Pandemonium In The Pits

Last night, as I was pondering which of the multiple events of the week that deserved my undivided ranting, I was reminded of a missive I wrote in late 2019, just after Jerome Powell executed his now-famous “pivot” and halted all efforts at “balance sheet normalization” and replace it with its ink blot opposite, “repurchase agreements” (“REPO”). I observed and wrote back then, that what we were actually witnessing was the beginning of the complete and total unraveling of the financial system because the Fed had been forced by dealer illiquidity to buy back the treasury bonds used to finance their insolvent government operations. The Fed had been draining liquidity from the system for the first time in nine years but only for a few months before the dealers (the Fed’s member banks) started to scream “uncle!” and it was in the Fall of 2019 that it all started to crumble right up until this phony Pandemonium in the Pits gave the central banking oligarchy the cover they needed to go “all in” on liquidity injections after which, as they say, “the rest became history”.

Paying homage to the phrase of not being able “to see the forest from the trees”, the financial world this morning is staring at a tree trunk, attempting to ascertain the age of the tree from a distance of three inches from its napalm-singed bark, sending out social media howitzers on Wall Street Bets and Reddit and “silver squeeze” and everything else related to Gamestop or the SEC or “evil short sellers getting their due”. The problem, as I see it, is that these tunnel vision or “head in the sand” behaviours are completely missing the significance of the events of the past eighteen months; we are now no longer in the final innings before the financial meltdown occurs – we are actually IN IT – repeat – IN IT.

The mainstream media financial news outlets, which are flashing headlines twenty-four hours a day, seven days a week, are like the medieval town crier that used to stand in the middle of the village assembly area (right next to the scaffolds and pillories) shouting out instructions for the townspeople to follow, usually at the behest of the mayor or governor. Today’s version of this is CNBC flashing up stories designed by the powers-in-charge to deflect attention away from the forest and back to the tree bark because if the masses could ever see the raging conflagration of anarchy and mayhem that is currently descending upon the forest, they would be running for the hills. What that means is that buyers of common stocks at all-time highs and at record levels of overvaluation and absurdity have been lured by the Wall Street Spin Machine into seeing only the short squeeze in GME and its deleterious impact on the “big bad short sellers” as the “news” rather than the stealth deterioration shown in the University of Michigan surveys and erosion in breadth in market internals. Keep staring at the bark, folks, because the smell of smoke is only an illusion.

If you have ever read the brilliant book “When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany” written by Adam Ferguson, (which I deem as “required reading”), the madness of the past few weeks and months so prevalent in these markets is similar in many aspects to the mayhem that occurred in Weimar Germany just before the country devolved into hyperinflation and total economic anarchy. Markets which used to move at leisurely speeds began to speed up, slowly at first, and then suddenly (apologies to Ernest Hemingway) to the point where they became whirling dervishes of directionless activity, headless chicken dashes for no-longer-needed safety, all while designated the town crier (CNBC) continues its bark analysis with “expert” interviews with whining crybabies like Leon Cooperman and Bill Ackman, outwardly condemning those very behaviours that allowed them to get rich in the first place.

To say that it revolted me would be understatement, my shattered TV monitor a testimonial to the hypocrisy of the moment. (There is a certain unambiguous delight in watching a three-quarter empty wine bottle sail majestically across a room at the head of a sanctimonious CNBC guest commentator as the screen explodes into shards of financial flatulence.)

Shifting the current point of reference back to our own particular “tree bark”, the action in the silver market in the latter part of the week was significant, not because of the incredible volume that hit the big silver ETF (SLV:US) thanks to the efforts of the social media legions, but more so because it has quite possibly served notice to the much-reviled “Masters of Shenanigans”, the bullion banks, that they are going to need far deeper pockets than normal in order to commit the crimes for which they have been so incredibly adept for as long as I can recall. I learned an expression years ago (early 1990’s) about taking on the short sellers and it was a worthy lesson never forgotten. I had been trading a market in a speculative junior exploration name that had (allegedly) an extremely tight float and, after a near-religious advance from the pennies to a few dollars in letter-perfect fashion and angle of ascent (around 45 «), a large block of stock suddenly appeared, “iceberg-ed” to disguise the obvious capping attempt, and after numerous outraged phone calls, it became apparent that I had run squarely into the crosshairs of a short seller – a large and very well-heeled short seller - the identity of which I had narrowed down to the owner of an infamous, penny-stock Vancouver-based brokerage firm. This went on for days when finally, exasperated and irate, I circled all of my trader pals and mounted a campaign to “get shorty” and as I was making the last of the calls to my prospective allies, my final call was to my mentor, an eighty-year-old retired TSE floor trader that traded the Canadian mining boom of the 1960’s. His advice changed my world.

I was tripping the light fantastic about how my army of pals were going to gap the market several percent higher and “force a short squeeze on the bastard!” when old Jimmy said this. “You don’t want to do that, sonny.” Jaw agape with sputtering shock, I asked him “Why?”. He said “You can never beat a sophisticated short seller. They are the wiliest, meanest, coolest, and most formidable creatures you will ever meet in the trading pit. Drop the market back by half a buck, offer some stock, let him cover then watch him simply “go away”.”

You want him to simply “Go away”.

Watching the precious metals trading pits since the late 1970’s, I can confirm that the bullion banks are indeed the “wiliest, meanest, coolest, and most formidable creatures you will ever meet in the trading pits” and armed with a minimum of regulatory surveillance and a complete absence of regulatory enforcement, they have been annihilating traders, retail and otherwise, for decades. They have survived investigations, multiple fines in the billions, and congressional oversight (“undersight”, actually) only to surface a few weeks later performing the same illegal thefts and frauds and pocketing even great dollops of illicit plunder. My friends Bill Murphy and Chris Powell over at GATA ( www.lemetropolecafe.com ) started the assault on the bullion banks in the late ‘90’s and still – to this very day – no one has been sent to jail and not one penny of contraband returned, despite the Herculean efforts of the GATA gang.

What makes the Reddit/WallStreetBets phenomena so very ironic is that it is that a bunch of young adults of no particular notoriety or fame, have, as a collective, finally found the solution to sending the bullion banks scurrying for cover. Using the analogy of “safety in numbers”, the multitudinous legions of stimulus-cheque-wielding “deplorables” are descending on the markets like the armies of Genghis Khan, raping and pillaging and creating havoc wherever they choose and this time, they have decided that the Wall Street Establishment (the “elites” like

whiny Leon Cooperman”) are now squarely in their crosshairs. It would appear that late last week, the enormous anti-aircraft guns of the social media crowd were told, ever-so-slowly, to train themselves on the most formidable and notorious short selling criminals in the history of modern finance – the bullion banks. My brethren in the blogospheres of Twitter and Instagram were desperately and breathlessly retweeting and reposting literally everything they ran across that might even be vaguely associated with “silver short squeeze” in a concerted effort to accelerate the groundswell of opinion and action toward the silver pits.

Alas, while I would be delighted to see them carry JPM or HSBC out on a stretcher, my forty-odd years tell me to exercise caution before joining the celebration. Revisiting the advice of my old trader buddy, Jimmie, what investors in gold and silver want to see is the bullion banks not carried out on stretchers; we simply want them to GO AWAY. With the size of the reported paper short position in silver being at a minimum “several years of global annual silver production”, if the social media hordes invading the Crimex pits do nothing else but make the bullion banks simply GO AWAY, their retreat will be sufficient to pave the way for true, full, and plain price discovery. What we do not want is the threat of annihilation because that will invite LEGISLATION and all one needs to know is the history of the Hunt Brothers in the late 1970’s. The Hunts did not “attempt” to corner the silver market; they actually DID corner the silver market and what resulted was the near-mortally-wounded bullion banks ordering totally illegal legislative and regulatory actions that crushed the Hunts and hundreds of thousands of retail investors in its wake. It was truly the Crime of the Century carried out by “your government”.

It falls into the category of “Be careful what you wish for” because even four trillion dollars of silver buy orders by the “Maniacal Millennials” mean nothing if the bullion banks halt the exchange. And IF they are in trouble, they WILL. Never ever forget that.

The past week saw the arrival at long last of drill results from the 2020 drill program carried out by Getchell Gold Corp. (GTCH/CSE / GGLDF:US). I am always mindful of talking up my book because of the obvious conflicts that may arise but, in this case, not only are my subscribers, loan officer, and better half delighted with the outcome, my libido got a shot of adrenaline as well as the stock hit an all-time high of CAD $.57 on Friday after the Wednesday news release.

Getchell Gold has been no easy exercise for those of us that first financed the company back in 2018 (then called “Buena Vista Gold Inc.”). We went through a bear market, regulatory screw-ups, and investor apathy for most of the past three years resulting in a company whose 1,069,000-ounce resource in Nevada (!) could only attract a valuation of USD $17 million or a paltry USD $15.90 per ounce, an absolute embarrassment when compared to the gold industry benchmark of $80 per ounce. I have sounded like a broken record, warbling like a desperate canary the praises of the Fondaway asset since mid 2019. Having participated in each and every financing since 2018, I feel multiple sensations of relief, vindication, and excitement over the 21.90 metre interval of 6.2 grams per tonne (a world class interval of USD $568/tonne rock) from an entirely new zone indicating a strong potential for serious increases in the gold resource. This is the bark that I am staring at and the tree upon which it grows is part of the sound money forest currently under-loved and under-owned by the investment world.

The next assay release is about 10-15 days away and it is from a known gold-bearing horizon that runs parallel to the new zone and could light things up equally as large as the 75% advance since last Wednesday. Even after the advance, Fondaway is still only valued at USD $26/ounce which still leaves a lot of daylight for new shareholders.

I am now modestly short the S&P and long volatility through the UVXY but after selling half positions at doubles on Friday, I am now modestly hedged with zero risk, a comfortable place to be with all the lunacy going on in this pitiable excuse for what CNBC continues to call the “stock market”.

My final word on strategy is this: If you must be invested in anything vaguely resembling “stocks” these days, the only place to be is precious metals because they will be all that survives when the forest and all its trees are finally reduced to ashes.

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