Collateral Repricing on the Horizon
Contributed Opinion

Dr. Hunter S. Thompson was at once my favorite reporter and author back in the crazy 1970s when he made his fame reporting on the life that he actually lived in the '60s and '70s, a roving commentator for Rolling Stone magazine covering Hell's Angel's murder trials, the Democratic Presidential campaign of 1972, and a myriad of other topics and news headlines that were totally irrelevant to anything other than the counterculture lifestyle of the younger generation at the time.

Describing 1972 U.S. presidential candidate Edmund Muskie as a "drug-addicted felon," he was seen grasping for Muskie's pantlegs through the bars at the rear platform of the caboose of the campaign train that was to stump all across Florida. Thompson spread a rumor in Miami that Muskie had become addicted to a rare jungle root called "Obogaine" that hunters in the Amazon would use to stay silent and motionless while awaiting prey.

It was said that Muskie's handlers administered the drug to avoid political gaffes being picked up by the media. Hence, Muskie's once animated orations were replaced by monotonous, drone-like speeches read off queue cards with ever-decreasing pep and creativity. Muskie eventually resigned for "personal reasons," but it was said that what he was seeing when the drunken lunatic Thompson lunged clawing for his feet on the caboose that day was a "fire-breathing, yellow-eyed, dragon with razor-sharp fangs and slithery tongue."

So, the quote included with the title of today's missive that would have "luck" as "the very thin wire between survival and disaster" is as true a statement as ever breathed. Only from the mouths of a 60's creation like Hunter S. Thompson could one ever hear truisms quite like those of that seriously-flawed yet brilliant decipherer of life in the counter-culture world of drugs, sex, and rock-and-roll.

Luck, as one would surmise from the Thompson-ian definition, is truly that "very thin wire," and no better way to observe it than being a participant in the financial markets in 2023.

With all of the "scum and villainy" we encounter on a daily basis in the capital markets, risk managers across the globe are certainly relying upon "random fortuity" as a means of improving performance (and remaining employed) because there is zero probability that statistics and the successful interpretation thereof matter.

It has been written countless times that "gambling is a venture without calculation while speculation is a venture with calculation," but in recent years, I have questioned whether anyone really knows the meaning of "calculation."

Calculate what?

"Diffusing bombs and disarming land mines" has evolved into a sidebar profession of today's portfolio managers because they have been trained to rely solely on the promises of the Federal Reserve Chairman along with his merry band of narrative-spewers in order to calculate risk.

I would proffer that one glance at the predictive power of the Fed and its inhabitants would totally scupper any and all confidence in such statistical dependence as their track record has been scurrilously atrocious. From the term "contained" used to describe the sub-prime risks present in 2007 to the word "transitory" to describe the rising inflation rates of 2021, the Fed has been wrong too many times to count, and yet trillion-dollar funds are being managed by Gen-exers that have never seen interest rates north of 5% nor inflation rates above 3% in their lifetimes.

For septuagenarians like me, I learned decades ago that the Fed was incapable of doing anything other than cripple or juice economic growth by way of one tool — the Fed funds rate — and to a lesser degree, the amount of reserves they can allow member banks to access in order spur growth through accelerated lending, a process largely non-existent since the arrival of the pandemic in Feb/2020 despite massive moves by the Fed to liquefy the member banks (with the operative word being "member").

When I first sat down last evening to write the weekly missive, gold was US$28 from an all-time high, and the Twitterverse and Blogosphere were rife with excitement. In fact, I must have counted ten extra Peter Schiff tweets and more than a few from Turd Ferguson — er, Craig Hemke — reminding readers of their forecasting brilliance while I sat back, frustrated that I, too, had refrained from joining in on the gold and silver lovefest. The problem, as always, lies in those large, leather-skinned Carcharocles Megalodon that lurk in the netherworld of the gold and silver markets.

These sharks are commonly known as the commercials or, as they are more affectionately known, the bullion banks, whose traders are amongst the best and most ruthless on the face of the earth. I trained subscribers years ago to never, EVER try to take on the banks (led by JP Morgan Chase) because they are the only adversary to be found across from you in the trading pits that have the U.S. judiciary and regulatory divisions as allies. Everyone else is "fair game" because they are forced to follow the rules, but the bullion banks not only set the rules, but on the occasion where you turn a rule against them, they simply change it with one keystroke.

Gold

Last evening, as I retired, I wondered whether the results of the FOMC meeting would scare off the beasts, but that notion was quickly put to rest when a modest uptick in jobs on Friday morning's NFP report sent the creatures into full "ATTACK!" mode sending gold down US$30 within seconds of the report. SPDR Gold Shares ETF (GLD:NYSE).

Ask yourselves a question: If you were long gold and got that report, would you be happy to pound out every bid to get a fill on your "SELL" order US$30 under where it traded five minutes earlier?

Of course not.

However, if you needed to tap the market down so as to improve the P&L on your prop desk, that is exactly what you would do. So, all of the joie de vivre of the prior 48 hours was shattered in a matter of seconds over an economic number largely believed to be rigged by those with political and/or career agendas.

How does thirty-thousand unexpected new jobs impact the demand/supply equilibrium for a metal being massively hoarded by global central banks?

It does not. So, I took advantage of this morning's dip, and I added to holdings in the physical gold market by way of calls on the SPDR Gold Shares ETF (GLD:NYSE).

VanEck Junior Gold Miner ETF (GDXJ:NYSEArca) VanEck Gold Miners ETF (GDX:NYSEARCA:)

Of course, I know that GLD does not really hold any physical gold, but this portion of my precious metals portfolio is the portion that I trade, so whether it is phony Bitcoin-backed, synthetic gold nano-coins or calls on GLD, I am going to have traded it fifty times before they realize that GLD has no gold.

What is certain is that gold is trading today more like tech stocks in 2015, with every dip being bought despite interventions that in the past would frighten traders away. The tape action is superb, and thus far Friday, the low was US$2,007.10, with the last trade at US$2,023.55 on huge volume.

It is interesting that the last time gold traded at this week's high of US$2,085, was back in August 2020. At that time, VanEck Junior Gold Miner ETF (GDXJ:NYSEArca) was over US$63 versus this week's close at US$41.77.

VanEck Gold Miners ETF (GDX:NYSEARCA:) traded at US$44 in 2020 but closed at US$35.36 for the week.

These mining stocks are so ridiculously undervalued that I question who actually is managing money these days.

How can those with fiduciary responsibilities be buying tech stocks with no earnings claiming they are "cheap" while the gold miners are spewing cash from record gold prices and streamlined production?

I see mean regression driving these miners to record highs by Q3 in what will be the first major thrust of a multi-year bull. You can bank that.

Volt Lithium

I first wrote about Volt Lithium Corp. (VLT:TSV;VLTLF:US) back in October of 2022, shortly after then-named Allied Copper Corp. (one of my more embarrassing losers from 2021) announced a proposed merger with VLT at around CA$0.07 per share and since then, I have watched the Volt team put on a clinic of execution and marketing the likes of which I have not seen in decades.

The stock closed at an all-time weekly high tonight on a paltry 163,163 shares volume as the big money has taken every hostile seller out of the way in military-style implementation. Although I do not profess to be a diffuser of bombs or disarmer of minefields, the move to go "ALL-IN" by way of the January unit financing at CA$0.20 was indeed a stroke of "random fortuity" as even I was unaware of the Operation Desert Storm-style operations honed to perfection by the Volt team led by Alex Wiley and a highly competent team of technicians and scientists, as well as a Board that sure commands the respect of the traders out there.

I understand that a series of major news releases are pending regarding their initial maiden resource estimate of the lithium contained in Alberta brines. Following that will be the operational results of the DLE process currently being carried out in their pilot plant facility.

All in all, VLT is an exciting story as Goldman Sachs recently put out a report rating "Briners over Miners" in reference to avoiding those lithium names deriving their lithium resource from hard rock mining as opposed to brine-hosted lithium.

This narrows the playing field down to a smaller sample size when portfolio managers are seeking out names in the lithium space, but it really favors those advanced developers already at or approaching the pilot plant stage as the last stage before commercial production.

Many of the "briners" will be selling lithium carbonate or lithium hydroxide long before the "miners" get to positive feasibility. Advantage VLT.

I urge subscribers to feel free to email me with queries or questions regarding literally anything I discuss in my weekly missives or email alerts, and while I get more than a few nods of gratitude for clarifying things, it is of huge benefit to me because my subscribers are an enormous barometer of investor sentiment. Also, quite often, I get real jewels of intel, such as the one I got this week from my New York City friend "David" who wrote:

"Brookfield Properties has an US$800 million dollar mortgage on two office towers in Los Angeles which just went into foreclosure. It was a classic squeeze.  The adjustable rate loan originated in 2018 with an office occupancy rate of 80% and US$300,000 in interest payments. Currently, the office occupancy rate is 52%, with an interest payments of US$800,000. This is just the start. There are a lot of office buildings in NYC with similar problems."

That is the kind of information that never gets broadcast in the mainstream media and certainly never from media outlets interested in unbiased reporting. CNBC has become so compromised by Wall Street ad campaigns and promotional pieces that they are forced to sit on any story that might be construed as "bearish" lest they dismay their advertiser clients by disseminating bearish news.

If office towers in L.A. are being squeezed into receivership by increased vacancy rates and increased borrowing costs, you can bet the same malaise is rampant in major cities across North America and Europe.

I will continue to keep my eyes wide open for signs that the major banks are going to get taken down by Commercial Real Estate defaults because once that starts, it is going to snowball into a contagion fifty times as virulent as COVID-19 was made to appear. The "Work-From-Home" movement has proven very difficult to reverse, and that spells fewer commuters and permanently increased vacancy rates.

As followers of this publication have known for ages, it is that cursed four-letter word of bondage that remains the Achilles Heel of the financial markets, and that word is D-E-B-T.

Important Disclosures:

1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Volt Lithium Corp. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None.

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4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Volt Lithium Corp., a company mentioned in this article. 

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.