After over 40 years in the world of money and markets, I have arrived at the conclusion that aging can be a double-edged sword where the advantages created by many years of experience are many times odiously offset by innate biases that become ingrained over time. It came to me while listening to a fascinating interview with Felix Zulauf, a former money manager and member of the legendary Barron's Roundtable. During the session, brilliantly hosted by Realvision TV's Grant Williams, Felix made reference to a real and present danger looming on the horizons for global financial markets, which is the growing influence of government in the future direction of markets—ALL markets.
Sexagenarians such as I were weaned in the very early years of free markets long before central banks took control of everything from foreign exchange to soybean prices. We were educated to believe that the really BIG wins always occur when you feel like the loneliest person on the planet when taking on a new position. If you recall the book (and movie) "The Big Short," you felt the pain of people like Michael Burry whose clients were ready to lynch him in the early days when Goldman Sachs refused to properly mark his month-end (bearish) positions. You were also cheering from the end blues when subprime imploded and Burry has the last laugh (and payday). To deem it "magical" would be understatement.
I recall as if it were yesterday the year 2001, sitting in a kitchen with a group of young working mothers who had just found out that I was in the investment business and proceeded to pepper me with questions. These were people I had never met before and after a few moments, two of them asked me what I thought of Nortel Networks, one of the last companies standing in the latter stages of the tech bubble of 1990–2001. I proceeded to tell them that "if I owned it, I would sell it before you have your morning coffee because it is going to zero." Not noticing that the cheers had turned to jeers and the smiles on those hopeful faces had been replaced with scowls of contempt, I further added, "…and if you DON'T own them, I would find someone who does, borrow them; promise to give them back the shares in twelve months; and then sell them before you have your morning coffee."
Now, most of these nice ladies had grown openly hostile so after a few derogatory remarks, the room cleared out except for one bespectacled young mother who asked why, so I told her my reasons as plainly as possible. After thanking me for the "insights," she then proceeded to tell me that everyone at the party (herself included) worked for Nortel and had their life savings and 100% of their retirement funds in Nortel stock. Needless to say, I was speechless and after being shunned for the entire room for the next hour, I departed after apologizing to the host for accidentally attempting to earlier swallow both of my feet.
Well, fast forward to a year later and Nortel had dropped from $125 per share to under $1.00 before going to zero and being delisted from the TSX and NYSE exchanges, and as I am walking through the Upper Canada mall, I hear my name being called and lo and behold, it is the bespectacled lady from that "Nortel party." She proceeded to thank me about a dozen times because the first thing she did that following Monday, after our kitchen discussion, was to phone her broker and liquidate every Nortel share she could find in all of her accounts. She even called her mother and father and told them to do the same as well as all of her co-workers. "How did THAT go over?" I asked to which she responded, "Not very well. They unfortunately held on and three of them have not only lost their jobs, but also their homes."
In the days around 2001, companies with negative cash flow eventually got trashed and if the accounting practices were fraudulent (as were Nortel's), the executives usually (not always) went to jail. However, in 2001 with Nortel cruising at $125, literally EVERYONE owned it and even the mailroom clerks could recite five reasons WHY it was going to $500. The moral to the story is this: In the era before social media and germ-colony progressive cheerleading, one could take a contrarian view on a specific company or a specific market and expect to be proven either right or wrong based on veracity of one's investment thesis. There was no such beast as a software-driven "algorithm" juicing a specific stock or market in the face of declining performance or economic conditions. You were rewarded within a reasonable period of time because you were operating in a FREE MARKET environment.
Take the example of Tesla (TSLA:US), a company whose fundamentals, according to most of the analysts I have listened to, are eroding rapidly amidst growing electric-car competition from the big auto makers in both the U.S. and Europe. Despite the overwhelmingly bearish data, I am terrified of shorting TSLA because of one major risk: social media. One tweet from CEO Elon Musk has been known to advance the stock price 20% in a day despite numerous warnings and sanctions from regulators and yet, the poor slob that is short the stock is in need of new knickers and is on specialty blood pressure pills.
Similarly, if you have been a holder of precious metals or the companies that explore for or produce them, you have been watching for the better part of 30 years a system of government and regulatory collusion in suppressing the prices in an ongoing effort to fortify the U.S. currency regime.
One last example of the disappearance of the free market is that very U.S. dollar and its role as the global reserve currency. Total government debt for the U.S. exceeds $22 trillion, which is $13 trillion greater than the second most-indebted country, the U.K., at $8 trillion. In a free market system, investors would question the soundness of any country so heavily in debt and unanimously reject its currency. However, the world appears to be collectively "short" dollars and are scrambling to own more dollars into every dip and for all of the (apparently) wrong reasons. The reason for this lies in one word: DEBT.
At the end of the day, the American spin machine has convinced the world that it will NEVER default on its debts because, after all, America is the heart and soul of free market capitalism and the driver of wealth creation the world over. However, like Nortel 17 years ago and Tesla 17 minutes ago, once you have lifted the hood and start doing compression tests on the cylinders, you rapidly realize that the American engine of growth, the middle class, is in deep trouble and in need of new rings and valves.
Notwithstanding the fact that America is a wonderful country with some of the warmest, nicest people on the planet, its leaders have been forced to maintain and prolong a massive, multi-generational Ponzi scheme designed to finance the NATO war machine, spearheaded by the U.S. military. As I have typed for years upon years, the only way that changes is when the USS Nimitz pulls into Gibraltar for a refitting and they refuse the credit card. In other words, the Achilles Heel of the U.S. is the dollar—the exact weakness being targeted by those that would seek to eliminate the petrodollar and the SWIFT payments systems. Make no mistake, that IS happening as we speak.
The growing number of sexagenarian money managers who have returned money to investors and opened "Family Offices" (meaning they run only their own money) is a testament to the stark disadvantages of having been trained in a free market environment. In today's world of handheld devices and mass communication apps, the Millennial and GenX/GenY investor class pay little heed to anything that vaguely resembles fundamental analysis and prefers instead to run with their social media brethren to gang attack any form of "story stock" in a type of group-infestation where sheer volume of buyers creates the momentum to promulgate the validity of the prevailing investment thesis.
That seems to be the prevailing sentiment these days as we have gone from a "Fed Hostile" environment to a "Fed-Friendly" one inside of 90 days with stock traders totally ignoring the bond market's message. To have 10-year yields collapse from over 3.25% to 2.60% inside of three months is frightening because 20% drops in yields are what usually occur when administered rates like Fed Funds are lowered in response to a financial shock like a market crash. Now the MSM is more focused on the distance to all-time highs than the yield on the 10-year, and there isn't a day that goes by without one of the CNBC commentators mentioning it. It is this "seasoned veteran's" opinion that ignoring sharp changes in bond yields is analogous to ship captains ignoring large, shiny, white objects floating on the horizon when steaming across the North Atlantic. Not very wise.
The last trades I put on were the gold/silver calls plus JNUG/NUGT call option combo on March 6, and last Friday when I decided to be the last standing bear in the world by accumulating calls of the triple-bear SPXS ETF, which peaked on December 24th at over $38 and which Tuesday hit an intraday ALL-TIME low at $20.50 before rebounding to $20.91. I am underwater on the SPXS trade by a few pennies but with RSI for the S&P twice popping (today) above 70 only to close at 66.98, I smell a downside reversal coming and given the extreme levels of the MACD and Histograms, I can envision a short-term pop to $24 into long-overdue profit-taking from a market five days on the upside and ahead over 17% since Christmas Eve. Of course, there is ample opportunity to see a sideways consolidation with little downside volatility while the bull catches its breath and while I am not completely ruling out the Working Group on Capital Markets (who take their orders from the White House) pulling off an "in-your-face" assault on the all-time highs of 2,941, that 2.60% 10-year yield keeps flashing its irritating little red light in my rear-view mirror reminding me that enormous money flows are seeking the safety of U.S. Treasuries over the upside excitement of the stock market. Hence, I am alone in the room, despised by all, and attempting to short the market, right here and right now, and taking a sledgehammer to the locks on the liquor cabinet.
While I am almost embarrassed to discuss the junior miners, be they explorers or developers, I have to mention Getchell Gold Corp. (GTCH:CSE) and the recently announced private placement at $0.15 per unit. I have to take an EFFING framing hammer to my forehead to remind myself that it was only three and a half months ago that I was "working the deal," asking investors to pony up $0.45 per unit to help finance the exploration effort in Nevada. Today, I am again "working the deal," asking investors to pony up more of their hard-earned AFTER-TAX cash to FURTHER invest in GTCH at one-third the price of the November funding at the Honest Ed's pricing level of fifteen cents per share.
To my dear friends that actually enjoy reading my work and to the wonderful people that have followed me into the various deals over the last several years, Getchell Gold and the Hot Springs Peaks project represent, without argument, the BEST prospect with which I have been involved since the early 1990s. The '90s were a period of years during which I made a ton of money and, more importantly, a ton of like-minded friends with whom I still communicate, albeit in a far more muted fashion due partly by age but more so by the abysmal state of the junior mining exploration market. I am getting to know the man in charge of delivering to us a MAJOR GOLD DISCOVERY (please forgive the caps), project geologist and V.P. Exploration Tim Masters. Suffice it to say that Getchell has the right man in the field; I have been reaching out to my geologist friends for assistance in handicapping this drill program and I was doing so for a number of reasons, including my own investible capital which has, like the rest of you, suffered with the mercilessness of this junior mining debacle. The point I make is this: In any speculation where risk is involved, one must always assess the odds and where one can invest $1 with the possibility, however remote, that it could return $10-20 from exploration success, one MUST take that risk and make that investment. The Hot Springs Project is just that type of project and carries just that type of potential return.
Wednesday is the final day of the FOMC meetings with the political class doing its best to maintain the "status quo" with the professional money managers seriously underweight equities going into "end-of-quarter" Judgment Day. If the next few days turn down in a big way, I think those overweight will think about paring back with the other side waiting until April to redeploy capital. As the chart would indicate, it has been a non-stop, V-Bottom ramp job engineered and managed by Stevie Mnuchin's New York Fed soldiers designed to enhance the legacy of the Trump Presidency. They want the 2020 electorate to feel good about the Trump Directives and they will engage any and all tools in an effort to swing sentiment in favor of the current administration. However, there is a voting bloc of seriously large weight and stroke that is in full disagreement with the notion that "all is well" and that bloc is called the FIXED INCOME investor class. Whenever they are moving at large and en masse to safety, common share ownership is at risk. Hence, I am overweight cash, long gold and silver, and moderately short U.S. stocks.
Please deliver the contact info for all reputable psychiatric personnel with whom you have favorably interacted as well as all spare quantities of sedative and stimulative substances with which I may efficiently cope with the New World Order of Managed Markets.
Thank you in advance.
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.
[NLINSERT]Disclosure:
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Charts courtesy of Michael Ballanger.
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.
