"Even a broken clock is right twice a day."
― Stephen Hunt, The
Court of the Air
There are times when every investor has to look long and deep into a
mirror and determine whether a well-thought-out strategy is actionable or
whether it is simply an ad hoc "hunch," barely worth chasing. With
regard to silver, this is just one of those times.
In 2003-2004, I was stopped out four times under $5 per ounce trying to
establish a 10-lot futures position in silver (50,000 ounces), which, at the
time, demanded US$18,000 in maintenance margin. When I finally threw in the
towel, my $18 grand worth of "dead presidents" was worth slightly
less than $6,000.
At the time of my decision to abandon the trade, I remember a sense of
impending doom as, with great regret, I returned the funds to the (joint)
bank account. Days later, when the losses were detected by an appropriately
suspicious spouse, one could hear the screaming of insults miles (if not
counties) away. As embarrassing and emasculating as that was, the addition of
insult to injury was aided and abetted by the cost of a chiropractor due to
weeks of punishing couch-sleeping.
Further exacerbating my agony was silver, almost immediately upon my
departure (and as if it had eyes), deciding to break out through $5 and
proceeding to triple. Staring at the quote screen, slack-jawed and
near-comatose, I watched with the same sense of disbelief one has when
observing a slow-motion train wreck as silver—my precious silver—tapped $50
in 2011. Without including the possibility of parlaying the 10-lot to
something larger, the original position would have generated a $500,000
profit or something close to a 2,700% ROR. Risk management at its very worst
or stepping over a $50 bill to pick up a nickel.
The chart posted above captures at once the rapture and the agony of being
a silver bull. The high-fiving and champagne-cork-popping of the advance is
violently replaced by the agony and self-recrimination of the decline, and
while it is typical of all assets that are the focus of the hottest of
speculative money, it is a market designed strictly for risk-oriented individuals
such as cryptojunkies or late-cycle weed players.
Speaking of crypto and cannabis, my investment thesis for silver lies in
the addictive behaviours of these largely Millennial and GenY-er-type
investors, who I see as logical heirs to the throne of "speculation of
choice" once it becomes necessary for them to replace the rush of
rapidly rising momentum plays. In a throwback to a kinder, gentler time, the
speculation of choice in the first decade of the New Millennium was silver,
which outperformed all other assets by a wide margin. As you can see from the
chart posted below, silver outperformed the S&P, the TSE300, and the TSX
Venture spectacularly from 2003 to 2011. and it is my opinion that it will do
the same in 2019 and beyond.
Asset performances since the March 2009 lows are distinctly different due
to blatant interference, manipulation, and interventions that were deemed so
"necessary" to avoid the systemic near-collapse of the banking
system in 2008. The presence of the central banks since the 2007-2008 Great
Financial Bailout. . .er. . .Crisis has served to ensure American market
outperformance at the expense of moral hazard and ethical abandonment.
But ten times as bad as that is the propensity and willingness of the
entire U.S.-dominated banking cartelto "join in" and one-up
their respective trading desks at every turn and all dips. Equities were
"ordered" higher from 2009 until Jerome Powell arrived under new
"orders" and directed 33 Liberty Street to "stand down."
Since the arrival of "QT" (quantitative tightening), the global
markets gradually, at first, then suddenly (Hemingway, anyone?) entered into
an involuntary Chapter 11, the recognition of which can only be described as
refreshing (by me) and "not fair and not my f---ing fault!" by
legions of smug little 30-somethings who are just now experiencing their
first "correction." Repeat: a correction. Not a crash (1929, 1987),
nor an economic collapse (1931-1933), or even a "deep correction"
(1998)—but merely a mild hiccup in the long-term trend of the S&P500.
For me, to see financial reporters like Jim Cramer and Bob Pisani joining
in on the Fed-bashing party so disturbed, while watching Rick Santelli and
Jim Grant and John Mauldin all part of the Fed-saluting party, is a
wonderment and the true definition of a free economic society. We need more
free-thinkers to man the gunboats at the G20 central banks to supercede the
"global narrative," the nature of which is going to destroy the
true meaning of global wealth creation, the origin of which is completely out
of the hands of the global banking cartel.
To generate truly new "wealth," human labor must be applied to
human ingenuity with the goal of pure financial profitability. If, as, and
when that achievement occurs, truly new "wealth" has arrived, and
with it, the security of a strong, labor-intensive society of working fathers
and working mothers whose children grow up wishing with great alacrity the
arrival of politicians capable of defining the meaning of the term
"leadership."
Financial reporting has now taken over the role of the lobbyist, using the
power and influence of cable and satellite TV and the Internet to attempt to
sway Federal Reserve Board policy. The S&P is barely 10% off the all-time
high print for 2018 but still up 279.4% since the 2009 crash lows, thanks
largely to the money-printing and credit-creation mission statements of the
global central banks and treasuries. Yet all we read or hear about is
"the Fed is making a mistake!"
One has to wonder what the response will be when this global bear really
begins to growl and snarl and gets the GenY-ers and Millennials in his
crosshairs. As I have printed before, the countless interventions and
manipulations have served to excessively starve this bear to the point of
savage desperation and the result of failing to allow the beast to feed with
normal regularity has today created an aberration of nature that will devour
all in its path.
The chart posted below of the Morgan Stanley Total International Stock ETF
(IXUS) has collapsed from the February peak and is now a thread away from
entering full-blown bear market status thus confirming the global trend of
equities and its attendant risk.
The purpose of pointing out the possibility of a lengthy bear market is
that just as money will flow to defensive sectors, it will seek out new
momentum plays. As mentioned above, the logical candidate is silver, a metal
used in solar panels, water filtration, jewelery, ornaments, high-value tableware and utensils
(hence the term silverware), in electrical contacts and conductors, in specialized mirrors, window
coatings, in catalysis of chemical reactions, as a colorant in stained glass and in specialized confectionery. Its
compounds are used in photographic and X-ray
film. Dilute solutions of silver nitrate and other silver compounds are used
as disinfectants and microbiocides (oligodynamic effect), added to bandages
and wound dressings, catheters, and other medical instruments. These industrial
applications make silver a viable futuristic necessity and one that the new
generation of investors will more and more appreciate in the same manner in
which they have embraced battery metals like lithium, cobalt, graphite, and
vanadium.
For these reason, I am adding the SLV April $13 @ $1.15 calls to the
trading account and will open a 50% position. I will refrain from trading
this position and instead set a $10 target by expiry. I will also be ready at
the drop of a hat to jettison the position on a two-day close for SLV below
the 52-week low of $13.11, at which point I'll be taking a sledge hammer to
the quote screen, the liquor cabinet and the medicine chest.
Broken clock be damned.
Addendum:
I concluded my missive with the following: "I am adding the SLV
April $13 @ $1.15 calls to the trading account and will open a 50% position
this morning." Since U.S. markets were closed for Thanksgiving, I
had to wait until Friday morning to execute the trade.
Silver opened weaker on Friday on China weakness fears and a slightly
stronger USD, with the SLV down $0.17 to $13.43, thus enabling the April $13
calls to open at $1.03. I am changing the limit on the call options to $1.00
and increasing the order size to a 100% position.
I like the precious metals in here for one very important reason as to
timing. Everyone is fearful of a 2007- or 1987-type crash that will suck
liquidity out of the precious metals along with all other risk assets. That
logic is flawed because if, in fact, the U.S. markets collapse, the Fed will
have no choice but to terminate its efforts at quantitative tightening, which
would evoke a violent downside reaction in the USD, which in turn would put a
strong bid into the precious metals. Any way you cut it, the precious metals
are going to rally hard due to ideal conditions that include the very
favorable COT set-up in both silver and gold.
Buy the SLV April $13 calls for $1.00 with a target price at $10 by
expiry.
[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.
