Hyperinflationary Expectations: Reflections On Cryptocurrency And The Markets

How quickly we forget.

In each of the last five bear markets since the 1970s, I have etched into my neural storage unit memories as strong and clear as if they happened yesterday. Each one of those nasty declines were accompanied with events that marked the tops and bottoms, consistently found in errant behaviors, and whether they originate from greed, fear or desperation, they were memorable.

Some of those events were the irrational decisions of the investment industry, which always increases staff at the tops and reduces staff at major bottoms. It is found in the emotion-charged decisions of clients who would write letters of complaint because I would not them buy shares in the Hot Stock of the Month, usually some dilly named "Underground Airlines" or "Rectal Gas."

But the classic bottom-spotting signal always came from the financial advisors, whose evolution from the term "salesmen" in the 1960s and 1970s morphed into "registered representatives" in the '80s, "financial consultants" in the '90s, and finally settled as the industry-standard moniker for 2021, "wealth managers."

A very wealthy businessman from Sarnia, notorious in the local brokerage community for being a "tough sell," once said to me "Young man, you are the person that takes the bus to work to advise the man that drives a Porsche to work on how he should invest his money, right?" (He was…).

Another memorable story was the broker who had placed a cold call to that same old Sarnia cuss, introducing himself and his brokerage firm at the onset of the sales pitch. Well, it seems that the call went very poorly, during which the prospective client hurled every imaginable insult at the salesman, finally finishing off his diatribe with some ignominious remark about the salesman's sexual preferences. Pausing for a brief second to determine the wise choice of action, the conversation ended like this:

Salesman: "Mr. Jones, it seems that you are disinterested in the services I have offered. Let me ask you two final questions."

Mr. Jones: "Fine!"

Salesman: "Do you remember my name?"

Mr. Jones: "No! Why would I remember your name?"

Salesman: "Do you remember the name of my firm?"

Mr. Jones: No! I could care less about your crappy little bucket shop!"

Salesman: "All right, you don't remember my name and you don't remember my firm's name. Correct?"

Mr. Jones: "Correct, Einstein!"

Salesman: "Great. Now go $%$^ yourself."

Another great little jewel of an event occurred literally within days of the bottom of the 1981–1982 bear market on an elevator in the old Royal Bank building in London, Ontario. A certain high-profile broker known to have a quick wit and slow temper entered the car on the eighth floor and proceeded to sigh and stare down at his shoes for the first few floors. I put on my cheeriest (and phoniest) smile and asked: "Dougie—how's it going?" He responded with the singular greatest bottom-spotting indicator of the entire bear market: "Let me tell you how it's going. I have one client left and that's me and I am looking for a new broker."

There are literally dozens of little anecdotes like these collected and stored over the last forty years, and while some are entertaining, many are simply instructive of the massive swings in sentiment that one encounters when it comes to the business of "money."

Here in 2021, behaviors are very similar to those found in 1999 and 1987, and they are in direct contrast to those found at major bottoms in that the euphoria currently gripping the emerging and very youthful "new class" of investors is of a magnitude that made the dot-com bubble pale by comparison.

In the late summer of 1987, I was attending the monthly meeting of the London Chamber of Commerce. Each month a certain "professional" would be asked to speak on a topic that was deemed to be his or her "area of expertise." One month it would be an accountant and the next a realtor and the next an accountant, after which there would be complimentary cocktails and an informal question-and-answer session. In September of '87, I was asked to speak about the "booming stock market," and as I had grown increasingly wary of all of the wild-eyed speculation during that summer, I proceeded to paint a picture of impending doom and the need for caution and restraint.

Well, after the session, what appeared at the time to resemble a lynch mob descended upon me, waving their Manhattans and martinis at me like war clubs, and they proceeded to levy insult after insult as they vociferously shouted the myriad of reasons why stocks were "different" this time, and that speeches like the one I just gave were "dangerous." One elderly gentleman even threatened to send a letter to my employer, advising them of the errant prognostications of "that dour young man."

One month after I had to drop off my suit, stained with the juices of olives and cherries (and the odd lemon rind) at the cleaners, the stock market crashed. It took the Dow Jones down 38% from the prior peak, with a 23.7% drop on Oct. 19 alone. Needless to say, just as "hell hath no fury like a woman scorned," it also applied to the speculator class of investors, who were all summarily taken out to the woodshed and pummeled to within an inch of their financial lives.

Last week, I had the pleasure of speaking with a younger member of the Millennial demographic who quit his job in 2016 to embark upon a career as a serial day trader, blogger, and social media "influencer," with several thousand followers on Twitter and Instagram. It seems that he (and his followers) decided last summer to sell their stock portfolios and go "All In Bitcoin" at around the $10,000 level.

This young man claimed to have a "plan" that had worked without a hitch for most of the next nine months, but at $55,000 he and his followers discovered the wonderment of leverage and they proceeded to quintuple their positions, using borrowed money, because some electric car guy had decided to put all of his working capital into crypto. It seems the "plan" they had was the same one to which Iron Mike Tyson referred when he said, "Everyone's got a plan til they get punched in the mouth."

I do not need to finish off this sad anecdote, but needless to say, this new generation of investors think that the arrival of the Carl Icahns or Elon Musks into the world of social media indoctrination and cryptocurrency participation was a validation of sorts that should be celebrated as the next coming of the Messiah. Sadly, when the Goldman Sachs and JP Morgans of the financial world enter any trading pit, sexagenarian battle scars tell me to sew my wallet to the inside of my sports jacket while I strap my shirt to my back.

These youngsters would have been far better off keeping their cryptocurrency sandbox to themselves, rather than let the "smiling cobras" in, with their disingenuous cheerleading and CNBC sponsorship. The "old guys" from Wall Street looked down from their C-suite towers and saw a brand-new herd of gazelles brandishing pockets full of newly found wealth, and by signaling to the world that they were "initiating coverage" on Bitcoin, it was a seminal "come into my parlor, said the spider to the fly" moment. Here we are, sixty days later and with thousands of Millennial bodybags piling up at the side of the Road to Riches as a result of unbridled greed and unprecedented naivete.

The markets today are entering the summer buoyed by the end of the lockdowns, with supply shock bottlenecks slowly beginning to unclog themselves, liquidity levels incredibly high and "cash on the sidelines" growing rapidly. Normally, I would expect a late-spring selloff in advance of the usual summer rally, but for the metals, it is getting monotonous, as we continue to get report after report of higher prices literally everywhere—except for gold and silver, which remain locked in a bullion bank death grip.

How on earth can you get a CPI reading over 5% and have gold prices stay dormant? Answer: bullion bank interference. Jerome Powell's insistence that this spike in inflation rates is "transitory" only works if the two key barometers of currency debasement are held in check. Gold and silver charging to new highs would send a signal to the bond vigilantes that yields are headed higher, and if you thought the COVID Crash of 2020 was ugly, watch what happens when the bond market participants, all operating on the razor's edge of leveraged long positions, decide to move from the port to the starboard side of the Titanic. "Ugly" times fifty…

I am of the opinion that there is soon to arrive an "Emperor's New Clothes" moment, when the bond market decides that central bank omnipotence is somewhat "overrated" and to go with hyperinflationary expectations, as opposed to the status quo. At that moment, the safety of the sound money and assets that you can actually hold in your hand and store in your vaults take precedence over digital havens and virtual hedges. That moment does not appear to be on the immediate horizon, but it is most certainly out there, and remains the reason I continue to hold big positions in the gold and silver developers, with positional emphasis on those companies with undervalued and expanding resources (ounces).

As this missive is being written, copper and silver are up 2.11% and 1.33% (respectively), while gold is down 0.5%. I need to see a two-day close above US$1,910/ounce for gold and a two-day close above US$28.50/ounce for silver. Without those, we are swimming in shark-infested waters.

Originally published Friday, June 4, 2021.

Follow Michael Ballanger on Twitter @MiningJunkie. He is the Editor and Publisher of The GGM Advisory Service and can be contacted at miningjunkie216@outlook.com for subscription information.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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