I'm Bullish Silver Into The New Year
Stewart Thomson | Dec 24, 2019 12:51PM ET
Massive upside breakouts are taking place across the precious-metals sector. Many mining stocks, especially silver-oriented ones, are skyrocketing.
Unfortunately, I believe most investors who are Trump fans have become over-obsessed with the relatively minor but media-promoted gains in the U.S. stock market, and they are missing out.
That's the “bull wedge breakout gift from Santa” gold chart. Chinese New Year for 2020 lasts from January 25 to February 11 and I expect strong Chinese demand to keep gold in powerful “rally mode” to at least the start of this important holiday.
The U.S. stock market gained hundreds of percent under presidents Roosevelt, Reagan, Clinton and Obama, but only about 50% so far under Trump.
That’s partly because President Trump didn’t ramp up debt the way those other presidents did. Government debt rose almost 200% during the Reagan administration, 1000% under “crazed gold confiscator” Roosevelt, but only by about 10% so far with the Trump administration.
Trump has been incredibly fiscally responsible, especially considering that he cut taxes dramatically, but the stock market won’t see the kind of performance it did in the past unless the Fed becomes even more ridiculously dovish than it already is, and Trump ramps up debt, into the danger zone.
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The growth problem in America comes down to demographics and debt. Trump inherited a 100% government debt-to-GDP ratio. In contrast, it looks like that ratio was only about 30% when Roosevelt and Reagan were elected.
Unlike his predecessors, Trump simply doesn’t have any room to increase debt in a major way and even a tiny increase in debt is incredibly dangerous.
It’s not Trump’s fault, but government debt is completely out of control. Arguably, so is corporate and private debt. Current U.S. demographics don't appear able to create higher GDP growth to “grow the nation out of debt.” That worked in the 1950s under presidents Truman and Eisenhower because demographics were much more robust than they are today.
Bottom Line/h3
While gold's breakout looks great, silver's breakout looks even better.
Even a small increase in U.S. government debt, now, could be the single spark that produces a massive inflationary fire and the price action in both silver stocks and bullion suggests the fire may now be starting to flare.
Investors need to face reality: Reagan was elected when the baby boomers entered their prime working age. The Fed was engaged in the biggest rate-cutting cycle in the history of America as savers got great interest payouts and China and India not the competitive threat they've become today.
Now that there’s little room to cut rates, savers are crippled by a Fed policy that promotes ever-more debt and China and India have eight gold- and silver-focused citizens for each debt-focused American. It’s the ultimate “no-brainer” that gold and silver are today's main investment play.
The majestic Junior Silver ETF chart (NYSE:SILJ) looks great. The up channel is technically perfect and a surge in silver bullion would create a semi-parabolic move higher for SILJ.
How is it possible that silver stocks are ripping to one fresh new high after another, leaving bullion behind? There is commercial trader bullion shorting activity on the COMEX. Money managers are buying silver stocks, not COMEX contracts, and it doesn’t take much money flowing into these stocks to push them dramatically higher.
A COMEX silver price surge is coming, though, because there are two big inflationary forces at play. First, the easing of trade tensions is opening the door for global growth in the late stage of the business cycle. That’s incredibly inflationary. Wage growth and consumer spending growth in China (consumer spending growth is above 20% in some major Chinese cities now) is going to push prices higher in both China and the West. This growth-oriented inflation can be called “good inflation.”
At the same time, de-dollarization and “red-lined” American government, corporate and citizen debt is beginning to create “bad” inflation.
When Barack Obama took office in early 2009, I heard from thousands of Western gold bugs about how much money they were going to make by shorting the U.S. stock market.
I told them that they needed to view the election of Obama as one of the greatest buying opportunities for the stock market. The bottom line: Never bet against the Fed when it goes wildly dovish because a dovish Fed is a government-endorsed Fed. As I predicted, the stock market shot higher and the short positions failed completely.
Now, I’m investors are telling me that there can’t be any inflation thanks to Trump's policies. My response? They're wrong. Inflation is about to soar and investors with lots of silver stocks will score.
The U.S. stock market is rising because of the Fed, not the president. The Fed’s extreme dovishness has created a mania in corporate buybacks. If Liz Warren is elected, she’ll kill those buybacks. I like that. Simply put, a president Warren will force corporations to spend money on wages and expansion at a time when that is most inflationary.
The biggest bull run in history for gold and silver stocks is getting underway and it’s going to accelerate regardless of whether Trump or the democrats win in 2020. Thousands of gold bugs who shorted the stock market in 2009 are buying it now. They will be left behind by gold- and silver-stock investors if Trump wins. If Warren wins, they could be wiped off the financial map.
This last chart is the crucial Global X Silver Miners ETF (NYSE:SIL) versus the Dow. Silver stocks are about to “destroy” the Dow. Will Santa stuff wise investor stockings with silver-oriented goodies to ring in the New Year? I think so.
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
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