FYI The PPP program will long stand as the most random and capricious federal handout in our nation’s history. Totaling some $669 billion (yes, that’s two-thirds of $1 trillion), the primary goal of the PPP was to help entrepreneurs retain payroll employees so businesses and workers might “ride out” what was anticipated to be a relatively short Covid downturn. PPP was all about keeping businesses afloat and protecting jobs. Through mid-July, roughly 4.9 million PPP loans had been processed, totaling some $518 billion. While we have chuckled at federal prosecutions related to Lamborghini purchases and cryptocurrency trading with PPP proceeds, the single best example of the lunacy of such a federal endeavor has been the fact that neither the PPP application nor the Small Business Administration’s electronic system (used by lenders to submit applications)included a simple input field for “jobs retained.” To us, that seems like an important box for the government to have checked!
Of course, these details hold limited significance in context of Treasury Secretary Mnuchin’s recent trial balloon to forgive completely the 87% of PPP loans measuring less than $150,000. As Secretary Mnuchin testified to the House Small Business Committee on 7/17/20, “We should consider forgiving all small loans, but would need fraud protection.” Where is this money coming from? What has it accomplished? When will the U.S. dollar begin to reflect eroding U.S. creditworthiness?
As shown in Figure 3, on the prior page, ever since the launch of QE3 in September 2012, the spot gold price has demonstrated tight (inverse) correlation to the trailing 12-month federal budget deficit. Through March 2020, every $350B delta in the budget deficit (in either direction) had accompanied a $300 (inverse) delta in the gold price. Should correlations of the past eight years hold vaguely true, the $1.944 trillion Q2 deficit blowout would project to a $3,200 gold price in short order. Further, the CBO’s 4/24/20 estimate for a fiscal (Sept) 2020 deficit of $3.7 trillion projects a spot gold price in the vicinity of $3,860 by year-end 2020. Even discounting this implied correlation by 50% (under the assumption pandemic conditions and related fiscal response are merely temporary phenomena) the CBO’s 2020 deficit estimate would still project a year-end 2020 gold price of $2,700.
Stay tuned and enjoy the final weeks of summer!
Sincerely,
Trey Reik
Managing Member
Bristol Gold Group LLC