Weekly Wrap Up

Elephant in the Room: Coronavirus and Economy - Weekly Wrap Up (April 3, 2020)

Head Shot of Eric Sprott Weekly Wrap Up

April 3, 2020

After another week unlike any other, host Craig Hemke and Eric Sprott discuss the devastating impact of the coronavirus and how central bank reactions will affect precious metal prices in the months ahead.

In this edition of the Weekly Wrap Up, you’ll hear all the gold and silver news you need, including:

· The Fed and money printing: how much can they create?

· The latest shenanigans with the COMEX

· Plus: Can coronavirus be eradicated?

“The biggest concern is the exponentially of the curve, right? We all talk about flattening the curve. And in many cases it’s not flattening much…. And as I look at curves, and I don’t look at them all, but one I’ve started to look at is India. Because they’re starting to ramp it up a little here, which is a scary thought, because it’s such a big country… with such a weak health infrastructure. But initially they’ve been very good at keeping control of it. But my, oh my, if it ever blew out in India, that would be devastating to the world.”

Man: You're listening to the "Weekly Wrap Up" on Sprott Money News

Craig: Happy Friday from Sprott Money News and sprottmoney.com. It's Friday, April the 3rd, 2020. It's time for your "Weekly Wrap Up." I'm your host, Craig Hemke, and joining us is captain quarantine himself, Eric Sprott. Eric, how are you?

Eric: So many great and wonderful things to talk about going on in the world, right? It should be very interesting.

Craig: No shortage of stuff, that's for sure. We might both be stuck at home but man, there's certainly a lot to do. And I should point out to everybody we are definitely closed. Our offices in Toronto, we are, just like every other business having to shut down for a while. So, we want to wish everybody the best. We want everybody to be safe. Take care of yourself. But of course, thank you for choosing Sprott Money. Keep us in mind for your business going forward. It will still be IRA season at some point. That'll be something for people to think about too. And we'll get back to hopefully some normalcy in precious metals before too long too. But of course, always visit sprottmoney.com for information, whether it's the blogs that are posted there or last month's conversation with Rick Rule for Ask The Expert. It was terrific too, so please continue to visit sprottmoney.com in the interim. Eric, it has been another fascinating week. Let's start though with, as you described, the elephant in the room. You've been on top of the COVID situation now for a couple of months. What have you seen this week?

Eric: Well, of course, the biggest concern is the exponentiality of the curve, right? That we all talk about flattening the curve. And in many cases, it's not flattening much. And of course, that's striking in the U.S and Spain. And Italy, I guess, has flattened a little. And as I look at curves in the world, I don't look at them all, but one I've started to look at is India because they're starting to ramp it up a little here, which is a scary thought because it's such a big country and with such a weak health infrastructure. But initially, they've been very good at keeping control of it. But my oh my, if it ever blew out in India, that would be devastating for the world. I think the one thing you have to leave with people, everyone in the public domain talks about flattening the curve, particularly in the U.S. I think what we should start focusing on is, "Okay, well, after you flatten it, where are you at the end?"

And you know, there's a phrase they use called "patient zero." And patient zero was somebody in Wuhan, China about four months ago, and that patient zero has led to 1 million cases of that we have today. Well, now we have 1 million patient zeros, one million people that could start their own little thing going on here. And so, for us to imagine that on April 3rd, we're all gonna jump outside and it's going to be over, I think is like so illogical. And I think this thing is just going to go on and on, and may even have bigger waves in the fall. But to imagine that we can eradicate it, and speaking of eradication, I continue and I'm getting a little more adamant on it. I don't believe the Chinese numbers. I believe they faked their numbers to suggest they came to zero. And by faking their numbers that they came to zero, they faked the world out too.

We hear that, "Oh, you can actually cure this thing. Isn't that wonderful?" I think they lied about their numbers. I don't think they got to zero. It's almost mathematically impossible for someone to accomplish that in that short of time. So, I think the world's been kind of cheated. And then, of course, by thinking that it can be cured, we haven't prepared well. So, for example, in the U.S., I mean, the fact that they don't have masks, and they don't have protective equipment, the testing is like, I mean, it's just, it's so disappointing. It is so disappointing. And I think it's going to have a continuum. We're already seeing it, a continuing devastating effect on, do we call it an economy still? Is it an economy when all the productive resources are doing nothing? All the productive resources are doing nothing.

And then we have to support, you know, I'm sure most of the government employees still get a paycheck. But what do they produce? I mean, we have a weird, weird economic situation here. And to imagine that GDP would go down by 40% or 50% or 60% or 70% is not illogical. And you know, maybe somebody might say, "Well, it'll be at 50% because 30% is government." Well, great. What did you produce? You know? That doesn't produce anything. Anyways, so, huge problem. I think there's been a slow realization of how devastating it is. I think the U.S. added 30,000 people yesterday. I think if you went back to like March 3rd, there was a total of a thousand cases. Now, we're at 30,000 in a day. And talking about the economy, I mean, I think we might be talking about, you know, not the great depression but a greater depression because it just happened way too fast. Everything plunged.

Craig: Just this morning we had the U.S. Jobs report for March. And it already came in, a loss of 701,000 jobs.

Eric: Now that job report is a little, you know, I think they do it in the mid-month, so they miss most of the action as you saw in the last two reporting weeks for jobless claims are up by 10 million, right? I mean, 10 million people not working in 2 weeks? That's striking. And one of the things, for example, some data that you see. The U.S. airlines said they lost 61 billion in March. Whoa. Well, what are you going to lose in April when no one's flying? There were 81 billion of rent checks due on the April 1st. We don't know yet how much of them were paid, but it would be shocking, you know, if all of a sudden somebody expecting to receive 40 billion didn't receive it. What does that mean for the loan that you have out there when the person can't pay the interest? And how many months are they not going to pay the interest? So, we're in a financial crisis, we're in an economic crisis, and we're in a health crisis all at the same time.

Craig: You know, and the response so far, Eric, most folks probably saw Neel Kashkari, the president of the Minneapolis Fed on the U.S. program, "60 Minutes" this is now, what, two weekends ago where he was asked, "How much money can...let's call it cash instead, how much cash can the Fed create?" And he said it was infinite, which was eye-opening. And now we know that's exactly what it seems as if the U.S. government's going to demand, we've already run through a $2.1 trillion program. There's probably more of that to come the longer that the U.S. economy stays on the sidelines. I think it appears the only response will be to conjure up more and more cash to try to feed out to people to keep the system going. That really is QE to infinity, Eric. It's all the stuff we've talked about for years.

Eric: Well it's QE to infinity and it's also deficits to infinity. You know, they're talking about, I don't know even what phase we're in, but we're talking about phase three and phase four of the stimulus program. And of course, now they're talking about, you know, one of them being new infrastructure and all that. I mean, I don't even know how you build new infrastructure when everyone stays at home. That's a very tough thing to do. And who knows when we're getting out of our houses, okay? For example, Singapore that had controlled things very well, just yesterday they announced, "Okay, everyone's staying home for a month because we're not doing enough." And they sort of said, "We can't let this thing restart again." And that's what the whole issue is.

And of course, now you got the deficit situation, you got the... It's hard to keep up with the money printing. I mean, it's just so difficult because every day there's some new program. What was it yesterday? It was an International Repo Fund created by the Fed for international banks. We have our own repo fund in the States. We had the thing where we're helping municipalities, and then we're probably helping the commercial paper market. We're going to buy all the bonds, we'll buy the mortgages. Oh my God. I mean, you and I were talking about how our days are rocky but it's almost impossible for a person to keep up with all the things that are going on because they're all complicated. I mean, imagine trying to refigure out what was in this $2 trillion stimulus program. It was 1400 pages long. I doubt that anyone actually read the damn thing.

But anyway, there's a lot going on out there and I think that some of the powers that be realize the absolute devastation of the economy. And it might even be that, I think it was Europe, or Germany maybe in particular, said well, we'll pay you to keep the employee on. And I think that's a good policy because what are all these people gonna do? You know, a couple of months from now, if they get their measly $1,200 check and they'll go through that in two seconds, what's next? You know, you think they're all going back to work in May? I rather doubt it. So, not good.

Craig: No, I hear you. And again, just kind of put that size of that spending in scale, I won't even lie, I don't even pay attention to anymore. Most people don't. The U.S, as they report it, total debt. Was it what? What are we up to? 23 trillion or something like that?

Eric: Yeah, 22 or 23 something like that.

Craig: All right. So, you'd figure all of this new spending that they're going to do this year, the total drop-off of tax revenue on a deficit that was already supposed to be more than a trillion. What's it going to be, 5 trillion?

Eric: You see.

Craig: So, what we're going...

Eric: You already went in with one, except now you've got no tax revenue. That probably takes you to two or three. Then you spend two. That takes you to three or four. Then you spend another two. Who knows what it could be? It could be like 5 to 7 trillion by the time it's all over and maybe higher.

Craig: So, it was already 23 trillion. We're going to add 20% to that just this year. Remarkable.

Eric: We could be pushing 30 trillion on top of the price.

Craig: So, obviously...

Eric: Plus, don't forget all the money that the Fed has to use to in essence bail out the banks here. Okay? I mean, it's a lot of this is just bailing out the banks, let them give them an opportunity to sell the treasuries back to the Fed or sell your money markets or whatever back to the Fed. Because all the customers are taking money out of the bank, and/or wanting to borrow, and they're certainly not going to be paying their interest or their principal. So, banks are in just an horrendous position. Look at all the companies that are in trouble now and the bankruptcies that we're going to have. I mean, it's just, whoa. It's all coming out into the like tsunami after tsunami after tsunami. And it's going to be hard to imagine coming out of this in a normal state. I don't think we'll come out of it in a normal state when it's all said and done.

Craig: No, it's hard to see that. I think we're going to look at life pre-2020 and post-2020. But you know, Eric, let's spend the rest of our time this morning though, talking about gold specifically. We can talk about silver too, but I mean, folks around the world are thinking more and more about gold now because of all these events. Not only just owning some, but an increase in their asset allocation and all that other stuff. But I mean, really understanding that gold is money. It is your vehicle to get you through the storm and preserve your wealth as we, you know, wherever this is headed. So, there's this demand for gold. That's all part of why it's Sprott Money, but also all the other major online dealers all are out of inventory. You can find gold on eBay, perhaps. That sort of thing. And this is putting tremendous pressure as people realize, you know, the phony-baloney nature of the gold market, and the leases, and the re-hypothecation is putting tremendous pressure on the LBMA and the CME group. A lot of stuff going on. Just kind of let me know, what are your thoughts on what you've seen?

Eric: Sure. Well, it's amazing how fast it might all come together. And all the things that we complain about, whether it's the ridiculous exchange for physicals, whether it's the lack of true inventory at the COMEX and/or the LBMA, the leveraging that's going on, the marking up and marking down, the difference between the paper markets and the real markets. And of course, we're seeing all of these now all starting to tremble, like there's a little bit of shaking going on in all these markets. And I suspect that we're going to get a blowout of the gold price. And whether it's for inflationary reasons, with all the money printing, whether it's for financial safety as we realize that the economy is essentially crashing, not even crashing. It's crashed. It's already crashed. And it's never crashed this much before in its history.

So, you know, you gotta look around and say, "Well, how do you survive this thing?" And away from the shenanigans at the COMEX, if you have the patience, the thing to own is these products. It's very unfortunate that it's tough to buy them in coins and bars because everyone's out of them. I think there might still be opportunities to buy them through some of the more reputable ETS and trust funds that have the product. Which, of course, I would include the Sprott physical silver and physical gold funds that for sure have the product. And I'm surprised that they haven't announced a cessation of trading actually because it must be getting tougher and tougher for people to actually buy those shares to bring the product in. I heard that silver is getting kind of tight these days too.

So, but that's another way for an investor to stay in the game here because there's no great premiums on these things. And they're probably gonna have to shut down these purchases like momentarily because you gotta be able to source the product. And speaking of shenanigans, we had a funny thing happen after our call on Friday last week, that of course the April contract was expiring. And typically, the technical funds, who are long, they own the front contract and they roll out to the next contract. And the next contract, the difference in pricing is the effective interest rate, where the effective interest rate is like almost zero now. So, you'd think you could rule for one or two bucks? No, not last Friday. The April price was $30 less than the June price, which meant that if you wanted to roll your contract, you had to roll from April to June and pay an extra 30 bucks brought to you by the commercial traders on the COMEX. Okay? There's absolutely no reason for it other than just to cheat their customers yet again. Plus I gather that there's been some awful increases in the margin requirements, like up 100% and it is it like 50%?

Craig: Well, they doubled on [crosstalk 00:06:03].

Eric: [inaudible 00:16:03] over now. Something like that?

Craig: Yeah.

Eric: Which is what they always do. When they commercial, they're trying to liquidate, they always increase the margin. So, the speculator can't afford to pay the rent, but the commercial can because he's a commercial bank and he has unlimited money. So, he can deal with the margin. So, there's a lot going on there. We have many things to watch in the supply-demand side. We have the mine closures. We had closures announced in Peru, and in Mexico, and there's the odd mine that's closed in various countries because of the presence of the Coronavirus nearby.

We have the mints closed down because they're in Switzerland, but they're very near the Northern Italian border. I sort of get the feeling that... Oh, and one other thing that's been happening. It was a very interesting thing that happened yesterday. Well, yesterday, there was a big, big move in both gold and silver. And I found it stunning that the open interest didn't go up by much, but it's not so stunning. They don't want to... The commercials know they can't play the game anymore. So, they don't sit there well, because gold was up, whatever it was up by 40 or 50 bucks. They're not going to sit there and keep shorting it. Okay? They know that game is over. All they want to do is get out of Dodge, man. And the fact that the April prices still got a wide gap from June, theoretically, you go in and you buy the spot contract and you sell the futures contract, except people know you're not going to get gold for that April contract. Sorry, for the spot contract. So you're going to get hosed sooner or later. They would get off their June short. Okay?

So it's a bit of a setup that people do the wrong thing because they are still short. They're still short a lot of money, and they're losing a lot of money and I think they're gonna lose a lot more. And you know, are we going to be surprised to see gold go up by hundreds of dollars a day? No, we're not going to be surprised to see that. Just as we saw the market... Were we surprised to see the market go down by 5 and 10%? No, we're not. Because we got these tsunamis of stuff happening out there that, you know, take no prisoners.

Craig: That's right. That's right. And it's interesting, the exchanges are changing the rules for what can be delivered. It was found that they didn't have enough hundred-ounce bars in the COMEX, and so now, all of a sudden they're giving you fractional ownership in London bars. I mean, sure reeks of desperation, Eric. Maybe we're going to have quite an interesting couple of months ahead of us.

Eric: You know, when I see the LBMA come out and say there's lots of gold in London, there's 8,000 tons. It just so sickens me that they would stoop to such misinformation because the 8,000 tons is owned by the Bank of England, the GLD, and other funds. And there might really be a thousand tons if there are a thousand tons. Okay? Like, there's nowhere near what they say there, but for them to lie about the gold available and saying it's 8,000 tons is telling you how desperate they are that they would just bold-face misinform everyone.

Craig: You know, and here's something for anybody home on quarantine. You want to have some fun, do a little research like you're back in your university days. Go on Google and type in the term London Gold Pool and start studying. Everything was fine with the London Gold Pool in the '60s until it wasn't.

Eric: And it was over.

Craig: And then it ended.

Eric: One day.

Craig: And then gold went from, you know, being managed at $35 an ounce to $900 an ounce or whatever it got to.

Eric: $900, Yeah. It only went up by 3000%. Which, you know, we can't even imagine it would go up to 10%, but you can see it happening here. It's done well in most currencies. I mean, we have wonderful prices in Canadian dollars, Australian dollars, Brazilian Real, Euros, Japanese Yen. I mean, there's wonderful prices. It's only in the U.S. that someday there's, I swear the dollar's going to take it to the shops one day. Just one bad bond auction, or maybe a downgrade by Moody's, which I kind of smell coming. How the bond rating services could possibly keep a triple-A rating on a bond is beyond me with all the looseness of what's going on in the world. So that's...that will come around in due course as well.

Craig: Eric, remind me next week. We talk about debt all the time and we talk about gold. There's a real school of thought out there that one of the solutions to all this might be an official reevaluation of gold. So that all the central banks could carry this valuable, valuable asset on their balance sheet. Maybe that's something we can talk about next week, but for now, it's getting late. Is there anything else on your mind?

Eric: No, but I was sort of chuckling to myself when you talked about our life and I thought, you know, "Do we really have a life anymore?" As we're confined to our homes. I mean, it's better than a jailhouse, but it's kind of a funny statement to think of what life we have now versus the life we used to have.

Craig: That's for sure.

Eric: We can't even meet anybody. We can't go anywhere. It's not a hell of a great life. Okay? Anyway, leave that as it is.

Craig: It's better than a jailhouse, like you said. But in some ways not much different.

Eric: I think it's fair enough to say we're alive.

Craig: That's right. That's right. Well, and hopefully, one day, everything will get back to normal. In the interim, like I said, we still store metal for folks. It will still be tax season. So, there's information you should look up regarding your registered accounts in Canada, or your IRAs in the U.S. So, please don't forget about Sprott Money. Go to sprottmoney.com, check out all those services there. Of course, you can still give us a call at 888-861-0775 for storage solutions, or retirement account solutions, things like that. Eric, it's always a pleasure to visit with you. It'll be very interesting to see where we are by next Friday, but for now, I hope you have a great weekend.

Eric: A lot happens every week and every day. It's just, it's amazing the things that you have to deal with it as someone trying to analyze what everyone's doing to everybody. So, it keeps you on your toes and I look forward to speaking next Friday.

Craig: You got it, my friend. And from all of us at Sprott Money News here at sprottmoney.com, thank you for listening. We'll talk to you again next Friday. Have a great weekend.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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