"'Tis one week 'til Christmas and all through the
Street
Brokers are begging for the Donald's next tweet.
With benchmarks all causing the advisors such fear
They all need a jumpstart to rescue the year."
I was sitting in my rustic abode on the shores of lovely
Lake Scugog last evening, a houseful of family all revelling beautifully as
outside the wind howled and the snow whirled while neither man nor beast
dared venture into the frigid abyss of a vintage Canadian pre-winter,
jet-stream-delivered, pre-Christmas storm. You see, I live in a small rural
town located northeast of the City of Toronto at latitude 44�6', which is
approximately the same as Minneapolis, Minnesota, but nowhere as isolated
(nor as wintery) as Edmonton, or Minsk, or Moscow, all of which reside at
around latitude 55�3'. In the vernacular of brass monkeys, the weather
outside here in Port Perry is emasculating at -16 C (3�F) but the weather in
Moosonee, Ontario, which lies over 1,000 kilometres north of me in the SAME
province, was clocked at -27 Celsius, which comes in at -16.6 F. That, my
friends, is COLD weather.
Now, add the wind chill factor, which tonight here in the
"Port" is severe as not only is it cold, we sit on the windward
side of the lake, which means that the big northwest wind comes over the tree
and roof tops across the lake and then barrels down in us with a vengeance.
Fido can't even get through the snow drifts caused by the wind to do his
"business," so he just walks back and forth until he can function
and then, when finished, BOLTS back up the back stairs of the deck and howls
at the patio door until let in. So WTF is the point of all of this drivel?
Ladies and gentlemen, it is three days unto the first day of winter and I
continue to read about carbon credits and global warming and how we should
ALL drive electric cars. Three days until winter. . .
As Donald Trump continues to "drain the swamp"
by adding more and more members of the Black Lagoon alumni (for all of you
millennials or echo-boomers or carbon credit counters, Web search "The
Creature from the Black Lagoon"), the last vestige of the Obama
"Faith and Hope" movement are now observing Mother Nature at her
omnipotent best; she is showing these kids (who vote with their "trust
fund" brains) that no matter how many "Congressional Studies"
are completed and read in session, Mother Earth determines when and IF GLOBAL
WARMING is an "issue" with her. She sits up there in the clouds
quietly watching the creatures�ALL creatures�that have an impact on HER
planet and decides when and if a species should survive. The last time that
Mother decided to change the status quo was when a bunch of the "Protestacockalus
Flatulus" decided to tell "Tyrannosaurus Rex" that he was
emitting too much methane after meals. She hurled an asteroid the size of the
moon into what is now Sudbury, Ontario, in order to curb the methane by
creating an Ice Age that exterminated the dinosaurs. I guess you really don't
want to piss off Mother Nature, now, do you?
University professors in our current society blame the
indiscriminate use of "foul language" aimed at "vulnerable
students" left outside of the "safe zones" as the reason for
"societal breakdowns" and "suicidal memes." My father, a
lieutenant in the Royal Air Force in WW2, told me less than a decade ago that
"you BabyBoomer pansies will raise a generation of men afraid of their
own shadows and a generation of women that will resent it."
I think that he was correct and I further think that many
of my fellow Boomer Generation parents would agree with that. So when I walk
outside my house in this little Ontario town that is a throwback to the
Ontario in the 1960s, where parents in the supermarket introduce their
friends to their children as "MRS. Shouldice" and "MR.
Toms" and advise them that they should be addressed as such takes me
back to my youth when the parents of all of my schoolyard hooligan pals were
all addressed as "MR." and "MRS." Billy Brassard's father
was in jail throughout most of his grade school years and while Billy was a
great schoolyard athlete and even better with his fists, he was really
embarrassed that his old man was in the slammer. On Billy's 12th birthday,
Billy's father showed up at the baseball diamond at Malton Public School and
was greeted by all the parents not as "Peter" but as "Mr.
Brassard" and we all shook hands with Billy's father as "Mr.
Brassard." Whatever the parents thought of old "Lefty Brassard,"
he was to be treated with respect by the children because those were the
rules, plain and simple. Children treated ALL older people with RESPECT, be
it the preacher, the school principal, or the car thief.
We are soon to be celebrating one of the greatest events
in the history of the planet and one which has caused a great deal of
controversy over the past 2,016 years. The mere arrival of a humanoid that
had the uncanny ability to survive all odds and create a spiritual movement
that would supersede Hinduism as the world's most prominent religion is
something that many young people would condemn. It is like looking at Niagara
Falls and accusing it of being "environmentally unfriendly" while
engaged in a "SnapChat" with a friend in Mumbai who chastises you
for failing to see "the beauty in the water falling off the cliff."
Christmas is a celebration that seems to be under a great deal of fire both
of the friendly AND hostile ilk. This year is no different as every
non-Christian on the planet is trying to elbow their way into the Santa Claus
queue because Ol' Saint Nick is non-denominational and free stuff is, well,
free stuff. I must confess however that the Christmas of 2016 is going to be
one of the more "reserved" ones in recent memory and here is why:
This time last year, despite an absolutely brutal year
for the precious metals and my beloved gold miners, I was genuinely excited
as that $1,045 gold print in early December along with the multiyear low in
the commercial net short position (at -2,911 contracts) was going to be THE
bottom for our sector and one that could be bought for multiyear advances�and
once the miners went through one final capitulatory regurgitation in
mid-January unconfirmed by the physical metals, it was obvious to me that it
was then time to go "ALL-IN" as I did with the GDXJ (VanEck Vectors
Junior Gold Miners ETF) for that exhilarating move from $18 to $52. JNUG
(Direxion Daily Junior Gold Miners Bull 3X ETF) was a split-adjusted
tenbagger from the January lows to the late-August peak but at Christmas
2015, I felt really good about the outlook for this year, 2016.
Alas, here we are closing out the year with the HUI (NYSE
Arca Gold BUGS Index) 47% from the mid-year high at 286 and still a mere 25%
of the 2011 peak at 635. After grooming themselves for a magnificent year of
outperformance back in August, the script I had been preparing complete with
curtain calls and victory laps has been transformed into yet another December
assault of tax-loss selling and portfolio rebalancing bringing pressure down
upon the throats of the miners, big and small.
After the Trump victory, what should have been a December
of portfolio managers chasing gold and silver stocks turned into a December
where portfolio managers were chasing the banks because higher interest rates
brought about by the post-election surge in yields were "bullish."
Well, yes, I get it that the steeper the yield curve, the bigger the margin
for the lenders, but how on earth does Bank of America get marked up by 20%
because the 10-year prints a 2.48 yield? Higher borrowing costs, by the way,
are NOT good for business especially if borrowers are shutting their doors
because higher borrowing costs are crippling their customers' purchasing
power.
I guess what really irks me this Christmas is that the
miners were given a seven-month reprieve in 2016 after a near-sixty-month
bear market of the "granddaddy" variety in which we witnessed not
just "falls from Grace," but rather total annihilation of projects,
balance sheets, hopes, dreams and retirement plans over a very long and drawn
out time frame. After bear markets of the magnitude of the last one, the new
bulls tend to have big advances initially and then a pause/correction that
typically flushes out all of the late longs and allows the early investors to
replace peripheral positions before going for the next major advance.
As we close out 2016, the HUI is actually sitting on the
precipice of a large gap zone representing the initial lift-off from the lows
at 99.17 to around 150; if we don't grab in here, tax-loss selling right up
until the 31st could easily vaporize the 2016 gains made nine months ago.
Now, am I forecasting that? No. However, I am calling it to everyone's
attention so that if it actually happens, I can cherry-pick it from today's
missive and tell everyone that I "nailed it" (like all the other
gurus do).
Friday's COT was no surprise in that it was before the
big smash last week and while you can see that the open interest numbers are
flattening out, that would appear to be because the Large Speculators have
started to short the market as compared with last August when they were net
long 294,000 contracts versus today at 129,000. So it looks like the
Commercials are playing bat catchers to the Large Spec pitchers as long
liquidation prevails going into year end. I think that with the Commercials
STILL short a ton of paper "gold" versus this time last year, that
it is still too early to expect that we are in as good a shape in terms of
the COT structure today as we were on December 4th of last year
with the Commercial Cretins at -2,911 contracts and the Large Specs massively
short instead. Some of the brilliant minds out there say that gold will be
weak right up until Trump's inauguration but I think it will all be pretty
much over by end-of-month. One sad thing is for certain from where I sit: the
explosive cannon shot that the miners experienced in the winter of 2016 is
going to be a very tough act to follow.
The good news for me is that the base metals have finally
rolled over with copper now finally in retreat and taking Freeport-McMoRan Inc. (FCX:NYSE) with
it. I bought a fistful of January puts that are now finally in-the-money and
as I wrote when I first posted the trading idea, I continue to think that the
Trump Trade will get largely reversed after month-end when people's gains are
moved to 2018 and are probably at a lower tax rate. If that's the case, then
FCX could easily check back to the 200-dma at $11.56 but it could also be
headed to its pre-election level around $10.50. If that happens, the January
$14 puts will be between $2.50 and $3.50 and a decent return from the $1.25
paid three weeks ago.
There is no question that gold sentiment is similar to
last year in its extreme bearish consensus so there is no doubt that we could
and probably will get a really sharp countertrend rally in the miners in
early January. However, until the regulators can finally put an end to this
horrific process whereby the bullion banks have a total carte blanche to
issue as many contracts as they desire under the guise of
"hedging," prospective gold investors are simply going to say
"Nope, not playing." Because of the interventions and collusions
and bank-coordinated gangs attacks such as we are now witnessing via all of
the Deutsche Bank evidence coming to the surface, it is actually having a
negative effect on sentiment because as much as the revelations are creating
transparency, they are also scaring prospective investors at the same time.
The prevailing wisdom that is emanating from the trading desks is "Wow,
if they can get away with that, why would anyone put money into the gold and
silver markets?" Bullish sentiment for gold is 4%, which is 1% higher
than the all-time low from 2014.
The more things change. . .