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DK Analytics, Post #39: People’s money silver to outshine gold after “bond implosion?”

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DK Analytics, Post #39: People’s money silver to outshine gold after “bond implosion?”  5/31/2018

Trade weighted US$: 89.36;  US 10-yr: 2.85%;  S&P 500: 2,724;  Oil: $68.11;  Gold: $1,307;  Silver: $16.52

Long-term UK silver to gold ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICE BofAML US high yield BB option-adjusted spread (to 10-year Treasuries)

 

 

 

 

 

 

 

 

 

 

 

 

Sources: Foundation for the study of cycles, SLG & https://fred.stlouisfed.org/series/BAMLH0A1HYBB

 

A bit of silver history:

Silver has a long history as a monetary asset dating back at least 2,500 years, namely to the Persian Empire:

Silver demonetization efforts in the US, underpinned by dominant European efforts to drop “bimetallism” in favor of a gold monetary standard, date back to 1873.  Meanwhile, silver certificates — dollar notes payable in silver to bearer on demand — were issued in the US between 1878 – 1964 as part of its circulation of precious metals-backed currency.  Ironically, silver certificates outlasted gold certificates, whose circulation ended in 1933 in symphony with President Roosevelt’s executive order #6102, which made it illegal for US citizens to store gold coins, gold bullion, and gold certificates within the continental US.  (The resulting 1933 theft — codified lawlessness —  is legendary.)

Due to a widespread, 145-year effort to demonetize (stripping a currency unit of its status as legal tender) silver on the one hand and the ensuing silver mining supply spikes on the other hand, silver, over time, has lost value relative to gold.  This is best expressed by the silver to gold ratio, which has historically moved between 15 Troy ounces (“oz”) of silver buying one oz  (or a metric measurement such as grams) of gold to 100 oz of silver being required to purchase one oz of gold.  We are currently at 79 oz of silver being required to purchase one oz of gold, i.e., silver is historically very cheap relative to gold.  And in stark contrast, silver is currently being mined at slightly less than 10:1 to gold.

Due to the 1792 Coinage Act, the silver/gold price ratio in the US was fixed at 15:1, which meant that 15 Troy ounces of silver were required to buy one Troy ounce of gold; a ratio of 15.5:1 was enacted in France in 1803. The average silver/gold price ratio during the 20th century, however, was 47:1, quite the contrast to 79:1.

 

Silver supply and demand stats:

Mined supply, which accounted for an outsized 86% of global demand last year, decreased by 4% in 2017, the second year of decline.  Meanwhile, the silver scrap supply, which has accounted for between 25% and 14% (more recently) of global silver supply over the past decade, keeps shrinking:

On the demand side, industrial consumption, which comprised 59% of demand in 2017, is returning to nominal growth (4% in 2017) thanks in the main to impressive photovoltaic demand, which rose 19% in 2017 to 94.1m oz, the result of a 24% increase in global solar panel installations.  Brazing alloy and solder silver fabrication recorded a 4% annual rise to 57.5m oz, boosted principally by solid growth in China and Japan.  The third biggest historical source of demand, investors, reduced their bullion purchases by over 27% in 2017 to 151m oz, accounting for 15% of demand.

When reviewing a decade of global silver supply and demand, note that a) mine-extraction accounted for “only” 80% of supply and b) that the net balance of silver in 2017 stood at negative 35m oz, marking 10 years of silver demand exceeding mined silver supply and 10 years during which demand outstripped all sources of supply:

Source: www.silverinstitute.org/silver-supply-demand/;  http://www.hecla-mining.com/wp-content/uploads/2017/08/WorldSilverSurvey2017.pdf

Our bigger point: silver, a $14bn mined market at current spot prices, is typified by demand exceeding supply for a decade.  Moreover, the robustness of silver demand should be underpinned by broadening industrial use applications over time — and possibly markedly so, especially in medicine/cancer treatments.  Somewhat paradoxically, the silver market is also characterized by growing identifiable above-ground silver bullion stocks (p. 37), the progeny of a period of heightened investor demand, which would support 33 months of current silver consumption (demand).

Solid demand is the result of silver’s unique thermal, conductive, resistive (p. 21), and reflective qualities — which generally makes per unit of production silver demand quite inelastic — coupled with silver’s generally low overall cost of goods sold (COGS) “footprint” as regards the multitude of products in which it is “embedded.”  As an extreme case in point, consider that silver in an iPhone amounts to about .34g or .01 oz ($0.17 at current spot price).  At the other end of the spectrum, implementation of technological advances and substitution, or econ 101, are still at work in growth industries, such as photovoltaic (PV) or panels, where unit volume growth is driven by falling prices/expanded affordability made possible by declining unit costs of production.  With silver accounting for 15% – 25% of COGS of PV panels, it has been a “fat” cost reduction target.  Silver unit cost reduction has been achieved through reducing silver content in panels by an average of 7% p.a. over a decade.  Yet, in typical growth industry fashion, unit volume growth has offset lower “content.”  In addition, silver’s unique properties limits substitution efforts (p. 21).

Once discarded, “scattered above-ground” silver often ends up in landfillsExpensive to recover silver coupled with 145 years of demonetization also help explain why, despite over 1.6m metric tons (52.8bn oz or $863bn currently) of mined silver since recorded history, there are only an est. 2.8bn oz of identifiable above-ground silver bullion stocks.

In contrast to gold, silver’s leading industrial use has made a large section of above-ground silver difficult to profitably access and recycle (e.g., only about 10% of smartphones get recycled), most especially at today’s low Ag prices.  Thus, as long as the dominating end markets for products featuring “specks of silver content” grow, overall industrial demand for mined silver, where output growth looks increasingly difficult (details below), should rise fairly independently of the silver price, barring a massive and sustained silver price rise.

Such a rise would clearly underpin lower usage or substitution efforts on the demand side (especially where silver is a material COGS component, such as in PV panels) and “melt supply” expansion via sizable silver jewelry and silverware coming to market.  As jewelry and silverware have typically accounted for some 25% of demand, they could constitute a material source of supply in a very elevated silver price world.  Yet we’d be remiss if we didn’t state that at today’s silver price of $16.52 per oz, even if recent jewelry and silverware demand were “flipped” into “melt supply,” we’d only be referring to $4.3bn worth of silver; at $50 silver, $13.1bn; at $100 silver, $26bn.  While these are gargantuan numbers in a tiny market currently dominated by industrial demand, they are investment world “rounding errors,” which will be THE pivotal point, esp. when considering that investment demand is stoked by higher Ag prices!

In contrast to solid demand, mined silver supply growth, which has turned nominally negative over the past two years (see preceding page), looks like it will be increasingly challenged over the long term as extraction of precious (rare) metals becomes progressively harder, especially on the heels of 150 years of mushrooming silver mining extraction:

Source: www.sciencedirect.com/science/article/pii/S0921344913002747

To get a truly long-term silver mined supply perspective, the reader may find the silver mining statistics below of interest.  And as you examine the unsustainable rise of rare silver extraction below, you may find it of interest to see just how little silver is actually “unearthed” (compared to other metals & oil) annually, courtesy of a great website.

Metric tons (MT) of silver mined over select time periods

(one MT = 32,151 Troy ounces or “oz”)

Millions of Cumulative
Time period MT mined  MT p.a. avg “oz” p.a. MT mined
3000 – 600 BC 56,000 23 1 56,000
600 BC – 1,000 75,000 47 2 131,000
1000 – 1492* 106,000 215 7 237,000
1492 – 1930 465,000 1,062 34 702,000
1930 – 2004 650,000 9,028 290 1,352,000
2004 – 2013 157,000 17,444 561 1,509,000
2013 – 2017 134,587 26,917 865 1,643,587

* – Columbus’ discovery of the Americas in 1492 unleashed huge growth in silver mining, which was later “spiked” by fossil fuel-leveraged mining.   Sources: www.sciencedirect.com/science/article/pii/S0921344913002747, www.silverinstitute.org/silver-supply-demand, www.usgs.gov

When juxtaposing surging silver mining output — especially over the past century — against an element whose relative abundance, at 69th place, is only 1 spot ahead of gold, it appears entirely plausible that peak extraction is near:

Estimated peak silver extraction (“burn-off” time is known reserves/present extraction)

Source: https://ac.els-cdn.com/S0921344913002747/1-s2.0-S0921344913002747-main.pdf?_tid=0a4a325c-de55-4fc3-a4f0-e2a78ff83d16&acdnat=1526386101_520505e62e85ab17524757266d202708

Commensurately, estimated global silver reserves* (3% of all mined**) and potential reserve life may be quite limited:

Reserves in m of oz Annual demand in m of oz Theoretical reserve life (years)
17,040 1,052 16.2

Source: https://minerals.usgs.gov/minerals/pubs/commodity/silver/mcs-2018-silve.pdf

* Note: Reserves data are dynamic.  Reserves may be reduced as ore is mined and/or the feasibility of extraction diminishes, or, more commonly, they may continue to increase as additional deposits (known or recently discovered) are developed, or currently exploited deposits are more thoroughly explored and/or new technology or economic variables improve their economic feasibility.  (Author observation: if fossil fuel-based energy costs soar or availability shrinks, mining output will collapse.)

** Gold reserves are estimated to be 1,736m oz, or about 28% of all mined (above-ground) gold, while annual demand of about 88m oz points to a 19.6-yr reserve life

Finally, should global industrial growth soften or even plunge, so would lead/zinc and copper mining, which together accounted for 59% of silver extraction in 2017.  Therefore, shrinking demand would be offset, at least to a material degree, albeit it with a time lag, by shrinking supply.  Dwindling “dual source” mined supply would be complemented by reduced “pure silver” mining, which in the US is close to the true “all in cost” breakeven at the current silver price. Meanwhile, miners generally face rising unit costs due to a) increasingly difficult extraction geologies and b) to rising energy prices.  When one combines ebbing silver extraction with declining silver scrap supply, a lingering silver supply overhang sustainably denting the silver price appears unlikely, especially when considering that “substitution back to silver” in the flagship industrial applications demand driver will also kick in, should silver prices droop.

 

Big picture strategic silver price drivers expressed in fiat dollars/fiat currencies:

Consistent with the factors mentioned above, a secularly bullish supply constraint story:

 

Meanwhile, increasingly constructive secular demand for silver looks like a good bet for the following reasons:

 

Monetary base “explosions” enable unsustainable debt creation and misallocations, assuring fiat currency destruction:

  • The global monetary base is up $16trn since 2007 due largely to central bank purchases of debt, which, in turn, via fractional reserve banking, enabled a $70trn increase in world debt over 10 years to $237trn, 3.1x global GDP:

Sources: https://www.zerohedge.com/news/2018-03-10/21-trillion-and-rising-how-central-banks-are-lboing-world-one-stunning-chart, central banks,    www.bloomberg.com/news/articles/2018-04-10/global-debt-jumped-to-record-237-trillion-last-year

 

Portfolio allocation — the law of small PM exposure “overlaid” on PMs’ scarcity suggests massively higher PM prices:

  • Estimated global investable assets (bonds, stocks, & AI with an approximate “65/30/5 split”): $278trn.
  • Estimated private investment in physical gold (1.3bn oz using rounding) at current spot price: $1.7trn.
  • Estimated current precious metals exposure (essentially Au) as a % of global investable assets: 6%.
  • Estimated 1960, “Bretton Woods” standard gold exposure as a % of global investable assets (below): 0%.

Source: http://bmg-group.com/gold-zero-risk-monetary-asset/

  • The value of above-ground gold (6.1bn oz or 190K MT, nearly all reclaimable) at the current price: $8.0trn.
  • Identifiable value of above-ground silver bullion stocks (2.8bn oz or 87K MT) at the current price: $46bn.
  • (As silver jewelry and silverware has accounted for roughly 25% of modern day silver demand, we’ll loosely assume that 25% of all silver ever mined, or 13.2bn oz, or $218bn at $16.52 silver, “rests” here, which we’ll speculatively add in “melt value” to $46bn; $262bn in readily reclaimable silver is 3.3% of reclaimable gold.)
  • As regards private investable assets, moving from 0.6% PM exposure (almost exclusively gold) to 1% exposure — and assuming the current gold price ($1,307) and sustained high bond and stock valuations — would require 2.1bn oz of private gold investment, or an additional 0.8bn oz or 800m oz of gold, or the rough equivalent of 9 years of mining at current extraction rates. (We have a go at the paper gold conundrum in the conclusion.)
  • In terms adding silver exposure, let us simply revisit the puny $14bn mined supply at the current silver price.

 

Silver, at 79:1 to gold, could be gold on steroids and fiat money on booster rockets in the years ahead given:

  • That at current PM prices, $262bn worth of readily reclaimable silver is not only a 3.3% rounding error compared to the value of reclaimable gold, it is a 0.1% rounding error compared to global investable assets of some $278trn.
  • That silver, the people’s money, was historically — prior to widespread central bank silver demonetization kicked off in 1873valued at between 10 – 20x gold, which approximated how it came out of the ground relative to gold.  If silver keeps coming out of the ground at slightly less than 10:1 to gold, then the silver to gold ratio will narrow markedly from 79:1 to between 10:1 and 20:1 to reflect “geology” as diluted by gold’s superior (much more compact) monetary attributes.
  • That surely the global despots and plutocrats already have gold allocations, but few people, especially in OECD countries, have any material silver positions. When confidence in our global fiat Ponzi scheme is lost, perhaps due to sovereign defaults, unprecedented corporate and/or consumer credit defaults, “credit freezes,” stock market swoons, growing defined benefit plan pension “crew-cuts,declining access to bank account deposits (Greece, revisited), activated bail-in legislation, surging unemployment, political instability, etc. — frankly, these ailments are tied at the financial repression/toxic public policy stew hip — there could be a “stampede” into silver by “the people.”  Add in the much more pronounced dollar-based silver supply constraints than is the case in gold, and silver priced in fiat currencies should “leapfrog” gold’s percentage price rise as also expressed in fiat currencies.
  • Finally, at some point central bank monetary bases will have to again be anchored in gold in order to regain confidence in fractional reserve banking, if that’s even possible. Simple calculations on 40% gold backing of the global money supply — restored or maintained confidence in the past — juxtaposed against “official sector” gold holdings suggest gold will need to rise to around $10,124 per oz.  This would bode well on the critical global money supply stability front, reducing fear-based monetary deflation risks while simultaneously dampening  heightened secular monetary inflation risks from “metastasizing.”  The latter attribute would be thanks to 1% – 2% growth in above-ground gold, which fortuitously happens to be the rough equivalent of sustainable real GDP growth (population growth plus productivity growth).  The re-monetization of gold at central bank balance sheets should see an 8-fold increase in today’s gold price based on current global money supply statistics.  And, as stated, in such a world we think dual-use silver, a $14bn mined market with above-ground silver much more dispersed than gold, would not only increase in sympathy with gold, but would close the 79:1 gap markedly thanks to an upcoming “street and state level” re-monetization of silver that could eventually “go global.”

 

Conclusion — it’s all about precious metals scarcity and (the loss of) confidence in the status quo:

Recall that fiat money, throughout history, has a 27-year average life expectancy, with a retooled monetary system required every 30 to 40 years; we are almost 47 years into a global, post-Bretton Woods fiat currency system featuring mushrooming central bank balance sheets, profound asset bubbles, exploding public and private sector debt, rampant and PC-based misallocations, reduced property right protections, and vanishing productivity growth — which is why debt is “through the roof.”  Call it the fiat currency legacy.  Speaking of legacies, what happens, over the course of history, to countries that abandon PM-backed currency does not make for good reading.

Against that backdrop, gold and silver have been in a 6.5-year bear market which appears to be forming a base from which to rally.  Manipulation of gold and silver prices by the fiat money puppeteers is well-known, so we won’t waste any key strokes here.  In a nutshell, PM prices have not reflected the massive, $16trn expansion in central bank balance sheets since 2007, nor the QE-enabled $70trn increase in global debt.  In short, PM, excellent stores of value because they have “stand alone” intrinsic value (p. 7), represent accumulated wealth instead of debt or increasingly ill-defined promises to pay “in full” in the future, preserve purchasing power over time.

PM prices have also not reflected much higher QE-generated monetary inflation risk.  Plus, gold and silver prices have not reflected rising credit market illiquidity, counterparty, and the associated contagion risks, which conspired to nearly bring down the global financial system in 2008 and are much more significant risks today.  Lastly, PM prices have not (yet) “priced in” rising and insurmountable global insolvency risks, including an untenable $427trn in off-balance sheet derivatives exposure by leading financial institutions to rising interest rates.

Creditors that cannot preserve purchasing power or have repayment risk, even in nominal terms, will demand very high bond yields.  This can result in low outstanding bond prices quite quickly, i.e., once misplaced confidence morphs into fear.  Given record increases in global debt and nose-bleed debt-to-GDP in the US and globally, refinancing will also become become prohibitively expensive amidst an upcoming “reversion beyond the bond yield mean.”

We had a preview of coming US bond implosion attractions in the early ‘80s after a decade of “stagflation,” yet total US debt at year-end 1980 was 1.6x US GDP — it’s now 3.4x US GDP.  And we suggest, with our “surging yield arrow” on the FRED junk bond yield spread chart on p. 1, that this is a virtually foregone conclusion in the high yield arena, where corporate yields will shoot higher still on the back of rising benchmark rates, widening spreads (to Treasuries), much higher corporate debt levels, and weak GDP growth.  When government bonds increasingly discount rising secular monetary inflation risks (the historical path to hyperinflation has typically been via debt-induced deflation responded to by the printing press) and outright defaults where nations can’t print money, bond yields will skyrocket.  The latter is especially apt from today’s financial repression determined low yield levelsThe upcoming huge revaluation of bonds, RE, stocks, and currencies constitutes the “reset,” especially as priced in PM.

Important to recall is that highly political fiat money regimes — our current financial system — inevitably deal with widespread insolvency via the printing press because they can, for as long as they can,  thereby morphing a repayment default into an inflationary default.  This is precisely why fiat money spawned, debt-induced deflation risks starting to manifest themselves (now?) are best allocated for by purchasing PM, led by “tiny” gold and “microscopic” silver.

Source.  DK Analytics author comment: the valuations of the asset classes above aren’t static given both market fluctuations and net new securities issued; in fact, the above valuations deviate from today’s reality.  That said, the point of the above inverted pyramid is to shine light on just how absolutely and relatively rare PM, “real money” since recorded history began, are.  Also, the pyramid highlights what an only minor reallocation towards mining supply-constrained PM in a “financial crisis” would bring forth, i.e., much higher PM equilibrium prices (above-ground PM would get new owners).  And while portfolio managers’ charters are known to forbid purchases of physical metal, we envision paper PM exposure would be so heavily sought that the stark underlying lack of physical PM would be exposed (delivery failure), initiating physical gold purchases insisted upon by managed accounts with clout, charters be damned (and ultimately revised).

For explosive upside silver price potential flavor, consider this: if “only” 20m Americans (6% of the population) each bought $700 worth of silver at current prices, it would speak for one year’s worth of silver extraction!  Globally, …  

Could “the people,” a revival of federalism, the return of constitutional money in US states, state-based precious metals storage and payment infrastructure, and precious metals-backed debit cards spark a global return to “bimetallism,” which would, needless to say, place a much higher floor under silver prices. 15:1, revisited,  or $675 silver?

Less speculatively stated, or perhaps more realistic, especially over the next few years, a loss in confidence in our unsustainable fiat money Keynesianism and the related bond and stock valuation bubbles is a likely trigger.  Evaporating trust could be sparked at any time for virtually any number of reasons, including a very brief round of “QT” (central bank bond sales, p. 6) pricking the bond bubble (slide 9) and perhaps ending a 37-year bond bull market.  Such an “impossible” development, which would also slam stock valuations (slide 6), would likely result in a flight to PM safety in fairly short order with the following caveat: highly liquid gold may first be sold to finance margin calls or other commitments, initially pressuring gold — and by extension, silver — prices, as occurred in 2008, followed by outsized gains.  Alternatively, a variety of “financial horrors” could precede embryonic QT, including of course a contagion triggered by money center bank solvency or liquidity issues given the interconnectedness of global finance.

Given central bankers asset bubble fixations and the inability of the globe’s interest rate sensitive, over-indebted, property rights-eviscerating, failing productivity economy (thanks once again to our toxic public policy stew as enabled by the printing press) to maintain even modest growth should the cost of funds rise, it is our conviction that any emergent QT would have to be reversed quickly with possibly unheralded rounds of QE, which would truly ignite PM prices as everyone would see that currency debasement is the central bankers’ “only answer.”  The ultimate implications of this on bond prices, including government bonds, which are denominated in fiat currencies, would be dire.  2008, revisited, but with OECD government bonds, at current bubble valuations, no longer viewed as safe havens?  We think so.  This will be biggest reset of all.  Plus, we think PM will wrest their traditional safe haven role back from fiat money “junk” bonds, which we believe will be viewed in an increasingly wealth preservation toxic and purchasing power confiscating light.  Call it the late ‘70s and early ‘80s, revisited only worse.  Call it reversion beyond the mean, which is what ALWAYS happens, otherwise known as “boom and bust.”

A global surge in gold demand to protect against dissipating wealth allocated to bonds and stocks — ample reason on its own to propel under-owned, supply limited gold’s price much higher — would pull along silver in sympathy, the other historical monetary metal (in the US, until 1964).  In fact, we believe silver, for reasons of (waning) familiarity and affordability, will be what the people will ultimately resort to buying to protect themselves from increasingly debased fiat money.

And if $10,000 gold (we’re rounding down) is required to reinstall global monetary confidence and avoid a deflationary collapse of the global money supply courtesy of a “diving” money multiplier, or a reduced proclivity to borrow/spend, then we foresee a silver price that would go up much more than gold’s projected 7.8-fold increase from its current price over the next few years.

When exactly?  When confidence is shattered, as econ 101, finance 202, valuation 303, and politics 404 dictate must occur in the not too distant future — and it could happen tomorrow.  Literally.  The reasons for silver’s projected “gold plus” gains have been stated, and they can be summed up as 1) geology (“10:1”), 2) the more “scattered” state of above ground silver, 3) complimentary industrial demand, and 4) greater affordability (than gold) yet second-to-gold strategic wealth preservation and purchasing power protection attributes.

Two caveats are called for: First, “fiat money on booster rockets” silver price gains, which we anticipate, would of course be nominal in nature.  Real gains, which will likely be substantial given long-standing PM price suppression, would of course be tempered by currency debasement induced inflation, which could — and probably will — rage out of control down the road given the “historical father of hyperinflation,”  namely debt-induced deflation incubated in fiat money regimes.  Second, the silver price is much more volatile than gold, which investors (not speculators) find undesirable.  This attribute could constrain silver’s ability to substantially narrow the current 79:1 silver to gold ratio.

Sincerely, Dan Kurz, CFA, www.dkanalytics.com

This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.

 

 

 

 

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DK Analytics, Post #37: Rising political risks, a weakening economy, & assets priced for perfection

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DK Analytics, Post #37: Rising political risks, a flagging economy, & assets priced for perfection

Trade weighted US$: 85.81;  US 10-yr: 2.94%;  S&P 500: 2,685;  Oil: $67.75;  Gold: $1,335;  Silver: $17.13

Rising political risks associated with the largely criminal enterprise known as the US government:

The endless Trump Russian election interference witch hunt (candidate Trump couldn’t address interference, only the prior administration could!) or, more accurately, “offshoots” thereof, could result in a declining capacity for Trump to function effectively as the nation’s chief executive.  It could also trigger a governmental paralysis and/or lead to presidential impeachment proceedings based on so-called “process crimes,” which amount to “technicalities” over substance.   Some highlights of this sad state of affairs, which threatens to further entrench our kleptocratic form of government — on both sides of the aisle — follow:

Now, there is a lot of speculation (and excitement) in the alt media community about over 24,000 executive branch sealed indictments.  Specifically, when will they be unsealed and arrests made, so that the rule of law once again extends to the ruling class?  Hope springs eternal that felonious indictments will be unsealed with increasing frequency as the 2018 election grows closer.  Moreover, that once “unleashed” — and assuming such a process couldn’t or wouldn’t be derailed — increasingly large swaths of the federal ruling elite in Washington DC and throughout the nation that have acted lawlessly will be implicated and charged with crimes.

Such a “cleansing” would help purge the kleptocratic and bureaucratic lawlessness (unconstitutional legislation followed by property rights-eviscerating extortion by both elected officials and unelected bureaucrats) that is so intimidatingly widespread.  It would also constrain despicable, amoral, and unconstitutional behavior by powerbrokers, which would be pivotal to any effort to return the US to a representative, constitutional republic while boding well for rescuing the west from an all-powerful, unrepresentative administrative state (the unelected bureaucracy).

Given the vast and powerful vested interests against such arrests, one could be forgiven for believing that a status quo sustaining conspiracy, from brazenly corrupt power brokers (both elected and unelected) to federal level bureaucrats, whose US number exceeds 2m, has “too much skin in the game” to risk losing privileged, powerful positions on the one hand or salaries and benefits that increasingly tower over private sector compensation on the other hand.  Therefore, we sadly personally doubt that either lawless agency heads (e.g., former IRS and FBI chiefs) nor the sycophant rank-and-file bureaucrats will “allow” this to happen.  (Ask yourself, reader, how many “public servants” at the IRS or the FBI became whistle blowers and thus stood tall for the oath they took to uphold the US Constitution/the rule of law during the IRS’ Tea Party police state harassment or during the FBI’s 4th Amendment gutting lawlessness perpetrated against the then incoming Trump administration.  Hopeful caveat: if the “mighty” are forced to point fingers at criminal activity by other bigwigs in order to secure plea bargains for themselves, then indictments could mushroom.)

The upshot of all this: the president will likely consume a growing portion of his time fending off efforts to castrate his administration; call him a potentially “early lame duck.”  It could also cause his cabinet to “freeze up” or drive away potentially gifted constitutional cabinet picks to replace his still all too “swampy” cabinet.  Obviously, if the Democrats retake the House or the entire Congress, then Trump impeachment efforts will be “the order of the day,” which would could turn Trump from a “lame duck” into a “dead duck” in terms of executive branch/”CEO” functions.

President Trump’s — and the Republicans’ — broad-based failure to deliver what they so fervently promised when they sought a governing mandate in 2016 may well cost them their congressional majority this year should the GOP base “stay home in disgust.”  Specific broken promises include the following: a) true Obamacare relief (only non-payroll relief, not widespread relief) instead of Obamacare enshrinement, b) government spending brought under control in place of unprecedented profligate spending (the discretionary part of federal spending is to grow by 13%), c) lower federal government deficits (at a $1.2trn annual run rate, they are nearly doubling), d) defunding of misnamed “sanctuary cities” (their funding remains),  e) widespread regulatory relief (collectively, executive branch administrative state agencies/bureaucracies got more funding!), f) a border wall (not — only $1.6bn in funding out of over $1.3trn in projected discretionary spending!), and g) no more amnesty for illegal aliens (Trump offered 1.8m illegal aliens amnesty, more than twice what the Democrats had sought!).

Therefore, look for “divided government,” even more pork, more cronyism, more redistributionism, sustained unconstitutional red tape that costs American business an estimated $2trn to comply with (as this is written, there are still 775,939 documents at the Federal Register and 6,128 new federal regulations have been posted in the last 90 days), lower tax revenues, and still bigger federal government deficits — which heightened economic weakness will amplify thanks to reduced tax receipts and more recessionary transfer payments.  And add to these challenges the potential political turbulence related to what constitutes a de facto largely bipartisan effort to impeach Trump, which Democrats retaking the House would “turbocharge.”

We think investors will begin demanding higher risk premiums for growing political uncertainty amidst pervasive “D.C. lawlessness” that not even the propaganda MSM will be able to fully squelch; call it a “slow-burn” erosion of confidence that will eventually and suddenly flip into anxiety (“human nature 101”), which will trigger selling panics.  Rising political threats to property right protections will also beckon, potentially including on capital restriction or  trade fronts.   Layer on top of this worsening economic fundamentals, increasingly precarious finances, and the likelihood of central banks revisiting QE (possibly unparalleled currency debasement) — issues that we mention below — and vastly overvalued bonds and stocks stand to be re-priced substantially to the downside (higher bond yields and lower stock P/Es) to compensate investors for expanding return on capital and return of capital risks.  When confidence turns to anxiety …

 

Growing economic expansion risks:

  • The March 2018 household-survey count of employed Americans declined by 37,000 while the ranks of full-time American employees dropped by 311,000 (shadowstats.com).
  • A 63% year-over-year surge in US filings for Chapter 11 bankruptcy protection was tabulated in March.
  • The worst-ever quarterly US merchandise trade deficit threatens to deflate GDP growth (shadowstats.com).
  • US crude inventories are down 7% year-over-year at a 10.9% annualized rate over the last 6 months.
  • German exports fell a seasonally adjusted 3.2% month-over-month in February, the biggest monthly drop since August 2015 (http://www.macrostrategy.co.uk), raising question marks about the vitality of the EU’s economic dynamo amidst growing EU liquidity and solvency concerns related to the ECB’s asset purchases winding down.
  • Declining global productivity: The failure of the technology is starting to be felt. Case in point: the rapid increase in DRAM prices over the last 18 months, which was due to the failure of technology laws (e.g., Moore’s Law), fed into a 10% increase in the ASP of smartphones worldwide last year, its fastest on-year growth yet (http://www.macrostrategy.co.uk).
  • Domestic (US) inflationary pipeline pressures are building both in commodities (below) and in manufacturing. Needless to say, sustained dollar weakness would aggravate US inflationary pressures, potentially substantially.

Source: https://fred.stlouisfed.org/series/PPIACO

 

Growing financial risks:

  • Both the LIBOR and the TED Spread keep rising markedly, pointing to rising short-term financing costs for trillions of dollars of loans due to declining trust between banks (growing counterparty risks) and to increasing eurodollar scarcity, as regards USD-based LIBOR:

TED spread: spread between 3-month USD LIBOR and 3-month Treasury Bill   Source: https://fred.stlouisfed.org/series/TEDRATE

  • Three-month Hong Kong borrowing costs have risen to the highest level since 12/2008, raising risks to the housing market. Diminishing liquidity may prompt banks to lift mortgage rates (http://www.macrostrategy.co.uk/)
  • Global debt at end of 2017: $237trn, which is 3.1x global GDP and is up $21trn, or 9.7%, in one year, signifying sustained misallocations, a continued decline in productivity, and increasing demographic challenges.  (Just consider that a one percentage point increase in average global borrowing costs would soon translate into $2.4trn in higher annual interest expense, which would amount to global GDP headwind of 3%, and we’d still have historically low interest rates; normalized interest rates would translate into between 6 – 7% headwind, and interest rates which reflected our global insolvency, much less reversion beyond the mean, could not be paid, only “printed!”)

Sources: Institute of International Finance, www.bloomberg.com/news/articles/2018-04-10/global-debt-jumped-to-record-237-trillion-last-year

Sources: IFF, BIS, IMF, https://finance.yahoo.com/news/global-debt-rose-327-trillion-2017-highest-level-record-130208754.html

  • And all that “on-balance sheet” debt doesn’t address the unfunded, non-financeable “off-balance sheet” commitments that central governments have (the US has $210trn, according to one source), from social security to medical care commitments for a burgeoning retirement ranks courtesy of a) inadequate contributions and b) retiring baby boomers. Nor does it address tremendously unfunded defined benefit pension plans, both public and corporate, which exceed $6trn in the US alone.
  • (We would be remiss if we didn’t state that the $416trn in mostly off-balance sheet, non-exchange traded interest rate derivatives outstanding would threaten banks’ solvency should interest rates rise markedly.)

 

Peak EPS risk (last we checked recessions haven’t been outlawed, esp. not the overdue variety):

  • Flattered by repatriation gains at lower tax rates, 40% lower corporate tax rates, and a record stock buyback round likely in the making — one-time or financial engineering stuff — largely non-organic EPS gains of an expected 16% – 17% will have a short “half-life” in a weakening economy. (“Repatriation” happened in 2004, and S&P 500 EPS fell off a cliff two years later — in 2006 — and it took five years to top the 2006 S&P 500 EPS tally!)
  • Share buybacks in 2018 have averaged $4.8bn per day, double the pace from the same period last year, and could reach more than $800bn this year, which would eclipse both $530bn in 2017 and even 2007’s all-time high of just under $700bn. Not surprisingly, a recent Bloomberg analysis found that about 60% of tax cut gains will go to shareholders, compared to 15% for employees.  More financial engineering-based EPS growth, revisited.
  • The $1.5 trillion GOP tax cut legislation (over 10 years) is a boon to corporations, should it remain law. It slashed the corporate tax rate to 21% from 35% and it reduced the rate on corporate income brought back to the United States from abroad to between 8% and 15.5% instead of 35%.  As welcome as lower corporate tax rates are, capitalizing on them ultimately depends on achieving organic (top line) growth on the one hand and on avoiding a material increase in debt-servicing costs at both customer and corporate levels on the other hand.  Given a perpetually more interest rate sensitive domestic and global economy, this isn’t an idle organic growth or financing cost concern, especially when considering the pronounced P&L operating leverage (fixed cost structure) inherent in many businesses.  Stated differently, top line weakness typically leads to outsized profit compression.
  • Poor earnings/EPS quality (also from a heightened foreign currency exposure perspective thanks to decades of “outsourcing” production)! US corporate debt is up from $3.5trn to over $6.1trn in less than a decade.  And the “million dollar plus signing bonuses,” multi-million annual compensation, job-hopping, 1,000x line workers’ compensation, “slash and burn” C-Suite crowd keeps repurchasing high P/E shares with cheap debt (thank you, global financial repression) and with cash flow to underpin their multi-million dollar option gifts.  Their prolific option grants a) typically vest way too early for top management to have a strategic focus and b) don’t incorporate rising book values per share thanks to retained earnings (non-distributed earnings); call it your proverbial non-aligned interests double whammy for strategic shareholders!  Thus, instead of focusing on driving sustainable organic growth (we may delve into this topic in more detail in a separate post) and broad-based, lasting value creation, top management, richly compensated prior to “lifting a finger” and typically lacking strategic parallel interests with other shareholders and stakeholders, is motivated by corporate anorexia: reduce costs, R&D, and cap ex (slide 15), even if cuts into the enterprise bone.  The associated EPS myopia will, if past is prologue, be partly “addressed” by issuing stock at much lower (than buyback) prices to reduce “balance sheet leverage.”  The resulting dilution and the value destruction for the benefit of the “1% today” will be paid by non-privileged shareholders “tomorrow.”  How so?  Via lower future earnings power (and the associated lower macroeconomic growth) and via lower future P/Es, the progeny of underinvestment, debt-based EPS levitation, and the coming beyond the mean reversion of interest rates that a decade of unparalleled global financial repression has delayed.

 

Conclusion: pick your asset bubble pin, for they abound — and it’s not a question of if, only when

Rising political risks (and we haven’t delved into growing geopolitical risks, neither the typically tragic and immensely expensive war or trade war varieties, both of which can be highly susceptible to “domestic disenchantment”), rising economic risks, rising financial risks, and rising peak EPS risks all suggest investors ought to “trim exposure” to overvalued stocks and bonds.  Moreover, given our accumulating toxic public policy stew fallout (i.e., unsound money enabling unprecedented deficits, redistributionism, cronyism, misallocations, and declining property right protections and the ensuing unparalleled debt and failing productivity), we envision that the Keynesian power brokers in charge of global central bank monetary policy will “double-down” on what has gotten us into so much political, economic, and financial trouble.  The latter is all the more true given our rapidly rising dense energy availability, affordability, and EROEI (energy return on energy invested) challenges, and thus, to a large extent, our productivity challenges.

We thus continue to think that QT (central banks selling bonds) will be brief, if it truly gets off the ground at all.  However, when it becomes obvious to our central planners that “their” asset bubble progeny, upon which they have based their currency and economic malpractice “success,” are quickly deflating, they will rush to defend them.  How? By expanding their balance sheets; by buying sinking bonds. While we don’t know when this will occur, we are convinced that it will.  At such a juncture, it will be impossible to deny just how terribly flawed our “Frankenstein” central bank monetary policy has been, especially when dwelling on US debt of $68trn and global debt of $237trn.

So, if the bond vigilantes don’t “bolt” to front-run what will likely prove to be a very fleeting QT round by global central banks (again, if it commences at all), thereby driving up dollar-based interest rates in a world in which domestic and trade-related US financing needs could trump (no pun intended) $1.8trn on an annualized basis, surely rising inflation aggravated by “QE redux” will finally unnerve creditors.  Why?  Because they will be looking at entrenched and likely unprecedented currency debasement instead of a “financial repression worked” scenario.  In such a world, even if outright defaults by various parties unable to meet obligations, from municipalities to states to massively underfunded public and private pension funds to “too big to fail enterprises,” can be addressed through the printing press, the value of the currencies in which they’ll be expressed will ultimately rival the value of a sheet of toilet paper.

Thus, an upcoming global fiat currency debasement default will finally take center stage. This will drive up rates, punish bonds, and deliver hyperinflation.  Sadly, it’s the only politically feasible path.  And the opportunity to sidestep this upcoming implosion in both bond and stock valuations (they are tied at the hip) is staring us right in the face.  Sage investors stand to benefit handsomely from the upcoming reversion beyond the mean.  And they might be well served to recall that mining-based precious metals (PM) supply is expanding the above ground gold and silver inventory at a puny $138bn and $15bn annual rate, respectively, based on current PM spot prices.  The resulting 1% – 2% expansion in above ground PM speaks volumes about PM’s scarcity.  It also suggests that any material increase in PM holdings beyond the current 1%-ish stake of investable global portfolio assets, which are on target to reach $278trn, would have to be realized via massively higher PM prices, i.e., the demand curve shifting up stoutly.

Sincerely, Dan Kurz, CFA, www.dkanalytics.com

PLEASE NOTE: This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.

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DK Analytics, Post #35: Can the truth exhuming alt media trigger a rule of law revival?

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DK Analytics, Post #35: Can the truth exhuming alt media trigger a rule of law revival?  4/1/2018

Trade weighted US$: 85.83;  US 10-yr: 2.74%;  S&P 500: 2,643;  Oil: $64.94;  Gold: $1,325;  Silver: $16.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sources: https://cei.org/blog/2018-unconstitutionality-index-28-federal-agency-rules-every-law-congress-passes, https://wordpress.org/about/logos, www.greased-lightning.com

 

Alternative media contributions to holding power brokers’ feet to the ebbing constitutional fire

Constitutionalist alt media sites/blogs, streaming radio talk shows, and YouTube channels — if they aren’t taken down by free speech or First Amendment shredding Silicon Valley lefties — keep shining the cleansing light of truth into ever more dark, moldy, lawless places while the MSM “sleeps.”  Meanwhile, blogs depict linkage between the massive personal data collection, mining, and harvesting by Google and 4th Amendment gutting surveillance conducted by US intelligence services.  Given what’s been happening, that linkage is possible.  The surveillance is indisputable.

Those same outfits also disclose lacking criminal charges brought against top finance executives while they bemoan a) “monetary wrist slaps” imposed on leading banks/investment banks accused of violating securities laws, b) taxpayer bailouts, c) cronyism, and d) bail-in legislation.   Meanwhile, they fret over central banks manipulating markets beyond financial repression-based destruction of price discovery, itself a clear violation of Constitutional (sound) money, sound allocations underpinning productivity growth, and free market capitalism. 

Buttressed by authors/publications in the “classical liberal” camp, the constitutional alt media cohort hurls probing lightning bolts at the very politicians, cabinet appointees, and judges that control the instrumentalities of power and took oaths to uphold the Constitution/the rule of law, but are not. 

In so doing, the alt media seeks to inform Americans about corrupt officials and massive, unconstitutional misappropriations.  This is because the alt media is not (yet) part of the highly concentrated media landscape where six, endlessly consolidating major companies need to remain in the statist bureaucracy’s good graces (“Pravda press” concerns) in order to get acquisition clearance and avoid anti-trust issues. 

For flavor, consider Hillary Clinton.  The felonious former secretary of state Clinton destroyed evidence while gravely violating classified information security protocols with her private servers and thus threatened national security.  Yet she was effectively exonerated by former FBI head Comey, who had the temerity to a) usurp judicial power and b), at the 14-minute mark of his self-righteous July 5th, 2016 tirade on this matter, warn that “everyday” Americans, in contrast, would be held accountable: “this is not to suggest that in similar circumstances, a person who engaged in this activity would face no consequences!” 

Or consider the $21trn in “MIA,” non-appropriated, unconstitutional federal outlays, the military portion of which we have referenced in the past (slide 9), which perhaps say more than anything about how “off-the-rails” everything is:

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time. — Article I, Section 9, Clause 7, US Constitution 

Internet-based media and streamed talk shows have also harped on the outrage that congressmen and other federal government employees have shamelessly and lawlessly exempted themselves from the cross of redistributionist Obamacare that most working Americans have been forced to hang from in terms of sustained double-digit premium increases, less coverage, and reduced availability.  How so?  By Congress claiming small business (less than 50 employees) status.  Sadly, Trump has avoided using the bully pulpit to call out this rule of law mocking double standard,  even though the administration’s new regulation will allow Americans to again buy low-priced, tailored coverage.

  

The rule of law; can it come out of hiding & displace a spreading B.R. with burgeoning debt in time?

Let us jump right in.  As a requisite start, we would argue that US Attorney General Jeff Sessions needs to come out of hiding at the Department of Justice (DOJ) on the seemingly forever expanding Mueller investigation (witch hunt).  How?  Sessions must dismiss Robert Muller’s investigation should it extend to any “non-campaign issues.” This would be standing tall for the Constitution and thus the rule of law:

Sessions formally notifying Mueller that he does not have authority to act outside of campaign-related cases and cases related to obstruction of Mueller’s investigation would be doing what the Constitution compels: enforcing the Appointments Clause of the Constitution. Additionally, Sessions notifying Mueller that he does not have authority to act outside of campaign-related cases would be exercising Sessions’ court-recognized Constitutional obligation to “direct and supervise litigation” conducted by the Department of Justice. Furthermore, Sessions notifying Mueller that he does not have authority to act outside of campaign-related cases protects against the inappropriate use of the federal grand jury that defendant Manafort now rightly complains about.

Second, the Constitution’s Appointment Clause requires the democratic process control the appointment of all but “inferior” officers. This means there can be no principal executive branch officer except those the President personally appoints and the Senate advises and consents to. There is probably no greater domestic power of the executive branch than the power to access a grand jury to indict someone, the power to access a grand jury to subpoena someone’s testimony and records, the power to access the tax records of any individual in the country, the power to request warrants to spy on someone’s activity or search it and seize it, or the power to simply threaten any of the above to an individual American. That is why that power must be limited to principal, democratically-appointed officers.

Sticking with the DOJ, the “mobster” tactics (please see below) of the former DOI (the Department of Injustice) under President Obama’s Holder and Lynch need to be fully examined and prosecutions against criminal actors need to be sought in order to show citizens that no one is above the law, which is ground zero for the rule of law:

In the memoir Cardiac Arrest: Five Heart-Stopping Years as a CEO on the Feds’ Hit List (written with Stephen Saltarelli), Howard Root tells the story of his experience as chief executive officer of Vascular Solutions caught in the crosshairs of the federal government when prosecutors sought to put his company out of business and to send him to the big house.I wish my story was a lightning strike in the perfect storm – a few unscrupulous prosecutors conned by desperate whistleblowers, but prosecutions like mine are exploding across the United States. (Italics DK Analytics’.) When prosecutors can use false criminal charges to destroy everyone except the few wealthy and unbroken defendants like me, then virtually everyone is in danger – even if you’ve done nothing wrong.This isn’t my case anymore, it is my cause, and I hope you will join me in this call to reform the American criminal justice system.

(Potentially boding ill on the “return to a DOJ from a DOI” front, Attorney General Jeff Sessions, who appointed Rod Rosenstein as deputy AG, who in turn appointed Mueller to serve as special counsel to investigate Russian interference in the 2016 election, revealed in a letter to lawmakers on Thursday, March 29th, 2018 that he (Sessions) had declined to name a second special counsel to investigate allegations of surveillance abuse within the DOJ/the FBI.  Sessions: “special counsels are only appointed in extraordinary circumstances.”  Yet Sessions fired the central player in the surveillance abuse investigation, former deputy director of the FBI, Andrew McCabe, a day prior to his retirement!  If this isn’t an extraordinary circumstance, then what is?  And what about the Obama-appointed DOJ inspector general Michael Horowitz in charge of investigating the alleged surveillance abuses: Rod Rosenstein, redux?)

In a broader sense, if we really want to talk about restoring the rule of law, it is not only about getting a DOJ with integrity back, it is about getting separation of powers back (no more legislating from the executive branch or from the bench), it is about getting sound money back, it is about getting federalism back, and it is about restoring the Bill of Rights versus increasingly maligning and eviscerating them, especially the 1st, 2nd, 4th, 5th, 9th and 10th Amendments.  In short, it is about getting the Constitution back, i.e., enforcing strictly limited/enumerated governmental powers so that individual liberty is maximized, federalism is returned, and the government can’t print money with which to finance redistributionism and cronyism, which strip property and freedom from the majority.

When thinking of a functioning rule of law, we are really referring to fidelity to strictly limited and enumerated federal powers, to separation of powers, to sound money, to federalism, and to the Bill of Rights.  The states and statesmen (America’s Founders and Framers) that gave birth to a federal government featuring strictly limited and enumerated powers insisted on a “fidelity-assuring” Bill of Rights.  This was the last line of defense against a rogue federal government threatening the primacy of individual liberty and broadly anchored state rights; a governing doctrine in which people and the states kept any powers not given to the federal government.

Needless to say, you cannot have the rule of law if powerful people are above the law (page 2), whether it concerns lacking prosecutions for felonies, for treason, or for outright contempt and infidelity toward the US Constitution/the Bill of Rights by the very officials that took an oath to uphold it.  A peerless Constitution was hammered out to prevent an oligarchical tyranny (what we have today).   It was also to prevent tyranny of the masses, the dark side of democracy, also known as “mobocracy.”  In a democracy, inalienable or natural rights such as freedom of speech, the right to bear arms, the right to privacy, the right to due process, and property rights can, in a worst-case scenario, be swept away by a majority vote!  Once again, select channels with huge competence help raise awareness while they educate.

The same freedom-loving alt media outfits and their “classical liberal” contemporaries in the press and elsewhere also attempt to bring some daylight into the malfeasance and legislative — and even judicial — usurpation propagated by unelected bureaucrats that run the administrative state (also called the deep state), which in effect runs the country and most Western “democracies.”  Meanwhile, at the other end of the spectrum, namely in our communities, the truth-seeking, rule of law cohort of the alt media attempts to call out societally destructive, safety and life-threatening demagoguery.  Case in point: the very recent, staged, Planned Parenthood supported, non-teenage “March For Our Lives” demonstration on the heels of the tragic school shooting in Parkland, Florida.  Left-wing propaganda overshadowed local on-the-scene police officers “in hiding” and the FBI againdropping the ball” (even the NYT couldn’t skirt it).  It also failed to state the obvious: shooters seek out “gun-free”/”no defense” zones.   Most tragically and ironically, federally-funded Planned Parenthood performed 321,384 abortions in 2016 (p. 31).

Eventually, if the light of truth is steadfast and powerful enough, the mold & mildew will begin to shrivel and accelerate its decline.  And hopefully, collectively, at the political and financial level, the constitutional cohort of alt media can be the “Greased Lightning” that helps loosen the lawless elected officials and administrative state mold, so it can be washed or swiped away.  Unfortunately, the redistributionist, anti-constitutional left and the crony right  — “big government with a left or a right blinker” — both benefit from maintaining a destructive status quo.   Specifically, a system wherein massive illegal alien immigration, Balkanization,  and citizen voting franchise dilution and property right transfers are sought for political reasons and tactical financial gain over legal and skilled immigration (immigrants that strategically enrich the country and mainstream into the adopted culture); wherein bureaucratization trumps legislative representation; and wherein fiat or printed money instead of constitutional money is legal tender.

Which brings us to another important observation: the constitutionally-oriented alt media (generally-speaking, Internet-enabled media/communication) is not only trying to shine the light on abuses in the halls of power, but it is going up against a very entrenched and powerful statist/Marxist “mainstream media,” Hollywood, and educational establishment.  Talk about a stacked deck.  Yet as long as the Internet remains free — a big if should the likes of “net neutrality” resurface — there is a huge technological bulwark against throttling free speech or limiting people’s ability to look for alternative news and op ed sources.  The enormously positive significance of this cannot be overstated.    

Conclusion:

The elephant-sized question is, after over a century of heavy-handed statist intervention in schools and colleges, whether our population is now so indoctrinated (versus educated) that we collectively no longer appreciate, much less understand or strive to protect and nurture, real science over P.C. “science,” real history over revisionism, faith in free markets to produce the best possible outcome for the most people over redistributionism/cronyism,  Judeo-Christian foundational values over Sharia intolerance, the US Constitution and the Bill of Rights over despotism — in short, faith in our Western heritage and why it should be extrapolated, not eviscerated, for the benefit of our progeny.  This is especially true when considering what socialism and communism has typically wrought: poverty and more than 100m people killed by communists in 100 years in Russia, China, and elsewhere.  Collectively speaking, we are arguably appallingly unaware of this most tragic history, which we certainly shouldn’t strive to “ape.”  But first we need to know about it.  Education instead of indoctrination or “malignant neglect.”

If the constitutional embankment against tyranny and respect for human life is tossed aside willingly by the population, and our inalienable rights are increasingly eroded, very much including our right to arm ourselves to protect against both criminals and a despotic government, then what is to protect us from oppression? From serfdom?  Or from a dreadful “Gulag” version of iron-fisted tyranny? 

Progressivism, or sustained increases in US federal government power hugely unleashed in “1913” (creation of Fed, rollout of federal income tax, direct election of senators versus via state legislatures, which helped kill federalism/republicanism) and long sought by Republicans is so much a part of our consciousness as a society.  Therefore, even if we can rid ourselves of the bureaucratic, unrepresentative, criminal cancer we call the deep state or the administrative state; even if we manage to return to separation of powers and federalism; and even if we even find a way to return to sound money (a growing number of states are moving to return gold and silver to their Article 1, Section 10 status while dropping taxation of PM or money) and thus to property right protections and free market capitalism (the ultimate wealth of nations’ elixir), the “$64,000 question” remains.

Specifically, do we have the “body politic” left to comprehend, appreciate, embrace and re-assert the Enlightenment Age-inspired, liberty-drenched principles of the Declaration of Independence as manifested via the unparalleled US Constitution?  Said differently, do we still have an ethical, virtuous civil society so necessary for self-governance, self-reliance, and for spawning virtuous politicians?  This is a vast American and Western society question and challenge. 

As the saying goes, you can lead a horse to water, but you can’t make it drink.  Even more appalling: people get the government they deserve.  After over 100 years of indoctrination, statism, and constitutional usurpation (thanks, progressive Republicans, for getting the “Borg” airborne) financed by fake money and facilitated by growing constitutional infidelity, one could say “it ain’t the people’s fault.”  Well, we beg to differ: we’ve had our Constitution for nearly 231 years, libraries with profound books for longer still, the Internet and great Constitutional sites for over a generation, and YouTube for over 13 years

If we, as mature and loving parents, with all the above means at our disposal, can’t undo the indoctrination we were subject to and our children are exposed to at school “at the nightly dinner table” — and by tuning our kids in to exciting alternative media wisdom and to digital Declarations and Constitutions — then we need to look in the mirror for communication blame.  For what, short of sex itself, is a sexier concept than political freedom? And we don’t even need to convince a majority.  A highly-motivated minority will sometimes do, as was the fortunate case in the Revolutionary War and most especially, and debilitatingly, during a 100-year plus “progressive march” to upend a federalist, representative, constitutional republic featuring codified liberty and requiring personal responsibility. 

As the great Ronald Reagan (talk about a liberty/free market capitalism giant) famously said: “Freedom is never more than one generation away from extinction.  We didn’t pass it to our children in the bloodstream.  It must be fought for, protected, and handed on for them to do the same.”

So, what is our “insurance policy” for sunsetting freedom/the loss of constitution fidelity?  How about relentlessly spreading the word, thinking local, forging strong local networks with like-minded people with “real world” survival skills, improving agricultural skills, revisiting the Declaration for inspiration, and refusing to abide by unconstitutional diktats the feds impose on us (both Jefferson and Madison had a lot to say about this, as you surely know, in the Kentucky and Virginia resolutions).  In terms of investable net worth, stacking PM (especially hugely underpriced to gold, silver) outside of the banking system for purchasing power preservation & enhancement (given PM price suppression) is the best insurance, i.e., until bonds and stocks again offer great strategic ROI prospects. 

Sincerely,

Dan Kurz, CFA

www.dkanalytics.com

This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.

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