The Economy Is A Powder Keg, Boiling Over And Ready To Blow

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QTR's Financing Fringe

In a previous life, I worked at an industrial facility that operated chemical processes weighing up to 20 tons. We used a closed loop system in the absence oxygen and did not use pressure.

We used a variety of gauges, thermocouples and pressure sensors to monitor each step of our process.

We installed a blowoff at the midpoint of every process. This was a long pipe that connected to the exterior of the building and had a sealed that would blow when the PSI reached a specific threshold. It was a safety feature to ensure that, if pressure built up in the process by accident, the valve would blow off outside of the building instead of turning the process into a 20 ton pressure bomb. The same principle is used to make a kettle scream once it reaches a certain steam pressure.

Our economy today is a similar process, with many variables, though it's far more toxic than the green process we used to have. You could choose any of the following variables to track in our economy: CPI (the consumer price index), GDP (gross domestic product), the money supply (the amount of money available), the price for commodities or equities. Or you can even monitor the average number of chips that are contained in a $0.99 bag. There are a number of variables to monitor in order to forecast the health of the financial closed-loop process.

The price of stocks continued to rise as if nothing was wrong. The causes of each of these effects were different: the bank fell because it lost confidence, just like Silicon Valley Bank did, when it announced that it would need to sell billions of assets. And the price of stocks continued to rise as though nothing was wrong.

It's hard to ignore the juxtaposition of two variables: that markets did not care or noticed that another bank just collapsed.

When put in context, it's even more difficult.

Five major banks have failed since March

Silicon Valley, Silvergate Bank, Credit Suisse, and now First Republic.

Since 2010, I have been ranting on how the stock markets are not the economy and explaining why one market can move without impacting the other. But this strange relationship between equity markets, economic reality, and the free markets seems to be an insult to natural laws and the principles of economics. The CDS market appears to be aware of this.

Chart: Zero Hedge

I will digress. I am not here to argue against the current trend or claim I am right when it is obvious that the market has proven me wrong. What I remembered on Friday was that there were a number of economic 'blow-off valves' which could bear the dire reality that the economic catastrophe is unfolding and that equity values seem to be eluding.

It's possible that equity prices will remain high. But something else must give in order for that to happen.

As I've previously written about

.

If interest rates and equity price were the only economic variables in the macro system, then the market would have been down at least 80% from its peak by now. They're not. We have to deal with the money supply, market psychology, commodities, Fed bond purchases (and sales), and many other 'wildcards'. The never-ending number of items we have to deal with means that there are also a multitude of other things where the turmoil can occur.

You can also check out

The equity market will not be the only place where this money is invested.

According to me, precious metals (and perhaps even bitcoin) are the most likely candidates for a 'blowoff.

The Federal Reserve is currently the only person in the party that is so intoxicated, they think they are the ones who have control. The rest of party just looks on in shock and embarrassment.

The government is currently bailing out the banks with abandon.

Ho hum

As if nothing is wrong.

This attitude is a result of the hubris-ridden monetary policies we have implemented over the past 15 years.

In 2008, we were able to a

It was necessary to have a discussion

You know, the moral hazard, and the idea that we might not want to go down a road that could lead to a collapse of our currency.

This bailout has set a bad precedent. Powell and Yellen would smile as if they had saved the world in less than an hour if we faced the same decision today. There is no debate about moral hazard. There is no U.S. Dollar debate. No one is debating the abuse of our 'privilege,' which allows us to print money. There is no debate. Now, bailouts and printing is just assumed. We may be facing the same fate as Caesar.

Massive consequences

Crossing a

Small rubicon

This setup keeps me focused on gold and mining companies as an investor.

As confidence in the U.S.'s status as the world's reserve currency erodes, I can watch these investments grow. Even if the dollar remains a reserve currency for a long time, I can't see how it will be taken seriously. When the world has to decide between a U.S. debt-based system and a BRICS gold/commodity backed system, it will be clear which one to go with. The dollar will become the "fix-all" for the U.S. economic system in the coming quarters. This includes markets collapsing, banks collapsing, and eventually the bond market.

The blatant arrogance of our attitude towards bailouts and the printing of money under the pretext of "maintaining an economy" is one of most perverse and sly tricks ever committed. And gold, with its 5,000-year history of limited supply and high demand, remains the greatest equalizer.

If the abuse of the Dollar was all we were concerned about, then that would be a good thing. This is not the case -- the lackadaisical attitude of bailing out anyone who needs it at any time and without limits is a reaction to the fact that the rest the world has never before openly challenged the U.S. Dollar. As I've said before, the impetus behind this challenge was the seizure of Russian reserves and weaponization of the U.S. Dollar.

Brent Johnson and others may be right about the dollar

You can learn more about this by clicking here.

It will survive as a global reserve currency

It may even end up maintaining its value compared to a basket other DXY currency

But, given the uniqueness and fragility of the global economic system and the fact the BRICS countries are

All but Guaranteed

To start their own gold/commodity based system, means

The dollar is certain to depreciate in value against gold.

I personally continue to buy miner stocks and increase my positions in GDX, SIL, and other mining companies. As I said on

Palisades Gold Radio

Before, I was concerned about the possibility of nationalizing miner's if my thesis is proven and the economy starts to crumble. As Jeff Clark

This excellent episode was released a few days ago

There will be a "sweet spot" to sell - after the cycle has risen and the mania begins, but before the government decides on nationalizing miners.

We've already seen the government target bitcoin under the guise that it is protecting investors following blowups such as FTX. Everyone knows that the Democrats are trying to ban cryptocurrency because they don't want any competition for their (digital soon) U.S. Dollar. Crypto is the easy target to be after right now. Gold will be much more challenging down the line, but that does not mean it won't occur.

If equity prices continue to rise, and rates are nearing 5%, I would be curious to hear from my readers about what they think will be the next blowoff valve in the economy.

Here is my April portfolio review

The names that I like, purchase, own, and dislike continue to be the same.

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QTR's Disclaimer

:

I am neither a guru nor an expert.

I'm an idiot who writes a blog. I often make mistakes and lose money. I can own or trade any name mentioned in this article at any time, without warning. I generally trade like an degenerate psychopathic. This is not an advice to buy or sell stocks, securities or asset classes - it's just my opinion and that of my guests. I have probably lost more money than I made during my trading/investing career. I can add or remove any name from this article at any time. As soon as this article is published, positions can be changed immediately. You're on your own. Don't base your decisions on my blog. I am on the fringe. The publisher cannot guarantee the accuracy and completeness of this information. These are not the views of any of my partners, employers, or associates. I tried to be as honest as possible, but I can't promise that I was right. I sometimes write these posts when I have had a few beers. A lot of the time, I get it wrong. It's so important that I have to mention it three different times.