Phase Two

Silver Soars

A few hours doesn’t constitute a trend — but silver has blasted through the $35 barrier.

Checking our screens, the white metal has screamed $1.36 higher on the day — nearly 4% — to sit at $35.83.

I said in Tuesday’s edition I planned to buy more silver later in the day, even with the price near 12-year highs. I did. But that’s not a short-term trade thing. It’s a long-term accumulation thing.

Silver began the week around $33. It blasted higher on Monday, consolidated a bit, and blasted higher again today.

In Tuesday’s Rude Awakening, Paradigm’s recovering investment banker Sean Ring laid out five factors that lit the fuse on silver’s rally this week…

• Short Squeeze Chaos: “Once silver pierced $33.80 overnight [Monday], the game was on. That level was the lid on the pressure cooker — and once that blew, CTAs [commodity trading advisers] and managed futures funds tripped over each other to cover”

• Industrial Demand and Supply Constraints: “Robust industrial demand, especially from China’s rapidly expanding solar and electronics sectors, played a significant role. Supply also remains tight, with the world’s top producers (Mexico, China and Peru) facing stalled mining growth. This has led to persistent deficits and declining aboveground inventories, making the market more sensitive to supply shocks”

• Record-Setting ETF Inflows: “Institutional investors bought over 29 million ounces worth of a silver ETF last week”

• Safe-Haven Demand: “S.-China trade tensions flared up over the weekend. Silver is acting as a hedge against The Donald’s whims”

• Russia-Ukraine: “Drone strikes do not make a peace settlement. This is safe-haven investing at its finest.

“Silver isn’t just another shiny thing. It’s a monetary metal with industrial utility, which makes it uniquely disruptive to the status quo,” Sean goes on.

“It’s one of the few assets that can blow holes in both fiat illusions and Green New Deal fantasies — depending on who you ask.

“When silver spikes, it signals something deeper is breaking. Confidence in fiat. Stability in supply chains. Or faith in central banks.

“Unlike gold, which central banks hoard, silver is the people’s metal. And when it starts moving like this, it's telling you inflation hedges are back in play, industrial demand is real and the old suppression game may be losing control.”

If $35 can hold, Sean says the next target is $38. Beyond that? “It’s blue sky until $50” — a level that marked the all-time high in 2011 (and before that, 1980).

Gold, in contrast, is treading water today — down about eight bucks to $3,364. But in the bigger picture, the Midas metal looks stout.

Check this out, courtesy of the chartmeisters at Bank of America…

This is a good opportunity to revisit some timeless wisdom about bull markets — and how every bull market goes through three phases…

• In the first phase, nobody wants to buy. That’s where gold was in 1999–2000 — mired at $260, left for dead, a mere fraction of its $800 record two decades earlier. It’s at such moments when the brave move in and scoop up a bargain

• The second phase is that proverbial “wall of worry” — when the pros are piling in but they’re fretting the whole way up that it could all fall apart again. That happened throughout the 2000s — including during the 2008 financial crisis when gold took a steep tumble from record levels over $1,000

• The third and final phase is the mania phase, when mom and pop “retail investors” pile in en masse. Gold went parabolic — more than doubling from under $900 in early 2009 to a record $1,950 just after Labor Day 2011.

The current gold bull market began when the price bottomed in December 2015 at $1,050 — a bottom Paradigm’s macro maven Jim Rickards nailed almost to the day.

That chart above suggests we’re still squarely in Phase Two. Still plenty of time to get 10% of your portfolio allocated to gold, as Jim recommends.

Even if his hypothetical target of $27,533 is never achieved — you can see the math behind that calculation here — just $10,000 would be nearly a triple from current levels.

Whoops, This Wasn’t the Idea

Amid another trade-war headline, this headline-driven stock market looks remarkably calm today.

The headline in question is a phone call between President Trump and President Xi of China.

Chinese state media were first to report it — albeit with few details. Trump piped up on social media at midmorning, at least hinting at what was discussed: “There should no longer be any questions respecting the complexity of Rare Earth products.”

The Trump-Xi call had been in the works for a few days — but it came a day after Trump’s trade policy ran up against the law of unintended consequences.

Recapping what we mentioned on Monday: After talks between U.S. and Chinese negotiators last month resulted in a 90-day tariff truce, the U.S. Commerce Department issued a warning against the use of AI chips made by the Chinese firm Huawei “anywhere in the world.”

Beijing evidently took exception to that — and responded by starting to hold up approval of export licenses for rare earth elements used in everything from smartphones to guided missile systems.

Yesterday, The Wall Street Journal reported that for lack of rare earth magnets, “four major automakers” — some of them presumably American — faced “looming factory shutdowns.”

These companies’ solution to their conundrum? Move the manufacturing of certain parts to China.

“Ideas under review,” said the paper, “include producing electric motors in Chinese factories or shipping made-in-America motors to China to have magnets installed. Moving production to China as a way to get around the export controls on rare earth magnets could work because the restrictions only cover magnets, not finished parts…”

In a delightful exercise of understatement, the article then says, “If automakers end up shifting some production to China, it would amount to a remarkable outcome from a trade war initiated by President Trump with the intention of bringing manufacturing back to the U.S.”

In any event, Trump says negotiators from both countries will meet for another round of trade talks at a date and time yet to be announced.

Amid that backdrop, the major U.S. stock averages are modestly in the green.

The S&P 500 is up 0.4% and a mere six points away from the 6,000 mark — a level last seen in February.

Among the news-making names is Boeing — flat on the day after final details emerged of its deal with the U.S. Justice Department.

The company will fork over $1.1 billion to avoid prosecution for the two crashes of 737 MAX jets overseas during 2018–19 — twin disasters that killed 346 people total.

For the record, $1.1 billion is about 5.6% of BA’s revenue during the first quarter of this year. No surprise that it’s a “cost of doing business” penalty if you saw our most recent write-up of this travesty last month.

If you can hold your nose, several Paradigm experts say Boeing looks like a buy at this point: At $211 today, our Alan Knuckman says there’s plenty of room to return to the 2019 highs of $400.

“They’re not going to let that company fail.”

After Striking Big Deals With Trump…

For all the big deals that Donald Trump made last month with the leaders of the Gulf sheikdoms like Saudi Arabia… those leaders might be on the verge of bigger deals with China.

Last month, a delegation from China met in Kuala Lumpur, Malaysia with officials from the Gulf Cooperation Council (six countries including Saudi Arabia and the United Arab Emirates)... as well as officials from ASEAN, the Association of Southeast Asian Nations (10 countries including Singapore, Indonesia and the Philippines).

“This has bizarrely received almost zero coverage in Western media,” marvels the French internet entrepreneur Arnaud Bertrand, who’s spent many years in China.

As he writes on X, the summit’s aim was nothing less than “to forge what could become the world’s largest economic bloc, covering everything from free-trade agreements and de-dollarization to Belt and Road connectivity.”

The final statement from the summit contained the usual mumbo jumbo found in such documents. But reading between the lines, Bertrand says the arrangement “could represent nothing less than the most significant realignment of global economic power in generations, bringing together 2 billion people and more than half of the world's GDP growth under a single cooperative framework.”

If so, Trump’s weapons sales to the Gulf states and other deals made last month will look less consequential in the sweep of history.

Maybe nothing will come of it — but we owe it to you to tell you what corporate media won’t.

Comic Relief

Whoever thought to merge the national debt with the “Disaster Girl” meme is brilliant…

Mailbag: Warfare

George Washington’s prescient warning in his farewell address about “sympathy for a favored nation” springs to mind as we sift through the mailbag.

After Monday’s edition about the Senate bill imposing 500% tariffs on goods from any country that buys Russian energy, a reader writes: “We have the killer in the Kremlin who won't stop killing innocent Ukrainian people until he subjugates the whole of Ukraine.

“That killing of innocent people must stop. Drastic financial punishment is the only peaceful measure we have to stop Putin. If that fails, we have no choice but to resort to military action.”

“There is no way the U.S. was not only involved, but the mastermind,” a reader writes after Tuesday’s edition covering the Ukrainian drone attack on Russian aircraft.

“You can start with the immediate and implausible ‘details’ that clearly give the credit to Ukraine and absolve the U.S.

“Trump needed to show Putin there could be Russian losses outside of manpower and old weapons. This attack was costly for Russia, like losing the flagship on the Black Sea. That is the only thing that will bring Russia to the table.

“Hiding drones near Russian targets for over a year? Preposterous! Putin cannot bear these types of losses.”

Dave responds: Assuming Trump knew about and authorized the attack, you’re OK with that because it will “bring Russia to the table”?

Sure doesn’t seem like that’s the result after the phone call between Trump and Putin yesterday.

Meanwhile, it can’t be said often enough: Sanctions are an act of war.

Often as not, sanctions do not serve as a substitute for “kinetic” action but rather a precursor to it. Certainly the U.S. embargo on Japan’s oil imports did not forestall Pearl Harbor — and many historians believe the embargo actually precipitated it.

Alternatively, sanctions can become “a trap door to war,” as John Patterson wrote in 1994 for the Middle East Research and Information Project.

He had in mind the run-up to the Gulf War in 1991: “The Bush administration easily co-opted the broad support that arose for sanctions by arguing that time had run out, sanctions had been tried and failed, and therefore military action was justified.”

In the present moment — when we’re talking about the two nuclear superpowers — caution seems to be in order, no? Tens of millions of Americans glowing in the dark is not an acceptable price for “owning Putin.”