What Happens When Rising Bond Yields Meet Weakening Macroeconomic Data?

Michael Ballanger

Michael Ballanger discusses whether or not gold and silver (and their equities) will decouple from correlation with the broad inventory market.

Tooth for tooth, eye for a watch
Promote your soul simply to purchase, purchase, purchase
Beggin’ a greenback, stealin’ a dime
Come on, cannot you see that I

I’m stranded
Caught within the crossfire
I’m stranded
Caught within the crossfire

(Stevie Ray Vaughan)

The final two missives I’ve penned had been entitled “Crossroads” and “Crosshairs” so I deem it solely acceptable to call this one “Crossfire” as a result of up till this week, we didn’t have the precise monetary upheaval that I’ve been predicting since mid-December truly occurring. We had the GGMA 2022 Forecast Difficulty telling the world that the fantasy of equities climbing for eternity into the ionosphere of valuation was going to slam straight into the overhead carbonite ceiling created by unmanageable debt ranges. One week in the past, I informed you all that anybody that didn’t doubt the resolve of the central banking fraternity (cartel) in inserting inflation into the sightlines of its weaponry was ignoring the chance that shares had been going to get within the line of fireplace. This previous week, all of us noticed what occurs when traders and speculators get caught in a crossfire of rising bond yields and weakening macroeconomic knowledge – the purpose the place market fantasy meets debt actuality – leading to a massacre.

The bullish narrative now we have all been spoon-fed for the reason that Fed bailed out the banks again in 2008 has been shattered into microscopic shards of illusory hope.

Being closely invested in each gold and silver (bodily and equities), I’m a card-carrying member of “these Boomer chumps” that ignored crypto and hashish leaving tens of millions of {dollars} on the desk whereas trying to launch an advisory service protecting a sector that none of my youngsters or grandchildren care about. In truth, I used to be astounded in the present day when, driving house from the provincially regulated “Liquor Management Board of Ontario,” after I heard one of many CNBC anchors learn off an inventory of weekly advancers and so they included just one group – treasured metals.

Final week I suggested subscribers that I used to be taking earnings on my SLV calls that expired in the present day however that I used to be NOT changing them with a later-dated sequence and the explanation was that I’m DONE! No extra losses by the hands of the bullion banks! Then, as if the silver gods had been studying my thoughts, silver started a spectacular advance and posted a weekly advance of just below 5% for the week during which Netflix misplaced 23.4%. I cannot reverse my stance on silver as a result of it’s simpler for me to commerce a market that I do know and love and that’s the gold market which, whereas completely dominated by bullion financial institution criminality, no less than permits me a point of solace in buying and selling beside them, versus in opposition to them.

I despatched out an E-mail Alert to subscribers this morning reciting my recollections of the 2 buying and selling days that preceded the “Crash of 87” and within the following forty-eight hours, I’ve been inundated with fellow “senile Boomers” providing their vivid recollections of that occasion. All of us keep in mind the Kennedy assassination and the Challenger Catastrophe and 9/11 however until one was within the inventory market in October ’87, there isn’t a different level of commonality within the dialogue.

This may be a repeat of the times that preceded that seminal occasion some thirty-five years in the past however I strongly doubt it, largely as a result of we now not have “free markets” within the sense that authorities will truly permit markets to battle it out and let unencumbered provide/demand dictate pricing.

The large query stays: Will gold and silver (and the equities) decouple from correlation with the broad inventory market? Whereas I believe not, this time it’d truly be a one-off, once-in-a-lifetime “inverse correlation” commerce that can truly work. What if all types of non-fiat grow to be the modicum for “preventive drugs” in opposition to the plague of infectious monetary panic?

The portfolio I constructed again in 2019 was designed to resist the potential of a market meltdown however on the assumption that markets can be normalized by 2020. I wrote concerning the silliness of the “Powell Pivot” in late 2019 and about the specter of the pandemic emanating from Wuhan in early 2020 and right here we’re in 2022 and the portfolio has not but suffered greater than a 15% drawdown in that complete interval and is now forward over 350% in three years. Now, it was up over 400% in September earlier than the uranium names determined to crash however copper and gold have held sturdy all through this correction with silver now starting to resurrect.

This night’s missive goes to be transient because of the lateness of the hour and the stress of the week but in addition due to the depth of the reversals which have out of the blue grow to be front-and-center within the present narrative.

In sounding just like the proverbial “damaged document” (an historic phenomenon the place the needle on a phonograph stored bouncing again from a flaw within the floor of vinyl disc inflicting the identical a part of the recording to play repeatedly), what we noticed this week was the results of a confluence of weak technicals, weaker fundamentals, overvaluation, and a hostile central financial institution. The euphoria created by US$1 trillion in Fed stimulus compounded by US$1.5 trillion in Treasury stimulus has now been exhausted via heavy expenditures in shares and housing. Just like the coyote from the epic “Bugs Bunny and Roadrunner Present” from the Sixties, traders have out of the blue discovered themselves suspended off the sting of the cliff staring down on the canyon flooring with nothing to understand.

A beautiful subscriber that sends me nice data supplied a Looking for Alpha hyperlink that carried the next comment from the youthful creator: I’ve been writing for Looking for Alpha for over a decade now, and I’ve additionally been working a service for traders for over a decade as properly. And, I feel I’ve seen all of it.” Any time a youngster with a ten-year length of buying and selling expertise says that they’ve “seen all of it” is an individual quickly to be discovered on the scrapheaps of blogospheric wreckage and irrelevancy. I’ve been writing a weblog (of types) since 1985 and I’m the primary to profess that I’ve not “seen all of it” nor will I ever have say that I’ve “seen all of it” regardless of what number of market occasions stay part of my revisionist reminiscence.

I finish this missive with the notion that since nothing within the inventory market strikes in a straight line, observe the chart proven right here of the NASDAQ 100. Whereas it has clearly damaged its uptrend line from the March 2020 lows, MACD is now closely oversold with RSI modestly oversold. This implies that shares might see draw back follow-through early subsequent week however are able to mount a aid rally. It is not going to be “THE” backside as a result of there has not been sufficient ache but inflicted. Moreover, I’m utilizing oil costs because the Fed’s inflation barometer and till oil will get again below USD $60/bbl., I see no dovish pivots by Chairman Powell $ Co.

One ultimate story to heat everybody up: On the afternoon of Monday, October 19, 1987, with the Dow in full “crash” mode displaying a 22% loss for the day, I acquired a cellphone name from a fellow dealer pal from Vancouver whose solely enterprise was derived from the penny shares that dominated the previous Vancouver Inventory Trade again within the day. He proceeded to level out that the 5 prime merchants on the Vancouver Trade had been all “flat-to-up” on the day whereas the TSE 300 was getting obliterated. Gloating with irritating condescension, he admonished me for placing purchasers into these “overpriced blue-chips” and prompt that I focus purely on “his little VSE jewels” at which level I hurled an “expletive deleted” at him and slammed the cellphone down, completely ticked off at such brazen grave-dancing.

Effectively, 4 days glided by and as I used to be preoccupied with coping with purchasers and their gold miners that determined to crash together with the opposite TSE names regardless of a $75 advance in gold bullion costs (one other painful lesson falling into the “so proper however so incorrect” class), I obtained a name from yet one more dealer pal who mentioned, “Are you seeing what’s happening with the VSE?” I pulled up an inventory of the identical shares that had been “flat-to-up” 4 days earlier throughout that very infuriating name and lo-and-behold, they had been all down over 85% on huge quantity. I discovered later that they had been carrying flooring merchants out of the pit on stretchers as mass hysteria dominated the latter a part of the week. Sensing a possibility to return a favor, I rang my dealer pal, hoping past all hope that he would reply so I might bust his chops in match of completely immature vengeance however all I obtained was a “Ah-ga-ga-ga-ga-acck!!!” after which the road went lifeless. Inside a month, he was out of the enterprise and had moved to a cabin in northern B.C.

I don’t anticipate that the junior builders can have the identical destiny in 2022 as a result of again in 1987, many of the retail hypothesis was in junior oil and miners whereas in the present day’s markets are dominated by crypto and meme shares with name possibility exercise on the Massive 5 that dominate the indices breaking information in December. For many of late 2020 and all of 2021, junior gold and silver names have been handled like delinquent youngsters with Senior and Intermediate Producers handled like poisonous waste so there’s little or no speculative extra in both sector and subsequently not quite a lot of revenue to be harvested. Once more, that is the first rationale for being obese; the stark undervaluation of the gold and silver sector could permit them “protected haven” standing as markets undergo this corrective course of.

Make it so…

Initially printed Jan. 21, 2022.

Comply with Michael Ballanger on Twitter @MiningJunkie. He’s the Editor and Writer of The GGM Advisory Service and may be contacted at [email protected] for subscription data.

Initially educated through the inflationary Nineteen Seventies, Michael Ballanger is a graduate of Saint Louis College the place he earned a Bachelor of Science in finance and a Bachelor of Artwork in advertising earlier than finishing post-graduate work on the Wharton College of Finance. With greater than 30 years of expertise as a junior mining and exploration specialist, in addition to a strong background in company finance, Ballanger’s adherence to the idea of “Exhausting Belongings” permits him to focus the apply on deciding on alternatives within the world useful resource sector with emphasis on the valuable metals exploration and growth sector. Ballanger takes nice pleasure in visiting mineral properties across the globe within the unending hunt for early-stage alternatives.



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Michael Ballanger Disclaimer:
This letter makes no assure or guarantee on the accuracy or completeness of the info offered. Nothing contained herein is meant or shall be deemed to be funding recommendation, implied or in any other case. This letter represents my views and replicates trades that I’m making however nothing greater than that. At all times seek the advice of your registered advisor to help you along with your investments. I settle for no legal responsibility for any loss arising from using the info contained on this letter. Choices and junior mining shares comprise a excessive stage of threat which will consequence within the lack of half or all invested capital and subsequently are appropriate for skilled {and professional} traders and merchants solely. One ought to be conversant in the dangers concerned in junior mining and choices buying and selling and we suggest consulting a monetary adviser if you happen to really feel you don’t perceive the dangers concerned.


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