Everything about this crisis is extraordinary. The speed at which it has happened. The immediate decimation it has brought to businesses that were, until a couple of weeks ago, robust and profitable. And some of the prices that have been thrown up over the past few days.
I don’t see how we remain on lock-down for more than a few weeks. We are too leveraged. Life must go on. What concerns me are the unintended consequences of the bailout packages that are inevitably coming.
Inflation is coming down the road – you really need to own gold
Unlike 2008, which was a largely financial event, this time around the real economy has been hit much harder. Restaurants, pubs, bars, retail, theatres, cinemas, concert halls, comedy clubs – every comedian I know has pretty much had their entire March-April diary cancelled – transport, airlines (of course) and goodness knows what else.
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Most of them are going to need some kind of financial package to survive and the government will duly act. Everyone is crying for a bailout. It’s not going to lead to wage inflation, but that bail-out money is going to make it into the real economy in a way that it never did post-2008.
How is that inflation going to manifest? That is a question we should all be asking ourselves. Post-2008 we got a huge boom in financial asset prices (especially equities), house prices (especially in London), and more obscure areas such as fine art.
I don’t quite see that same boom this time around – although that view may change when it becomes clear where all the newly-created money ends up.
Gold and the friends of gold – the miners, silver, platinum group metals – all collapsed along with the rest of the market in 2008 but then had huge booms in the aftermath. That went on for three years – until 2011, they rocketed.
As regular readers will know, when it comes to gold and silver miners, I’m sceptical. I know too much about what goes on behind the scenes. The same goes for silver itself. I see the potential, but I know how it disappoints. But when these things move, they really can move. And after so many years of disappointment, the stage is getting set for a move.
Given that we are – or were, until yesterday’s bailout packages were announced – in the midst of a global margin call, gold holding up at around $1,500 an ounce is pretty impressive. It hit $1,450 on Monday but the market pretty rapidly decided that was too cheap and it rallied $100.
It may fall lower, but gosh, I would urge anyone who doesn’t own some gold to own some. This is one of those times to own it. The stage is set for QE, MMT and any other acronym you care to come up with for printing money. Post-2008, money-printing has been normalised and it feels like we are about to embark on something even bigger. By popular demand.
I don’t know what the consequences will be. But in what may prove to be one the greatest monetary experiments ever known, I can’t help feeling that you want to own a large chunk of the oldest, purest form of money there is.
Silver, platinum and oil look staggeringly cheap
For the plethora of gold and silver mining companies, there are a few quality names and some of them are going for a song at the moment. And as for some of gold’s other friends, at one stage on Monday silver was trading with an $11 handle. Word is that you can’t get physical – only paper silver – at that price. Whatever. Buy the paper and convert to physical when the prices converge as they eventually will.
Today silver is at around $12.40. That’s cheap. But it’s scary having the bottle to buy when there is so much panic – I bought BHP BIlliton last week and within a day of my buying it had fallen another 10%. It’s everyone’s worst fear when bottom fishing. Silver could do something similar.
As the virus takes hold of a load more people, or there’s another panic, silver could easily go to $8 or something. But would you buy then? Longer term, silver at $12 is unusually cheap, extraordinarily so, given its cost of production, and – if you can stomach the volatility – it has to be a buy.
Then there’s platinum. Oh my goodness. On Monday, platinum had a $500 handle. The day is not far away when it is sitting at a third of the gold price. Platinum is supposed to be more expensive than gold, not a third of the price.
Yes, you have to ask where is platinum demand going to come from. The automotive industry? Jewellery? Neither look particularly likely. Platinum demand is up the swanny so to speak. This is a global panic. That’s why platinum is so cheap.
But it’s the same price as it was in 2001! It’s extraordinary. Part of me is thinking – just buy it, and worry about everything else later. If you can pick up physical platinum at $600/oz please let me know where. These low prices are a function of deleveraging on the paper markets and that has to spell an opportunity.
Even oil at below $30 a barrel is the kind of opportunity that only crops up once every few years. It could go lower. The demand may never come back. Coronavirus may decimate travel for another five years.
But sometimes you look at things and go – that is too cheap. In three years you look back and think – why was I not buying?
So that’s the message of today’s Money Morning. First, that there seem to be some extraordinary opportunities out there if you’ve got the stomach for it. And second – huge inflation is coming down the road. The all-important question: where is it going to manifest?
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere. If you want a signed copy, you can order one here.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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