Unarguably, the finest piece of work that I have ever seen on the state of
the global financial world—ever—is the one recently created and presented by
Grant Williams of RealVisionTV
entitled "Cry Wolf." I was watching it last evening for the
fifth time with my better half (who was watching it for the first time) and
despite the fact that as bright and insightful as she is, I could and would
not expect her to grasp concepts such as "Exter's Inverse Pyramid"
or the definition of a "trophic cascade" but when I glanced over to
gauge her reaction to what might have been fairly glutinous material, to my
delight she was glued to the screen as the history of her favorite form of
metal unfolded in Grant's purely brilliant display of 5,000 years of human
folly, greed, and insanity.
The coup de grâce was the ending of the piece where Grant draws a
phenomenal analogy between the role of the Grey Wolf in controlling the uncontested
overpopulation by the deer and elk of Yellowstone National Park and the role
of gold in controlling the uncontested overpopulation by the
"money-changers" in global economics. The term "apex
predator" is wonderfully applied to gold and the Grey Wolf in that there
is no natural predator to keep wolves in check just there are no
counterparties to the role and control of gold.
When you look at Exter's Inverse Pyramid, you are looking at a ranking of
all assets from the top to the bottom of the risk slope so it is of interest
that in the upper half of risk we find none other than real estate, where the
city of Vancouver recently reported a 40% drop in residential home sales for
December on the heels of a 42.5% drop in November. Prices are down 8–10% in
Vancouver and Toronto as the marginal (foreign) has finally been legislated
away as depositories for expatriated Chinese capital. Even New York City has
seen a 14% decline in sales with an accompanying 4% drop in prices so the
world of asset inflation in the saddle of unbridled money-printing and credit
creation has come to a resounding and screeching halt—or has it? After
Friday's Federal Reserve Lovefest with Janet Yellen and Jerome Powell all
sending out dovish signals, perhaps the December rout has altered policy.
Back to the title of this missive, "Cry Wolf" offers the
proposition that a return to the gold standard would create a "trophic
cascade" of sorts in the financial world. That is to say, an ecological
event in which there exists an "apex predator" at the top of the
food chain whose re-introduction (as in the case of the Grey Wolf to
Yellowstone) to an ecological system triggers a massive metamorphosis of that
system. Just as Grant's video depicts changes occurring after the return of
the wolves, which include even the rivers, the re-introduction of the gold
standard would initiate a change in the financial system whereby purveyors of
credit and paper promises would be penalized, and savers and disciples of
sound money and fiscal sanity rewarded.
As a true adherent to the rights of all citizens to have their hard-earned
savings protected from the ravages of currency debasement, I would welcome
any initiative that would wrest the printing presses away from the bankers
and the politicians. To wit, this is exactly the message in Grant William's
brilliant presentation and it behooves us all to watch over and over and over
again until it sinks deep within our cranial vaults and forever alters our
ingrained and flawed attitudes about investing, labor and money.
Stock prices closed out the week with a solid gain, which come as no
surprise to those who are privy to my Twitter feeds. The time to be short
expired once the RSI for the S&P dipped under 25 and the time to go long
(for a "trade") was on Christmas Eve when it plunged in a panic
liquidation under 20. Notwithstanding that I elected to pass on the long side
despite the obvious massive oversold condition that arrived late during the
worst December in a decade (at one point the worst December since 1931), I
went into Christmas with all (non-precious metals) shorts covered and all
puts sold. Only the Santa Claus rally period, defined as the last five days
of December and the first two of January, was able to save the month quarter
and year for many stock bulls as it eked out a 1.3% gain for the period.
Statistically, it infers that there is a distinct possibility that the
Christmas Eve lows at 2,351 for the S&P were THE lows but we still need
to see what happens after the Monday/Tuesday closes which, if positive, would
further enhance the likelihood of a prolonged recovery rally. Without the
benefit of a crystal ball, my gut tells me that we are going into a
sideways-trending period for stocks as opposed to the "New Highs"
halcyon of the past ten years or "New Lows" below the December 24
nadir.
From the trader's perspective, if the Q4/2018 bloodbath did just one thing
of importance and one thing alone, it was to alleviate the terror one has
been experiencing when even contemplating short selling since the
face-ripping fandango of the past few years. "Don't fight the tape and
don't fight the Fed!" screamed the late legendary market maven Marty
Zweig and no truer words were ever spoken when you look back to 2009 and
especially 2018. The last year was a year in which the Fed was openly hostile
to stocks by way of quantitative tightening leading to balance sheet
reduction and high short-term lending rates, and it finally registered in
early October with the rest being history. In retrospect, it is hilarious how
the CNBC cheerleaders totally ignored the words of Master Zweig and instead used
the phrase "strong economy" no fewer than 652,947 times in the
final quarter of the year as a rationale for buying stocks. Forgotten totally
was "the horrid economy" of March 2009 when the Fed embarked on its
credit-fueled bailout and intervention campaign when that too was an excuse
for "buying the dips," proving once again that CNBC is best watched
with the "MUTE" button on and only for live data feeds while away
from one's workspace. (I overlay a transparent dart board on my TV for
maximum adolescent amusement.)
As a trader, I was terrified in early November when I looked at the
Goldman Sachs (GS:US) chart in the days after the Indonesian scandal broke
because I did NOT see opportunity; I only saw another potential loss from
trying to short a big name U.S. bank. What gave me courage was the knowledge
that since the Fed was no longer in "protector mode" and social
media starting to viralize the GS story, it appeared as though
"conditions" had changed, and when conditions change, I change. I
bought the GS December $200 put at $3.40 and sold them at $25, which was
actually about $15 too early as GS hit $160 by expiry. Nonetheless, I was a
nervous wreck throughout.
The point is that with the severe Q4/2018 breakdown in the long-term
charts of the global stock markets including the S&P 500, I am no longer
engulfed in abject terror at the thought of shorting one of the FANGS or the
index ETFs because despite a blow-out unemployment number last Friday and
stock-soothing words from Mr. Powell, this current rally is simply a bear
market rally and again as stated last week, this Papa bear is simply sleeping
off the engorgement binge upon which he embarked last October resulting in
him passing out from excessive gluttony on the Eve of the Noel at S&P
2,351. This bear is simply "napping"; he is NOT back into
"hibernation."
That said, I am now of the opinion that the elitists are going to attempt
to restore market confidence due to their (rightly founded) fear that recent
global market turmoil will see the embodiment of the negative asymmetrical
wealth effect of declining assets prices. Stocks, housing and commodities are
now trending downward and while stocks alone are enough to sour consumer
spending patterns, housing has an infinitely greater impact, as we saw in
2006 when the sub-prime bubble triggered the beginning of that catastrophic
foreclosure/liquidation cycle. As the Q4 earnings reports start to arrive, we
may see accelerated interventions and abbreviated declines as they try to
"soft-land" the stock markets. The first five days of January can
give you an inkling as to the month of January just as the Santa Claus rally
might be giving us a similar bullish hint.
The time to be short has passed us by and while it might be too early to
go long the S&P, I await an RSI north of 70 (currently 46.77) for the
S&P 500 before I look to establish any shorts and I would avoid any new
longs until I see a successful retest of the December lows OR an RSI back
under 25. As for the VIX, it has already crashed from 36 to 21 and if there
is ANY ONE indicator that smells of intervention, it is the VIX.
Last point on stocks, what spooked me out of all shorts in the days before
Christmas was none other than Stevie Mnuchin (U.S. Treasury Secretary) who
came out and actually ANNOUNCED that he had called a meeting of the Working
Group on Capital Markets and while it "appeared" to have blown up
on Christmas Eve, I have ZERO doubt that the Plunge Protection Team were
mobilized in force from Boxing Day onward. The action in the gold and silver
markets and the massive move in S&P futures immediately following
Friday's NFP report were the "tell" along with my curiosity as to
why there is no government-generated COT report while the U.S. government is
"closed," but there was a magical arrival of the NFP report from
yet another government agency that was somehow supposed to be
"closed." I do NOT want to be short with shenanigans like this
showing up on our doorstep once again. Ergo, I am not.
As to the precious metals and in keeping with my current mistrust of the
set-ups from last week, I looked to the RSI on silver as a signal to exit my
call option positions, which treated me nicely over the time frame. I did not
sell any physical silver nor did I cash the ticket on CDE; all I did was take
a little risk off the table last Thursday prior to the NFP Report. While we
got a downtick in gold and silver immediately thereafter, they recovered
quickly telling me that there is a pretty strong undercurrent of demand for
gold and silver here and that pullbacks may be short-lived. I called for a
strong Q4 back in August when I wrote "Back up the Truck" and while
past luck is no guarantee of future bragging rights, I nevertheless am proud
to take the bow just as I did in late 2015 when I called the end of the
precious metals bear markets at gold $1,045.
We are undoubtedly entering a period in our lives when "preservation
of capital" (AND PROPERTY) is going to replace "return on
investment" as the primary objective for a new generation of investors
too young to recall a bear market that was ever allowed to go to full
maturity without a Fed bailout. Only after they come to the sudden
realization that crying into their social media camera phone will not turn
back the clock on a margin call will they accept the fact that stocks can and
do indeed go down over long periods of time and historically never, EVER get
rescued by anyone other than the free market capitalist buying at the lows at
the end of the bear market.
Of course, this is where the new generation will flock into the metals
because they now recognize that the digital safe haven that they THOUGHT
would replace gold and silver as their private, innovative, untouchable store
of value—cryptocurrencies—got absolutely annihilated in 2018. They are slowly
realizing that as possession is nine-tenths of the law, allowing a massive
supercomputer to control your net worth and savings is nothing short of
madness. Yet, despite all of this, social media is still rife with all manner
of crypto promotions with bagholding converts all citing various
"support levels" from which the next big move to Bitcoin $100,000
will occur. Just as latecomers to the massive 2001–2011 precious metals
moonrocket were mimicking "$5,000 gold!" for months and months and
months after they paid $1,800 then $1,700 then $1,500 after the 2011 peak and
were soundly thrashed, so, too, will the crypto-junkies be thrashed and
forced kicking and screaming into precious metals ownership. Right behind
them will be the weed-o-philes and behind them the FANG-buying stockroaches
complete with their "DOW 30,000!" baseball caps and CNBC tee-shirts.
Gold prices have had a blistering move since my entry point in late
August, albeit we had a few scares along the way before lift-off finally came
through. Nevertheless, a $110 move in gold is not to be sneezed at with the
GLD April $13 calls recommended in November at $1.00 and then followed up a
week later with a strong, table-pounding, screaming "BUY MORE!"
when GLD briefly sank back under $114.00. The April calls closed out the week
at $1.90 and I have not, as yet, sold them but will be watching eagerly
Sunday evening as the Globex opens at 6:00 p.m. EST to see if the PPT
shenanigans from Friday carry over into the new week.
To be honest, both my partner and my loyal dog, Fido, both bolted on
Friday, off to destinations unknown either the wife to the sister's house and
Fido to the cavern below the tool shed (or was it the dog to the sister's and
the better half to the…oh never mind) but the karma in my den which has been
in total harmonious Nirvana for the month of December has been shattered like
an icicle falling from the eaves. I might be a tad paranoid but I am of the
belief that the same forces that conspired to screw us in 2013 and which
stepped up every time the S&P had more than a 5% dip since 2009 are back
"in the room" and whether or not that is why I find myself alone is
not important. What IS important is that we hang onto the greater portion of
gains in gold, silver and our beloved miners bestowed upon us in Q4/2018.
Gold gained 7.53%, silver has gained 15.54%, and the HUI (gold miners) has
gained 13.83% in Q4, so I'll be damned if I am going to give back any of
those gains. I will know early in the week and if I see something between now
and the opening, I will send out an email flash or a tweet.
Dr. Copper: Is the good doctor telling us to head for the exits?
As we head into the first real trading week after the low-volume holidays,
it will be critical to observe the behaviors of all of the metals, including
Dr. Copper, to try to discern the direction of the portfolio. Copper and
silver once were strongly correlated and now have diverged, freeing the
algobots from pounding silver every time the base metals have a hiccup. The
chart shown here is a strongly bearish one, albeit somewhat oversold based
upon the MACD/Histograms yet not so for the RSI. The trend is definitely down
and until proven otherwise, copper's performance appears to be confirming
that which we all suspect to be true—that before too long, the Fed, the PBOC,
the ECB and the BOJ will all be in simultaneous and cleverly coordinated
EASING and when that happens, the USD is going to get smoked.
The 10-year U.S. Treasury yield has crashed from just under 3.25% in
October to 2.67% today which, in the bond world, is a cataclysmic,
several-sigma event. As I have written of before, the bond market is
infinitely wiser than the stock market in forecasting events and while the
Fed can intervene in gold pricing and at the short end of the curve, it has a
very tough time with the 10-year. Ergo, my portfolio will be tilted in favor
of a watershed-type of event that sees a cessation in rate hikes and a stay
in central bank balance sheet reductions. The eardrum-splitting sirens you
will then hear are the emergency alert warnings from all FOREX desks across
the globe calling all to EXIT the U.S. dollar for the final time, as its
reign as the globe's reserve currency comes to a resounding end. With that,
gold and silver prices will soar and our gold miners and explorers will
flourish.
However, before that happens, remember this: in the animal kingdom, there
is nothing more dangerous than a wounded beast. Just as the vast majority of
the ecosystem fears man above all as the planet's premier "apex
predator" (no natural enemies left), the only creatures that do NOT fear
man are insects, sharks, wolves, Komodo dragons and one other—the
"wounded" creature of all shapes and sizes. Even a cornered,
injured raccoon can be a fearsome and lethal threat if trapped and desperate.
In this manner, I see the world's central bankers in exactly the same
venue—trapped and wounded and in desperate need of a solution to a
"problem," which they themselves along with their politician
cooperatives actually created. That is why I am going to hold on to my physical
precious metals as core positions and not available for trading but as call
options; they will be the first to go with the miners a close second in the
event that we get a gold/silver-hostile series of events next week. If we do,
it means that the "invisible hand" has not stopped with the Friday
intervention and that they will continue just as they did in 2013 and crush
bearish sentiment for stocks and bullish sentiment for gold and in any way
they choose.
I close it off with a chart of how throughout history stocks responded to
drops of at least 20% in the period immediately thereafter. The one
difference is that until 2009, there was no such thing as central bank or
government intervention in markets while here in 2019, it is rampant. Keep
that in the forefront of your trading and investing psyches and be very, very
careful as you do. More to come later in the week. (@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.
