Congress approved Biden’s $1.9 trillion stimulus package. The details will be worked out over the next several weeks, but the total is agreed to. Our blue wave theory laid out in the Special Election Report predicted an ongoing slew of fiscal stimulus that Republicans would attempt to slow down. As we can see, that effort has been steamrolled by the Democrats who used the reconciliation bill for their progressive agenda the same way the Republicans used it to pass the Trump tax cuts in 2017.
Just as the Trump tax cuts brought out the animal spirits in investors that helped pushed the stock market higher by 50% in his first two years in office, expect the Biden progressive package to have a major impact on tangible physical assets as the inflationary pressures from their programs get unleashed on the real economy.
And numerous other progressive policies being pushed through on an expedited timeline that exponentially speeds up the transition between party power.
This is a reset. It’s a NEW new deal. And the only way it could get passed is in a crisis. We won’t need a 60% agreement in the Senate. These programs can be pushed through with reconciliation bills and zero bi-partisan support.
And they will be pushed through continuously.
A new Glass-Steagall Act will follow the 90-year supercycle and will change the rules on Wall Street to further redistribute wealth, which is bad for financial assets (but excellent for tangible physical assets, commodities, rare earths, and precious metals.)
This redistribution from the wealthy to the poor flows across a bridge of inflation, which is the new mantra for the Fed. It always ends in hyperinflation. And thanks to modern technology, this transition is happening faster than ever. That means that rather than wait a decade, we could see big inflationary pressures in the next 12, 24, or 36 months. We have already seen precious metals and commodities dramatically outperform financial assets in the last two years. This momentum is in its infancy and the new investigations into Wall Street’s chicanery are a tell-tale sign it’s all happening.
We will see more and more inflationary acts passed to increase spending and generate stimulus, all the while keeping interest rates at zero (or less), making investors focus on the now and short term gains instead of long term returns.
We can’t fight the Fed, and right now the Fed wants inflation. They want equality. They want to redistribute wealth. Inflation is their ticket because inflation is good for the working class as minimum wage and salaries increase. Inflation crushes financial assets and is terrible for the bottom line of industry who’s pipeline and production chains become more expensive and real profits get squeezed.
The Big Picture?
We’re witnessing a perfect storm of economic events that has created the single greatest opportunity in history for a repositioning of portfolios away from the tech stocks and financial assets of the last decade into a broad basket of commodities, real materials, and especially precious metals which will lead the charge.
Fox in the Hen House: Yellen Investigating Market Manipulation
In 1933, the Glass-Steagall Act was passed to separate investment banking from retail banking after the Pecora Commission investigated Wall Street and uncovered massive self dealing. That law was repealed in 1999 by the Gramm–Leach–Bliley Act (GLBA), which is one BIG reason why we see so much leverage in today’s markets, and why Wall Street is under investigation once again after the recent battle between retail and institutional investors over GME and others.
Support for this investigation comes with vocal calls for regulation that could result in a NEW Glass-Steagall Act (the Cortez-Sanders Act, perhaps?), and the person in charge of this investigation is one of the people responsible for allowing it to happen in the first place; Janet Yellen.
Janet Yellen heading up the investigation is like having arsonists putting out fires they started, and then their accomplice serves as judge.
Citadel is the hedge fund that owns a large part of Robinhood and executes trades for the platform, and is at the heart of Yellen’s investigation. Citadel loaned Melvin Capital $2b for their short squeeze on GME, which backfired as retail traders banded together to buy shares and drive GME share price to record highs. Until Robinhood restricted trading on GameStop, which saved Melvin Capital’s short squeeze...
Meanwhile, Yellen’s mandate is to protect consumers and strengthen the economy and American financial wellbeing as a whole. She is poised to take on the Wall Street elite as the “defender of the little guy” despite years of helping Wall Street produce huge fortunes. Now, she’s focused on how to redistribute that wealth.
Should Ken Fisher and Citadel be worried?
Hardly. The conflicts of interest are so big within our government structure that going after Citadel or Ken Fisher would be an issue of national security because of the aiding and abetting that has transpired in the last decade.
If you think any of this sounds too harsh, read the expose written this week by Bloomberg about how billionaire Robert Smith used his government connections to keep from being indicted for tax evasion on hundreds of millions of dollars. The reasoning from the Justice Department for not seeking an indictment was that it would be a national security issue.
The scale and scope of this David vs Goliath battle has put immense pressure on the White House to take action. Investigations looking into possible market manipulation, capital rules for brokers, settlement cycles, short-selling and the use of options and derivatives and how those could be regulated are all up for grabs.
Will anyone actually go down?
Maybe. But it’s unlikely that any big banks or hedge funds who were behind the crime will suffer any meaningful damage. Our bet is that the forum itself will be accused of wrongdoing, and that retail traders will be considered market manipulators for doing the exact same things that Wall Street has been permitted to do for decades.
Rules and changes will be called for. There will be outrage at the broken system, the manipulation, the insider dealing... These changes will come under the guise of “protections,” but will really mean runaway stagflation. It will push real tangible assets like gold, silver and platinum prices even higher.
And that will be adding gasoline to a crisis, which we can almost guarantee will be the battle cry for progressive change. It will all likely result in more inflation. The odd thing about the financial approach from the new administration is that everyone can now see it.
I include a personal anecdote that happened this week. My dear friend and housecleaner, Ludi, has been working with us for over twenty years. We consider her family and she even came to celebrate our wedding in London. Yesterday she asked me if she could be paid in silver coins rather than in dollars. When I asked her why, she said, “everyone understands what the government is doing, they’re just gonna print a bunch of money and then they’ll let the little people like me have a little bit more.” When I asked her if that would be a bad thing, she said, “what’s the difference if they pay us more but our rent and food cost more too?” I told her that silver was in short supply and she said, “I know, everyone I know is buying it.” Of course I agreed to her request. It’s a bad deal for me personally as the silver I own I'm holding for the long term (I’m certain it’s headed well above $100 in the coming years). But I love her and it’s a good thing for her.
The point of that story is, when everyone can see what’s coming, the collective mindset shifts. That shift is happening.
Inflation is roaring down the tracks and while we can only hear the murmurs of the engine at this point, it will be full steam ahead later in the year, especially when fiscal packages that eliminate student debt and pass large infrastructure get passed. Even my maid can see what’s happening!
The Dawn of a Golden Age for Precious Metals
While the fact is generally overlooked, it’s not a secret that gold and silver have outperformed just about every major asset class over the past 2.5 years.
Gold is up 50% since 8/2018, while silver is up an astounding 75% during the same time.
Meanwhile, the S&P 500 is up a healthy 36%, while the idolized Dow Jones is up just 22% over that same span. While impressive, those gains for precious metals are just getting started.
We are entering a golden age of precious metals investing; one fueled by multiple sources:
The Federal Government is rolling out a massive infrastructure program to create jobs and bolster the economy – one that will cost more than $2 trillion. Infrastructure spending is something both parties can agree on, but this NEW new deal will focus more on green spending and clean energy, which relies heavily on commodities precious metals.
Biden’s proposals include subsidies for electric cars, adding 500,000 new charging stations and converting 500,000 school buses to zero emissions. Those EVs, buses, and stations all utilize silver, platinum, and palladium in their wiring and circuitry.
Then we’ve got solar cells to generate clean energy, new computers and microchips for technology updates to ensure all systems run efficiently and effectively, and ongoing production of all the above as the country shifts from fossil fuels to renewable energy. Silver is the main component of solar energy, and one of the main drivers for why silver has exploded higher.
The surging industrial demand alone would be enough to cause a significant long term rise in the price of silver, platinum and palladium, but when paired with the Fed’s recent negative real rates and ongoing stimulus promises, the opportunity is even better. While silver is an industrial asset necessary for the new economy, it’s also a monetary asset and why my friend is asking to be paid in silver coins.
Next take a look at the US Mint’s issues with meeting demand -- which is at all time highs. The US Mint reported a 700% increase in demand in the 4th quarter of 2020.
This explosion in demand is something I am witnessing first hand. Most people are missing this reality because the spot price in the paper markets has actually come down over the last few months. However, the demand is very real. So is the lack of supply.
We already knew that the mints were behind on meeting demand, but COVID has severely impacted supply chains. And right now, mining exploration is at all time lows, which means there is not a lot of new production coming online. Years of depressed prices have caused a drought in investment.
Fun fact: It takes 5-7 years to get a mine up and running at full capacity.
Supply is dwindling, not growing. We won’t see any real dent in production for another 3-5 years. And that is with existing bullion products.
However, the US Mint is ending production of the American Eagle coin this year and is switching to a new coin mid-summer, which means a pause in production during the transition. This has brought out collectors who want both the last and first mintage years in a series.
Keep in mind that the purchasers on the retail side are strong hands who are buying and holding, not selling. Supply is limited to the point that virtually no one is selling or liquidating their physical metals, which means that the demand must be met from new supplies which the mints are currently unprepared to meet.
This is a real shortage. It’s evidenced by rapidly rising prices as wholesalers are driving up their bids to the US Mint (who sells their bullion to the highest bidder). It all means that while supplies are tight, premiums will remain high. The disparity between paper and physical has rarely been this obvious in history.
Now factor in the impact of COVID.
A few weeks ago, we discussed a breakout of the virus among dock workers in LA, with 10% of dock workers out with COVID as a starting point. If dock workers can’t come to work, if they can’t import materials, that directly affects real world pipelines.
If you think Covid hasn’t impacted the real market, just take a look at the exploding costs of shipping containers over the last year.
Evidence of inflation is everywhere. Prices are drastically affected as real, physical delivery starts to be impacted. Now, while there may not be physical gold sitting offshore, it does mean mints (which are already low on supply) won’t have the supplies they need to produce bullion, or the distribution to get it out to investors. This could cause an ongoing disparity between paper and physical demand and pricing.
Right now, the short term price of gold and silver may be the most undervalued they’ve ever been. The people who have purchased physical metals are in a strong position.
Then there are the investors themselves.
While spot prices are being suppressed, premiums are exploding. The divergence is one that if continues must play out in higher silver and gold prices, from a price mismatch too wide on the paper and physical markets which will literally force metals higher.
We may even start seeing more futures holders demanding delivery of physical metals rather than rolling over contracts, which is generally standard practice. If metals are leveraged 100 to 1 in markets (many analyst estimates are actually higher than that and leveraged as much as 500 to 1), then what happens when two people demand delivery on the same day for the same contract? That’s the risk facing the market.
You can’t print gold or silver like the Fed does with paper currency. People are waking up to that reality. Not just smart investors who follow our information. Working class folks everywhere are seeing the elephant in the room. The wallstreetbets crew simply brought attention to a growing bull market that has been one of the biggest outperformers over the past year.
Between massive deficit spending, government debt, fiscal stimulus to cover it all, supply and demand issues, and investor greed, this is a perfect storm of circumstances to usher in a golden age for precious metals investing.
With increasing retail and industrial demand, coupled with devaluing currencies and inflation, it’s not hard to see why higher prices are coming.
If you have a 401K or IRA and want to learn more about how all of this is affecting your portfolio, click below to get a 100% free copy of my #1 WSJ Best Seller, The Great Devaluation (We’ll even cover shipping).
Best,
Adam Baratta
CEO
Brentwood Research
ELECTION REPORT 2020 We have the most important election in U.S. history upon us. Not just for our next President of the United States, but also for control of the Senate. ONE-TIME OFFER 80%...
NINE ANIMATED MODULES This special 9-part animation series show investors exactly where we are heading. ANIMATION 1 Predicting the Future ANIMATION 2 Comparing the Present ANIMATION 3 High...
Weekly Gold Report Video Series February 9th, 2021 Episode 4 The CPI Feedback Loophole IN THIS WEEK'S EPISODE: • Why the next few months CPI Numbers could be MASSIVE • The importance of...