A 'Hoof-in-Mouth' Market

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Michael Ballanger Precious metals expert Michael Ballanger discusses the effects of Donald Trump's comments on the U.S. dollar and trade with Canada on precious metal prices.

As I muse delightfully this afternoon over my quote terminal, I am enthralled to take note of silver's uncanny ability on Tuesday to actually listen to my cares and concerns and mount a 2.5% rally against a paltry 1.6% for gold into what has been the first of many of what I alluded to on the weekend—the insertion of a large Donald Trump boot directly into the very large Donald Trump mouth with his overnight comments about the USD being "too strong." The resultant crash in the USD has caused a rally in the T-bonds and a crash in stocks despite efforts being made everywhere to stick save stocks and cap gold and silver.

Also contributing to a wonderful day of freezing rain and accelerated garbage pick-up here in lovely Port Perry was the revelation that the Commercials in the bond pits are massively long the T-bond futures and massively short the USD futures, which is being played out wonderfully today amidst pre-Inauguration shenanigans being planned by the populist Millennials displeased with their soon-to-be-removed free cell phones and loss of populist leader Hillary Clinton. The fact that the Clinton Foundation has begun to dismantle the Clinton Global Initiative so soon after the election fiasco should never be recognized as a failed political maneuver but rather as a "change of strategy" now that all of the donors expecting political favors after January 20 have come to realize that the tens of millions given to Slick Willie and Co. is now money up the flue never to be recovered in favors of any kind nor currency of any flag. Anyone that has ever watched "Boiler Room" should agree that Bill Clinton was a natural for that movie as lead actor, producer and director.

GDXJ (VanEck Vectors Junior Gold Miners ETF) is rattling up against the 200-dma with uncanny (sarc) predictability and is also challenging the downtrend line drawn off the summer tops at $52.50 and $46.00. With the RSI (relative strength index) up around 66, it is not exactly the ideal time to be initiating new positions in the juniors but if we catch a post-Inauguration bid in gold and bonds and a counterintuitive shellacking in stocks and the USD, the miners could easily resume the uptrend that was so brutally capped by the Commercials in the summer. The GDXJ, IMO, has to trade comfortably above $38 for a few days with silver confirming in order to signal "All Clear!" for additions to the juniors.

GDXJ Chart

Of even greater interest to me than the gold and silver markets is the action in the bond and currency "pits" where investors are lined up in droves to profit blindly from a massive increase in interest rates (a drop in bond prices) AND a continued surge in the U.S. dollar ("USD"), both of which will result in new highs in the S&P and the revival of "Dow 20,000" hats everywhere on Wall Street. The consensus view on every financial news channel around the globe is that Trump is the "savior of the free world and American manufacturing" and that narrative continues to get jammed down our throats at each and every turn of the channel. But what is staggering, at least to me, is that the anti-NAFTA rhetoric has moved into overdrive and that affects not only Mexico but also Canada. Now Canada is experiencing a property bubble of epic proportions because the global bankers allow Chinese holders of Renminbi to exchange their massively over-inflated currency for Canadian dollars and Australian dollars and Bahamian dollars at which point they use those currencies to acquire Canadian and Australian and Bahamian assets that it would normally take four generations of hardworking families in Canada or Australia or the Bahamas to afford. So, with the stroke of a pen and the blink of a politician's greedy little eye, the Chinese immigrants are allowed to "invade" these countries using the weapon of currency—phony, counterfeited, unrealistically inflated monopoly money that includes citizenship and/or landed immigrant status—in a manner totally within the law and totally to the benefit of the Canadian banks whose mortgage business is booming as thirty-something Millennials "aspire to get in the game" and GenEx-ers choke on massive mortgages supported by two working adults and sometimes holding two jobs.

Now, what pray tell happens if the Trumpmeister decides to re-jig NAFTA resulting in the loss of jobs in Canada and the depletion of trade? Much to everyone's shock and surprise, take a guess which market around the globe consumes the most U.S. exports? Is it China? No. Is it the Eurozone? No. Is it Mexico? No. Why, it's Canada! With its miniscule 39 million people and frozen landscape, Canada cannot survive without American manufacturing and fruit and vegetables and iPhones but at the same time, the Donald wants to renegotiate NAFTA and you can bet that it won't result in Canada importing MORE American goods and services, now, will it?

Yes, my friends, as the Chinese curse says, "May you live in interesting times" with the operative word being "INTERESTING" because when times are UN-interesting, they are concurrent with peace and tranquility, as in "boring." Under the swamp-draining, soon-to-be Commander-in-Chief Donald J. Trump, this tranquil world of "dip buying" and "outperforming my benchmark" and "beating the Street" is going to be turned upside down, landing on its ass, because DJT has populated the incoming administration with swamp creatures of all description and temperament. Bible-thumping vice-presidents and racist chief strategists and Wall Street-coddling Commerce secretaries and a gaggle of ex-Goldman lieutenants has now transformed the liberal incompetence of the Obama administration into the neo-conservative extremism of the megalomaniacal Trumpladites, fully armed and eager to do battle with every food stamp recipient and welfare receiver in the country. However, it won't stop there because DJT wants to leave an indelible mark on not just the U.S.A., but also the memory banks of the Germans, the Chinese, the Brits, and every other nationality that ever watched "The Apprentice."

The next time you sit down with your "wealth advisor," ask him or her for a range of possible outcomes for interest rates, real estate and stocks and then ask what impact it might have on your retirement objectives. First, the vast majority of "wealth advisors" have only carefully scripted responses with cleverly crafted disarming mechanisms such as "long-term objectives" and "proper diversification" and "risk management," but the absolute reality of the industry known as "wealth management" is that there is NO answer to the question of predictability. You pay these "wealth advisors" a yearly management fee for nothing more than guesswork. When I was a young boy, I used to get up at 5 a.m. in the summers to sell Toronto Telegram newspapers and copies of the Daily Racing Forum at Woodbine Racetrack in northwest Toronto, which was a twenty-minute bicycle ride from my house. An old and very-seasoned trainer, Jerry Lavigne, sat me down one time to explain the science of handicapping a horserace and he started with the Daily Racing Forum and went immediately to the section containing the "touts" where the writers were the likes of "Chawkie's Favourites" or "The Trackman" or "Paddy McBookie." Jerry described how they would go through all of the heats of the prior day's workouts and all of the prior races and the winning percentages of the jockeys and how at the end of the day, it all sounded very "scientific" and "believable" and that studies had shown that 95% of buyers of the Daily Racing Forum did so strictly and purely for these "touts." The forum had 50 or so pages of all of the data that the touts used but no one knew how to decipher it and therefore out of laziness would use the "touts."

He then told me something I have never forgotten. He gave me the example of a race in which a favored horse, "Windslammer," came in at post time with the odds at an incredible 1:10 meaning that a $10 bet returned $11. It also meant that the betting "pool" (all bets placed for that race in the building and in all off-track sites) was literally "all-in" for Windslammer to win. The "touts" were unanimous in their selection of this fine nag as it had blown away its competition in every race that season and was mounted by Canadian legend Sandy Hawley. It was a "sure thing."

About twenty minutes before post time, Jerry noticed one of the grooms quietly bringing a large bucket of oats into Windslammer's stable after which, as this majestic steed was walking to the starting gate, it lifted its tail and proceeded to unload its bowels onto the track. Jerry quickly ran to the ticket window and laid down a "wheeled exactor including every horse to win, place, or show EXCEPT Windslammer. Within minutes, the bell went off and the horses strained against each other to get to the front of the pack—all except Windslammer. This nicely sated steed, resplendent in fine silks and a very full tummy, ambled across the finish line a distant seventh, completely out-of-the-money but happily fed and ready for his return to the farm and fun and frolic with the mares.

The point I took away that day is a lesson that I wish I had applied in my career without fail. There is ZERO predictability in ANYTHING we do with our money. Just as these suckers laid down dollars to buy that Racing Forum and read with bulging eyes and wallets the unanimous selection of Windslammer as the "no-brainer" favorite to win that race, investors pay 1–2% of the value of their life savings/retirement funds to the same investment "touts" ("wealth advisors") to handicap what series of events in 2017 are going to shape returns for stocks and bonds and real estate. So every time your wealth advisor sends you a long-term chart of the TSX300, send him back YOUR chart of the NIKKEI300, which peaked in 1980 at 50,000 and has never come close to that in 37 years. Or send him a picture of bucket of oats, or a Racing Forum.

That goes as well for these legions of real estate agents talking about the "favorable demographics" for the Greater Toronto Area while what they should be highlighting is the government-sanctioned financial invasion of Canada by immigrants carrying baskets of synthetic paper exchangeable for highly valued Canadian dollars and having the full blessing to acquire all of the prime real estate formerly belonging to fourth-generation Anglo Saxon or Italian families. The chart below is a comparison of the NASDAQ bubble of 1990–2000 and the same graphic representing the Toronto real estate market. Toronto real estate is in a bubble of the highest degree, even greater than the subprime bubble in the U.S. pre-2008, and you can thank the short-sightedness of politicians and the greed of the bankers for all of it. And it stinks.

Toronto Real Estate Prices

Toronto Real Estate Prices 2003-2017

NASDAQ 1990-2000

NASDAQ 1990-2000

Those of you deeming today's missive to qualify as a "rant" may do so with the full blessing and condonement of the Ministry of Truth as created by yours truly at about 3 a.m. this morning and devoid of the contents of either the medicine chest or the liquor cabinet. I made a solemn vow after rescuing Fido from those inebriated ice-fishermen that I would behave myself in the month of January so here on Day 18 of total sobriety and 90-minute morning workouts on the elliptical and stationary bike machines, I can honestly say with great pride that Fido is once again sleeping at my feet in the sublime contentment of a dutifully loved pet. However, he has grown accustomed to very sudden jerky movements that I have had to make from time to time since New Year's Day and growing ever more frequent each and every day as I am forced to swing my 1976 Guy Lafleur-signed hockey stick at these horrific green and purple creatures crawling out of the walls only to disappear upon my assault. The look of bewilderment on Fido's face is analogous to a Monty Python sketch from the 1960s.

Welcome to 2017.

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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All charts and images courtesy of Michael Ballanger.