Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' / Commodities / Gold & Silver 2020
Mike Gleason (Money Metals Exchange): It is my privilege now to interview our good friend, Greg Weldon,CEO and President of Weldon Financial. Greg has decades of market research andtrading experience specializing in the metals and commodity markets and he evenauthored a book back in 2006 titled Gold Trading Boot Camp wherewe accurately predicted the implosion of the U.S. credit market and urgedpeople to buy gold when it was only $550 an ounce. He's made some fantasticcalls over the last few years here on our podcast and it's great to have himback with us.
We did speak to you back at the endof February before all this madness started. At the time, COVID-19 had begunseriously impacting economic activity in global markets, maybe not so much inthe U.S. Now, just two months later, more than 30 million people have filed forunemployment, GDP was deeply negative in the first quarter and figures to beeven worse here in Q2. But the equity markets are acting as if the worst isbehind us. We got a major correction followed by an almost relentless rally.Our take is that equity markets are completely disconnected from reality. Theyare hitched, instead, to the Fed's magic money machine. What is your take onhow stock markets are behaving here, Greg?
Greg Weldon (Weldon Financial): Well, I think you make probably the most singular pointthat needs to be made right here, which is the disconnect between Main Streetand Wall Street, if you will. I think that the great Jim Grant said it asbeautifully, as eloquently and as he is prone to do, as simply as possible whenhe said, "The stock market is mistaking liquidity for solvency." Andthat is dead on; exactly what's happening. You have all this liquidity. Itfinds a home in the stock market. That's what the liquidity is intended to dois to find its way to risk assets that supports the campaign against a debt deflationbecause that's what you're fighting. And so far so good.
But the questions are just so many. Imean, the field is littered with land mines. Thinking we're going to getthrough this field without stepping on one, if not several, is really naïve to me.And I think if I would make two points specific to the economy and the economicside of it… number one, when you look at retail sales, when you look atpersonal consumption expenditures – let’s take personal consumptionexpenditures. You just dumped 1.12 trillion dollars in a single month. You haveanother big month coming because April was the bulk of the closures. Youweren't even closed in Florida in March. So, you're looking at two trilliondollar decline in personal consumption expenditures.
In terms of retail sales, eating anddrinking establishments is always the margin of the discretionary dollar. Ifyou're spending more for gas and food, which you will be... let's not forgetthat, because food has gone up because demand is up and supply is down. It'spretty simple. As we were talking off air, why has food prices gone up? Morebuyers than sellers. Pretty simple. And gasoline is at such a low level withsuch disinvestment in the infrastructure that there's no doubt in my mind,anyway, that gasoline is a steal at 75 cents a gallon in the spot market. Wewere recommending Valero and gosh, they've already broken on me. Valero's up30% from where we bought it three weeks ago.
Food and gasoline prices going up.Consumptions come down. And when you talk about the level of retail sales… ifyou're going to take eating and drinking establishments, the monthly billionsof dollars spent doing that, back to levels seen in 2006. You are wiping out 14years of growth in discretionary spending, eating and drinking establishments.Retail sales, not quite the same degree of decline but you're looking atsomething like 2011/2012 levels. Even there, you're wiping out eight years ofgrowth in retail sales in terms of billions of dollars per month. But whatyou're not doing is decreasing the debt that was created to facilitate all thatbuying because it's been a credit frenzy. That's number one.
Number two is if you look at the Fedsregional surveys, which are a treasure trove of information and usually have aspecial questions segment at the end. The most recent batch of them from lastweek, of course, special questions around COVID and specifically employment.And what we learned is 37.4% of firms do not plan on hiring back all theirworkers. Maybe not a surprise there. What's a surprise is 24.9%, one tenth lessof a quarter, of those job losses are going to be permanent. You're talking,what? 30 million people? Now you're talking nine million people permanentlyunemployed in one fell swoop that are not coming back, not going to get theirjobs.
Again, and when you go back to thefirst quarter Fed survey on household finances, it very specifically showedthat consumers were pretty much to the levels were they start to feel stress inhaving to create more debt. They can't do it. They can't afford it. They don'twant to do it. They are either unwilling or unable to do it. And when you'retalking about the debt obligations ... Credit cards, specifically, but all debtobligations on a monthly basis, $375 billion dollars now. Retail sales now justfell to about $475 billion. Those numbers can't cross. You can't have growthwithout credit. Credit is the lifeblood of this economy and has been. The timeto do the right thing, academically, was 1990. We're 30 years passed that.
The reality is they do what they do,which is print money. The problem is, are they going to save every business,every industry, every person, every household, and every country in the world?I think that's highly unlikely. So, the stock market is very much living onborrowed time, very much running on fumes and we're looking at selling it shortagain. We got short, we got long at the bottom and we rode it almost all theway up to here. Maybe we got out a little early on the long side but if this isa bear market, which I think it is, you're going to want to be more nimble onthe counter trend trades, in this case the long position.
Now we're setting up for the next bigshort. And we see it in a lot of places. We see it in Canada. I see itspecifically in some of the Asian markets. I think there is a reality checkcoming and the liquidity ... If this liquidity goes in the stock market, thestock market comes down, all that liquidity goes poof! Then what? Nine millionpeople unemployed, retail sales down with no real credit dynamic to get themback up. It's a potential worse case scenario.
Mike Gleason: Yeah, it does definitely seem like a fool's rally here.Switching the metals, gold and silver prices also seem disconnected from reality. Gold is performing wellbut we think prices should be higher given the demand we see in the futuresmarkets as well as the huge number of investors standing for delivery in thefutures markets. The disconnect is even bigger when it comes to silver whereprices are actually lower today than they were three months ago. The Fed addsfour trillion dollars in stimulus. The federal deficit is projected to be threetrillion dollars. The economic data is awful and should be driving demand formetals as a safe haven and in fact, demand for physical metal is unprecedentedyet the paper price for the metal isn't reflecting any of this. What giveshere, Greg?
Greg Weldon: Well, you said it. The paper price. And if you take a stepback and be less U.S.-centric, gold is screaming, man, in so many differentcurrencies it's not even funny! Because we do the charts every day. And again,this is where it's at the margin. This is so devastating, what's happening,because you just don't understand. You have such a U.S.-centric view of this... And I don't mean you, I mean us, collectively ... That you just don'trealize this is every country.
Angola. 1.6 million barrels a day ofoil. They're a secondary, but semi-major oil-producing nation. Nigeria, samesituation. You have places like Uzbekistan and Kazakhstan in Eastern Europe.You certainly have the situation going on right now with Malaysia, Indonesia.You can actually even through India and Korea vying to lose some of theirstatus as having been developing over these years. And then South America's amess. South America is a mess. There are several currencies at record lows, theleast of which isn't the Argentinian peso, which is getting crushed. When you lookat gold, in those currencies gold isscreaming. Gold is up multiples just in the one year, three year, five years.This is ongoing, secular bull market in gold.
But the paper is the angle and the paperlinks you back to the dollar. All these things, you think they pop out fourtrillion that the dollar would be lower. But you have to remember, everyone'sdoing the same thing. Printing money. I would say the yield differentials inthe bond market have really started to narrow. And I thought this would breakthe back of the dollar. You need to get below 98 in the dollar index. You havefailed to do that repeatedly here. And most recently, just in the last four,five, six trading sessions, same thing. You got there, you broke the firstlevel of support and you couldn't get through the real key support levels andthe dollar snapped back.
Why is that? It's because all theseother currencies are getting mauled, man. I mean, seriously, South Africanrand, Brazilian real. The list is so long. Turkish lira at a new low againstthe dollar and the euro. Now, that opens a bigger door and I don't know how farwe want to go with our conversation, but Turkey opens the door to Europe. Itdoes so because Spanish banks are on the hook for 100 billion+ euro in badloans to Turkish banks and Turkish companies. France is number two on the hitparade with about 85 billion. So, between them it's almost a quarter of atrillion euro that those two countries are on the hook for. You know thesituation in Spain. You know that the Dutch and Germans are blockingunion-wide, union-paid for support to the southern states; Italy, Portugal andSpain. Spain, last year, for the socialists to ratchet power from Rajoy theyhad to include the Bask and the Catalonian parties, two separatist parties!
I think Europe is a powder keg. Ithink these are some of the reasons why you don't really see gold screamingbecause the dollar's not getting crushed because all these other places, as badas the U.S. is, all these other places are worse and the currencies reflectthat. Gold is rallying in those currencies. Will the dollar go? I think itwill. When it does, gold will be above $2,000 and it probably happens thisyear. It's going to take patience and how this plays out, and how we get fromhere to there, I don't know. I just know we'll get there.
Mike Gleason: Switching back to the Fed here. Since the Fed has assumedan even more massive role in the markets for itself, here. We should talk aboutwhat the central planners will be up to in the months ahead. They havecertainly been able to goose the equity markets, at least for now, with thestimulus they've already announced. Is that "Mission Accomplished"for the Fed? Or will they be likely back with trillions more in future months?
Greg Weldon: Well, that's a good question. I think the answer is yesand no. And no and yes. Let me explain. Yes, they think they're done. Yes, theywant to be done. No, they're absolutely not done. And on the flip side, in termsof how we get to from point A to point B is more pain. This is kind of wherethe stock market plays in because the failure here would be the catalyst forthe Fed to do more. I think there is pressure on the Fed to do more, anyway.What this does, though, is it actually opens the door for the political dynamicto get back in the way, so to speak, because you have the issue over buyingstate municipal date.
What state are you going to buy? Thestates that are in the worst position, like California, Illinois, New York? Theones run by the Democrats who pushed this through? Pelosi already wants anothertrillion dollars just spent on the states. That's not fair. You had Ted Cruz onTV today ... And I hate to get political, but this is going to be a bit of a brouhahaover this. And it's ridiculous that the democrats are basically saying,"We're going to try and use this opportunity," like in the firstpackage. In this case, they want to use it to help pay down California, NewYork and Illinois debt that is not related to the outbreak. You really thoughtthat this wasn't going to come with a moral dilemma because it wasn't banks.No, it comes with a huge moral dilemma. Bigger than any banker's moral dilemmais a politician's moral dilemma and you are staring it right in the face.
That opens the door for uncertaintyto return, in-fighting in the political scene. You get Nancy Pelosi on TV andit's just a nightmare. How does this woman even still hold political office? Idon't even want to go any further with my thoughts on that but seriously. Thepolicies and the ideas that come from this sector of the political universe areinsane. It's just like, print, print, print, spend, spend, spend.
I'll tell you, Mike, this is whereyou're going to need to really pay attention to bond markets because bondmarkets will tell the tale, here. Every countries printing money, essentially,for all intents and purposes. Look at what Japan is doing. The BOJ justannounced a 28 trillion-yen purchase program for household debt. We think theFed can't do that? The Fed can absolutely do that. That's probably where thisgoes. So, when we say, "Wow, how deep can the Fed go?" The Fed is inthe rabbit hole. There's no coming out.
I actually did a piece recently andit's a debt black hole is what it is. We've crossed event horizon. If you knowanything about it, a black hole, once you enter the black hole, you're crossingthe event horizon, you can't get out. You're trapped. There's not even enoughenergy to withdraw light out of a black hole. The situation here is, the worstcase scenario for central bankers is a debt deflation. That's a debt black holewhere everything's consumed and prices of everything go down and it's acomplete inward collapse, if you will. In that sense, have we crossed over theevent horizon and we just don't know it yet? That's what I think. Can theyprint enough money to repair what's going on? They've always done this. Theyalways papered over the issues. I don't know that they have the willpower topotentially print as much as is going to be needed. Can we stomach a Fedbalance sheet of $20 trillion?
I'm not saying that's where they'regoing to go right away or that's the plan. Next stop, 11 to 12, it's almost bydefinition what they already outlined. But if you do the math and you look atthe numbers. Are they going to start buying Zimbabwe and Angolan debt, too?Where does it stop? You're in the rabbit hole. You are not coming out. You arein the black hole. You're not coming out and you're going to use as much energyas you can to try and get out but if it doesn't work, again, that's theworst-case scenario. Ultimately, that will cause them to do whatever it takesto move the dollar.
I wrote about this in the book, whichseems like I need to write another book. It seems so long ago, now, but 2006… Icalled it Monetary Armageddon. It's like in the movies. I think I've said thison your show before. It's like in the movies. You have two guys in the bunkerin the mountain, in the complex, with the things ... They lift the littleprotectors to put their keys in and they have to turn the keys simultaneouslyand press the button and when they do that, they basically vaporize ever pieceof paper of U.S. treasury debt that's ever been printed and just print moremoney to replace it. That's probably where this is headed, longer term, andthat's the day you're going to want to own gold. Big time. By then, you'reprobably already talking about being close to $3,000 an ounce anyway, if nothigher.
Mike Gleason: Yeah, certainly that's where hard assets comes in and itdoes seem like the inflationary bubble is going to be upon us some time soon.Well lastly, Greg, as we close here, any final comments you want to share withour listeners today? Maybe you want to make another call about one of thecommodities or precious metals you think people ought to be paying most closelyattention to here? Or anything else you want to comment on as we begin to wrapup today?
Greg Weldon: You know what? I'm not a crypto currency guy. I think the whole name is fraudulent in the sense thatthese are not currencies. They're not legal tender, so on and so on and so on.But they're commodities and they're ... It's mined like gold and to whateverdegree, there's supply/demand and there's all these little nuances to eachindividual little inner commodity within this commodity and I call it cryptotokens because that's what it is. I like Bitcoin right here. I really do. And Ithink it's interesting to note that Bitcoin versus gold, the ratio is kind ofbumping into the down trend line, it goes all the way back to the peak inBitcoin.
We actually bought it yesterday andtoday for ourselves; for my managed accounts. So, that's one idea I throw outthere. I talked gasoline on your show before. That finally busted out yesterdayand we bought it at 75 cents and it's trading 90 already. I think it goes backto $1.35. If this is redundant, pardon me, but again, you have disinvestment inthis sector as a whole. You don't build new refineries. It's just not somethingthat's done very frequently. There's a lot of regulatory houses you got to gothrough and it takes a lot of money to maintain these things. You got to turnaround from heating oil. It's not quite as bad as it used to be, but it isstill capital-intensive.
And the degree to which you have alack of investment because of green energy, let's not even get into that wholediscussion. But when you discuss that, it's not like everyone's going to stop drivinggasoline-powered cars all at once. First of all, that's all been kind of pushedback on the back burner; electric vehicles. Let alone, the main component ofthe battery is nickel sulfate… mining nickel, mostly in Australia, that's not aclean, green business. So, this whole thing's kind of ludicrous in my opinion.
Having said all that, the point is,it's not like just because people want to go green they're going to stopdriving their cars. And you are in a situation now where any disruption will causea major spike in prices. And once you come out of this and you work down theinventory overhang, which you have. And you have one and it's sizable ingasoline, but it's not going to last because you're not refining gasoline rightnow, either. So, production is way down. It's down like 25% over the year. Someof that's a factor, people can't work.
And I'm actually going to swing thisall the way back around. I'm going to give you another quick point just becauseit's so important I make this point. I forgot to make it earlier. On theeconomics, on the U.S. consumer, on small businesses in the U.S., unemployment,these kinds of things. Even the businesses that come out of this, the Fedsurveys, again, showed the percentage of firm small businesses and self-employedpeople that took advantage of the PPP and whatever the fancy names were for theprograms the government rolled out, but more small businesses tapped lines incredit and took out new loans from the bank or tapped cash reserves. That wasthe highest one; like 38% tapped cash reserves.
The point here is, the virus is notover, number one. Second wave coming for sure, depending on how irresponsiblepeople are about going back out there. But the bigger picture thing is thecushion, the safety net, is gone. If you have another event, you have some kindof bank issue, you have some kind of sovereign debt issue in Europe, you haveJapan blows up... you have any of these things. Emerging markets, commodities,whatever. Any of those other landmines get touched off, small businesses,self-employed, the majority of people, and a lot of bigger businesses have usedtheir cushion to cushion the blow from this viral outbreak. They don't have acushion for a second event. You get a one-two body blow here, the second blowwould potentially be even more devastating. And it won't take much because thisboxer here, the U.S. economy, is fatigued, man, and sucking for air. Sucking,gasping for air. Really sucking wind. And you take another really hard shot tothe ribs from some other event, nobody out there is positioned to dig out ofanother hole.
Mike Gleason: Yeah, very well put. It is a very tenuous situation hereand look forward to continuing to follow it with people like yourself.
Great stuff, as usual, Greg. We reallyappreciate the time. Before we sign off, though, please tell people aboutWeldon Financial, The Gold Guru and then how they can follow you more closely.
Greg Weldon: Yep. Thanks. We run a couple of businesses. It's reallyjust me and my very fantastic, wonderful COO Katelyn Ellis. But just the two ofus. I manage money, so we're CTA, so we do have managed accounts. I have aninstitutional research product called Weldon Live and that's daily and a higherprice goes out to the institutions. It covers everything. Everything. Foreignexchange, fixed income, all the things we talked about today, and has positionsand recommendations and ETFs in the futures markets and the cash markets in allof those sectors… AGs, energy, metals, stock indexes, global E bonds,currencies; the whole nine yards.
And then there's The Gold Guru and itis Gold-Guru.com and we're actually offering a special to your listeners. Allthey have to do is type in the world MIKE for Michael Gleason, the great oratorhere of Money and Metals Exchange. And I highly recommend him to all myfriends. You know, Mike, that I send my friends to you. That's how highly Ithink of you guys and the job you do. Yeah, just type in Mike and we're goingto give 50% off your first month subscription and it's pretty inexpensivecompared to our institutional product, which is five figures and up. The $60 amonth for Gold Guru is a steal. It really is. That's Gold-Guru.com.
Mike Gleason: Yeah, that's fantastic. Right back at you. We reallyappreciate the work you do and everything that you've contributed to thepodcast over the years. Gosh, I'm just thinking about the amount of money thatpeople could be making just listening to your advice here on our podcast. Andobviously, you go a whole lot deeper with your services. So, urge people tocheck that out. It is fantastic stuff for sure.
Greg, it was wonderful speaking toyou. I can't wait to catch up with you again before long. Until then, takecare, my friend.
Greg Weldon: Yes. You, too. And again, MIKE is the bonus code. That'scapital M-I-K-E. All caps. Mike.
Mike Gleason: Greatstuff. Thanks again to Greg Weldon of Weldon Financial. For more information,simply go to Weldon Online where you can sign up for a free trial there. And then be sureto check out Gold-Guru.com. And youheard it right there from Greg. Promo code MIKE and you'll get half off yourfirst month there. That's a fantastic thing to be checking out.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
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