Author Archives: pmontesdeoca

1929 Crash Again? Not Likely

Summary

Don’t sell out of the stock market because of a fear of a repeat of the 1929 crash, dot.com crash or the 2008 recession — or any other historical event happening again.

Since history is nonlinear, small differences between events can have widely different outcomes, so historical analogies are an uncertain guide to the future and can never prove anything.

Use analogical reasoning to begin an analysis, but always dig deeper into the underlying causes of the outcome of the past event before making an investment decision.

Many articles on Seeking Alpha and in many other trading and investing websites use analogical reasoning to make their arguments. Is today like 2000Is IBM like a utility? By far the most common type of analogy, however, is the historical analogy. Seeking Alpha’s search box returns more than 16,000 results for “like the 1930s” and almost 27,000 for “like the 1920s” with a strong affinity for 1929. If such articles scare you into considering getting out of the current stock market after the recent long bull run, you should think twice before making such a move based solely on arguments based on historical analogies.

Read more CLICK HERE.

The Market Is On The Brink: Where To Go?

Summary

The market is extremely overvalued.

2017 marks the end of a 17-year cycle which strongly predicts a major downturn in the market.

Comparing charts makes today’s rising market appear eerily similar to the market before the 1987 crash.

As an indicator and driver of the market, Apple stock has recently slowed and, with sales weak, the stock appears to be headed for a decline—a warning for the entire market?

Market declines have often occurred in October-December and this fall the market appears long overdue for a major correction.

In a recent report, Garrett Jones, argued for many reasons that the stock market is on the verge of a major downturn and bear market.

Overvalued Market

Today the stock market is reaching all-time highs. The NASDAQ 100 hit a top in 2000 of close to 5,000. Today, the index is well above that point at 6,113.78.  Are we set for ever-increasing highs? Nothing lasts forever and, although many believe we live in normal times, reality is far from normal today.

John Hussman of Hussman Funds, said, “What investors presently take as a comfortable environment of pleasant market returns and mild volatility is actually, quietly, the single most overvalued point in the history of the U.S. stock market.”

17-Year Cycle

Today, Jones argues, is a unique time in history.  Historically, after a period of mild volatility and healthy returns, he argues, the economy dives into a depression. Jones has analyzed a recurring 80+ year cycle and he labels three of such cycles, “a revolution cycle.” Three such 80-year cycles equals 240 years, which takes us back to 1777, during the American Revolution. With the ending of another 80-year cycle in 2017, some see another time of political instability and change marked by the election of President Donald Trump.

Jones outlines an argument based on a 17-year cycle. The year 1932 marked the low point of the Great Depression. Seventeen years later in 1949 was the start of a 17-year rally marked by high returns and low volatility when the market ran from 160 to 1000. In 1966, the Dow Jones reaches 1000 for the first time and then plateaued for 17 years. In 1983, the market finally began the longest bull market in US history and rallied for 17 years with 2000 marking the high point and the peak of the dot.com bubble.

Based on this 17-year cycle, Jones argues that every 17 years there is the start or end of a cycle. Will 2017 mark the end of the current bull market?

Sign of the Bear

Peter Eliades, with 44-years of market analysis experience, wrote that investors become complacent before market tops, so the first sign of the end of a top is a period of 21 to 27 consecutive trading days where the advance/decline (A/D) ratio remains between 0.65 and 1.95. That streak must be broken by an A/D ratio below 0.65 and confirmed by either a 2 or 3 day average A/D ratio below 0.75.  The last time we had twice as many advances as declines was on September 11, 2001: the tragic 9-11.

Jones wrote, “We have not had better than a 2:1 A/D ratio since that time. . .and a 2:1 ratio isn’t that big a deal. In a decent decade, it happens a lot.” The market is clearly indicating that it may suddenly turn into a bear market.

Market breadth or the A/D ratio line, is an excellent indicator of where the market is heading. The advance/decline line has been rising steadily for years. Has it reached an end point?

Jones also uses the McClellan Oscillator to support his argument that the market is about to collapse. He argues that the oscillator is ending a fifth wave. The oscillator hit a low when Trump was elected, with five waves since then, Jones argues. At the end of each cycle, the oscillator plunged lower than the previous cycle. When waves 1 and 3 were ending, the oscillator was “about to enter a period of almost vertical decline.” Jones argues that we are approaching a similar point now.

1987 Crash Repeated?

Gene Inger, publisher of the Inger Letter, has drawn an analogy between the October 1987 flash crash and the run up to it compared to the current market, which show similar market trends. Will 2017 be a repeat of 1987?

The market has now reached, Jones argues, “overbought levels that it has never reached before on our proprietary technical and band indicators.”

The two times it was close to such a point was in late 1996 and early 1997 during the dot.com bubble. It was then that Alan Greenspan used the term “irrational exuberance” to label the market. “It was the strongest bull market in US history at a time when the budget was balanced and we had a surplus,” Jones said. The second time was in 1987 during the strongest economic period in recent history with a popular president, Ronald Reagan. Neither period was as overbought as today and the economy today is in far worse shape with massive debt, higher unemployment and a nation divided politically facing threats from North Korea, China, Russia and ISIS.

A Rotten Apple?

GE used to be the leading market stock in terms of capitalizing and as a leading indicator for where the market overall was headed. Today that role is filled by Apple.

Jones wrote, “As Apple goes, so goes the world –give or take a little. . .Apple is without question the new bellwether stock.”

Apple represents about 12% of the NASDAQ 100 and is the largest capitalized stock in the world, as well as being the leader of the FAMG stocks: Facebook, Apple, Microsoft and Google.

 

Apple today is not tracking the NASDAQ 100; it is diverging by slowing its rise. Apple reached a top on September 1, 2017.  Why?

Apple has had to slash production of the iPhone 8and iPhone 8 Plus by “nearly 50% due to lack of demand.” Jones wrote, “This is the first time in history that production has had to be cut so soon after launch.” Priced at $1,149, the new X phone will probably do little to boost Apple’s sales, since it will probably not improve enough on past models to justify the price for most consumers.

Beware October through December

“In each year of this bull market,” Jones wrote, “there has been a correction in the October to December period.”

This is the ninth year of the bull market and another correction seems likely. The bull market is old, and it is the most overvalued and overextended bull market ever. Furthermore, Jones argues, we have not had a correction this year. The market is also not up because the economy is humming; it is up because of Qualitative Easing and the government printing money.

Fall corrections in this bull market have ranged between 2.83% and 10.37%, with an average 6.31% decline. This fall the market appears to be primed for a correction.

Credit and the Market

Jones shows how rising markets have coincided with increases in investors’ negative credit balances. When the market falls, investors have positive credit balances. Today, investors’ negative credit balance has reached more than $250 billion, while the S&P 500 has reached new highs near 2500. This data suggests the market is on the verge of a major correction.

Highs Obscure Previous Highs

Before the 1929 high just before the Great Depression, the stock market set several new all-time highs. None of them are remembered, because the high in 1929 marked the high point before the crash. The highs the market set in 1987, 2000 and 2007 will not be remembered if the market crashes in 2017. Why? Because the high of 2017 for the Dow Jones Industrials of 23,232 will be remembered as the high. Be prepared for a massive fall in the market.

What to do? Gold

If the stock market is massively overvalued, what should you do? Where do you put your money? Government bonds, bills and money market accounts pay almost no return. During the last bull markets, bills and money market funds paid well, such as 15% in 1981.

“When 15% is on the table as the alternative, the decision is easy,” Jones wrote. “With zero currently on the table, the tendency is to remain in the market. While the ‘zero option’ is real, the other reality is potential loss. Zero looks attractive when compared to a negative.”

In such times, with the market apparently on the brink of a major correction, gold is a safe haven. As I argued in previous posts, gold is set to begin a long-term bull market. Gold mining companies have slashed production costs and are poised for sharp increases in the price of their stock. If bonds, bills and money market accounts offer safe havens with almost no return on your investment, gold offers a safe haven with considerable upside.

*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. This report is for educational purposes only.

 

Is Gold, Ready to Explode?

 

 

Gold’s Long-Term Secular Bull Market Is Intact

Image result for GOLD BULL MARKET PICTURES

Summary

The 18-year gold cycle is intact and gold is about to embark on the next leg up.

The 9-year gold cycle also indicates a long-term buy signal.

The 12-month supply and demand outlook is bullish for the next year.

Factors that favor gold today include negative interest rates and gold mining company’s reduced operating costs and capital expenditures.

18-Year cycle

The long-term secular bull market in gold is intact and about to embark on the next leg up. This leg is projected to take gold to new all-time highs. Despite several pullbacks, the price has held above the long-term 50-month simple moving average SMA of $1235 for three consecutive months for the first time in 4½ years.

Read more HERE.

Long-term Play for Silver Bull Market: First Mining Finance, FFMGF

 

  • Leadership
  • Increasing Gold Assets
  • Considerable Upside

 

The gold and silver market looks to be bullish, as I argued in my last article (1), and others, such as Boris Mikanikrezai (2) have also argued. It is an excellent time to buy into the gold and silver sector and one of the best long-term silver plays may be First Mining Finance Corp. (TSX: FF, OTCQX: FFMGF, Frankfurt: FMG).

 

Leadership

 

First Mining Finance was founded by CEO Keith Neumeyer, who has a strong track record of building multi-billion dollar companies. He has bought unloved mining projects at the bottom of bear markets and then reaped massive profits when markets recovered.

 

Neumeyer founded First Quantum Minerals in 1996 when copper was trading at times below a dollar a pound. He bought several Africa copper assets in Zambia, the Democratic Republic of Congo, and Mauritania.  Today the company is one of the largest copper producers in the world and is valued at $14.5 billion.

 

In the early 2000s, Neumeyer founded First Majestic Silver, when silver was trading at $5/ounce. He bought four silver mines in Mexico at a time when there was almost no competition for their purchase. First Majestic is now the second largest silver producer in Mexico and has a market cap above $3 billion.

 

Patrick Donnelly is the President of First Mining Finance. With his extensive resume including 20 years of experience in mining, he could have joined any company. He was a mining analyst for four years, covering mining equities. During that time, he has said that he learned that a key factor in determining which companies flourished and which failed was leadership. He said in a interview, “In mining, which is a very risky industry, the most successful companies have very strong management team with a track record of success.” (3) He joined First Mining Finance Corp. because he knew Nuemeyer and his success with First Majestic and First Quantum. Neumeyer, Donnelly said, has had “tremendous success building companies. You want to work with people like that, people who have a track record.”

 

Neumeyer also has proven he is a good bottom picker. In an interview with King World News on September 13, 2016, he said, “You never know exactly when valuations are going to turn around,” but sooner or later they do. He said, “We are in a great position to take advantage of an improving environment.” He stressed that the company doesn’t need $1500 or $2000 gold to turn it into a multi-billion dollar company. They just need to educate the market and start to develop their assets. (3)

 

That top-notch leadership is shown by companies wanting to join or partner with First Mineral Finance. Donnelly said, “It makes it a lot easier to do deals.”

 

Increasing Gold Assets

 

In 2015 during the severe bear gold market when gold could be bought in the ground for less than $10 per ounce, Neumeyer founded First Mining Finance Corp. The company planned to buy mineral assets at low prices. It went public in April 2105 with zero gold in the ground and during its first 14 months, First Mining Finance made 8 acquisitions, which included 12 projects in mine-friendly North America. By September 2016, the company had 14 million ounces of gold in all categories. The company’s market cap was $370 million and all of its projects were economic grade, established resources and had existing infrastructure.

 

By March 2017, the company’s market cap had risen to $570 million with 7 million ounces of measured/indicated resources, and 5 million ounces of referred gold in the ground. In Ontario, the company owns almost every single gold development that isn’t owned by a senior gold mining company.

 

Considerable Upside

 

Donnelly said First Mining Finance offers “considerable upside.” The company bought most of its assets for about $10 an ounce, yet the market values those assets at about $3 an ounce. Therefore, he feels, those assets are clearly undervalued. He expects valuations to go to $100 an ounce.

 

With few new gold strikes, First Mining Finance is ideally situation to reap the benefits of any future rise in gold prices. First Mining Finance has a significant amount of gold in the ground, in politically safe North America, which can be used to generate income through asset sales, spinouts, royalties and/or metal streams.

 

The company has $19 million (Can) in cash and in the past couple of years has done an incredible amount of work preparing their projects to produce. The firm has conducted 20,000 meters of drilling at their Goldlund project comprising 100 holes; 87 holes had significant gold mineralization.

 

First Mining Finance also updated its Preliminary Economic Assessment (PEA) for the Springpole project. The project appears to be very economic with an after tax rate of return of 26% and a net present value of $800 million US. The project is predicted to produce 300,000 ounces of gold per year at a cost of about $600 per ounce US. Donnelly said, “It’s a very robust project.”

 

Neumeyer said, “Once the market starts to appreciate what we have accomplished and the quality of our assets, the value will rise.” It just “takes time and money to build a multi-billion dollar company.”

 

In Neumeyer’s view the stock trades for next to nothing.  He said, “I did this to create a billion dollar plus company and the shares are going to be up substantially. . ..We will hit a parabolic trend at some point,” maybe up to $5000 gold.

 

He may not be far off. During the last bull market gold traded at $250 an ounce and rose to $1900 per ounce; an eight fold move. If the low during the last 5-year bear market was about $1050, an eight-fold move would mean gold trading at $8000 per ounce.

 

If gold makes such a move, Neumeyer argues, “Shares of FMFC and other mining companies with good people and good assets will outperform other firms by 2 or 3 times or more. I’ve seen it happen before.” His Quantum Minerals went to $140 per share when copper was over $4. He said, “It’s hard to predict how crazy the market will get, but. . .I believe we have the best gold portfolio in the industry.”

 

First Mining Finance also offers diversity. The company has 28 assets, which is diversified by assets, by jurisdiction and by stage. Donnelly said, “It’s almost like an ETF, or private equity for the little guy.

*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.

 

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