Michael J. Ballanger - Thu, Jul 25, 2019

Central Bank Folly: Blame the Boomers

Michael BallangerSector expert Michael Ballanger muses on how the baby boom generation has impacted markets through time, and discusses how he will play the current precious metals bull.

Bull and bear

"Destroyers seize gold and leave to its owners a counterfeit pile of paper." — Ayn Rand

The baby-boom generation, of which I am a less-than-proud member, blew it.

There was a time long, long ago when the mention of the words "baby boomer" evoked a sense of pride of membership. Amid the prosperity of the post-WWII era, birth rates in North America soared while the sons and daughters of many men and women that fought in the war became the dominant demographic force by the year 1966.

When I was in grade 10, I wrote an essay that pointed to the defining moment, where the excitement and unbridled optimism of the Space Race, advances in modern medicine and unparalleled economic growth was snuffed out forever by an assassin's bullet in Dallas in the autumn of 1963. With the end of Camelot, the boomer generation suddenly began to question things. They threw away the Beach Boys "Surfin' Nirvana" lifestyle for the darker messages of Bob Dylan, CSNY, the Doors and Hendrix, and they watched while the Vietnam war claimed over 58,000 U.S. servicemen and caused massive civil unrest to permeate the inner cities and the campuses of America.

Through the unwillingness of the baby boomers to accept the garbage spewed out by the radio and print media, as well as the fledgling television industry, young people rose defiantly to implement an end to a war that had become a national embarassment and political nightmare. I arrived in Saint Louis in the fall of 1971, a mere four years before Saigon fell, and by then, the historically conservative (pro-war) city of Saint Louis had seen a demographic shift in camps, as the campuses and high schools were filled with long-haired radicals heavily recruiting the youth of the era to "tear it all down" in order to effect the much-needed political and social changes that were so overdue by then. On the other side of the demarcation line were the rednecks, the police, the National Guard and, of course, the military.

The sidebar to all of this is that the boomers also took down a president, in the form of Richard Nixon, so to say that the boomers had serious "stroke" is an understatement. The mediums were FM radio, Rolling Stone magazine and weed, and that was all that was needed to effect change—it mattered not where. We, as a generation, were a force.

However, and very sadly, ending the war in Vietnam by nonviolent protest and by their sheer numbers (it was nothing to see 20,000 young people at anti-war rallies)—that was just about where the great metamorphosis ended. We, as a generation, as we had done with the Beach Boys, threw away the old protest albums of the '60s and '70s and opted instead for a different type of optimism from that which empowered our parents in the '50s.

A former movie star arrived on the scene in the form of Republican Ronald Reagan (nicknamed "Ronald Ray-Gun" by Country Joe at Woodstock) in 1980, and despite the non-violent, intellectual approach of opponent Democrat Jimmy Carter, the boomers swept Reagan into power with the largest popular vote in history. From that moment on, my generation shifted focus from morality to money and with that shift, the largest voting demographic in world history has continued to act in a self-serving, sycophantic mode of behavior most foul to those who dare try to recall the ethical bravery of the 1960s. Famous cofounder of the Students for a Democratic Society (SDS), Jerry Rubin, went from bell-bottomed blue jeans to blue pinstripes by taking a job on Wall Street, and that punctuated the generational sentence of the boomer tribe.

We boomers now look at our offspring and we cry for their future. We don't lament for how they are voting or why they are voting or even if they are voting because deep down, we all know—every one of us—that their decisions are the ones crafted for them by their forebearers. The parents of we boomers were indelibly etched by the Great Depression of 1930-1933. I recall my father's tales of delivering "day-old bread" to houses up in Rosedale for "a penny a loaf" in 1931, and what hit me was that after he passed at the grand age of 89, as I was sorting his affairs out, there were countless cubbyholes and bookshelves filled with all sorts of coins and currency. They might have totaled perhaps $1,500, but the fact they were stashed away, insulated from the thievery of Depression-era desperation, was a testimonial to the imprint it left upon that generation.

By contrast, the newly empowered millennial generation has no compassion nor comprehension as to why any human being would need to store anything; they are most comfortable in storing all of their net worth in the digital vault of the cyber-world. That may (or may not) be sound thinking, but the point remains that the boomer generation had a chance to restore fiscal sanity by bringing Bretton Woods back with a vengeance. We didn't. We opted for the status quo. We voted for our short term wealth and voted against our long-term health. We sold out.

There has never been a time when "hoarding cash" ever resulted in an enhanced lifestyle. Theoretically, had you gone to cash in 1928, you at least had a few years to activate that cash as asset prices collapsed, so perhaps the Great Depression might serve as a one-off. However, I urge you all to join me in celebrating the legacy of what we boomers have bequeathed upon you all. Your savings (if you have any) are going to have minimal purchasing power as time passes, and your expectations of the same are going to be worth the same as the paper one finds in public lavatories.

However, the financial media celebrates and rejoices every time one of the averages hits a new high, and the astounding fact remains that they cannot see the forest for the trees. Stocks are rising because their replacement value is running for its life from debasement and while it would appear to be a "good thing," it is not. Wealth gravitates to proper treatment; it flees abuse. Wealth is gravitating to gold and silver; it is fleeing cash.

"Historically, the Zimbabwe Stock Market reached an all-time high of 773.06 in June of 2019 and a record low of 93.39 in June of 2016." — Bloomberg

When you think of places to invest, Zimbabwe is certainly not one of them. Once heralded as "the bread basket of Africa," it is now a net importer of grains as the prolific immigrant European farmers had their land expropriated by the Mugabe regime in an effort to restore tribal ownership to the native inhabitants.

Forgetting the moral argument for a moment, the point here is that Zimbabwe stocks are screaming to all-time highs despite an inflation rate exceeding 175% per annum. This is the example of what happens when societies distrust and, in fact, detest cash. Zimbabwe citizens will jettison cash as soon as it arrives in their hands, providing a prime example of the "replacement power of equities within an inflationary spiral."

We are seeing stock markets around the world print new highs with increasing regularity and the mainstream media would suggest that the stock markets are barometers of impending economic expansion and financial well-being. The problem with that is that it is the $14 trillion in new wet-ink debt that "rescued the financial system" (read: bailed out the criminal banks that blew it up) that is now surfacing in the form of excess liquidity sloshing around the world markets and chasing equities higher.

Some 65% of global bonds now yielding negative returns is also shepherding cash to equities but the media would have us believe that it is a policy "miracle" that is creating the boom. It is not. It is Modern Monetary Theory debasing the purchasing power of cash. In currency terms, stocks are rising because the value of savings is crashing. Prudence in personal money management is being punished by central bank profligacy, and just as the Zimbabwe markets convey a false message of prosperity, the middle and working-class citizens of Europe and North America are certainly not feeling the warmth that a 3,019 S&P 500 level should be instilling.

Until recently, investors largely ignored the precious metals, the historical defense mechanism against debasement because of the countless and incessant interventions and interference capping any and all advances. But here in the summer of 2019, investors appeared to have warmed up to the notion of owning a little gold and silver, and given the relatively puny size of those markets, even the slightest of attention can drive prices higher. When gold penetrated the $1,400 barrier in June, it altered the configuration of asset allocations around the world, and as can be seen in the HUI's breathtaking advance off the lows and silver's abrupt about-face after months (if not years) of underperformance, the utility of precious metals ownership is gathering both popularity and momentum. It is a most welcome occurrence for the grizzled metals enthusiast and comes at a most opportune moment in history.

Near-term, I must confess that the power of this advance in gold has surprised me with its uncanny ability to stay overbought or near-overbought for what seems like weeks. RSI (relative strength index) readings hit nearly 90 in June on the first ascension through $1,440, with levels not seen since 2010-2011. I am fully invested in the conservative portfolio that has zero leverage and is evenly split between gold, silver (physical), senior miners (GDX) and junior miners (GDXJ).

I took a trade on half of the ETFs in late June, and luckily was able to buy them back a hair below where they were sold. The portfolio is ahead 30.13% year-to-date (YTD), based on all trades. The only leveraged position I currently hold is the SLV October $15.50, which was purchased with the proceeds of the triple I made on the SLV August $14 calls on the move from $0.60 to $1.80. The October $15.50 calls were bought at $0.48 and are now $0.69.

Would I add to the SLV position? That is a very tough call to make because despite the new paradigm in which we now reside, I simply cannot buy into the near-80 RSI level that SLV currently sports. I also learned a lesson from my early exit from the GLD calls in early July—that RSI can offer a misleading signal, because while it saved my arse in the range-bound markets of 2017-2019, avoiding nearly $400 of drawdowns in gold, it rocketed to nearly 90 last month and has remained elevated as prices have continued to rally. I am long SLV calls and very nervous, but am also mindful of its potential to do a gold RSI repeat (a move to 90), taking silver into the mid-$18 level and the calls to $3.00. We shall see.

I have also added Aftermath Silver Ltd. (AAG:TSX.V) at the July 11 closing price of $.095 to the portfolio, joining Great Bear Resources Ltd. (GBR:TSX.V; GTBDF:OTC) (up 131%), Western Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX) (down 36%), Stakeholder Gold Corp. (SRC:TSX.V) (down 20%) and Getchell Gold Corp. (GTCH:CSE) (down 22%) (all YTD numbers).

You can see how the market rewards discoveries (GBR) and punishes either no news or bad news (GTCH/WUC/SRC). I added Aftermath (AAG) because it has an established silver resource in Chile capable of increases in size through exploration, so it holds leverage to both the silver price and exploration results as potential drivers of price.

As we progress further into this rampaging bull, I am going to be far more attentive to companies that have existing discoveries or ore bodies, which eliminate the exploration risks that were necessary in the past when the metal prices were stagnant. With metal prices anything but stagnant, I want to capture the upside of the move in the metals and avoid being left out of the spoils of victory because exploration results were less-than-stellar (or nonexistent).

I leave Sunday for my annual voyage into the "waters unknown" of northern Georgian Bay, which contains the finest freshwater boating in the world. I hope to get to the Bad River Channel by next weekend, an anchorage of immense beauty, great fishing, crystal-clear water and more hidden and very hazardous rocks than any place on the planet (as I so painfully discovered two years ago). I leave you all with this YouTube clip of one of the many dinghy tours we take into the backcountry, includes the mighty French River (https://www.youtube.com/watch?v=svR9D1Jacvs&t=40s).

I will not be posting another update until after I return mid-August but I will be providing updates via Twitter so you can follow me at @Miningjunkie to see how I am navigating the waters and the markets.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Aftermath Silver Ltd., Great Bear Resources, Western Uranium, Stakeholder Gold, Getchell Gold. My company has a financial relationship with the following companies referred to in this article: Getchell Gold Corp. and Western Uranium & Vanadium Corp. My firm no longer does consulting work for Stakeholder Gold. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Great Bear Resources. Click below for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Western Uranium and Vanadium and Aftermath.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Getchell Gold, Western Uranium and Stakeholder Gold and Aftermath, companies mentioned in this article.

Charts courtesy of Michael Ballanger.

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