"Every stock market bull out there whether in New York or London or Mumbai or Beijing is in a drunken myopia of elevated expectations and deviated denial scrambling and scratching and pleading for assurances that 'it is truly different this time.'"
Writing a missive such as this one has been a labor of love for me since the mid-1980s when I began to observe how stock market investors behaved at or near major inflection points—meaning "tops" and "bottoms." It all began in London, Ontario, in the summer of 1982 when I was in attendance at the annual London Chamber of Commerce Annual Canada Day barbecue where business types of all persuasions came together to "try to hustle up some new business," a 1980's version of the 2017 term "networking." Situated near to the bar was a bank of phone booths with the name "BELL" emblazoned on their roofs, which were the only forms of communication back then (or as my kids say "WAY back when") while the men in their penny loafers and corduroy jackets with patched elbows sipped rye whisky and/or beer (the heavier the better), swapping stories about the state of the markets, stock and real estate.
In the summer of 1982, interest rates were perched atop the mountainous aerie of 19% in Canada and I recall how as a young financial advisor I was chastised by my peers for taking $50,000 of a customer's trading capital and investing it in Government of Canada bonds maturing in 2001 and paying 16.75% semi-annually. "Kiss that money goodbye!" was the response I got for sacrificing a predictable return for the client versus "trading" where the turnover would generate infinitely more commissions than those "boring" bonds. At the same time, I was standing by the cocktail bar at this summer barbecue listening to a real estate agent lampooning the stock market with remarks like "Nineteenth month of the downturn for stocks and real estate just keeps chugging along," as literally a dozen people listened intently. Not to be outdone, I tried in vain to add my input to the discussion but the moment the audience discovered my profession, they backed away as if I were carrying some tropical disease and gravitated to the realtor.
Two months later, in August of 1982, stocks exploded on an 18-year run that dwarfed any returns seen in the real estate markets in an ascent that lasted until the summer of 1987, when the scenario seen in 1982 had completely reversed. I was again standing at the bar (no surprise there) holding court and describing why stocks were at a "permanently high plateau" (Irwin Fisher 1929) and why they were still "undervalued" based upon "price-to-book" or "price-to-cash-flow" or "price-to-bond-yields" but as I was droning on and on and on, I chanced upon the smiling face of an elderly gentleman, smiling up at me adoringly, notebook in hand, while nodding at everything I was saying. After I had concluded my diatribe, I approached this nice old chap and asked him his name to which he replied that he "could not remember" nor could he recall where he lived or why he was there. When I asked him what he had been writing down during my speech, he said that every company I had mentioned was going into his portfolio, especially the one that guaranteed the 19.75% return and could I give him the symbol?
It was that elderly gentleman that prompted me to come up with my proprietary stock market timing model "The Summer Barbecue Indicator" where the degree of stock market risk was directly proportionate to the number of people listening to me at the bar. For the next nearly 22 years, this indicator has been the most accurate of them all, not once failing to predict a market top and/or bottom until the summer of 2009 immediately after the sub-prime meltdown when the Western governments prompted their central banks to support stocks with TARP, FARP, BARK and Cue-E. Since then, the E-Trade millennials just stare into their iPhones for the instantaneous "Robo-Advisor" guidance and look at me disdainfully as they roll their eyes and mutter something about "buying the effing dip."
Observing stock market participants today in 2017 is reminiscent of that elderly gentleman back in 1987 complete with convenient memory loss and rapidly approaching dementia. Because of the shameless creation of massive quantities of debt around the globe, the dynamic duo of stock and real estate speculation has become the unintended consequence of unprecedented monetary inflation where central banks have shorn the last vestiges of respect for the sanctity of currencies and the nurturing of their respective purchasing powers. Be it the U.S. or Canada or the European or Asian theatres, politicians and their deep-rooted awe of the global banking oligarchs have sacrificed the welfare of the middle classes for the favors and blessing of the elite banker classes.
The continued survival of these financial behemoths was clearly prioritized during the 2008 crisis and continues to this day with monetary inflation doing all in its power to increase the marked-to-market valuations for all of the collateral which underpins the balance sheets of the banks in the form of mortgages on property, plant and equipment. Sadly but most critically, this relentless policy of currency debasement is designed to underpin the collateral of the global central banks, upon whose balance sheets rests the future of capitalism and democracy. Karl Marx saw capitalism as a progressive historical stage that would eventually self-destruct due to its boom/bust tendencies and disregard for the working classes and be replaced with socialism, where a more equal distribution of society's wealth is achieved.
That the global interest rate structure has been suppressed to the detriment of savers the world over is a clear case of policy being implemented for the benefit of the elite classes that own the vast majority of the assets (and all of its attendant debt) at the expense of those that save, the vast majority of whom constitute the middle classes around the globe and whose protesting presence in the streets of Paris and London and Tokyo and Buenos Aires is becoming increasingly common.
With the S&P 500 now in a modest retreat, the financial media is up in arms over what is rapidly becoming a "global sell-off" but in reality, the S&P is off a mere 3% from its all-time, Trumpladyte-driven highs. As the Jim Cramers and Larry Kudlows of the world quietly lament the demise of the failed Trump healthcare bill, they secretly celebrate the burgeoning cash position they are now in having dumped a pile of stock into the Trump rally, the bulk of which was driven by retail investors, which rhymed perfectly with the acceleration in insider selling. While it is a tad too early to reflect upon the results of the Summer Barbecue Indicator, thanks to the wonderment of email and Twitter and Facebook, to call this latest post-election ramp job anything other than a drunken myopia would be folly. Stocks are expensive and due for a cattle prod of reality immersion.
On a less aggravating and more optimistic note, silver prices have begun to perform in line with my expectations from late-2015 when I went "ALL-IN" on the GDXJ (VanEck Vectors Junior Gold Miners ETF) under $17 with silver trading under $14. (See chart at top.) I use the Gold-to-Silver Ratio (GTSR) as my barometer for the precious metals and that along with the Gold-to-Gold-Miners Ratio provides an extremely clear snapshot of whether or not gold is being helped along by its baby brother silver and its cousins, the gold and silver stocks.
As I have written about for more than a few years, when silver outperforms gold and gold and silver shares outperform both gold and silver, all of the precious metals planets are in alignment for a major ascent. As this is being written, silver is advancing 1.81% versus gold's 0.54% and the miners are up sharply with the HUI (NYSE Arca Gold BUGS Index) ahead 2.7%. These confirmations are significant in that I am able to get somewhat more aggressive in my approach to the mid-April seasonality low that I expect to arrive here shortly. Mind you, I have yet to replace my cherished GDXJ position that I vacated a few weeks back over $37 so at the current price of $36.50, I am simply treading water in search of a break in the market. I am not so sure that I will get that break exactly as I am expecting but I do believe that the odds favor a late-spring/summer rally in the precious metals and particularly the miners.
I further hold to the proposition that the junior explorco's, the bulk of which are found on the TSX Venture Exchange, are going to more-than-surprise a few folks with the major beneficiaries being the silver names. Silver remains my number one metal-of-choice for the next six months and with that as a proviso, I am adding the Global X Silver Miners (Symbol: SIL:US) to the trading portfolio to the order of a 25% position AND by way of the October $40 calls. Since the bid-offer spreads are ridiculously wide ("You can drive a Mack truck between 'em!"), I am going to use the last trade at $2.74 and will try to bid there on Tuesday morning. Around mid-April, I shall attempt to add to the position and will also attempt to re-establish the GDXJ long position of which I am ignominiously absent despite its residence solidly in the "neutral" position from both an RSI (relative strength index) and MACD/Histogram perspective.
When I am sitting down late at night with an ice-cold Sarsaparilla (such having replaced 400-proof Montezuma's Pride since December 31), the most effective indicator of an impending change in trend is my trusty Rottweiler Fido. We have all known pets that have been able to forecast weather changes be it the goldfish that would congregate in one corner of the aquarium or the cat that would perch on the window sill with an ungodly throat-clearing sound emanating from the beast as it stared out at the horizon or the parakeet that would shriek "AWK! Storm coming! AWK!" Well, my wonderful dog has an uncanny ability to forecast changes not in the weather but in the outlook for gold and silver prices because every time the two metals begin to sell off, he hightails it out of my office, down the hallway, out the front door and under the tool shed where he stays whimpering and shivering for days on end. Now, the fact that a seven iron is protruding from my office wall and that my trading monitor is outside the office window smoking and in pieces on the lawn has absolutely NOTHING to do with canine extrasensory perception or the like.
Honest. . .
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
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All charts courtesy of Michael Ballanger.