To truly appreciate market crashes, you must have an ample serving of grey hair.
Over the weekend, I must have received three dozen "Emergency Email Alert" notifications by newsletter services and financial intermediaries that got absolutely obliterated Friday morning and were expecting more of the same on Monday, which they got in spades. This new generation of "wealth advisors" has, unfortunately, been living off the largess of Central Bank guarantees and the winks and nudges of the "Finance Ministers" and "Treasury Secretaries" and "Chancellors of the Exchequer," where they make investment decisions based not upon analyses of balance sheets or income statements but upon the collective wisdom of Champagne Socialists. I have been writing about this for about thirty-five years and while it has not yet manifested itself in the advance of the prices of precious metals to levels that would correspond to the level of coinciding currency debasement, especially in the United States and Europe, it is going to be the "Talk of the Town" here in 2016.
Yesterday I heard two commentators on CNBC ask two of the stupidest questions in history. The first one was when Bob Pisani asked, "Why is the VIX (Volatility Index) down over 2 points with the S&P off 40?" The answer, which was even more ludicrous than the question, implied that traders had purchased volatility prior to the Brexit vote, and once it spiked after the decision, they were selling "vol," which was telling you that the selloff was going to be short-lived.
No, Bob, that is incorrect. The only "traders" selling "vol" yesterday were those at 33 Liberty St. in New York (home of the NY Fed), after instructions were taken from the "Working Group in Capital Markets" (covert arm of the U.S. Treasury).
They weren't "lightening positions" taken prior to Brexit, either—they were bludgeoning the VIX futures in order to drive the algo-bots into the "long S&P futures" trade, so naturally, since the market rallied off the lows in late trading in response to the sagging VIX, a rather obvious wink/nudge was hand-delivered to the masses. Net effect? A 20-point S&P rally arrives, and another 35-point rally follows.
The second "dumb as a bag of hammers" moment was when Kelly Evans questioned a fund manager about his ownership of gold within his family of funds: "You are a value manager, so how can you like gold in here when it offers no cash flow and no yield?"
Well, Kelly, why don't you ask that question to those British investors who flipped their British pounds into gold last Wednesday? They staved off a 12.5% currency haircut versus the Yankee dollar and they got an 8.5% lift in gold. Ask that question to a depositor in the Cyprus banks a few years back when they got sideswiped by the advent of the "Bail-In." It is called "counter-party risk"—where the guy on the other side of the trade is unable to settle the transaction—and you can bet there has been a lot of that being talked about across the pond these days. So THAT, Kelly, is a tad more important than cash flow or yield—it is called capital preservation. (See chart above.)
I am giving the markets a few days to bounce but I really do think that Europe is unraveling and that the ability of the Central Banks to inject liquidity ("manipulate") is rapidly coming to a close. I therefore will attempt to buy back the UVXY July $10 calls at $1.45, and since these were sold for double what I paid, the new adjusted cost on the 60% position is now $0.725. So when Bob Pisani tells us that the declining VIX is a sure sign that the selloff in stocks is going to be "short-lived," ask yourself what he was telling the viewers back from May 31–June 10, when the VIX traded under 13; it hit 25 on Friday.
As for the miners, they are acting "tired," considering that gold has traded above $1,300 for three days now. And despite all of this safe-haven volume, the HUI (Gold Bugs Index) has barely made a new high. However, the next time Kelly Evans asks a guest what they see in owning gold, show her the chart posted below.
The big news for me is the performance in the silver market, with it being rejected once again as it crossed the $18.50 threshold on multiple occasions. Knowing the cretins as I do, I fully expect them to allow the breakout later this week and suck all of the technical traders into the long side of the trade. I am already long the July 15 calls from the March 31 "Long Silver/Short Gold" options trade, and have about a month left on them since first mentioned in the March 31 Gold Report: "I will buy 100 SLV (iShares Silver Trust) July $15 calls for $0.68 (US$6,800) and also 20 GLD (SPDR Gold Trust) July $115 puts for $2.92 (US$5,840) for a net debit of US$12,640. I will need to see either $108.68 on the GLD or $16.26 on the SLV as breakeven points on this trade by the third Friday in July."
The SLV July $15 calls went out today at $2.40, making this a 90-day return of 89.8%; I haven’t booked the profit but I will offer these calls tomorrow at $2.40, and wait to see if we can get a solid breakout (I hate that term) above $18.50. The chart below looks like we are already breaking out, but the thickness (or lack thereof) of the line can turn you into a bum pretty fast, so I am going to wait for a solid move through $18.50 and pray that this time I'm not being set up for yet another classic "false breakout" in the odious Crimex silver pit.
I'm working on my mid-year review this week, where I provide revisions to the long, intermediate and short-term forecasts for gold and silver. I'll give you a hint: The long and intermediate are unchanged, but the short-term forecast for weakness into the end of July was going to be called into question until these Central Bankers decided to "rescue" the global stock markets with their incessant "interventions."
Lastly, remember what I have been saying since the early '80s about owning stocks when Central Banks are fabricating currency: "NEVER underestimate the replacement power of equities (stocks) within an inflationary spiral." The worst thing one can ever hold is a "fat bank account," because the longer it remains in cash, the less time it takes to depreciate. The reason that politicians created "central banks" was to give them a "foil" upon which to defer every time they elect to trash the purchasing power of the currency unit in which you get paid every month. Why is it that they all commit to an "anti-inflation" policy statement with government pensions PROTECTED from it? All of the politicians and government employees have pensions "indexed to inflation," and you and I do not. Think about it. Think about it very hard and email me if you can think of a plausible solution.
How about "Fire them all!"?
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 courtesy of Michael Ballanger.