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Unlocked

If you remember learning to ride a bike, or have ever watched someone learn to ride a bike, you&rsquo;ll be familiar with what that process looks like.
Starting out is tough. Maybe the new bike rider can ride for a second or two before falling over.
As the learning progresses, a sense of balance is learned.
Gradually, the rider can ride for longer periods of time before toppling over.
Learning to ride a bike, like lots of other forms of progress, can be ugly.
When all is said and done, it looks completely natural. It's hard to imagine Lance Armstrong struggling to balance a bicycle. However, once upon a time, he was just getting his footing.
As the market changes and companies change, the process can look a bit like the early stages of riding a bike.
One step forwards, two steps backwards.
Progress typically happens gradually.
The trouble comes in when investors expect the progress to happen in an unrealistic time frame.
Unfortunately, we are seeing a bit of this in the market today.
<h3>It&rsquo;s Time to Be Patient</h3>
Advanced Micro Devices, Inc. (AMD), one of the world&rsquo;s leading chipmakers for PCs and servers, is down about 8.5% after releasing first quarter earnings this morning.
Now, the company didn&rsquo;t do anything wrong.
Sales were up 2% from last year, a bit more than analysts expected.
AMD&rsquo;s data center business, which is a big component of AMD&rsquo;s AI business, is up 80% from a year ago.
These data center servers are selling so well that the company told Wall Street that it expects to make $4bn in AI servers this year, 14% more than it was previously anticipating.
Although AMD&rsquo;s data center business is growing rapidly, investors were hoping for more.
Which brings us to today&rsquo;s tumble.
Quite frankly, it seems that investors were hoping for AMD to produce some kind of miracle.
The company has its work cut out for them.
Despite AMD&rsquo;s substantial progress in capitalizing on AI, AMD&rsquo;s server sales are still just 5% as much as Nvidia's.
On the flip side, this also means that AMD has a lot more room to grow by stealing market share from Nvidia.
While AMD wasn&rsquo;t able to produce any miracles this quarter, the company continues to put up solid numbers in the absolutely massive AI market.
As I&rsquo;ve said before, AI has the potential to create even more wealth than the internet.
But, this process takes time.&nbsp;
Long term patience will pay off big. My investors who held on when Bitcoin dropped from $10,000 to $5,000 are now sitting on $55,000 in gains.&nbsp;
AI is no different (in fact, probably bigger).
While the market impatiently wants AMD&rsquo;s AI supercomputers to take over the world and enslave humanity as soon as possible, the reality is we&rsquo;ll have to wait.
AI is a long term play that's not going away anytime soon.&nbsp;
If you&rsquo;re new to the market, today could be a good opportunity to buy the dip in shares of AMD while they are on sale. Despite the bumps in the road, I&rsquo;m just as bullish as ever on AMD (I might even buy a bit later today).

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AMD Goes on Sale

Miscellaneous

Today&rsquo;s GDP number came in weaker-than-expected at 1.6% annualized, the weakest quarterly gain in almost two years.
Wall Street did NOT like the news. At the open, the Dow fell by 681 points or 1.7%; the S&amp;P 500 was down 1.5% and the Nasdaq Composite slid by 1.9%, as investors projected a longer wait for the first rate cut from the Federal Reserve.
We&rsquo;ve written for months that there would be no interest rate cut by the Fed at their June meeting. Wall Street was putting the odds of a rate cut at around 70% and the stock market was rallying in anticipating the cut. They were wrong, we were right.
Today, every top Wall Street analyst is proclaiming there will be no rate cut in June, maybe not in July either. Thanks, guys and gals. You&rsquo;re only about three months behind the curve, and your forecast came after the market had already corrected and internalized the new view. That&rsquo;s worthless forecasting, but it&rsquo;s what Wall Street does best.
Now there is a chance that we won&rsquo;t get any rate cuts this year. There&rsquo;s nothing new in this face plant. Wall Street has been wrong about rate cuts for almost two years, and they&rsquo;re wrong now. Recall, the Federal Reserve started raising rates in March 2022 from a base of 0.00%. By the late summer of 2022, Wall Street was already talking about the &ldquo;pivot.&rdquo;
This was jargon for a rate cut. No one expected it that soon, but early 2023 was Wall Street&rsquo;s target date for the pivot. That never happened. Wall Street extended the pivot date of mid-2023. Then late-2023. Then early-2024. Wrong, wrong, and wrong. Moving the pivot date from June 2024 to later this year is just the latest blunder.
<h2 class="subhead">Stagflation, Anyone?</h2>
The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing. So. if neither are headed in the right direction, then that&rsquo;s going to be bad news for markets. With inflation actually rising in the latest report and economic growth slowing down with today&rsquo;s GDP report, this is exactly what is happening.
Behind Powell&rsquo;s carefully laid plans and the markets&rsquo; Goldilocks-type assumptions lies a huge fallacy. The assumption is that interest rates and inflation have a reciprocal relationship. Timing aside, markets and the Fed both assume that current high interest rates will tame inflation, and that will pave the way for rate cuts, stronger growth, and higher stock prices. But there&rsquo;s no evidence for this.
The Great Depression (1929-1933) was a period of low interest rates and unprecedented deflation. The Great Inflation (1977-1981) was a period of high interest rates and record-high inflation. History teaches that there is no inverse correlation between interest rates and inflation.
In the 1930s, rates chased inflation down. In the 1970s, rates chased inflation up. In both episodes, the Fed did not lead the way, they followed. The Fed was not in charge. Markets and individual psychology were in charge. The Fed (and markets) are reactive and not proactive. This is no way to run a railroad.
We could be looking at the worst of all possible worlds. We are now seeing slowing growth and higher inflation at the same time. Stagflation, anyone?
<h2 class="subhead">The Fed Has No Idea What They Are Doing</h2>
The latest FOMC meeting back in March was followed by a press conference with Fed Chair Jay Powell. With regard to the policy rate, Powell repeated much of what he said last January and in his more recent testimony before Congress.
Powell said: &ldquo;The economy has made considerable progress toward our dual mandate&rdquo; to promote low unemployment and maintain price stability. But in almost the same breath he said, &ldquo;Inflation is still too high.&rdquo; He then added, &ldquo;Inflation &hellip; remains above our longer-run goal of 2 percent.&rdquo;
On the &ldquo;positive&rdquo; side, Powell said, &ldquo;Economic activity has been expanding at a solid pace.&rdquo; And he noted, &ldquo;We did mark-up our growth forecast&rdquo; in reference to the SEP dots. So, what happen to that &ldquo;mark-up&rdquo; for forecasting growth? That&rsquo;s why the dots are worthless and Powell knows it.
So, we&rsquo;re back to the conundrum that has faced the Fed since they stopped raising rates last July: The Fed is reluctant to cut rates because it might fuel inflation. At the same time, the Fed is reluctant to keep rates too high because it might cause recession (which may be already here)
Powell said this explicitly: &ldquo;The risks are really two-sided here. &hellip; If we ease too early, we could see inflation come back. &hellip; If we ease too late, we could&rdquo; impact the economy negatively.
I&rsquo;ve been saying for months that a recession is imminent. Today&rsquo;s GDP numbers reflect that the economic engine is slowing down.
It&rsquo;s all nonsense; a narrative designed to lull investors into complacency and into buying more stocks. The truth is the Fed has no idea what they&rsquo;re doing, the Fed doesn&rsquo;t matter that much anyway, and Wall Street is in the tagalong business, not real forecasting.
Wall Street is following the Fed. And the Fed is using bad models that are consistently getting their forecasts wrong. It&rsquo;s the blind leading the blind.

awn-hero-img-04-25-24 United State economy, stock market Booming Through Strong Job Growth and GDP Data Statistics

shutterstock 2237656915

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No Way To Run An Economy

Moneyball Updates

Tesla is Stalling

It&rsquo;s the cryptocurrency equivalent of the Olympics.
Like clockwork, every four years Bitcoin hosts an event that drives global interest and attention.
The event, called &lsquo;the halving&rsquo;, is a programmatic feature of the Bitcoin blockchain that cuts Bitcoin rewards in half.&nbsp;
The biggest immediate impact of halving is on miners.
Miners receive a regular distribution for their contribution to maintaining the Bitcoin blockchain.
Currently, miners receive a reward of 6.25 Bitcoin for every block of the blockchain that gets created.
Beginning sometime around next Saturday, this reward will get cut in half to 3.125 Bitcoin.
While this means less rewards for miners, it also means a big surge in the price of Bitcoin.
As a result of the halving, miners will earn fewer bitcoin from here on out. Fewer Bitcoin earned means fewer Bitcoins for miners to sell.
The logic is as follows:
Miners are some of the largest sellers of Bitcoin on the exchanges. Miners typically need fiat currencies (i.e. dollars/euros/yen/etc.) to pay their operating expenses like rent, electricity, and machine maintenance. In order to pay these expenses, they are constantly selling as much Bitcoin as necessary to cover their costs.
However, once the halving occurs, miners will naturally have fewer Bitcoin available to sell.&nbsp;
If you&rsquo;re familiar with the concept of supply and demand, you already know where I&rsquo;m going with this&hellip;
<h3 class="subhead nbp">A Crypto Surge is Coming</h3>
A shortage of Bitcoins with stable (or increasing) demand will push the price up.
Halving will continue to take place every four years until 2140 when all 21 million Bitcoins are finally produced. At that point, no new Bitcoins will be created.
The last time the halving occurred was in the middle of the pandemic/global recession.&nbsp;
In the days and weeks leading up to the last halving, the price of Bitcoin surged.
This was despite the fact that people had other things on their minds and many people were just hearing about cryptocurrency for the first time.
By now, stories about cryptocurrency are regularly featured in the news and on TV.
Earlier this year, a Bitcoin exchange traded fund (ETF) was launched on the NASDAQ that allows anyone to buy Bitcoin from any brokerage or retirement account that lets people purchase stocks.
Familiarity with Bitcoin has never been higher, and now just about anyone with money to invest can buy it without much effort.
I expect that we&rsquo;ll see a lot of coverage of the halving by traditional media over the next week.&nbsp;
CNBC will invite cryptocurrency experts to talk about their expectations. The Wall Street Journal will publish articles.&nbsp;
The media circus from the halving is the cherry on top that will create new demand for Bitcoin, just as supply experiences a massive reduction from the halving.
And, if that's not enough, all of this is taking place just as Wall Street begins to have concerns about the return of inflation.
 In some ways, Bitcoin is the perfect currency in a world struggling with inflation &ndash; a finite resource that can easily and near-instantly be transferred anywhere around the world.
Despite Bitcoin&rsquo;s major gains over the past 12 months, I believe Bitcoin and the whole cryptocurrency market are ready to go even higher. The reduced supply from halving, increased attention from the media, and increased availability via ETF all add up to the perfect storm cryptocurrency investors have been waiting for.&nbsp;

Crypto’s Countdown to Blastoff

Long time subscribers to my newsletters know I&rsquo;ve been pounding the table to own hard assets for years. I believe the best course for you is to allocate portfolios to hard assets that (a) resist inflation, (b) are not taxed unless you sell them, and (c) are more difficult to confiscate because they are non-digital. These include gold, silver, land, fine art, physical cash, etc.
Gold is currently rallying and hit a new record high yesterday. It&rsquo;s often the first thing you think of when you hear &ldquo;hard assets&rdquo; but it would be prudent to not forget about silver!
Today, my colleague Byron King brings his extensive background as a geologist to give his thoughts on the silver market and why the &ldquo;other&rdquo; precious metal should also be part of your portfolio.
<hr />
The silver spot price closed above $27 per ounce yesterday. And like the rising gold price, which just surpassed $2,300 per ounce, it looks like there&rsquo;s more yet to come. In other words, precious metals are rapidly repricing.
Right away, this tells me that Wall Street and the City of London have lost control over the price for gold and silver. From all appearances, pricing power has shifted East to India, China and other BRICS nations that now dominate physical purchases.
If you bought gold or silver during the past decade, you must feel pretty good right now. The price is up, and apparently heading higher.
So today, let&rsquo;s discuss silver and a looming, much larger price jump than what we&rsquo;ve already seen.
<h2 class="subhead">But First, We&rsquo;ll Discuss Cocoa!</h2>
Yes, before we get to silver, let&rsquo;s look at cocoa (like in chocolate) because pricewise, cocoa has recently melted up and exploded.
Could this also happen with silver? Begin with the one-year cocoa chart:
They Just Came for the Cocoa. (Now, Will They Come for Silver?)
<img src="https://images.ctfassets.net/vha3zb1lo47k/24K8qanTiqONUFCkIYzeUC/6bd249a0135f70c01c00c569ec51eb16/awn-img1-04-04-24.png?w=649&amp;h=239" alt="image 1" width="649" height="239" />
Price chart for Cocoa (screen shot from CNBC)
This chart covers June of last year to the present. It shows over a triple in price for cocoa, with the big move from $4,000 to $10,000 per tonne coming in the past two months.
(By way of comparison, if this kind of price move happened with silver, we&rsquo;d see the metal at over $80 per ounce; but this gets ahead of the story.)
Let&rsquo;s be realistic, though. Is this situation with cocoa normal? Do massive price moves occur routinely in the cocoa space? No, and this is kind of weird. Indeed, the current cocoa price has rapidly climbed to a historic high. It&rsquo;s unprecedented and here&rsquo;s a chart for the past 25 years to prove it:
<img src="https://images.ctfassets.net/vha3zb1lo47k/7fHseprhfG9yzd1uqilMUW/2ac075ad7ef095d743a5a840120664be/awn-img2-04-04-24.png?w=633&amp;h=335" alt="image 2" width="633" height="335" />
Quarter century of cocoa; no big price explosion until now. TradingEconomics.com.
For many decades, cocoa traded at under $4,000 per tonne; and mostly, it traded well under $4,000. This chart goes back to 1999, and it looks much the same previously, back into the 1970s. Sure, over the years, cocoa has had ups and downs, but never an upward blowout like we see recently. This is definitely different, so what&rsquo;s going on?
Yeah, What&rsquo;s Going On?
First, it&rsquo;s basic economics 101. There&rsquo;s a cocoa supply issue because of dry weather across equatorial regions of the world where people grow the crop. Per the map below, these areas range from East Asia to West Africa, and to the Caribbean and Central/South America.
<img src="https://images.ctfassets.net/vha3zb1lo47k/IYml736138vYt5KXpalHj/ad1b590260f89fdcdb23e5625423e1ed/awn-img3-04-04-24.jpeg?w=651&amp;h=460" alt="image 3" width="651" height="460" />
The world&rsquo;s cocoa growth regions, courtesy International Cocoa Organization
In fact, the world&rsquo;s largest cocoa producing nations are Ivory Coast and Ghana, in West Africa, with Indonesia, in South Asia, coming up a solid but distant third. Just these three nations together account for over seventy percent of total global cocoa production.
There&rsquo;s no need to delve into meteorology or climate issues. Just think in terms of not enough water or soil moisture to nurture the cocoa trees in key producing nations. Then consider dry conditions and many uncontrolled wildfires. Hence, a much smaller crop.
The long and short is that the world&rsquo;s overall cocoa crop has fallen this past year. There&rsquo;s a shortage of cocoa in trade, and the problem cannot even begin to improve until next year and the next harvest season (with more rain along the way, growers hope).
Of course, high prices will draw new investment to cocoa farming: more trees, better irrigation, etc. But that will take time, and for the moment we have a supply crunch that can&rsquo;t be fixed in the next eighteen months to two years at least, and perhaps longer.
Meanwhile on the demand side, people across the world love their chocolate. Right now, large-scale cocoa processing companies like Cargill, Hershey, Mondelez, and Nestle enjoy the luxury of selling into strong markets. Buyers will pay high prices for finished cocoa products, and thus the bid continue to rise.
In addition, consider market momentum because cocoa futures have just exhibited an obvious rocket-ride. As you might expect, that kind of flash and cash lures new hands to the table, who ask to be dealt in and then put additional money in play. This speculative component alone can exaggerate price moves.
Finally, consider the notion that what we see with cocoa is also evidence of a reboot in the arena of price discovery generally, with cocoa becoming the poster-example of what can happen with a globally popular agricultural product.
And just as with gold, which I mentioned at the beginning of this note, the cocoa phenomenon may be a signal that price discovery is moving away from Western hands, towards the East.
Don&rsquo;t get the wrong idea, though, about changes in global price-setting. Cocoa-based products like chocolate aren&rsquo;t really &ldquo;food&rdquo; in the strict sense, not like wheat or soybeans. But many people across the world enjoy the taste of chocolate, and it&rsquo;s no stretch to regard this kind of confection as a poor man&rsquo;s luxury, hence it enjoys a strong global market. In other words, cocoa exhibits what economists call &ldquo;inelastic demand.&rdquo;
To sum up, the recent rise in cocoa price reflects a serious supply shortfall, rising demand, the need for new investment which will require time, and a sense of momentum as people watch the price levitate. All that in the face of a world where the very idea of price discovery is rebooting towards the East, away from traditional Western markets and trading pits.
<h2 class="subhead">Now, How About Silver?</h2>
Silver isn&rsquo;t chocolate, but it has long been called &ldquo;the poor man&rsquo;s gold.&rdquo; And silver is both an industrial and monetary metal.
There&rsquo;s an ancient pedigree to silver as money. It&rsquo;s deep in the archaeological record. People write books about the history of silver as money (and on that point, I recommend The Story of Silver: How the White Metal Shaped America and the Modern World, William Silber [2019]).
First, let&rsquo;s look at the silver price over the past twenty years:
<img src="https://images.ctfassets.net/vha3zb1lo47k/1GRSbNpT5LpOl3cOIrJDIS/2d74d38640f500eb2c4ce1c35c12e343/awn-img4-04-04-24.png?w=648&amp;h=336" alt="image 4" width="648" height="336" />
Silver price since 2004, courtesy Silverprice.
Note the huge run-up and back down in price, 2011 &ndash; 13; at one point silver was well over $40 per ounce (nearly $50 in 2011). Then, the metal traded in the mid-teens doldrums for a few years, 2014 &ndash; 2020. And after a jump in 2020 (related to Covid panic buying), silver&rsquo;s price support was range-bound in the low $20s for the past few years.
Now, over those same twenty years, let&rsquo;s also compare the continuous contract price for gold and silver:
<img src="https://images.ctfassets.net/vha3zb1lo47k/1wNMjYUqIyi2AXIapdaZti/44368a3a9d316558d7bdbd5df5c2f92b/awn-img5-04-04-24.png?w=652&amp;h=460" alt="image 5" width="652" height="460" />
Gold (blue)/Silver (brown) prices since April 2004, courtesy Macrotrends.net.
Per the chart, silver and gold tracked closely through 2011 &ndash; 13; they both moved up and down pretty well in tandem. For the past decade, though, since 2014 silver has lagged gold, despite a strong run-up at one point in 2020 (the Covid panic-buy).
For our purposes, silver has traded in a range in the past couple of years, and shows legacy weakness relative to gold, with an expanding gap even now. But can this change? Can silver pull off a &ldquo;slingshot&rdquo; effect and deliver strong gains?
<h2 class="subhead">Think Like a Cocoa Trader</h2>
Think like a cocoa trader for a moment. In terms of demand, silver is popular in ways that are sticky, if not inelastic.
Begin with the monetary angle despite the fact that silver is no longer used in the world&rsquo;s currencies; it&rsquo;s absent from U.S. coinage, for example, since a law in 1965 that took silver out of circulation. But across the world, individuals, businesses, and governments (China and India come to mind) still buy silver, including old coins and definitely raw silver bullion. Silver-stacking is a worldwide phenomenon.
Meanwhile, silver is a crucial industrial metal; a key to every imaginable kind of electronics and absolutely necessary in the fast-growing sector of solar power. All this, and silver has growing uses in fields ranging from water purification to medical products like antiseptic bandages. Thus, its demand is solid and growing.
As for supply, statistics from the Global Silver Institute <a href="https://www.silverinstitute.org/mine-production/">show</a> that global silver output from mines is basically flat, if not declining. Countries like Mexico, Peru and China struggle just to maintain production at levels of previous years. Large silver-producing companies like Fresnillo, Newmont, Glencore and more show declining numbers. Thus, it&rsquo;s not far-fetched to say that the world may be at &ldquo;peak silver&rdquo; just now.
And yes, of course, we have exploration plays for silver out there, and more than a few strong developers. I follow the mining space and I&rsquo;ve seen and visited many great, promising companies.
But as with cocoa, these silver plays aren&rsquo;t turnkey operations. All will require time for new silver deposits to see the light of day; time plus immense levels of capital to build mines, mills and related infrastructure. Oh, and to find and train a new workforce because much of the present labor pool is &ldquo;legacy,&rdquo; if you get my drift.
And what about momentum? Well, the price of silver has moved up in recent weeks, but it&rsquo;s not quite a rocket-ride like cocoa; not yet anyhow.
Then again, people tend not to see tipping points, nor to appreciate how rapidly they can occur. That is, you may awaken one morning, and the price of something (like cocoa or perhaps silver) will be on a tear, and to the casual observer it will make no sense.
Whatever the case, the question to ask yourself is if you are on the silver train right now, before it all begins to move very much? Or will you wait it out a while, until you&rsquo;re sure the train is rolling? Or will you be the one running down the platform, trying to grab onto something before it all leaves the station?
Another point to consider is what has happened with price discovery in metals in general, and precious metals in particular. Gold has definitely moved, by over $300 in just the past four months. It hit new highs just yesterday. The formerly routine daily sell-down in, say, New York just can&rsquo;t beat out the global army of bidders who want to move towards some semblance of monetary safety as the U.S. government destroys its currency in an orgy of growing debt and interest payments.
Final takeaway: Silver is moving, and I suspect it will do a slingshot to catch up with gold in terms of relative value, metal for metal. Own physical, of course. Own paper silver if you want to trade the space (eg: iShares Silver Trust: SLV). And own silver producers like Pan American Silver (PAAS), MAG Silver (MAG), Hecla (HL), or Silvercrest (SILV).
Of course, there are many other smaller plays in the silver exploration, development and mining space, many with great fundamentals and assets, and massive upside. By every indication, the metal is moving, so you should buy a ticket and get on the train.
That&rsquo;s all for now. Thank you for subscribing and reading.
&nbsp;

sjn-hero-img-03-14-24 3D illustration of silver bullion bars over a blue background with growing chart. Commodities investment concept

shutterstock 529374745

Can Silver Do What Cocoa Just Did?

On Tuesday, March 19, we offered readers the following forecast of what would happen at the FOMC meeting yesterday:
&ldquo;On Wednesday, the Fed will leave its target rate for fed funds unchanged. That decision will keep the federal funds target at 5.50% as set at the July 26, 2023 FOMC meeting. Over the course of sixteen FOMC meetings beginning March 16, 2022, we&rsquo;ve been correct in all of our forecasts including the policy rate pause that began last September. We&rsquo;re confident we&rsquo;ll be correct on Wednesday also.&rdquo;
<h2 class="subhead">Here&rsquo;s What Actually Happened</h2>
The Fed did keep the fed funds rate unchanged as we projected. That makes seventeen Fed meetings in a row going back to March 16, 2022, when we got the Fed forecast right. Events remain uncertain from here, but it&rsquo;s so far, so good for our forecasting.
Here&rsquo;s the text of part of the Fed&rsquo;s press release issued at 2:00 pm EDT yesterday:
<blockquote>
&ldquo;The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.&rdquo;
</blockquote>
The FOMC vote in favor of this policy statement was unanimous. This meeting included the notorious &ldquo;dots,&rdquo; technically the Summary of Economic Projections (SEP) offered by 19 Fed governors and regional reserve bank presidents and presented in graphical form as a dot plot.
Jay Powell&rsquo;s press conference following the FOMC meeting was notable for how little was said about interest rate policy by Powell and how few questions there were from the media on that topic. The press conference wandered into various other topics including quantitative tightening (QT), a possible taper of QT, central bank digital currencies (CBDCs), and Fed transparency. Those are interesting topics, but none had anything directly to do with interest rate policy.
Regarding the policy rate, Powell repeated much of what he said last January and in his more recent testimony before Congress. Powell said: &ldquo;The economy has made considerable progress toward our dual mandate&rdquo; to promote low unemployment and maintain price stability. But in almost the same breath he said, &ldquo;Inflation is still too high.&rdquo; He then added, &ldquo;Inflation &hellip; remains above our longer run goal of 2 percent.&rdquo;
On the positive side, Powell said, &ldquo;Economic activity has been expanding at a solid pace.&rdquo; And he noted that, &ldquo;We did mark-up our growth forecast&rdquo; in reference to the SEP dots.
<h2 class="subhead">To Cut or Not to Cut</h2>
So, we&rsquo;re back to the conundrum that has faced the Fed since they stopped raising rates last July: The Fed is reluctant to cut rates because it might fuel inflation. At the same time, the Fed is reluctant to keep rates too high because it might cause recession. Powell said this explicitly: &ldquo;The risks are really two-sided here. &hellip; If we ease too early, we could see inflation come back&hellip; If we ease too late, we could impact the economy negatively.&rdquo;
The policy implications of this dilemma are fairly clear. The Fed will not cut rates at their next meeting on May 1. Powell said, &ldquo;We didn&rsquo;t make any decisions with regard to future meetings today.&rdquo; If the Fed had decided to raise rates in May, some signal would have been given. Powell made it clear that the FOMC needs more data before making a rate cut decision. &ldquo;What we&rsquo;re looking for now is confirmation that that progress will continue. &hellip; We&rsquo;re looking for more good data and we would certainly welcome it.&rdquo;
At the same time, the SEP indicated three rate cuts before the end of 2024 and Powell concurred with that view. After May, there are only five FOMC meetings remaining in 2024: (June, July, September, November, December).
This schedule suggests the following policy path: No rate cut in June because the Fed is still looking for inflation reduction confirmation. A rate cut of 0.25% in July. No rate cut (a &ldquo;pause&rdquo;) in September because it&rsquo;s too close to Election Day and the Fed wants to appear independent. Then 0.25% rate cuts in November and December. That would meet the Fed&rsquo;s three-rate-cut forecast, give inflation time to cool off, avoid an election landmine, and still cut rates fast enough to avoid a recession. That&rsquo;s Powell&rsquo;s winning parlay.
<h2 class="subhead">Gold was the Biggest Winner</h2>
Markets liked what they heard. The Dow Jones index was up 1.03% on the day. The S&amp;P 500 rose 0.89%, and the tech-heavy NASDAQ Composite rose 1.25%. It&rsquo;s fair to say stock markets focused on the implied promise of three rate cuts before the end of the year and not as much on whether the first cut came in June or July (markets are betting on June at the moment).
Also, the dollar price of gold took off like a rocket as soon as the Fed announcement was made. Gold was trading at $2,160 per ounce at 1:30 pm EDT just ahead of the Fed decision at 2:00 pm. Gold briefly touched $2,230 per ounce around 6:30 pm (a new all-time high) before settling down around $2,205 per ounce in early Asian trading, a 2% gain on the day.
What You Won&rsquo;t Hear in Financial Media
With the Fed having finessed the media and markets offering a vote of confidence, what could possibly go wrong? Everything.
Behind Powell&rsquo;s carefully laid plans and the markets&rsquo; Goldilocks-type assumptions lies a huge fallacy. The assumption is that interest rates and inflation have a reciprocal relationship. Timing aside, markets and the Fed both assume that current high interest rates will tame inflation, and that will pave the way for rate cuts, stronger growth, and higher stock prices. But there&rsquo;s no evidence for this.
The Great Depression (1929-1933) was a period of low interest rates and unprecedented deflation. The Great Inflation (1977-1981) was a period of high interest rates and record high inflation. History teaches that there is no inverse correlation between interest rates and inflation. In the 1930s, rates chased inflation down. In the 1970s, rates chased inflation up. In both episodes, the Fed did not lead the way, they followed. The Fed was not in charge. Markets and individual psychology were in charge.
In our pre-meeting report on Tuesday, we made the same point. Here&rsquo;s what we said about inflation:
<blockquote>
When inflation (measured monthly by CPI on a year-over-year basis) dropped from 9.1% in June 2022 to 3.0% in June 2023, the Fed was ready to declare victory. The Fed&rsquo;s goal was still 2% annualized inflation, but progress from 9.1% to 3.0% was so dramatic that 2.0% seemed well within reach. It was around that time (July 2023) that the Fed hit the pause button on further rate hikes. Since then, the inflation news has been consistently bad for the Fed. Here&rsquo;s the tale of the inflation tape using the Consumer Price Index on a year-over year basis:
</blockquote>
<table style="height: 286px; width: 68.8693%;" align="center">
<tbody>
<tr style="text-align: center;">
<th style="width: 43.1569%;">Date</th>
<th style="width: 55.3505%;">CPI (year-over-year)</th>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">June 2023</td>
<td style="width: 55.3505%;">3.0%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">July 2023</td>
<td style="width: 55.3505%;">3.2%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">August 2023</td>
<td style="width: 55.3505%;">3.7%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">September 2023</td>
<td style="width: 55.3505%;">3.7%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">October 2023</td>
<td style="width: 55.3505%;">3.2%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">November 2023</td>
<td style="width: 55.3505%;">3.1%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">December 2023</td>
<td style="width: 55.3505%;">3.4%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">January 2024</td>
<td style="width: 55.3505%;">3.1%</td>
</tr>
<tr style="text-align: center;">
<td style="width: 43.1569%;">February 2024</td>
<td style="width: 55.3505%;">3.2%</td>
</tr>
</tbody>
</table>
(The CPI data for March 2024 will be released on April 10th).
<blockquote>
Several facts jump out immediately from this most recent nine-month time series. The first is that inflation is not going down. It&rsquo;s higher today than it was last month and it&rsquo;s higher than it was ten months ago. It has bounced around a bit, hitting 3.7% last September and then settling down to 3.2% today. Still, the best that can be said is that inflation is in a range with a central tendency of about 3.3%. It is stuck in that range and is not trending toward the Fed&rsquo;s stated goal of 2.0%.
</blockquote>
<h2 class="subhead">Our Conclusion</h2>
We could be looking at the worst of all possible worlds. We could have slowing growth and higher unemployment and higher inflation at the same time.
When we pointed to higher stock and gold prices, we did not mention oil. In fact, oil prices have surged from $68.50 per barrel on December 12, 2023, to a high of $83.50 on March 19, 2024. That&rsquo;s a 22% price increase in just over three months. Most of that price increase has not yet worked its way through the supply chain of refiners, and distributors to the price of gas at the pump. Higher gas and diesel prices also impact the price of everything that relies on petrochemical inputs and transportation.
In short, there&rsquo;s a good chance that inflation will go higher in the months ahead, putting an end to the Fed&rsquo;s (and markets&rsquo;) rate cut dreams. Still, higher rates will weigh on the economy exactly as Powell said at his press conference. Stagflation, anyone?
The next Fed meeting is April 30 &ndash; May 1, 2024. A lot will happen between now and then including more data on inflation, unemployment, and economic growth that will affect the Fed&rsquo;s decision-making process. We&rsquo;ll be watching all of it carefully and bringing you the latest analysis as events unfold.

Crisis Trader with Jim Rickards uses proprietary algorithms to peer into corporate balance sheets &mdash; uncovering the ugly secrets of popular companies.
You don&rsquo;t want these names in your portfolio. But you can set yourself up for massive profits when the truth inevitably comes to light.
Jim Rickards and Dan Amoss can show you how. They correctly predicted every move the Federal Reserve made to fight inflation. And now they believe we&rsquo;re on the verge of a historic economic downturn.
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FED RECAP: What Markets and The Media Aren’t Telling You

While mega-cap stocks have been some of the best-performing stocks of the year, small caps have essentially been left in the dust.
This underperformance doesn&rsquo;t necessarily mean that the underlying businesses are struggling. In fact, the opposite is true right now.
These small companies are growing profits, paying dividends and successfully navigating the ever-changing economic landscape.
But misguided investor sentiment has weighed on small-cap stock prices. For one thing, many people see the larger companies as inherently safer plays.
As these popular stocks notch new highs, momentum-chasing algorithms and fear of missing out have amplified this herd mentality.
But as we've seen throughout history, mega-caps eventually fall out of favor when investors realize that these stocks are overbought.
Then the market rotates in favor of other opportunities that are overlooked and undervalued.
We&rsquo;re seeing this rotation happen again.
The Russell 2000 Index, an ETF that tracks small caps, is breaking out from a range-bound pattern. And it still has a long way to go before it's caught up to the rest of the market.
<img class="aligncenter" title="russell-2000-index-concierge" src="https://images.ctfassets.net/vha3zb1lo47k/3FRrD1dgI39J8uaWxmvbml/68db0906bbb52a0a2044636fe1538e6a/russell-2000-index-concierge.png?w=568&amp;h=279" alt="russell-2000-index-concierge" width="568" height="279" />The fundamental disconnect between small-cap stock prices and robust business performance has opened up a rare opportunity.
You now have the chance to buy rapidly growing and profitable companies at a huge discount, simply because other investors are still focused on the mega-caps.
In other words, investing in small-cap stocks today means you&rsquo;re buying more corporate profits for the same dollar amount.
You&rsquo;ll want to act quickly before the performance gap closes and the rest of the market catches on to this clear opportunity.
Sure, you could buy shares of the Russell 2000 Index to profit from this rotation. But I&rsquo;d rather focus on the best individual stocks that should outperform the average small cap.
So without further ado, allow me to introduce you to this month&rsquo;s addition to the Lifetime Income Report portfolio&hellip;
<h2>A Small Company Backed by Deep Pockets</h2>
Cohen &amp; Steers Inc. (<a href="https://my.paradigmpressgroup.com/ticker/CNS">CNS</a>) is a global investment firm specializing in real estate and real asset strategies.
While the name may not ring a bell, this small firm has been compounding shareholder wealth for decades, earning its place as one of the industry&rsquo;s premier money managers.
At its core, Cohen &amp; Steers does one thing exceptionally well: invest in income-generating real estate securities like Real Estate Investment Trusts (REITs), real estate operating companies and preferred stocks.
<img class="aligncenter" title="aum-lir-concierge" src="https://images.ctfassets.net/vha3zb1lo47k/4Ao5JgAlLBwuKBMVS43PDw/553a70156078900a737512731d9b8df2/aum-lir-concierge.png?w=550&amp;h=383" alt="aum-lir-concierge" width="550" height="383" />With $80 billion in assets under management (AUM) across mutual funds, closed-end funds and institutional accounts, the firm is an established leader in this niche corner of the market.
Cohen &amp; Steers has built an outstanding long-term track record by adhering to a rigorous research process and active management strategy.
The company utilizes proprietary models to identify mispriced real estate securities globally across the capital structure.
Their expertise allows them to capitalize on temporary sentiment-driven overreactions that are characteristic of this sector.
This focus on fundamentals has paid off in a big way, with Cohen &amp; Steers' products consistently ranking at the top of their categories for performance.
Concerns over higher interest rates, a slowing housing market and increased industry competition have spooked some investors. But I believe these fears are overblown.
Real estate securities still hold up amid high interest rates due to their income component. Growth may slow some, but long-term demand for housing and other properties remains intact.
As for the competition, Cohen &amp; Steers' specialized strategy and established brand give it key advantages over passive funds.
Not only that, but its institutional client base also tends to be stickier than the fickle retail crowd.
Simply put, the market has become too pessimistic about the company's prospects and attractive valuation.
With a fortress-like balance sheet and consistent profitability, this small cap has significant upside ahead as sentiment improves.
Even better for shareholders, the company maintains a shareholder-friendly capital return program.
The company regularly buys back stock and pays a growing dividend that now yields 3.12% annually. Payouts have also increased for well over a decade.
And despite its quality business model and consistent execution, the stock trades for just 22 times next year&rsquo;s expected earnings, a steep bargain compared to the mega-cap stocks.
Now here&rsquo;s why I&rsquo;m especially excited about this particular company over the many other small-cap stocks.
<h2>The Odds Are Skewed in Your Favor</h2>
Companies in the investment management business like Cohen &amp; Steers provide what's known as asymmetric returns.
That simply means they offer potential for outsized gains when times are good, but downside protection when conditions are more difficult.
As an income investor, these are exactly the types of set-ups you want to focus on.
Asymmetric returns allow you to grow your wealth substantially during prosperous periods while protecting your capital during periodic downturns.
It's a powerful combination for compounding returns over long stretches. Take Blackstone Inc. (<a href="https://my.paradigmpressgroup.com/ticker/BX">BX</a>), another investment management firm, as an example.
Since adding it to our portfolio in 2014, the stock has handed us a remarkable 340% total return as its asset portfolio has appreciated.
The investment management industry is highly lucrative precisely because of this asymmetric return profile.
When a firm's assets under management rise in value, they can charge higher fees. This fee revenue streams directly to the bottom line as operating leverage kicks in.
But here's the key: even when the investments these companies manage are declining or flat, they still generate fee income from their established AUM base.
For the asset managers' customers, this fee model can be a negative when performance is lagging.
But for us as shareholders, it acts as a hedge against the downside while allowing us to capitalize on surging earnings growth during bull markets.
Cohen &amp; Steers&rsquo; $80 billion in AUM generates a steady stream of lucrative fees, no matter which way property markets move short-term.
More importantly, when real estate activity picks up, the company is positioned for a surge in performance fees and asset inflows that could send its earnings into overdrive.
So not only should the company benefit as the market rotates in favor of small-cap stocks as a group&hellip;
But it also offers the stability of the lucrative asset management industry, making it an ideal candidate for an income portfolio.
Action to take: Buy Cohen &amp; Steers Inc. (<a href="https://my.paradigmpressgroup.com/ticker/CNS">CNS</a>) up to $85.

Investing

Income

Lifetime Income Report is dedicated to bringing you great stocks offering the biggest payouts.&nbsp;
But it&rsquo;s not just about looking for high yields. You want a company that can sustain its dividends &mdash; and increase them as its business grows.
Zach Scheidt, a former hedge fund manager, knows all the tricks for finding Wall Street&rsquo;s biggest values. In fact, his&nbsp; &ldquo;Three Pillars of Income Investing&rdquo; system is designed to zero in on the best of the best.
Each monthly issue of his Lifetime Income Report walks you through the research, showing you exactly why his latest discovery deserves a spot in your portfolio.
Expect to see a lot of household names as well as lesser-known dividend-payers in hot markets like&nbsp; alternative energy and cloud computing.&nbsp;
He&rsquo;ll also share strategies to reduce your taxes, earn extra paychecks, invest in commodities like gold and silver, even ways to pick up more cash outside of the stock market.
With Zach&rsquo;s help, you can build a diversified set of income streams so you never have to worry about money again.

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Lifetime Income Report — A former hedge fund manager’s “Three Pillars of Income Investing” are your key to safe, sustainable and growing cash payouts.

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Small Cap Comeback: A Big Opportunity for Wall Street's Smallest Stocks

Before we get to today&rsquo;s update I have an important announcement for you&hellip;
Next week on Tuesday, March 12th at 2pm ET we&rsquo;ll be holding a live event in Austin, Texas during the South by Southwest conference. This is a completely FREE live-streamed call where we&rsquo;ll talk all things AI and crypto. Make sure you block this time off on your calendar. I&rsquo;ll be sending more emails as we get closer to the event so keep an eye out.
Now onto today&rsquo;s update&hellip;
In almost every sci-fi book or movie ever, there are human-like robots.
Now they are in Amazon warehouses.
<img class="alignleft" title="ALN-Alert-03-07(1)" src="https://images.ctfassets.net/vha3zb1lo47k/3ijLrgluwiJEqw3HNLUijM/30590a28ae2c7c58f549f4898e3c88e2/ALN-Alert-03-07_1_.png?w=764&amp;h=572" alt="ALN-Alert-03-07(1)" width="350" height="262" />This week, the &lsquo;everything store&rsquo; announced they are running a test pilot with a startup called Agility Robotics to use humanoid robots as helpers in their warehouse.
The robot, called Digit, is estimated to cost $10-15 an hour to operate and can help Amazon employees remove boxes from shelves and place them on conveyor belts.
Standing at 5-foot-9 inches, Digit looks like the stuff of sci-fi nightmares, with a boxy rectangular head and two white headlight eyes.
Although Digit currently costs slightly less than a human employee, executives at Agility Robotics expect that the price will come down to about $2-3 per hour in the next few years.
In that time, Digit will likely gain additional capabilities to support Amazon operations.&nbsp;
Agility Robotics executives describe a future where Digit is put to work unloading trucks, a task that currently requires one or more human employees to achieve.
Eventually, we might even see Digit units out in the wild, delivering Amazon&rsquo;s packages to customers' doorsteps.&nbsp;
<h3>Amazon&rsquo;s Long History with Robotics</h3>
Amazon has a long history of investing in Robotics.&nbsp;
In 2012, the company acquired Kiva systems, a manufacturer of small robots used for moving shelves of merchandise autonomously around warehouses.
Last year, the company made an offer to acquire iRobot, the manufacturer of the popular Roomba robotic vacuum cleaner. Amazon announced earlier this year that they would not proceed with the acquisition after regulators in Europe signaled they intended to block the deal.
Amazon is also an early investor in Agility Robotics.&nbsp;
For e-commerce companies, the benefits are obvious.
Robotics can produce tremendous cost savings, resulting in lower prices and faster delivery for customers.
However, it will take time before Digit or other humanoid robots can fully replace employees.&nbsp;
For one thing, Digit is slow.&nbsp;
In the time it takes Digit to turn around, a human can lift a package, put it on a conveyor belt, and return for another.
Despite these limitations, companies are eager to begin to test the technology and identify places where Digit can add value.&nbsp;
Digit&rsquo;s first assignment is in a role that has historically been associated with a high risk of injury.&nbsp;
Depending on the success of the trial, we could see Amazon significantly increase its investment in humanoid robotics in the coming year.
As the world&rsquo;s largest e-commerce platform, Amazon has a lot to gain from robotics and artificial intelligence.&nbsp;
Although Amazon has lagged behind competitors like Microsoft, Google, and Meta in the development of AI assistants, the company remains on the bleeding edge of AI robotics.
As one of the largest players in robotics and AI, Amazon's embrace of humanoid robotics signals their belief that this technology will be transformative for supply chain and logistics over the long run.&nbsp;
While not without hurdles, the use of robots has the potential to enable faster delivery times and lower costs which could benefit both companies and consumers.&nbsp;
The Digit trial represents an early step into a future where robots become increasingly integrated into e-commerce fulfillment and last-mile delivery.
My team and I continue to remain bullish on Amazon.com, Inc&nbsp;(AMZN) as a member of our AI portfolio and believe the company has massive potential to become a dominant player in robotics and AI.

 Amazon Puts Robots To Work

Every technological revolution has two phases, the hype cycle and the build cycle.
The dot com bubble was the hype cycle for the internet. Internet stocks rocketed to record highs before losing momentum and coming back down to earth.
Then the build cycle happened and we had companies like Facebook, Amazon, and Google take over the internet.
Over the past few years, we&rsquo;ve had the hype cycle for the metaverse.
Metaverse-based cryptocurrencies exploded in value in 2020/2021 before crashing back down to earth. Facebook famously rebranded as Meta during that time.
Now it seems we&rsquo;ve reached the build cycle.
This month Apple released the Vision Pro, the best Virtual Reality device on the market.
Later this year Google, Samsung, Sony, and others are expected to also release new virtual reality devices that will try to match &ndash; or beat &ndash; the Vision Pro&rsquo;s capabilities.
Devices are just one piece of the puzzle.
In order for the metaverse to be successful, it will need some amazing content that draws in users.
One metaverse project has me especially excited&hellip;
<h3>A Mega-Platform of Tomorrow</h3>
Wilder World is a decentralized online gaming platform and universe.
Wilder World&rsquo;s first application is an online car racing platform.
Eventually, Wilder will expand to include a whole city with missions and battles similar to the popular game Grand Theft Auto.&nbsp;
However, that&rsquo;s where the similarities end.
Everything within the Wilder universe will be an NFT, including the cars, the clothes, the real estate, and more.
Wilder will be 13 times larger than Grand Theft Auto and users will need to use Wilder&rsquo;s cryptocurrency to buy gas to travel around the world and compete in races.
Of course, there will be a gambling element as well.
Users will be able to bet on races and receive cash prizes for winning races.
While there are many metaverse platforms incorporating NFTs, what makes me most excited about Wilder is that they are putting the gaming element front and center.
To that end, they&rsquo;ve hired Dennis Crow to lead game production for the platform.
Before joining Wilder, Dennis had experience producing games for AAA game developers like Ubisoft, Warner Brothers, and Rockstar Games.
Although Wilder doesn&rsquo;t have pockets quite as deep as a AAA game studio, they were able to raise a respectable $36 million in the last crypto bull run.&nbsp;
Investors include some well-respected names in cryptocurrency investing including Animoca Brands, Anthony Pompliano, and Digital Currency Group.
If Dennis and the team use that funding responsibly, it should be plenty to bring their initial racing game to market.
The racing game is currently in testing to a select group of testers. Wilder also let testers play the game at an event for Art Basel in December in Miami.
I expect that some version of the racing game will be available to the public later this year.
Investors can benefit in a number of ways &ndash; the in-game currency ($WILD) is available for purchase on Uniswap and other exchanges. The company also minted NFTs over the past few years that are available for purchase on the Wilder marketplace and NFT marketplaces like OpenSea.
A word of warning &ndash; at this time $WILD is not available for purchase on Coinbase. Buying $WILD or Wilder NFTs still requires some technical knowledge. Although you can find instructions to purchase the tokens or NFTs on Google or YouTube, if you&rsquo;ve never done it before you should be prepared to be patient and careful to avoid getting scammed or losing your money.
For this reason, I&rsquo;m not officially recommending Wilder.&nbsp;
If you decide to invest in Wilder, there are plenty of risks, but from what I&rsquo;ve seen of Wilder so far, I&rsquo;m extremely excited.
If the Wilder team continues to deliver on their vision, I would not be surprised to see $WILD skyrocket as they launch a public version of the game and potentially become available for trading on Coinbase.
With the Apple Vision Pro and other high-end VR systems likely to become more commonplace, I expect that Wilder could have massive upside.&nbsp;
We&rsquo;re now moving from the hype phase of the metaverse into the build phase, and I expect we&rsquo;ll see some awesome applications come to market that will be the mega-platforms of tomorrow.&nbsp;
My team and I will continue to keep an eye on this space and let you know as soon as we find exciting and lucrative investment opportunities.

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Inner Circle Elite: Going Wild in the Metaverse

If you&rsquo;re at all interested in precious metals (physical metal or miners), you ought to be interested in royalty plays as well.
Royalty plays are a powerful method to profit from a rising price for gold, silver or other metals but without the hassles of physical possession; things like storage, insurance, transport and such.
And royalty plays also reflect the difficult efforts and hard-won output of mining companies but without the hassle and operating problems of running a mine.
Another way to say it is that royalty plays are like owning physical metal without actually owning any physical metal. Or they&rsquo;re like owning shares in mining companies but without the mine. What does this mean? Let me explain.
<h2>Thoughts on Physical Metal</h2>
If you&rsquo;ve subscribed for any length of time, you&rsquo;ve likely read about the importance of owning gold. We discuss that point quite a bit here, as well as in many other publications at Paradigm Press. Get yourself some physical gold and silver, we often say.
It&rsquo;s good to own physical metal. You have it, you control it and it&rsquo;s nobody&rsquo;s problem but yours, in the sense that you need a secure place to store your stash. You shouldn&rsquo;t just toss it into a desk drawer and forget about it like old tableware or phone chargers.
When you &ldquo;own physical,&rdquo; as we call it, you buy real coins or bullion and take custody. This form of ownership is not a paper certificate or some sort of depository account; it&rsquo;s real metal that you can hold in your hand.
And if you hold the metal, there&rsquo;s none of what we call &ldquo;counterparty risk,&rdquo; which refers to the idea that someone on the other side of the deal might not deliver. Let&rsquo;s expand that last point. Let&rsquo;s say that you walk into a bank and deposit cash into a savings or checking account. It&rsquo;s your money, right? Well, no, it&rsquo;s not.
It&rsquo;s no longer your money because once you hand currency over to the teller, it becomes property of the bank. The bank is a counterparty to your deposit, and your claim to retrieve the funds is actually just a legal obligation for the bank to repay you, or perhaps cash your checks down the line.
Along the way, if the bank goes out of business, you&rsquo;re out of luck except for federal deposit insurance. Meaning that you&rsquo;ll get money back from the federal insurance fund, but you&rsquo;ll never see that bank deposit money again.
This should help you understand the counterparty idea. And by extension, you should understand why holding physical gold means that you hold the goods of value (gold, silver, etc.) and need not rely on anyone else. There&rsquo;s no counterparty risk.
So far, so good. But suppose that you don&rsquo;t want to hold too much gold (&ldquo;too much&rdquo; being a very subjective amount). Perhaps you just don&rsquo;t want the hassle of security and storage, or you have issues with insurance coverage, or it just makes you nervous about your safety.
Okay, so you can buy gold or silver and keep the metal in someone else&rsquo;s storage system, but now you&rsquo;re back to that counterparty risk issue. What if the storage site has problems? What if the storage site burns down or gets raided by the FBI? (True story; this happened in California). Is there a way to at least control the gold without having to hold it yourself? Hmm&hellip; Hold that thought.
<h2>Metal in the Ground</h2>
Now, look at metals from the other direction, namely from the mouth of the mine. Way down in the pit, we have an ore deposit in the rocks. The metal is there (i.e., the gold, silver, etc.), but it&rsquo;s tied up in the rocks, in the form of ore.
Of course, you can buy shares in the mining company that owns the mineral rights, but now you are truly joined at the hip with that company and management team. Can they mine that ore out of the ground, process the material and separate the valuable metals? Can they make any money at it?
Again, there&rsquo;s counterparty risk to owning a mine. Think about all the operational risks: who owns the mineral rights, government permits, social license with locals, logistics and expense of building and operating a mine, issues with ongoing operations, energy costs, costs and prices for innumerable other goods, maintenance, labor and workforce issues, and much more.
Is there a way to avoid these levels of counterparty risk, yet also control metal in the ground without actually being in the mining biz?
Hmm&hellip; Hold that thought, too.
<h2>Another Way to &ldquo;Own Gold&rdquo; and Other Metals</h2>
Well, yes; there&rsquo;s another way to own gold and other metals, besides buying the physical material or getting into the actual mining process.
This method does not involve serious funds upfront to purchase and take delivery of coins or bars. You have no storage issues. And you aren&rsquo;t tying yourself to a particular mining company in a specific locale or geology, or a certain asset, or to a technical and management team with all the operational issues.
In other words, there&rsquo;s a way to reduce much of the risk of owning gold or mining company plays, but you can still retain a strong whack of the upside when gold increases in price. Which brings us to royalty companies&hellip;
Here are the basics: A royalty play is not a gold miner because mining is for miners, and royalty companies do not run mines. No drill rigs, explosives, bulldozers or backhoes. No air and water permits. No road maintenance. No employees in steel-toed boots and hard hats. No big purchases of diesel fuel. No worries about the weather.
Royalty companies stay away from the messy side of things and leave mines, mining and operating risks to the mining people.
So then, one might wonder, what does a royalty company do? Well, somewhere in the life of a mine operation, the royalty company takes an up-front risk and lays out cash. Perhaps the mining company needs funds now-now-now, and management doesn&rsquo;t want to dilute shareholders by issuing new shares. Whatever the reason, a royalty company buys a future claim on the output of the mine, the gold, silver or whatever else.
It&rsquo;s called buying a royalty from the mine or miner.
Then when the mine is up and running (and it might take quite a while), every month or quarter the operator transfers funds to the royalty company. It&rsquo;s a legal obligation. Yes, there&rsquo;s still that counterparty risk, in that the mine operator must mine and produce output, and the royalty company must watch over everything like a hawk.
But the general business model is that the miner mines metal and the royalty company gets paid straight off the top; often via a process calculated as the &ldquo;net smelter royalty&rdquo; (NSR), meaning a payout based on how much metal comes out at the end of the smelting circuit for a particular ore.
And most royalties go on and on, long beyond the payback of the original, upfront outlay. In a financial sense, a royalty can become a gift that keeps on giving.
<h2>Royalties in Action</h2>
Let&rsquo;s say that an exploration company has a promising mineral show deep in the woods, but management needs money to continue the work. What do these guys do?
Or further along, during development, the mining company needs cash to complete a particular phase of the buildout, to move the overall project closer toward completion. Again, what do these guys do?
Well, they can try to borrow money from a bank, but most banks don&rsquo;t loan to miners at these stages. There&rsquo;s too much time risk and operational uncertainty for conventional banking.
Or developers can go to the markets, issue shares and raise cash that way. But this involves diluting previous shareholders, and sometimes it&rsquo;s tough to shake that kind of money tree.
But there&rsquo;s another way as well; the exploration or development company can sell a royalty to a third party that has cash, understands the mining business and can just write a check.
Then over time (and it may be years later), the mining operation pays back that advance of funds via a royalty. And the overall royalty may be much more than the original amount that was paid upfront.
If this sounds like a banking operation, well you&rsquo;re right. You can look at royalty companies as &ldquo;banks&rdquo; to mining plays, but they&rsquo;re not banks like you would use to take out a loan for a house or car, etc. Royalty companies are specifically focused on advancing funds into mining plays, with the expectation of eventual payback in the future. Then they receive back a long tail of cash flow over and above the original investment.
Of course, this kind of resource-development funding is not easy. It all requires serious oversight. Indeed, royalty companies have staff who scrutinize mineral plays with eagle eyes and sharp pencils. Royalty plays employ geologists and engineers, as well as money managers who rival the best hedge fund analysts.
<h2>Own Royalty Plays Now</h2>
And what does this all mean? Well, the best time to own royalty companies is toward the beginning of a generally rising gold market, like what we have now. Here&rsquo;s an example&hellip; Say that gold rises from $2,000 per ounce to $2,100, a 5% move. That&rsquo;s a good feeling if you hold physical metal; it&rsquo;s a gain that you can hold in your hand.
But that same price rise might not quickly trickle down into the mining company&rsquo;s share price. Share buyers want to review the profitability of the miner and consider how it all factors in with rising costs for energy, labor, materials, taxes and more.
But what about the royalty company? Well, if gold goes up by $100 in price (from $2,000 to $2,100), that increase in royalty payout from the mining play goes straight to the bottom line.
In essence, the tendency is for royalty plays to increase in share price early in the rising cycle of metal prices, and typically the share prices for royalty plays grow faster than the increase in price of the underlying metal.
Now, let&rsquo;s look at some company names. These are not official recommendations, and we won&rsquo;t track them. But they are solid, well-run companies in the royalty space and I follow them.
In the royalty arena, the biggest player is a sturdy old name, Franco Nevada (<a href="https://my.paradigmpressgroup.com/ticker/FNV">FNV</a>). Current share price is about $107, with a market cap over $20 billion and a dividend yield of 1.4%. Right now, shares are down and hover near a four-year low.
Ordinarily, I&rsquo;m not keen to buy shares on a declining trend, but Franco seems to have found a recent base. Plus, looking ahead, I see rising cash flows and profitability with higher gold and silver prices. Meanwhile, management has announced dividend increases.
Another large, sturdy play is Royal Gold (<a href="https://my.paradigmpressgroup.com/ticker/RGLD">RGLD</a>). Current share price is $112, with a market cap of about $7.5 billion and a dividend yield of 1.4%. As with Franco, the current share price is near a four-year low.
I&rsquo;m bullish on large royalty plays because we&rsquo;re in the midst of a general rise in prices for gold and silver, and the money will flow to the bottom line, if not out as higher dividends.
Over time, and in a rising market for the underlying metals, these royalty plays should offer protection on the downside, with upside gains as events unfold.

Here’s Why You Should Own Royalty Companies

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Paradigm Press LLC, provides independent economic commentary, analysis and education through print and online publications, videos, online seminars, conference calls and more.

We provide independent economic commentary, analysis and education through print and online publications, videos, online seminars, conference calls and more.

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