As the month of July moves into its final ten-day stretch, I see NASDAQ records falling left and right as the drivers of fear that dominated in March are now "yesterday's news." Rising second waves of infection and death have been shunted aside in favor of a reborn optimism surrounding "vaccines" and "V-shaped data" and "added stimulus" and just about anything imaginable that can drive money into stocks.
However, the truth remains that this four-month rally in stocks and gold and bonds is the direct result of counterfeit cash finding its way into the hands of the desperately unemployed and will only end when the liquidity punch bowl is taken away.
As an aside, for the past thirty-three years, since 1987, I have always used August as an accumulation month, after learning of this technique from the finest mining broker I have ever known, the late George Milton, a huge stock salesman (in all ways) out of Edmonton who made more money for his clients than any advisor around at the time. He would call his clients in May and ask them what plans they had for the summer and then proceed to give them firm instructions to not (as in never) try to call him before Aug. 1. Then, during the first week of August, he would pick up the phone and tell them exactly what they were buying between then and the end of the month.
You see, back in the days of rotary phones and daily mail delivery, where letters from friends generated excitement, you communicated with your clients in one of three ways: face-to-face, telephone and mail. You didn't "shoot them an e-mail" or "text them a stock pick," you actually had a conversation with them and learned of all sorts of career, family and community news that actually had a big bearing on how you advised them.
Today's impersonal world of search engines and Facebook and Twitter have replaced the art of conversation and the beauty of verbal communication and salesmanship. I mourn the loss of face-to-face meetings, where body language can tell you whether clients are happy or sad, cocky or frightened, and whether they plan to increase their investments in the near term. Few clients ever tell their advisor that they are "wiring another million" by e-mail. That should happen at the end of an awfully expensive lunch the advisor was more than pleased to cover. Then again, and as always, I digress.
Circling back to the August strategy, it was originally developed by the old mining brokers on Bay St. when retail customers preferred drill hole plays to ponies at Woodbine. It was noticed that due to weak markets in June and July, when wealthy stock buyers were at their cottages rather than trading penny miners, many investors came into August with a bunch of bills coming up, like back-to-school shopping or tuition fees. In order to come up with the cash, they would be forced to sell their positions in the weeks leading up to Labor Day. Hence, stocks would typically swoon in August under the weight of unexpected supply, but most importantly, with a paucity of bids as liquidity usually stayed quiet until well after Labor Day. Every August since 1987, there has always been bargains to be had and "stink bids" to be placed.
This year, however, because of the pandemic and the ensuing print-fest by the central bankers, distortion after distortion have altered the road map. No longer can I count on the Ballanger Playbook handed down to me by the likes of Bob Farrell and Richard Russell and Marty Zweig. The legacy of rules-based trading was first vanquished by Greenspan; openly distorted by Bernanke; mollified in matronly fashion by Yellen; only to be finally obliterated in repeating waves of prevarication, deceit and intervention by the best (and worst) of them all, current Fed chairman Jerome Powell.
Last week I read a tweet from one of the Fed governors that denied any knowledge of, nor agreement with, the concept that Fed policies since 2000 have contributed to wealth and income inequality. Powell actually stares us directly in our faces and says, with nary a stammer nor blink, that the moves made by the Fed to rescue hedge funds and large holders of junk bonds and people offside on a stock trade do not represent any form of moral hazard nor favoritism. To that I say, with fully deserving vitriol, "Hogwash."
The last chart was from July 1, 2019 until now, and I had to use the one-year because the year-to-date chart is unfair to Aftermath Silver Ltd. (AAG:TSX.V), one of my largest holdings, because the stock closed out 2019 at the 52-week highs at CAD$0.54/US$0.42 per share, and then proceeded to crash back to within a few pennies of my original entry point (CA$0.08). I tripled the GGA Portfolio allocation to AAG back in March to get the average cost lowered, and have since traded it once (out at CA0.40, back in at CA$0.30 a few days later). It has always been my top silver proxy for the inevitable move to new highs in silver prices. We are ahead over 363% since I first tweeted out my "Initiating Coverage" on AAG at CA$0.085 in July 2019, and fully expect to see a print north of CA$1.00 before the end of 2020. Subscribers will receive revised target prices after their next news release.
As many of you know, I have a "love-hate" relationship with silver. I love owning in the good times (when I get it right) but I hate the duress I must go through every time I put on a trade. There will be a point in time (as happens in all rigged markets) where the scam blows up and the perps get pilloried in a barrage of margin calls, forced liquidations and massive losses from naked shorting. The problem remains that there is never a starter's pistol that goes "bang!" and tells you to go all in. Managing the risk in a silver position is difficult due to volatility and illiquidity.
As this is being written, I see a weekly close for the September silver contract at new, multiyear highs and that is unarguably bullish. However, I also see a weekly RSI (relative strength index) at 64.78, so if this continues for another couple of weeks, we will be faced with a dilemma. Do you stay long an overbought market, or do you stick with positive seasonal trends and look for a momentum-driven moonshot, as the Millennials finally come "over the wall" and replace Tesla Inc. (TSLA:NASDAQ) with silver?
The other issue that is troubling me is that there appears to have developed a broadening narrative that has silver as logical heir to the throne of social media stock promotion. Just as telephones were the primary communication tool fifty years ago for the investment industry, it was the gold seminars and conventions that were the primary promotional medium. I can recall a rush of dozens of audience members bolting for the pay phones after legendary newsletter guru Bob Bishop mentioned a certain junior explorer as his "new top pick." You always knew because it would happen in the morning of an investment conference, when the volume of some penny dreadful would explode, making it one of the day's volume and price leaders.
Fast forward to 2020; grown men rushing for pay phones is knives-and-bearskins compared to the speed and depth of today's social media promotional pipeline. One tweet from a well-regarded day trader can send these junior miners up 50–100% in a day, and therein lies my concern. The definition of "long-term" for many of these fledgling traders is about the length of time it takes them to down a Ritalin tablet, washing it down with an extra hot, no foam Starbucks mocha java grande Americano. They buy and sell anything with nary a worry as to a) earnings, b) cash flow, or c) what the company does. They only know the ticker symbol and rarely know the name, and as such, care only about direction and amplitude. This is the dream of the junior mining dinosaur that missed the cryptocurrency mania and missed the cannabis mania and can only cry huge crocodile tears when colleagues at the country club brag about their winnings, gained only because their grandsons had tipped the off to the "next big trade."
My point is that, as one of those reptilian creatures who stayed well away from cannabis and crypto, I am caught with mixed emotions when I think of the prospect of ten million kids piling into Getchell Gold Corp. (GTCH:CSE) or Aftermath Silver. I am sure I would welcome such an event, but how does one stay invested when you know full well that the buy-side volume that just spiked the stock is totally capable of turning on you like a rabid dog, sending your shares into a downward death spiral.
The second thing on my radar is that more and more long-term silver bulls are joining this narrative, and are actually promoting the idea that "you better own silver before those kids get the text!" They are assuming that this passing of the mantle is a done deal. Well, know this: it is anything but a done deal and with the ways silver acted last week, it is almost as if it had better see $21, and quickly, for many of these gains to extend themselves.
The last chart for your review is the principal reason that professional investors are looking to hard assets, including gold, silver, and the industrial materials: the U.S. dollar. The serial printing of debt to preserve and extend the 2009-20?? bull market in stocks in the name of "defending the U.S. economy from the effect of the pandemic" has now crossed the line of rational thought and entered the Twilight Zone of the theater of the absurd. How the American electorate can allow a former investment banker—a stock salesman—to debase the purchasing power of their sovereign currency is a "riddle, wrapped in a mystery inside an enigma" (apologies to Sir Winston).
However, no one ever says "No" to free anything, including government handouts, so as long as Tesla stays above $1,400 and the S&P above 3,000, the pitchforks and torches will remain idled and the legions of the "desperately unemployed" will remain sanguine, subdued and sedated.
Originally published July 17, 2020.
Follow Michael Ballanger on Twitter @MiningJunkie.
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]
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Getchell Gold, Aftermath Silver. My company has a financial relationship with the following companies referred to in this article: Getchell Gold, Aftermath Silver. 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 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.