As you all know, I love to spend the summers exploring the thousands upon
thousands of bays and inlets and coves that represent the Georgian Bay
landscape. With the exception of a few boyhood jaunts around the Parry Sound
area, I was not able to fully appreciate the grandeur of the Canadian Shield
as it escapes its marine blanket while leaving behind thousand of large and
small islands in its wake. Sightseers like the famous Group of Seven, whose
artwork is almost exclusively the Georgian Bay vistas, would refer to them as
islands or fresh water atolls but boaters young and old refer to them simply
as "rocks," and they are both feared and revered by anyone that has
run aground, as propeller shafts and stern drives do not get mangled by
islands or fresh water atolls.
Part of the majesty of the region lies in the perpetual presence of danger
whenever one departs the well-marked channels and heads out into "the
big water." Summer weather on the Great Lakes and particularly northern
Georgian Bay is fickle and it is immediate, in that a bright blue sky with
calm seas during breakfast hours can become a roaring tempest by early
afternoon, with winds that seem to know instinctively in which direction to
blow your vessel. . .and know this: It is never away from rocks.
However, most seasoned mariners are well aware of weather conditions and
are usually happily ensconced in a cove or bay, carefully free of any real or
imagined threats from Mother Nature by the time storms arrive, not unlike
seasoned portfolio managers, who are ever aware of changing economic or
financial conditions that may produce a hurricane force impact upon their
holdings.
Now, an integral part of the Georgian Bay boating experience lies in the
remoteness of the anchorages to human interference and the uncanny ability of
Mother Nature to ignore human expectation. One boater we know was in a tidy
little cove hundreds of miles from the nearest highway. When they returning
from a dinghy ride, they found a black bear rummaging the cockpit fridge
(incensed that all he could find was beer). After they had shoo-ed the bear
away and were exiting the cove, they noticed another boat attempting to take
their spot. They quickly warned the others of the impending dangers via VHF
radio, but just as boaters discount weather info at their own peril, this
couple suffered the same fate as the former couple, and Yogi wound up with a
double, taking much more than beer as its reward.
What makes northern Georgian Bay incomparable for me, though, is the
fishing. In case you didn't know, fishing is the #1 global recreational
past-time, outranking international football (soccer), American football
(football), golf, tennis, baseball and hockey. The reason is that the most
populated country on the planet has a gene in the DNA of their citizens that
forces them to drop a fishing line into any pond or lake or pool that exceeds
one foot in depth. China has exported natural-born gamblers to Macau and
Vegas (and to their central bank to manage exchange rates) but they have
exported fifty times as many citizens to North America, whose major obsession
is fishing. They line the busiest bridges and the most treacherous
roads, crammed together elbow to elbow with lunch boxes at their feet,
desperately trying to outcast and outmaneuver their counterparts so they can
reel in a four-inch sunfish or a ten-pound carp.
However, before landing on the Chinese immigrants for their obvious love a
sport, let it be known that I share their passion for angling. It is sport I
have enjoyed, with my greatest conquest to date being in Lake Ontario (a 36.7
lb. chinook salmon in 1987), where the fish landed eleventh in the annual
Lake Ontario Fishing Derby. (The tenth-place fish won its acquirer a $20,000
fishing boat, motor and trailer; my eleventh-place sammy got me a year's
supply of "Worm-Up," worth $500.)
Fishing is a sport that attracts all types of people spanning all
demographic and econographic strata. You find billionaires hunting tuna off
the Great Barrier Reef, maniacally driven by the same endorphin that sent
Huck Finn to the fishin' hole instead of the schoolhouse. The thrill of
catching a fish is on a par with hitting blackjack at the card table or having
the winning card at your mother's Wednesday night Bingo game. Fishing carries
the same narcotic as horse racing, lotteries, Bingo, and, of course and
without further adieu, investing.
As an example, my partner and I were circumnavigating Bone Island on the
weekend, trolling the shoals and islets for bass, pike or, if very fortunate,
pickerel (known as walleye to our American friends), and given that early
afternoon in high heat and blazing sun is not always the most ideal angling
time, we were proceeding with limited expectations, such that even a strike
would be a success, let alone a landed fish. As we circled a small rock
protruding from the water like an indignant waiter, I felt a tremor in the
10-pound test I was using and sure enough, it was "fish on." The
adrenalin surge of engagement had my mate feverishly reeling in her line as I
battled was surely an eight-pound largemouth.
It is not unlike the rush of anticipatory excitement one feels when a
junior mining stock, of which you are holding far too much, announces a
27-meter interval of economic-grade "anything," after which you
presume that it is surely the arrival of the next Voisey's Bay or Olympic Dam
or Hemlo. As tends to occur in the landing of a fish or the establishment of
an economic ore body, the fish that had determined to chomp down on the
flashy $20 Mepps was, alas, not the eight-pound leviathan for which I prayed,
but rather a (perhaps) one-pound smallmouth with eyes obviously much larger
than its stomach.
Furthermore, in the same manner than a PEA (preliminary economic
assessment) can disappoint investors with an unexpected outcome, as my brave
little fish approached the net of doom, it suddenly breached the surface and
as if making a statement, spat the lure directly into the boat and
disappeared beneath the waves—but not before flipping me the middle fin in a
gesture of "nice try, moron." Four times that day we hooked a fish
and four times they decided to elude the net and the boat, the result of
which was an 0-4 record for the day.
We had all of the right tools and made all of the moves that, in the past,
had worked, but at the end of the afternoon, we were frustrated, frazzled and
fishless. Exactly as happens in the investment world, you can experience all
of the excitement and satisfaction of proper research, funding and execution,
but if the investment community decides to spit out the hook or break the
line, you are doomed. The charm of fishing is like the charm of investing;
you are in pursuit of what is elusive but attainable, a perpetual series of
occasions for hope.
I post for comparison purposes two charts of gold futures continuous
contract; the first was put up a week ago and the second is as of the close
of business on Monday, July 8. You will note that the RSI (relative strength
index), which traded up to nearly 90 in late June as gold touched $1,442, has
now exited the overbought plus-70 zone from which every tradable correction
since 2016 has occurred ( with the operative adjective being
"tradable").
While it is subject to conflicting interpretations from technicians far
wiser than I, RSI in full retracement mode compels me to the sidelines,
having jettisoned all leveraged ETFs and call options and 50% of the formerly
untouchable GDX and GDXJ holdings. I was painfully early in the exit of the
leveraged ETFs and call options, but near perfect in the sale of GDX and GDXJ
and now enjoy the enviable task of buying them all back at lower levels.
It is only a week between the two charts but also notice that in addition
to the continued drop in RSI from 68.48 to 61.27, the negative (bearish) MACD
(moving average convergence-divergence) crossover is now complete, while
volumes have become less robust than in the period immediately following the
"breakout."
Also, notice the red band at $1,350-1,375, which was three-year resistance
and which is now the "absolutely critical band of support," a close
below which lies the dreaded "failed breakout." These events,
mastered beautifully in both planning and execution, are exceeded only by the
illegality of their implementation. For years upon years, I have whined,
screamed, pleaded and beseeched readers to avoid drinking the Kool-Aid of
gold and silver market technical "breakouts,"and that only in the
precious metals (PMs) do you sell breakouts and buy breakdowns.
. .all for one simple reason: Both markets are rigged.
Further adding to the parade of red flags is, of course, the COT
structure, where Commercials added yet another 26,616 net shorts,
representing 2,616,000 ounces of undeliverable, phony, paper gold. This
results in an aggregate short position of 286,822 contracts representing
28,682,200 ounces of that same fictitious metal, never the focus of a margin
call and never, ever to be found in any vault or warehouse anywhere.
Now, the COT has rarely, if ever, been a useful timing tool but it has
been an important barometer of trend changes looming on the horizon. The
record net short was around 322,000 contracts, so that we are heading in that
direction is concerning. Without the worry of capital constraints, the
bullion banks are free to continue to pile on their aggregate short pile
until demand by Large and Small Speculators (also referred to as
"prey" by the Commercial trading desks) is exhausted. This creates
a bid-stack vacuum into which the cretins simply nudge price for the express
purpose of sending prices lower, which they cover and then make obscene
profits with nary the report of as much as one trading day of losses in the
past ten years.
The next chart carries the graphic images of how bottoms occur when the
Large Spec positions converge with those of the Commercials, and vice-versa
at tops. Those alligator jaws, so wide open as of Monday's COT report, are
destined to snap shut, but only after serious price declines. Now, there is the
possibility of the signal failure in which the Commercials are forced to
cover into rising prices, but my interpretation is that since we saw
little if any capitulation from the shorts into the gap to $1,442, I see
little evidence of a squeeze near term with prices now back below $1,400.
I would urge you all to view these charts and graphs in the context of
assessing not just direction but, more importantly, probability of
same. This is all in the interest of avoiding those $50-100/ounce drawdowns,
the recovery of which are nigh on impossible in the course of a trading year.
The data that currently presents itself demands caution—not panic nor
abandonment nor mass liquidation, but simple prudence in terms of position
sizes and risk.
Just as in the world of successful investing, it is the charm of
successful fishing that has kept me in the hunt for a return to free markets
and fiscal sanity, both of which are absent from the 2019 landscape. Not that
every time one has a fish on the line it should automatically result in a
family of four being fed, but the fight should be a fair one. It is difficult
enough to navigate free markets, but it is virtually impossible to
survive the interference and interventions of, shall we say,
"managed" markets, where all departments of government are openly
hostile to gold and silver ownership and sponsorship.
Imagine battling an especially large fish in an epic angling affair lasting
forty-five minutes, wherein the beast is inches from the net only to have an
unknown entity suddenly emerge from the depths, severing your line. This is
exactly what happens when the Commercials fill Large Spec demand with those
phony, "paper" contracts, created magically out of thin air for the
sole purpose of managing price. Buyers of the "paper" contracts
have intent to acquire the physical by taking delivery which is a far cry
apart from the intent of the bullion banks. They never deliver any physical
metal and they almost always cover. They leap up and cut the lines of the
Large and Small Specs with nary a tear being shed.
In the end, the rules of engagement in trading all markets should be the
same irrespective of asset class; favoritism across asset classes destroys
markets and creates unimaginable moral hazard. The last point of correlation
I make is this: The singular most important attribute carried by the
successful angler is patience. The ability to believe in your
preparation and execution in both fishing and investing is matched only by
your ability to wait diligently for the moment of opportunity. That requires
patience, sometimes little, often much more, but never, ever without.
It is also a virtue the likes of which may be particularly valuable in the
coming weeks and months; I pray it is not needed but fear that it may.
[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.
