"If you can keep your head when all about you
Are losing theirs and blaming it on you...And--you'll be a Man, my son!"
~ If by Rudyard Kipling
Today a news item from the Wall St. Journal crossed my desk entitled, "A Fearful Time For
Gold". Then I read another article entitled, "S&P500 In Longest
Winning Streak Since 2004." These articles
are an indication of what the majority is thinking and may be a contrarian
buy alert for my readers.
The majority of investors are usually wrong at turning points. Many
investors are becoming impatient with gold selling into an oversold panic in
the miners and looking for the latest fast money scheme in mortgages or real
estate. Be careful of following this emotional move where investors take on
too much risk in banks and housing and overly fearful and pessimistic in
mining equities. We are in the midst of currency and trade wars where
countries are competing to devalue their currency.
My readers are well aware that the role of the media is to confuse and
misdirect the average investor. Be careful of the media's job which is to
sell the popular news of that day for the masses. Many times the cover
stories are a reflection of the majority view, which is usually wrong. Behind
the scenes the world is in the midst of competitive currency devaluations.
The Japanese Yen is in free fall and the West must compete which could put
downward pressure on the U.S. dollar and Euro.
However, the news fails to discuss what the implications of trade wars
and the impact on currencies can have to investments. Instead they like to
publicize pundits who are speaking about if the Canadian Venture exchange can
be saved or discussing a complete collapse. In
my opinion, this is characteristic bear market talk,
capitalism and metals exploration are not ready to run for the hills
especially as we have a lack of available supplies in uranium, rare earths
and precious metals.
Usually these pessimistic doom and gloom comments signal a contrarian
bargain buying opportunity. In fact, I have spoken with many mining
executives who have been in this business for 4+ decades and they have
commented that they have never seen pessimism in the sector like now. There
are several mining companies whose market cap is just a fraction of their Net
Present Values from third party independently verified economic assessments.
Never have they seen this disconnect.
Just like we had irrational exuberance on the upside with tech and
real estate this past decade, we are witnessing illogical fear in the junior
mining sector. In due time, investors will look back at this time and be
amazed at some of the values.
We feel that it is only a matter of time before the precious metal,
rare earth and uranium miners themselves participate in reflecting this bull
market in other areas such as banking and real estate which are being
manipulated higher by Central Banks. Capital will eventually flow to quality.
Many miners are reporting earning surprises
beating analyst estimates and breaking into new highs. The large gold mining
companies have taken write downs. The majors are desperate for resource
growth at a time when new discoveries are at an all time
low. While the large gold miners are testing lows, some of the big industrial
miners are outperforming the S&P 500 and hitting new 52 week highs.
The majors are becoming less picky and some of the undervalued juniors
sitting on developing mines may attract the hungry giants who may pay
exciting premiums. Do not forget many of these majors are sitting on large
holdings of U.S. dollars, which is increasingly losing value. They must work
speedily to transfer that capital into resource growth. Many of their large
and high cost miners are riskier then some assets
being held by undervalued juniors.
I have learned through experience that following the majority or the
mass media is dangerous. How soon we forget the tech collapse where many of our
colleagues who became day traders and web entrepreneurs were wiped out. The
housing crash is almost completely forgotten by the mainstream media or the
Many of my contemporaries who became mortgage agents or real estate
brokers are getting back into the real estate business as the Fed has been
throwing tons of fiat dollars into those markets. Be careful of a double dip
in the housing market as there is still a huge inventory of homes and condos
which have not hit the market.
Despite these two major bubbles just in the past 15 years, some
pundits claim we are in a gold bubble despite the miners being at record low
valuations. Most of my friends in the mining industry are 60-90 years old and
they are concerned that there may be an entire generation that is not well
equipped with the ability to explore and develop mining operations. There is
a huge generation gap and a lack of technical skill with few discoveries
being made despite record exploration budgets.
Just like the .com bubble or the real estate bubble, there will come a
time when all your friends will be discussing mining stocks or going into the
mining industry. We are far away from that time as the majors
trade at a record discount P-E Ratio compared to the S&P500. When your
taxi driver starts talking gold stocks with you that is the signal to take
profits and that we may be near a bubble.
Recently, sellers predominantly large hedge
funds who have been highly leveraged to the price of gold are rushing to the
exits as margin calls and fund redemptions increase. This is a shakeout of
the weak hands before a potential breakout move which may be completion of
basing process. While many are discussing the death cross on gold, they fail
to speak about the death cross in long term treasuries. This may be
indicating increased risk appetite and a rotation into equities.
Many times bottoms come with capitulation or panics as investors rush
to get out at any prices. Usually after capitulation great bargains are
available. Remember we are witnessing increased margin calls and commodity
fund redemptions that is causing forced selling.
After these volatile periods, major reversals tend to occur, which I
will be monitoring for in my newsletter.
Many precious metals investors are scared and beginning to panic. We
are witnessing a selloff in precious metals and miners as the general equity
market continues to move parabolically higher. More
specifically the mortgage, bank and homebuilders are leading the overbought
Investors are confused as these are the sectors which almost caused
the entire capital system to almost collapse. Massive bailouts, mark to
market and refinancing debt at artificially low interest rates have been
tools to manipulate these sectors higher. For a few weeks, I have been
warning my readers about the extremely overbought conditions in the general
equity market despite a weak economy and the risk of hyper-inflation.
On October 4th of 2011, I called for a major risk-on rally. See the
video analysis from back then by clicking here . At
that time I wrote, "The S&P 500 had a powerful reversal and showed
the first major day of buying since the August Crash. Chart patterns indicate
that a potential low could have been placed this week."
That in fact was the major bottom as easy money from the Fed
stealthily boosted the toxic housing and financial stocks, while hiding
inflation. In fact, since that time the best performing industries have been
mortgage finance, home improvement retailers, real estate investments and
U.S. Banks. These are the same toxic sectors that caused
the crash and has trillions of dollars thrown at it to prevent a
Last year I spoke at PDAC in March of 2012 and was quoted in Bull Market Run as saying,
""The risk-on rally began in early October due to record breaking stimulative measures, actions from the ECB, China, the
U.S. and Japan...it's very hard to fight the Federal Reserve which is
constantly pushing money into the system...this run into cash and treasuries,
this irrational run in 2011, was really a very dangerous move and there are a
lot of investors still on the sidelines, a lot of capital that's going to
come back into the market..."
Now we are witnessing the capital come back into the market but it has
not trickled down to the junior miners. The housing etf
(XHB) is up over 110% while the major gold miners are down 25%. This
divergence may only last so long. Investors will one day realize that the
Central Banks actions over the past 5 years could have long term
hyper-inflationary consequences which could be devastating to the next
This is why I encourage you to be cautious as the Dow breaks above 14,000.
The general equity market is overbought and may soon be reaching a top. The
U.S. dollar may soon break 52 week lows and continue downward in its secular
bear market following the Yen lower. The underlying economic foundation is
shaky as unemployment and government debts continues
First we had the bonds rally in 2011, then
the equities for close to 15 months and a major move may soon be coming in
the commodities and junior miners possibly even greater than 2009-2010 after
the 2008 decline.
Usually when bonds and stocks rally together and commodities
consolidate like they did in 2011-2012 it forecasts a hyper-inflationary
rally. We may be on the verge of that great rotation into the junior miners
in 2013, so hold tight and keep your head even when all around you are
selling and losing theirs.
Do not forget the discounted junior miners who are searching for real
wealth in the earth. It may happen sooner rather than later that the large
amounts of capital being put into the housing and financials will rotate into
Disclosure: No stocks or etf's owned in
article by author.
I will be speaking at the PDAC Conference in Toronto,
Ontario Conference at the Metro Toronto Convention Center on Sunday, March
3rd, 2013 at 12PM. I hope to see some of my readers there.
PDAC Conference is the leading investment show dedicated solely to the
Letter Writer Presentations for Investors provides investors with
information to assist them with their investment decisions. Other top
newsletter writers will also be presenting their charts, thoughts and ideas
on how to select good investments in the resource sector.