"And these children that you spit on as they try to change their worlds - are immune to your consultations - They're quite aware of what they're going through"

Change is never easy. We all struggle with it. Our caveman DNA has wired us to prefer the (often sub-optimal) familiar over the uncertain. It’s human nature to overvalue what we know relative to the potential gains of the unknown. Embracing change usually means stepping outside your comfort zone and risking a loss of identity, control, and in many cases, social standing. That resistance shows up everywhere—nowhere more clearly than in the profession Bag has spent a lifetime observing…..

Bag’s old man was a Certified Public Accountant, or CPA for short. Pretty good one too. Numbers, and most things financial came to him naturally. He was a partner in a small downtown Chicago firm that grew from 4 people to 40 in the 1970s & 80s. He was, by any reasonable definition, successful. He was also a workaholic. During tax season (Jan 15th - Apr 15th), eighty-hour workweeks were routine. Add another 14 hours a week of commuting, and, for all practical purposes, Bag and his siblings were fatherless a few months a year. Extension season wasn’t much better.

At his peak, he was handling about 60-65 clients per year. That afforded him the means to own a home in a reasonably decent middle-class South Chicago neighborhood, though paying the mortgage was often a struggle. To his credit, he did raise 5 kids. That required Mom to work as an RN while us latch-key kids lived off PB&Js, hand-me-down clothes, public schools, and the occasional dinner at McDonald’s. There were very few vacations, and those were usually camping trips to the local KOA, where costs were kept to a minimum.

Bag himself was gifted with numbers, and certainly had what it took to be an accountant. But after a couple of decades of watching his old man work himself into an early grave, he decided a different career path was warranted. In one of life’s little ironies, it turns out Mrs. Bag is also a CPA. Between Bag’s better half and his old man, he has had a front-row seat to how the accounting profession has changed over the last 50 years.

In Dad’s day, it was all legal-size ledger sheets, number 2 pencils, checkbook registers, ten-keys, shoeboxes overflowing with receipts, Pink Pearl erasers, and of course, handwritten snail-mailed returns. Even for Bag’s old man, who could work a ten-key like Liberace could play the piano, it was brutal. With a support staff that answered calls, vetted clients, scheduled appointments, wrote letters, and billed customers; all Dad had to do was work on the return itself. And yet the number of clients he could handle was capped at 60-65.

Mrs. Bag also has her own practice. The day-to-day work of the job itself, though, is quite different now, as the world has changed. Today it’s all PDFs, Zoom meetings, Tax software, digital files, and electronic returns. Not a number two pencil in sight. Mrs. Bag has no support staff, and handles all the administrative duties herself. Scheduling, billing, emails, and filing returns are all on her. As if that’s not enough, she has to be something of an IT expert as well. Maintaining a website and networking computers so she can work from home, the office, or on the road constantly put demands on her time. The hours spent working on actual returns are minute compared to the administrative aspect. And yet, somehow, Mrs. Bag filed about 200 returns last year.

The advent of computers enabled the increased production. They genuinely revolutionized the industry. They really started to make themselves felt in the 1990s, about the time Dad’s career was winding down & Mrs. Bag’s career was ramping up. To be fair, you can’t expect a sixty-year-old CPA in the 1990s who spent a lifetime preparing hand-written returns to take to computers like a fish to water. You just can’t teach an old dog new tricks. As that decade wore on, it was increasingly obvious his way of doing things was over. In sharp contrast, Mrs. Bag - to her credit - leaned into computers and harnessed all the productivity increases they had to offer.

Even with Bag making a good living, and Mrs. Bag handling 3x the clients without the expense of support staff, there is no noticeable difference in the lifestyle it provides. We own a home in a reasonably decent middle-class North-Phoenix neighborhood. To be fair, we do eat better than we did as kids, and we do vacation regularly. But, if we were forced to live off the income 60-65 clients provide, like Bag’s old man, McDonald’s would be a luxury we couldn’t afford. Mrs. Bag having to spin the hamster wheel at triple the rate of Bag’s old man speaks volumes about the ravages of inflation - and how it steals the productivity of the working class.

It does not appear inflation is going away anytime soon. Trends, being what they are, dictate the next generation of Accountants will likely need to triple the production of Mrs. Bag if they harbor any hope of making a decent living. Fortunately for them, another technological revolution is on the Horizon. It goes by the name of AI. The ones who recognize it as a tool to be mastered and make it work for them will be the winners going forward. Those who insist AI is no threat and keep doing things the way they always have … will be the losers.

While today’s essay on CPAs may seem a tad anecdotal, the truth is, it applies to ALL professions. Lawyers, doctors, secretaries, writers, it doesn’t matter - AI is coming for your job. Laugh it off if you like. Go ahead and bask in the warm feeling of “AI can’t do what I do”. Bag’s old man thought the exact same way about computers. When they first showed up, he used to laugh at the fact the computer couldn’t even get the printer to format correctly. “The technology is flawed; it will never last,” he said.

Even today, Lawyers would argue AI can’t write a proper brief - or doctors would say AI can’t diagnose accurately - or secretaries would claim AI can’t organize workflow in an office - or writers would boast AI can’t create like them. Sure, all those problems (and others) may be true today. But understand this fact: AI is in its infancy. Many of today’s shortcomings—poor quality briefs, imperfect diagnoses, generic prose—will ALL improve quickly going forward.

The real lesson from all of this is the world is changing. It is open for discussion as to whether it’s for better or worse. But the way Bag sees it, there are only two kinds of people in this world. The trailblazers, like Mrs. Bag, who in true David Bowie fashion “Turn and face the Strange”. They welcome new technology with open arms, learning about it, and making it work for them. They will prosper accordingly.

On the flip side are the laggards in every profession, much like the “Pencil & Paper” CPAs of yesteryear … They openly dismiss the AI revolution, rejecting it with disdain at every turn, and wilfully deny its viability. The price for that mindset is staggering, as they will quickly lose ground to the pioneers who embrace AI.

Which one are you?

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Hey, wait a minute, there's no birthday party for me here!

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Bag’s primary investment philosophy has always been: It’s easier to judge the long-term direction of the tide (and invest accordingly) than it is to judge individual short-term waves (and trade). Waiting for some degree of certainty on the long-term direction of an asset price means accepting you will never buy the stone bottom or sell the exact top. You can, however, take a big fat slice out of the middle if you ride the tide and allow “time in the market” to do the work.

Identifying the direction of the tide revolves around an ability to distinguish a Bull market from a Bear Market. While that diagnosis might seem easy, it’s far more nuanced than it appears. Increasing time spent riding the tide requires quickly recognizing when a market is transitioning from Bull to Bear, and vice versa. Those turning points matter, as they allow you to maximize your big fat slice.

Long-time readers of this column are aware that we here at Mytwocent$ are very bullish on Silver. We have recommended it multiple times over the last five years at:

$18.50 here

$23.00 here

$25.50 here

$30.00 here

and $46 here

Bag has continually pounded the table on Silver because he believes we are in a Secular Bull market. That means the tide is rising, and the time to surf is now.

For only the third time in the last 50 years, this past December & January, Silver was the center of attention in the investment community. In that 10-week period, silver ran from below $50 an ounce to over $120 an ounce. Considering Silver had never traded north of $50 prior, the move was breathtaking. Since the $120 print seven months ago, silver has fallen 54% to its current level just below $58; an equally stunning move. The purpose of today’s essay is to figure out which of those two moves is part of a larger trend.

In short, is Silver in a Bull or Bear?

All commodities, particularly Gold and Silver, exhibit price patterns that are cyclical in nature. It is well known that commodities move in long swings that go from underpriced to overpriced (Bulls), and back to underpriced (Bears) - where the whole cycle starts again. Those cycles are generational, usually lasting about 20+ years. In hindsight, they are easy to spot. Anyone can look at a price chart of Silver for the past 30 years and point out that the 2001 decade low in price to the 2011, 30-year high was indeed a Bull market. Likewise, the trip down from that 2011 high to the Mar 2020 low was, without doubt, a Bear.

Of course, hindsight won’t pay the bills. Recognizing those moves as they unfold, and riding the wave will. It all starts with identifying opportunity.

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It's a way of looking at that wave and saying, 'Hey, bud, let's party!

Spotting a Bull (in real time):

Bull markets exhibit a distinct rhythm. That rhythm is best described as a series of sustained price rallies that continually print new highs, and are periodically interrupted by sharp, quick pullbacks in price. Those rallies are called Legs, and 98% of Bulls get three to six of them. The time each leg takes to manifest will often, but not always, be roughly equal. In terms of price movement, the percentage gain of each leg tends to increase as the Bull ages, with the Final leg up always being among the largest.

The reasons for these tendencies are psychological. In early legs, very few people believe. Consequently, little capital is available to push prices up. In the later legs, euphoria takes over as everyone piles in - which drives price significantly higher. Even the sharp pullbacks are designed to elicit fear, scaring participants out of their positions.

All of the “Time and Price” traits are on display in the table below, which breaks down the 2001-2011 Silver Bull:

It’s all there: continually printing new highs, with four uplegs averaging 26 months each, interrupted by sharp price drops lasting less than 4 months on average. The initial 110% upleg was the smallest; the Final 585% leg was the largest. Textbook Bull behavior.

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First he's gonna shit, then he's gonna kill us!

Spotting a Bear (in real time)

Bear market Rhythm is the exact opposite of a Bull in every way, except the number of legs, which will still be 3-6. The legs down in a Bear are a series of sustained drops in price that continually print new lows, and are occasionally punctuated by sharp, quick rallies. In terms of price, the percentage loss within each leg down will be reasonably close in severity. In terms of Time, the length each leg takes to manifest will tend to GROW as the Bear ages.

The reasons, once again, are psychological. The rallies within a Bear are sharp and quick, designed to instill hope in Bulls. The first leg usually unfolds quickly to mimic the appearance of a Bull market pullback. Bulls, conditioned by years of successfully buying the dip, often mistake the initial leg down as an opportunity to allocate fresh capital. The last leg or two of a Bear takes its time, fomenting boredom and apathy in order to flush out all remaining participants.

Again, we have all of these traits on display in the table below, which depicts the 2011-2020 Silver Bear:

Once again, its all there. Five roughly equal in severity (34-48%) down legs, each printing a new low, all followed by much shorter duration rallies. Textbook Bear behavior.

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If I'm here and you're here, doesn't that make it our time?

Spotting the Transition (in real time)

This is where the real money is made. There are two types of transitions. Bull to Bear … and … Bear to Bull. Of the two, Bear to Bull is easier to spot in real time. The reason resides in a near-universal truth about how markets behave. That truth is this:

There is an unmistakable “Time and Price” Symmetry between a Bull market and the Bear that follows it. That symmetry is always dictated by the Bull.

If a commodity has a ten-year slow grind to the top, the Bear that follows will be a ten-year slow grind to the bottom. In other words, you won’t see a twenty-year Bull washed away by only a five-year Bear. Simply put, if it took 20 years to suck everyone in, it will take 20 years to flush everyone out.

In effect, Symmetry puts a clock on when to look for the end of a Bear market. Unfortunately, no such clock exists for the Bull to Bear transition, making them trickier to spot. Picking out the Top of a Bull is really just a game of musical chairs where the trick is to secure a chair before the music stops.

The most reliable indication a Bear has bottomed, or a Bull has topped, resides in a Divergence of behavior between Time and Price. For example, the time behavior of a Bull gets coupled with the price behavior of a Bear - or vice versa. It’s those moments of DIVERGENCE: part Bull & part Bear … or as Spicoli would say: “Our Time” …. that signify turning points.

**********************************************************************

Relax, all right? My old man is a television repairman, he's got this ultimate set of tools. I can fix it.

Using all the tools we have about Bulls, Bears, Transitions, and mixing in a dash of Hindsight:

• There were multiple obvious clues in March 2020 that should have alerted investors the Bear was giving way to a NEW Bull.

• The first is Symmetry. The preceding Bull lasted about 10 years, so 9+ years for a Bear - and 19 years for a complete cycle, would be about right.

• The second clue was the divergence in Time & Price of the final leg down. The 40% drop in Price was normal in severity for a Bear, but the seven months it took to get there is NOT Bear behavior. Since the prior two downlegs took 30 months each, it should have taken considerably longer than 7 months.

• Even more divergence can be found in the price action coming out of that Mar 2020 low. Silver rallied 152% from 11.80-29.75, making a 9-year high, in under 5 months. After that $29.75 print, Silver spent 2 years gradually pulling back 40% to $18, nowhere near the Mar 2020 lows. 152% uplegs, new highs, and an inability to print new lows on the pullback are consistent with price behavior in a Bull. Five-month rallies followed by a two-year grind down are consistent with the Time behavior of a Bear.

With the gift of hindsight, and the evidence above, we know with certainty a new Silver Bull was born in March 2020. The table below depicts the current state of our Silver Bull:

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Making Sense in Real Time of the Current Silver Market ….

• We have printed dozens of multi-year highs since 2020, and NO multi-year lows - that is the stuff of Bulls

• Bull markets have 3-6 uplegs; we’ve only had two so far - so another is on the way.

• Commodity cycles run 20+ years. If the Bull born in 2020 died this past January at 5 years 9 months, then symmetry dictates the entire cycle would be under 12 years. Nowhere near the usual 20+.

• A sharp, quick 54% pullback preceded by a 567% upleg is the “Price” behavior of a Bull.

• The current 7-month pullback preceded by a 41-month upleg is the “Time” behavior of a Bull.

Conclusion:

When you put all these facts together, there is simply no evidence of a Bear market in Silver. None. In fact, with no divergence present, there isn’t even evidence of a transition.

So rest assured, The Silver Bull is alive and well. The current 54% pullback, while disconcerting, is nearing an end.

If you are a dispirited Bull, take some solace from this fact:

The moment this pullback ends, we begin another leg up. If it is the last leg of this generational Bull, make no mistake, it will be a Behemoth. Based on what we know about final legs of a Bull, we can expect it to run for 40 months or so, and dwarf the 567% return of the previous leg.

Surf’s up, boys….

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Today’s essay is dedicated to Cliff. He was Bag’s Barber. After 4+ decades in the business, he is retiring from the grind. He bought himself a small ranch in Montana where he plans to live out his days chasing trout, watching sunsets, raising chickens, tending a garden, and enjoying nature. Personally, Bag couldn’t be happier for the guy. After 42 years of dealing with the public, he deserves it. Sitting in his chair for thirty minutes once every couple of months was a real treat. Cliff was always up to discuss all things Markets. He had one of the simplest, and yet most successful investment (and business) philosophies Bag has seen in his lifetime.

Cliff’s ideology revolved around the following sign which hung on his shop’s wall for years:

His philosophy was a simple one. When a business brings a product to market, you need only ask three questions to gauge its potential success.

1) Is it Better than the competition?

2) Is it Faster than the competition?

3) Is it Cheaper than the competition?

He believed that if a business can’t answer yes to any of those questions, it had NO chance to succeed. If the business could answer yes to only one of those questions, it could be successful, but it would be a very difficult uphill struggle. The chances of failure are very high.

Answering yes to two of those questions flips the entire script. In that case, the chances of success are very high, as the business will have multiple advantages over the competition.

Every once in a while, a business would come on the scene that could answer yes to all three questions. He referred to them as Unicorns. “They wipe out entire industries,” he would say.

Bag replied: “Give me an example.”

Cliff responded: “For centuries, people crossed the Ocean by boat. Then airplanes came along, which are obviously better, faster, and cheaper. And now, nobody goes by boat.”

Bag asked: “Have you seen many Unicorns in your day?”

Cliff answered: “I’ve seen a few; they make the best investments. When you spot one, just buy and hold - let time do the work.”

Cliff is not a trader, never has been. In fact, in all the years Bag knew him, he made less than ten trades. Most of them were buys, which he still holds today. He is always chasing Unicorns; if the company couldn’t answer yes to all three questions, he wouldn’t play. His discipline was remarkable.

Is his philosophy foolproof? Of course not, nothing ever is. He would tell you one of his worst moves came when he correctly reasoned that Nuclear energy was “Better, Faster, and Cheaper (BFC)” than any alternatives. So he bought Cameco (CCO), the Uranium industry leader. In the two decades since, he has doubled his money. That might not sound like a bad trade, but the S&P has 5x’d over the same time frame.

To his credit, the BFC strategy got him in on the ground floor of Netflix in the early 2000’s. He bought it shortly after they went public - a position he still has. The way he saw it, Netflix was BFC, when compared to anything else in the market. He would be quick to point out how they killed industries… Blockbuster, Mom & Pop video rentals, and he would argue, Movie theaters.”

Bag stated: “They did wipe out the video rental business, no doubt, but there are still plenty of Movie theaters.”

Cliff responds: “Movie theaters aren’t the destination they were when we were kids. Most are gone, and the few that remain struggle to turn a profit. They are ghost towns running on nothing more than fumes and the momentum of what once was. Netflix is the reason they are dying.”

Bag asked: “ With your BFC filter, you must have bought Amazon early, no?”

Cliff said: “Looking back, Amazon is no doubt a Unicorn, but I missed that one. Couldn’t see it at the time. It was obviously better and cheaper, but if I wanted a power drill, driving to Home Depot got it in my hands in less than an hour. Amazon, best case, was tomorrow. The way I saw it, it wasn’t faster. So, I passed”

Bag replied: “Maybe you were looking at faster, the wrong way. Driving to the Home Depot might get the drill in your hands quicker, but, as you say, it requires an hour of your time. If you think about it, Amazon is giving you that hour of your life back, not just when you need a drill, but every time you shop. So, in a way, they are faster - as they save you time.”

Cliff Lamented: “Yeah, in hindsight, it’s easy to see. But back then, I whiffed. It’s not the only mistake I have made, but there is no sense in crying over spilled milk. BFC has got me more than my share of winners.”

Bag asked: “Like what?”

Cliff said: “My five biggest winners include Netflix (NFLX), Apple (AAPL), Robinhood (HOOD), Bitcoin (BTC), and Intuitive Surgical (ISRG).”

Bag replied: “I see how BTC, HOOD, NFLX, and ISRG fit your criteria, but Apple?? Their computers and phones are a lot of things, but they ain’t cheap.”

Cliff responded: “I didn’t buy Apple for the computers or phones; I bought it because of the iPod. My entire generation grew up schlepping around boxes of Record albums, Cassette tapes, and CDs. What a pain in the ass. I took one look at an iPod and recognized immediately it was BFC compared to what I had been doing.”

Bag said: “Enjoy Montana, you will be missed. Before you go, I gotta ask - any possible BFC Unicorns on the horizon?”

Cliff replied: “I’ve got one, but not sure how to play it yet. I know we can agree AI is here to stay. The Googles, Open AIs, Anthropic, etc. are all building closed-source models they hope will one-up the competition and take market share. Thing is, the Chinese are building an Open-source AI, which is clearly a better choice. It’s considerably cheaper too - depending on whom you ask, it’s 1/10th to 1/20th the cost of US versions. Here is the bigger problem. … six months ago there was no Chinese model on anyone’s radar. The best AI’s were all US models. And now, depending on any one of a dozen metrics the industry uses, the Chinese version is best, or at worst, second best. The Chinese AI is zooming up the ranks fast. The reason is China has approximately 25 million Engineers, any one of whom could be working to improve their Open-source model. How is Anthropic or OpenAI supposed to compete with that, while building an inferior closed-source model and employing, at most, 2000 engineers? The way I see it, Chinese AI is pure BFC.”

Bag replied: “The thought the US could lose the AI race sounds, well, depressing.”

With a wry smile on his face, Cliff said: “Yeah, to be honest it’s not even a race. It’s more a Wipeout. Why do you think I’m moving to Montana?”

Take care my friend….

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This isn’t the first time Bag has written about BFC. For those who haven’t read this prior article…. Try this link.

Before we start today’s piece, Bagholder wishes to apologize for not publishing the last two months. As he does every year, Bag spent the better part of a month in the den of iniquity better known as Las Vegas playing in the World Series of Poker. That was followed by a 3-week family trip to Iceland. With those things now in the rear view, we expect to publish several articles in the very near future. So let’s get this show on the road ….

Those who read this column regularly know we have been bullish on Bitcoin and MSTR (Strategy) for years now. The last couple of months have seen both Bitcoin and MSTR plumb new lows in price. Worse yet, are recent headlines like “Saylor is getting liquidated,” “MSTR forced to sell their Bitcoin,” and Bag’s personal favorite from none other than Peter Schiff: “Strategy is in a death spiral.” With all that in mind, Bag thought there was no time like the present to take a deep dive into Strategy to determine whether those headlines have a basis in fact or are just hyperbole.

Any serious attempt to gauge the worth of MSTR stock must include a complete understanding of its capital structure, coupled with a thorough examination of its balance sheet. So let’s start there …

MSTR currently holds 843k Bitcoin. At current Bitcoin prices (64k), that hoard is worth 54 Billion. However, not all of it belongs to the MSTR shareholders. The first 6+ billion worth belongs, technically speaking, to MSTR bondholders. They are the people from whom Strategy borrowed to buy some of their BTC hoard. Bondholders sit atop the capital stack, and in the event of a liquidation (highly unlikely - but let’s go with it), they are first in line to be made whole. Next in line would be the holders of Strategy’s various“preferred stocks” (STRC, STRK, STRF, and STRD). Currently, there is a little over $15 billion worth of outstanding Preferreds (Prefs) in the Strategy capital stack. After the bondholders & prefs are made whole, MSTR shareholders are entitled to what’s left. Doing the math: 54B - 6B - 15B = 33B … tells us MSTR shareholders actually hold claim to about $33 billion in Bitcoin as well as the $2.5 billion in cash on the balance sheet.

MSTR closed this past Friday at $94. With 372 million shares outstanding, times the $94 …. Mr. Market says MSTR is worth just over 35 billion. In other words, MSTR is currently trading at exactly the value of the Bitcoin they hold claim to plus their cash. No premium, and no discount. On some level, that makes sense. But imagine Bitcoin doubles in price to 128k. Their 54 billion dollar hoard becomes a 108 Billion dollar asset. Subtracting out the 21B in claims of the bonds & prefs leaves MSTR shareholders with a claim on 89 billion in assets (Bitcoin plus cash). In this imaginary world where Bitcoin doubled in price, MSTR shareholders’ asset exposure went up 2.7x (89b/33b). That leverage is what makes the case for owning MSTR.

To be fair, that leverage cuts both ways. In another imaginary world, lets say Bitcoin falls another 66% from here to 22k. At that price, the 843k Bitcoin plus their cash would theoretically ALL belong to bondholders & preferreds. The MSTR common would have no claims on any assets and would effectively be worth nothing. In this fictional world, the downside leverage is obvious as BTC fell 66%, while the MSTR value fell 100%. Quick note, it wouldn’t be the first time MSTR shareholder value was at or below zero. It happened in 2022 also. Does that mean if Bitcoin falls to 22k, Strategy would get liquidated? The answer is a resounding NO. The only thing that could lead to a liquidation of Strategy would be an inability to service its debt and/or dividend obligations. There is no other path to liquidation.

This begs the question, how difficult is it for Strategy to meet its obligations?

Let’s start with the debt. They have considerable runway available before any action is required. There is a 1 billion dollar tranche coming due in Sept of 2027. The other 5+ billion is all due 2028 or later. Less than a month ago, Strategy retired 1.5 billion in debt. The bondholders who owned the paper on that $1.5B were so spooked by the falling price of both MSTR and Bitcoin that they accepted 92 cents on the dollar (a $120 million discount). In other words, they accepted $1.38 billion, and called it good on the $1.5 billion they were owed. The $120 million discount was immediately accretive to MSTR shareholders. Since the maturity date on the remaining Strategy debt is further out than the $1.5 billion they just retired, it is very likely that too could be bought back at a discount - likely less than the 92 cents they just paid.

Bag would love to see Saylor issue another 60 million shares of MSTR at the market, and wipe out ALL debt. That would clean up the balance sheet while also removing any possibility of a default on debt - as they wouldn’t have any. It would also simultaneously INCREASE the Bitcoin claims of existing (and new) MSTR shareholders by an equivalent amount of whatever discount Strategy can negotiate. For the long-term health of the company and shareholder value for both the common and prefs, it’s the smart move. The cherry on top is it could be accomplished without selling a single Bitcoin.

Now let’s address the preferreds and the dividend obligations that come with them. First and foremost, the $15.5 billion in prefs have no due date, and thus NEVER require repayment. They do, however, come with approximately $1.7 billion in annual dividend obligations. The question Mr. Market is asking is, where will that $1.7 billion come from? Factoring in that Strategy has $2.6 billion in cash, the dividends will not be a problem for at least 16 months. Even then, the way Bag sees it, there are five possibilities.

1) The least likely scenario is to borrow more money. This may not even be an option as there might not be lenders available. Even if there are, it would be a band-aid, not a solution. Future obligations would be increased, creating an ever larger financial burden. It would be the household equivalent of paying the mortgage with credit cards.

2) They could sell more prefs. At present, with all the prefs trading at a significant discount to par - this is simply not a viable option. Let’s consider STRC, the biggest of the preferreds, which is currently trading at $87. Every new share sold at the market price of $87 creates a $100 claim (par value) on the existing Bitcoin on Strategy’s balance sheet. Stated another way, it’s highly dilutive to MSTR shareholders to sell more preferreds whenever they trade below par - like right now.

3) They could sell some Bitcoin. With $54 billion available, this might seem like the obvious choice. The reason Bag thinks this is unlikely is that it would be dilutive to MSTR shareholders. Strategy’s Bitcoin hoard would shrink, but the claims (currently about $15.5B) of the preferred holders would not. Another glaring problem is that no Bitcoin bull in their right mind would willingly sell in an obvious bear market without a better use for the money.

4) They could issue more MSTR shares to fund the dividend payments. This comes with the same problem as selling Bitcoin. It is dilutive in that the Bitcoin balance wouldn’t shrink, but there would be more claims (the new MSTR shares) on the “fixed in size” hoard.

All four of those options are lousy. It might seem as though Strategy is trapped and will be forced at some point in the next couple of years to dilute MSTR shareholders. But there is a fifth option: a clear path forward that does not involve dilution. Based on the Strategy press release from June 29th, 2026 (linked here), Saylor and the Strategy board see what Bag sees.

They can issue more MSTR shares, and use the proceeds in an accretive manner. As we said, retiring debt at a discount would be accretive, and thus a viable option. In like manner, using the proceeds to buy back preferreds when they are trading well below par would also be accretive. Buying a share of STRC today at the market price of $87 would retire a $100 claim on the Bitcoin sitting on their balance sheet. The $13 difference is immediately accretive to MSTR shareholders.

In theory, they could buy back the entire $10.5 billion float of STRC issuance for about $9.1 billion. Realistically, though, the moment that plan becomes public knowledge, arbitrageurs would step in to pick up the free money and bid the prefs right back up to par. Until then, every share they buy back would benefit MSTR shareholders. What is the downside of this plan?

There isn’t one….

The upside is multifaceted. Strategy would make clear to the market they intend to support their prefs, which would ultimately increase demand for STRC. It would also reduce their dividend burden going forward, helping cash flow while strengthening the balance sheet. And, as stated above, it would be accretive to MSTR shareholders.

Is it possible Mr. Market decides to drop the MSTR share price below its asset value (NAV), which would take away Strategy’s ability to issue new MSTR shares without being dilutive? Yeah, it could happen - for a while. But, there is an answer for that too. Imagine another fictional world where MSTR’s share price closed Friday at $47, rather than its actual $94 NAV. The path then is to sell Bitcoin, and buy back MSTR shares with the proceeds. Every $47 share that gets retired removes a $94 claim on Strategy’s Bitcoin, so existing shareholders bank the difference. It’s the same idea as buying back STRC below par.

Strategy’s entire business model is little more than a giant game of Rock, Paper, Scissors against Mr. Market. If Mr. Market runs up the price of MSTR shares above the NAV or the prefs above par, Strategy can issue some new shares, buy Bitcoin - and it’s accretive to shareholders. If Mr. Market cuts the price of Prefs below par, Strategy can sell new MSTR shares at NAV and bid the prefs back up to par; once again, it’s accretive to shareholders. If Mr. Market drops BOTH the prefs below par and the common below Nav, then Strategy sells Bitcoin and puts a bid underneath the prefs and the common, which yet again is accretive to shareholders. The beauty of this plan is that it makes no difference what the Bitcoin price is. It could be $5k, or $500k - The math works no matter where the Bitcoin price trades.

At the end of the day, MSTR is a levered bet on Bitcoin. Like all assets, Bitcoin trades in a cyclical manner. Since Bitcoin went live 16 years ago we have had four easily identifiable Bull markets lasting, on average, about three years. Each bull was followed by a cyclical bear market which lasted, on average, about 16 months. With BTC currently trading at 50% of all-time highs, there is no doubt we are deep (ten months) into a Bitcoin bear. This too shall pass. Sentiment and the recent negative headlines are the worst Bag has ever seen. It is the stuff of bottoms. The current divergence in RSI & Bitcoin price on the hourly & daily charts is also the stuff of bottoms. More proof the bottom is near can be found in the selling volume of the last big leg down in Bitcoin (late May-early June). It is a fraction of the volume from the Feb selloff, meaning there are few, if any, sellers left.

Even with all those indicators in our favor, it doesn’t mean Bitcoin can’t trade lower in the near term - it certainly can. And by extension, MSTR can go lower also. But all those indicators (and others) are screaming the bottom is near. Once the Bitcoin bear gives way to a new bull, and make no mistake, It will …. MSTR will outperform Bitcoin to the upside. Until then, the idea that $1.7 billion in dividend obligations or $6 billion in debt will bankrupt a company holding $54 billion in Bitcoin, and another $2.6 billion in cash, is patently absurd.

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Peter,

I was a big fan of your Pops back in the day. My first memory of Irwin was as a teenager in the late 70s/early 80s, when he was out on the AM radio talk-show circuit, offering ten grand to anyone who could show where in the IRS code we are obligated to pay taxes. To my knowledge, nobody ever collected. I must admit, at the time, his Anti-tax and Anti-government beliefs seemed absurd. But, what did i know? I was a teenage product of the public school system. In true cult fashion, we began every day by pledging allegiance to the flag. We were taught to respect authority, obey the law, and to believe ours was the greatest country on Earth because we championed freedom. Having taken a full swig of the educational Kool-Aid, it should be no surprise that Irwin’s views seemed outlandish to me, as everything he preached was contrary to everything I was taught.

He was the first person I can remember clearly identifying that the government (Gman) was the core problem of modern society. He made a strong case that the US Constitution provided a framework for a system in which government existed only to serve the people. Somewhere along the line, corruption took root, and the principles of the Constitution were abandoned. That gave us the exact opposite system we have today, where people exist to serve Gman. It doesn’t matter if you want to go fishing, drive a car, get a job, or own a home - Gman is telling you what to do and how to do it. And don’t forget to pay him for those privileges, or like Irwin, you might find yourself spending your final days shackled to a hospital bed.

Gman is quick to tell us to get an education, work hard, play by the rules, and save for retirement. Do that, and they say you can live out your golden years enjoying the fruits of your labor. What they don’t tell us is that our retirement savings are being systematically and surreptitiously stolen through the constant debasement of our currency. No, that part we had to figure out on our own. Irwin helped me get there, as I am sure he did you. Once you accept his premise that Gman is, well, a Federal Mafia … it is only natural to look for a way out from under their thumb. And so, saving in something other than debaseable dollars becomes an obvious necessity.

Bonds won’t cut it, as the interest they pay has been less than the debasement rate for decades. We can gamble on stocks, but that requires picking winners and then relying upon corporate execution. Even then, they can be debased overnight. Real Estate might seem like a logical choice, but it is capital-intensive, illiquid, and comes with a Tax bill. This is exactly what led me to seek out hard-money alternatives and climb aboard the Gold and Silver train beginning in the late 80s. Over the next couple of decades, yours was a consistent voice on Cable news networks preaching the sound-money gospel. Your views, to say the least, were not popular. In fact, many of those shows repeatedly portrayed you as a laughingstock. I have to give you credit, you were right about all of it, and you never wavered.

Funny thing, it never dawned on me that you were Irwin’s son. It wasn’t until after he passed that I learned that fact. To be honest, I should have seen it earlier, as you two are among the most inflexible, resolute individuals I have seen in my lifetime. Sadly, Irwin’s wilful obstinacy led the Federal Government to make an example of him. It didn’t matter that he was right - he was. I strongly suspect it was his principled, uncompromising, and unrelenting nature that cost him. I am writing this letter today with the hope that you can avoid traveling the same path.

I do not believe for a second that the target of Irwin’s holy war (Gman) will punish you, as they did him. No, yours is a different crusade with a different target. It is Bitcoin that has and will continue to make an example of you. For as long as I can remember, you have been running a slander campaign against Bitcoin. In terms of “return on investment”, the compounded annual growth rate (CAGR) of Bitcoin dwarfs that of Gold, and you know it. And then there is the adoption curve. The CAGR of “Bitcoin users” in its first 15 years dwarfs the CAGRs of users in the first 15 years for Television, Automobiles, Refrigerators, the Internet, and Cellphones. Simply put, Bitcoin is the fastest-growing, most widely adopted invention in the history of mankind.

It is a perfectly engineered, elegantly designed incorruptible store of wealth. Don’t get me wrong, Gold is an excellent store of wealth also. In fact, regular readers of my column are well aware of how grossly underpriced it is at these levels. Full disclosure, I have a large percentage of my net worth in it. Unlike you, though, that has not stopped me from recognizing that Bitcoin is a clear improvement on Gold in every way imaginable.

• Bitcoin is easily verifiable by anyone; Gold is not

• Bitcoin is infinitely divisible; Gold is not

• Bitcoin is fixed in supply; Gold is not

• Bitcoin is decentralized; Gold is not

• Bitcoin is instantly portable to anywhere in the world; Gold is not

• Bitcoin is immune to confiscation; Gold is not

• Bitcoin is storable in your head; Gold is not

• Bitcoin is the largest computer network on Earth; Gold is a shiny rock

Objectively speaking, you must admit that when it comes to a store of wealth, that is a pretty compelling list of attributes.

I’ve listened to dozens of hours of your interviews and debates with the intent to create a similar list of the advantages Gold has over Bitcoin. In all your hours, you have managed to present only two advantages for Gold that have even a shred of merit. The first is the industrial use case for Gold, which is primarily in electronics. If we are being intellectually honest, that is a microscopically small use case, as it consumes less than 1/4 of 1% of the supply. Offering a fringe use case as though it is some kind of an advantage for Gold over Bitcoin is both specious and insincere.

The second advantage I’ve heard you tout for Gold is that it has been a store of wealth for centuries and is therefore superior to Bitcoin, which has only 15 years under its belt. The idea of conflating how long something has existed with its usefulness is utterly disingenuous. Candles and torches were all the rage for a thousand years, but the light bulb is better. People rode horses for centuries, but cars are better. In like manner, Gold has a long-storied tradition as a store of wealth, but Bitcoin is better.

If you have a 3rd argument for Gold over Bitcoin, I would love to hear it. In all your hours of discussion and debate, I’ve never heard you present one beyond the two cases above. In fact, the sum total of ALL your remaining hours of discussion has been spent denigrating Bitcoin, deceiving its investors, and name-calling. While those things might make you a skilled debater, they leave an unmistakable scent best described as “Used Car Salesman.”

The most recent deception I’ve heard you make repeatedly is that “digital Gold” can be transferred around the world in seconds, making Gold just as portable as Bitcoin. You cleverly omit an important distinction. Bitcoin is peer-to-peer, meaning no 3rd parties are involved. Transferring “digital Gold” requires trust in, and reliance on, centralized 3rd-party institutions. Truth be told, that distinction destroys the entire argument for holding Gold in the first place.

Your disparagement of Bitcoin by associating it with a “Ponzi scheme” is pure, unadulterated nonsense. Ponzi schemes require (1) centralized operators (2) who promote outsized returns (3) and defraud investors (4) in an opaque manner. Bitcoin has none of that. There are no operators. No boardroom. No marketing department. No promise of returns. And unlike the centralized frauds perpetrated by the Madoffs, Stanfords, Pearlmans, and Ponzi’s, there is no opacity. Bitcoin, with its open-source code, is arguably the most transparent asset on the planet. So, stop with the Ponzi references; you are better than that.

I’ve also heard you claim on multiple occasions that Bitcoin has no inherent value. How exactly is that any different than Gold? Or any asset for that matter? There is only one relevant criterion for determining if an asset of any kind has value: Does it have a bid underneath it? Right now, Bitcoins are bid at $79k each, and Gold is bid at $4,600 the ounce. So yeah, safe to say they both have value.

Also troublesome is your frequent claim that Bitcoin needs a “greater fool” to bail out existing investors. Lost in that theory is the subtle implication that current holders are fools. Do you really believe the guy who bought Bitcoin at $10, $100, or a $1,000 is a fool? Yeah, I didn’t think so. Every time you utter the phrase greater fool with regard to Bitcoin, you are alienating and demeaning sound money advocates, the very people who are your natural allies in the fight against FIAT money.

When I first heard Irwin speak, I didn’t believe a word he said. But I’ve always had an open mind. As I went out into the real world, I was blessed to have quickly seen Gman for who they are. It didn’t take long to realize Irwin was right about all of it …… Like you, I was a Bitcoin skeptic for years. As a long-time advocate for hard money, once I put in the time to understand the asset, it didn’t take long to recognize Bitcoin's genius… As a consequence, in both cases, I did what any reasonable man would do when new evidence emerges. I changed my beliefs accordingly. This letter is a polite plea requesting that you invest the time needed to understand Bitcoin. Because once you see it, you can’t unsee it.

If you wish to continue singing the praises of precious metals, I wish you nothing but the best. You are good at it, and you are right about it. But the world is changing, my friend. You can either acknowledge those changes and roll with them. Or do nothing, and get swallowed by them. Continuing to malign Bitcoin when you clearly have little understanding of the asset is a Sisyphean task if ever there was one. You are squandering the sound money credibility you have so carefully crafted over the last few decades. Keep it up, and it will be your undoing. Or, perhaps, open your mind and join the many of us who hold both assets. We would welcome you with open arms as an ally rather than an adversary in the broader battle against FIAT.

Respectfully,

Bagholder

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This past Sunday, Bag & his in-laws met for breakfast at a new local restaurant. The food was meh. But next to the restaurant was a used bookstore, and after eating, Bag couldn’t help himself. In he went. The place was jumping. There were at least a dozen employees, and roughly fifty customers milling around. They had an entire aisle dedicated to psychology. The first book he saw was the Kubler-Ross masterpiece “On Death and Dying,” in which the five stages of grief were first introduced. The next aisle was another of Bag’s favorites, History. There he found a handsome leather-bound multi-volume set on the “Fall of the Roman Empire”. Opening the first book to a random page, Bag was treated to a delightful, distinctive scent, one unique to aged books.

As a student of history, Bag has always been fascinated by “The Fall of the Roman Empire”. Those words sound so final, so abrupt, like there is an exact moment in time, where some monumental event causes the entire thing to implode. History teaches us ALL empires inevitably collapse under their own weight. The Romans weren’t the only one. The British had an Empire too, as did the French, the Spanish, and the Mongols before them, to name a few. They all disappeared.

By almost any objective measure, the modern-day US must be considered an empire as well. Not too long ago, the United States was the envy of the world. We were fresh off the Industrial Revolution, having won back-to-back World Wars, and through Bretton Woods, we created and controlled the World’s reserve currency. We were a manufacturing powerhouse with a booming economy. In just a few short generations, we pissed it all away.

For years now, Bag has been expecting the inevitable collapse, dutifully preparing for the moment where the whole house of cards comes crashing down. Amazingly, the ruling class has been remarkably adept at kicking that can down the road. Somehow that moment never seems to arrive. And then it occurred to Bag, what if history is wrong, and empires don’t just collapse. Is it possible that they will slowly wither into obscurity? After all, there is black, white, and the thousand shades of gray between. Perhaps empires have a way of lingering through the “gray” twilight for years, fueled by nothing more than past glory and the sheer momentum of what once was.

There must have been plenty of people in the late stages of all of those empires who could see the deterioration in real time. Bag wonders, in true Kubler-Ross fashion, how they dealt with the grief of that observation.

Did they outright DENY the reality of their perceptions, clinging to a long-held emotionally comforting belief that the empire and those who ruled it, had things under control?

Or did they lash out in ANGER, venting their frustrations at anyone and anything in their orbit?

Or opt instead to wallow in DEPRESSION, choosing not to confront the reality that society was continually changing for the worse?

Or did they BARGAIN away the grief of what they saw with thoughts like “After the war, things will go back to normal” or “If that guy were in charge, things would improve”?

Or perhaps, did they ACCEPT the reality of their perceptions, along with a belief they were powerless to do anything about it?

These are all particularly poignant questions considering the situation the US and its citizenry find themselves in today. Like it or not, we are all currently living through the late stages of Empire. What was once a “shining city on a hill” is little more than a smoldering pile of rubble. DENY that assessment if you like, but all the evidence of late-stage empire is there if you just believe your own eyes.

The signs include rampant inflation, widespread moral decay, staggering levels of debt, and a growing chasm between the Haves and the Have-Nots (most of whom are addicted to social media, processed foods, video games, and/or antidepressants). Then there are the senseless wars with countries that, Bag would bet his left nut, the overwhelming majority of our poorly educated populace could not point out on a map. And of course, the grand-daddy of them all, political corruption, which has reached absurd levels. For f*cksake, have you heard of the Epstein files? We are literally ruled by a cadre of paedophiles. Acknowledging these undeniable facts is just the first stage of processing our grief.

From there, it might seem natural to direct ANGER and rage at those on the “other side of the aisle”. After all, it’s their fault we are in this mess. Right? Blamestorming political foes might feel good in the moment, but it is no path to psychological health. We all have idealistic beliefs about how the world works, or at least how it should work. Quite often, those beliefs fail to mesh with what we see in the world around us. That disparity leaves a clear choice. We can accept responsibility, look inward, and update our belief system to better match reality ….or…. look outward, in a perpetual state of anger, assigning blame, and futilely demanding reality bend to our belief system.

Of course, there are plenty who will opt not to make that choice at all. Preferring instead to play the victim, and diving headlong into a life of clinical DEPRESSION. In a classic case of treating the symptom rather than the cause, many of the clinically depressed will numb the pain with alcohol, sex, drugs, gambling, or whatever vice is handy. The particular addiction they choose does not matter. Sure, it may provide a temporary escape from the harsh realities of life, but the long-term price of any addiction is a complete loss of personal sovereignty.

What’s that you say?

“The problems here in the US are just temporary. Our best days are ahead.” …. Sounds a lot like BARGAINING …

If you are lucky enough to catch an addict in a rare moment of lucidity, ask them what the end result of bargaining looks like. Only getting high on the weekends, or cutting back to 1/2 pack a day, or only one glass of wine after dinner might sound like a well-struck bargain. But every addict, if they are being honest, will tell you the same thing. Those limits are the metaphorical front lines in the war over control between the addict and their addiction. The harsh truth is that most addicts are not equipped for that battle, and so they lose ground to their addiction every time.

It is no different for the rest of us. We can all see the visible horrors consistent with the end of the empire. Reflexively rationalizing them away with platitudes like “our best days are ahead” entails a significant loss of personal agency. Either you control your environment, or your environment (programmed by the Empire), controls you.

Figuratively speaking, the various stages of grief are nothing more than a giant cognitive cage. We willingly lock ourselves in, surrendering control over our own lives while the world around us is asset-stripped and set ablaze by the ruling class. And for what?? A respite from reality, some transient comforts, or the illusion of safety??

We all feel it. Our inner voice is screaming that something is wrong. We silence that voice every chance we get, opting instead to run faster on our State-designed hamster wheels. While we plebes drown in our existential angst, Empire continually tosses narratives into the ether for us to grab onto, like life preservers. We are so focused on not drowning, we fail to see how those narratives steer our thought patterns in much the same way a cattle chute funnels the herd into the slaughterhouse. Some of the more egregious examples include: they hate us for our freedoms, Iraq has WMD’s, Epstein killed himself, Israel is our ally, the vaccines are safe and effective, and from recent headlines - we are winning the War in Iran.

The key to overcoming our existential angst is in the ACCEPTANCE stage. We must acknowledge the reality of what we see, but reject the belief that we are powerless to do anything about it. The cognitive tools required to unlock our cage are scattered all around us. We need only bend over, pick them up, and start building. Those tools include:

• Keep assets outside the system

• Plant a garden

• Own a firearm and train with it

• Stockpile food, water, and essential tools

• Build a library of physical books

• Secure a renewable energy source

• Learn new skills and trades

• Grow your community network

• Get out of debt

• Spend more time in nature

• And above all else, recognize YOU have the power to change things.

That Sunday afternoon in the bookstore was time well spent. Bag almost bought the Roman Empire set—until he saw the price tag: $5,950. No doubt actual books are valuable, but when they cost as much as a decent used car, it might be the clearest sign yet that the end of empire is closer than we think.

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For those interested in more on the crumbling US Empire, we highly recommend this companion piece we published a while back …. (Linked here)

Before we begin today’s essay, we here at Mytwocent$ wish to apologize to our readers. The demographics of our subscriber base indicates there are very few millennials. As such, we recommend you get your hands on a “Millennial to English” dictionary, just in case any translation is required in today’s blog. With that out of the way ….

This past Saturday, Bag spent the whole day (14hrs) playing in a poker tournament. In tournament play, seating is random. Drawing a seat next to someone you don’t like can make for a long day. The opposite is true as well. Drawing a seat around people you find interesting makes it an ideal setting for a nuanced conversation between multiple parties, thanks to the downtime between hands. Bag was blessed to have drawn a seat at a table with a fellow greybeard (Mike), whom he has known for decades. Mike, like Bag, always enjoys talking stocks. Sandwiched between us were two 20-something millennials with the same first name, although one spelled it Bryan, and the other Brian.

Bag starts: “Mike, you make any moves in the markets lately?”

Mike Responds: “Yeah, you are not going to believe it - but I bought some Nvidia.”

Bag chuckled and said: “You are right, I don’t believe it. How does a guy who only buys value stocks rationalize paying 40x earnings?”

Bryan chimed in: “There is uber-value in Nvidia, even at a 40 multiple.”

Bag said to Bryan: ”You do realize that paying 40x earnings means every dollar invested returns only 2.5 cents … where exactly is the value in that?”

Bryan shot back: “Value is relative. It’s a vibe, bro.”

As with most millennials, Bag didn’t know where to begin to communicate with Bryan, so he turned to Mike and said: What say you, Mike?”

Mike said: “Look at the growth rate in their revenues and income, and then tell me it’s not worth paying 40x.”

Bag responded: “Yeah, they are growing like a weed, no doubt. But paying 40x is only justifiable if you expect that growth to continue. What makes you believe that’s the case?”

Mike replied: “They have huge margins, a near monopoly on the chips they produce, and a backlog of orders - I think the growth will continue.”

Bag replied: “I’ve seen this movie before. Those are the EXACT same arguments Wall Street was making for Intel & Cisco in the late 1990s.”

Bryan jumped in: “Okay, Boomer …. stop being so extra … it’s cringe.”

Mike shot back: “The 1990s were a bubble. Today it’s still early in AI buildout, ain’t no bubble here.”

Bag responded: ”Agreed, there is no bubble in AI - yet …. But there is one in Capex spending, and Nvidia has been the primary beneficiary. For the last 4-5 years the hyper-scalers (Microsoft, Google, Meta, etc) are spending like the Kardashians planning a wedding. Did you know MSFT expects to spend 120 billion in Capex this year, which is up 6-fold since 2022? During that same time period, MSFT revenues are up only 67%. Think about that for a sec, revenues up 67%, Capex spending up 600% - does that sound sustainable to you?”

Mike replied: “MSFT is not Nvidia’s only customer; they have plenty of others.”

Just then, the Poker tournament went on a 15-minute break. As Bag always does, he went for a walk during break to stretch his legs, and worked Grok the whole time to come up with the numbers below. When the break was over, the conversation continued.

Bag said: “Ok, so MSFT is not their only customer, but the story is similar at both Google & Meta. In 2022, Google reported its Capex at 25B; Meta’s was 19B. They are guiding Capex in 2026 to be 175B and 125B, respectively. In the same time frame, their gross revenues are up 67% for Meta, and 60% for Google. Just to be clear, revenues up 60-67%, spending up 600% - 700%, …. I ask again, how is that sustainable?

Mike replied: “Like I said, they have many other customers”

Bag said: “The hyper-scalers are the biggest players in the industry, and therefore, are an excellent proxy as to what the industry as a whole is doing. It’s no coincidence that Nvidia’s revenues are up 7.5x in the last four years, which is remarkably close to tracking the 6x-7x increase in spending by the hyper-scalers. What do you suppose happens to Nvidia’s revenues, income, and ultimately stock price when the hyper-scalers turn off the Capex spigot?”

Mike said: “It’s still not clear to me there is a direct connection between the growth in Capex spending, and Nvidia’s revenues. Even if there was a connection, those companies you mentioned have the strongest balance sheets in the S&P. If they need or want to continue to spend, they can, and they will.”

Bryan jumped in: “Those companies have monster bags yo.”

Bag said: “What?”

Bryan replied: “Their Gucci, they know how to make it rain, bro.”

Bag replied: “If I understand what you are saying, Bryan - those are indeed some of the most profitable companies on the planet. However, they are borrowing tens of billions because they don’t earn enough to cover the rate at which they are spending. Meta now has 60B in debt on their balance sheet, most of it added in the last year. Google is very similar; they now have 50B in debt, again, most of it added in the last year.”

In a somewhat snide manner, Bryan said: “Sounds like girl-math to me.”

Bag responded:”I’m not sure what girl-math is - but i do know what real math is. And the real math says, not only can the hyperscalers not grow their Capex from here, they can’t even maintain these levels without wrecking their balance sheets by adding debt.”

Mike said:”I’m not so sure Nvidia’s future is tied to the Capex spending of the big boys, it might have an effect - but it won’t crater the stock.”

Bag replied: “Sounds optimistic, no?”

Bryan added: “Ain’t no hopium here.”

Bag asked: “Do you know who the largest retailer of computers was in the late 90’s?”

Bryan snapped: “Little throwback Thursday … we talking about the Stone Age again?”

Mike said: “Not sure, was it Hewlett-Packard?”

Bag replied:”No, I think they were printers. It was Dell, and there wasn’t really a close second. From 96-99, their Capex quadrupled. When you think about corporations & Capex spending in the late 90’s, the biggest beneficiaries had to be Intel & Cisco. Everyone wanted Intel chips, because they were the best; and they also wanted the computers to communicate with one another, so they needed the cards, ports, and routers Cisco was selling. I’m not saying Dell was responsible for all the revenue growth at Intel & Cisco, but they were the biggest player at the time, and thus a good proxy for what the industry as a whole was doing. In the same time period Dell’s capex increased 400%, Cisco’s Revenues went from 4B to 18B - an eerily similar increase of 450%.”

Mike responded: “Let me guess, Dell quit spending in early 2000 - and so the tech bubble popped?”

Bag said: “Actually, they spent like drunken sailors all through 2000.”

Mike replied: “Sounds like there is no connection then.”

Bryan looked at Bag glaringly and said: “Yeah, bro … where’s the receipts?”

Bag replied: “What Dell did was announce in the spring of 2000 that Capex cuts would be coming in 2001. That was all it took to crush the price of the Intels & Ciscos. They were both 70-80% off within a year. If the hyper-scalers announce today they will turn off the spigot in the near future, isn’t it reasonable to assume Nvidia may pay the price?”

Mike replied: “I don’t think that announcement will be coming anytime soon. As we agreed, the AI buildout is in the early stages.”

Bryan looked at Mike and said: “Word.”

Mike added: “There is some merit to what you are saying, I just think because the AI buildout will continue, the reckoning is years away. Until then, I’m going to enjoy the ride.”

Bryan nodded in agreement and said: “Slay.”

Bag then looked over at Brian with an “I” and said: “You have been quiet all day, surely you have an opinion on this subject.”

Brian said: ”F*ck those haters on Wall Street - buy Bitcoin.”

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Bag was blessed to appear on the Podcast, discussing in more detail the outlook for Nvidia as well as Bitcoin & Gold. For those interested - Link is here!

Gold is having a brutal month of March. The price has fallen 19% in the last 4 weeks. In percentage terms, it is the 2nd largest monthly pullback in 50 years, eclipsing September 1975 (14.9%), February 1983 (17.9%), and October 2008 (16.8%). In that 50-year span, only March of 1980 (24.5%) was worse. The significance of a price move like that in a historically slow-moving stable asset should not be underestimated. The market is clearly trying to tell us something. Our job, as long-time participants in the Gold market, is to figure out exactly what this price move portends.

Perhaps the best place to start is to see what the Gold price did after those other big pullbacks. Looking at those dates on a Gold chart shows that post Sep 75 & Oct 08 were two of the best dates to buy Gold in the last 50 years. Those giant pullbacks were both quickly followed by massive multi-year rallies. In sharp contrast, however, the other two dates (Mar 80 & Feb 83) were arguably the worst dates to buy Gold in the last 50 years. They were followed by lengthy, two decade long bear markets in Gold. So the question becomes, is the current March 2026 pullback in Gold a buying opportunity like Sep 75 & Oct 08 ….. or the beginning of a bear market, like Mar 80 & Feb 83? Let’s dig deeper ….

Historically, Gold is a safe-haven asset, overwhelmingly owned by the most sophisticated, well-informed, and best-connected investors on the planet. Think Rothschilds, Sovereign wealth, Central banks, etc. Gold has traditionally performed best in times of political turmoil, heightened international tensions, and economic uncertainty.

Traveling back in time to the 1970’s, we had all of that in spades. The landscape included oil embargoes, runaway inflation, soaring unemployment, gas lines, falling Stock and Bond markets, and Middle East tensions - culminating with US hostages in Iran. The political leadership at the time refused to accept responsibility for any of it. They insisted the “malaise” of the general public was to blame. With a political and economic backdrop like that, it should be no surprise Gold 5x’d in price immediately after the September 1975 pullback.

Taking a trip back to October 2008 puts us, quite literally, in the eye of the storm known as the “Great Financial Crisis” (GFC). The S&P got whacked in half in the first 10 months of 2008. Bear Stearns, Lehman, Countrywide, Fannie, Freddie, and others all took turns in bankruptcy court. Real estate prices were in free fall, too-big-to-fail banks were insolvent, and the Afghan war was dragging on. How did our political leadership respond to the GFC? They chose to run the money printer full blast, slathering moral hazard all over our financial system. They bailed out banks from the consequences of their piss-poor decisions, and debased the savings of John Q. Public to pay for it all. As you might expect, Gold ripped higher in response.

Now let’s turn our attention to March of 1980. The “misery” index (sum of inflation + unemployment) was printing new highs daily. Americans being held hostage by Iran was the lead story on the news, every day. The Dow Jones was trading at the same level it did in 1962, eighteen years earlier. Federal income tax rates were north of 70%! The bond market was in shambles. On the surface, it might appear the calamity of 1980 is very much the same as that of 1975, or 2008, and thus Gold should have rallied. But there is one big difference that explains why the March 1980 price drop marked the beginning of a 20-year bear market in Gold, rather than a rip-roaring rally.

The difference in 1980 can be described in just two words: “Crisis Management”.

The political leadership in 1975 & 2008 made decisions that exacerbated the existing problems, thus pushing Gold higher. In 1980, they made decisions that actually solved the problems, which pushed gold lower.

That distinction is everything ….

In the fall of 1979, Paul Volcker took over as Fed Chairman, promising two things. He was going to raise interest rates ABOVE the rate of inflation and tighten the money supply by turning off the money printer. Economists claimed that in the short term, it would tip the US into a recession. So nobody believed Volcker would actually do it. But he did. Sure enough, the country fell into a recession in late 1979.

But by Mar 1980, the sophisticated players in the Gold market recognized that Volcker was doing what he promised. They were also acutely aware of the long-term consequences of a Fed rate above inflation, coupled with no increase in the money supply. They knew it would crush inflation and drive investment capital back to our shores, setting the US on a decades-long path of economic expansion unparalleled in our lifetime. In perhaps the most Gangster trade of all time, they positioned themselves for the upcoming economic boom by selling Gold at the then multi-year highs. With the proceeds, they plowed into Stocks & Bonds, which, at the time, were both at generational lows.

The Feb 1983 pullback in the Gold price was driven by the less sophisticated Wall Street traders finally catching on. They didn’t have the foresight to anticipate it in 1980 like the more seasoned Gold investors. But by 1983, they could see firsthand the consequences of Volcker’s actions. By then, the economic expansion was undeniable. Inflation and Unemployment were plummeting. At the same time, GDP was rising sharply. Adding more fuel to the expansion were the Reagan Tax cuts. So Wall Street sold Gold en masse (shorting it if they had none), knowing full well there was no way Gold was going to rally in the 1980s with a booming economy.

This brings us to the present day, March 2026. Once again, the political & economic landscape looks horrid. AI is on the precipice of replacing millions of white-collar jobs. The US is fighting an economic War with China, a proxy War in Ukraine with Russia, and an actual War with Iran. Bag would argue that we are losing all three. Oil is trading at multi-year highs, meaning inflation here at home, is about to rip higher - yet again. This begs the question, is our current leadership taking action that will solve our problems (as in 1980 & 1983), or exacerbate them (as in 1975 & 2008)?

While Trump claims he wants to re-shore manufacturing, his actions indicate otherwise. Rather than jack interest rates ABOVE the rate of inflation and drive investment capital back here as Volcker did, he publicly shames Jay Powell for not LOWERING rates. Meanwhile, we have multiple wars going on with no obvious way to pay for them, other than running the money printer. So the chance of the US getting its economic house in order, as we did in 1980, is somewhere between 0 and 0.0 percent.

So what exactly has caused the Gold price to fall 19% in the last four weeks?

The reason is both technical and temporary. Oil producers ALL sell forward their production in the futures markets. This allows them to collect money today to pay bills & meet payroll for the oil they will produce over, say, the next 30 days. Those producers are then on the hook to deliver that Oil to the buyers in an agreed-upon, timely fashion. It’s a great system that has worked for decades. The buyers know when and where their Oil will be delivered, and the producers get money up front. Win-Win.

There is, however, currently a fly in the ointment. Many of the world’s biggest producers (Kuwait, UAE, Qatar, and Bahrain) can’t get their oil to market because the Hormuz Strait is closed. Because the Oil they have already sold cannot reach its destination, these countries are required to compensate the buyers for failing to deliver as promised. That compensation, at a minimum, means paying the current market price back to the buyers they welched on. Of course, today’s market price - thanks to war in the Middle East - is much higher than what the producers sold it for a month or two ago. In short, those oil-producing countries are facing a severe cash crunch.

Fortunately for them, they are also among the largest owners of Gold on the planet. So they are selling some of that Gold, as its the one thing that gets them the scratch they need to buy their way out of the delivery commitments they failed to honor. With the Strait having been closed for nearly a month now, there just aren’t that many more delivery obligations for the oil producers to buy their way out of, which means the selling pressure in the Gold market is likely coming to an end very soon.

Before reopening the Strait, Iran has demanded the US vacate all military bases in the Middle East, and pay Trillions in war reparations for all the damage our bombing has caused. Oh, and they also want a Treaty granting Iran the right to put an arbitrary toll on ALL ships that pass through the Strait, in perpetuity. Those terms will not be met by Trump anytime soon. As a result, the Strait is likely to stay closed. That leads directly to a Sophie’s choice for our leaders to make. They can either allow the Strait to remain closed and accept significantly higher food & energy prices here at home, and worldwide - meaning mass inflation. Or try to open the Strait by force with a land war they cannot win. Either option will send the Gold price to the moon.

It is clear our current leadership is more like the 1975 & 2008 variety. Gold sniffed this out two years ago, hence the big rally in 2025. This 19% price pullback over the last four weeks is, well, a golden opportunity to get long ahead of the next leg up. With No Volcker on the horizon, inflation exploding higher, 38 trillion in debt to refinance, and a litany of senseless wars to pay for, you can expect the money printer to be working overtime. If history is any guide, and it usually is, we have a multi-year rally coming in the precious metals market.

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In December of 2021, Bag was headed to Vegas for a week to play in a series of Poker Tournaments. One of the regulars from his local cardroom in Phoenix, let’s call him Mark, suggested traveling together and splitting expenses. And so we did. On the five-hour ride up, an extensive discussion ensued about inflation, which was running rampant at the time. Being a long-time advocate for sound money, Bag was singing the praises of gold and how it takes the sting out of inflation. Mark, being from a younger generation, thought it was a tad archaic to invest in gold. He much preferred Bitcoin. So while Bag was “Gold-pilling” Mark, he was “Orange-pilling” Bag. The ride up was just the opener. During the week in Vegas and the five-hour ride home, the debate continued.

After arriving back home, before going our separate ways, Mark made Bag promise to look deeper into Bitcoin, and Bag made Mark promise the same for Gold. Initially, Bag was skeptical of Bitcoin. In fact, the first thing he did when he got back from that trip was to organize his thoughts and pen an essay highly critical of Bitcoin (linked here). In that article, he articulated six different arguments against it. Regardless, Bag, being a man of his word, looked deeper into Bitcoin. As the research progressed, it became increasingly clear that the six arguments put forth in that article were nothing more than cocktail-party talking points.

In our modern world of immediate gratification, the idea of investing time and effort to understand anything is a bridge too far for many. Adopting the talking points as gospel and moving on is the easy way. The problem is, taking the easy way in financial markets, just like in life, is often very costly. In casual conversation, when Bag talks to BOTH bulls and bears regarding Bitcoin, it is amazing how few people understand the asset. It’s not that they can’t get it if they tried. They just prefer the easy way.

Bears seem content to bask in the emotional comfort of confirmation bias through one or more of the cocktail-party talking points. Bulls are no better; many are momentum seekers just there for the number-go-up technology. Chasing momentum with a rising-in-price asset might make some money in the short term, but it is no way to compound wealth. Faith in number-go-up coupled with a shallow understanding of the asset will get the momentum crowd shaken out when the inevitable steep pullbacks arrive - much like the one Bitcoiners are in today.

If compounding wealth is the goal, it can be accomplished with ONLY a couple of things. (1) Identify a product or asset that everyone will want, and (2) that few people own or understand. Bitcoin is one of those. Detractors will claim that not everyone will want it. Not to sound harsh, but you cannot grasp what the asset is and not immediately recognize that not only will everyone want it, but they need it.

One of the first Wall Street intellectuals to fully wrap their mind around Bitcoin was Michael Saylor, founder of Strategy (MSTR). He is an MIT graduate and an Engineer by trade. What is the primary skill of a good Engineer? They have a talent for examining complex systems with many input variables and recognizing that to produce the desired output, every piece matters. The output will often be far greater than the sum of individual pieces might suggest. Many people could tell you that Bitcoin is a monetary network. Some could even tell you it is a protocol, or decentralised, or trustless, or immutable, or transparent, or permissionless. But very few people understand the value, the implications, or the use case of programming ALL of those traits into a single asset. It’s no surprise an Engineer got their first.

To be fair, Bitcoin is complex. Bag’s orange pill moment didn’t come until he made the commitment to understand Bitcoin. Bag also subscribes to the belief that if you can’t explain something in a way a 5th grader would comprehend, then you yourself do not understand. As a proud alumnus of the Bitcoin class of 2022, Bag thought he would take his shot at explaining what the asset is, in the simplest possible terms.

First and foremost, Bitcoin is a PROTOCOL for a monetary network.

Why does Protocol matter?

When Henry Ford started mass-producing autos, owners would drive down the middle of the street, showing off their purchase, proud as could be. Roads were shared with horses, wagons, bicycles, and pedestrians, often leading to chaotic conditions. It was not uncommon to have two cars on the same road, one going north and the other south, to suddenly be at an impasse because neither would yield the middle of the road. Traffic regulations were largely ad hoc and in need of a protocol. Driving on the right side of the road became that protocol. Traffic flowed better immediately. It’s the same protocol we use today, a hundred years later. Why? Because it is functionally optimal.

Same story with the Internet. It was invented in 1969, but didn’t become widely adopted until the eighties. What happened in the eighties? HTTP and TCP/IP became the foundational protocols. They dictate how information moves over the internet, how it is packaged, and how it is read by different computers. In essence, they are the “rules of the road” for the internet. Even though cars and computers continue to advance in capability, the protocols they use haven’t changed one iota because they are simple and functionally optimal.

An obvious question is: what would the ideal protocol for a monetary network look like? Perhaps the best way to answer that is to start with what the protocol shouldn’t look like. Let’s illustrate with an example we will call **ahem**, the “SWIFT system.”

Bag hires a plumber to fix a leak. He presents a bill, and Bag whips out his Visa/Debit card. The plumber gets an ok from a payment processor (PP). The PP gets an ok from Bag’s issuing bank, who in turn, gets an ok from Visa. The PP then notifies the plumber’s bank that Bag’s bank owes them some money. Bag’s bank then debits Bag’s account, trusting he will pay the bill. Bag’s bank then sends PP and Visa a cut, with the balance going to the plumber’s bank, who, in turn, credits the plumber’s account. Worse yet, there is no final settlement on any of the transactions in the entire chain, for days. During those few days, anyone involved, meaning either bank, the PP, Visa, Bag, or the plumber, could contest the validity/accuracy of the charge, and suddenly the funds are yanked away from the plumber while a 3rd party wades through a he-said/she-said case to decide whether the charge was valid. On what planet would any of that be considered SWIFT? Or functionally optimal, for that matter?

SWIFT turns paying a plumber into a Kafkaesque maze of complexity ..… a convoluted, grossly inefficient system, rife with corporate grift and centralized control.

The way Bag sees it, routing transactions through, needing permission from, and requiring trust in 3rd party centralized institutions are not unintentional byproducts of the SWIFT system. They are policy choices specifically designed to transfer wealth from workers and savers, to corporations and governments. The system guarantees the State grows ever larger and more controlling, slowly enslaving us all. Worse yet, we are paying for the whole thing by giving up a percent or two from every transaction. Even plantation slaves didn’t have to pay for their own chains.

Bitcoin is the protocol that fixes all of this.

In the Bitcoin protocol, transactions are peer-to-peer and decentralized, with trust built into the open-source code, eliminating the need for multiple 3rd parties. Settlement is immediate and permanently recorded on a transparent, immutable ledger accessible by all. Bitcoin eliminates the chaos and the grift by keeping the transaction between Bag and his plumber. Bitcoin cannot be frozen, seized, or censored. With scarcity baked in, we can rely on eternally falling prices on EVERYTHING. It grants us all the means to save for our future without concern that our savings will be debased. There is nobody on the planet who wouldn’t want to live in a world where their savings buys MORE in the future than it does today.

Bitcoin is not just a better monetary network than what we have now, it’s better by 10x, or more. And it doesn’t stop there. Bitcoin is also an upgrade to human rights, stripping the state of its primary tool of theft and oppression (money printing). With no money printer, there will be fewer wars. The result is a restoration of peace, personal sovereignty, and property rights to individuals, the three things that made this country great. Anyone who is intellectually honest must acknowledge the improvement Bitcoin brings. Those who disagree are either a corrupt beneficiary of the current system or wilfully living in denial. There is no 3rd option.

The Elephant in the room…

Bitcoin is an existential threat to the corporate gravy train, the surveillance state, and government oppression, all of which SWIFT currently perpetuates. As Bitcoin adoption grows, the control derived from institutional monopolies over the current dollar-denominated monetary network is waning. The powerful will not give up that control without a fight. History is littered with countless examples of how power deals with existential threats. The pattern is always the same. First, they ignore the threat. Then they badmouth it. Then they regulate it. And finally, they attempt to co-opt control.

As history would suggest, Bitcoin was largely ignored in its early years. About a decade ago, traditional media began treating us to a constant barrage of what a scam Bitcoin is by the Buffets, the Schiffs, the Warrens, the Dimons, the Krugmans, and others. When that failed to stem the rising tide of Bitcoin adoption, the Biden administration did everything it could to regulate it out of existence. They instituted oppressive accounting standards, blocked on ramps, jailed proponents, and saddled the community with onerous KYC regulations - all to no avail. The network has continued to grow. The only avenue left for the current ruling class is to co-opt it.

Can they do it?

One of the most common tropes Bag gets from Bitcoin Bears is that Governments & Banks will sidestep having to co-opt it by just copying the Bitcoin Protocol and making their own identical digital crypto. The moment a Bank or Government issues its own digital currency, it is by definition, no longer decentralized. No doubt participation in that digital currency will require trust in, and the permission of, the issuing institution. So it’s not permissionless, nor is it trustless. Much like baking a cake without all the ingredients, if even one component of Bitcoin is removed from the protocol, what remains is problem-ridden and, by comparison, worthless. So, NO, they can’t just copy it.

Co-opting Bitcoin would require owning 51% of the network to make any changes. One glance at the chart below of “Bitcoin wallets by country” should make it clear that the possibility of any one entity gaining control of 51% is patently absurd.

Two more points of interest to take from that chart are these:

Other than the US and China, the first dozen countries on that list have ALL suffered through severely devalued currencies and/or outright currency collapse in the last 40 years. Judging by the recent rise in gold prices, the US is likely to join that club soon.

Secondly, other than the US, the citizens of those first dozen countries are overwhelmingly UNbanked. They don’t have Visa cards, Debit cards, or ATM cards. They operate OUTSIDE the system, in Bitcoin, without banks. Having lived through money-printing-induced inflationary spirals by corrupt regimes, the citizens of those countries recognize the value proposition of storing purchasing power OUTSIDE the system.

That is a lesson many here in the US are about to learn the hard way.

In closing, Bag ran into Mark at the local cardroom the other day. He asked Bag if it was time to sell the Gold he bought after the 2021 trip. LOL…

Bag asked him about his current outlook for Bitcoin. He believes the current bear market has 7-9 more months before the bull takes over. Considering how accurate his calls have been in the past, he may well be right.

The way Bag sees it, Bitcoin is running a 45% off bear-market sale, right now! The FOMO-induced “buy the dip” mentality of bull markets has been replaced by a fear-of-capital-loss-induced “sell the rip” mentality, typical of bear markets. Many in the financial media are quick to claim the Bitcoin bubble has popped. Pay them no mind, as most folks, media included, are utterly incapable of distinguishing a bubble from an adoption curve. Could the price trade lower? Sure, and Bag will buy it all the way down, because he does not view Bitcoin as an investment. It’s the exit ramp from the highway to hell the SWIFT system has us all careening down. Once you understand that, there is no going back.

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“If you know the enemy and know yourself, you need not fear the result of a hundred battles”

The Sun Tzu quote speaks to the value of self-awareness and the ability to see things from others’ perspectives. There is no better place for a modern-day application of this principle than in the financial markets. As we have written about countless times in the past, the key to success in the markets is to position yourself opposite the crowd. If the masses want to sell an asset, you need to buy it; and if they want to buy, you need to sell. Easier said than done, of course, as evolution has hard-wired a tribal mentality into all of us. That mentality, along with the emotional comfort it provides, is what makes standing apart from the crowd so difficult. We all know markets reward those who can set aside emotion in favor of rational decision-making. But few recognize the emotional decision-making of others is often opportunity knocking.

When you buy XYZ stock, there are ONLY two directions the stock price can go. This means you could get a list of stocks, a green crayon (for longs), and a red crayon (for shorts) …. hand it all to a monkey …. and due to the uncompromising laws of mathematics, you can expect the percentage of time the monkey will be correct to gravitate towards 50%. And yet, a harsh truth of the stock markets is this: the majority of human beings who trade their own stock picks will fail to outperform the monkey with the crayons. This stands to reason, as the monkey is not emotionally invested in his picks.

There is nothing inherently wrong with emotions; they just have no place in the financial markets because they are behavioral triggers. They motivate people to do things that aren’t rational. If you are like Bag, nearly ALL the stupid shit you have done in your life was rooted in anger, fear, boredom, love, or a handful of other emotions - but never logic. Those who can recognize and eliminate their own emotional triggers will have a clear advantage over the majority of market participants, who, as a rule, cannot compartmentalize emotion.

With that as a guiding principle, the question is, how do we monetize this?

The answer lies in studying price charts. They are, literally, a manifestation of crowd psychology at work. Traditional financial analysts will be quick to claim there is nothing to be gained by looking in the rear-view mirror at price movements. As a 40-year veteran of markets and trained in psychology, Bag can say with certainty that there is no better use of an investor’s time than to understand the price charts of the assets they own. Knowing emotion triggers behavior (buying & selling) in the markets, it would be logical to ask, what triggers emotion?

The answer to that is “Price action”. And that’s why charts matter.

When it comes to understanding “Price action”, there are many nuanced rules with plenty of exceptions, but only one iron-clad law. Commonly known as the “Max Pain” law, it states That Asset prices ALWAYS move in a way that gets both bulls and bears to do the wrong thing at the same time. On the surface, this might not seem possible. So let’s consider an example:

What the asset is in the above chart does not matter. We are only considering the price action, and how that movement affects the mindset of investors. This chart shows an asset that rallied 75% over 5 weeks in Feb-March. It then traded in a clearly defined downward-sloping channel for the next 8 months. The bulls, or anyone long the asset back in March, fresh off a monster rally, felt great! With the asset performing, most bulls had no reason to sell - they were enjoying life. In fact, many would be raising expectations at this point.

Now, let’s consider how those same bulls are feeling 8 months later in October. After a long series of LOWER highs & LOWER lows (six of each - numbered above), many are left wondering why the asset keeps failing to print new highs. With expectations of higher prices repeatedly dashed… doubt, frustration, and even apathy creep in. While the asset itself hasn’t changed, the price movement has triggered a psychological shift in the owners’ mindset. Every attempted rally is immediately smothered by selling pressure. Those with anything less than rock-solid conviction can’t help but feel the Feb-Mar rally has run out of steam. They start to think now is the time to sell, and move capital to greener pastures. Given the price action, that mindset is completely understandable.

Now, let’s consider what the price action does to those with a bearish slant on the asset. After getting kicked in the junk with the Feb-Mar rally, they, too, have seen an 8-month series of lower highs & lower lows. They can’t help but think the trend is their friend, and that 8-month trend, is down. With each rally capped by a fresh wave of sellers at lower prices, it appears the sellers are in charge. Toss in a little of what psychologists call “anchoring bias” and the likelihood of another downward leg, feels imminent. This type of price action emboldens the Bears. Those with short positions are encouraged to increase them. The Bears on the fence without a current short, can’t help but feel now is the time.

With the Bulls starting to doubt themselves, and the Bears feeling confident, how does the price respond? According to the law of “Max Pain”, price will breakout to the upside, catching both camps by surprise. In the charting world, those downward-sloping channels are known as “Bull Flags”. This is because they are generally resolved to the upside. Not always, of course, but a high percentage of the time. As we zoom out on this asset below, we see two more downward-sloping channels both of which, in true textbook fashion, were also resolved to the upside.

If downward sloping channels resolve to the upside, care to guess how an upward sloping channel resolves? Yes, of course, to the downside. They are known as “Bear Flags”. The thinking of each camp is completely reversed when the channel pitch changes. The Bulls think, yeah we’ve had a big pullback, but its’ making higher highs AND higher lows, just what we want to see, looks like the bottom is in, let’s get long(er). The bears think, we’ve had a price move go our way - but since it can’t take out the recent lows, perhaps the move is over, let’s take some profits & cover. Once again, price action screws over both camps, and breaks lower. Zooming out further on this same asset, we see three upward-sloping channels on the right, the first two of which have already resolved down. As this article is written, we are currently in the 3rd channel.

For those who haven’t figured it out yet, the charts in today’s essay are all of Bitcoin. Regular readers of this column are aware Bag is extremely bullish on Bitcoin - long term. Since most market participants cannot distinguish the difference between an asset bubble and an adoption curve, Bitcoin is currently grinding lower in a cyclical bear market.

The next logical question is: Have we bottomed out yet? Unfortunately, according to the charts and the present-day bear flag, the short-term price direction is likely down. What is required to invalidate this Bear Flag? That would be a breakout to the upside on abnormally high volume. If we get those two things, the Bear flag will be aborted. Without them, be prepared for more short-term pain ahead.

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Bag signed for a registered letter from JPMorgan Chase in the mail the other day. Inside was a notice giving 6 months to empty all safety deposit boxes and turn in the keys. It is the end of an era. Bag has rented those boxes since the 1980’s. Being a long-time owner of precious metals (Gold, Silver, and Platinum), those boxes were a no-brainer. You can’t keep a roll of Eagles in the house without having to worry about house cleaners, neighbor kids, repairmen, baby sitters, etc, stumbling upon your hoard. Or if you have a piss-poor memory like Bag, remembering where you hid your stash in the first place.

Renting safety boxes was an elegant solution. The only responsibility was not to lose the key. Even then, it only required paying to have it drilled. In the event someone found or stole the key - they still couldn’t get in the box without proper ID and a pin-code. It was a great system.

So this past Monday, Bag emptied his boxes, turned in the keys, and asked the branch manager: “What gives?”

She replied: “This is a company-wide thing, Chase is getting out of the safety-box business. With assets becoming more digital and documents being stored in the cloud, there just isn’t demand.”

Bag responded: “No demand?? I’ve been on a waitlist to get another box here for the last 4 months, you guys keep trying to send me to a branch in South Scottsdale.”

She Said: “We are a smaller branch that doesn’t have a lot of boxes to rent, so we are likely the exception. Add in the maintenance costs & insurance, and it becomes a money-losing business for us.”

So Bag got to thinking …

Maintenance?? WTF is she talking about? There is no maintenance. Sure, there is an up-front cost to build the vault, and $50/month to monitor an alarm, but that’s it.

Insurance? For what?? Renting those boxes requires signing a multi-page legal document waiving the right to sue the bank or hold them responsible in any way if anything goes missing.

Bag has a nose for bullshit. The branch manager’s explanation of demand, maintenance, and insurance - stinks to high heaven. There is something else going on.

The boxes at the local branch cost $15/month for the small ones, $24/month for the medium, $36 for the large, and $65 for the oversized. The walk-in safe room at this “smaller” location, had about 1500 boxes total. Conservatively speaking, an average of $24/Month per box would yield 430k per year in revenue for that branch. If you figure JP has 5000 branches nationwide, multiplied by 430k - that works out to north of $2 billion per year. Keep in mind, Bag’s local branch is very small. There is no doubt big city branches in Manhattan, Chicago, or LA have far more boxes being rented for much more money. So $2 billion is certainly a conservative estimate. With no discernible expenses, almost all of it flows right to the bottom line.

Corporations, particularly banks, are greedy bastards. Accordingly, they do not willingly give up income streams, especially ones with no easily identifiable costs.

So, why are they doing this??

Bag can only come up with one plausible explanation, and it’s going to sound pretty dark. But here goes ….

Let’s begin with this question. In terms of profit per employee and margins (percentage of revenues that are profit) - what is the most profitable, best-run company on Earth?

If we were to limit the scope of that search to just companies in the S&P, the clear winner would be Nvidia. They net about $2 million per employee, with margins of almost 60%. Those numbers sound pretty good until the search is widened beyond the S&P. Expanding the search reveals a company with (according to Google) about $85 million in profit per employee and margins north of 95%. Those numbers make Nvidia look like a 3rd grader’s lemonade stand.

That company is Tether. What do they do? They are an online-only digital bank with roughly 200 billion in deposits. The largest traditional bank in the world is JPMorgan Chase. They currently have about 10x the deposits of Tether, roughly 2.1 trillion. On the surface, it might appear JP is kicking Tether’s ass until you consider JP has 5000 branches to pay for, while Tether has Zero. JP also has 300,000 Employees to pay, Tether has 300. In the last DECADE, JP added about 20 million customer accounts. In the last QUARTER alone, Tether added 25 million accounts. It’s not even a fair fight.

Here is another interesting fact about Tether: They control over 70% of the online Stablecoin market. Between Tether’s (USDT) and the US version (USDC), they control over 90%. They are currently lobbying Congress to pass the Clarity act. It would grant Tether the right to be able to pay interest on deposits - you know - like banks used to do. What do you suppose happens to the 2.1 trillion in deposits at JP if all of a sudden competitors were allowed to offer 4% interest on deposits? Yeah, Chase would be f&cked. Of course, our elected politicians in Congress, thus far, seem unwilling to pass the Clarity act. Only a cynic would believe the politician’s reluctance is connected to the Billions of dollars the brick-and-mortar banking industry is currently throwing at congressional lobbyists to stop that bill in its tracks.

Bag must admit, it is quite entertaining to watch Jamie Dimon (JP’s CEO) on the various morning financial network shows, claiming that allowing corporations to pay interest on deposits will, if you can believe it, “punish consumers.” That is world-class chutzpah, Jamie has. To be fair, his propaganda is understandable if you are in the banking industry. He sees the coming Tsunami. Amazon took libraries, shopping malls, and department stores and moved them online. Apple took music, maps, photos, etc and moved them to the digital world. Netflix took video rentals & movie theatres, and moved them to the digital realm. It would be naive to think the Tethers of the world won’t do to traditional brick-and-mortar banks what Amazon did to Sears, Kmart, etc.

If Bag can see it, there is no doubt Jamie Dimon can see it. If he wants to compete on semi-equal footing with Tether, he will need to shutter most, if not all, of JP’s 5,000 branches. Oh, and lay off 99.9% of his workforce. If you are Jamie Dimon, and recognize the future of banking is online, what is the first step to take? Copying the Tether model (no branches and few employees) would be a good start. The problem is, there is no plausible way to close a branch tomorrow if 1500+ people have valuables locked up in safety deposit boxes inside your vault. But, quietly have all the people remove their valuables, and suddenly JP is in a position to close as many branches as they want overnight. Now it begins to make sense why JP is giving up the safety box income stream.

Not by coincidence, BofA and Wells Fargo are also closing safety deposit boxes by the millions. If these companies want to survive the imminent digitalization of their industry, they must get lean, ASAP. Closing safety boxes is a necessary first step. Once completed, the announcement of branch closures, coupled with employee layoffs, will follow. Bag fully expects those announcements to affect 95% or more of branches AND employees. We are talking millions of jobs lost. If you are currently employed by the banking industry, and think this story is going to have a happy ending …. to quote a legendary villain …

“You haven’t been paying attention.”

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There was a 31% drop in the Silver price on Friday. Naturally, everyone focuses on the magnitude of the price fall. After all, who doesn’t look at an accident when they drive by? Before addressing whether that 31% drop marks the end of the Silver bull, we must recognize that lost in the noise of that drawdown are a couple of signals worth noting. The first bit of signal is the fall ocurred on Friday AFTER the Shanghai market had already closed for the weekend. With the Chinese Cat away, the New York mice could play - just like the old days, they had the run of the place. If you are like Bag, and believe the metals markets are heavily manipulated, then the timing of this fall makes perfect sense. Had this fall occurred on a Tuesday, we could instead blame some wet market trading desk in Wuhan, China. But no, this was all New York.

The second part of Signal was the price movement itself. There are rules in place specifically designed to minimize panic selling and thus prevent large price drops like this one. The rules dictate trading to be halted if prices fall by 10% within minutes. To sidestep the shutdown, the 31% drop had to be a slow & steady drip all day. Panic selling was not allowed, so as not to trip the circuit breakers - just a gradual 31% takedown. In Bag’s opinion, what we saw was a controlled demolition, obviously engineered and actively managed to avoid a halt in trading. For those who believe the price fall was organic, Bag wonders if you can even recognize a controlled demolition when you see it. For instance, is it possible to take a 747 Jumbo jet flying at 550 MPH, ram it into a skyscraper, and reasonably expect the building to collapse straight down?

On Monday of last week, two of the largest refiners on the planet, Valcambi & Metalor, both at the same time, stopped buying Scrap Gold & Silver. The reverberations of that decision were felt all the way down the food chain to local pawnshops & Coin dealers - who, in lockstep, also quit buying. In Bag’s hometown, there is a Metalor subsidiary. That location has had a line of people out the door looking to sell all day, every day, since November. The narrative given for them turning people away last week was that the refinery has reached capacity. Due to all the sellers, they have a 6-month backlog of scrap currently warehoused and waiting for the refining bottleneck to loosen up.

What Bag struggles to wrap his mind around is how exactly a backlog equates to not buying anymore scrap. The entire business model of PM refiners is to buy dollar bills for 90 cents each. That is a Gravy train with biscuit wheels, if ever there was one. Nobody in their right mind would ever willingly stop it. The narrative is, due to the backlog, all of their money is tied up. While the backlog is real, the idea that they have no money to buy more scrap is total Bullshit. This is not Uncle Joe’s backyard Refinery/Auto repair business. These are multi-billion dollar enterprises with ten-digit credit lines at the biggest banks on the planet. They don’t just run out of money. And yet, somehow, the spigot has been turned off.

Let’s take the narrative at face value and assume the refiners have used their entire credit line. If you run the refinery, don’t you just call the bank and get a credit line increase? There is no bank in the world that would look at your business, with a line of people out the door selling assets at 90 cents on the dollar, and say “No thanks, we don’t want any part of that.”

Any banker worth their salt would look at that situation and say “OK, we will put up the money, you do the work, we split 50/50.”

The Savviest bankers, like the kind they have at JP Morgan, would look at that situation and say, “OK, Mr Refiner, you get a third of the profit, I get a third, and the Money gets a third.”

Bag’s does have a contact at Metalor, whom we’ll call “DT” …. short for Donald Trump Deep Throat, has informed Bag that Metalor is indeed trying to increase its credit line. But DT says, “The bank is not cooperating because of the perceived risk.”

Bag says: “Don’t you guys just hedge as metal comes through the door, eliminating ALL risk?”

(For those interested, we recently penned an entire article on how hedging eliminates all risk & locks in guaranteed profit, linked here.)

DT responds: “Yeah, of course - but they are still refusing.”

Bag replies, “Wow, DT, it’s almost like the whole thing is rigged.”

This begs the question, why would a bank forego a piece of the pie and turn off the spigot? The way Bag sees it, there are only two possible explanations for the bank’s decision, and they both have very dark implications. By the way, if anyone can think of a third, Bag would love to hear it.

The first plausible scenario is that the banks perceive risk because the hedging mechanism in place for decades now - the futures market - will be collapsing. The Banks are in the best position to know before anyone else. In a world without a futures market, commodity supply lines would be irrevocably cut. Oil, Gas, Metals, and most importantly Food would have no path to market. Prices would 10x or more overnight, if you can even get them. Some of you might think this is hyperbole. It isn’t. As sure as we landed on the moon, this is what awaits us if futures markets collapse.

The second, and more likely theory, we will call the “Lone gunman bank Theory.” It centers on a subject Bag has written about for years. Namely, Several multinational banks are trapped on the short side in the silver market. They have been running a 40-year price suppression scheme, selling silver they didn’t have, and are now being forced to deliver. Of course, they don’t have it. One of those banks is UBS, the largest bank in Switzerland, which, wouldn’t you know, is where both Valcambi and Metalor are headquartered. Is it possible they are the “lone bank” for both refiners?

The reason that matters is that both UBS and the refiners have massive short positions in the futures markets. The refiners use it to hedge, and have a warehouse full of metal that would allow them to cover their shorts, in time. The banks do not. However, the existing credit line the refiners use is likely collateralized by the contents of that warehouse. The higher the spot price goes, the more margin $$ the refiners have to post to maintain their position. The financial drain of those margin calls would explain why refiners are not buying. Is it possible a lone bank with a massive short they can’t cover, lets call them UBS, is eyeballing those warehouses and thinking “that is our way out of this mess.” If they have to bankrupt a couple of refiners in order to cover their own ass, there isn’t a banker born who wouldn’t make that trade.

The price action in Silver and the behavior of the refiners over the next couple of weeks will really tell the tale. The 31% drop on Friday has freed up MASSIVE amounts of cash for the refiners that, until now, has been posted as margin. If the refiners use that cash to turn the spigots back on come Monday, maybe all is right with the world. If they don’t, and choose to keep that cash as dry powder in case metals go back up, we will know war has been declared between them and the banks. There is a delicious irony in the fact that if UBS is indeed coveting the contents of that warehouse, they need the price to go right back up. And they need it quickly - meaning days or weeks, not months, as that would allow refiners the time to clear the backlog and empty the warehouse.

Is Friday’s 31% drop the end of the Silver Bull Market? Bag thinks that is about as likely as 4 inches of neck tissue stopping a 30-06 round. Sure, in the coming week or two we will likely get some follow-through downside selling from longs (who are still sitting on huge profits). But make no mistake, the Banks will be in there covering. Long-term, there is no doubt that silver is headed much higher. The odds of a 40-year scheme being resolved by letting the price run for a few months are about the same as the Earth being flat, somewhere between 0 and 0.0 …..

Monday will be fascinating to watch. Silver closed at $125 in Shanghai Friday morning, before the New York takedown Friday to $85. Come Monday, when both markets are open, we will have a better idea which price is real, and which is, well, conspired.

Hit the like button if you believe in conspiracy …

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Bag was always a coffee and morning-paper kind of guy. Throughout the 80s & 90s, Bag would show up to work an hour before everyone else, armed with an extra-large black coffee and the Wall Street Journal (or Barron’s on Saturdays). That hour of peace and quiet each morning was a nice way to charge up the batteries before a full day of buying, selling, and dealing with the public. Occasionally, one of Bag’s close friends, a mentor, actually, named Joel, would stop by in that hour and chat about current events. Most of the discussions had a decidedly economic/investment flavor. Joel was an overly hyper savant with a unique view of the world. Many of those views were influenced by the years he spent working as a floor trader on the NYSE.

He gave the same pieces of advice over and over again; every one of which has served Bag well. He had a way of getting his point across with very few words, a trait common in most savants. We thought it best to take this opportunity to share some of his wisdom. The best way is to illustrate it with this story:

In the early 1990s, Joel stopped by the shop one morning and said to Bag:

“What Shakin?”

Bag responded with: “Not much, just mailing off a check to a Mutual fund”

Now, keep in mind, these were the pre-Internet days. Most folks didn’t have brokerage accounts. Owning a mutual fund required sending money to the fund directly. And that is what Bag did …. So, anyway, Joel gets this incredulous look on his face and says with disdain, in his thick New York accent:

“Whatsa matta wit you? You payin someone else to look afta ya munny?? How many times I gotta tell ya, ALWAYS BET ON YASELF! Aint no body gonna look afta ya munny, like you … got it?”

To be honest, Bag struggled with betting on himself for a long time. He was raised in an era where you were taught to both respect and defer to authority. It didn’t matter whether the direction was coming from a Policeman, Doctor, Lawyer, Teacher, or in this case, some Wall Street suit, you listened. They were professionals, and Bag wasn’t. So, disregarding Joel’s advice, Bag continued to send the mutual fund monthly checks. In the mid 90s, Microsoft released Windows 95, a substantial improvement over prior versions. Bag remembers thinking if he were managing his own money, he would be buying MSFT. But no, he sent his money to the professionals. Within a couple of years, MSFT was up fourfold, while Bag’s fund was up a paltry 18%. WTF??

Bag finally decided Joel was right. He called the mutual fund, cashed out, for a penalty, of course, and sent the funds to Schwab. Soon after, Schwab called and set a meeting to introduce themselves and discuss a plan for the money. While Bag was going to decide for himself, he thought, why not listen to what they have to say? Bag walked into that conference room in a Polo & shorts to find three guys in suits sitting on the other side of the table. One of them was an in-house fund-manager to whom Bag could turn over the money, and he would deploy it properly.

“Into what?” Bag asked.

He replied, “Tech stocks - Young guy like you, you need Cisco, Lucent, JDS, Intel, Global Crossing, Qualcomm, and others.”

Those stocks were all the rage back then. Bag pointed out how some of the companies he mentioned were losing money, and the few that made money were priced with PE’s in the stratosphere.

The fund manager replied, “None of that matters, that’s where the growth is, that’s where you want to be.”

By that point, Bag had 13 years of experience in the Gold business. He knew for certain that Gold was grossly underpriced at $300. So he asked the suits “What about the precious metals sector, you know, Gold and Silver - any ideas there?” The two guys on the left exchanged smug glances. The guy on the right, the money manager, rolled his eyes, took a deep breath, exhaled and in a condescending manner, told Bag,

“No, you don’t want to do that, nobody buys Gold - it’s dead money.”

Bag knew right there, these people have no idea what they are doing, none. They were completely dismissive of outside-the-box thought. In Bag’s mind, that makes them little more than used-car salesmen pitching what the boss told them to.

Bag walked out of that room conflicted about what to do with the money. He just couldn’t bring himself to pay exorbitant prices for tech stocks. So he parked the money in “Old Lady” stocks, until the right opportunity came along. Exxon, Merck, Philip Morris, AT&T, etc… Real companies, making real products, trading at low PE’s, and paying you to own them (dividends). All through the late 90s, that’s where Bag’s money was. Meanwhile, tech was UP, every day. It was total Groundhog Day stuff, another day, another 2-3% up. Bag’s portfolio hardly budged, and as a result, he grew increasingly frustrated.

He asked Joel “How do you make money in this racket?”

Joel responded, “YA GOTTA BUY DA-HATE”

Bag says: “Da-hate? What is that, a company?”

He replies, “NO, No, No - You gotta to buy sumptin evryone Hates, do dat, and munnys easy.”

Bag remembers grilling Joel for weeks about what he meant by ‘Hate.’ Where is it, how does it manifest in the stock world, how to recognize it, etc. He never did clarify fully.

He would say something like: “Ya know it wen ya see it.”

Bag pressed further saying: “I’ve no idea what to look for, or even where to look, help me out here.”

Joel’s response to that plea was legendary, He said: “WHATS YER EDGE? Whadda you know, dat no one else duz?”

Bag replied: “Gold & Silver are undervalued.”

“Exactly!! Dats, where ya look” Joel said.

Later on in the summer of 99, Barron’s magazine wrote a scathing article about Gold, calling it, lol, “Dead Money.” In fact, even with tech stocks going bananas, they gave Gold the cover that week. In the article, they talked about how England’s Prime Minister at the time (Gordon Brown) sold ALL of the nation’s gold reserves. Even Bag’s all-time favorite editorialist, Alan Abelson, was ripping Gold. Joel walks through the door one day, points to that article, and says: “Dat right dare, is some generational hate, gotta buy dat shit.” Gold was under $300 then. Month or two goes by, Gold goes nowhere in price. Bag was chiding Joel about how his “Gold” pick hasn’t moved.

Joel said “Look, Dats not a trade …. Dats a keepah … K … Ya gotta keep it 15, 20 years.”

Bag responded: “Not to sound ungrateful, or anything - But I got a family, mortgage, and bills - anyway to make some money this century?”

Few days go by, Joel comes in one morning and asks Bag if he saw the news.

Bag said: “I Read the WSJ this morning, didn’t see anything that stood out.”

“Show me da front page.” He points to the headline: TV Maker Zenith files for Bankruptcy. “Dare it iz, gotta buy dat”

“What are you talking about Joel??? They filed Chapter 11; their stock was 14 yesterday. Right now, it’s at 72 cents on 200x normal volume.”

“Yah Yah Yah, sounds like Hate, just buy it, Dares value dare, da name is worth sumtin, truss me”

Just to appease Joel, Bag picked up 500 shares at like 75 cents. By the end of the day, Zenith was over a buck; the next day it was over 2. Day after that it was at 3 and change. Joel blows into the shop like the East wind.

He says “Still got dat Zenith?”

“Yeah, of course, I love it” Bag says

Joel responded, “Gotta dump it, right now.”

Bag said: “Wait, What?? I’ve only had it 2 days - there is a story today in the WSJ saying there are multiple firms looking to buy the company, why not hold?”

In a derisive manner Joel says: “Whatsa matter wit you? Dontcha know wat ya bought? Dats not a keepah, dats a trade….K… When ya buy sumtin, ALWAYS KNOW THE EXIT PLAN.”

He continued to lay the wisdom on thick saying: “Ya Luv da tip i gave ya? … Ya luv 4xing yer munny in 2 days? … Now ya tell me WSJ luvs da company. …. Dat’s a lotta luv. Ya wanna make munny, “YA GOTTA SELL LUV. Its like the Tech stocks on da news evry day, gotta sell dat shit”

Unfortunately, Bag didn’t own any tech to sell. But, he did dump the Zenith, which eventually went to zero. To this day, Bag struggles to sell love. It’s a psychological trap. Imagine buying a stock at 20, you believe could trade at 100 within a decade. It gets there in 18 months. What goes through your mind? If you are like Bag, it is something along the lines of “I knew it! I was Right! Look at it go! …. I LOVE IT! Almost nobody sells that feeling. It’s too counterintuitive. The price action massages your Ego and keeps you holding the bag. All those poor bastards piling into tech stocks in the late 90s couldn’t keep their Egos in check. They all paid dearly.

Joel was right, best to have an exit plan. The best exit plan Bag has found is looking at his portfolio regularly for anything that has outperformed expectations, and then selling a 20% slug of it. If it keeps running, another 20%. You can sell 20% three times and still have over 1/2 the starting position. You then take those 20% slugs, and go shopping for hate.

The last time Bag saw Joel before he passed was January 2008 in Las Vegas, Super Bowl weekend. New England Patriots V. New York Giants. We had dinner at Hugo’s Cellar in the 4 Queens, one of Bag’s favorite restaurants. After dinner, we were milling around on the casino floor and Bag, still uncertain as to who to bet on in the Super Bowl, says to Joel: “Who do you like tomorrow?”

Joel responds: “Whadda ya see?”

Bag said: “I don’t know, I see a casino with people Gambling.”

“NO, no, no - look closer” he said.

“What Joel, What am I looking at???”

Joel pointed his finger at different people, and said: “Him, and him, and her, and him, and her”

Two of those people had New England Jerseys on, couple more had New England T-shirts, and the last lady, a New England hat. Joel then says: “Ya see any body in Giants Garb?”

Bag looked around, and replied “No, i don’t”

With a wry smile, Joel said “ALWAYS FADE DA CROWD.”

Bag loaded up on the Giants. Wouldn’t you know it, once again, Joel was right. The Giants, a huge underdog to the undefeated Patriots, won the game with exciting last-second heroics. Bag went home with some extra scratch while the crowd got kicked in the junk. Even today, when Bag goes to Vegas on big Football weekends, he counts Jerseys. If the count is lopsided one way, he bets the other. It is amazing how well that system works.

It’s been over 15 years since his passing, and Bag can still hear Joel’s voice in his head every time he makes an investment decision. The advice Joel gave Bag over the years was absolutely stellar, and warrants repeating.

Bet on yourself …

Buy hate …

Sell Love …

Look for an Edge …

Fade the Crowd …

Have an Exit Plan …

If there is any better advice out there on investing, Bag has yet to hear it.

As Joel would often say, “End of Story.”

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In the 1970s, Bag’s grandfather was a bartender at an Irish pub on the south side of Chicago, right by Midway Airport. The beautifully crafted wooden bar ran the length of the place, with about 25 stools, a couple of pool tables, a few vending machines, and, of course, its share of regulars. One of those regulars was Jimmy, the local bookie. Fun guy. He taught Bag how to read the “Racing Form” for the local horse tracks. He was also responsible for introducing parlay cards to Bag - who was at the time, maybe 14 years old. Jimmy was always telling him to pass the cards out to his friends - or the people down at the local country club, where Bag worked as a caddy. It was immediately obvious what a money-maker those cards were for him. So much so, that when Bag moved out to Phoenix at the age of 19 and got an apartment across the street from the local pool hall; he started making his own Parlay cards. Over the next decade, that blossomed into a cash-generating machine.

By the end of that ten-year run, on an average Football weekend, Bag was booking over 200k in action. What is interesting is that Bag rarely had more than 10k in cash on hand to pay the winners. An obvious question might be, how is it possible to take 200k in action, with only 10k in reserve? The answer is balance. As a bookie, you are always trying to equalize the amount bet on both sides of a game. This is best accomplished by altering the spreads. For those not familiar with how sports betting works, think of the spread as a “price”. When properly altered, it prompts your client pool to stop betting certain teams and start betting others. Balance was the key to maximizing profits and minimizing risk. On the rare occasions where a client wanted to bet big on a game, you never said no - you took the action. If it created an imbalance, the risk, if need be, could be quickly eliminated by selling that action “up the chain” to a deeper-pocketed bookie, like Jimmy.

Playing bookie was just a side gig. Bag’s actual profession was as a precious metals dealer. There is a significant overlap in the Venn diagram of what it takes to be successful in both worlds. Precious metals, like bookmaking, is a low-margin, capital-intensive business that requires maintaining balanced positions in order to grind steady profits. This is best illustrated with an example. Client comes in on a Saturday and wants to sell 1000 ounces of silver. At today’s market value, that is roughly 100k. If the silver market opens down 5% on Monday, you’re suddenly stuck 5 grand on that trade. Avoiding that scenario requires getting on the phone immediately after the client leaves, and selling that 1000 ounces “up the chain” to the refiners & bullion banks. This locks in a small 1-2% profit, maintains steady inventory levels, and eliminates market risk.

Perhaps it wouldn’t be necessary to sell up the chain if the number of buyers and sellers coming through the door were about equal. But, after decades in the business, Bag could tell you with certainty that is never the case. The hive-mind of the public always acts in concert. They are either all buying or all selling. In response to the constant one-way traffic, the entire precious metals industry is structured like a pyramid. On the bottom are the local coin shops and pawn shops. They sell up the chain to the gold and metal exchanges, who in turn sell to the refiners, who then sell to bullion banks. Even the bullion banks sell up to a handful of multinationals that bankroll the entire industry. Think HSBC, Scotia, BofA, UBS, Deutsche, BNP, and, of course, the ring leader, JPMorgan Chase.

Sitting atop the Precious Metals pyramid is not without its perks. As titans in the industry, they can see before anyone else which way the wind is blowing. That vantage point gives them the opportunity to position themselves properly, ahead of the crowd, and make some guaranteed money. Most of us would be satisfied to just front-run the crowd. But not the banks. They want both tits in their mouth. Of course, doing that would require them to set their scruples aside. So that’s what they did. More than once, the precious metals trading desk at JP went an entire calendar year without booking a losing day. That could never be accomplished without criminality.

So how do they do it? They muffle the physical market by cloaking it in a paper derivatives wrapper known as “The Futures Market”. They intentionally make the futures market substantially larger in financial scale than the physical market its supposed to represent. This allows the futures to set the price at which physical trades are made. As a consequence, the biggest player in the paper market (JP) is the proverbial elephant in the bathtub. The water level (price) is whatever they want it to be. Anyone looking to invest millions or billions into Gold or Silver doesn’t just walk into their local coin shop and pick up a truckload of Krugerrands. No. They have to go to a market big enough to handle that kind of action. In this day and age, there is only one option - the futures market, aka JPMorgan’s playground.

The derivatives market in Metals, for all practical purposes, was born in 1980. The general public, fresh off a decade of raging inflation and endlessly rising Metal prices, got seduced into getting long gold and silver, in a big way. Back then, most buyers wanted physical metal. But because physical supplies were limited and a pain in the ass to move around, many people turned to the futures market and went long “paper” gold and silver. The banksters were happy to assume the role of bookie, as there was no sense in them parting with actual gold & silver, if some of the marks buyers were willing become a ledger entry instead. This was the birth of Banksters’ short position on the Comex. It was designed to leverage profits from falling metal prices in the 1980s, which it did.

JP and the other banks significantly increased their short positions in the 1990s for a completely different reason. As we discussed above, the public always acts in concert. In the 1990s, they were selling relentlessly, right into the teeth of a generational bear. We had 20 sellers walk through our door for every buyer. With JP and the other bankers sitting at the top of the pyramid, the metal the public was selling flowed up the chain to them. Arch criminals that they are, they decided to rig the price lower by overwhelming the longs and flooding the futures market with “paper” metal. This way, they wouldn’t have to pay so much for the river of actual metal coming through their doors. In other words, they built a position in physical metal at well below the TRUE market-clearing price.

The banks’ short position grew even larger in the 2000s & 2010s. Grasping why requires an understanding of how futures markets function. The winners, oddly, are rarely those who correctly predict long-term price moves. More often than not, the winners are those with the deepest pockets, because they can move the short-term market price at will in the direction they want, steamrolling those with less capital to risk. A good, but not great metaphor would be No-limit Holdem. Any poker pro would tell you most pots are not won by the best hand. They are won by the guy willing to put the most chips at risk. On the rare occasions when two parties are both willing to put ALL their chips in, the cards will break the tie. The poker metaphor diverges from futures in that, in poker, you can occasionally hold a guaranteed winner and know it. In futures, you are always beholden to movements in market price, so no guarantees unless you can push around the price at will. That fact allows those with the deepest pockets in the futures market to BLUFF with impunity. And BLUFF they did, for 40 years.

The breathtaking price run-up of Silver in the last year is all the evidence required to know the banks no longer control the price. A bigger player has arrived: Industry. Sure, the pocket depth of individual companies is no match for the banks. But in aggregate, the corporate world dwarfs the banks. And to be blunt, most industry doesn’t give a F*ck about the price. The higher the price, the more they will pay, and they will be happy to do so because their very existence depends on it. The fact industry needs ACTUAL metal is the mechanism breaking the 40-year stranglehold of the banks. Industry is calling their bluff, in real time. What a JOY it is to watch.

Ted Butler (RIP) was right. The banks perpetrated a decades-long price suppression scheme, and it is finally coming to an end. You can see it in the exponentially growing quantity of parties standing for delivery on the Comex, as well as their dwindling inventory. Several of the banks listed above are underwater and hemorrhaging billions every time silver clicks higher. In fact, Bag would argue that several of them are already dead, their carcasses just haven’t floated to the surface yet. But make no mistake, as soon as they “mark to market,” and they will; we will find out which of those banks are zombies, and which aren’t. It takes a hubristic mix of greed and arrogance to do what those banks have done. Good riddance.

Hubris always comes with a price. The bank’s price is that they don’t learn from their mistakes. How does Bag know? Shortly after Bitcoin became a trillion-dollar asset, the first thing the Wall Street banks did was wrap a futures market (and an ETF) around Bitcoin. Once again, they are intentionally steering capital away from the actual asset into their Playground. It’s the very same playbook they have used on Metals. The good news, though, is that the corporate world, through the precious metals market, has given us all a roadmap for combating their paper scheme… It can be summed up in seven words:

SELF-CUSTODY your Bitcoin, F*CK the banks.

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In “Part One,” we discussed the structure of the current secular bull market in silver and how it compared to the prior two secular bulls of the last 60 years (1970-80 & 2002-2011). We learned that structure (who is on which side of the trade) is the only thing that matters in commodity bull markets, as it ultimately determines where prices will end up. Today, we will address the various stages a PM (Precious Metal) Bull traditionally progresses through before giving way to the Bear. Understanding these phases, as well as the underlying psychology that creates them, will hopefully give us a leg up in deciding an exit point for the current secular Bull.

Secular v Cyclical

Secular bull markets usually contain a minimum of three smaller “cyclical” price moves. As a result, secular bulls last a decade or more. They commonly consist of a short-term (2-5 year) bull move up in price, followed by an even shorter-term (1-3 year) bear move down in price, followed by another larger bull move up. The cyclical bears within a secular bull are typically sharp, meaning the price pullback tends to be both quick and steep. This is in contrast to secular bear markets, where prices usually roll over and meander down slowly over an extended period, often a decade+. This distinction gives us the old adage “secular bull markets end with a whimper, not with a bang.”

Cyclical bears are sharp for a reason. They are designed to shake out weak hands and non-believers, while also providing some confirmation bias to the herd standing on the sidelines who missed the initial price run-up. When a cyclical bear shows its teeth and takes a chunk out of the price, the conviction of those who own the asset is being tested. Many will fail. The quick fall in price always brings with it a chorus of people screaming, “It’s over, the bubble has popped”. The cyclical bear is where we find out if owners of the asset are governed by their own thoughts or the Siren song of the herd. Only those who pass the “conviction test” get to enjoy the back half of the secular bull, where the real money is made.

A perfect example of a current-day cyclical bear within a secular bull is the Bitcoin treasury company MSTR. It had a nice run-up from 2021 through mid-2025 and now trades 65% off those highs. Bag’s social media feed is story after story of “MSTR will have to sell Bitcoin, it’s a Ponzi, Saylor is getting liquidated, yada yada yada.” Meanwhile, anyone who understands financials would recognize MSTR has arguably the strongest balance sheet of any company in corporate America. For those who are long MSTR, like Bag, our conviction is being tested at present. But, we are also being gifted another opportunity to load the wagon before the real fun begins.

Alpha v Beta

As bull markets in anything progress (not just commodities), capital moves within the asset class from (low) Beta to Alpha. Low Beta positions, by definition, minimize both risk and volatility. Alpha positions have more risk, higher volatility, and if you are right, more reward. As stated in our last essay: “Secular bulls in anything always begin the same way: with an underowned, near-universally despised or misunderstood asset.” So when the first to arrive, lone wolf, contrarian thinker deploys capital in a despised asset, human nature dictates they do it in a manner that minimizes risk. Being early in a Bull market is akin to showing up at an unfamiliar and empty pool, who doesn’t stick a toe in first? This is why Beta always catches a bid before Alpha. Another dynamic worthy of note in the interaction between Alpha and Beta is this: When the bull gives way to the bear, Alpha is always crushed first.

So, in the world of precious metals, what constitutes Alpha & Beta?

Let’s start with the behavior of gold. It rarely moves more than a percent or two a day. In fact, Bag wrote a Bullish article titled “Liftoff in the Gold Market” back in 2022 (linked here) about how rare 3% daily moves are in the Gold market. To quote: “Consider the five-year period from 2017 through 2021. There are over 1,100 trading days in that span, yet gold could manage only one 3% up day in that time frame.” Gold is textbook Beta. Slow-moving, minimal risk, and low volatility. You will sleep well owning gold.

Silver, on the other hand, is straight Alpha. An adults-only market, not for the kids. Five percent daily moves are commonplace; we’ve had 6 of them since Christmas. It’s nothing for silver to move 50% in a matter of weeks. If you struggle to sleep at night, Silver is not for you. But, if you are looking for outsized returns and willing to shoulder risk, well then, Silver - the Alpha - just might be for you.

Operating on the premise that capital migrates from Beta to Alpha in a bull, and Alpha gets hit first in a bear; We should expect four dynamics from a PM secular bull….

1. Gold to catch a bid first, with silver joining the party late

2. Because Silver is more volatile, it should outperform gold.

3. Silver should peak before Gold

4. There should be a cyclical bear within the secular bull

With those expectations in mind, let’s examine the prior PM bulls before moving on to the current one …

The 1970s bull began in earnest in 1971, when Nixon untethered the US dollar from its gold backing. In that year, Gold rose 27%, while silver fell 15%. Beta caught the bid first. The 70s bull saw Gold rise from it’s bottom of $35 to a peak of $800 - a 22x move. Silver went from it’s bottom of $1.25 to to a peak of $50 - a 40x move, nearly double the return of Gold. As we might expect, Alpha outperformed. Right on cue, from 1974-1976, there was a nasty cyclical bear which took 42% out of the Gold Price and 43% out of the Silver price. As we expected, Silver peaked first in Feb of 74, while Gold peaked in Dec of 74. And just for good measure, Silver’s highest closing price came in Jan of 1980 - while Gold’s highest close didn’t come until Oct of 1980. Alpha entered the bear first, followed by Beta. All 4 dynamics were present in the 1970s bull.

The 2002-2011 bull began with Gold rising 24% in 2002, while Silver was up only 3% on the year. Again, Beta was bid first. Over the course of the whole bull, Gold 7x’d ($275-$1950) and Silver 12x’d ($4.00 - $48.00). Once again, Alpha outperformed. The Great Financial Crisis ushered in a cyclical bear market in March of 2008. Silver’s peak close heading into that bear was on the 5th of Mar at $20.76, while Gold’s peak came 12 days later at $1,003. By October that year, Silver closed below $9.00 - a 57% drop. Gold also bottomed in October, trading as low as $680 - a 32% haircut. When the secular bull finally gave way to the bear in 2011, Silver peaked first in April, while Gold didn’t peak until September. And wouldn’t you know it, Alpha topped first in both 2008 and 2011. Textbook bull market behavior. All 4 dynamics are present in the 2000s bull.

The Current Bull ….

The benefit of hindsight has provided us with definitive dates as to when the prior 2 bulls started and finished. When you are in the middle of the bull, like now, those dates are much tougher to determine. The likely start date is determined by when the secular bear market line of resistance was taken out by the bulls. In other words, when did the bulls first assert their dominance? Looking at the above chart, the $1350 level in gold, the Blue line, was resistance for 7 straight years. The bulls finally took it out and stayed above it in July of 2019. One year later, in July 2020, Gold was trading north of $2,000. Assuming 2019 was indeed the birth of the secular bull, then that is a 48% MONSTER opening move. Almost double the size of the opening run by the prior two bulls. Price movement of that magnitude, out of the gate, suggests this bull is a big one.

Silver, the Alpha, didn’t break out of its 7-year channel until a year later, in 2020. But when it did break out, it too had a MONSTER move as the chart below shows, from $18-$29 - a 61% rip in less than a month.

The most intriguing part of this secular bull so far can be summed up in five words: Where is the cyclical bear? Where are the 30-40 percent drawdowns in Gold, or the 40-50-60 percent drawdowns in Silver that are supposed to test conviction? Seven years in, and we haven’t had it yet. Both Alpha and Beta are still running. The prior two PM bulls had the cyclical bear show up 4-5 years after birth. Bag considers the current 7-year absence of a cyclical bear as confirmation of what the larger-than-average opening price moves indicate: This Bull is certainly a big one.

It’s not all wine and roses, though. In the not-too-distant future, we will wake up one day and Silver will be down 20%+. Shortly after that Gold will peak before it begins its cyclical descent. As a long-time student of markets, Bag can tell you with certainty, in terms of both time and price, bull markets dictate what the bear that follows them will look like. If the bull is long and steep, like the current one, the bear that follows will be the same. Since their breakouts nearly 7 years ago, Gold has gone up 3.5x, and Silver 5.2x. When the cyclical bear gets here, and it will, it likely takes 40% of those profits from Gold and 60% of those profits from Silver over a longer than usual period of time. No doubt, that will make even the staunchest of bulls queasy. For those interested, if the bear started tomorrow, that would give us a $3,300 Gold Target and a $55 Silver Target.

Truthfully, Bag does not believe the bear will arrive tomorrow. He believes we have months left … at a minimum. The reason is that Alpha and Beta are relative based on volatility and risk. When comparing Silver to Gold, it’s obvious Silver is the Alpha and Gold the Beta. What happens when we compare Silver to Silver mining stocks? In that case, Silver becomes the Beta, and the miners are the Alpha. Historically, thanks to operational advantages, miners have outperformed their underlying metal by 2-3x. Since we know capital migrates from Beta to Alpha within a given bull, we should expect to see the miners outperform the metal before the bear makes an entrance.

An excellent proxy for Silver miners is SILJ, the Silver miners ETF. That fund holds ALL the big boys - Hecla, Endeavor, First Majestic, Wheaton, you name it, it’s in there. When looking at returns for SILJ compared to Silver, whether it’s for 1 month, 6 months, 2 years, or 5 years, the Beta (silver) is still outperforming. Until that changes, and SILJ returns dwarf those of Silver; the cyclical bear will be kept at bay. This further confirms that the current-day Bull specimen … is indeed a BEHEMOTH.

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There is no dispute. Silver, for the third time in the last sixty years, is in a secular Bull market. The $64,000 question is, of course, has the silver price peaked, or does this Bull have further to run? We believe any attempt to answer that question correctly requires knowledge of how Bull markets behave, coupled with a contextual understanding of prior silver Bulls. With that in mind, we have a long one today, so let’s dive in ….

Where do Bull markets come from?

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” - Charles MacKay

Truer words were never spoken when it comes to understanding the anatomy of bull markets. The reason is that Secular bulls in anything always begin the same way: with an underowned, near-universally despised or misunderstood asset. In other words, an asset that the “herd” (meaning 99% or more of people) either isn’t aware of or doesn’t fully understand. This allows the 1% or less of people who are long the asset to multiply their wealth as the 99% slowly come to their senses, see the asset’s value, and start buying it. When trades are incredibly lopsided, multiplying wealth is quite easy - as the 99 pay the 1. Since the herd gets converted “slowly, one by one”, secular bull markets take a decade or more to play out. Since we are only about 3 years into this one, we likely have much longer to go before this bull gives way to the bear.

Successfully riding a bull market in anything for the bulk of its run requires understanding this fact: Bull markets DO NOT occur organically. They are engineered. For us plebes, the game is trying to spot the next bull market before the herd. The Uber-wealthy are playing a different game entirely. They aren’t spotting the next bull; they are creating it. This is accomplished by manufacturing circumstances leading to universally accepted conventional wisdom. That so-called “wisdom” conditions the herd to all bet one way, while the uber-wealthy build a position on the opposite side of the trade. This is perhaps best illustrated with a brief recap of a story from Bag’s youth:

In the early 1980s, the State of Illinois wanted to build a toll road but lacked funds, so it issued bonds. Those bonds cost 15k in 1982, and promised a MILLION dollars at maturity in 2012. That works out to a 14% annual return compounded for 30 years. Bag had a friend working at the local bank, where it was his job to sell these bonds. Sadly, nobody wanted them. Inflation had been running so high for so long, people were conditioned to believe 15k would buy more products & services in 1982, than a million dollars in 2012. After months of not being able to sell a single bond to the herd, some Wall Street suits showed up and bought the whole deal. Wouldn’t you know it, 1982 kicked off a 40-year secular bull in Bonds - arguably the biggest bull market of any asset class in our lifetime. Of course, the 99% herd missed out, while the 1% Wall Street suits compounded their wealth.

How do Bull markets end?

This part is easy. It’s just math. Once the majority of the herd piles in, there are not enough people still outside the trade to push prices higher and pay off those already long. Joseph Kennedy (JFK’s father) famously avoided the 1929 stock market crash when his shoeshine boy was boasting about the stocks he had bought. Kennedy realised at that moment everyone was in, and nobody was left to goose prices higher. Consequently, he sold immediately. As it turned out, his timing was impeccable, getting out right before the crash.

Historically, bull markets in commodities always behave the same way: in cycles. The prices move repeatedly, in generational-long swings, from underpriced to overpriced and back again - over and over. Take a gander at the chart above, and you can see the decade-long swings (Note: the blue on the right is just a projection). Commodities rarely trade in narrow ranges for long, because the powers that be cannot buy low & sell high (make money) in markets where the price never moves. So they generate violent price movements by writing the narratives trumpeted by their lackeys in the financial media, coordinating the sales pitch of financial advisors, and directing money managers to invest the bulk of their funds in “approved” assets - these days, it would be the MAG 7. That blueprint is remarkably effective at getting 99% of people on one side of the boat, the very condition needed to multiply wealth.

Secular Bulls across various asset classes behave differently. In stock and bond markets, asset quality is often the single biggest influence on price. It’s why Walmart stock moves differently from Kmart stock. Commodities are not like that. They are fungible. Each ounce of silver is indistinguishable from the next, so asset quality is not a thing. Because Commodity markets are Zero-Sum, only one factor matters in determining where the price is ultimately headed: STRUCTURE. In other words, who are the players, how deep are their pockets, and what side of the trade are they on? With that framework in mind, let’s examine the structure of the three secular bull markets in silver with the hope of obtaining some insights on the health of the current silver Bull.

The 1970s Bull:

On the Bull side were some Oil tycoons, the Hunt brothers. They were billionaires back when being a billionaire still carried gravitas. They decided in the early 70s that silver, trading at $1.25 per ounce, was too cheap. Early on, they bought as much physical silver as they could get their hands on. Towards the end of the decade, they discovered the Chicago Mercantile Exchange (CME) was offering 15-1 leverage on silver. Meaning one dollar in cash, would control $15 worth of silver. The Hunts quickly became the biggest players on the CME.

Who was on the Bear side of the trade? It wasn’t the public. For the most part, they sat out the 1970s precious metals bull. They were too busy getting steered into the “Nifty Fifty” stocks, the 1970s version of the modern-day “Mag 7”. Before we reveal the biggest shorts opposite the Hunts, there is a fact about the futures market that must be understood. Futures are a zero-sum game. To fully grasp the impact of this concept, imagine buying XYZ stock and having it rise $10 per share. Nobody loses the $10 you make. The futures market is a completely different animal. It is much more savage, as every dollar of profit is coming directly out of someone else’s pocket. For every winner, there is a loser; and vice versa.

Within the span of a few months, starting late January 1980, with the Hunt brothers’ levered long, Silver fell from a peak of about $50 per ounce to $10. CME rule changes triggered the price fall. They hiked margin rates, imposed position limits, and instituted the infamous Silver Rule 7, better known as the “liquidation only rule,” where no new longs were allowed into the market. You could only buy if a seller hit your bid. In effect, this gave sellers complete command of the market. As a result, the price cratered, and the Hunt’s lost Billions.

The question remains, who was on the short side opposite the Hunts - and pocketed the Billions they lost? Take a moment and allow the brazen criminality in the next sentence to land. After the price collapse, investigations revealed that just as the price fell, nine members of the Commodity Exchange Board of Governors held net short positions totaling around 75 million ounces of silver. On a $40 drop from $50 to $10, they made a cool 3 billion ($40 x 75 million)… putting the Hunts in the poorhouse at the same time.

Key takeaway: the structure of the 1970s Silver bull pitted a couple of Oil Billionaires on the long side, and the very people who run the exchange and make the rules on the short side. In hindsight, the Hunts never had a chance.

2001-2011 Bull:

The silver bull of the early 2000s was a much different beast, bringing with it new players. On the bull side was the general public. Yeah, the herd was the single biggest buyer of silver back then. How do we know this? Well, Bag was in the precious metals business then and saw it firsthand. By the end of the bull in early 2011, herd buyers significantly outnumbered herd sellers. For those who were not in the market back then, Bag would suggest that the Public’s participation is evidenced by the premiums physical silver fetched relative to historic norms.

You see, the herd is a simple lot. They don’t play in the sophisticated futures market, like the Hunts did. No, they gather up some extra scratch, head down to the local dealer, and buy physical silver. US 90% silver coinage (dimes & quarters), which for decades routinely sold for melt value, was suddenly selling for 10-15% over melt. Silver Eagles, which normally sold 5-7% over spot, were commanding 15-20% premiums. The reason premiums were high was that the public had bought up most of the available physical supply, so dealers increased premiums on what they had left to capitalize on the herd's FOMO.

On the bear side of the trade were a handful of Western banks, including Deutsche Bank, HSBC, Scotia, and, of course, the ringleader, JP Morgan. They saw the money the Exchange members made in the 70s and decided to take that money for themselves by dominating the Short side. Banks have a distinct advantage over other players due to their deep pockets. They are not required to “mark their assets to market” and thus never have to recognize losses. This is how JP Morgan can trade every day for a calendar year without posting a single losing day. Futures markets are orders of magnitude larger than physical markets, and thus decide the price at which physical silver trades. For decades, the futures market has been the bankster’s playground. As the biggest player in futures, the banksters (like the Board of Governors in the 70s) dictate where the physical price is going.

Their deep pockets allow them to flood the market at any time with “paper silver,” overwhelming the longs and pushing the price down. For the last 30 years, it was not uncommon for some trader to sell a billion ounces (more than a year’s worth of world production) at 4:00 AM on a Sunday - when most traders are sleeping. Ask yourself, is the guy selling a billion ounces at 4:00 AM trying to get the best price he can for what he has, or is he smash-selling to overrun the Bid and push the price down? The answer should be obvious when you consider that we are talking about arch-criminals.

Last but not least, the general public, even in aggregate, does not have the bankroll needed to push around the price of trillion-dollar assets. Bitcoin demonstrates this perfectly. A decade ago when BTC was a 10 million, a hundred million, or even a billion dollar asset with NO institutional involvement, retail could move the price by orders of magnitude. It was business as usual to see the BTC price move 50% in a day, and/or 5x in a month. Now that BTC is a trillion-dollar asset, and the institutions have arrived, you don’t see price moves like that anymore. Retail, simply put, doesn’t have the money needed to significantly move price. The same is true in Silver.

Key takeaway: the 2000s bull market pitted the general public on the long side, and the price-controlling banksters on the short side. In hindsight, the herd never had a chance.

The Current Bull:

Market wisdom has long postulated that the four most dangerous words in the investment world are “This time is different.” With that in mind …

Once again, the Western banks are the dominant players on the short side. And why not? It has served them well for decades. This time, however, the role of the longs will NOT be played by a couple of random billionaires, nor by the herd. How do we know the herd is not involved? The premiums to buy physical have never been LOWER! One trip to your local dealer will confirm that there are multiple sellers for every buyer. The premiums are so low in fact, that Bag’s local shop is offering 90% US silver coinage at below melt - and still, no buyers.

This time around, the longs will be played by corporations and foreign governments, two very deep-pocketed entities. Unlike the matchups of the prior two bulls, which were not competitive, this one looks like a more evenly matched battle for the ages. There is a long list of sovereigns, such as China, India, and Russia, to name a few, who would like nothing more than to bring the Western banks and their imperial governments to their knees. Joining them on the long side will be hundreds of corporations in industries that cannot exist without silver. Those industries include, but are not limited to, solar, missiles, batteries, electronics, medical, EVs, computers, etc…. Not only are the corporations deep-pocketed, but they are also completely insensitive to price. If silver went to $500 an ounce, Apple would not stop making iPhones, Defense contractors would not stop making drones & Tomahawk missiles, and Samsung would not stop making TVs & batteries.

Therein lies the Achilles heel of the banks on the short side of the current Silver bull. Every time the price rises and banks try to tamp it down by selling more paper futures, sovereigns and corporations buy the paper and then demand actual metal. For months now, the Chinese Government, through the Shanghai Metals exchange, has been offering a 10-15% premium OVER the price quoted by the Western banks. For example, last Friday, the weekly closing price of silver in Shanghai was $87, while the closing prices of Comex and LBMA silver was quoted at $77. As a result, the physical silver supply in Comex and LBMA vaults has been dropping precipitously for months.

Stop and ponder the following question: If one party says the price of a good is $87 and is willing to buy all they can get their hands on at that price, while a second party says the price is $77, while simultaneously restricting the purchase of actual metal at that price - WHICH PRICE IS REAL?

The banks have a huge problem on their hands. If we are being generous, they have maybe 1 oz of actual silver for every hundred ounces they have already sold on paper. As sovereigns and industry increasingly demand physical silver from banks, where will they get it? They can’t just print more metal. The Western banks are living in denial about this problem. They are currently telling the world the price is $77 to hide losses and make their balance sheets look better. All the while, China is offering $87. The Western banks will not get much Silver doing that. Even if they opened the price Monday at $97, China will just jack their bid to $107 - and they are still not getting any.

The Western banks are trapped, and they know it. Trying to buy back what they have already sold might sound easy. Hell, they might even get a government bailout when the market finally snaps. But the reality is that the TRILLIONS required would likely move the decimal point in the Silver price at least two digits to the right. They have already quietly instituted position limits and have hiked margin rates multiple times (including a 33% hike to kickoff the new year) - all to no avail. They could reinstate rule 7, but they won’t because it’s the literal equivalent of announcing to the world: “We don’t have the Silver we sold you.” That only worked in the 70s because the CME had no competition. They were the only player. Today the Shanghai exchange exists, and would put the CME out of business, permanently - bankrupting most of the Western banks in the process.

Key takeaway: The current bull pits the bankers on the short side versus Sovereigns & Corporations on the long side. We suspect in a decade or two, looking back at this bull, most people will realise the Bankers never had a chance.

Maybe, just maybe, this time really is different …..

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What follows are 13 stocks we believe are positioned to perform well in calendar year 2026. There are a few themes worth noting. The first is that we attempted to strike a balance between value & asymmetric upside. Every name on this list falls into at least one of those categories. The second theme is that we believe there are only a few sectors worth playing going forward: Energy, Bitcoin, Precious Metals, Tech, Miners, and niche Retail. The names we like the most (overweight) often crossover into multiple sectors. The third theme is we have at a minimum two names for every sector we like. If something company-specific affects one name negatively, we expect getting the sector right will allow the other name to make up for it….

For those interested, we appeared on the Rigatoni Capital Podcast yesterday (linked here), where we discussed this portfolio and the current state of the Silver market. Of course, none of this is financial advice; as always, we recommend you do your own research. In the interest of full disclosure, Bag has owned all 13 of these names at one time or another for years. He currently owns 11 of the 13, and the 2 he doesn’t will likely be purchased soon. Having been asked by multiple subscribers how we would build a portfolio from scratch, we figured the new year is as good a time as any to put one out there. We offer seven names to weight at 10% each, and six more at 5% each …. so, here goes ….

OVERWEIGHT 10% each:

XOM ($120) The biggest and best Tech company on the planet. Yes you read that right, they are a tech company - for those who doubt it, take a tour of one of their plants sometime. They make Google look like a lemonade stand. Exxon is also the largest energy producer on the planet and is well-positioned to benefit from the nearly unlimited energy demand coming down the pike as AI data centers are built. Their financials are excellent, with strong earnings growth, stock buybacks, and increasing dividends. They have the best-performing properties in the Permian Basin and the largest reserves. Future growth is all but assured, as they are highly likely to secure a large share of Venezuelan production once we oust Maduro.

ET ($16) … This company owns and operates natural gas pipelines and storage facilities within the US. The data center buildout and the energy required for it will significantly increase LNG demand, and ET is the company best positioned to capitalize on it. While waiting for that demand to crystallize, you can enjoy a robust 8% dividend. To be fair, they do have meaningful debt on their balance sheet, since building pipelines is expensive. But, once those are built - and they are - they capitalize on every drop that moves through them, with very little in the way of competition. Essentially, they have a near-monopoly and the pricing power that comes with it in an industry with significant growth ahead.

IBIT ($50) You just can’t have a portfolio without some direct exposure to Bitcoin. The BlackRock iShares ETF (IBIT) is the biggest Bitcoin ETF, by a mile. Of course, we would prefer self-custody of Bitcoin. But that process requires some technical know-how which is not easy to grasp. IBIT is the next best choice. They have a deep, highly liquid options market wrapped around the ETF - which can be used to generate income off your holdings. With the Fed starting QE in early December, we suspect all assets will rip higher in 2026. One look at a chart for M2 on top of Bitcoin for the last 15 years, and it’s easy to see why we expect Bitcoin to be the biggest beneficiary of the money printing.

MSTR ($156) Regular readers of this column are aware of how much we like it. For those looking to build a position, there is no time like the present as MSTR is down 60% since July. Sentiment is in the toilet. MSTR trades at below the value of Bitcoin on their balance sheet. At current prices, this means for every dollar invested in MSTR, you are essentially getting $1.18 worth of Bitcoin. Given the leverage MSTR offers, the fact that Bitcoin is long overdue for a rally, the horrid sentiment, and the rock-solid balance sheet, this stock is an absolute steal at these levels. Bag will take a double helping, thank you.

SILJ ($28) This is an ETF of silver producers. It has positions in many names we like, such as Hecla (HL), Endeavor (EXK), and First Majestic (AG) - to name a few. In 2024 when silver averaged $30 an ounce, most of the companies they hold were barely profitable. With silver currently at $75 an ounce, they are printing money. For example, imagine it costs $25 an ounce to mine silver. If they sell at $30, their profit is the $5 difference. At today’s $75 silver, their profit increases 10x to $50 per ounce, even though silver rose only 2.5x ($30-$75). That leverage is key. This will become readily apparent as earnings reports start to drop next month.

GOAU ($42) GOAU is an ETF that holds many of the world’s top gold miners. Like the Silver miners, gold miners will be posting some absurdly high earnings beats the next few quarters. Precious metals bull markets have historically seen miners outperform the Metal itself by a 2.5x-3.5x multiple. This is primarily because their earnings get levered, as we explained above. This current Gold Bull has seen miners outperform Gold only by 1.5x, suggesting significant upside for miners relative to Gold going forward. We suspect they will catch a bid once earnings season rolls around, and Wall Street begins to see just how profitable these companies have become.

FCX ($53) Freeport McMoran is one of the largest producers of Copper on the planet. With Copper recently breaking out above $5, Freeport, like many of the silver miners above, will be leveraging its profits going forward. It doesn’t hurt that they also produce a lot of Gold as a by-product, which is also trading at multi-year highs. Most of their production is located in miner-friendly jurisdictions, so no worries there. The imminent AI/data center buildout will require a significant amount of copper, and as a result, we expect FCX to be a major beneficiary.

Regular weight 5%:

TSLA ($460) We have written about TSLA on several occasions. We believe 2026 will be the year when Elon’s Full Self-Driving (FSD) becomes obvious to everyone that TSLA is the clear winner in the Autonomous driving market. When you combine that with their ability to scale immediately, this stock is grossly underpriced. You also get the Energy pack business (with a multi-year backlog of orders and 35% margins), the auto business, and the Optimus Bots (still a couple years away) - for free. This stock price has had a nice run lately, hence only the 5% weighting. We do believe a pullback is likely. But in the long term, this one is a no-brainer.

DRNZ ($22) and JEDI ($24). Having seen the beating the Houthis inflicted on a vastly superior Navy with just a handful of Drones, it should be obvious that future wars will be fought primarily with Drones. There is zero chance our imperialist ruling class here in the US will stop participating in senseless wars all over the planet. Consequently, we expect the Drone industry to be a big winner going forward. Admittedly, Bag is not certain which company is the “best of breed” in the Drone market, so it makes sense to use a shotgun approach and diversify through an ETF to take advantage of the burgeoning industry.

LULU ($208) Bag is not normally drawn to brand name retailers, but for 2026 we have a couple of names …. the first is Lululemon. They continue to grow sales year over year, have no debt, and cater to the wealthy - a group for whom there is no such thing as recession. The stock is beaten up significantly, trading well off its highs. They have some of the best margins in the business, a loyal following, and trade at 2x revenues with a PE of 15. Could they trade significantly lower in a broad market pullback? Yes, absolutely. Assuming we don’t get that pullback, LULU is cheap at these levels.

NKE ($60) The next brand retailer is Nike. Another stellar brand for sale at 2x Revenues. Nike trades at multi-year lows, meaning its valuation is, by historical standards, compressed. So, for those looking to buy the number one sports brand on the planet, now is the time. Unlike lulu, they do have some debt. But, they raise their dividend every year, without fail. In fact, they will soon be joining the “Dividend Aristocrats” - a small group of companies with a 25-year track record of raising dividends.

BROS ($63) …. Dutch Brothers. This one is a “Peter Lynch-esque” pick. Stick with what you know & let your eyes be the judge. They sell Coffee & designer drinks, which both come with robust margins, as any Starbucks investor could tell you. Bros has captured a valuable demographic - the youth. Just look at the average age of customers at Starbucks, and then compare it to Dutch Bros. There is no disputing, the kids love it. Then there is the eye test. Bag has 4 different Starbucks within a couple miles of his house. The lobbies are empty and there is rarely more than two cars in the drive-thru. On the other hand, it is not unusual to see 15 cars in the drive-thru at the local Dutch Bros. The financials are excellent, with revenue growth north of 30% per year, minimal debt and plenty of room to expand as there are very few locations east of the Mississippi.

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Ever wonder why a “Bull Market” is called a Bull market? Because the price movements of a given asset resemble the behavior of an actual Bull. As a cowboy mounts the back of a Bull, it begins kicking and twisting erratically and unpredictably, trying to “buck” the cowboy off. Bulls are not like mules or horses, which are both content to carry a lot of weight over long distances. Bulls, as the saying goes, travel light. As any experienced cowboy would tell you, successfully riding one requires a unique blend of fearlessness, grit, and conviction. In like manner, those same qualities are required to ride a metaphorical bull in the investment markets. And so that brings us to the subject of today’s essay - is the current 60% off sale of MSTR common stock the end of the bull market as we know it, or just another diabolical buck by the bull to lighten up before the next run higher?

The MSTR business model, by design, offers levered returns on Bitcoin, meaning it will outperform Bitcoin to the upside when BTC rallies. They accomplish this through the judicious use of debt. Typically, we would consider taking on debt to buy assets a no-no, but there are exceptions. In periods of high inflation, meaning Gman has the money printer working overtime, using debt to purchase assets is the surest way to make money. Consider the 1970s, the worst decade on record for inflation in the US. In 1969, the average house in the US was under $26k and the median household income was $8,300. By 1980, after a decade of raging inflation, the same house was 67k with a median income of $19,000. The guy who bought a house outright in 1969 and held through the 70s made about 2.5x his money (26k-67k). But the guy who went into debt in 1969 to buy that same house did better because he was able to pay back the mortgage with debased, devalued dollars, which were much easier to earn in 1980 than in 1969.

MSTR is, in effect, obtaining Bitcoin today and paying for it with tomorrow’s debased, devalued dollars. If you believe Gman will continue to print ever greater amounts of money, AND you are bullish on Bitcoin, then buying MSTR is a no-brainer thanks to the leverage inherent in using debt to purchase BTC. Bag can hear all you Bears screaming, yeah, but what about when it comes time to pay the debt? This is where the real genius of MSTR is on display. Most of their debt has originated through the issuance of preferred stock, not through actual borrowing. That means the debt NEVER has to be paid back, although to be fair, those preferreds do require dividends to be paid (think of it like the interest on the debt).

OK Bag, so MSTR doesn’t have to pay the debt, but where will they get the money to service their debt/dividends, which is currently running about $700M per year?

In short, they have five options…..

The least attractive option at present is to dilute the common stock. This would be a great choice if the common stock were trading at a multiple of net asset value (MNAV), as it was for most of last year. However, with the recent big drop in Bitcoin's price, the MSTR common stock is trading just under its net asset value, and so there is no upside to diluting the common to raise capital. Until the Mnav goes back up - and it will - this option is off the table.

The second choice would be to tap the bond markets. In other words, actually borrow money. The problem with this option is that the bond market may not offer very favorable terms. Last year, when Bitcoin was printing new highs almost daily, MSTR was able to issue convertible debt at ZERO percent interest. Once again, though, with the recent pullback in Bitcoin, those types of terms are very unlikely. The other problem with this option, is the debt (unlike with the preferreds) will need to be paid back at some point in the future. This opens the door to the possibility, however remote, of being forced to liquidate some of their hoard to pay off the debt. So this option is off the table.

The third choice is to sell some of their hoard to service the debt. Some quick math shows that the $700m required yearly to service their debt is 1.21% of their $58 billion dollar hoard. Provided the Bitcoin price compounds annually at something north of that 1.21%, they could service their debt/dividends for a million years. Yes, you read that correctly. Even though this option is always available as a backup plan, it is unlikely to be used because MSTR is in the business of accumulating BTC, not selling it.

Their fourth choice is to generate income from the derivative markets. With a $58B hoard, generating $700m by selling Bitcoin futures and/or covered calls is child’s play. This carries some risk that a small portion of their hoard will be called away if Bitcoin rallies sharply in a short period of time. While losing a small portion of their stash is not ideal, the move in the MSTR common that would coincide with a sharp BTC rally would more than make up for it. The idea that Saylor is not doing this already shows just how strong his commitment to accumulating BTC really is. He is willingly choosing to forego income in exchange for the certainty that his hoard will not shrink. That is world-class conviction.

The fifth, and most likely choice IMO, would be to issue more preferreds. Taking on debt that NEVER has to be repaid is appealing. Bears argue that selling more preferreds to service the dividends on existing preferreds makes this a textbook Ponzi Scheme. But what they miss is that a Ponzi scheme has no viable avenues to service their obligations OTHER than with new investor money. We can clearly see that this is not the case here, as MSTR has multiple options available.

Now that we have established that the debt MSTR holds is not an issue worth worrying about, let’s address a headline from this weekend, which is sending shivers down the spines of MSTR shareholders. MCSI (Morgan Stanley Capital International) is considering altering the rules governing stock inclusion in certain indexes going forward. They are considering excluding any company with more than 50% of its assets in crypto from being allowed into indexes, which, of course, would include MSTR. Bears argue that many of the indices to which MSTR currently belongs would be forced to sell. Depending on whose estimate you use, that would be between 6 and 8 billion in selling pressure. They claim this would crater the stock price.

The reality is that MSTR trades roughly 5 billion dollars worth of stock a day. So 6-8 Billion is less than 1.5 days worth of trading on the exchange. Stated another way, all this worry about the possibility of getting kicked out of some indices cratering the stock price is patently absurd, as the market would gobble up that supply in a couple of days. In fact, Bag knows who one of the buyers of that 6-8B in stock would be. The institutions currently holding MSTR convertible debt would take a huge chunk of it. When they bought that debt, the first thing most of them did was short MSTR to hedge the bond’s risk and guarantee themselves a profit. As the stock price falls away from the conversion strike price, they buy back MSTR stock to lock in that profit. Fact is, whether there is 6-8B in buying or selling, it is simply not enough to significantly move the stock price in either direction.

If MSTR is a levered bet on the Bitcoin price, and Bitcoin continues to fall, won’t MSTR fall more in percentage terms? If MSTR were trading above its net asset value, then yes, it would fall further. But the pullback in MSTR stock is so overdone relative to BTC, and sentiment is so bad, that the downside leverage of MSTR relative to Bitcoin has been fully erased. In fact, an arbitrage window has opened that won’t stay open for long. MSTR is trading at a $50B market cap even though it holds $57B in Bitcoin. That means right now, every $50 worth of MSTR you buy will get you $57 worth of Bitcoin. Make no mistake, there are plenty of savvy Wall Street suits sharpening their teeth at the prospect of getting exposure to Bitcoin at a discount.

So, to circle back to where we started, Bag is firmly of the belief this MSTR pullback is nothing more than a bucking bull. As we have established today, the MSTR debt load is insignificant. Their possible exclusion from indexes is irrelevant. With MSTR now offering Bitcoin at a discount, the only real risk to MSTR’s stock price in the future is a prolonged decline in Bitcoin’s price. Is that possible? Sure. But even if BTC falls another 20 percent, down to say 70k - then MSTR will likely be trading in the 120’s. At that point, Bag will be selling a kidney to get the scratch to buy more MSTR.

Until then, Pass the Turkey ….

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Had a wonderful conversation on the current investment markets landscape with Rigatoni Capital. Subjects include Nvidia Earnings, Tesla, Bitcoin, and AI income streams ….

We are both still new to the whole podcast thing, so we appreciate your patience as we work out the kinks.

So for those with an interest in the investment markets, and an hour to kill - please enjoy the link below!

Rigatoni Capital

Bitcoin Leads Market Crash | Bagholder | 11-20-25

Kevin, better known on Substack as Bagholder, had lots to discuss on this week’s podcast. We talk about Bitcoin leading the stock market crash, AI Capex spend, Nvidia, and the future of autonomy…

Listen now

9 months ago · 1 like · Rigatoni Capital and Bagholder

Long-time readers of this column are already aware that we here at Mytwocent$ are very bullish on Silver. Having recommended it multiple times previously at

$18.50 here

$23.00 here

$25.50 here

and …

$30.00 here

Silver is currently trading at $46 an ounce, having more than doubled in price over the last two years. We thought maybe it’s time to revisit the Silver market to decide if it’s time to take profits (sell), sit tight (hold), or load the wagon (buy). Today’s essay will explore Silver as an investment using five different barometers (fundamentals, technicals, macro, history, and structure) to determine where the silver price is headed in both the short term and the long term. As always, let’s start with the…

FUNDAMENTALS

The most basic of fundamentals is supply and demand. So much of success in the investment arena hinges on being able to properly assess which of the two forces, supply or demand, is stronger. Get this part right, and it is nearly impossible to lose money. Unfortunately, reconciling supply & demand involves a lot of numbers. So let’s get that part out of the way first. The numbers that follow were all obtained from one or more of the Silver Institute, Grok, and Google. As a multi-decade player in the precious metals market, it is my belief that while they are not entirely accurate, they are close enough to make informed decisions.

Supply:

55 Billion ounces of total existing above-ground supply

800 Million ounces mined every year

+

200 Million ounces recycled every year

This equates to approximately 1 billion ounces of supply brought to market per year.

Supply Notes:

Of the approximate 55 billion ounces of above-ground supply, 1/2 of it was mined before 1925, and the other half in the last 100 years. Even with all the technological advancements of the last century in surveying, smelting, refining, energy production, and mining machinery, the last hundred years have only doubled the existing supply. This suggests that much of the easily accessible supply has already been extracted. It also means that increasing mining production going forward will require more energy, better equipment, digging deeper, and processing lower-grade ore, all of which add to costs.

With regard to the 800 million ounces mined every year, only 200 million of them come from actual silver mines. The other 600 million are a byproduct of producers mining for different metals. The implications of this cannot be overstated. For example, Silver could 10x in price, and the copper/gold/iron miner will not be incentivized to ramp up production of their primary metal just to obtain more by-product silver. Sure, the primary silver miners, if they started ramping up production today (a very capital-intensive endeavor), could, if all goes well, possibly reach a production level of around 300 million ounces per year in 10-15 years. That equates to about 10% more annual supply, assuming the best-case scenario.

Another issue with the 800 million ounces mined yearly is that the number peaked a decade ago when silver was $16 an ounce. It has been falling steadily ever since. Again, the implications are staggering. Even with the price rising 250% in the last decade, production is falling. Stop and ponder the following question: if a 250% rise in price can’t increase output, would 10x even move the needle?

The real takeaway from the above supply numbers is that yearly production is a textbook example of what economists call INELASTIC supply. In layman’s terms, that means price could RIP considerably higher, and new supply will not be easily brought to market due to various production constraints, high costs, long lead times for scaling up, permitting, and lower-grade ore.

Demand:

550-600 million ounces of demand per year comes from electronics (circuit boards, batteries, touch screens, keyboards, smartphones, etc.)

175-200 million ounces per year goes to the Solar industry

35-40 million ounces per year goes to Soldering & Alloys needed for HVAC, aerospace, autos, etc …

40-50 million ounces of yearly demand is medical (water purification, vitamins, Hospital equipment, etc.)

40-50 million ounces go for reflectivity, lighting, mirrors, tinting, and plating

20-30 million ounces are used by the film & photography industry

180-220 million ounces are manufactured into jewelry

40-50 million ounces per year are absorbed by ETFs

175-200 million ounces are turned into coins, bullion, flatware, medals, and bars

Demand notes:

Except for photography, every one of these demand sources is growing year over year. Solar demand is sporting a 10-year compounded annual growth rate (CAGR) of 15%. If that solar demand continues to grow at that rate, the entire billion-ounce yearly supply will be needed just for solar within a dozen years.

Even in the face of sharply rising prices over the last couple of years, overall demand continues to grow. Typically, in economics, rising prices slow demand. However, in this case, demand is increasing despite rising silver prices. If you examine the various demand sources listed above, it is difficult to imagine any of that demand being tempered in any of those areas, when silver is just one small ingredient in a much larger product. For example, Grok estimates that a smartphone contains about $5 worth of silver. Is there a world where silver’s price increases tenfold, and corporations stopped making smartphones because they required $50 worth of silver instead of $5? Of course not. The same goes for medical devices, air conditioners, batteries, EVs, etc. If the price went high enough, maybe solar & jewelry demand would slow, but I’m guessing that wouldn’t occur until we are well into triple digits.

Adding together all of the demand listed above presents another problem. There is 1.25-1.45 billion ounces of growing yearly demand with only 1 billion ounces of annual supply. In other words, there is a structural deficit that is unlikely to be cured by higher prices, as both supply and demand are inelastic. In fact, that structural deficit is now in its sixth year. As most economists might expect, the market’s response to that deficit has been a sharply rising price, a 250% rise to be exact. And yet, the gap between a shrinking supply and growing demand is widening, with no end in sight. The silver required to fill that gap has to come from somewhere. Over the last 6 years, the gap has been filled by already existing above-ground supplies. But those supplies are drying up, as evidenced by both the sharply rising prices and soaring lease rates (the cost to borrow silver).

Supply & Demand summary:

So we have a world where shrinking inelastic supply is meeting growing demand that is not sensitive to price. That is a once-in-a-lifetime type of investing scenario, which will not be resolved with marginally higher prices. It will require an explosive move upward in price to balance demand with supply. It is the opinion of this writer that a silver price in the hundreds is 2 years away at most, and a silver price in the thousands is a decade away at most. Sounds crazy, I know. But the numbers above make a very compelling argument for a secular Bull in silver. So, unless Elon finds silver on Mars, this Bull is going higher than almost anyone believes possible.

TECHNICALS

We here at Mytwocent$ have always given considerable credence to price charts. We were fortunate to have been handed the investor’s bible, “Technical Analysis” by Edwards & Magee, at a young age. That book opened eyes to the wealth of information available in historical price charts, as well as the psychological effects of the various price moves. Edwards & Magee really drove home the idea that it doesn’t matter what price chart you are looking at, the human psychology within is always the same. It is no coincidence that the same formations appear repeatedly on price charts of all kinds. Those formations depict support, resistance, fear, and greed in real time. Recognizing these things makes it much easier to find entry & exit points, as well as tops & bottoms. Is Technical analasys 100% foolproof? Of course not, but it will improve your decision-making.

Sure, we could go deep in the technical weeds and talk about how great the RSI looks, or the fact that the 50 day moving average (MA) has been above the 200 day MA for months now, or how the Gold-silver ratio is long overdue to mean revert, or a variety of other positive indicators - but instead, we will keep it simple with one chart. The only chart that matters…. The 50-year:

Chart notes:

As you can see, the silver price has formed what analysts would call a Cup & Handle pattern. Edwards & Magee would tell you the longer it takes to create a pattern, the more accurate they tend to be and the more powerful the price moves they generate. So a pattern 50 years in the making should produce quite the move. The price action we expect going forward is a steady rise in price, continuing to form the handle of the cup. It should then breach the “neckline” at 48 (formed by connecting the tops of the cup). Once breached, a quick move up into the 50-55 range is in order. At that point, we can expect it to briefly reverse back down to 48, where it will find significant support. Expect it to trade there at 48 for a moment or two, perhaps only long enough to give it a “Kiss Goodbye”, and then it’s off to the races. Is it possible that the price is rejected at the 48-50 level? It is, but it will only be temporary.

Predicting how far the price will run after it breaks out above 48, Edwards & Magee would suggest the following exercise: Measure from the base of the cup to the neckline - in this case, we have a move from 4 to 48. That is a 12x multiple. We then take that 12x and multiply it by the neckline price of 48. That suggests we can expect a silver price above $550. The good news is it won’t take 50 years either. The lion’s share of the price move will occur quickly after the breakout, meaning within a couple of years, at most.

MACRO WINDS

What follows here are some big-picture thoughts on the Silver market for your consideration…..

To comprehend just how underpriced silver is, consider this: The silver price traded at $50/ounce in January of 1980. The silver price today is $46.00 per ounce. Can you name anything, other than silver, that is cheaper today than it was in 1980?

The futures market is seeing the silver price rising in tandem with a rising cobasis (spread between futures and spot) - not only is this the most bullish technical setup possible, as it means extreme tightness in the physical market, but it hasn’t been seen in the Silver market for an extended period since late 2010. By the way, Silver went from $15 to $48 between Aug 2010 & Apr 2011.

The short position in the silver ETF: SLV is at an all-time high of approximately 60 million ounces, indicating multiple claims exist on the physical silver held in SLV. In other words, people who think they own silver, do not.

Thanks to the leverage offered by Silver mining stocks, coupled with human Greed, smart money historically piles into the silver stocks first before buying the actual metal. Probably nothing to see here, but most silver producers are up 2x-4x, year-to-date.

The Shanghai Metals Exchange is currently offering $2.40 more per ounce of Silver than the Comex/LBMA ($48.73 v $46.32). They have been paying a premium on physical for months now. This explains why the inventories in both the London & New York exchanges are falling, while the inventory in Shanghai is growing.

A visit to the local coin shop makes two things clear: The premium over “Spot Price” to buy silver is the lowest in decades, and what customers there are, are there to sell, not buy. This means there is no retail participation in this rally, and as we all know, rallies do not end until the public piles in….

JP Morgan, HSBC, BofA, Deutsche Bank, UBS, Scotia, and BNP Paribas - all of which are “Western Banks” - are collectively short over 400M ounces on the Comex. This is down from (520M) a few years ago, when Silver was under $18. If covering 120M (520-400) ounces has nearly tripled the silver price, what do you suppose happens to the price when they look to cover the remaining 400M?

Lease rates on silver are currently 8x higher than what they have averaged between 2020-2024 - it means borrowing silver to cover what has been shorted (already sold) is very costly, so it is no longer an option for the banks listed above.

Not only does China mine three times more Silver every year than the US, but it also imports about seventeen times more silver ore and concentrate - that seventeen times is over half the world’s mined supply. One country, half the World supply.

As anyone who has held long-term US Treasuries over the last five years can tell you, the world is no longer buying our debt. Storing wealth in secure assets outside the US control leaves only 3 options: Gold, Silver, and Bitcoin. And since 99% of the planet doesn’t yet understand what Bitcoin is, there are really only two: Gold & Silver. The flight from formerly safe-haven treasuries into assets that the US can’t arbitrarily seize, like it recently did with Russia, is why precious metals have been, and will continue to, rally.

Since nobody is buying U.S. debt, the FED will have to print more money to prevent default. Historically, every time the Fed prints, asset prices pump higher. With a massive chunk of US debt needing to be refinanced over the next few months, expect the printer to work overtime, and all assets, including silver, to rip higher.

HISTORY

Imagine ten years of relatively benign inflation averaging 2.6% per year. Seemingly out of nowhere, it rises to the 5-6% range, where it remains for 2-3 years, before falling back near 3%. During that same period, the stock market rose consistently - but only because a select group of stocks, mostly household names, had nearly everyone, both professionals and retail investors, deploying capital into them. As a result, this pushed the stock market to a point where the average P/E of that select group of stocks was a ridiculously high, 40! During the 10 years preceding the run-up in inflation, interest rates on the US 30-year treasury averaged less than 5% per year; there was little or no movement in both the Gold and Silver prices, and residential real estate mainly saw small year-over-year gains. But once inflation spiked up, Gold, Silver, and interest rates started rising, while Real Estate mostly remained flat. As inflation fell back towards the 3% level, Gold and Silver really began accelerating to the upside…..

At this point, most of you reading the above paragraph probably think it is the last 12 years (2013-2025) to which we are referring. The fact is, while everything in the above paragraph could apply to the previous 12 years, it is the period from 1961 to 1972 to which we are referring. Given the many similarities between the 1961-1972 and 2013-2025 periods, and the fact that while history doesn’t repeat exactly, it often rhymes, we thought it would be best to examine what took place in the remainder of the 1970s, so that we have an idea of what to expect going forward today.

Inflation only managed to stay at the 3% level for a little more than a year in 1972 before it rebounded with a vengeance. In 1973, it doubled to 6.6%, and then got worse, as it went on to average 9.1% per year for a decade. In 1973, The Stock Market entered the worst two-year bear market in the history of stocks. Back then, it was the “Nifty Fifty” stocks everyone considered the safest place to invest. Names like Sears, Revlon, Kodak, Kmart, and Polaroid were considered “Can’t miss” and yet, one by one, they each took turns in Bankruptcy court. To be fair, not all of the nifty fifty went bankrupt. Many did eventually recover, but it wasn’t until after they ALL suffered 50-90% drawdowns in the mid 1970s. The drawdowns in the bond market were even worse, as interest rates on the 30-year bond reached 13% by 1980. The only lifeboats in the 1970s were Gold, which increased 20x, and silver, which increased 40x.

There are two kinds of people in this world. Those who learn from history, and those who don’t. There are still seats available on the lifeboats today. Seats on the silver boat are currently $46, the Gold boat is $3800, and the Bitcoin boat is $115K. All three are still absurdly cheap …..

STRUCTURE

In the world of commodities, of which silver is one, structure is the only thing that matters. Price, risk, supply, and demand are all factors to be considered, but the one that trumps them all, is structure. In the simplest terms, structure is defined as “who is on your side of the trade?” In the 1980s, when Bag first entered the Precious metals business, the general public would walk into our shop with wads of cash and walk out with bricks of silver. After a decade of soaring inflation and rising prices in the 1970s, the retail public had been “conditioned” to believe Gold & Silver only went up in price. So they scraped together what cash they could and bought bullion. So many bars, in fact, that we had to buy from bullion banks to meet the retail demand. In short, cash went from the public through our hands to the banks, while bullion went from the banks through our hands to the public. Of course, the price of silver then fell from $50 in 1980 to $4 in 1990. As usual, the bankers cleaned up by selling at the high, while the public got wrecked. Scorecard: Bankers 1 Public 0

No knowledge of the intricacies of the silver market was required to know which way the price of silver was going to move in the 1980s. The only thing you needed to understand was the structure. Bankers on one side, and the retail public on the other. That kind of structure only ends one way. Around 1990, just as silver was reaching a generational low in price, of about $4, the public stopped buying and started selling, relentlessly. In fact, we had more than a dozen sellers of silver for every buyer in the 1990s. This time, bullion came from the public, through our hands, to the banks, while cash came from the banks, through our hands, to the public. This went on for 15 years (1990-2004). Finally, in 2006, with the banks’ nice & long and the public’s pockets picked of their family silver, they let the price run for a few years from $6 an ounce to $48. Bankers 2 Public 0

Bag was still in the business in 2011, when the whole cycle started all over again. The public, right on cue with silver at a generational high of $48, got sucked in by the allure of a continually rising price and started getting long again. As you might suspect, this didn’t end well for 2011 silver buyers either. Silver subsequently declined by 70% in price over the next dozen years. In fact, here we are today - silver still has not eclipsed that 2011 $48 price. Bankers 3 Public 0

Structure is the key to understanding where the silver price is headed. Let’s consider the facts: Today, we have a price of $46. The bankers (who built most of their position at less than $5/ounce) are still long. The public is selling like crazy - just ask your local coin shop which way the traffic is going. Meanwhile, the Bankers are still buying at these levels. Greedy fcks that they are, they are not looking to just double or triple their money. You couldn’t get those guys out of bed for a triple. Bag suspects, we are about to relive the 1970s. Metals will rip to the upside, and years from now, when the silver price is mid triple digits ($500ish), the bankers will begin doling out their hoard to a late-to-the-party general public. At that point, it will be Bankers 4 Public 0.

Conclusion

It is very rare to see Fundamentals, Technicals, Macro, History, and Structure all pointing the same way. In fact, Bag is not sure he has ever seen it before in any market. Not only are all the indicators pointing in the same direction, they are all screaming MUCH higher prices ahead. All five indicators each make a strong case for silver to trade north of $500, in relatively short order. When you consider the fact that Silver can be purchased today for less than what it traded at in 1980, meaning the downside is limited, buying Silver today seems to this writer to be an absolute no-brainer.

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