There appears to be a growing consensus that inflation, which is greatly under-reported already, may be getting ready to surge. This should come as no surprise to anyone who reads this article because I have often said that “you can’t “print” your way to prosperity”. The conjuring up of “money” that has no asset backing it and has produced nothing of value has the effect of making all “money” of that same type, worth less and pushes the prices of goods higher

First, because of the act of “printing” money, there is an illusion of increased demand. Later on- when things really heat up- because of not only excess “money” but also fewer goods being produced because many were lulled into believing they were getting something for nothing. (I can sit on my couch and collect more in unemployment than if I were working!) Have you heard that one?

I have been seeing a lack of goods in the grocery store recently. So far, it has been limited to this item or that item that I can’t seem to find when I am looking for it, but it appears that after a restocking after the first of the lockdowns there are emerging signs of supply chain disruptions showing up again.

In addition, the Bloomberg agricultural spot index looks like a chart of Tesla in the last month or so. Of course, the agricultural products are what we need to sustain us. If these prices continue their current course the food insecurity that we are hearing so much about could get much worse- particularly for those already struggling when there is SUPPOSEDLY no inflation.

According to Peter Bookvar, on King World News the CRB Commodities index is the highest it’s been since 2014 along with corn (highest since 2013) and soybeans (highest since 2014).

Of course, if those “in charge” keep food and energy excluded from the numbers (as they do), then maybe they will still see no inflation ahead. I don’t know about you but the most important thing to me is food and I couldn’t function without energy.

Speaking of energy, I read a white paper in August written by Leigh Goehring. He was the manager of the Jennison Natural Resource Fund years ago and has recently started his own firm. In it, he wrote why he believed that natural gas was going to emerge from its 10-year slumber. He made some great points and got me interested. Not more than 2 weeks later Warren Buffett bought out Dominion Energy’s natural gas unit. A week later Chevron bought out Noble Energy’s natural gas unit. To me, this was a trifecta of proof that something was in the wind.

Now that prices seem to be rising Goldman Sachs has just joined the club and they are now bullish on natural gas also.

In looking at ratings and charts this asset class has been decimated. That was part of Mr. Goehring’s thesis. There has been a glut of natural gas produced and an oversupply situation that he sees turning into a deficit situation shortly. It appears he may have been on to something there.

Remember that while most people will chase the hot assets most successful long-term investors still hold to the mantra buy-low and sell high. Many, with the fear of missing out, will chase assets on the rise. I pity the fellow who bought cryptos last week or those who think TESLA is a bargain. Ultimately, true value will rear its head and those who were chasing fantasies will get a lesson they will likely never forget.

I remember in 1999 Warren Buffett was called a moron because he didn’t buy tech stocks.  The thought at the time was that he didn’t “get” the new environment. “Earnings and PE ratios didn’t matter in the digital economy”. Or did they? Jeremy Grantham lost a lot of his business (so did I and that is just one more reason for my respect for Mr. Grantham) because he refused to get sucked into the mania. Eventually, it was discovered by virtually everyone that Mr. Buffett did indeed know what he was doing and Mr. Grantham grew his company back to multiples of its former size when the truth came out about the “new normal”.

Eventually, earnings DO matter, profits and losses matter and if things go south DEBT can KILL. Just ask the millions of people who have been shut down by government decree. Those small businesses that are unencumbered by debt have a chance at survival. Those drowning in debt are likely already closed for good. Many large companies are surviving by issuing new debt to pay interest on old debt to survive another day. The day the funding stops for these folks will likely be the day that the stock of that company falls hard on its way to ZERO. You can’t recover from ZERO.

Some assets that have never been and are likely to never be zero are gold and silver. The price can be manipulated lower- like it is- but eventually the truth will come out. Just last week, according to King World News, JP Morgan managed to sell the ENTIRE years mine supply of silver in a matter of hours. The proof that they were hammering the price down shows up in the charts when a sell is made with a market (no regard for price) order at a time when Europe is just opening, Asia has just closed and we are all still asleep in the USA. This starts the beatdown and the algos take care of the rest.

Just to show how delusional the prices of the metals actually are and how fake the prices are we can look to Kitco.com. The four precious metals that trade in a paper market (paper price is used to manipulate the price of the REAL asset) have virtually no bearing on actual supply and demand because, as the banks can “print” money up they can “print up” paper gold or silver contracts and sell them into the market to manipulate the price. The one precious metal that DOES NOT have a paper market wagging its tail is Rhodium. Rhodium, as of 5:30 on January 13, 2021 is trading at $20,000.00 per OUNCE. Gold and platinum trade at a fraction of that but are actually more “precious”. What does that tell you? This is why I always say, “When this scheme ends- as they all do- the price of gold and silver will explode in a way many can’t even fathom”. Just don’t ask me when because it should have happened LONG ago. For me, this is the ultimate chance to buy low and- at some point- sell high.

This has been a challenge to our patience for quite a long time, but it appears that the end is rapidly approaching for fiat currencies and that real assets are likely to gain newfound respect shortly.

Remember this saying- If a debt can’t be repaid it won’t be. Keep these stats in mind:

  • There are 8 million people LESS in the workforce than in the year 2000.
  • Acknowledged Federal Debt is nearly 27.8 Trillion and will likely explode higher in a week or so. The 27.8 Trillion is a massive number but to put it into perspective each taxpayer would have to pay $222,191.00 to pay that off.
  • We (USA) paid $3.8 TRILLION in interest payments in 2020. We didn’t even collect that much in taxes!
  • Unfunded Liabilities (SS, Medicare, Prescriptions) are estimated to be $158 TRILLION or, $479,530.00 per CITIZEN to cover that. (Debt and economic info.-USdebtclock.org)
  • Corporations are at record levels of debt that continue to climb. More and more companies are “Zombies” where earnings can’t even pay the interest on the existing debt after expenses and new debt is needed to feign solvency. What could go wrong?
  • Many cities and states are buried in debt and are losing revenue at an alarming pace because of lockdowns and an economy that was slowing substantially long before anyone heard of Covid 19.
  • 40% of Americans can’t come up with $1000.00 in case of an emergency.
  • 45.5 MILLION Americans need food assistance and collect food stamps.
  • Those “in charge” are well aware of massive market manipulation and are glad to charge some fines to look like they care to anyone watching but do NOTHING to stop the manipulation. This leads me to believe they may be doing it FOR those “in charge”.
  • It appears that many have turned to credit (and buried themselves deeper in debt) to maintain the illusion of being able to afford their previous lifestyle. (This is appearing not only to the poor but also far higher up the food chain)

How much would you bet on getting paid back with these numbers in mind? It might just be better to own an asset that is not someone else’s liability- like metals, oil, gas, food, and REAL stuff! Even if every penny does get repaid it would likely be with the US dollar being worth a fraction of a cent to pull it off. Can you imagine a $1000.00 happy meal?

These bullet points, the instability of our economy, social and political climates and a general lack of civility towards each other makes me question just how long can this last.

Personally, I am much more comfortable right now with hard assets and companies that produce them along with bonds and currencies NOT denominated in US dollars.

Whatever your personal preference may be …

Be Prepared!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.

Precious Metals, including gold, are subject to special risks including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.

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