LONDON, ENGLAND – Since I started writing these postcards last summer, I’ve been watching the “repo” market and making a simple argument:
There’s a shortage of dollars in the banking system.
The U.S. government’s gigantic appetite for borrowing dollars is causing this shortage.
And the Federal Reserve will do whatever it takes to keep the banking system lubricated – including funding the government deficit…
Whatever It Takes
A case in point: Last year, funding markets were already acting weird. But then this happened…
1) On September 17, 2019, liquidity dried up altogether. The overnight repo rate spiked to 10%.
2) Less than 24 hours later, the Fed began injecting billions of dollars into the repo and Treasury markets. Not too long after, the Fed announced it was beginning quantitative easing again (although it still won’t admit it’s quantitative easing).
The repo market, by the way, is where big banks go to get and make very short-term loans (less than a week). It’s the largest market in the world by transaction size.
(When I worked for the repo desk at Citigroup, hundreds of billions of dollars would pass across my desk every day. That was 15 years ago.)
If you’ve been reading these postcards, you probably understand my argument by now. The next essential message you must understand is this…
Can’t-Lose Setup for Gold
I’ve been bullish on the dollar since 2013. In 2016, I stood on stage at the Stansberry Conference in Las Vegas and told 2,000 people at the ARIA Resort that the dollar would keep rising.
But now, things have changed. Because of what happened in the repo markets, that trend is finished.
A rising dollar inhibits the federal government’s ability to fund itself and the Fed’s ability to keep the credit markets lubricated. The Fed will not let this happen. It will not let the dollar rise any further.
The corollary to this – and the real reason I’m telling you all this stuff – is this puts a floor under the gold market. It’s almost a “can’t-lose” situation…
As you know, two years ago, I fell into a deep hole. I lost my family, my house, and my business, and I spiraled into a deep depression.
I tried everything to fix myself, but nothing worked. In the end, Kate asked me if I wanted to go traveling with her.
We were in Rwanda, about a year ago, when I received a buyout for my stake in a business.
I couldn’t just leave the money sitting in the bank. So I dove back into the financial markets, and I started studying economics again.
I hadn’t looked at a research report or a stock chart in two years, but I had a lot of spare time in Rwanda to bring myself up to speed and a lot of long bus rides to think about things. I filled several notebooks with my thoughts.
I came to the conclusion that the Dow-to-Gold ratio was beginning a long slide, and Kate and I needed to convert all our assets to gold, silver, and mining stocks.
This is the second time in my life I’ve had a strong premonition that gold was about to make a major move higher.
The first was in 2002. Tech stocks had crashed. The economy was in recession. Bush had invaded Afghanistan. And a war was starting in Iraq. The Greenspan Fed would do whatever it took to prop up the economy.
Meanwhile, gold had been falling for 20 years. No one was paying attention to it. Even the central banks were dumping it.
I put all my money into gold futures, and I persuaded some friends to do the same.
Then, I quit my job, said goodbye to my friends, and went to Mexico City without any money or credit cards.
I traveled from Mexico City to San Diego to Chicago to Atlanta and back to Mexico City by sleeping outside, eating scraps, and bumming rides.
I sent email newsletters about my adventures back to my friends. I called them the Dysman Diaries. (I’ve shared many stories from that trip with you over the past few months.)
Seven years later, gold had risen 400%. (Unfortunately, I sold the futures much too early, and we made only a small profit.)
Once again, we’ve got almost the perfect setup for a big move higher in gold… a trillion-dollar budget deficit, a collection of hyper-activist central banks, a too-strong dollar, potential currency wars, and a possible recession on the horizon.
Meanwhile, I’m back on the road, living like a hobo, all-in with gold, and sending zany e-letters to my friends. And gold is up about 20% since last January…
Everything’s in place for a big rise.
But if I’m wrong, oh well. I don’t think Kate and I will lose much. The Fed will make sure of that.
– Tom Dyson
P.S. Gold hit a new seven-year high last week… I hope you took my advice these last couple of months and bought some gold while it was having a breather. Next stop will be $1,917, gold’s all-time record high, set in 2011…
This time, I won’t make the same mistake and sell too early. We’re holding until the Dow-to-Gold ratio hits 5 and not a moment sooner.