Blockchain, Reign and the Paper Parade
Gold, ETFS and how blockchain will change the way gold is bought, sold and held in the future.
xbullion advisor David Tice joins silver aficionados Lee Justo and Jim Lewis of Wall Street Silver in a discussion about the current state of gold and silver market. In this in-depth conversation, David shares his views on silver squeeze and his favourite mining stocks, along with other issues. Watch full video here.
Alternatively, scroll below for the full conversation of the 3 silver experts for your reading pleasure!
David Tice: Now, when you talk about silver and some of that sameReddit crowd has come over to buying silver with the hope that the short sales will be covered in silver, now that's incredibly intelligent because silver is dramatically low priced, with the gold silver-ratio of about 75 when it comes out of the ground at about seven times. Therefore, silver is an undervalued asset that's also been squeezed. Yes, some of these short sellers are going to get squeezed and it's going to escalate the price going forward, but this is afar better bet to play than being long companies, like GameStop or AMC.
Jim Lewis: Welcome back to Wall Street Silver. We have a fabulous guest with us today, Mr. David Tice from Moran Tice Capital Management and formerly of the Prudent Bear Fund. Thank you for joining us today, David.
David Tice: Glad to be with you guys.
Jim Lewis: You're back again. You were one of our earliest guests back in March when we were first getting started, so we really appreciate it.Lee, do you want to kick things off?
Lee Justo: Sure. So, we want to get your opinion on the short squeeze movement, which had started out in WallStreetBets, focusing in on heavily shorted stocks. What's your view on that as opposed to, say, a squeeze on silver?
David Tice: Well, I've been a longtime short seller. Prudent Bear Fund was mostly short stocks and so very familiar with short squeezes. We participated in bigger companies to avoid being short squeezed. However, it was still part of the risk of being short stocks. These days, the Reddit crowd, that WallStreetBets crowd has gone after GameStop and AMC, and frankly buying some pretty bad companies, frankly, at very, very high valuations with just the hope that the shorts are going to cover and that additional impact of buying will cause the stocks to levitate. I understand that game. I used to play against that game, but what they're doing in those kind of companies isGameStop and AMC are both dramatically overvalued and those people that are short those stocks know what they're doing.
David Tice: Now, when you talk about silver and some of that sameReddit crowd has come over to buying silver with the hope that the short sales be covered in silver, now that's incredibly intelligent because silver is dramatically low priced with the gold-silver ratio of about 75 when it comes out of the ground at about seven times. Therefore, silver is an undervalued asset that's also been squeezed. Yes, some of these short sellers are going to get squeezed and it's going to escalate the price going forward, but this is afar better bet to play than being long companies, like GameStop or AMC.
Jim Lewis: Yeah, we talk about that a lot on Wall Street Silver on our own Reddit community, that what the Reddit crowd on WallStreetBets is doing, it's a more of a gambling strategy and a lot of... They use options even in their strategy going after some sort of gamma squeezes, things like that.Whereas in on the silver side, most of our thesis... A lot of us play in the mining stocks also, but the main focus is if we just take the physical off the market, we're dramatically driving up the leverage for the paper game, the paper reproduction of silver. I don't know. Is that anything you ever played with in any of your current funds or your best funds?
David Tice: Well, we have a fund and we manage individually managed accounts and we're heavily invested in silver stocks. In fact, we feel like silver is so undervalued relative to gold that we actually own physical silver and PSLV because we think it's such a great play. In terms of your paper versus physical argument, we agree 900%. That is the big issue. We believe that there has been suppression in the silver market especially, where some of the big banks have consciously taken big short positions in order to keep the price of silver down. Once the manipulation ends and it always will end, then that's another component to the reason that silver will rise in price.
Jim Lewis: Did you follow what happened with palladium a couple of years ago, where the leverage just became so extreme and the shortages in the physical palladium market? It's like they gave up, and that's when, boom, palladium took off and skyrocketed.
David Tice: In fact, I was just listening to Ted Butler and he was talking about that very issue. I don't have all the details of that, but you articulated that well. What's happened is there ended up being an excessive short position in palladium. And then eventually, the people couldn't take it anymore and there started to be a covering of the palladium. I think palladium is up like four fold or something like that.
Lee Justo: Speaking of leverage, we have valuations right now in the equity markets that are just... They're beyond nosebleed. I mean, this is far more worse than, I think, the tech bubble was. When are the investment professionals going to shift out of these crazy stocks and start buying some value in gold and silver miners and physical as well? I mean, do you see that happening anytime in the near future?
David Tice: Well, I've made a living being short stocks and buying gold stocks. I tell you, often, early, and you could argue I've been wrong fora lot of time because I have been so early. I'm a believer in the Austrian school of economics, and most of the really smart bears believe in the Austrian school. I say that we, bears, tend to underestimate the degree to which policymakers will do something short-term oriented in order to kick the can down the road. Now, I do believe that we're getting closer. We know how this is going to end. It's going to end badly. I'm not really short stocks right now, but I'm a believer in gold and silver mining companies.
David Tice: Frankly, my partner and I were both investors in both gold and silver mining companies and short stocks, and both of us have sworn off short selling because it's so dangerous [crosstalk 00:07:35] short stocks in this fiat money environment. But I think owning some long-dated puts makes some sense. But in terms of when this ends, it's kind of waiting for Godot. We've seen this massive... We have actually printed 40% of the M1 that's been created since the beginning of the United States of America just in the last year.
Jim Lewis: It's the same, isn't it?
David Tice: amount of parabolic and exponential growth in money, and therefore anything is possible. In the past, we talked about a melt up. I think we've had the melt up. I do feel like we're more at risks now for a significant decline. I think rates are going to potentially have to go up. We have an inflation scare now. We have a slowdown in the economy with consumer sentiment declining, and we still have a COVID risk out there. So there's a lot of reason to be concerned with these stock market levels levitated where they are.
Lee Justo: So, you make an interesting point. You kind of sworn offs short selling. We had Bill Fleckenstein just about a week ago, and he pretty much swore off short selling as well in this environment. We've had all these short squeezes this year on GameStop. I'm just wondering, is there anyone out there shorting? And the lack of short sellers out there, I mean, is that just going to make for a much more dramatic fall because there's not going to be people out there just covering their shorts and bolstering the market?
David Tice: Well, that's a good point, Lee. I haven't really... Jim Chanos is still shorting stocks, but he's not net short. I mean, he's typically long against his short. Shorts do provide a valuable moderating influence when markets crash and the shorts end up covering, and therefore they do keep markets more honest. I would think there's fewer dollars from professionally managed short sellers than there has been in a long time, I would guess.
Jim Lewis: Yeah, I would agree with that. I want to go back to what you were saying before, where you think... With the slowdown coming, that the eviction moratorium has just ended, unemployment benefits have ended for, I don't know, 12 million people this week, these are two big whammies that are hitting the economy in September. In the face of this, I just got to think...And I've seen all sorts of consumer confidence numbers dropping dramatically in these recent surveys that University of Michigan and various entities do. In the face of all this, I just find it really hard to believe that the fed could even contemplate tapering or raising rates, even with inflation going fives. If we start seeing prints from CPI at six, seven, 8%, with the slowdown and everything, could you still imagine a scenario where they actually taper?
David Tice: Well, I don't think rates are going to go up for very long or very much. I don't have a strong opinion on exactly which way the fed leans short-term because frankly, we know the market will throw a temper tantrum if rates go up very much. And then if they do, the fed will buckle and they've done that countless times in the past. Inflation is a bit of a scare now, although I do feel like that could start to moderate because I think it's possible that inflation number is going to be transitory. I'm not sure about that. There's a lot of difference of opinion. My partner and I even disagree on that a little bit. But regardless, even if inflation doesn't get to seven or8%, if it gets to three and a half or four, with rates where they are, that's abad sign, and rates are as low as they've ever been in history.
Jim Lewis: So the gold play and the silver play is just negative real rates right now. It's just the story going forward no matter what.
David Tice: Exactly. People talk about the strong dollar versus the dollar index, et cetera. Well, the dollar could still be the least dirty shirt in the hamper and could escalate against the euro and the yen and the renminbi, but relative to gold, gold is such a much better asset. We've seen history of dollar devaluing since the fed was formed, that where it's lost more than 95%of its value. How can you not own some gold in this period, where of monetary excess and lack of any kind of disciplines?
Jim Lewis: Let's talk about silver more specifically then. People talk about gold as an inflation hedge, but silver is not necessarily considered as much of a... It's a more volatile. Gold will go first, but percentage-wise, silver historically in these types of environments goes up way more than gold, doesn't it? Back in the '70s or historical examples.
David Tice: All you need to know about silver is it's just amplified gold and you get more gold or you find-
Jim Lewis: Yeah. When it launches, it really launches.
David Tice: Exactly. You look at the gold to silver ratio, where the average over the last 150 years has been in the 40s. Right now, it's at 75. So if you think gold is going to go up, silver is going to go up more. And then you also have the fact that you will benefit from this individual factor of silver being especially undervalued relative to gold today.
Jim Lewis: Yeah. Do you follow at all the... I mean, there's the whole monetary aspect of silver, but then there's the industrial side. Is that any part of your considerations in terms of silver versus gold?
David Tice: Certainly, because silver is in more and more demand from an industrial standpoint. It helps in the green energy movement and it is utilized more for electric cars. There's all kinds of additional uses being called on for silver. Therefore, it's a great play from that perspective as well.
Jim Lewis: Yeah. Are there any specific silver mining stocks to jump out at you as a... If you don't want to talk about your book, I totally understand. But are there any that you really are comfortable mentioning publicly that you like more than others?
David Tice: I'll mention a couple of the bigger ones. We really do like Pan American Silver. We also like First Majestic. All these companies are selling at such dramatically cheap prices, even based on current earnings and when the price of silver goes up. What your audience needs to understand is if you're just plain silver bullion, these mining companies have so much operating leverage. When the silver price goes up, then their margins are going to go up even more. And then there will be additional buyers in the sector behind silver mining companies. Rick Rule has talked about the fact that the ownership of mining companies is just so dramatically low compared to the three-decade average. It's about one-fifth of the three-decade average. Therefore, as individuals and institutions start buying these companies... And frankly, these companies are selling at such low multiples. Our portfolio selling at 11 times2021 earnings and it has organic growth rate of about 20% just from physical ounces being produced. That's dramatically cheap. And so, institutions and portfolio managers are going to eventually start putting these stocks in their portfolios.
Lee Justo: Do you think that's going to initiate a heavy-duty short squeeze when that happens when institutional investors wake up to the value ofthese stocks and precious metals in general?
David Tice: Well, I don't really think there's that many people short of the mining companies right now.
Lee Justo: I understand.
David Tice: But in terms of the big play, there is physical silver, and as you guys have talked about a lot, this phenomena of paper silver being utilized to massage the price of silver and when more and more people are taking delivery of silver and when the price of silver gets going again. We had something going back in February when silver went to 30 bucks, and then there was a massive move by the powers that be to squeeze both, to knock down the price of gold and silver. Silver got knocked down from 30 to 26. But what happened is essentially that was done in order to keep the price of silver and gold from escalating and creating a big storm of increased demand, and it worked. Now, we have the price of silver at 24, but we're going to get $30again.
Jim Lewis: It was ridiculous. So that weekend, at the end of January, first few days of February, they dumped 1.5 billion ounces of paper silver onthe market in just a space of two or three days. I think that's something like almost two years or a year and a half of global mine production, just in paper silver, they just invented it.
David Tice: That's exactly right. It was actually two years of global mine supply and it was done with indiscriminate buying. And so, normally, a trader wouldn't go in and sell like this without caring about the price, but their objective was to knock the price down.
Lee Justo: Are you still working on that documentary with The Cyber.
David Tice: Yes, I am. In fact, I'm very excited about it. This is about the vulnerability of the power grid. This is a passion project for me.People can go to grid downdoc, D-O-C, .com and we expect to launch this in three months or so. We have a pretty innovative marketing program plan that utilizes a pay-it-forward approach in terms of buying it. 25% of the proceeds of people watching the film are going to go to 501(c)(3) organizations fighting to make sure that we get the grid fix, and this is a very fixable problem.
Lee Justo: Are you familiar with Klaus Schwab and him talking about the cyber pandemic and cyber polygon and all that?
David Tice: Yes, generally.
Lee Justo: I mean, do you think they're forecasting something that will probably happen?
David Tice: Well, we know in our big four enemies military playbooks that they believe in the asymmetric warfare and bringing down [inaudible00:20:13] infrastructure and we just have such a lucrative target with our power grid because we have not hardened it and protect it. So I think that frankly, it's one of the scariest existential threats out there that we face.
Lee Justo: I would imagine that all the cryptocurrencies in that kind of scenario are just going to be nothing, and precious metals will be the place to have some wealth stored. Would you agree with that thought?
David Tice: I definitely would.
Jim Lewis: Have you touched in any cryptos or even the big ones, or is that just a no-go area for you?
David Tice: We participated in Bitcoin when it was at 10,000 when we launched our investment management company. I felt like as a fiat money defense, at 10,000, it was a very reasonable risk-reward play. However, when it got to 60,000, we felt like it had gone too far too fast. There was already discussions from Bank of England, as well as Bank of International Settlement stalking about the danger of cryptocurrencies. It seemed to me as if the balloon was off the rose. And so, we exited there our position.
Jim Lewis: It seems like Russia and China are just buying loads and loads... And many other central banks right now are all adding to their stockpiles of gold dramatically in recent years and even in recent months. I've heard that the central bank of Brazil, India, China, I mean, Russia, they're all adding dramatic amounts, and even the smaller central banks are also.Whereas the Western central banks, you're not hearing of any significant additions. Do you have any strong thoughts on the game being played here among the different central banks? Are they preparing for some sort of reset with their goal?
Lee Justo: We even have Macron saying and tell central banks to sell their golds. So, [crosstalk 00:22:20]-
David Tice: Yeah. Yes. Macron.
Lee Justo: anti-gold Western countries are. Yeah.
Jim Lewis: Yeah.
David Tice: Well, I believe that the BRIC countries for a long time have been ticked off at the role of the dollar as the global reserve currency and the degree to which we have abused that role and where we've had no financial discipline, but we've been able to do what we've wanted because our dollar is the world's reserve currency, and the Russian, China, especially have been moving against it. The Chinese have been encouraging their citizens to buy gold. They have billboards telling people to buy gold. That's been going on for probably a decade. Russia has added to their gold dramatically. There's an old expression that he who has the gold makes rules. Therefore, some of our adversaries are definitely moving more towards gold and away from the dollar.
Jim Lewis: Yeah. It seems like they're all preparing for some big play coming. Who knows whether it's near term or the big game is five years inthe future? I'm not going to hazard a guess, but I'll ask you to hazard a guess. Is there something like that going on, where they're preparing for afull reset of currencies?
David Tice: Well, there has been talk about that in backroom meetings, in G7 meetings, G20 meetings. From what I understand, people a lot more plugged in than me have opinions about that. I think that we have a dysfunctional global currency system. You look at what we've done in monetary policy. The quote I gave earlier about 40% of all the money created since the beginning of the republic coming in one year. I mean, we've never seen anything like this.In the past, we've increased M1. It's doubled every decade or so, and now it's just gone parabolic. Therefore, this is an out of control system. Now,[inaudible 00:24:40] is always very, very powerful. A lot of people just keep it going because a reset would be disruptive potentially, but I have a feeling it's coming faster than five years.
Jim Lewis: Our own fed, the PhDs in our own central bank, they're not stupid people, right? These guys see what we see, even Greenspan said that.With a wink and a nod, a few years ago, he said, "Yeah, we see what you see. We know what's going to happen." Why do they keep doing what they're doing when we all know where eventually this leads to?
David Tice: Great question because my board of directors for my mutual fund, literally, 12 years ago, after dinner and cocktails, we kick that subject around. I think that a lot of it is not on my watch. They feel like they realize financial discipline and monetary discipline needs to be the rule of the day, but the problem is the impact from any financial discipline is so huge that they don't want to take that course. So a metaphor I used to use is that if you had a 12-year-old that was going down a ski slope and he was going a hundred miles an hour. You saw him and you wanted him to stop because you know he was just going at breakneck speed, and he was going to crash and it was going to be terrible. You thought about telling him to sit down, but then you knew he would break every bone in his body. Therefore, you just couldn't really tell him to sit down and stop because he was going to break every bone. It's almost like you're waiting for a helicopter to come out of the blue-
Jim Lewis: And rescue us. Yeah.
David Tice: and rescue him, but you couldn't wish that fall on him. So, it's going to be [crosstalk 00:26:51].
Lee Justo: I'm assuming that that Powell doesn't want to Powell ville.
Jim Lewis: Yeah, exactly. Right.
Lee Justo: Like Hoover have Hoovervilles named after him. I mean, that's basically what it is. They just don't want to be the bad guy.
Jim Lewis: Yeah.
David Tice: You think about it, other than Paul Volcker, every central bank, they feel like they've got enough confidence that they say, "Well, it's not going to be me." You can argue Greenspan, but we've had Yellen since and Yellen got away with it. Therefore, they feel as if, well, we'll get out of it somehow, but I'm not sure how with this massive amount of debt, and we've been able to benefit from the dollars range as world's reserve currency, and therefore that's one reason the powers that be don't want to see gold and silver go up in price a lot.
Jim Lewis: Yep. Gotcha. Well, thank you very much. We really appreciate you having shared your views on this with us, Mr. Tice, once again, and we hope to talk to you again in the next few months as things develop this year.
David Tice: I look forward to that. You guys are doing a great service at Wall Street Silver, so keep up the great work.
Jim Lewis: We appreciate it.
David Tice: Thank you, David.
Jim Lewis: Much appreciated.
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