Soft Money is now accepted monetary policy
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Quantitative Easing is now conventional monetary policy. A total of 20% of the companies in the Russell 3000 are "zombie" companies whose debt servicing costs are higher than their profits. They are kept alive by borrowing. Boeing Co., Delta Air Lines, AMC Entertainment Holdings, Carnival Corp and Tesla are examples of companies who are not earning enough to cover their interest costs. We are at a fork in the road between disinflationary pressures and inflationary pressures.
Politicians and members of the Federal Reserve have a vested interested in keeping the stock market up. Nancy Pelosi has a net worth of $114 million. Mitch McConnell has a net worth of $30 million. The Federal Reserve Chairman, Jay Powell, has a net worth of approximately $35 million. Fed Governor Randal Quaries has net worth of approximately $100 million. All of the Fed Governors are invested in stock indexes and have an incentive to keep stocks up and interest rates at zero. The Fed balance sheet is expected to reach $40 trillion by 2030.
In 2021 Fortitude gold is expected to produce approximately 40,000 ounces of gold. At $1,800 an ounce this should produce $72 million in revenues. After all in costs, overhead and taxes, net profit should be approximately $10 million. With 20 million shares, the per share earnings should be 50 cents. With a P/E of 10 the price of stock should be $5. In the next five years if gold goes to $2,000 an ounce this could generate a net profit of $26 million or $1.30 per share. If the P/E went to 15 the stock would trade at $19.50.
If Fortitude gold established leach pads serviced by pits at Golden Mile, East Camp and Mina mines, gold production could increase to 120,000 ounces per year. With $2,000 gold, net profit would be $78 million or $3.90 per share. At a P/E of 15, stock would trade at $58.50. The Nevada operation may exceed the Oaxaca Mexico operations within five years. That may be why Jason Ried is moving to CEO of Fortitude Gold. Fortitude Gold is expected to have zero long term debt.
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Federal Reserve officials expect to hike rates roughly six additional times this year, bringing its benchmark Fed Funds Rate to nearly 2%. In May the central bank raised the Fed Funds Rate by ½%. Can they reach their goal without a recession?
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One is wise to sell on the rumor of bad news and buy on the fact. Gold is approaching over a year of consolidation on the rumor of Fed tightening and a rate hike. Next week the Fed is expected to increase its bond purchase taper and hint of more aggressive rate hikes in 2022. However, there is almost a two year lag between money printing and inflation.
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Lincoln said, "You can fool all the people some time, you can fool some of the people all the time, but you cannot fool all the people all the time." Jerome Powell has stated the Fed will "began to taper QE and raise interest rates" and "inflation is temporary"
