As a Georgian Bay boater, I have grown to respect one aspect of boating above all else and that is the arrival of inclement weather. As an investor and market prognosticator, I have also grown to be on the lookout for technical events that might represent either a plunging barometer or storm clouds on the horizon. At the close of trading on Friday, Sept. 10, the S&P 500 had its second multiday decline since the five trading days of July, which marked the first staccato-like selloff of 2021.
"I am adhering to my strategy of staying 100% long the GGMA 2021 Portfolio of junior developers and explorers."
However, as has been the norm for most of the past twelve years (since the Fed rescued the global stock markets in March 2009), the July weakness reversed upward, and while there were multiple divergences during the ensuing move to the highs, the trendline established from March 2021 until now is still holding.
That said, the question remains: How much longer?
The sidebar to this story is the revelation that a number of voting members of the Federal Reserve, including ex-Goldman Sachs director Robert Kaplan, have been trading this market during a period in which the singular most impactful entity on the planet controlling stock prices is the very institution for whom these highly conflicted rascals toil (the U.S. central bank).
The best way to defuse what is most certainly going to devolve into an elitist's nightmare is to take the S&P down 20% or 30%, and then blame the media for sensationalizing a few "insignificant" trades by the Dallas Fed governor, and paint that "unfair media attack" (on the Fed) as the reason the market rolled over and destroyed all those millennials' and GenXers' fun.
Now, I am not to go "all moral on y'all" and start sermonizing about the absence of ethics involved in this unconscionable breach of public trust and duty, but rather highlight the fact that this revelation just put the entire Federal Reserve system, which incidentally involves the most hedonistic "Old Boys club" of self-dealing narcissists in history, directly into the crosshairs of the populist left. The media are too engrossed in the vax/antivax debate right now to have homed in on it, but make no mistake, they will—and when they do, it will a fecal tempest of the highest order.
Just as Hank Paulson knelt in front of Congress back in 2009 and literally begged for a government bailout in order to "save the financial system," I see a similar ploy looming on the horizon (right up there beside those ugly, billowing, nimbus clouds) where CNBC is begging the Bob Kaplans of the world to "get back in there and buy, buy, buy," but only after a huge downdraft has gutted all extraneous net worth (and hubris) from the masses.
Forgive my cynicism, but I have seen this movie all-too-many times to simply sluff it off as "fantasy" or "conspiracy-theory rhetoric."
From my perch on the Limb of Damocles, I see a trendline (shown above) that has been about as powerfully defended as any I have ever encountered, including the "transitory inflation" narrative proffered by another Fed luminary, Jerome Powell.
"The trendline shown above is very important."
However, just as the word "transitory" has now been redefined thirty-seven times by the "financial Funk & Wagnalls" on Wall Street, that trendline is now being assaulted with a particular vengeance, in a manner not unlike the selective outrage of some very important personalities at the very existence of Fed Reserve employees flipping stocks. After all, my dear readers, all of the improprieties of the dot.com period invoked a wrath that made it a felony for employees to trade on proprietary information secured by the underwriting department. They created the term "Chinese Wall" not to describe a place where dissidents are lined up but rather as a divider that kept highly sensitive information private. Accordingly, those safeguarding that information were prohibited from trading—period.
So, I ask the question: If a voting member of the U.S. Federal Board has a working knowledge of policy intentions, knowing full well their absolute impact on the direction of stock prices, is it a conflict of interest for that official to prosper by way of trading?
Well, you all know the answer to the question.
Overstatement has always been a feature of the financial media and as proof, does anybody recall CNBC's Scott Wapner nearly crying at the lows of the March 2020 COVID crash, where he was begging the regulators to "suspend all trading!" It was pitiful.
The trendline shown above is very important; it is symbolic of a) stock price resiliency, b) investor confidence, and c) Wall Street control. The latter is by far the more important because if the trendline gets violated by volume and velocity, my case for carrying a large cash position will be totally vindicated. The elitist generals of the War on Disparity (like Robert Kaplan) had better step up and throw a bid into the S&P futures or I fear things could get really ugly.
As that trendline clearly demonstrates, we are at the point where, as captain, I either head for the "hurricane hole" or I "sprint for the wind." The week of Sept. 13 is really important, and rather than doing a 30-minute podcast during which I try to hedge virtually everything I might say, what my subscribers know is that I am an ego-less "Creature of the Financial Black Lagoon" – I do not know the outcome and happy to make that admonition.
This was essentially a "nothing" week for the precious metals, as the strength of the U.S. dollar (USD) faded into weakness. Somewhat alarming was gold's inability to hold $1,800/ounce, despite the weak USD, but it was undoubtedly liquidity concerns that weighed on the precious metals, not unlike the brief but sharp downturn during the March 2020 COVID crash.
I am adhering to my strategy of staying 100% long the GGMA 2021 Portfolio of junior developers and explorers, comprised of gold, silver, copper and uranium names, as we move rapidly toward Q4/2021. Stock selection has been of paramount importance and no better demonstrated than by the performance of the GGMA portfolio, which is ahead over 140% versus the Junior Gold Miner ETF (GDXJ:US), which is down 23.30% year-to-date.
It should be cautioned that despite the performance, not even the stocks I own can withstand a major correction in the S&P 500, because everything is correlated to the U.S. markets and the reason is leverage. The investment world is operating on the razor's edge of leverage, so when there is a rush for liquidity, everything goes, exactly as we saw in March 2020.
One of the highlights of 2021 has been the explosive performance of the uranium space, and owners of uranium stocks need look no further than Sprott Inc., which launched the Sprott Physical Uranium Trust on July 19, 2021, and then proceeded to raise a pile of money, after which it inhaled every pound of available U3O8 in the spot market.
In doing so, Sprott has directly or indirectly moved prices from under US$30/lb. to the current US$42.40/lb. level, and with that, it has triggered manic buying in many of the uranium names including GGMA selection Western Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX), which is ahead 209% year-to-date.
As a developer of the Colorado-based Sunday Mine Complex, WUC represents precisely the kind of pre-production, resource-rich company that has dominated the GGMA portfolio since last summer. As this is being written, I am doing the necessary due diligence on a couple other names that are still capped under $100 million, because if the pundits are correct about the demand-supply anomaly affecting the spot price, we could see 2008 prices again quickly, where U3O8 traded at almost US$140/lb.
In fact, for those out there that are fearful of paying these exaggerated prices, look at the Global X Uranium ETF price relative to 2011. The uranium bull is in the very early stages, and what I find really attractive is that it is totally uncorrelated to central bank policies and more importantly, immune to changes that could roil the markets.
I remain optimistic on the outlook for silver looking out to year-end, but acknowledge that both it and the miners absolutely must kick into gear here quickly or it is going to jeopardize gold's chances of breaking through that $1,835-40 wall that has been capping all possibilities for new highs by year-end. I would like to see energy prices back off from here, coupled with a pop in gold, which would enhance the operating forward guidance for the big miners.
However, oil has been a straight line northward since I issued the "Generational Buying Opportunity" in April 2020, when the Crimex near-month contract traded at negative numbers upon settlement, and there are those out there calling for oil at $125-150/barrel due to underinvestment and pent-up demand once the global economies truly reopen.
The storm clouds that I see creeping into view should prompt investors to keep some cash reserves ready for possible mid-October opportunities, because one the one asset class that has saved thousands of inhabitants of places like Weimar Germany, Zimbabwe, Argentina and, more recently, Venezuela, has been hard assets denominated in non-local currencies. In the current era of unbridled monetary inflation, downside for equities is nothing compared to bonds, and with junk yielding a paltry 2% these days, the risk of financial accidents has never been greater.
Act (and invest) accordingly.
Originally published Sept. 11, 2021
Follow Michael Ballanger on Twitter @MiningJunkie. He is the Editor and Publisher of The GGM Advisory Service and can be contacted at [email protected] for subscription information.
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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Disclosures:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Western Uranium & Vanadium Corp. My company has a financial relationship with the following companies referred to in this article: Western Uranium & Vanadium Corp. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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Michael Ballanger Disclaimer
This article 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.
