On Wednesday, as the kiddies were upset over a swooning S&P, then
trading a paltry 5% from the all-time high of 3,027, I tweeted out this
graphic that perfectly describes my cynical view of the paper markets around
the world.
What prompted me to exercise my artistic flair was that the screams were
loudest in the world of social media where the Millennial Horde had leveraged
Mommy's 2018 BMW Roadster convertible in order to trade S&P futures from
the long side. "Cut rates!" they type-screamed using
CTRL-B,U,I for emphasis; "Do the China Deal, Donald!" as
margin calls came flooding into their inboxes. And as surely as the sun rises
and gold gets hammered on an NFP Friday, the invisible hand reached out and
rescued them with mercurial deft and timely precision. All is now right with
the world, and stocks are charging back toward the highs with a 57-point
turnaround in the S&P in less than two trading sessions. As I tweeted out
[yesterday], it was (and is) laughingly predictable.
Now, to underscore the absurdity of this obsession with rising stock
markets, take a peak at the next graphic courtesy of Bianco Research. The
pink section is all bonds trading at a negative yield, while the green is
what would be historically "normal"—you know, a bond that pays the
holder that is taking all of the risk a positive return. Is it any
wonder that money managers around the world are all flooding into stocks,
when over 50% of sovereign (not corporate) bonds are penalizing their owners?
Do any of you recall the term "lender of last resort?" That term
refers to the reason why sovereign bonds and bills are assigned a heavenly
credit rating, which assumes that, because they own and control the power of
taxation, there will always be a working population upon which governments
can rely for interest coverage. Where corporations and individuals can file
for bankruptcy protection in favor of the bondholder, sovereign nations enjoy
the realm of privilege and are blindly obeyed until exogenous shocks to the
status quo occur, which place a sovereign nation in default.
The last two countries to default on debt were Greece and Venezuela, and
while Greece has had its standard of living stabilized under the shelter of
the ECB (European Central Bank) umbrella, Venezuela has no such safety net
and its citizens are suffering a malaise not unlike Wiemar Germany 1921–1923
or Zimbabwe post-1986. Now look at this list of countries on "credit
default watch," as measured by spreads on credit default swaps.
- Ukraine
- Pakistan
- Egypt
- Brazil
- South Africa
- Russia
- Portugal
- Kazakhstan
- Turkey
- Vietnam
Around the turn of the century, there was an acronym that combined four
countries believed to be global growth drivers for the new millennium, then
known as BRIC (Brazil, Russia, India and China). They were the darlings of
the Wall Street analytical community for years until quite recently. For
reasons beyond all logic, two out of four of them are now on the "watch
list" (Brazil and Russia), with China's current trade war with the West
and its suspect shadow banking system making them a soon-to-be-added member.
South Africa used to be one of the most dependable and credit-worthy
countries on the planet until a socialist thug took over (sharing a common
history with Venezuela), and Brazil was once lauded and applauded for its
thriving mining and agricultural foundations. Even Germany, the industrial
and political backbone of the ECB, has not one bond or bill yielding positive
returns.
I submit to you, my friends, that the malaise to which I refer, starting
with the blatant control of all markets (bonds, stocks, Forex and
commodities) by government interference is symptomatic of the accelerating
early stages of a massive global debt disease. You have read my thoughts on
"mistrust"; now you actually can quantify it in the chart
shown above. Those negative yields are a wailing air-raid siren, just like
1941 London, and the 2019 version of the Luftwaffe is debt, pure and
simple.
The best and only real defense against a debt implosion is to have your
wealth held outside of the traditional banking system, because as we have
seen in the countries over time that have defaulted, governments, aided and
abetted by their police and armed forces, think nothing of confiscating your
wealth "for the common good," meaning, for their "job
security." They cannot confiscate that which they don't see, which is
precisely why they are jamming the notion of a "cashless society"
down your throat. However, this is a very well-trodden path of discussion and
debate that you have all heard and read before, so I shall move along.
Nothing new to be seen here:
The gold miners, as represented by the HUI (ARCA Gold Bugs Index), have
treated me very well thus far in 2019, and while I lament the early
exit from the leveraged ETFs (NUGT/JNUG), I did make decent money on both.
But where I made "the cut" was on the exits of GDX, GDXJ, GBR.V.,
and the SLV calls, all in that topping window from Aug. 28 until Sept. 5.
The hate mail I received was nothing short of profane, and in some cases
threatening. While I looked on dispassionately, I dumped all of my precious
metals paper holdings while retaining all physical positions in gold
and silver. I have now started accumulating from the long side of the paper
markets (miner ETFs), and have initiated a small position in the SLV December
$18 calls, with two purchases in the past two weeks at $0.23 and $0.47, for
an average price of $0.35. I look for a retest of the $18.35 high before
year-end. As I stated a few missives ago, I feel far more comfortable owning
these positions, with small losses or break-evens, than being on the
sidelines with a pile of rotting cash, just sitting there in the full envious
view of bankers and government bureaucrats.
As to gold and silver, my only point of concern is the gap shown above in
the HUI chart. There is an old saw —all gaps must be closed—and
whether or not this one proves to be true shall remain to be seen. I have
chosen to disregard it because the cause of the gap was a runaway up-thrust
in gold after the $1,375/ounce breakout. Like so many other "rules"
that gold and silver have tossed aside since June, I am aware of the gap but
simply not acting upon it.
As I am writing this on Friday morning due to an afternoon engagement, I
will not be able to comment on the COT until Monday. But suffice it to say
that I expect a massive reduction in the aggregate shorts in gold held by
Commercials, offset by a similar reduction in longs held by Large
Speculators. Watching the plunge in open interest and the sudden and very
mysterious halt in the declines of the precious metals, it is eerily
reminiscent of the same "mysterious" action when it topped on Sept.
4. It is the Commercial Cretins at work doing exactly what they have been
doing for ages because it is obvious that the RICO action brought against JP
Morgan has done squat to deter their criminal behaviors.
I urge you all to follow me on Twitter (@Miningjunkie ) in order to get
all of the intraday musings (and trading suggestions) that pertain to
this abomination called the stock "market." The month of October is
hard upon us and as the intraday events happen too fast for e-mail, Twitter
notifies followers of opportunities within seconds. In this world of algobots
and managed prices, speed is a tactical advantage and Twitter is one application
that delivers.
Follow Michael Ballanger on Twitter @MiningJunkie.
[NLINSERT]
Charts provided by the author.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always consult
your registered advisor to assist you with your investments. I accept no
liability for any loss arising from the use of the data contained on this
letter. Options and junior mining stocks contain a high level of risk that
may result in the loss of part or all invested capital and therefore are
suitable for experienced and professional investors and traders only. One
should be familiar with the risks involved in junior mining and options
trading and we recommend consulting a financial adviser if you feel you do
not understand the risks involved.
