Latest / Financial Survival Network / You Don't Want to Miss this Urgent Credit Bust Update with Bob Hoye #5833

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You Don't Want to Miss this Urgent Credit Bust Update with Bob Hoye #5833 · Financial Survival Network

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And yet the FED it can act because to be following short rates down,
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so the TB rate can get down to zero again and the FED will follow
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with it. FED rate cuts down to you know, whatever they get to.
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than ever, and welcome. You are listening to the Financial Survival Network.
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I'm your host Carry Letts Special treat Bob Hoy, economic historian extraordinaire is with
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us today to explain the Credit Bust, where it's heading, where we're going,
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and put it in historical perspective as well. Bob, it's always great
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to have you on so the Credit Bust. Thanks very great kind introduction,
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and really without having financial history, it's very difficult to put this incredible financial
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violence in perspective. And on top of that you've got the COVID shutdown which
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was enormous and reached through a scut into things. So but within it all.
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You know, my team carried it. A great financial bubble has been
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accomplished. And you can compare this to nineteen twenty nine and on the way
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up and with the crescendo, or eighteen seventy three was a bubble year,
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a major bubble completed in eighteen twenty five, and then before that seventeen to
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every turn you go back to the first bubble to south Sea bubble in seventeen
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twenty. So in researching these decades ago, I've found that there was some
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very common items as these fantastic bubbles completed, and one of them was in
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the final year of the fury, gold's real price would go down, so
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gold stocks then became underperformers as new things were celebrated. Even in the seventeen
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twenty bubble, new concepts were celebrated, and then another one and some of
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the later bubbles where you can get the price of copper, copper's real price
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goes up in the final year or so the bubble, which it did this
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time, and that also represents base metals and other commodities, and then leeds
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reverse, so you have gold's real price from going down, which was appropriate,
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it is now going up, and you've also had a hell of a
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whack to copper's real price right now. Another one of the identifying features of
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post bubble contraction is that real long interest rates go up. Hey have interest
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rates gone up? Yeah? And then the really really sneaky one is that
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the senior currency becomes chronically firm. That's against most other currencies and most commodities.
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And this has also been the case. But where the financial markets.
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The stock market blew out in January twenty twenty two and you had a mighty
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whack to both stocks and bonds. And then for this this year, you've
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out of the major hit to the markets. In October, we've had a
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very good, even say outstanding counter trend rally. And this is not like
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the first year after the peak of a bubble. There should be more contraction
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in it. But this is where we get back to when the authorities did
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they lockdown, which was unprecedented. You've got many people around the world trying
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to get back to normal, and then in the US and Canada that's really
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making the employment numbers look good. But that is artificial rebound from the artificial
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hit with the COVID. But so we're going to stay with our four key
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items, and they're saying we are in the direction of a contraction. And
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more recent business cycle research is that I've got the yield curve, which is
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the difference training short rates and long rates. I've got the curve in charts
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all the way back to eighteen fifty seven, and there is a two very
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distinctive rules. If the curve inverts, you get a recession. And the
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curve did invert. The other rule is that it certainly did. It certainly
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did. And then the other subset to that is that if the market forces
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are fairly intense at with the inversion, the more intense the action, the
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more severe the subsequent contraction. And I just sort of jokingly say, wow,
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maybe it was about a three quarters in intense. But it's both are
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effective and what one is what we're watching for now is in the fall.
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After all, what we figured that that they counter trend recovery out of the
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last falls hit could be in place through to mid year. You know,
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it's selling May and go away. I mean it's the seasonal thing. Now.
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Where we make the seasonal thing effective is that on the leading items then
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ASDAC and you know the six or seven supremely hot starts. Well, they're
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generating technical excesses on the upside. And we've got two measures on this.
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The one is upside exhaustions, which we're getting, and that's based upon momentum,
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and then the other it's based on some other researchers work and it gives
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sequential selves and that's based upon pattern. So if we're getting both so at
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at about the right time. So our game has been as that whatever it
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gets to in the summer, and it would be wonderful if you got technical
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excesses, which we've got. Now, without the technical excesses, Kerry,
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you'd expect the trend to continue. But we got the technical successes. So
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that with the yield curve and other things, suggests that after August the financial
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markets can get into perhaps another phase of distress. Are the streets kind of
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anxious about the Fed raising interest rates? And I always enjoy pointing out that
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the Fed actually is following the natural rise in my market rates. And you
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can do that through the three month bill or the six month bill, and
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then once they high in the let's use the six month bill is reached and
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it rolls over and starts to decline that will suggest that the party is about
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to fail, and then that would be followed by the FED cutting rates.
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But you know, I saw one the other day that, oh, when
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the FED starts to cut rates, everything will be fine. And I had
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a collector's item on that one in September two thousand and seven and used it
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in our letters, and it was essentially the same notion that after the distress
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of the FED raising rates, they would soon cut rates and all would be
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well. Now, this is just plain intuitive. If you looked at the
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charts carry every boom, the interest rate, short rates go up, and
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when the boom is over, short rates go down. And indeed when the
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short rates are really falling is during the worst part of the hit. But
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spokesmen in Wall Street over the next month they'll be saying, Yeah, the
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Fed's going to cut and the all will be well. And yes, the
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FED is going to cut because they'll be following short rates down, so the
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TB rate can get down towards zero again, and the FED will follow with
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its FED rate cuts down to know, whatever they get to, but it
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won't be igniting a boom. It'll be the consequence of a consumption. So
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here we are, and the FED has been the most reckless in its history,
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again prompted by exceptional circumstances, COVID and all that sort of stuff.
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But the only thing the FED knows is to increase our currency and credit.
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It can't do anything else. That's all it knows. So they and of
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course the tout on the FED is at this goes back before the FED was
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formed. The powers that be in the financial feder in New York and in
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Washington, DC, they all knew that when you had a financial crisis,
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it was followed by a recession. So they then came up with the theory
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that with the FED as lender of lost resort and they would trim the possibility
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of the financial crisis and there would be no recessions. Well, there's been
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eighteen cyclical recessions since the FED opened its doors for business in January nineteen fourteen.
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It only needed one of those to disprove the theory. But the belief
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continues. And then on this next one, post bubble contractions can be extremely
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nasty, and the folks you're going to look at the Federal Reserve and say,
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you spent trillions of our dollars trying to prevent bad things from happening,
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and that's really nasty. So I see the federal reserve system being reformed,
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and the reform would be putting them back on a gold standard. It doesn't
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prevent recklessness, but it limits their ambition. So that's quite a statement.
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Hey, going back to a gold standard? What are the odds? What
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are the odds really inevitable? When? Yeah, the pubblic is going to
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reform intruive government. That's the last intuition government has been a reckless central banking.
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Yeah, that's the greatest power they have is the power to print,
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entity, to tie and all that stuff. But here's a question. The
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obviously the dollar has been strong, does it keep being strong because everybody just
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goes to it because the Euro and the Yuan and all that good stuff and
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every other currency is going down the drain, and then the dollar is the
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last thing to go. Yeah. Well, I've trying to explain it,
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and I think what to me? The best explanation has been that during the
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financial bubble, it's not just equities. Equities gets all the media, but
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you have a huge bubble in assets. Most of the debt is written in
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or under written in the financial center, which is New York and do and
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payable in US dollars. Right, So the whole debt bubble itself is a
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short position of dollars and then eventually gets to the point, whether it's a
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country debt or a corporate debt, each an institution has to sell something in
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order to get their hands on a dollar to meet their obligations in New York.
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So there's another thing that also puts a bid in for the senior currency,
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and that is in a financial storm, they really careful, money goes
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to the most liquid items, and that today is shorter than one year US
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treasuries, and that then puts a bid in for the dollar. And the
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other liquid item is gold, and that puts a bid in their gold.
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So overall over the next year, I don't see much change in the dollar
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price to gold. Okay, So next look at China, all right,
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you think we have a bubble, You think we have a bubble? What's
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going on there? I mean, every single asset class they printed up way
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more money than even the United States. Every bank in the entire countries insolvent.
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Then you got the demographic collapse where their population the first time ever is
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going down due to a number of factors we don't need to get into,
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but among them the one child policy. Now they're begging people, please breed,
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please breed, and nobody wants to. They can't afford it. Their
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real estate market way more inflated than ours because in Ponzi esque where people are
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taking out mortgages to pay for properties that aren't even yet built, and they
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put our definition of a bubble to shame. So how much worse is it
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going to be in China? Well, they've got all of hundreds of empty
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apartment towers. They're starting to tear them down. But I think it was
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two thousand and six when Jim Granted Industry invited put together a triffic study real
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estate in Manhattan after nineteen t nine, and he used the Excelsior Life building.
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And the nub of it is that the equity holders went broke and those
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providing the mortgage went broke. Then there'd be a new set of equity holders
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and mortgage people, and they kept going broke until the nineteen fifties, when
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then it finally washed out. And whoever took over the Excelsior Life in the
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nineteen fifties, what draps on side by in about nineteen sixties. So that's
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real estate in Manhattan, and it would represent real estate in many of the
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larger large cities and stuff like that. So the real estate is a feature
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of a post bubble world. It's actually worse in China because they got these
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Tofu drek buildings they called Tofu drag and these buildings are they aren't even built,
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they're falling apart. So you see YouTube video after YouTube video whole blocks
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of apartment houses literally collapsing, and it's it's down the un and then maintain
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they fall apart and even then and of course we've got the the example of
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downtown San Francisco where local governments and the state government have made one of the
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finest cities in the world on livable downtown. Ye and you've got property empty,
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empty office and no hotels and stuff there. It's a disaster, yep.
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But it's all part of a post bubble contraction. And also, you
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know, daily peaking last summer was that they were going to be shortages of
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everything forever, and inflation was back on and all of that stuff, and
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they yeah, there's been in a huge jump in grocery prices is the latest
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problem in gasoline and stuff like that. But I suggest that that will stop.
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And you've had pressures on commodity prices. And let's take one that we
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worked over in in November, which was the lithium. Like everyone, everyone
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loves lissium. Right in the middle of November, the high for lithium was
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six hundred thousand, and then it crashed down to about two hundred thousand,
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and now it's rebounded maybe two hundred and fifty thousand. It's been a few
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days since I looked at it, but that's a mighty crash in a commodity
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that was highly promoted. And so they and then as I say, after
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all, most ordinary commodities UNI you're base metals, oh, grain to maybe
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okay, there's some technical work that rosted on each individual grain they other day
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that could be okay, But generally commodity prices will weaken seriously after August.
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So and again that's part of the senior currency becoming further because the world is
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shot the dollars. Yeah, it's going to be interesting and it's going to
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seriously tarnish the theories about economic intervention and central and interventional central banks and all
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that sort of stuff, and they say, I think the Federal Reserve is
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going to be forced to go to gold convertibility. Yeah, well before,
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So what will that do to the dollars? After the after the after the
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eighteen sixties, a huge commodity eighteen I guess, I think the highway of
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the eighteen sixty four and then you had the financial bubble that blew out in
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eighteen seventy three, and then the contraction started, but the inflation was huge
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because of printing green backs, and then President Grant just issued an instruction that
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no more greenbacks will be printed and they will be redeemable for gold at a
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certain date I think that was in eighteen seventy eight. And going into this,
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the street was fearful, oh, there wouldn't be enough gold. But
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on the first few trading days of the being you know, you could redeem
19:37
your dollars for gold. There was more dollars went out and gold came in
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because again it's more convenient two years of bay currency note than the walk around
19:48
where your pockets full of gold. So we've been here before. And then
19:56
then the US was back on a gold standard, and also there were period
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in England where in seventeen ninety seven with the threats of Napoleon, the French
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Revolution and then the Napoleonic era, and the Bank of England went off of
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gold and they went back on in eighteen nineteen, and then you know,
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maintain the gold convertibility, I guess until about ninety thirty one or thirty two
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in there. So I it's the answer, and it's it's the goal.
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Convertibility is not perfect, but it's the best. It is the best tool
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you can use out there to limit the ambition of central bankers. And these
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central bankers, of course delight in explaining and hating the gold standard because it
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curbs their ability to act, and the acting in their mind is managing the
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economy. But the problem is they see danger around every car and inflate all
21:00
of the time, and then natural when you get the currency, the depreciation.
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So the point of a gold standard, the point of a non gold
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standard, is so the Federal Reserve can manage the economy, which has been
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clearly a failure. So the point of the gold standard is to manage the
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ambition the central bankers, and I'm looking forward to it. Can't happen soon
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enough, Bob. So getting back, what does the price of gold go
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up to if they have to, if they have no other choice but to
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revert to a gold standard, whatever, whatever the market's training at. On
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the day that it's you, it's you're back into a gold standard. The
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market will know what price it is and it'll be there and that'll end.
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The point is you don't have to have a dollars worth the gold backing every
21:52
dollars or the currency out there. You just have to have the full faith
21:56
and conviction of the Treasury that it will be meet all demands for conversion.
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So it happens. It's hard to explain, but so with no price change
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or very little price change in gold in US dollars, how can I be
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so bullish on gold stocks? And this gets us to the real price of
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gold where you take gold and deflated by the consumer price index or even better
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the commodity and next the CRB. And because it reflects the basic costs of
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mining, so if you've got the CRB falling relative to the bullion price,
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your costs are falling relative to the bullion price. And this gets even clearer
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when you focus on crude oil. So we took the price of gold and
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deflated it by crude oil. And since the last year it's up something like
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sixty percent. So if you're a gold miner running at a constant rate of
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production, those costs should be falling. And let's look at those costs of
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mining. About sixty percent of mining costs or energy related. You know,
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you've got diesel, huge diesel trucks and excavators, and you've got drills and
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underground drills, and then you've got the costs of running a mill and all
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and even blasting agents relate to hydrocarbons, so it all comes down to crude
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oil. So in my case, with crude oil falling about sixty percent relative
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to gold, existing gold miners should be making money out of that just because
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their margins are improving. Now, this has been the feature of every post
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bubble contraction. Gold real price goes up as the costs go down, making
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it, so to speak, the only game in town. This I will
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also feed off into expiration bets because the improving profitability of gold mining also factors
24:11
into a geological engineer's calculation of the rate of return of a newly discovered gold
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deposit. So it affects the expiration as well. So I'm very bullish long
24:26
term on the gold sector, and within that there will be some expiration stocks
24:33
that will be of a world scale where the whole world will be playing these
24:38
gold discovery stocks and that'll be a fun time. Now, also, this
24:45
doesn't necessarily mean good news for the silver stocks. So I know that every
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year the summer bugs go crazy because there's always these obvious shortages and silver.
24:55
But that doesn't work because underneath it all the ratio between gold and silver can
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I've called it the metallic credit spread. So in a boom, the ratio
25:07
between gold and silver, it goes down, and then in a bus it
25:11
goes up where silver underperforms gold. And this then is another feature of a
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post bubble contraction is the silver falls were relative to gold, and that makes
25:25
them many of the silver stocks potentially poorer players than a really good equivalent gold
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story. So the silver stocks will be more in the background and the main
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play will be in everything gold, from the senior stocks right down to exploration
25:48
juniors. So right, okay, which is the field I really like?
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I got my start. I had summer jobs in the field when I was
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taking geology and two of those summers who was working with for at Junior Goal
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at Junior Exploration Company, So they paid me to go to school. Nice
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nice hey, so to speak. And I've always I've always had a regard
26:18
for exploration stock since and they've also had a few very very good ones turn
26:26
out, you know, big ones and huge games, wonderful stuff. So
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is new moth to play? Here? Is barracks to play? Uh a
26:37
Nico Eagle? Or do we uh? Do we go for? For the
26:42
juniors as well? Do you how do you allocate for? Yeah? For
26:48
for you know, retail accounts. They should be looking at some of these
26:53
small cap gold stocks. We've got a list of about twelve, so anybody's
26:57
interested, they can get in touch with us or through you and we'll be
27:03
pleased. And the list is that we keep it up to date and we
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put charts on it from time to time, and the lists granges from small
27:11
cap producers, small cap preproduction, and small cap exploration bets. So it
27:18
kind of covers the picture now. And it was nineteen ninety five I think
27:23
when I got I got the aerage to think, oh, I think we're
27:29
going into an exploration market. For the gold stocks. So I checked with
27:33
a few of the guys who were actually managing gold funds, and I got
27:37
a list of five junior stocks, and one of them was Eric CLiPPA,
27:44
and it went from the pennies to thirty dollars. And you only need one
27:48
of those, don't you. And I can't remember even the names of the
27:52
others, but they started generally went up. So if you're sitting there as
27:59
an account interested in getting good exposure to the golds, you know a dozen
28:03
of these small caps, and the worst that can happen is is boredom in
28:08
one or two of them, and most of them will likely go up in
28:12
the next advance in gold stocks, and if you're on an exploration one,
28:18
you could have some big excitement. Now here's the next part of the story.
28:22
Is that on the rallies, the gold stocks will likely outperform the SMP.
28:30
So you're going to have the GDXJ outperforming S ANDP. Now you've got
28:34
gold. You've got equity fund managers out there who may normally not play in
28:41
the golds, but if they look at a couple of quarters for that sector
28:45
out performing the SMP, they're gonna have to get in to the hot items
28:52
and that will happen. So you're going to go into a world where institutional
28:59
money that would not normally play the gold we'll get in because the outperformance.
29:06
And I'm looking forward to that one. All right, all right, well
29:10
this is interesting. Oh so Bob, just send me that list. We
29:14
will republish it with your permission to all of our subscribers out there, and
29:19
it's gonna be interesting times. I think what you're describing, although you're not
29:23
saying it out right, is it's really going to be chaos out there.
29:26
We're going to have zillions of bankruptcies, planetary bankruptcies all over the place,
29:33
and all these people that have got to pay back their debts and dollars are
29:37
going to default, and so we're going to have massive deflation effectively that they'll
29:45
try to resolve with inflation because that's the only thing they can do. Right.
29:49
Yeah, but mister margin, get the sectral banquet. Every done.
29:56
So the contraction will be theorious. And the key thing is the is the
30:03
price of or the cost of mining gold go down, and they go down
30:08
substantially. I can give you a specific example, and that was Homesteak and
30:15
you could bought the stock in nineteen thirty thirty one for about nine dollars a
30:19
share, and they were mining gold at a constant rate price. The gold
30:23
was fixed at twenty dollars and sixty seven cents announced, and at the end
30:27
of nineteen thirty two, when the SMP had taken such an enormous hit,
30:34
Homesteak was up. The stock was up something like one hundred and thirty percent,
30:38
and their earnings were up something like one hundred and thirty percent with no
30:45
change. Gold was still at twenty sixty seven announced, but because their costs
30:51
had dropped seriously. Of course, I mentioned to the end of nineteen thirty
30:56
two, because it was March nineteen thirty three when Roosevelt then start messing around
31:02
with the gold price, and he ended up with it at thirty five announce
31:06
and that then enhanced that the real price was up, and so the government
31:11
got involved and helped the real price, so that Homesteak stock eventually went to
31:17
sixty five dollars on your original nine dollars purchase, and more than that.
31:22
In those days, gold miners paid out everything by way a dividend, and
31:27
it was paying four dollars to share dividend in the mid nineteen thirties on a
31:33
nine dollars purchase. Gold mining gets very profitable in a depression. Okay,
31:38
well, never forget that, right, yeah, scare We'll send you that
31:44
our list of juniors all right day. If you want to you got a
31:47
question for Bob, just shoot me an email kl at Terry Lutz dot com.
31:53
We will get you an answer. We're going to get you that gold
31:56
mining list. Promise you that if you want it, just send me an
32:00
email kl at Carylutz dot com and put bob List in the subject line.
32:07
We'll get it right out to you. Bob really appreciate you coming on as
32:10
always, and we will talk to you again real soon. Look forward to
32:15
it the next time for sure. Thanks for listening to carry Lutz's Financial Survival
32:20
Network, your solution to today's trying times. For the latest, go to
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