May 3, 2020
The Miles Franklin Newsletter
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Gary Christenson-Contributing Writer For Miles Franklin
How Much Time Remains?
 
Miles Franklin sponsored this article by Gary Christenson. The opinions are his and are not investment advice.
 
BREAKING NEWS:
 
In the past six weeks 30 million Americans filed for unemployment. Tax revenues decline, consumer spending and company profits fall, and safety net spending for unemployment, welfare, “food stamps” etc. will increase. Net result—much larger deficits and more debt.
April 30, 2019: National Debt = $22,027 trillion.
April 30, 2020: National Debt = $24,974 trillion. Oops!
 
More Debt: So What?
 
From Jerome Powell , the Chairman of the Fed: “ Now is not the time to worry about debt , but use the great fiscal powers of the US to avoid deeper damage to the economy.”
 
Translation: Expanding debt and deficits forever. Spend, spend, spend.
QUESTIONS:
 
  • Will a time come when we address the debt? Answer: Yes, but not in an election year.
 
  • The Fed (and other central banks) enabled the massive debt to increase by lowering interest rates to near zero, adding $20 trillion to their balance sheets (from nothing) and encouraging expansion of sovereign, corporate and individual debt. Will the Fed admit they caused most of the problem? Answer: Maybe, but not before snow falls on the Rio Grande in August.
  • Does anyone believe that 30 million newly unemployed workers bode well for markets, profits, and economic strength? Answer: No!
  • The Fed can create trillions (they do) and boost stock markets (they did). The Fed can purchase bonds (they do) and force interest rates lower (they do), but can The Fed create goods and services, productivity, infrastructure, food, energy, and other necessities? Answer: Of course not.
 
  • The Fed’s “answer” to most economic crises in the past five decades has been to reduce interest rates, inject liquidity, and claim they are saving the economy from problems they caused. Will this continue? Answer: Yes, for as long as politicians accept money from lobbyists and corporations.
 
  • Printing dollars and feeding them into the stock and bond markets will boost those markets for a time. Will it levitate them forever? Answer: No, but levitation can last a long time. Or maybe that game died in March.
 
  • Has the stock market turned lower? Answer: The charts (see below) show the top occurred in February.
 
  • But could the S&P rally and reach new all-time highs. Answer: Almost anything is possible, including snow on the Rio Grande, honest politicians, and truthful Fed statements. However, do you trust your savings and retirement funds invested in an overvalued stock market supported by QE4ever, buybacks and unpayable debt. That debt will default or be inflated to near zero in value.
 
  • What about gold and silver? Answer: You know the drill. They are real money, not debts from the Federal Reserve (dollars), not IOUs from dodgy corporations, not an unbacked currency unit that is falling toward zero purchasing power. The Fed can create inflation, but not gold.
 
CHARTS:
 
Gold prices on the COMEX have risen for 20 years as the dollar devalued. Gold, when priced in most currencies, sells at all-time highs. It will reach a new high in dollars in 2020 or 2021, depending on fiscal and monetary insanity, Fed “printing” and panic buying of real assets without counter-party risk.
Gold has risen since 2001 and will rise further as dollars are devalued by QE4ever and massive debt increases.
 
The DOW:
 
The DOW on a linear chart broke support since 2015. On the log chart it broke support since 2010 .
Is it possible the DOW will, based on trillions of created dollars, rise back to its February glory days? Yes, but please contemplate the first, second and third-order consequences of 30 million unemployed workers, delinquent mortgage payments, unpaid rent, insolvent pension plans, and a congress that only understands borrow and spend solutions to economic problems.
 
RUSSELL 2000
 
What about the Russell 2000 Index? This broader index represents most stocks, not the narrow FAANG + Microsoft stocks.
 
The Russell 2000 Index peaked in August 2018, before Repo-Madness, QE4ever, and $2 trillion of “printing” by the Fed. The stock advance since then has been increasingly narrow.
 
THE RUSSELL TO DOW RATIO:
 
The ratio shows that Russell 2000 stocks peaked, compared to the DOW, six years ago. Since then the Russell stocks have been weaker than the DOW. The narrow advance is worrisome.
SUMMARY:
 
Gold will rise as dollars are devalued, the Fed “prints” with QE4ever, and politicians spend borrowed dollars. The rally may become spectacular, like 1979—1980, as investors panic, realizing dollars are crashing in value. Some will demand real money—gold and silver.
 
The DOW has fallen through long-term support lines as the economy has shutdown, GDP is in free fall, and unemployment is skyrocketing.
 
The larger stock market, as represented by the Russell 2000, has been weaker than the narrow DOW. This was an early warning signal that stocks were topping, even though supported by Fed liquidity.
 
CONCLUSIONS:
 
  • GDP is falling. Unemployment is rising. The shutdown and excessive debt created a recession or depression.
 
  • Inflate or Die!
 
  • COVID-19 was the pin that burst the bubble of excessive debt, unreal expectations, and the crazy belief that The Fed can create wealth and prosperity by “printing” fake money.
 
  • The stock market peaked in February. A return to those levels, anytime soon, looks doubtful. Consider the charts, real economic traumas, and the oil business. Creating fake money that benefits the political and financial elite will not save the middle class or the real economy.
 
  • Massive debt, huge deficits, fear, and panic will weaken dollars. Devalued dollars may help support over-valued stocks, but they will push gold and silver prices to new highs.
 
  • Gold sells at all-time highs in most currencies. New highs, priced in dollars, will come soon.
 
  • Who would have believed (in January 2020) a 35% drop in the S&P 500 Index in five weeks? Who now believes that gold will reach $2,000 to $3,000 relatively soon? Bank of America… and others.
 
  • The stock market is supported by the Fed, but not fundamentals, strong earnings, rising GDP, increasing productivity, or stock buybacks. Does that worry you when we know the Fed only cares about the political and financial elite?
 
  • Buy gold. Buy silver. The stock market… You know the drill.
 
Miles Franklin does not print dollars. They understand real money, not the fake stuff created daily by our central bank. They will exchange currency units for gold and silver. Call 1-800-822-8080.
 
Gary Christenson
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Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.

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