Careless Wishes and Making a Date with Dr. Copper
Sector expert Michael Ballanger explores the role of hubris in the banking system, as well as the rising prospects of industrial metals like copper.
"Today we're still a long way from our goals of maximum employment and inflation averaging 2% over time. . ." Jerome Powell; March 4, 2021
The week that just passed presented us with more than a few seminal moments, those points in time where a well-constructed course of action comes under scrutiny and doubt creeps out from under the carpet of complacency, hubris and hope. However, doubt has a difficult time surviving in the sunlight of analytical exposure because as one is forced to re-examine the component inputs of any plan, it is the solidity of those inputs that frighten doubt back into the shadows.
The plan to which I dutifully serve has one crucial input, which is actually an assumption. That assumption is that central bankers around the world enjoy a level of adoration and respect that is totally and completely unwarranted. I offer as proof the opening quote from last Thursday's speech by U.S. Fed Chairman Jerome Powell, where he brazenly proclaims that the U.S. is "a long way" from "inflation averaging 2% over time," while ignoring either by accident or intent, that costs of food, housing, medicine and electricity (especially in Texas) are escalating in Weimar-like leaps and bounds.
Over the decades that I have been writing about the financial markets, I have urged my followers to use four books as primers for understanding markets, human society and history. Those books are (in order of importance):
Reminiscences of a Stock Operator (Edwin LeFevre; 1923)The Battle for Investment Survival (Gerald Loeb; 1935) Atlas Shrugged (Ayn Rand; 1957) When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany (Adam Fergusson; 2012)As diverse as they might appear to be, these four writings carry more relevancy in 2021 than they ever did when they were first published. There exists in all four books characters that embody "men of power" with an ability, neither earned nor bestowed, to make decisions that affect millions of human lives, and in all cases, when historians look back in retrospect, those "men of power" were either very lucky or disastrously unlucky with their choices, because not one of them had any clue as to the certainty of outcome of their decisions. Memoirs by Churchill after WWII confirm that many of his decisions were no better than "gambles made from desperation."
So, with that in mind, I ask you: "What power was bestowed upon Jerome Powell that allows him to implement a policy maneuver that encourages inflation and destruction of the purchasing power of a citizen's savings?"
To say that Powell carries an ample amount of hubris into his deliberations is an understatement of the highest order. Of even greater importance is the disingenuity of his stated goals, because once one understands the role of the Federal Reserve in terms of who it serves, the only inflation they give a hoot about is that which affects bank collateral. If the American banking system had a need to purchase collateral in the open market, the Fed's stated goals would be opposite to where they are today; deflation would be the Fed's goal, allowing its member bank masters to access lower ("deflating") prices.
However, all debt on the balance sheets of the member banks is backed by all forms of collateral, such as office buildings, residences, warehouses and (of course) stocks, because all of those corporate bond issues floated in the past two decades, enabling mammoth "buy-backs" of corporate equity, have stocks as collateral.
The purpose of the Fed is to protect the member banks period. The cost of living of the average citizen is immaterial to any discussion carried out in any boardroom by any and all central bankers in all countries. Further, this move to promote inflation is a very dangerous wish in an environment of pandemic-induced hardship, and it is important the Fed governors, led by the former stock peddler Powell, remember that old and very timely adage: "Be careful what you wish for."
It was fifty-one weeks ago this weekend that I penned the words "Generational Buying Opportunity" to the charts of the GDX and GDXJ, and urged all subscribers to "back up the truck" for the opening of trading for Monday, March 16, 2020. It turned out to be exactly that, as the big gold miner exchange-traded funds (ETFs) reversed their COVID crashes and rallied 180% in the following five months.
This week I was bombarded with emails, DMs and texts (nobody talks on the phone anymore for fear of catching the virus), asking me if I was "backing up the truck again," and my answer was a categoric "NO," because conditions here in 2021 are more euphoria-like than panic-like. While gold miners are certainly cheaper than they were last summer and worthy of a well-deserved bounce, I am not as compelled as I was last year at least not yet.
Silver is a completely different animal right now. The chart shown below is diametrically opposite to where it was before the #SilverSqueeze nonsense materialized.
You will all recall the piece I wrote one month ago, entitled "The Importance of Stealth Investing," as a warning to every new, fuzzy-cheeked Millennial investor that to listen to those silver "gurus" who promised you they would "Crush the Banks" by creating a GameStop-like squeeze due to their sheer numbers. . .Well, how did that work out for you? Not only was the silver chart in great shape a month ago, but it was also forging ahead toward US$30, quietly riding a modest uptrend, minding its own business, totally off any of the bullion bank radar screens. Then "WHAM!" the "#Silversqueeze Movement" stuck a large spear into the underbelly of the dozing bullion bank beast, only to watch it spring into action and absolutely crush the army of odd-lotters trying to take on the fire-breathing dragons with squirt guns.
It was painful to watch, and had it not been such a flagrant, in-your-face, beating taken by the silver bugs, I might have found it somewhat amusing. What I did find it was predictable and just as "a lesson learned is a lesson earned"; when it comes to the silver market, stealth is good. Silver needs to return to its unassuming ways and rebuild the technical position, which it should over time. I see a possibility of a US$22 re-test of the late-September lows, but by no means a certainty.
The chart shown above is a beautiful comparison of the Goldman Sacks Commodity Index to the Dow Jones Industrial Index, which is not unlike the Gold:Dow ratio, which also is a very popular graphic.
I have recently added copper to the list of "must-own" assets in the last month, and I continue to seek out companies that are producing, developing, and/or exploring for red metal. I added one this week (reserved for subscribers), and have a feeling that the developers working in favorable jurisdictions are where to focus. GGM Advisory already has exposure through Getchell Gold Corp.'s (GTCH:CSE; GGLDF:OTCQB) Star Point/Star South and Norseman Silver Ltd.'s (NOC:TSX.V) Cariboo projects, so the third name beefs up the allocations as I seek out additional candidates.
As the world turns more and more to electricity, generating stations fueled by non-fossil fuel energy sources, such as nuclear energy, are going to be back in vogue, and since copper and silver are the two best electrical conductors in nature, I see investment capital flowing to the junior copper companies in growing numbers and urgency.
With the Dow Jones within a stone's throw of record highs, the chart shown below illustrates the relative attractiveness of copper, as the ratio of Copper-to-Dow Jones has not even made it back to the 2008 Great Financial Crisis lows, while it would need to advance over 330% to reach the 2011 highs.
I am working on a fourth copper investment opportunity as this is being written, and will provide details shortly through the Special Situations report currently in progress.
The final point of consideration for all subscribers surrounds the pending infrastructure bill that is soon to be in front of the U.S. Congress. Whatever else is being either replaced or newly constructed, there is one commodity that is going to be required copper. Whether it is wiring or plumbing or in the electric vehicles delivering them, demand is going to surge. Deposits that are sub-economic today are going to be skated onside by rocketing demand. Since rising inflation is welcomed by way of the "careless wishes" of policymakers the world over, there is no better way to take advantage than a date with Dr. Copper.
Originally published March 6, 2021.
Follow Michael Ballanger on Twitter @MiningJunkie.
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.
[NLINSERT]Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Getchell Gold, Norseman Silver. My company has a financial relationship with the following companies referred to in this article: Getchell Gold. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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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.