The Grand Prize Winners of the 'Gong Show' Market

A 'gong show' market... A 'Federal Reserve Balance Sheet' ETF would be a sure bet... Gold breaks up first – silver next?... The grand prize winners of the 'gong show' market... A president for life...

It's a 'Gong Show'...

Long before American Idol or David Letterman's late-night "Stupid Pet Tricks" routine came the short-lived, but long-remembered amateur talent show, The Gong Show.

The silly, irreverent hour of midday TV – featuring the likes of regular character Gene Gene the Dancing Machine, Larry the Evil Villain, and a variety of B-list celebrity judges – only aired on NBC for two seasons in the late 1970s (and in syndication for a few years after that), but the phrase "gong show" has forever stuck in the American vernacular.

It's because the concept was straightforward and entertaining... Judges would literally bang a giant gong to cut short bad, cringe-worthy performances. And of course, there were plenty... It was literally an amateur hour.

Today, I (Corey McLaughlin) wish the sets of most cable TV news shows and political debate stages had a gong that the moderator would ring whenever anyone said something suspect.

Silver Stock Analyst associate editor Garrett Goggin also used the analogy recently about today's market...

As he wrote to Silver Stock Analyst subscribers last month...

Common vernacular defines a "gong show" as an "initially serious event that went completely out of control."

And thanks to the Federal Reserve, that definition now perfectly fits the U.S. stock market. It is an accident waiting to happen.

Garrett went on to say that, if it existed, one of the surest bets in the market would be going long on a "Federal Reserve Balance Sheet" exchange-traded fund ("ETF").

The Fed's balance sheet – covering all the assets that the central bank is responsible for – has ballooned from $595 billion at the end of 1999 to about $7.2 trillion today. That's 12 times higher... and it has been almost exclusively a one-way road.

Except for a brief period in 2018 and early 2019 (which led to stock market volatility), the Fed's balance sheet has gone in one direction... up. And that's from what is supposedly the lender of last resort. So we really must be out of options.

Most recently, over the past few months, the central bank has added tools to its repertoire – like buying ETFs and bonds – to keep the credit markets functioning as if there were not a once-in-a-generation pandemic happening.

And right or wrong, stocks have grown to even greater valuations as a result.

Over the long run, when the world's largest central bank goes "blank check" on us once a crisis, it literally means a lot of new money is created from nothing... and all that money will eventually end up elsewhere.

In more technical terms, this is 'money supply'...

This is all the money in the system... And economists have broken the number down into categories. Stansberry NewsWire editor C. Scott Garliss recently shared information about this topic with his readers...

M1, for instance, includes money in the hands of the public – funds that you or I have in our bank accounts or cash that can be easily converted into other things.

And as Scott showed with the following chart, this number has recently gone vertical to more than $5 trillion. It was at "only" $1.5 trillion as recently as 2009...

As Scott puts it...

The Fed is pumping the system full of credit to make sure the financial system remains liquid. It's essentially putting the money supply on steroids.

In other words, something that was once serious has become a Gong Show. And this one, starring Fed Chairman Jerome Powell and his 16 partners, has already run much longer than the original TV show... and doesn't look like it will get canceled anytime soon.

As we've said in the past, this behavior means the U.S. dollar ultimately becomes less valuable...

This transition takes longer to play out than short-term 40% rallies in stocks, but the cascade of effects has happened time and time again. As we said in the April 27 Digest...

It happened after the U.S. went off the gold standard in 1971... It happened again from 2001 to 2004 after the dot-com bubble burst... And it happened yet again after the financial crisis, when the Fed used bazookas that don't even compare to the trillion-dollar ones they've used this time around...

"It" means, in the plainest English, that "stores of value" like gold, silver, or other hard assets like real estate or even art – which have been around for thousands of years and don't rise in supply nearly as fast as the Fed can print digital dollars – can see their relative values skyrocket.

For this reason, Garrett and Gold Stock Analyst editor John Doody believe a "reset" in gold and silver prices is ahead. The last time it happened, both precious metals surged more than 20 times in value over 10 years. John and Garrett believe meteoric rises are ahead once again...

And that's especially so when market conditions are pointing investors away from other traditional "safe" assets like bonds. With rock-bottom Fed-induced interest rates, investors don't find any good reason to be invested in U.S. Treasury bonds or other low-yielding assets that they normally would. As Garrett put it in Silver Stock Analyst...

Bonds could be a horrible investment when inflation rises if the Fed is forced to keep real rates (nominal interest rates minus inflation) low to ease the debt burden.

This environment should also push many investors into stocks, despite the even more distorted valuations of the stock market today... as True Wealth editor Dr. Steve Sjuggerud explained in yesterday's Digest. The idea is that "there is no alternative."

But in fact, we could consider some longer-run alternatives...

For instance, John said back in April that the traditional "safe haven" of gold – where he has made his life's work – would likely double to more than $3,000 per ounce once all the Fed's crisis stimulus makes its way through the financial system.

That thesis is right on track... as we wrote in the June 24 Digest, when the price of gold hit $1,760 an ounce, a level not seen since 2012.

This week, the price of gold took out another important marker...

It crossed $1,800 per ounce – something it hasn't done since 2011 – on the same day that news trickled out about a potential next round of trillion-dollar-ish federal stimulus.

Now, we're not saying to throw your entire portfolio into gold today – though if you ask John, that's precisely what he does himself. But we do recommend that gold make up at least part of your portfolio...

Many of our editors have long called gold a "chaos hedge" and suggested keeping a small percentage of your portfolio in gold for the very reasons we're seeing today.

John, in particular, recommends investing in the stocks of high-quality gold companies, the ones with values that can rise exponentially during times like these. You see, the higher the price of gold goes... the more money they make.

And now, silver – traditionally a more volatile (both up and down) precious metal compared with gold – is following the same path.

A breakout might be coming in silver, too...

Mark Putrino of our NewsWire team shared this chart yesterday, showing the price of silver trading above an important "resistance" line – a mark of demand – at $18.75 per ounce...

This behavior aligns perfectly with Garrett's "Gong Show" thesis. As Garrett told Silver Stock Analyst subscribers last month, based on his analysis...

Silver's fair value today is $27.31 an ounce based on a gold price of $1,731 an ounce.

Don't forget, the gold price is also likely to surge from the stimulus. As gold rises, silver's fair value will climb.

For all these reasons, we urge you to at least consider adding gold and silver exposure to your portfolio today, based on your investing goals and risk appetite.

In Gong Show terms, these investments could be the grand prize winners in the years ahead if you're looking to preserve and grow your wealth in today's yield-starved times.

And we haven't found many better folks to guide you through the opportunities and the process than Garrett and John...

For more information on a subscription to our Silver Stock Analyst service, click here. And if you'd like to learn more about John's Gold Stock Analyst, you can do so right here.

How to make yourself president for life...

Switching gears to a macro geopolitical dynamic worth watching, we have another dispatch this week from international editor Kim Iskyan. He'll wrap up today's Digest with an analysis of Russia's recent "election"...

Unlike the 300 million people around the world who have lost their jobs in the pandemic, Russian President Vladimir Putin isn't worrying. Last week, he had his employment contract renewed for another 16 years.

As I (Kim Iskyan) wrote back in January, Putin replaced his prime minister and proposed changes to the country's constitution that would let him stay in power past the end of his current presidential term in 2024... through 2036, when he would be well into his 80s.

A referendum on the measures, which was postponed from April because of the coronavirus and held over the course of a week, officially passed with 79% of voter approval. But the results aren't exactly legitimate, as the Economist explained recently...

That share [of "yes" votes], pre-scripted in the Kremlin, has circulated in the media since February and was publicized before polling stations closed. How many actually turned up and/or how they voted is much harder to establish... And according to a recent opinion poll, only 25% of the population favors Mr. Putin staying in power – not that they had a chance to express that.

Only one of Russia's 85 voting regions – a sparsely populated area in the Arctic Circle, known mainly for its reindeer – voted "nyet" to the measure.

An independent researcher in Russia says up to 22 million votes may be fraudulent...

Add this to the list of "unprecedented" things seen in 2020.

Prominent physicist Sergei Shpilkin published statistical evidence recently of widespread voter fraud. The independent Moscow Times reports that the scientist said...

There was no manipulation of votes in Russia's elections on this scale in the recent past. In absolute terms, this is an unprecedented case.

Ballot boxes were set up in public places like fields and parks, making it easy for people to vote but also for fraud by government actors.

Anyway, the number of voters in favor didn't matter – Russia's rubber-stamp parliament and regional legislatures ratified the amendments weeks ago.

So why bother with a bogus referendum at all, especially during a pandemic?

Well, Putin's popularity recently hit an all-time low, at 59%. (Although, that's relatively sky-high by most standards... U.S. President Donald Trump's highest approval rating has been 49%.) Putin's status has fallen because he has delegated the messy business of managing the pandemic to his subordinates.

Even worse, collectively, Russians' income has barely increased in six years.

The four things Russians can't choose...

What's more, a lot of the people in the generation that has grown up under Putin – I remember watching the "new year's surprise" on live TV in Moscow, when Putin was named president on December 31, 1999 – pine for real democracy.

One popular meme wryly notes... There are four things that Russians can't choose – parents, nationality, appearance, and the president of Russia.

But Putin craves at least the appearance of legitimacy. A big referendum – even if it had to offer cash prizes to participants to get people to vote – was a way to create the impression of a public mandate.

And to appeal to Putin's base, the amendments included provisions to protect pensions and ban same-sex marriages.

But it's a lot more than just public relations...

The amendments allow Putin to remain in office for another two six-year terms. They also grant him immunity from prosecution when (or if) he someday steps down from power. That matters a lot, because – as I wrote in January...

If [as a de-facto dictator like Putin] at some point you decide that you want to retire to your country palaces to count your gold bars, a new would-be autocrat will step into your old throne. And his first order of business would likely be to throw you in jail... wreck your legacy... and undo your life's work. That's because he wants to be you – and he can't do that without destroying you.

Even constitutional amendments aren't ironclad, though...

In the 20th century, the Soviet Union, and then Russia, changed constitutions like most people go through socks, with seven different versions. Even with constitutional protection, Putin won't feel safe leaving the Kremlin in anything other than a coffin.

Putin sticking around indefinitely is bad for innovation and economic growth in Russia...

Even in the best situation, a government that has been in power – with the exception of a break during which Putin was prime minister, but still the power behind the throne – for the equivalent of more than five U.S. presidential terms (and counting) doesn't have really anything new to offer.

A friend and former colleague of mine from Moscow, who now lives in London, told me...

Almost everyone who has any kind of ambition, who doesn't have well-placed friends in the government, has either left or is planning to leave.

Investors – particularly in volatile emerging markets – often prefer stability to change.

Russia's dismal response to the pandemic – the country has the fourth-most cases in the world – doesn't inspire much faith, though. Neither does the Russian economy's continued heavy dependence on commodities like oil.

We've reported before on how Russia's "oil war" with OPEC kingpin Saudi Arabia helped sink global prices this spring.

The 15% decline in the country's currency compared to the U.S. dollar, despite a bounce since lows in March, suggests that investors today are voting with their feet and pocketbooks.

For years, Russia's stock market has traded at a much lower price-to-earnings (P/E) ratio than almost all other markets.

Even though the economic collapse caused by the coronavirus means that earnings are a big question mark for companies around the world, the cheap values of Russian stocks today are significant...

Right now, Russian shares are trading at a P/E ratio of 6.6, compared to 22.4 for the S&P 500 in the U.S. But don't expect much bounce in the Russian economy... so long as the country has a president for life.

The Importance of Blockchain's First 'Trade'

Following a historic iron ore transaction involving blockchain, Crypto Capital editor Eric Wade shares why investors should be paying even more attention to the technology.

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In today's mailbag, a subscriber thanks us for our guidance this year. Do you have a comment or question? Send us an e-mail at feedback@stansberryresearch.com.

"Feb 19, 2020 was the peak on my investment accounts. As it went down, I sold. Today I am 4 percent over that peak primarily because I listened to you.

"Below are my best returns. China investments may leave some in the dust. Just starting to show promise. GAN 242%, SE 183%, SLP 85%...

"Thank you for direction. It helps clarify what road I should be on." – Paid-up subscriber Deb M.

All the best,

Corey McLaughlin and Kim Iskyan
Long Island, New York and Singapore
July 9, 2020