Well it’s finally happened in Australia. Melbourne and large parts of Victoria have been declared a ‘disaster’ and new restrictions on movement have been imposed by Premier Daniel Andrews. The political desire for control and the social desire for safety have combined to launch an unprecedented attack on traditional individual liberties.
I’ll come back to the politics later. But let’s turn to the other side of the liberty coin, the economic side. When I wrote you last week, I’d just finished my presentation at the 2020 Sprott Natural Resource Symposium. In that presentation, I argued that good money would drive out bad in this era of ‘monetary regime change’. All paper money will devalue relative to gold and silver, is my claim.
It’s an important point. Even though gold finally broke out to a new all-time high in US dollar terms since I last wrote you, it was the last hold out among government-issued paper currencies all over the world. What economists and the media don’t teach you is that big government — the welfare and the warfare state — are only possible with big deficits. And big deficits are only possible when money is no longer stable and sound, cut off from the discipline imposed by gold and silver and exchange rates.
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But the purpose of today’s letter is not to deliver a lecture on sound money. It’s to point out that since the pandemic lows in March, silver in Aussie dollars is up 65%. My argument at Sprott was that silver would be like ‘tech stocks’ in the precious metals bull market. The punters and speculators would get on board ETFs and silver mining stocks as a cheaper way to try and profit from a precious metals bull market.
That assumes there IS a precious metals bull market, of course. And on that score, there is still a lot of doubt, even from hardened gold bugs. Why? Because we’ve seen this script before. Just when all of our arguments about fiat money and government deficits and sound money seem to be coming true, the central bank pulls out another fake ace from its sleeve or some mysterious large sell order appears in the futures market to smash the price of gold down.
What’s telling about the recent price action is that the four and five percent moves in the futures markets are to the upside. Since gold last peaked in 2011, big one-day moves have almost always been to the downside. The price action seems favourable as gold or silver reaches some technically significant point and then BAM! A big decline, often in the space of minutes.
Is this time different? Another telling data point is that 3.27 million ounces of physical gold were delivered on the first day of August on COMEX. Traders seem to be taking physical possession of gold. The ‘paper’ gold market, where huge short positions have traditionally existed (often the bullion banks themselves) are getting squeezed.
This could be another example of Thiers’ Law: good money drives out bad. When in doubt, take the gold. It’s good money. If the bears in the ‘paper’ gold market are under pressure, the upside for the gold price — in all currencies — could be much higher than anyone currently imagines. And I can imagine a LOT.
Meanwhile, did you know that six US-based tech companies have a combined market capitalisation larger than the economies of Japan and the UK combined? The FANGMAN group (Facebook, Apple, Google, Microsoft, Amazon and NVIDIA) are worth $7.2 trillion after the second quarter earnings announcements for tech stocks came out late last week. What do you make of this?
It makes sense that tech companies could grow users and earnings in a pandemic. People are working from home, shopping from home, learning from home, and socialising through the media platforms provided by tech stocks. In lockdown world, the tech stocks are a lifeline to normality (or what passes for normal these days).
But that’s just a narrative people will used to justify tech stock madness. We’ve seen this play before too. It’s when low rates and liquidity funnel into a handful of mega caps. The big get bigger as passive money flows inflate growth and momentum assets. The fact that this batch of tech darlings has real earnings and sales (as compared with the 2,000 vintage of market leaders) IS different. But not enough to justify a handful of companies being worth two of the largest economies in the world.
Or maybe this time really IS different. Maybe we’re in the middle of a transition to an economy driven by these same trends, automation, social distancing, distance learning and working, remote living and working. Maybe these networks and platforms and technologies really ARE that valuable in the police state world we’re drifting to. What do you think? Send us your view!
Our desire for safety shouldn’t come at the expense of our right to liberty
In the meantime, many Australians have argued on social media that Melbourne’s stage four lockdown was too late in coming and long overdue. Reading over posts on Twitter, you’ll find people who argue that because other people can’t be trusted to do the right thing, it’s necessary to fine, jail or otherwise restrict the individual freedoms of other people. All to protect the community of course.
I wish I could say it was astonishing how quickly some people are willing to throw away centuries’ old liberties in exchange for what they perceive as safety. Emergencies and disasters are always used as excuses to encroach or restrict individual freedoms. In our response to a public health emergency, we shouldn’t be so eager for the illusion of safety that we lightly throw away ancient liberties.
Social media amplifies the claim that now is different and that anyone defending their rights is selfish. The moralistic mob can shove right off. It’s deeply unattractive to see how many people are willing to grant the state almost unlimited authority to deal with people who dare to disagree. Some slavish and submissive minds will always be tempted to obey authority. Ugly.
So here Melbourne is, with a curfew from 8pm to 5am, with limits on how far you can travel from your home, how long you’re allowed to exercise each day and stern warnings by armed officers of the law to do as your told. What an absolute disgrace. The other real pandemic right now is fear, stoked by government and it is running rampant.
By the time it’s all over, we’ll rediscover what people have learned the hard way over history. There are some risks and dangers the government can’t protect you from. Getting out of bed implies an assumption of risk that life can be dangerous. Proceed accordingly and responsibly.
Our desire for safety shouldn’t come at the expense of our right to liberty. Any government promising safety by temporary restricting liberty (the restrictions tend to become permanent in some form) should not be trusted. Anyone defending such restrictions with bromides about responsibility is a quisling.
Editor, The Rum Rebellion