The New CS Board

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Larry McDonald Warns "The Big [Market] Quake Is Coming" : https://www.zerohedge.com/markets/larry-mcdonald-warns-big-market-quake-coming

Excerpts:
What about precious metals?

When it comes to precious metals, we love silver miners like Hecla Mining. When the Fed eases its policy, the silver miners will outperform the underlying metal, and they will outperform gold because there is more leverage there.

The gold price is down more than 15% since its all-time high in August. What’s the problem?

Everyone thinks it’s 2013, so taper fears are sky high for gold. But the Fed cannot repeat its mistakes. They must cap yields if they want to preserve the global economic recovery. Thus, the convexity with gold is very attractive. Every leg lower in real yields will act like a slingshot higher for gold. That’s why we love Newmont. The stock trades at 6x EBITDA with a 4% dividend yield which gives you some downside protection. And remember: The 2011-2016 commodity bust has made the balance sheet of these high quality gold mining companies a lot stronger.

President Joe Biden has just signed off on a $1.9 trillion economic program. What are the chances of a second stimulus bill, aimed at infrastructure?

It’s important to note that a second fiscal deal for 2021 is not a slam dunk. To pass the present $1.9 trillion stimulus bill, the Democrats used reconciliation. It’s a very special trick in US politics, because with reconciliation you don’t need 60 votes to pass a bill in the Senate. All you need is 50 votes. Yet, reconciliation has to be tied to a budget year. This means the next time the Democrats can use it is probably in the fourth quarter, late November or December, and tie it to the following year's budget. So the only way to do an infrastructure bill in the next six months is with a traditional piece of legislation.

Is that even possible, given how wide the rift between Republicans and Democrats has opened in recent years?

For that you need essentially ten Republicans. Right now, the centrists on the Hill, people like Mitt Romney on the Republican side or Joe Manchin on the Democrat side, are the most powerful people in Washington. They want to do an infrastructure program, but they want to finance it with tax revenue. They don’t believe in things like Modern Monetary Theory where the Fed is financing the deficit. So you are going to need a tax hike. And in this regard, we’re hearing they could go after some type of flat tax on the FAANGs, the big technology companies.

What does this mean for Apple, Google, Facebook and other tech heavyweights?

Keep in mind, we’re in a populist revolution: The risk of inequality leading to social unrest is high, and that puts pressure on politicians to pass bills to tax the rich. But a wealth tax is extremely complicated, it would take years. The simplest way to do something in terms of taxes is to tax larger companies. In the eighties, the top 100 companies in the US maintained about 45 to 50% of total profits. Today, the largest 20 companies command about 85 to 90%. In addition to that, close to 40% of the S&P 500’s market cap is related to tech. So tech is the low hanging fruit for the populists in Congress to go after.

What are the biggest dangers to watch out for in the coming weeks and months?

One spot to watch are all these forbearance deals in commercial real estate. When we come out of Covid and the vaccines and the stimulus money are juicing through the economy, the market will be forcing the release of the forbearance on a lot of these loans. So if people don’t come back fast enough to the cities, these commercial real estate loans are going to get reset. This would mean some big defaults, and the banks own a lot of these loans. Also, a lot of leveraged loans are really rich. And then, there is potentially a fiscal cliff: The sustainability of the $1.9 trillion stimulus package isn’t that great because a lot of it is just transfer payments replacing lost income for people staying at home. That’s why the US needs a second stimulus bill. If we don’t get a second bill, we are going to have a problem in about a year from now.