Setting the scene: The global economy is frozen in place. Production has stopped. It is becoming clearer now that the coronavirus is not nearly as deadly as initially reported. Frantic government-sponsored fear-mongers are now dialing back their Armageddon estimates of 1.2 million dead in the United States and 250,000 in the United Kingdom. Turns out that up to 2/3rd of fatalities are people who probably would have died within the year anyway. This is sad, but it it does not warrant shutting down everyone’s lives over it. I wonder how many people in their 80’s and 90’s die of the common cold.
As testing escalates and we find more asymptomatic carriers and people with mild symptoms, the fatality rate will continue to fall and we are going to be inundated with headlines about how COVID-19 is not really as bad as we thought it was. Pressure will build to open up the economy. Stock markets already seem to be anticipating this with an incredibly strong bounce off lows at the beginning of the week.
Here’s how things are likely to proceed from here and what you can do to make a few bucks off this before everything collapses again. First of all, we must accept that we are not headed back to where we were before. Everything is different now. The jig is up. Central banks are now printing infinite amounts of paper currency. The Fed’s balance sheet is now at $5.25 trillion, up over $1 trillion since March 4, by far no question the fastest rate of money printing ever. Mark my words – this rate will increase faster, and faster, and faster still. It will not stop until the dollar is dead. Central banks are locked in kamikaze mode now. BUT – there may be a few weeks to a few months before people realize this and come to terms with the terrible conclusion that the fiat dollar reserve standard, and with it every other unbacked paper currency in the world based on it, is now in its final days.
Consumers are now awaiting their stimulus checks, and pent up demand is going to mean sales skyrocket once people are let out into the world again. The euphoria in capital markets will be extreme but short-lived, as people suddenly realize that everything they need is much more expensive all the sudden. Inflation indexes are going to spike and talking heads will start to question monetary policy. At that point, stocks may continue to climb nominally, but they will lose value relative to hard assets. The best companies will eventually gain real value again on a sustained basis, but it’s going to take time and a reset before that happens.
Until the financial giants of the world realize the end is near, you may be able to amass a good amount of paper money and sell it for real assets before everything implodes. Before you embark on this strategy, make sure you have at least 10% of your net worth in real hard assets now in the likely event that we don’t get the timing perfect here. Have your gold and silver and associated stocks tucked away for wealth preservation now, and a small amount of Bitcoin SV (BSV) for speculation.
With that in mind, here’s what can be done. I recommend using mainly in-the-money call options expiring January 2021 for this strategy, which require much less capital for the same amount of shares. You don’t want to be committing too much capital here. There is too much volatility. Keep these short-term positions to no more than 10% of your portfolio total.
Starting with U.S. stocks, MGM. You can pick up $10 calls for $6 each. 200 shares would cost you about $2,700, but you can pick up 2 of these contracts for $1,200 and control the same amount of capital. If MGM doubles from here this year, which could easily happen when the U.S. opens back up for business, then you’ll be up to something like $18-20 a contract for a 300% gain. Sell it at that point. You can do the same with Penn. I don’t expect this company to survive past hyperinflation, but I do expect it to at least double when restrictions are lifted. $10 calls 2021 are going for $7.40 and should be worth around $20 if the stock doubles. Then sell it. Penn would have to triple to get back to old highs, which it won’t do.
Eldorado could also double from here quickly, which would take it to less than half of highs. 2021 $10 calls are going for $10, and should be worth around $30 if that happens, then sell. I’d skip Boyd, The Stars Group, and Caesars here. Boyd and Stars because they have already bounced quite far off lows, and Caesars because if Eldorado calls off the deal, Caesars will collapse to new lows.
UK stocks, if you have a good amount of dry powder, pick up some more 888, William Hill, and Rank. If you don’t have enough, leave them be here and let dividend reinvestment do its thing. And if you have any connections with the CEOs of these firms, tell them to hedge their balance sheets with gold swaps ASAP to protect against devaluation of the pound. Call in during the next conference call and bring it up if you have to.
Most Macau stocks are not suitable for this strategy since options are too expensive, and if you already have a 5% position in Macau for a bounce, don’t add any more. Melco, though, could be a good play on 2021 $15 calls. They’re going for $2.60 and could be worth double that if the stock goes back to $20 this year. If it does, sell. China is already over the hump and will reopen soon. Macau stocks will be bought at that point and the bounce will be strong.
In Australia, Crown has yet to bounce much. Dividend yield is 8.4%, and Australia will survive a currency crisis because it is resource-rich. If you already own gold and silver for wealth preservation, then Crown is a rare buy and hold here. Debt is low and manageable, and the casino should survive this, not without problems but it will probably get through it.
To close, at some point soon there will be a sort of “recognition day” of unavoidable economic reality. I do not know exactly when, but it will almost certainly happen this year, early next at the very latest. This recognition day is going to be brutal, like nothing any living investor has ever experienced before. Everyone will flee the US Dollar and all dollar-denominated assets all at the same time, and the Fed will be forced to impose itself on the entire world and gobble up everything, spewing trillions of worthless currency units all over the world and global hyperinflation will set in pretty much everywhere except Russia, which is already on a gold standard pretty much. Central banks will be busy throwing forex swap lines at one another as they try to keep the exchange rates between their equally worthless currencies stable. While this is happening, real assets will skyrocket in terms of fiat paper.
Stimulus checks are on their way, including to yours truly, the global economy is going to open back up again soon and the spending orgy is about to begin. When it happens, don’t get too excited about it. Once it’s over, high inflation sets in, rates jump, and central banks print even faster to suppress them. Then we begin the final phase of this monetary system as central banks will have to choose: it’s either bond markets, or paper currencies. One of them has to go. You can’t have your inflation and eat your cake, too.
