Spoiler alert: I'm not quitting resource stocks, but that is the sentiment shared by many in the resource space.
With a few exceptions, it has been a historically tough year for speculators in the junior resource space.
Throw in a crypto bubble, a cannabis bubble (with a real underlying mega-trend), and all-time highs in the major U.S. indices, and you can forgive speculators for not being willing to risk capital in a resource sector that has traditionally rewarded speculators by mismanaging hard-earned dollars (see Tahoe Resources).
Perspective is important. A quick look at the fundamentals driving these bubbles tells me it's only a matter of time before the tide turns because the current valuations are simply not sustainable (hi Bitcoin).
There are signs that we may be at a turning point. Bitcoin has gone from 20k to 5k in less than a year.
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All the crypto-experts who were rushing through the door have gone silent. The term "exposure to crypto" is suddenly missing in every trend-chasing company's news releases.
In the cannabis sector, Aurora Cannabis recently sold nearly $30 million worth of everybody's new favorite green plant. How'd it get there? By spending approximately $120 million. It's been rewarded with a $7 billion market cap for its troubles.
Is the cannabis trend a real mega-trend with incredible growth potential? Absolutely. If you want to speculate in that space and want quality research and guidance, listen to Jimmy Mengel.
Meanwhile, in the space I exist in, there's a gold/silver explorer in my portfolio down over 50%.
The company is anchored by 4.5 million AuEq ounces, a mint-condition mill with a replacement cost of approximately $70 million, and it's been rewarded with a market cap under US$55 million.
So you can buy the mill at a discount and get 4.5 million AuEq ounces for free. Not that you care, but the exploration potential is excellent and the project is in a great jurisdiction.
Every month, I add a little more.
That company is not an exception. It's the norm in the resource space right now, but I sense a bottoming and believe 2019 will make the pain of the last several years worthwhile, but only if you're using these downtimes to average into the best names.
In the near term, I still expect lower gold and silver prices, though the junior equities are likely near a bottom as there is simply little liquidity even in the midst of tax-loss selling season.
Pay attention to Europe and Japan. They are the poster kids of monetary irresponsibility and no matter how loud the dollar bears scream, it's Europe and Japan that will blow up first.
Consider that the ECB balance sheet now equates to 41.3% of Eurozone GDP. The BOJ is at 100%. The U.S.? 20%. It's just math.
Add another interest rate hike in December and you have yourself a very predictable next couple of months.
You know it's a despised market when $10k worth of speculative capital can move a stock higher or lower 20%.
The December rate hike and the volatility a rising dollar will cause globally is the setup for an explosive 2019 as the Fed will blink and reverse course, leading to a sector rotation that finally acknowledges the deep value in the resource space.
A contrarian's dream? Yes, but only if you're a real contrarian and are willing to step in, buy the lows, and hold through the rest of the year to allow for the seasonal bounce we tend to get every January.
Enjoy your holiday, the food, the drinks, and the company and go buy your favorite junior resource company because it's likely as cheap as it's going to get.
To your wealth,
Gerardo Del RealEditor, Junior Mining Monthly and Junior Mining Trader.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.