How Could COVID and a Stimulus Package Affect Precious Metals?
Sean Brazney: Hello my name is Sean Brazney, Sales Director for Monex Deposit Company. I’m here with Jeffrey Christian, Managing Partner and Founder of CPM Group and one of the many amazing analysts within the CPM Group of analysts. Jeffrey is the Author of our A New Decade for Precious Metals Investing Report and he’s joined us today. Thank you very much for your time and being with us today Jeffrey.
Jeffrey Christian: It’s always a pleasure to be with Monex and to be with you personally Sean.
Sean Brazney: You know, we started off this year with our new report, A New Decade for Precious Metals Investing. Boy, what a new decade it’s started out to be. You know, we came into this year kind of on the heels of last year with a lot of hope for the precious metals, because in June of last year we saw the big banks capitulate from a tightening, somewhat of an idea within their strategy, and then in June after the Fed policy statement of taking the word patience out, we saw them really flip to be very accommodative and start to call for three rate decreases, you know moving forward. We are kind of riding on the heels of that coming into 2020. Of course, February and March and COVID hit. So, we’re coming into this new decade and you know, we want to keep this in perspective, when it comes to how much stimulus was put into the economy going back to 2008, and this stimulus accommodative policy started to come into place, lasted until right into 2018, we were able to balloon the Fed balance sheet up to about $4.5 trillion. Then over about a two-year period, the Fed started going into what was called quantitative tightening, which you were very instrumental in helping us to understand, and they were reducing the Fed balance sheet really creating a cry for dollars and liquidity in the market place. Of course, they have been very accommodative since then, but to balloon it up to $4.5 trillion in over two-year time frame and only to be able to get that down to just under $4 trillion, then coming into 2020 with COVID. What has… how much more stimulus has been added to the economy since COVID in March?
Jeffrey Christian: The Feds balance sheet has probably doubled since February or so. Looking at M1, narrow money supply, there’s about $4 trillion dollars in February and now it’s $6.2 trillion. So, we’ve increased the narrow money supply more than 50% during the COVID pandemic and the economic lockdown, and we’ve pumped, as I’ve said you know, probably $4 trillion dollars more into the economy through the Fed buying treasuries and printing dollars to pay for them with really not that much. I guess you could actually say that we have gotten a return on that investment in that we’re not in a great depression.
Sean Brazney: But we’re not really out of the woods yet. There’s still talk of another $900 billion that they seem to be… it’s seems to be off the table again… on the table, off the table. The precious metals do tend to react fairly well when there seems to be a stimulus package getting ready to go through, but this $900 billion is… if they do… do it, there’s more to come isn’t there?
Jeffrey Christian: Yeah, you know the estimate… and I do believe the $900 billion will get passed and it will probably get passed this month, because it’s desperately needed, but the $900 billion economists estimate will only get us… cover us really into March or April. So, the Biden people have said, you know, we’re willing to accept this $900 billion deal now, because our assumption is that it’ll be followed by further stimulus packages in the second quarter and going forward, until we get out of this economic quagmire that we’re in. So, $900 billion really doesn’t solve the problem, it only helps keep businesses afloat and people eating until March or April. So, there’s going to be more, there has to be more, unless the powers that be decide that they really want to accept the depression, and they don’t, because the political consequences of the depression are pretty severe for politicians.
Sean Brazney: Coming in to the end of this year and looking forward into next year, a new Administration stepping in place, what do you think the new Administration is going to mean for the market?
Jeffrey Christian: I think there’s a lot of political rhetoric, which has nothing to do with the reality. The reality is that the Democrats that are coming into power, you know Joseph Biden and Nancy Pelosi, these are career politicians and they’re part of the same corporate democratic and republican system that has really ruled the country since World War II and has been behind a lot of the fiscal and political problems that we’re trying to wrestle with now. Our view has been for years, that there’s these major issues that need to be resolved and they keep getting compounded and go unresolved and every time you get into a crisis, 2000, 2008, now 2020, you have a worse base on which you’re working. So, you have a new wave of problems that come in and you have these long-term structural issues that haven’t been fixed that make dealing with the recession, the cyclical recession, that much more difficult. I think that looking at the new administration, it’s really going to be basically more of the same. Hopefully, we’ll have less vitriol and dishonesty, but we’re still going to have a tremendous amount of vitriol and dishonesty in Washington, because that’s what Washington is composed of these days.
Sean Brazney: There’s a lot of talk about lockdowns. Here in California, they’re starting the hard lockdowns again, especially LA, but they have been a little bit more… I want to say… they’ve taken a different course of action. It’s not as hard of a lockdown on everything. They are letting some things operate, a little bit more than they were in March, but the lockdown conversation is happening again. As we look out over a national level, if that starts to happen, there’s a lot of talk from the investors about another March liquidation event. Do you see that has potential and if it does happen, do you think it will be as severe as it was in March?
Jeffrey Christian: I don’t see a lockdown precipitating another liquidation the way we saw in March. I think that we’re much more well aware of what’s coming, and we’re much more prepared for it, and we have a tremendous amount of cash that’s been pumped into the system since March that probably will preclude that. You could see some other things cause some waves of anxiety among investors. You could well see some serious downward drafts in the stock market from time to time as financial markets react negatively to developments in Washington, but I don’t think that we’ll see the kind of liquidation across assets that we saw in March, simply because the financial markets. We’re aware of this. We’re aware of what happened in March and we had this enormous increase in liquidity so we’re better prepared, plus we’ve already liquidated a lot of those bad assets.
Sean Brazney: Jeffrey, thank you for being with us today. Your insight and information are always extremely valuable to us and our listeners and our viewers. We look forward to the sun setting on this last chapter of 2020 and a new relationship moving forward into 2021 with CPM Group.