The 16-YEAR Shutdown?

  • “Dr. McDreamy’s” improbable vaccine timeline
  • Jim Rickards: “Zero Hour” gold thesis… 
  • … might play out in the next two weeks
  • Greg Guenthner on the corner-turning market?
  • Hidden bailouts in the CARES Act
  • A reader on Wall Street “fat cats”… a “flyover” perspective on what (or might not) be for dinner… a shred of good news from a Wisconsin bike shop… and more!

Really now? From your editor’s iPad shortly after the open…

CNBC Breaking News

As a reminder, it was Dr. Anthony Fauci who said on Jan. 21 that the virus “is not a major threat for people in the United States.” And who said as recently as March 9 that it was perfectly fine for a “healthy, young person” to get on a cruise ship.

But much of Wall Street, like the media, seems to have fallen under Fauci’s spell — hanging on every word spilling from the lips of Dr. McDreamy. (Hat tip to the left-populist pundit Matt Stoller for the pop-culture reference.)

Which makes us wonder also about Fauci’s 12–18-month outlook for a corona vaccine.

“When Dr. Fauci said 12–18 months, I thought that was ridiculously optimistic," Dr. Paul Offit tells CNN. Offit is the guy who helped develop the successful vaccine for rotavirus, preventing severe diarrhea in infants. The trials took 16 years.

Yes, much of that’s on account of government red tape. But even back in the ’60s, when the rules were looser, Offit says approval of the mumps and measles vaccines took four years.

“We will not be able to return to normalcy until we find a vaccine or effective medications," says Dr. Ezekiel Emanuel — a health care adviser to the Obama White House.

“I know that's dreadful news to hear,” he tells MSNBC. “How are people supposed to find work if this goes on in some form for a year and a half? Is all that economic pain worth trying to stop COVID-19? The truth is we have no choice.”

Of course, that choice is a lot easier when you’ve got a cushy gig like “vice provost for global initiatives” at an Ivy League school. And if you’re a do-gooder world improver, it means plenty of time for you and your kind to reorder society in a way that’s more to your liking. As Emanuel’s brother Rahm remarked during the Panic of 2008, “Never let a crisis go to waste.”

With that, we pivot to an update on the global supply squeeze in that ultimate crisis hedge — gold.

On the plus side of the ledger: “Three of the world’s biggest gold refineries said they will partially reopen after a two-week closure that disrupted global supply of the metal,” reports the Reuters newswire.

We mentioned the shutdown when it happened; these three refineries happen to be located in a part of Switzerland near the Italian border. Together they process about one-third of global supply.

“Fears that it would be impossible to turn enough 400-ounce bars stored in London into 100-ounce bars used in New York drove U.S. gold futures sharply above London prices after the refiners closed,” Reuters reminds us. (Hold that thought — we’ll come back to it shortly.)

But “open again” does not mean “normal.” They’ll be operating under tighter hygiene and safety measures — which translates to less than 50% of capacity at two of those three refineries. Meanwhile, many gold mines remain shut down to prevent the virus’s spread… and global air traffic moving those bars around the world remains at a near-standstill.

Result: “Zero Hour” might well arrive within the next two weeks.

Recall from last week that Zero Hour is the name we give to the moment when the price of physical gold you hold in your hand breaks away forever from the “paper price” that’s quoted on CNBC’s ticker.

Because of the supply stresses in precious metals right now, we’ve been seeing early hints of Zero Hour — with prices of one-ounce gold coins as much as $500 higher than the “front month” futures contract. (Which as we write this morning is $1,692.)

For a while, it seemed as if equilibrium could be restored and Zero Hour forestalled. Now, as our Jim Rickards tracks developments in the gold market, we’re much more doubtful.

“Most ‘gold’ that is traded is not gold at all,” Jim reminds us.

“It consists of paper contracts that track the price of gold. These contracts include gold futures traded on the Comex, unallocated gold forwards traded by London Bullion Market Association (LBMA) banks, gold ETFs and shares in gold funds.”

As we’ve pointed out for years, there might be as many as 100 ounces of “paper gold” for every ounce of the real thing; at times the number is much higher.

“Some actual delivery of physical gold by paper gold traders is allowed in order to keep the paper and physical prices aligned,” Jim goes on.

“But the amount of physical gold available to deliver in paper gold venues is trivial compared with the paper gold contracts outstanding. If paper gold contract holders ‘stand for delivery,’ the system will collapse quickly.”

We’re very close to that point now.

Without getting too deep in the weeds here, it has to do with that difference between the 400-ounce bars stored in London and the 100-ounce bars used in New York.

In New York, “the Comex changed 100-ounce contract specifications to match the 400-ounce physical bars in London. But London wants to count those bars as available without shipping them to New York.” (Told ya those weeds could get pretty thick. Hang with us…)

“The Comex has policy options, including a ‘trade for liquidation only’ order and banning physical delivery. Of course, that would send the price of physical gold soaring.

“This is playing out now and will come to a head around April 24,” Jim says, “when notices for delivery and arrangements for final settlement of the April gold futures contract take place.

“There’s still a good opportunity to buy physical gold right now ahead of this potential train wreck in the paper gold market. It’s coming.”

April 24 is only 16 days from now. And the train could slide off the tracks even sooner than that. You’ll want real gold in your hand — or in safe nonbank storage — before that happens.

Yes, we’re going to pitch Hard Assets Alliance once more today. We’ve been talking about Hard Assets Alliance since 2012 and about Zero Hour since 2013. But we’re not talking about hypotheticals anymore. Already most of the major bullion dealers are putting huge markups on their inventory… if they have inventory at all.

But Hard Assets Alliance can leverage the power of its wholesaler network to meet demand from everyday retail customers like you right now — and at very reasonable premiums under the circumstances. As we write this morning, a 1-ounce U.S. Gold Eagle can be had for $1,809. That’s about $115 over the paper price — higher than “normal,” but you’re not going to find anything better now.

You’ll find all the essential details about Hard Assets Alliance at this link. Be advised that our firm bought a piece of the company last year, so we’ll collect a small cut once you fund your account. But we wouldn’t have struck that deal if we weren’t already impressed by how they take care of their customers.

As the day wears on, the stock market rally is accelerating.

Coincidentally or not, the 300-point Dow rally became a 450-point rally after Bernie Sanders announced he’s giving up his presidential run. (As if it wasn’t over a month ago?) The Big Board is now over 23,000 for the first time in nearly four weeks.

But our chart hound Greg Guenthner isn’t ready to say the market’s turned a corner. “Yesterday’s action tells an important story. The averages once again gapped higher following Monday’s huge rally. But stocks couldn’t hang onto their gains and drifted lower, coughing up a 3% gain to close in the red and post the biggest one-day reversal since 2008.

“I know yesterday’s close just below breakeven doesn’t seem like a big deal on the surface. But the Dow posted a reversal of more than 900 points on the day! That should tell you all you need to know about this market.”

Who knew there was a hidden bailout in the “CARES Act”?

Before the legislation was passed, a few Republicans objected that the expanded unemployment benefits would give people an incentive to stay unemployed rather than seek work at the places still hiring like Walmart and Amazon.

Well, yes. But now it turns out several companies “are citing the federal government’s beefed-up unemployment benefits as they furlough or lay off staff amid the coronavirus pandemic,” per this morning’s Wall Street Journal.

Among them is a chain of upscale gyms called Equinox. “We believe most will be better off receiving government assistance during our closure,” said a blunt email from the executive chairman. Macy’s and Steelcase are among the better-known companies who believe likewise.

“The stimulus package is changing the calculus for some employers, which can now cut payroll costs without feeling they are abandoning their employees,” says the Journal.

How is this anything other than a subsidy for companies that didn’t save for a rainy day?

Which brings us to today’s mailbag…

“Of course Wall Street expects a V-shaped recovery,” writes our first correspondent.

“The stock market and Wall Street fat cats will probably get one, at least in stock prices, as the Fed and other corporate bailouts support their inability to save for a rainy day.

“The mom and pops, the small businesses not publicly traded, the ones that were too small to build a robust rainy day fund, they are screwed.

“Thanks for all you do.”

“The cattle market is about to blow up if it hasn't already,” writes a reader who says he lives in “the great American flyover.”

“This is the time of year farmers and ranchers get really busy planting or preparing for planting and gathering, working and moving cattle to summer pastures.

“There are stories getting out of workers not showing up for their jobs, especially in the packing plants. Others like truck drivers and feedlot workers are also staying home rather than take a chance bringing the illness home. Our just-in-time system will not work without workers working all along the supply chain.

“In my lifetime, I have seen this happen to the cattle business before (the truck strike in the 1970s) and at that time there were pits dug and fat cattle shot and buried because people ran out of money to pay the feed bill. That production cannot be reproduced!

“If things are not better by harvest time, I can see crops rotting in the fields. I would be surprised if it is not already happening in the fruits and vegetables.

“Just a little different viewpoint. I enjoy The 5! Keep yelling into the darkness!”

We’ll give the last word to the bike shop owner in Wisconsin we heard from last month…

“So 2 and a half weeks into the stay-at-home order in Wisconsin, my bike business is busy, up about 50% from the same time last year,” he tells us. Bike repair is considered “essential” in the Badger State, and good for him.

“Seems with schools closed and parents working from home and gyms closed, many families are turning to bikes for recreation and sanity. We have problems with getting work done and products delivered. About half of our staff has opted to not work. Maybe we can profit in this new environment.”

The 5: Thanks for the update — good to hear. We’ll close on an optimistic note for once!

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. “HELP!” a reader implores. “What is the best way to purchase actual gold?

“I’m living in South Africa temporarily for a job relocation and would like to purchase gold in smaller bars. Just not sure where to start to get reputable gold.

“Thanks so much, seriously!”

Whether you’re a beginner or a veteran, we believe in everything Hard Assets Alliance can do for you.

You can buy for delivery… or for secure allocated storage in one of six nonbank vaults around the world. “Allocated” means a hunk of metal assigned to you; it’s not pooled with other people’s metals holdings.

[In your own case, you might have a few more paperwork hoops to jump through if you’re a citizen of one country and living in another. But it’s no more difficult than opening a brokerage account.]

U.S. citizens can even hold real metal inside an IRA. (No, you can’t take delivery in that case. That’s the law.)

Get started with Hard Assets Alliance at this link. Again, the disclaimer: Our firm invested in Hard Assets Alliance last year, and we had a marketing relationship before that. So we’ll be compensated once you fund your account. But we’ve been working with Hard Assets Alliance since its launch because of how they come through for retail metals buyers. You’re looking at the slimmest premiums over spot price anywhere, and the easiest website interface of any precious metals dealer.

To see how you can collect “5G Cash” of your own click here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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