Don't pay attention to the man behind the curtain
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
I happened to have attended the Silver Institute breakfast event yesterday in Midtown New York City. The event was held at the University Club, quite a nice location. I especially like the fact that there is a dress code, and we don't have people showing up dressed like rubes. This atmosphere automatically garners a type of respect and authority for those in attendance and the presenters. But most importantly for me, these are many of the people I have done business with over my career and enjoy speaking with them albeit only for brief moment, in person.
That being said, Metals Focus gave a very succinct presentation of the silver market and their very forward-looking view of the price for the white metal for the coming year. There will be silver supply deficit for the next few years. Additionally, in their note they mentioned that "the combined shortfalls of the previous two years comfortably offset the cumulative surpluses of the last 11 years". This sounds very bullish for a supply-side analyst. However, they believe the economy is on the mend, the Fed is going to keep rates high and there will be downward pressure. This means investors will likely back out. Bottom-line they are expecting silver to average down to the $21 price level. Honestly, this is not out of scope basis the information they shared. But this premise is on the presumption that all is well.
Incidentally, yesterday while attending the silver briefing, the CEO of Morgan Stanley, James Gorman, the talking head of one of the top ten investment banks stated, "there is no banking crisis." We just went through two significant bank collapses, which were rescued by the FDIC-Federal Deposit Insurance Corporation. It appears to the public that they are not paying for now. But it is only a matter of time, as they are not the only banks in trouble. A close look at the Federal Reserve Balance sheet tells another story. It reminds me of when Fed Chairman Powell was asked if there would be any fallout from the closure of Signature Bank and he responded "No", and a few days later began the collapse of Silicon Valley Bank. This kind of discourse always bring to my mind the famous declaration by the "wizard" in the Wizard of Oz who emphatically stated, "pay no attention to the man behind the curtain!" when Dorothy's dog Toto pulls back a curtain exposing him as a normal man and not a mystical being.
It is interesting to hear in recent Fed speech that they expect to continue to raise rates. The full impact of the original rate hikes has not yet come to fruition. Of course, that is because their concern is the inflation rate, not the people of this country. Taking into account that on Wednesday May 3rd it appears to be likely from their most recent guidance that they will remain hawkish, is to me a sign that we are in for a lot of pain. Pain for people paying debts and pain for the US government which is already servicing astronomical debts. These debts of course the same people are paying. I am not against pain if it is to come out well after having passed through it. Unfortunately, the select few, of which the Fed is designed to protect, will come out well on the other side. This means that the US dollar and other investments may suffer.
On the flipside, we have the US government, an entity that no matter which party governs has been on a spending spree for decades. With the idea that they can continue to print money out of nothing and should spend, spend, and spend more to keep things going it's no wonder some people in congress are beginning to get a little frightened that maybe we have gone over the top. They should be concerned as many countries as possible around the world are working on moving away from the US dollar. This basically means they don't want our debt anymore, after all that is what a greenback is, a promise to pay to the holder.
This brings us to the point I keep returning to time and time again. In a situation where the world is changing. At a much faster pace than ever imagined and where the US government invest in wars that it knows cannot be won just to make the military industry profitable and will likely raise the theft ceiling …. Whoops I meant debt ceiling and thereby kicking the debt can down the road, the rooster will come to crow sometime in the future. One, if possible, needs to protect existing assets through investment in credible alternative hard assets. The best of which are gold, silver, and Bitcoin. Considering what I heard at the Silver Institute and the shortfalls in supply they expect, it has become more interesting than ever particularly to add this white metal to your portfolio.