Juiced: Europe Stimulus Is Just Sammy Sosa to the US’ Mark McGwire

I’m so excited for baseball season to start this week, I can barely contain myself.

I’ve got my subscription to MLB.TV ready to go, some Nathan’s Famous hot dogs – the official wiener of MLB – ready to grill up, and some Miller Lite getting cold in the fridge.

Yeah, I know Budweiser is the official beer of MLB, but come on, Miller has always had the better commercials.

And that means for me, they must be in the front row…

The season is set to kick off on Thursday, when the Yankees visit the Washington Nationals. And in what appears to be an epic trolling of this administration’s failure to contain the novel coronavirus outbreak, the Nationals announced that America’s top infectious disease expert Dr. Anthony Fauci, will throw out the first pitch.

You have to appreciate some shenanigans to start off what is going to be a really weird season.

Air high fives, y’all…

I wasn’t always this pumped about the start to a season, though… in fact, there were a few years where I didn’t even watch games at all.

I was one of a lucky few people – roughly 50,000 out of 500,000 high school players – that actually got to move on and play baseball in college. Now, I wasn’t all that good – as a pitcher, I had a plus curveball with a fastball that sat in the low 80’s – but I was good enough to get there and try and improve.

Source: Time Machine, William & Mary Baseball

Toward the end of my freshman year, however, my velocity began to decline for some reason. I chalked it up to arm fatigue and gave it a month’s rest after the season was over.

But when my summer league started up that year, so did some elbow pain and finger numbness. And upon returning to school that fall, I was diagnosed with bone spurs that were situated right next to my ulnar nerve (hence the numbness).

Surgery was the only option to keep playing, but that also involved months of rehabilitation away from the field – possibly up to a year – and no guarantee of being athletically relevant afterwards.

Given that my professional prospects were at best limited, my course load was especially intense (18 hours, all math and science), and I had picked up an academic scholarship… I ultimately decided to walk away.

But I was heartbroken.

Long Gone Summer

After I graduated from college, I took a year off to apply to medical school. And for the next year or so I worked part-time at my Dad’s legal office doing a mix of clerical, paralegal, and (very) rudimentary IT work.

Dad was of course, a huge fan of the game – apples don’t fall too far from the tree, I guess – and he almost always had a baseball game on while we were working in the summers.

I hadn’t really been able to watch much since I quit – it was still far too painful – but the summer of 1998 was different.

I’d really liked Mark McGwire ever since he had starred on the 1984 Olympic Team – I still have that baseball card somewhere – and when he set the rookie record for home runs in a single season as part of the Oakland A’s “Bash Brothers” in 1987, I became a forever fan.

But when he and Sammy Sosa started crushing home runs during the summer of 1998 – challenging Roger Maris’ vaunted single-season record in the process – he was doing more than chasing his own baseball history.

He was healing mine.

I must have watched hundreds of ballgames with my Dad that season – including this one in person, where McGwire hit his 53^rd shot of the year – and looking back, it probably bolstered my relationship with him as much as it reinvigorated my relationship with baseball.

So, if I ever get to meet those guys in person, the first thing I have to say is… thank you.

The Juice Is Loose

There were of course rumblings that whole year that steroids were running rampant through the sport.

McGwire himself had given interviews that season in which he spoke fairly openly about using androstenedione, itself a steroid precursor.

And just three years later, when a swollen Barry Bonds broke McGwire’s single season record, it was pretty clear to anyone with eyes that the juice was getting out of hand.

Not that it stopped anyone… players got huge, bulking up to both prevent injury and pad stats. Bonds himself stayed “swole” long enough to also take down Hank Aaron’s career home run record, to some making a caricature of competition.

And while we wouldn’t “officially” know how widespread steroid use was until the Mitchell Report came out several years later, by that point, the public relations damage had been done. Baseball had somehow squandered the resurgence in popularity that came along with McGwire and Sosa chasing Maris’ record.

Fittingly, that’s right around the time that MLB finally did something about it.

A Real-World Anabol…err…Analog

The financial equivalent of Performance Enhancing Drugs is economic stimulus. The two are so similar, in fact, that Senate Minority Leader Chuck Schumer took to the airwaves back in March to describe the government’s fiscal response to the coronavirus pandemic as “unemployment insurance on steroids.”

So when Europe, after some contentious negotiations, finally announced its own massive coronavirus stimulus plan this morning, it’s not exactly an accident that this analogy to baseball came to my mind.

In the plan, Europe aims to create a €750 billion ($858 billion) recovery fund to rebuild its economies, in the process selling collective debt for the first time, and handing out much of the stimulus to the hardest-hit nations.

It needed to be done, of course. Europe was hit especially hard by the first wave of coronavirus cases back in February and March, with Italy, Spain, France and Germany all forced to lock down their respective economies to prevent hospitals from becoming overwhelmed – which fortunately seemed to work.

Source: Johns Hopkins, Bloomberg

During that time, the European Central Bank added roughly US$2 trillion to its balance sheet in order to provide enough liquidity for the financial system to function. Today’s fiscal stimulus package tacks on about 50% to that total.

Source: Bloomberg

That’s a massive amount of liquidity to pump into a market. But judging by the performance of the DAX Index over that time, it was a home run.

Source: Bloomberg

But I should remind everyone that in the context of global stimulus, Europe is just the Sammy Sosa to the US’ Mark McGwire. During that same period, the Federal Reserve added US$3 trillion in monetary stimulus onto its balance sheet, and Congress tacked on another US$2.2 trillion of the fiscal variety a little later.

Source: Bloomberg

And given that the US still leads the world in COVID-19 case load, we’re going to see more. A LOT more.

Source: Bloomberg

The net result of all this creation of new fiat currency has been that the precious metals sector is going bananas. Gold sits well above the US$1,800 per troy ounce level now, and given there is no end in sight yet, is well on its way to all-time highs.

Silver, though, has shot up like a bullet – destroying all werewolves in its path – and is now nestled well above the $21 level. Most of that has been a catch-up trade, as gold has heretofore been the primary benefactor of Central Banks’ easy money. The long-term average of gold to silver is around the 55-60 range, but recently hit double that number.

Source: Bloomberg

If it goes back to its historical norm while gold stays steady, that implies a silver price of around $30. That would in turn call for our stake in Proshares Ultra Silver (NYSEArca: AGQ) to tack onto the 40%+ gain we already have and run up another 80% from there.

I don’t think we’ll quite get there, as silver has a strong technical resistance level around the $27.50-28.00 range, as per the chart below.

Source: Bloomberg

That said, I do think both it and gold are going higher, so I’m going to recommend something I rarely ever would…chasing it, by adding another ¼ stake to both Proshares Ultra Silver (NYSEArca: AGQ) and Proshares Ultra Gold (NYSEArca: UGL).

Because in the race to stabilize the global economy, there is no end to the amount of PED’s that Europe’s Sammy Sosa and the US’s Mark McGwire can inject.

And that’s before we even start talking about what Japan’s Barry Bonds is going to do.

All the best,

Matt Warder