Hey There Income Hunters,
The cool people always show up to the party late …
And I guess since silver and gold have been around for thousands of years and they know what’s up.
Because after a fashionable delay, they’re now ready to get on down with inflation.
More on that inside today.
The craziest thing happened yesterday … My brother called and said his son and his friends all got additional paycheck protection program (PPP) loans. The place doling them out was called Blue Acorn and it was all done online and approved in 15 minutes.
They were all approved for between $5-10,000 and, get this, if they didn’t have the “required” paperwork, they could give Blue Acorn a rough idea of their gross and net income and there was a “special form” they would be approved on …
The point is, with unprecedented money flow, it is SO easy today for anyone to get cash.
And, folks, this inflation party may last a while.
I’ll put it this way … if the Fed were a rock group, it would definitely be Bruce Springsteen and the E Street Band.
I mean, the Boss doesn’t leave the stadium until every single fan is satisfied …
So someone get Fed chair Jerome “J-Pow” Powell a leather jacket — while we sweat it out on the streets of a runaway American Dream.
Also today I have something I want to share that will reveal why the Fed’s “official” inflation numbers have been so far below inflation that consumers actually experience…
AND I have a couple of Silver miners trading in single digits that could be 5-baggers by the end of 2022!
CPI Held Down by Rental Income
First, let’s run through a few #facts:
Inflation expectations are at 10-year highs
Agricultural prices are at cycle highs
Lumber is insanely high
Same for rental car prices
Yet core consumer prices that make up the Consumer Price Index — the only index that matters for Fed policy — hasn’t done much.
How could that be?
Well, this isn’t the first time I’ve told you …
The Fed changes the rules to suit its own agenda.
This time they are using shelter — meaning owner-equivalent rent — to act as a discrete depressant on reported CPI growth.
You see, shelter CPI, which makes up 32% of the overall CPI basket, has been coming in at around 3.5% for many years — but in the last year it has dropped to about half its normal rate.
Check this out:
Look at the methodology described right on the Q&A section of the Bureau of Labor Statistics website…
Question: How does the CPI handle forgiveness, reduction, or nonpayment of rent in its shelter indexes?
Specifically, the respondent is asked:
How much rent (are you/is the tenant) paying for this (house/apartment) now?
Be sure to probe these situations to determine if any rent obligation will be forgiven.
If the landlord expects payment in full, regardless of when, enter the full rent amount that is due.
If some or all of the rent is being forgiven, enter the amount the landlord/manager has agreed to accept.
If the rent is not paid or not expected to be paid AND the landlord/manager is unsure about the future, enter $0.00.
Can you believe that!?
Basically, a landlord’s expectation of rent collection directly impacts the calculation of reported rent/inflation … even though rent is directly impacted by pandemic related eviction/rent moratoria …
Now, this will reverse out at some point and have an immediate and meaningful impact on inflation — and an acceleration could create a serious shock to the headline numbers …
For instance, A recent New York Fed survey of consumer expectations 1-year out shows a 9% rise in rent prices.
This sort of thing can’t help but change investors’ opinions about inflation.
I’m convinced that if we get a 2.8% or 3% CPI number when it’s announced next week, commodities and the metals will go much higher still — which is good news for Income Hunters who are long gold and silver.
Digging These Miners
I have two silver miner stocks that I’m high on today. They are both royalty and streaming companies, which I think are the best structures in which to invest.
The benefits of a royalty structure include:
The ability to make a single upfront payment and gain access to the entire stream of the mine’s revenues.
A simple ownership agreement that is non-dilutive to the royalty company, whose royalties will always come off the top.
Owning the royalty is free of carry — you own the assets with no costs.
Royalty companies provide diversification across geographies and mines.
Streaming differs from the royalty structure because the streamer gains the right to buy into the mine at a discount to fair value.
First up …
Metalla Royalty and Streaming Ltd. (Ticker: MTA)
MTA is a Canadian royalty company. Canada is mine-friendly and also provides diversification away from U.S. dollars, which adds protection to the dollar devaluation. MTA has done 20 transactions, providing them with 68 precious metal assets…
Their most significant exposure is to silver. They have six mines currently in production
Founder Brett Heath has consistently proven himself to be the real deal. He’s been in the royalty business for more than a decade wields a deep understanding of the business.
The chart below illustrates an excellent entry point for buying a core position on MTA …
I’ve purchased a core position and will trade 30-50% of it because, as you can see, miners provide decent price volatility …
I like this setup due to MTA’s deep correction from $13.50 down to $8, plus there’s an upward sloping 200-day moving average and the 50-day MA is curling back up as well.
I purchased a stake just below the downtrend line and will add on a breakout above. Either way, I will use a stop-loss below the 50-day MA and raise my stops as the market rallies.
Nova Royalty (Ticker: NOVRF)
The second company is Nova Royalty. What I love about them is they have built a portfolio of royalty projects exclusively in copper and nickel.
Brett Heath from MTA is on the board of directors and CEO Alex Tsukernik has more than 15 years experience in metals and mining finance — together they form a strong leadership base.
Nova buys royalty from prospectors who discovered the mining deposits — and has the benefit of the entire stream of revenues for the life of the mine.
NOVRF doesn’t have any operating costs, capital expenditures or capital commitments. They are free to focus 100% on growth …
I also really like the access I get to nickel and copper. The supply/demand dynamics are so beneficial for these two metals and investors are able to get in at very good value right now.
Although they do not currently have options, NOVRF plans to list on a U.S. exchange in the future.
I’m purchasing a few hundred shares n and will put them away because I don’t currently have any exposure to copper or nickel.
I will purchase shares at the market and add once it clears the 200-day moving average. I will put a sell stop below $2.85 and then use a 10%, 12% and 15% trailing stops along the way.
Bring It Home
We are entering a 6-8 year bull market in commodities and metals and as the dollar gets weaker, we are better off measuring the value of assets against gold.
Right now, the Dow is 19 TIMES more expensive than gold historically. In 1980 they were both trading at $830 — a 1-to-1 ratio!
Chart courtesy of Silvermetalist.com
I think we have a two-month window here before many more institutional investors realize they need to allocate more of their capital to precious metals.
I will continue to find more producers and royalty companies that have excellent management teams and diversification.
Getting on this trend and riding it to maturity can set you up with a great quality of life no matter what happens next.
Have a great day and as always …
Live and Trade With Passion My Friends,