Chris’ note: The Daily Cut AM is a new e-letter from Legacy Research. For as long as this pandemic lasts, it’s where you’ll find our best ideas – paid or free ­– about the coronavirus and its impact on your health and wealth.

Today, we’re answering a question on a lot of readers’ minds: What’s been going on with gold? The financial panic has hit all assets… including our favorite form of “disaster insurance.” And it dipped as much as 6% as stocks fell.

But after a surge yesterday, gold is up 4.5% so far this year versus a 26% fall in stocks. And as Bonner-Denning Letter coauthor Dan Denning reveals below, as trillions of dollars of central bank and government stimulus money enter the economy, gold continues to soar.

Make sure to stick around to the end of this morning’s dispatch for more mailbag comments and questions from your fellow readers. I’ll also have more updates for you on the virus that’s stalking America… and the world.


The coronavirus has already triggered a bear market in stocks. Now, it threatens to trigger a global depression.

And if you’re over 60, that’s not the biggest risk you face right now. The biggest risk is to your health.

You may never see another one-two punch like this again. That’s why I’m writing to you today with this urgent update.

Colleagues Bill Bonner, Tom Dyson, and I have been in regular email and phone contact. Bill is down on his ranch in Argentina. Tom is staying with his in-laws in Florida. And I’m hunkering down in Australia.

We all agree that there are unprecedented financial and economic moves afoot.

If you’re a Bonner-Denning Letter reader, hopefully you followed our advice and put in place a sensible asset allocation plan. Our long-standing recommendation has been to invest in a mix of cash, bonds, gold, crypto, and collectibles… in addition to your stocks.

This will have cushioned the blow from the more-than-30% peak to trough plunge of stocks.

Today, I want to bring your attention to three items.

The first is the potential for further falls in stocks. The second is the explosion in stimulus money from governments and central banks that’s on the way. The final is the only trade worth making right now – in gold.

16% Drop in Stocks From Here?

The S&P 500 could fall another 16% as a result of the hit to corporate earnings.

So says the chief U.S. equity strategist at Goldman Sachs, David Kostin.

That would be a peak-to-trough fall of 41% from the intraday high of 3,393 the S&P 500 set in late February.

That’s an important level.

Last week, I showed you that three bear markets since the 1929 crash saw declines of 40% or more. The average of these declines was 51%. And it took, on average, 58 months (nearly five years) for stocks to hit a fresh high.

If this bear market repeats that average 51% plunge, the S&P 500 would fall to 1,663 points from here. That’s a 30% fall from today’s level.

If you buy back in too early, in other words, you go underwater. And you need an even bigger gain just to get back to break-even.

The Fed Is Pumping Hard

The Fed is trying to fight the downturn.

It’s rolling out various asset-buying programs – what’s typically referred to as quantitative easing, or QE – to bail out Wall Street and corporate America.

As you can see below, the Fed’s balance sheet stands at more than $4.6 trillion. (Every new dollar on the balance sheet represents a new dollar the Fed’s pumped into the economy.)

Chart

In addition to the Fed slashing rates to 0%, its balance sheet grew by $357 billion just in the last week. That’s the biggest one-week jump since March 2009, as the market reached its bottom in the last crisis.

This liquidity crisis is going to dwarf that one by the time it’s over. And it’s not just a liquidity crisis…

More Lockdowns Are Coming

California’s governor, Gavin Newsom, has locked down the state’s 40 million residents.

If the entire country goes into lockdown, the hit to GDP will be immense. One estimate is for a 50% plunge in output in the current quarter.

Trillions of dollars in fiscal stimulus… and trillions more in Fed assistance to banks and corporations… aren’t going to stop the coming recession. Industries that employ tens of millions of people will be idle – indefinitely.

Even if the lockdowns last for just a month, the disruption to earnings is going to be massive.

I’m not downplaying the necessity of these lockdowns. I’m saying there’s no way the Fed can meet every company’s payroll… repair every bank’s balance sheet… and guarantee every investor’s retirement while pretending the real economy hasn’t ground to a halt.

But it will try…

Deflation First, Inflation Later

Last year, Bill and I calculated that the Fed’s balance sheet would grow to 40% of GDP by the time the next crisis was over. That’s double where it is now.

Now, that estimate looks conservative. So does our prediction that the U.S. national debt would grow to $40 trillion in the next 10 years (from $23 trillion today).

It could hit $50 or $60 trillion before this thing is over.

Given those numbers, we believe the deflation in financial asset prices will give way to massive inflation.

That’s good news for gold. But there’s a catch…

What Gold Does in a Stock Crash

Something odd happens to gold at the start of a stock crash.

Leveraged traders sell their gold and other liquid assets to raise cash.

That’s why gold fell by about 30% at the height of the 2008 crisis. Gold dipped recently, too.

But if things play out like they did in 2008, gold will rally from here. Between its bottom in 2008 and its peak in September 2011, gold rallied 166%.

Chart

If this happens again, gold stocks – not all of them, but many of them – will enjoy a monster rally.

A wall of stimulus money is coming toward economies in this and the coming quarter. Most of this money will add to government debt, which is already huge. This makes the bursting of the bond bubble all but inevitable.

We believe gold will become the only safe-haven asset worth the name “risk-free.”

Junior gold mining stocks are definitely not risk-free. But they are leveraged to a higher gold price. The higher the gold price goes, the more valuable their gold production… or gold in the ground… becomes.

That makes them interesting speculations.

It doesn’t hurt that oil is selling for just $23 a barrel. Energy is a big input cost for miners.

And you’ve been given a unique opportunity to buy gold mining stocks even cheaper than usual. That’s thanks to the blow-up of several leveraged exchange-traded funds (ETFs).

It’s almost the perfect setup for gold mining stocks.

The biggest risk is we’re wrong about the coming inflation. If we are, the global economy will enter a depression.

Gold mining stocks will plummet. But the gold bullion you own will be more valuable than ever.


Chris here – As I told you when we created this free coronavirus-crisis resource – Daily Cut AM – we’re putting together a “community center” for you and your fellow readers.

This is where you can get your urgent questions answered by our team of analysts.

I’ll get to as many of them as I can. And I’ll publish answers from Bill Bonner, Doug Casey, Teeka Tiwari, Jeff Brown, E.B. Tucker, Jason Bodner, Dan Denning, Nick Giambruno, Tom Dyson, and Dave Forest… and the rest of the Legacy Research team… in these pages.

And if you have a personal story to share about how you’re coping with the virus… or how you and your family are staying safe… send it on.

We’re also interested in local updates on quarantines in your area… the state of the economy… or the response by the feds. Don’t be shy. Let us and your fellow readers know.

We want a real alternative to the fearmongering in the mainstream news.

So start sending your questions and stories my way, especially if you’re a frontline healthcare worker. You can reach me and The Daily Cut AM team at [email protected].

First up this morning, more concerns about gold…

Gold is a disaster!! Guys!!! Times have changed; gold is on its way out! We’ll see $800 gold soon. I’ll be watching gold to confirm this prediction.

– Nestor F.

Chris’ comment: Thanks for writing in, Nestor. I’m not sure what you mean that gold is on its way out. It’s been around as a store of wealth for thousands of years… and I expect that will remain the case.

Gold surged 5% yesterday. And as I type, it’s at $1,597 an ounce.

Gold would have to fall more than 50% from here to get down to $800 an ounce. For the reasons Dan laid out above, it’s more likely to surge $800 from here – for a price of $2,400 an ounce.

If you’re not convinced, take another look at the chart Dan showed of how gold performed in 2008, during the last major crisis. Gold fell initially as leveraged traders scrambled for cash to satisfy margin calls. Then it surged 166% higher.

Our base case here at the Cut is that it’s going to repeat the same “script” this time around. And don’t worry… I’ll have more for you on this subject in future Daily Cut AM dispatches. So keep an eye out in your inbox for those over the coming days and weeks.

Next up, a question about one of our favorite speculations here at the Cut… legal cannabis stocks. Palm Beach Venture chief analyst… and Teeka Tiwari’s right-hand man… William Mikula has the answer…

I’m a paid subscriber. Will the cannabis stock companies survive the change in the market? Will they still hold value?

– Prez F.

William’s answer: Thanks for the question, Prez. As we’ve mentioned many times before at Palm Beach Venture, the legal cannabis industry is set to rocket higher.

According to Research and Markets, the global cannabis market is expected to reach $154.8 billion by 2026. That’s up 939% from today, or a nearly 40% annual growth rate.

And since last June, Teeka and I have been building a portfolio of private companies to cash in on this megatrend.

Now, to be clear, it has not been a straight shot higher… or an easy road, for that matter. Over the past nine months, the industry’s been rocked by a vaping crisis, licensing issues, scandals… and now, a global pandemic.

So far this year, the industry’s benchmark ETF, the Horizons Marijuana Life Sciences Index (HMLSF), is down about 39%.

Remember, when the market hits a massive sell-off like this, traders and investors sell what they can… for whatever price they can get.

That’s why we preach smart, rational position-sizing for all of our positions at Palm Beach Venture. For publicly traded stocks, that means no more than $400 for smaller accounts, and no more than $1,000 for larger accounts.

We had no way of knowing a global pandemic (or other crisis) would strike. But as we laid out for our paid-up subscribers, we knew that any emerging industry – like legal cannabis – would have growing pains.

That’s why we’ve leaned heavily on our experience in crypto. As you know, Teeka was one of the first analysts in the world to publish an in-depth newsletter on cryptos. Since recommending them in April 2016, bitcoin and ether are up 1,418% and 1,415%, respectively.

That’s despite boatloads of volatility, drawdowns, and setbacks along the way – including the current crisis. Some of our readers have notched life-changing gains by following the simple mantra of small stakes in assets with 10x-plus potential.

The key takeaway here is that by using rational position sizes, our readers didn’t lose sleep during volatile times in the crypto market.

It’s the same here with legal cannabis. Rational position sizes allow us to take small starting stakes in the most promising companies in the space. Then, we hold as they execute on their business plans.

If things go well, we’re looking at potential 10x upside (or more). If things take an unexpected turn, our grubstakes were small to begin with. So it doesn’t affect our lifestyles. It’s the perfect asymmetric bet.

At this point, the market is more oversold than it was in the depths of the 2008-09 financial crisis. Almost all asset classes have taken extreme hits. It will take time for the broad stock market – and the legal cannabis industry – to recover.

Remember, The Daily Cut AM is a shared resource for you and your fellow Legacy readers. These are trying times. And as I keep pounding the table on, the way we’ll get through this is together.

So please send us your questions about the market… plus your stories of how you’re coping… along with any local updates… at [email protected].

We’ll publish as many of your emails in future Daily Cut dispatches as we can.

Now, more on the coronavirus outbreak… and some of its disturbing developments.

Corona Watch

At The Daily Cut, I (Chris) have been sounding the alarm about the rise of the digital surveillance state.

In December, I showed you how China has been teaching a master class on absolute control. And I showed you how America is not far behind when it comes to digitally keeping tabs on its citizens.

The big tech firms of Silicon Valley know us better than we know ourselves. Where we go… who we talk to… what we do… Our smartphones and computers record it all. Powerful algorithms then analyze this data to compile a scarily accurate portrait of each one of us.

Until now, this kind of information has mainly been used for advertising and getting people to vote for one political candidate or another. It allows companies to “microtarget” us with ads based on the digital profiles they assemble and keep on each and every one of us.

But in the fight against coronavirus, your smartphone’s data has another use.

Its built-in GPS (satellite location-tracking system) can help keep tabs on the coronavirus as it spreads. This allows governments to isolate cases of COVID-19. It also allows them to trace the folks most at risk of carrying the virus.

According to this COVID-19 digital rights tracker, 11 countries – including Italy, Germany, and the U.K. – have taken measures to track the phones of COVID-19 patients.

This ranges from tracking anonymized aggregated data to monitor the movement of people generally to tracking individual suspected patients and their contacts.

Now, for a lot of folks, that may sound like good news. And it’s true that phone tracking can help us build a better picture of how the virus spreads. The problem is this kind of ramped-up surveillance is likely to become the norm.

We saw it before with 9/11. That led to the ramping up of the U.S. surveillance state and the widespread eavesdropping operation by the National Security Agency (NSA) that Edward Snowden exposed in 2013.

And as Dan put it in these pages last May, that’s a real problem…

If people are watching you all the time, you watch what you say. If you stop saying it, eventually you’ll stop thinking it. Thus is your behavior modified by cracking down on free speech.

You can keep government limited only if you’re free to speak your mind and hold those in power accountable.

So look out for more on this important subject from me in future updates.

Finally, it’s critical that you get good information on the virus. You already know our view on how the mainstream media has handled the outbreak. But there are countless fake-news peddlers on Facebook, Twitter, and other social media platforms.

And that’s a real issue… because in a crisis, taking the wrong advice can be fatal.

That’s why I’m sharing links to some of the websites that helped me get a handle on what’s happening right now.

First up, check out this weekly podcast about the coronavirus. It features in-depth Q&As with some of the world’s leading infectious disease and public health experts.

You may have been wondering just what the symptoms of COVID-19 look like. This video shows how you’ll feel day by day if you contract it.

And as COVID-19 spikes in Spain, the last survivor of the 1918 Spanish flu epidemic urges us all to be careful.

Finally, remember to share your thoughts with us and your fellow readers.

Are governments overreacting to the pandemic? Are they doing too little to stem the spread of the virus? And what do you think about the feds tracking you by way of your phone’s GPS in the name of tackling COVID-19?

Write us at [email protected].

Regards,

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Chris Lowe
March 24, 2020
County Kilkenny, Ireland

P.S. As cities across the U.S. go into lockdown, here at Legacy, we want to go the extra mile for you. It can be boring being stuck indoors with nothing to do. So we’re also unlocking a digital copy of Legacy cofounder Bill Bonner’s latest book for you.

It’s called Win-Win or Lose: A Modest Theory of Civilization. And it’s a Bonner classic. In fact, it’s one of the best insights into how society and the economy really work that I (Chris) have read. And it’s almost diametrically opposed to the mainstream view.

You see, Bill believes government bailouts… quantitative easing (QE)… zero interest-rate policy (ZIRP)… trade wars… and all other Washington boondoggles are win-lose deals. The remedy for the economy is something different entirely. You can access your free copy of Win-Win or Lose here, courtesy of Bill.

Like what you’re reading? Send your thoughts to [email protected].