As States Reopen, Will Federal Stimulus Stall Or End?

For another week, the overall markets are in search of a general direction. The equities markets don’t know if they want to crash or if they want to rally, gold & silver continue to correct, and now, the commodities, in general, are experiencing pullbacks after spectacular runs higher.

Amid this backdrop of market noise, there are two fundamental forces to consider that will have a major influence over the direction of the US economy: The reopenings and the upcoming stimulus

THE REOPENINGS

On the one hand, there are the “reopenings”, for lack of a better word, being announced by some state Governors, while on the other hand, the Federal government, telegraphing via the mainstream media, seems to be in continued “shutdown” or “severely restricted” mode, in my humble opinion.

This is evidenced in two very interesting screenshots from the same news source, CNN, taken on two different days.

Specifically, yesterday, Tuesday, March 2, it seemed like the nation was in one gigantic boat:

One gigantic boat that will continue on this voyage for months, apparently.

And then Texas happened, and other states as well, but Texas is the big one, no pun intended:

That is huge news, and rightly so: Texas says “no mas” to the masks as well as "100% open"!

Side Note: I plan on writing an article about these dynamics later on today, but what I will write is a little too tinfoil hat-ish for this article, so if anybody is interested in some alternative analysis on the reopenings versus the mainstream/Federal push for continued shutdowns and restrictions, check out my other writings later on today, or for that matter, by the time this article is published, because I may have already written some commentary on the subject.

Now, In the second screenshot, taken one day later (this morning) but after the Texas Governor’s announcement, we see CNN politicizing the reopenings and the “rogue” Governors:

My point is not to get political, but to say that this struggle, that is, the struggle between reopening versus not reopening, will no doubt have a major impact on the overall economy, both in states and localities that do reopen and in states and localities that do not open, and the difference, to put it bluntly, will be the difference between good fortune and bad luck, depending on the state in which any given family or individual happens to reside.

Why does reopening matter for the markets, gold & silver?

The general consensus in the mainstream financial press is there is pent-up demand for many things: Eating out in large groups, going to shows and concerts, playing and attending sports events, going on vacation, and so on and so forth, to name just a few, and this pent up demand means a type of jump-starting of the economy, so to say, which is another way of saying to look for spending to pick up, arguably adding fuel to the inflationary fires that are already raging in certain sectors of the economy.

At the very minimum, gold & silver are the ultimate inflation hedges.

STIMULUS STALLS OR ENDS

The fact that Texas is opening up, “100%”, puts a big question mark on additional pandemic-related fiscal stimulus packages going forward, especially when it comes to things like extended pandemic unemployment insurance, stimulus checks, and other forms of direct, cash benefits to families and individuals.

This is not to say the more fiscal stimulus is not coming, however, because our monetary system requires it. The Federal Reserve Note, commonly called the “US Dollar”, in its current Unconstitutional bastardization, is unbacked, debt-based fiat currency dependent on exponential, unsustainable growth, and as such, the Federal fiscal “stimulus” really has to start ramping up even more so and very soon, because the end game is the hyperinflationary collapse of the US dollar, as we know it, and we’re at the point on the graph where the money printing goes vertical.

Here’s what it means for Silver Bugs, Stackers, and other Smart investors of more humble means, or, at least, of the means determined by the Federal government to be eligible for one of those “free money” stimulus checks: Without the implementation of some sort of Universal Basic Income, this next round of stimulus could very well be the last with respect to the pandemic related “stimulus checks”.

As it stands right now, the Biden Administration’s first stimulus package is still in the works, the one with the $1.9 trillion price tag (for now). The House passed the bill last weekend (the last weekend of February 2021), and now the ball is in the Senate’s court, and not only is the ball in the Senate’s court but continuing with the analogy, we now also have a race against the clock as States begin to reopen on their own.

In other words, If some states decide to continue with the shutdowns and the restrictions, those states are going to be looking for more Federal bail-outs, whereas if other states begin to show that they can reopen, without the need for continued federal bailouts, the cooperation, mood and willingness to act in Washington could get complicated very quickly, which is why I say it could put further pandemic-related stimulus in doubt.

Of course, Biden did just sign an executive order extending the Covid pandemic National Disaster Declaration, which means in theory, anyway, the pandemic rages on, and for those hoping Uncle Sam will begin handing out direct cash benefits to families and individuals on a regular, recurring basis, such as a “monthly stimulus check”, or something to that effect, the fact that Biden extended Trump’s National Disaster Declaration does leave the door open.

Now, I’m talking about “pandemic” related stimulus, but since our monetary system is beholden to its unavoidable, certain mathematical destiny, more stimulus will be coming. The question is, what kind of stimulus will it be? We could finally see the “infrastructure spend”, as well as the Green New Deal, both of which would carry heavy price tags on their own, which is the topic for a different article some other day, among other types of fiscal stimulus.

Here's the important question: Why does the Federal government stimulus matter for the markets, gold & silver?

Monetary stimulus, as in, the Fed’s monetary policy, benefits Wall Street and “asset valuations” generally, but Federal Government fiscal stimulus directly benefits families and individuals, and when families and individuals can afford it, or when they don’t care, that money is being spent in the real economy. I’m sure anybody who lives in a semi-nice small town or in the suburbs can attest to that with all of the brand new cars parked up and down the residential streets with “temp tags” on them, as well as the non-stop parade of myriad furniture, appliance, and other delivery trucks and vans bringing all sorts of brand new goodies and durable goods to recipients of the “free money” from Uncle Sam. The problem is, there is no such thing as “free money”, or a “free lunch”, or “whatever you want to call it” because if any nation could just print up or click into existence any amount of “money” needed or wanted, every single nation on earth would be super-duper rich, but that is not the case.

Here's why it matters: Gold & silver are money.

The US dollar, in its current form, is not money, but rather, the dollar is US currency and nothing more, and when it’s printed uncontrollably, recklessly, there is only one thing that provides a check on all of this monetary madness and fiscal insanity: Gold & silver.

Real money.

Real money is now priced, in dollars, just over $1700 per ounce:

Gold opened the year about $200 higher at price.

Alternatively, there is quite a sale on real money right now!

The gold-so-sliver ratio is becoming quite the nailbiter:

My experience and gut tell me that it will be silver catching down with gold and not the other way around.

Silver's chart is breaking down in the short-term:

It's not looking all that good for people hoping for immediate liftoff.

Palladium continues to be nice and reliable:

That said, reliable for now, and if the markets crash, we might be talking about a new sideways choppy channel.

We'll see.

We see platinum has given up most of its recent gains:

Platinum is still up $100, year-to-date, however, arguably because of the "industrial use" nature of the precious metal.

That said, commodities are now in a pullback, shown here with copper:

If the charts matter, there is no doubt copper had become "overbought".

Crude oil is a wildcard right now:

On the one hand, there is the economic recovery or economic weakness to contend with, and on the other hand, there is some Middle East geopolitical fear premium to contend with, as well as some lingering US supply chain disruptions, mainly due to the severe winter weather in Texas.

Further adding to crude oil's wildcard is a stock market that's kind of green in the face:

What happens if the market really starts puking its guts out here?

One thing that would happen is the VIX will surge higher:

All things considered, however, it seems like market participants are pretty complacent right now.

Yet signs of trouble for the stock market are all around:

Last week, I was writing about yields breaching 1.4%, and since then, yields have breached 1.6%!

The US dollar index looks like it may see some strength in the short-term:

At this exact moment in time, with tax refunds hitting bank accounts, and with another round of Federal fiscal stimulus in the chute, for Silver Bugs, Stackers, and other Smart Investors who are users of US dollars, this is, in my opinion, a gift horse.

Thanks for reading,

Paul Eberhart

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill.