Source: Michael Ballanger (4/17/23)
Michael Ballanger of GGM Advisory Inc. takes a look at the current state of the market and the gold and silver sector to tell you where he believes it is all headed.
Cornering (a market): In finance, cornering the market consists of obtaining sufficient control of a particular stock, commodity, or other asset in an attempt to manipulate the market price. One definition of cornering the market is “having the greatest market share in a particular industry without having a monopoly.”
Anyone old enough to recall the late, great, stagflationary 70s was around to witness one of the truly great market “cornerings” of modern market history and one which was carried out in compliance with all laws and statutes set out by regulators in the 1970s.
It involved two Texas brothers, Herbert and Nelson “Bunker” Hunt, heirs to the multi-billion-dollar A.L. Hunt oil fortune, who made the determination that profligate spending by the Democrats for social programs to create “The Great Society” under Lyndon Johnston and continued by Republicans under Nixon with the Vietnam War would eventually, if not immediately, bankrupt the nation and debase the U.S. currency, which had been ongoing since 1971 with the termination of the Bretton Woods Agreement.
Silver Thursday
I was in university in the U.S. when the Dean of Finance of the Saint Louis U. business school went off on one of his legendary pre-lecture rants one morning, and it was always a “morning after” his weekly Thursday pub crawl on Friday morning at 8:00 a.m. — the first class of the day — as “The Doc” (Dr. Fred Yeager) — would fire up a Camel non-filter, sipping black coffee from a Styrofoam cup and launch into a “fire and brimstone” narrative on something the Fed or the Treasury was doing.
This time, it was a news headline of 1976 where it was first reported in the Wall Street Journal that a certain “Southern group” was amassing hundreds of thousands of ounces of silver which continued all through the late 70s until finally, after silver had charged from US$2 per ounce to over US$50 that the U.S. government decided they had had enough.
They came down with a sledgehammer-like strategy of moral suasion (urging Hunt’s creditors to withhold loans) and increased minimum maintenance margin levels, the combination of which choked off the Hunts’ ability to carry the massive trade and starting on March 27, 1980, the brokers carrying the position began a gargantuan liquidation that took silver from over US$50 to a shade above US$5 by June.
It was called “Silver Thursday.”
Despite a sincere desire to protect their wealth from the dangers of out-of-control government spending, the Hunts were trotted out as “Enemies of the State” and were relieved of hundreds of millions of dollars by a government and the infamous Wall Street “old boys club” that arbitrarily changed all of the rules and even fabricated new ones to fit their mission. Once the hammer came down, memories of the enrichment created for early players in the 70’s silver squeeze were forever etched in the collective psyches the world over, but it took until 2011 until silver once again approached US$50 per ounce in response to massively inflationary bailouts of the Wall Street banks.
With silver outperforming gold and the miners outperforming the metals . . . I get a perfect set-up for a continuation move into summer of 2023 with new highs on the horizon.
Those very bankers, fearing the negative connotations of the spirited silver run being linked to outrageous Congressional favoritism over banks versus the public taxpayer, organized a brilliant wee-hours raid on the silver market when all of the Western traders were asleep and the “Sunday Night Massacre” of April 4, 2013, ushered in an epic crash taking the shiny metal’s price down through all support levels and into a bear market until late 2015.
While the 2011-2016 silver bear was painful, there was never any blatant evidence, such as materialized in 1979, that the government was going to intervene in the market. Instead, it took the shape and form of a classic Watergate Break-in type of crime.
No smoking guns were ever recovered from the 2013 pistol-whipping, but it smelled of government intervention with its trademark punctuality and savagery. Body bags were everywhere, and losses within the retail ranks were deep and widespread, but stocks went on to new highs day in and day out, further placating an investing public that was being trained in masterful Pavlovian fashion what happens when you invest in “high-risk assets like silver.”
So, here we are again in the midst of a strong, multi-month advance in the precious metals, with silver outperforming gold and the miners outperforming the metals, and that has been the case if I use as my starting point November 3, which was the date of the 2022 low for gold, I get a perfect set-up for a continuation move into summer of 2023 with new highs on the horizon.
If I take a second reading off the March 8 lows of five weeks ago, I get an even better technical picture with the PM miners and silver neck-and-neck and outperforming gold by a lengthy margin.
GDX and GDXJ
VanEck Gold Miners ETF (GDX:NYSEARCA:)
I have ample exposure to gold and silver through physical ownership and by way of the junior portfolios.
But it has been almost three tears since I exited the VanEck Gold Miners ETF (GDX:NYSEARCA:) after making one of the best calls in my career on March 16, 2020, at the exact days the precious metals all bottomed.
I exited the positions in August 2020, with GDX approaching US$44 per share.
Thirty months later, we have the perfect set-up for precious metals, and up til the recent decision to cut output by the producer nations, energy was moving in the miner’s favorite direction — down.
VanEck Junior Gold Miner ETF (GDXJ:NYSEArca),
Today’s little hiccup was all profit-taking as silver’s RSI touched 79 briefly before closing out the week back below 70. Within the complex, silver needs to cool off for a few days, during which I will be buying back my GDX position, hopefully in the US$32-33 range, into an early-week pullback.
I will also be teeing up the VanEck Junior Gold Miner ETF (GDXJ:NYSEArca), and while it may appear “late,” it really isn’t on a fundamental basis.
The miners are all dirt cheap, but once we achieve escape velocity for gold above US$2,100, I see a doubling of both Senior and Junior Gold ETFs by Q1/2024.
That should hit home pretty hard because I have avoided these ETFs for what feels like a lifetime. (Subscribers will receive notifications next week as to price and strategy.)
Stocks
I get no fewer than twenty-five emails a day from services offering to help me “Navigate the Upcoming CRASH!” followed by pictures of some bombed-out war zone or children wandering in the night.
The entire world is preoccupied to the point of obsession with this pending Armageddon that is lurking somewhere just above the tree line, but for me, I cannot buy it. There are really bad places on this earth to call “HOME,” but unless you had the bad fortune of being born there, you could always leave.
I met an ultra-sound technician today that emigrated from northeast mainland China over ten years ago with his wife and mother, who gave up a general practitioner “M.D.” license to take a secondary profession in Canada.
I asked how he liked the move, and he said it was the best decision he had ever made despite the 50-hour work weeks helping out in off hours his wife’s laundry business. He was undoubtedly the most over-qualified medical technician in the history of the North Durham Medical Centre, and I walked away after a handshake and a smile, feeling pretty happy for the chap.
Oddly enough, that is how I feel about the SPX these days.
Bob Farrell Rule #9: “When all the experts and forecasts agree — something else is going to happen.”
On the topic of consensus, what is the most heavily-debated topic in a Wall Street boardroom these days? It is “When will the Fed pivot?” Thousands of guesses and thousands of theories camouflage the least debated topic, which is “Will there be a recession?”
Bob Farrell Rule #9: “When all the experts and forecasts agree — something else is going to happen.”
No one agrees on the “Fed Pivot” thing, but they all agree that there will be a recession and a really nasty one, so the only thing to banty about should be “How Bad?”
Well, Bob Farrell was a pretty good investor with a long, battle-tested track record, and I will go with his Rule #9, which would have me take the absolute unanimity of agreement over the pending recession, which falls into the category of “foregone conclusion,” verging upon “no-brainer” verging upon “Take it to the bank” and assume that a) there will be NO recession or b) there will be a recession, but stocks go UP, not DOWN, or c) the recession is not enough to cool off inflation and the old adage that I should “Never underestimate the replacement power of equities within an inflationary spiral” rings true.
Every CNBC Guest commentator, every podcast guru, and every armchair “investment strategist” is calling for new lows, and they all can cite technical and fundamental reasons for that event to occur.
And I say, “No way.”
Stocks just went through a month that had huge volumes of “smart money” exiting the bank stocks (Uncle Warren, too!), with commentators drawing comparisons to 2008 and 2001 and all boasting from the rooftops that they were positioned with “record cash” or adequately hedged” as March not only did not whimper into April, it rumbled into April knocking tables over and stopping traffic.
It is within earshot of the February highs, just under 4,200, and just out of the M4 range for the August highs at 4,325. We have the positive buy signal of the January Barometer, giving me not a guarantee of an up year but a historical probability of one. And I’ll take that, any day, all day.
Stocks are climbing that very annoying “Wall of Worry” like 1982 and 1988 and 2009 and 2020, where prognosticators gnash and gnarl their incisors, crying in despair as margin calls swarm their inboxes.
I learned after many years and hundreds of thousands of lost dollars that stocks to whatever the hell they choose to, and there is no preordained rule that says that the number of hours you spend on “due diligence” will ensure a favorable outcome. Stocks have a personality, and they have memory muscles far more hardened than anything you or I possess, so when they go against you, learn to respect the mortal danger inherent in the wounded animal.
Stocks gave us a little “growl” in March; make damn sure you are on the right side of the “roar” in April.
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.
Disclosures:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: None. 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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