Monday, 28 March 2022 — Sydney

By Brian Chu Editor, The Daily Reckoning Australia

[6 min read]

• Hubris and folly brought us here
• Seek what shines for refuge and opportunity

Dear Reader,

The entire world is starting to return to some semblance of normality. Even the nations that imposed the most severe restrictions are lifting their mandates.

The global economy is now trying to roar back to life. But things are not the same. The global supply chain is in terrible shape. You can thank the government and public health restrictions on that. It’s like a patient waking up from a coma to find that his carers had needlessly amputated his legs, thinking that doing so would save him.

What is the world facing now?

A strangled global supply chain, greater geopolitical tensions, and countries engaging in trade wars and internal conflict between the government and its citizens.

The oil price and hard and soft commodities have risen sharply. The issue of the global shortage of urea, a major nitrogen-based ingredient for fertiliser and fuel production, is now again in the spotlight due to sanctions placed on Russia, a major global producer.

Expect inflation to continue to hit hard, especially on the grocery store shelves.

Hubris and folly brought us here

There is no doubt that the force of nature, such as natural catastrophes and changes in weather patterns (note I use weather, not climate), is a powerful phenomenon.

Those who live in the eastern seaboard of Australia felt its impact over the last month with fortnight-long heavy rains that flooded parts of Queensland and New South Wales. You would’ve noticed that fresh produce has been selling at much higher prices in the last few weeks. Some of these items cost double and even triple what we paid last year.

You can put the price increase partly on the floods as it wiped out crops.

But don’t forget the significant role of hubris and folly from the governments, public health authorities, and the broader population. There are many people intent on going against actual science (because there is never ‘settled science’ — it is subject to questioning, testing, and doubting). They’re on a power trip to ensure as much of the population experiences misery so that they’ll remain relevant and in control. You can tell by how many leaders and public health officials are now merely walking back on their bold claims rather than admitting their mistakes and stepping down.

I’m talking about the border closures, vaccine mandates, and exorbitant fines in a bid to stop the spread of a virus that increasingly appears to have the severity of a bad cold and flu.

The global supply chain came to a grounding halt. It made sense to take precautions in the first half of 2020, but increasingly became a thinly veiled attempt to make the population know who is in charge and that you must do as they tell you.

The result? Shortages on the store shelves, shipping delays, and rampant price rises. Not to mention, many people could work but are restricted from doing so due to health restrictions.

The decision makers want to blame it on Russia. They have flipped the script from blaming it on the Wuhan virus because Russian President Putin became the new boogeyman last month.

Never mind how daily case numbers remain stubbornly high, the news cycle has moved on and so should you.

Friends, the truth is that human hubris and folly brought us to where we are at. Absurd measures that the authorities pushed onto society have pushed our economy to the brink. And the vast majority of the public, weighed down by financial and social pressure, chose to comply rather than question these measures or even oppose it, for fear of punishment and society shunning them for daring to question ‘science’.

We are now facing one of the biggest existential threats to the global community.

Seek what shines for refuge and opportunity

How could you come out ahead in this crisis?

Firstly, make sure you have an ample supply of food and necessities at home. However, ensure that you don’t go overboard and take more than you need. It is one thing to help yourself and another to do so at the expense of someone else.

Secondly, are your finances in order? You are seeing central banks scrambling to raise rates so they won’t take the blame when the economy crunches under the weight of inflation.

Sure, they caused it, and they won’t be able to get off the hook this time. But you and I will wear much of the losses if we’re not careful. Hence, I’m checking to make sure that I’m balancing my books and curbing unnecessary spending.

Thirdly, a crisis can offer opportunities. The asset markets may be exuberant but there are still some undervalued assets lying about. I was looking at the relative price levels of gold and gold stocks over the last eight years. Check it out below:

This figure calculates the price of gold in Australian dollar terms against the ASX Gold Index [ASX:XGD]. A higher reading means that gold stocks are undervalued relative to gold and vice versa.

Notice that we are currently trading at around 0.37, which is higher than what we saw in 2021.

2021 was a forgettable year for gold stock investors. But this year is looking better each week. The producers have rallied since late January, many of them returning at least 25%.

Look at what happened in 2016, 2019, and 2020 when the ratio between gold and gold stocks dropped dramatically.

Those were major gold rallies that saw massive gains across the board.

You want to know what happened to gold explorers?

Many increased fivefold or more, even 20-fold.

These explorer stocks are currently sitting near 52-week lows. Producers have taken off, but these ones have not.

Join me here and I will show you how we are positioning ourselves for the imminent gold run.

Regards,

Brian Chu,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

The Russian bear has claws…and teeth.

Here’s the latest, from Fortune:

‘In the FX world, the ruble had its biggest gain in the week yesterday, climbing nearly 7% against the dollar. One impetus for that came from Russian president Vladimir Putin’s surprise statement on Wednesday to demand that “hostile states”—presumably the European Union—pay for Russian energy imports in rubles.

‘That confusing statement knocked global equities and sent natural gas and oil prices soaring in afternoon trading on Wednesday as confusion gripped the markets about what Putin could possibly mean.’

Let’s take a guess.

The ‘democratic alliance’, led by the US, ‘sanctioned’ Russia’s dollars. Russians who had no part in Putin’s war suddenly found their money was no good. They couldn’t access their foreign bank accounts. They couldn’t go about their business as usual — even as they offered valuable goods and services to overseas buyers. Financially, they were ‘de-platformed’.

Cancel finance

What good is money that someone can cancel with a flip of a switch…on his own say-so? Not much. So it was inevitable that the Russians would look for workarounds. Michael Hudson comments:

‘If you sanction a country, you force it to become more self-reliant and across the board, from agriculture to dairy products to technology, Russia is forced to become more self-reliant and at the same time to depend much more on trade with China for the things that it is still not self-reliant in.

‘So America is bringing about exactly the opposite of what it intended…American sanctions are driving Russia and China together, and America has gone to China and said, Please don’t support Russia. Most recently, on Monday, March 14, Jake Sullivan came out and told China, we will sanction countries that break our sanctions against Russia. And basically, China said, fine.’

Yes, the decline of the American Empire continues…one blunder at a time.

The US feds are actively undermining the dollar with inflation…and reducing its reliability further with sanctions. It is only a matter of time before a replacement is found. Cryptos? A gold-backed ruble? The yuan?

We’ll see.

In the meantime, fixed-income investments — in dollars — are taking a beating. Bloomberg:

‘Global bond markets have suffered unprecedented losses since peaking last year, as central banks including the Federal Reserve look to tighten policy to combat surging inflation.

‘The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt total returns, has fallen 11% from a high in January 2021. That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008.’

In the 1970s, investors thought they could protect themselves from inflation by buying stocks. Stock prices held more or less steady throughout the decade. But inflation steadily reduced real values. By the end of the decade, adjusted for inflation, investors were down about 60%.

But in an inflationary period, bonds get killed even deader than stocks. In the ‘70s, bonds were called ‘certificates of guaranteed confiscation’.

And now, over the last 14 months, US$2.6 trillion has been confiscated…but from whom? Well…from savers…retirees…people with fixed-income investments.

And consumers. Consumer spending is said to be 70% of the GDP…which puts it at about US$15 trillion. At today’s inflation rate, consumers will have US$1.21 trillion ($22 x .079) ‘confiscated’ this year. That’s how much more they will have to spend just to get the same goods and services.

And so…the rip-off continues. And we continue to wonder: What is really behind it? Why would the US’s elite be so ready to sacrifice the dollar…and punish the middle and lower classes?

The answer seems obvious. One man’s loss is often another man’s gain. One man is the confiscator. Another is the confiscatee. All of that money, now being taken away from consumers, investors, and savers, goes to someone else. To whom?

Oh, dear reader, that is such a ‘softball’ question!

Digging deeper

The elite controls the US government and uses it to shift wealth from the public to itself. But the federal government owes approximately US$30 trillion. At today’s 7.9% inflation rate, the fed’s pile of debt will shrink by US$2.37 trillion in real value this year — a huge saving.

That money may have been spent years ago — provided to cronies…clients…Wall Street…bureaucrats…lobbyists…Critical Race Theorists…whatever. The Feds didn’t have the money then. So they paid for it ‘on credit’. And now, they’re settling up. In effect, inflation is just another tax…and another way to continue moving money from the Main Street economy to the 10% of the population who actually run things.

But let’s dig a little deeper.

The point we have been making is this: the biggest crime in American politics is not committed by Democrats against Republicans…or ‘conservatives’ against ‘liberals’.

Instead, the perps are the corrupt ‘influencers’ (we highlighted the two presidential scions — Chelsea Clinton and Hunter Biden the other day) using their power to feather their own nests…and push their own pet projects.

You might think that a democracy would undertake programs designed to help the majority of its citizens. But most people detest inflation; they don’t benefit from it. Nor is there any real mystery about what causes it. The Fed ‘printed’ 10 times as much new money over the last 13 years as it did from its founding in 1913 up until 2008. And it has kept interest rates below zero, adjusted for inflation, for almost that entire period.

Of course, you could go through the entire federal budget. Line by line, you would see huge spending programs designed to reward the few at the expense of the many: the deciders…their friends…their colleagues and clients…all benefit. One way or another…everybody else pays.

But now, Vladimir Putin has taken a swipe at the ‘democratic alliance’ and its money. The Chinese are watching carefully. What will happen next?

Stay tuned...

Regards,

Bill Bonner,
For The Daily Reckoning Australia