By: Doug Fogel — May 20, 2020
The #1 Sector to Invest In Today
Hello Fellow Trader,
Thousands of businesses have already closed, and thousands more are destined to shutter their doors before 2020 is over.
Already 36 million people have been forced to file for unemployment over the last two months… a number that’s likely to grow.
The US government response to this economic devastation has been well documented – Congress has authorized roughly $3 trillion in coronavirus relief so far.
This obviously adds some serious weight to our already bloated national debt – which clocked in at over $25 trillion (as of May 18, 2020).
All that cash is coming from the Fed, which is “printing” money at a record-breaking pace to fund the coronavirus bailouts, as well as other government programs and functions.
Now, on the surface you might think dumping trillions of dollars into the economy would cause massive inflation across the board.
Well, that hasn’t happened (yet).
Yes, grocery costs have jumped significantly since the coronavirus invaded our shores – they’re up 2.6% in April.
That’s the biggest monthly increase in food prices in 50 years.
But despite the rapid rise of food costs, overall inflation is extremely low right now because Americans are clutching every dollar with clenched fists.
And, 0% interest rates notwithstanding, people are reluctant to borrow.
The bottom line is everyone’s afraid to spend on things that aren’t absolutely necessary for survival.
The reason for this fear – aside from worrying about contracting COVID-19 – is the tanking of our economy, and the trepidation it’s instilling in those out of work or employed people worried about their jobs.
Obviously, unemployed people are loath to spend any more money than necessary.
Neither are working people who live in dread that they may soon join the ranks of the unemployed.
And, just like anxious workers and those who have been laid off, most business owners aren’t spending money they absolutely don’t have to part with.
In fact, a recent poll from the Society for Human Resource Management says over half of all US small businesses – 52% – expect they’ll have to close their doors within the next six months.
So right now we have a consumer-based economy that’s hamstrung by unemployed people who are forced to cut way back on their spending…
Employed people who are also cutting back on their spending because they fear their jobs are at risk…
And business owners who are very pessimistic about the future of the economy… and are thus spending as little as possible.
Obviously, such negative sentiment decreases demand for just about anything you can’t serve at the dinner table.
The trillions of dollars in bailouts already approved won’t change that sentiment in the near-term.
That could be a different story.
Former Fed chairman Ben Bernanke once said that a determined central bank can always create consumer inflation.
It appears the Fed is determined to do just that, with the slashing of its target interest rate to near zero back in March.
And if the government keeps showering the economy with helicopter money – the House has already approved another $3 trillion in coronavirus aid – at some point we will get higher rates of consumer price inflation.
Perhaps disastrously higher rates.
Smart investors are quietly preparing for that possibility through investing in precious metals.
The reason is obvious – gold and silver are forms of “cash” that can’t be debased by government money printing.
Right now – before serious inflation has a chance to slash the dollar’s purchasing power – is the perfect time to hedge your portfolio with precious metals.
And while most people prefer to invest in gold, I think silver is the better play.
The reason is the historical price relationship between gold and silver is out of balance right now.
For the entire 20th century, the gold to silver price ratio was 47:1 – in other words, it took about 47 ounces of silver to buy an ounce of gold.
For most of the 21st century, that ratio fluctuated between 50:1 and 70:1.
As I write this (Wednesday, May 20) the number is an astronomical 97:1, with told selling for about $1,750 and ounce, and silver at $18.03.
I believe this ratio will revert to the mean as precious metals investors catch on to this anomaly.
A great way to get ahead of this development is with the highly liquid iShares Silver Trust (SLV).
SLV is an ETF (exchange traded fund) that tracks the performance of its underlying holdings in the London Silver Fix Price, which are designed to capitalize on the rise of silver bullion.
Buying the fund right now and holding onto it for the coming months and years will likely earn you a profit.
But if you really want to ramp up your profit potential on silver, I suggest buying the SLV October 14.00 Strike Call option.
With SLV trading at $16.36, right now the mean price between the bid and the ask is $3.01.
If SLV goes up 10% within a month -- say to $18.00 -- the Call option will be worth $4.25.
So you’d make a quick 41% gain on this option (494% annualized).
That’s it for today,
Hi, ho, Silver!
Editor, True Market Insiders