Weekly Wrap Up

What’s Wrong with Modern Monetary Theory? - Weekly Wrap-Up (December 13, 2019)

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December 13, 2019

It’s Friday the 13th, and Eric Sprott returns to break down all of the “weird” volatility in the precious metals market. In another supersized edition of the Weekly Wrap-Up, Eric and host Craig Hemke discuss all the gold and silver news you need, including:

  • Why every news event is “bad for gold”
  • The problem with Modern Monetary Theory.
  • Plus: When will the generalists take notice of the sector?

“Lo and behold, [the Fed] will have increased their balance sheet by $500 billion! So, this would more than offset anything that they bought back when they had their tightening program and put as at new highs in the Fed balance sheet…in supposedly good times! These are the good times. Let’s not forget that. Everything’s ‘wonderful’! The economy’s ‘good’. Inflation is ‘low’. The Fed’s balance sheet? Record high! And I’ll take you back to whenever QE started: ‘Now, it’s only going to be temporary. We’ll normalize things again.’ … Well, here we are, now we’re going to have a record high balance sheet and we have normalized nothing.”

Male: You're listening to the "Weekly Wrap-Up" on Sprott Money News

Craig: Happy Friday greetings from Sprott Money News and sprottmoney.com. It's Friday the 13th of December and it's time for your "Weekly Wrap-Up." I'm your host Craig Hemke and joining us as usual on Friday the 13th is Eric Sprott. Eric, good morning.

Eric: Great. Good morning. Interesting little week we had here. Had some pleasant surprises and some unpleasant surprises, but all in all, I think the stock seem to be holding up, so, we're doing pretty well.

Craig: After the week we had, I think we should be walking under ladders and chasing black cats, breaking mirrors and all that kind of stuff, it's been a long week.

Eric: Yeah. There's been all sorts of weird volatility. Well, as you well know, that there is no spleen in the gold market and almost any news event is ugly for gold no matter what, but never seems to be ugly for anything else, but anyway, we'll see.

Craig: That's exactly right. And, you know, if anything, low prices at Christmas and holiday giving time, nothing wrong with that. So, just a reminder, we are actually seeing silver in high demand at these prices under $17. At Sprott Money, we are particularly moving a lot of 100-ounce silver bars. Those Royal mint 100 ounce Britannia silver bars are on sale. You can get them at 1.61 Canadian over Spot or just $1.19 U.S. over Spot. Can also check out all the other deals in our holiday catalog. Just go to sprottmoney.com or of course, call us at 888-8610-775. Eric, if you haven't gotten me a Christmas present yet, you can buy me a 100-ounce bar. I'll take it.

Eric: That would be...and let me think about that one, I better go put that on my list here now.

Craig: That'd be great. Make my stocking really heavy. I tell you what my friend, it has been a very frustrating week. We've had very low report inflation, it looks like Brexit might be going through finally, the trade war rumors, maybe we can finally get that all over with. And then today, even in the U.S. retail sales for November, which includes Black Friday and everything else, really abysmal. What do you make of this week?

Eric: Well, you know, we've fallen into the trap of believing the Fed can do everything, and granted that they had their meeting this week and they said they're holding rates steady. But as we noted late, I think it was late yesterday in the afternoon, the Fed laid out the schedule of the repos that they're going to do at what they call the turn date, turn date being December 31st. And Lo and Behold, they have increased the money supply or the balance sheet, I should say, put it that way, the balance sheet by $500 billion. So, this would more than offset anything that they bought back when they had their tightening program and put us at new highs in the Fed balance sheet and supposedly good times. These are good times, let's not forget that, everything's wonderful. Economy's good, inflation's low, Fed's balance sheet, record high.

And I'll take you back to whenever QE started. It's only going to be temporary, you know, we'll normalize things again. We'll normalize, okay? Well, here we are. Now we're going to have a record-high balance sheet and we have normalized nothing. So, the Central Bank, and a lot of people are starting to question these Central Banks, the ECB, the Fed, Bank of Japan, of course, is so way off the edge with all their purchases of everything under the sun. So, anyway, that's all good for gold by the way, okay? Now, then again, we have these tweets that come out or little news releases that somehow every news release gold has to react one way or the other, mostly negative by the way, it never reacts positively to any great extent or not for long, that's for sure. And of course, the whole trade deal, supposed trade deal being signed.

We'll find out. I don't even know if we will find out about the trade deal. I don't know that we're going to find out about the trade deal, but apparently the trade deal, and I don't think it's actually going to be signed, so it won't be signed and it won't be announced other than, "We have a trade deal." And of course, we're all supposed to think that that's bad for gold. I have no idea why it's bad for gold, but apparently everybody says it's bad for gold. So, you know, and Brexit is either bad or good for gold depending on whether it's going to happen or not happen. If Brexit is going to happen its bad for gold, if it's not going to happen, it's bad for gold. So, you know, everything's bad for gold.

But there's lots of things happening underneath the surface here and I thought, well, first of all, I want to carry on with the retail sales. And I noticed there was an article about Home Depot was complaining that this year, 2019, the amount of thefts in their store has gone up dramatically, which they put down, the CEO put down to the opioid crisis. Now, Eric has a different explanation to that, okay? How about people can't afford stuff and they're just forced to steal it because inflation is way higher than all you geeks are suggesting and the salaries don't go up by much, so they're forced, and they could just get their back against the wall. And as I see the 0.1% increase in retail sales and look at the credit card usage for the month, and think, how the hell could you only have a 0.1% increase in retail sales when credit card use is exploding? And it's the same thing to me. They have to use their credit cards to live, which is a horrible situation to get yourself in with the 20% interest and all that.

But the one thing I did want to comment about in the physical market, Goldman Sachs put out a note describing sort of the status of the Goldmark and suggesting that I think their target prices were gold will get to 1600. But here's a data point that I had never seen before. It's described as the implied build in non-transparent gold investment, has been larger than the build in ETFs and they describe the non-transparent, i.e, people vaulting but not doing it through public vehicles, as going up 500 tons a month, sorry, 500 tons a year for the last four years ever since the beginning of '16. Five hundred tons, we've got a 4,000-ton market man. We got 500 in the vaulting, we got 700 in central banks, we've got 700 in India, we're at 1.9 now. We have ETFs that are adding 300, we're at 2.2. We've got China at 1000 with 3.2. We only produce four and we haven't even dealt with any industrial or jewelry yet. So, I'm thinking, maybe we're going to have a little shortage of gold and these people are buying these tonnages, these are not little amounts of money, okay?

Craig: Yeah.

Eric: We're talking many millions per ton. I think a ton of gold is probably, what are we going to say? Is about $45 million, something like that, or close to 50 million. So, that's serious money going there. And of course, most people can see that this world of debt and money printing, we know where the end is, and it doesn't matter whether you bought it in '16, '17, '18, or '19, or even next year, you know where it's all going sooner or later. So, if you have a long-term view, you know that you have to be owning precious metals here.

Craig: Yeah. You know, and Eric, I saw a report this week that the U.S. congressional budget office now estimates the average annual U.S. budget deficit for this next decade of 2020 to 2029, 1.2 trillion per year. That's another 12 trillion over the next decade. And again, it's always, clear always cooking all these rosy economic assumptions so that the tax receipts look better. Look, if you combine that with this repo that you're talking about, and, you know, already monetizing debt, we had somebody write in a question this week, it said, "Well, what's wrong with modern monetary theory? Why can't we just print all the money we want?"

Eric: We can print all the money we want, but the more you print, the more useless it is and the more valueless it is. And we should never forget, never, that all money ever printed in the history of mankind has become valueless. All money printing has become values. Now, these guys have held it together here with this new, you know, superpower central bankers and all that, and we've all got conned into believing that they have that power. Even though, with all that printing, where have we gone in GDP here? We're like up an average of 2% every year and that's with inflation probably understated by at least 3% a year, i.e, it's been negative one every year. We're going nowhere, with all this modern monetary theory and printing of money which is digging a deeper and deeper and deeper hole for ourselves. And some day it will end. When I look at, I hope they do have a not-trade deal, okay? Just like a, not-QE because maybe we can all shut up about it. It frustrates the hell out of me that every time there's a not-trade deal signed, the market has to go up that day in anticipation and we'll find, let's get the not-trade deal and move on. Let's not hear about it for the next 12 months till the election is over. That'll be fine with me, thank you very much.

Craig: Eric, before we get to any of the shares, anything else on your mind this week you want to make sure we cover?

Eric: No, I think we have pretty well everything there. I've covered off...I've vented enough for one day, okay? So let me talk about a few stocks here. I guess I should start with Wallbridge simply because it was announced on Monday that Kirkland Lake did buy 9.9% of Wallbridge, which I speculated a senior would be in there. I really wasn't sure whether it was Kirkland or Agnico Eagle. Because, on the street, on Bay Street here, nobody bought the issue, okay? So, if no institutions bought the issue, well, who bought the issue? And of course, by definition, or by assumption, it had to be a strategic partner. So, I'm glad to see Kirkland in there. Kirkland's also bidding for Detour. Detour is on what they call a Sunday Lake deformation zone. Wallbridge's on the Sunday Lake deformation zone 80 kilometers away, as it turns out Balmoral is in the middle with a great part of the Sunday Lake deformation zone.

But I do believe that, when you get a major that sticks that kind of money, I guess it was approximately 30 million, something like that, into a company, they're not in it for littles, okay? They're not in it to see the stock go from 60 to 90, they're in it to see the stock go from $60 to $6 or something hopefully. And they will increase their interest as time and drilling results present themselves. And of course, we could have some stunning drilling results coming out of Wallbridge here. We already know the holes have abundance sulfides and abundant visible gold. Well, my God, it's pretty hard to imagine with that kind of description that the drill results will be poor. So, I love it. I keep trying to figure out how can I, I sort of got deluded hearing all these issues shortly.

I know I'm going to be doing something about part of it, but, it's the favorite thing that I'd like to be able to buy, which I haven't been able to buy for a long time, so. Want to move on to Kirkland Lake because they announced two sets of drilling results, one from down in Australia, actually they had two Australian ones. One of the interesting ones, they did some infill drilling on the swan zone down at Fosterville and here is the highlights of the highlights, okay? Nine hundred and twenty-four grams over 3.6 meters, 918 over 7 meters, and 625 over 3.6. I mean, man, those are just outer-worldly, okay? And it sort of tells me that the Swan Zone is going to be higher grade than what they have it in for at the present time, okay? That when they incorporate these infill drilling numbers, the grade at the Swan zone will go high.

I always thought it would be a 60-gram ore deposit. I think they say it's 40 now. But, you know, they cut things and I think their real results will be better than. Speaking of cutting, I wasn't going to mention this, but a company called the Cisco [SP] did a bulk sample where the pre, pre the sample the grade was expected to be something like 9.8 and it came out at something like 17 grams. It was 89% better than expected. So, sometimes when you're measuring these things, you can be very, very, very wrong on your number. And knowing that there's a lot of conservatism built into numbers like that, you normally have upside opportunity that the market isn't aware of. Sticking with Kirkland, they also announced some drilling at Robins Hill, which is a property North and East of Fosterville, and they suggested that they're moving into, Foster will start with lower grade then they got into moderate grade, then, of course, they hit the Swan zone and went crazy.

And they've gone from low grade, Robin's now into the moderate grade and they firmly believe that they're going to have another Swan in the Robin's Lake and/or at Harrier. Also, sticking with Kirkland, they announced some results in the amalgamator breakup in Macassa in Ontario, they too were great. So, I still think, I love the acquisition of Detour. I love what's going on in the Sunday Lake deformation zone, including Wallbridge. So, I'm kind of, and of course I like the fact that Kirkland owns some Wallbridge because they think it's going to be an excellent investment. Two other stocks I want to talk about, Royal Nickel came in to see me and I had a presentation. And they just announced their November production, which was 9,400 ounces, which was very good by the way.

I mean, that's over 100,000 annualized. The previous month was something like 8,000 or 7,700, something like that. So, again, they're way beyond what we might have imagined. So, I think at 100,000 ounces, and that doesn't include potentially coarse gold, and there's lots of opportunity to get course gold. They've found a new way to test for it. And hopefully that will enter into the mix here in the next year. And I think they're going to have, they should have a decent earnings opportunity, and if they ever can throw any coarse goal on there, it will be great. The last thing I'm going to talk about, Tudor Gold, the company was in to see us this week. They're up in the golden triangle. You know, they have a great shot at having 20 million ounces. Their holes are so deep. I mean, they got thousand-meter holes that are running, you know, close to a gram an ounce and it's wide open.

So, I'm very excited by the opportunity there. I know the market doesn't even want to pay for those things as we speak. But I think, you know, gold can get a little pop here. We broke out yesterday. We broke out yesterday for a nanosecond and then it came back down again. But I suspect we're going to break out again here, and of course it'll bring the interest back into these forward-looking stocks where, you know, you have to position yourself for something that's going to happen in a couple of years, so, all good on the Western front.

Craig: To that end too, Eric, let's just look ahead before we wrap up. On my side, I've been talking a lot about, you know, price hangs in here, God forbid, moves higher in the first quarter. And we start getting into now fourth-quarter earnings for all these producers. You know, they had, you know, blow out, five times numbers for the third quarter. They do it again here in the fourth quarter. Do you think that'd be about the point where the generalists really start to take notice of the sector, you know, and the prices and all that?

Eric: Well, we know that somebody is taking notice of it because the silver stocks look like they're breaking out. The gold stocks look like they're breaking out. Notwithstanding the fact that gold has kind of been languishing around here. I mean, yes, it's had a little bit of an up move in the last couple of weeks, but it looks like people are coming into the gold story. I mean, the fact that Goldman writes this big long report on gold and others have come out with very positive views on gold. The fact that, you know, as time progresses, we realize the fallacy of the belief in central bank creativity or power in the market. I mean, it just, it's not working and yet they're just printing like crazy, and the government's spending like crazy, and a lot of people know there's all sorts of fake stuff and fake news and fake this and fake that. And, you know, what's the one thing that's for real is like an ounce of gold in your hand. So, I think we're winning them over, and obviously we're winning over the big guys if they're buying 500 tons a year here. So, I know most of us can't buy a ton of gold, but we can buy some gold and it will save us.

Craig: It all adds up. It all adds up. All right. Now, look, before we go, I want to point out something, tell everybody about something that Eric and I are going to do next week. And every week we get a list of names. We try to go through as many as we can. Like for example, this week we had people wanting to know about companies like Wesdome, and Japan Gold, and Dinosaur [SP], McDonald mines. I mean, it was another lengthy list. We can't get to those today, but what we're going to do, because we get these lists every week, is, next week, Eric and I will record for the Sprott Ask The Expert segment. If you're a regular listener, you know that's something we do every month where even like last month we had Brent Cook come in from Exploration Insights. The month before that we had Nomi Prins.

These are all linked at the Sprott Money page. You can find that under the insights tab in the navigation bar. Well, all right. So anyway, next week Eric and I are going to record Ask The Expert with Eric Sprott where we will endeavor at least to get through all of the names that folks have sent us these past couple of weeks and that might send us in the next week. So, if you've got a name that you want us to at least acknowledge, whether Eric knows anything about it or not, we'll give it a run next week. You can send them to us at submissions, the word submissions@sprottmoney.com. You can tweet them at us at Sprott Money as well. And like I said, we'll try to get as many as we can. Next week, when we record, we'll probably have that posted for you by sometime late next week. So, with that, please feel free to send us whatever you'd like and we'll take a look. Eric, in the meantime, gosh, we've already been at this for nearly 20 minutes. I suppose we should wrap up.

Eric: We're about there. I think we covered it off pretty good. And lots of hopeful things that are all transpiring and should be fun for next week.

Craig: It should be fun for next week. All right. Well, thank you, my friend. Have a great weekend.

Eric: You too, Craig. Bye.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. We'll talk to you again next week.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.