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The Narcotic Effect of the Reflexive Rebound
Contributed Opinion

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Michael Ballanger Expert Michael Ballanger of GGM Advisory Inc. reviews the newest dubbed "investment guru," the outlook of the precious metals sector, and the current state of the stock market to tell you where he believes we are all headed.

Back in the day, long before social media or even fax machines, the best place to pick up on local investment industry scuttlebutt was the pub. When I was training in Toronto, it was the famous old Nag’s Head Tavern on York St., where waiters in aprons and bow ties carried huge, rounded trays of draft beer from table to table.

You would find the McLeod boys swapping lies at one table and the Pitfield crew at another, with every profession from salesman to bond trader all talking the talk and, in some cases, walking the walk. Within the ranks of the financial services and usually from the sales arena, there existed one individual whose investing exploits earned him the category of “A.R. McGillicutty” with the ”A.R.” emblematic of the nickname “Always Right.”

It did not matter what markets were doing over a particular expanse of time; if Gulf Canada was surging after a big oil discovery offshore Newfoundland, “A.R.” owned it from 40% lower. If stocks were in full correction mode and Electrohome was down sharply, “A.R.” was short from 40% higher. If the Leafs beat the Habs in Montreal the night before, “A.R.” put down a sawbuck on the Leafs and was treating his girlfriend to a night at the Royal Alex. A. R. McGillicutty became a legend because there never really was one except in reputation.

The amazing thing about it was that of all the firms I worked for and of all the cities or towns in which I toiled, there was always an “A.R.” patrolling the pubs, holding court, usually with a gaggle of fuzzy-cheeked trainees, spinning yarn after yarn and tale after tale of utter self-promotional hogwash.

"Investment Gurus"

In the 1990s, the newsletter industry sprang to life, and the art of deifying the finance reporter by creating the impression that because they had a journalism degree or worked for the F.T. in college, they had earned the moniker of “investment guru” and could charge several thousand dollars a year for the privilege of reading their self-laudatory trollop.

Finally, along came the internet and social media, and if there is one invaluable attribute that sets the internet and social media apart from all other media and all other eras, it is the permanence of content.

So, the next time you are watching CNBC and Cramer is asked for his opinion on some topic related to investing, think “A. R. McGillicutty."

If you think for one nanosecond that a post using misogynistic, homophobic, or racist language will fade away into the sunset of time, you would be sadly (and ruthlessly) mistaken.

Now, I am not exactly in full sympathy with the excesses of cancel culture, where careers can be ruined through innuendo as opposed to the Rule of Law, but what is invaluable is being able to summon the inaccuracy of a statement or prediction, especially where the author is a self-proclaimed “guru” paid millions of dollars in endorsement fees while preaching to a choir of novice investors for an hour every weeknight on an internationally-renowned cable news network.

Of course, I am talking about CNBC’s resident “insider,” Jim “Mad Money” Cramer, who, as recently as September of this year, dubbed FTX co-founder Sam Bankman-Fried as “the next J.P. Morgan.”

Statements such as those are brash enough to attract clicks and hits and gasps and guffaws but usually not at the moment. It usually takes an event that invalidates the “claim of greatness,” like vaporizing US$16 billion of net worth literally overnight, along with some US$50-odd billion of client capital in the same swoop.

“SBF,” as he is called, is not the first person to send Mr. Cramer fawning and feigning adulation of the highest order to people whose rise to fame was quickly and summarily followed by the plunge to shame because it was only seven years ago that Theranos Founder Elizabeth Holmes drew homage from the CNBC superstar with his jaw-dropping description of her being “the next (Apple Co-founder) Steve Jobs.”

At last glance, Ms. Holmes is awaiting sentencing after being convicted of wire fraud and conspiracy to commit wire fraud and was, of course, found guilty of defrauding investors. To be offering nightly views on investing to millions of people while being completely incapable of assessing the character of the people he is deifying is almost as vile a sin as the people convicted of committing them.

So, the next time you are watching CNBC and Cramer is asked for his opinion on some topic related to investing, think “A. R. McGillicutty” because he and or his Charitable Trust will try to lay claim to a brilliant trade as surely as the sun rises in the morning.

It was only Thursday that the world was treated to a CPI number that was expected to come in at something like 8.3% annualized but instead came in at a whimpering 8.1% annualized, and the market responded with a four-sigma move to the upside (150 S&P points) which was the crusher for the shorts that have been fading the move since the end of September.

It reminded me of the days in the old Southern Hockey League when some Neanderthal from Hornepayne, Ontario, called Jackhammer Joe jumped you from behind, and just when you thought you had his arms tied up as the refs approached, he got one — the wrong one — free at which point you said three Hail Mary’s and hung on for dear life.

Precious Metals Comatose

Well, the bulls got both arms free on Thursday, and they windmilled the bears to within an inch of their lives as all those Millennial portfolio managers that had to download all those “How to Trade Bear Markets” podcasts featuring a 20-something named “A.R. McGillicutty” barking out instructions.

The short squeeze that ended the week was epic, and no better place to observe the pain than in the Twitterverse, where one by one, the bears all capitulated with eye sockets bleeding and hair ablaze.

As followers of my work will attest, I came very close to getting sucked into the “new lows a-coming” narrative around the end of September, but thanks greatly to the Bank of England, whose forced bailout of the British pension fund industry through modest purchases of 10-year gilts turned me from stark-raving bear to alone-in-the-desert bull, I went modestly long and have had the best six-week pop in all of 2022.

Of course, the precious metals juniors are still comatose, but the move this week from the low US$1,600’s to US$1,775 has all of the metals finally moving in the right direction. Copper had a beautiful move from US$3.38/lb. to US$3.95/lb. and looks to be carrying a 4-handle early next week.

Even my new exploration bet — American Eagle Gold Corp. (AE:TSXV) — rocketed from CA$0.04 to CA$0.315 before a snippet of late Friday profit-taking nipped it back to CA$0.275 all on the strength of a 125-meter intercept of 1.07% Cu-equivalent in the B.C. interior. (For the record and to avoid any semblance of “A.R. McGillicutty,” I am long at around CA$0.15 looking to add below CA$0.25.)

Thousands of armchair technical analysts and market strategists are flooding the digital airwaves with detailed podcasts explaining why “risk-on” suddenly booted “risk-off” to the curb with such vengeance and vitriol, but there really is only one culprit (for the shorts) or hero (for the bulls), and that is none other than the almighty U.S. dollar, which put in a serious breakdown this week closing below the uptrend line that has been inviolate all year. I find it curious that the actual top occurred literally the same day that the Brits rescued their pension funds (September 28, 2022).

I wrote about the significance of that event that very weekend, suggesting that what was deemed a threat to pension funds in London was most probably festering in New York and Toronto because, like pigs of different colors in the barnyard, they all feed at the same trough when the dinner bell is sounded.

Was the October Low It?

Now that we are positioned properly going into year-end, the really tough part is just ahead of us. I am planning for an exit to my longs in January, but I think that there could be some “chop” in early December before Santa Claus takes them up.

At this point, however, I am desperately trying to determine what exactly is the contrarian trade because it seems that even those of us that called the rally correctly are almost unanimous in calling it a “bear market rally” rather than “the bottom.” While only time will tell, my gut instincts tell me that this may not turn out to be that simple.

Between now and January, there will be a lot of events that could derail this “risk-on” party, so close attention to detail is critical.

What if the October 13th low at 3,495 was it?

If I poll a hundred traders of all ages and dispositions, the bears are in the majority by a wide margin.

In the very early stages of bull markets, the only people making any money (at least that they can brag about) are the shorts until the point where prices send them scurrying to the bull camp, but that usually takes a few months.

You all recall my focus on the January Barometer a little under ten months ago, and it was that series of indicators that prompted my bear market forecast literally within days of the all-time high in early January.

It took until the end of January to confirm the move, but it was fairly evident by mid-month. That same series of indicators will hopefully tell me whether economic conditions in 2023 will be weak enough to send interest rates lower. Between now and January, there will be a lot of events that could derail this “risk-on” party, so close attention to detail is critical.

Junior Purgatory

Gold is once again doing its best to confound and confuse from a short-term perspective because if you were flat last week and failed to move, you are now running the risk of the dreaded “whipsaw” because it never did move into “oversold” status despite breaking below the July lows and now it has punched its way to US$1,775 and into an “overbought” condition.

It is even tougher if you own junior gold explorers or developers because the current rally has included the senior and intermediate producers but failed to invite the companies with ounces in the ground to the festivities.

I call this “junior purgatory” because it usually takes gold moving into the overbought status and staying there for more than a coffee break before the money flow percolates down the food chain.

However, if in fact the U.S. dollar has topped and we see a continuation move in the DXY to south of US$100, I think gold and silver juniors will eventually catch a bid.

With all that technology money now sidelined, looking for a home, and with crypto tainted with the FTX odor, speculative money flow should move to commodities and that will include the quality juniors.

The Narcotic Effect of the Reflexive Rebound

To put a final bow on this week’s missive, if I had to pinpoint the one emotional flaw that besets most traders, it is the inability to avoid the narcotic effect of the reflexive rebound.

Traders the world over, especially since the era of the “Fed put” was ushered in by Greenspan and his stock-friendly successors, have been trained to expect that central banks, led by the U.S. Fed, will come to the rescue of equity markets because, at the end of the day, the asymmetric wealth effect will take precedence over inflation or employment.

There is a very old horse chestnut that goes like this: “There ain’t no market like a gold bull market.” but as a man that was weaned in the late 1970s at the tail end of that commodities bull, the wealth created in that market was truly one for the ages and that, my friends, is precisely where we are headed.

The hypnotic spell of a charging bull trampling anyone and anything that stands in its way is a powerfully persuasive spell that causes rational men and women to do completely irrational things.

It preys upon both fear and greed and is rooted in the acronyms “YOLO” and “FOMO,” where You Only Live Once to you have a Fear of Missing Out.

I cannot tell you how many times in my career I had to fight tooth and nail to avoid chasing a rampaging resource stock or an option on an index that has suddenly caught on fire.

As markets move toward year-end, I intend to treat this rally as just that — a rally — and will refuse to put a name on it. The reason I will not buttonhole these market conditions is that we could get a rip-roaring commodity market with the Dow, the NAZ, and the S&P all locked in trading ranges for all of 2023, failing to hit new highs but also failing to take out the lows either.

That was the market of 1966-1982, where Dow 585 on the downside and Dow 1,024 on the upside was the range. Meanwhile, there were phenomenal bull markets in oil and gas, precious and base metals, forestry, and iron ore, with real, tangible FOMO present every time one turned on the Quotron machine.

There is a very old horse chestnut that goes like this: “There ain’t no market like a gold bull market.” but as a man that was weaned in the late 1970s at the tail end of that commodities bull, the wealth created in that market was truly one for the ages and that, my friends, is precisely where we are headed.

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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.

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