We are living through a very unique period in financial history.
On one side, we’re in the midst of an amazing technological revolution. Software and new technologies are streamlining the way the world runs. Advances in renewable energy are picking up steam. Medicine is leaping forward in new and incredible ways.
There are, however, troubling financial storm clouds on the horizon. The entire world economy — with a few minor exceptions — is piling up debt like there’s no tomorrow. Total global debt in 2020 reached $281 trillion. That’s equivalent to an eye-gouging 356% of worldwide GDP. That’s up 35% from 2019. And don’t get me started on unfunded liabilities (Medicare, Social Security, etc), which is a whole other can of worms.
In Europe and the U.S., interest rates are lower than they’ve ever been. And they’re likely to stay that way as long as central banks can manage it. Savers are getting crushed while speculators are richly rewarded.
As a result of these and other factors, America is losing faith in its largest institutions. A recent Axios-Ipsos poll asked people how much they trust the Federal Reserve to look out for their best interests.
A full 60% of respondents said they don’t really trust their central bank (the Fed) to look out for them. Unfortunately I can’t find any historical polls on this question to judge the long-term trend. But I suspect it has been trending down since at least 1971 when we moved fully off the gold standard and inflation raged.
Trust in the U.S. government is even worse. A Pew Research poll that shows the percentage of people who trust America’s government “all or most of the time” has dropped precipitously over time.
When that survey began in 1958, 73% of people trusted the government. The most recent reading from March 2019 shows that only 17% feel the same way now.
Financial Rebels Popping Up
As a result of our financial situation and lack of trust in our government and financial institutions, people are understandably fed up. Rebellious investors are looking for ways to make the best of a crazy situation.
Here are a few notable examples I’m following.
The Silver Squeeze is a movement that is encouraging investors to buy physical silver bullion. Members of the Silver Squeeze movement post on a new Reddit group called Wall Street Silver and on other social networks. Their goal is to buy up as much physical silver as possible in order to send the price soaring and expose big institutions who are shorting silver to major losses.
The basic theory is that there is much more “paper silver” trading out there than there is actual physical silver. Most contracts settle in cash, not actual metal. If a lot more traders decide to take physical delivery instead of settle for cash, there might not be enough bullion to go around. Wall Street Silver has grown rapidly on Reddit — it attracted 34,000 members in its first month. It’s also popular on Twitter and probably other sites too.
One member who goes by TheHappyHawaiian on Reddit says that institutional traders are essentially short 573% of the silver “float” (liquid inventory of silver bullion). Here’s an excerpt from his post.
If you want to think about it like a stock, the short interest is 573% of the ‘float’. This is based on the fact that over the next 3 months there are futures contracts and options which have the right to take delivery of 847 million ounces of silver. This is compared to only 147 million ounces registered on the COMEX that could fulfill these deliveries. For perspective, the GME short interest peaked at around 140% of its float, and that was considered crazy high. It is widely known that if a small, but significant share of long silver contract holders took delivery, that there would not be enough silver, as the demand would cascade higher and higher as the prices rise.
Partially as a result of this movement, it’s basically impossible to find physical silver coins or bars today. Any stores that have silver are selling them at a $5-to-$6 premium per ounce. That’s far higher than I’ve ever seen it. With price premiums in the market, it does seem likely that more traders could opt for physical metal instead of cash.
The Silver Squeeze is an interesting theory. If it’s even partially correct the implications would be quite significant. Either way I love silver, gold and miners here. As I mentioned, it’s very difficult to find physical silver today — but you can buy PSLV, the Sprott Physical Silver Trust, which is a solid alternative. You can also buy silver mining stocks. Note: silver is volatile! Don’t invest more than you can afford to lose.
Bitcoin Strikes Back
Bitcoin is arguably the prime example of financial populism/rebellion. I believe this bull run is a direct result of two things — massive budget deficits and low interest rates.
In 2020, the U.S. budget deficit hit more than $3 trillion. And it will likely approach $4 trillion in 2021 once the new $1.9 trillion stimulus package passes.
The 2020 deficit was equal to about 15% of the U.S. GDP — a ridiculously large number. People are starting to understand that Modern Monetary Theory and accelerated quantitative easing are essentially inevitable.
And thanks to low interest rates, yields on bonds and stocks are pitiful. Everyone needs a place to store value that has upside. And many want inflation hedges. Bitcoin fits the bill in a very unique way. The financial realities are starting to set in, and institutions are finally getting involved as a result. Voila.
Note: Bitcoin has already run up a lot in the past year. Don’t invest more than you can afford to lose. It could go to $200k over the next year — or it could go a lot lower. I am biased to the upside, but let’s not get overconfident here. Consider using dollar-cost-averaging, where you buy periodically over a long time period (once a month for a year).
Non-accredited investors have been cut out of this market for 80+ years. Tech startups are growing faster than ever before. A lot of money is being made by early investors. People are beginning to realize how unfair this is. And they want in.
In truth, the startup investing revolution has been underway since online investing launched in 2016. It’s been growing steadily since then, but on March 15th it’s going to get a HUGE boost. That’s when the fundraising limit on deals goes from $1 million to $5 million.
Overnight, the public startup investing industry will become a viable funding option for tens of thousands of more established startups. This is going to change everything. Higher quality. More mature companies. More capital for companies to grow and expand with. And eventually it’s likely that the limit will increase from $5 million to perhaps $15 million or higher.
Gamestonk & WSB
In many ways, the WallStreetBets (WSB) GameStop saga was also a sort of rebellion — or at least a decentralized populist stock pump (more here and here). And I don’t say populist in a disparaging way. It was a bunch of people who felt they had a chance to profit off a billion-dollar hedge fund’s crooked-looking short trade on GME. And on Wednesday, they managed to send GameStop flying again.
It was perceived as Wall Street vs. Main Street clash — a chance for regular investors to strike back against an evil short seller (and make money). And people absolutely loved it. I expect a lot more of this type of behavior now that WSB has more than 9 million members, and countless similar groups have spawned on other networks. It’s going to be very interesting to watch.
If you get involved in this “meme stonk” trading stuff, please be careful. Most traders lose money — and for every amazing gain you see there are probably five horrible losses you don’t.
In some ways, financial markets are constantly undergoing revolution. But I believe the next 10 years will be especially disruptive. There will certainly be lucrative opportunities — but I also see many potential pitfalls.