Anglo Far East – Flying by Sight Versus Instruments
Flying by Sight Versus Instruments
“VFR”Visual Flight rules
“IFR” Instrument Flight Rules
As sponsor of a GATA presentation in Auckland by the chairman- Chris Powell over the weekend, I had the pleasure of spending time and picking his brain on many subjects. High on the list was the current correction in gold and its seeming long and sustained period of flat or lower prices. There are many measures to gauge the market but one of the best is outright sentiment and he said that for every 100 people that would have had contact with him in times past, the number is more like 20 now.
If I take that same sentiment gauge and cross it over to the exploration/ junior mining sector and even the mid-tier and senior one you get a really sad story. Here is what a professional capitulation looks like from a seasoned mining writer that makes his living selling information
1/ convince me that the resource sector recovery expected this fall is no longer valid. Even the strongest companies are now weakening again and I think this is a strong indication that our market troubles will continue well into next year. This unfortunate chain of events leads me to believe that we should not be buying any junior mining stocks right now.
2/ Many of us, including myself, beefed up positions in companies like “%$” thinking this would be the start of getting our portfolios back on track. It hasn’t happened and I have never felt more discouraged about anything I have dealt with in my entire life. It has felt like an emotional earthquake to my soul.
3/ Even during the 2008 meltdown situation, I felt more composed and confident because I knew we would rebound, which we did within a relatively short-period of time. But this current market situation has gone from bad, to worse, to intolerable with further downside very likely.
4/ I even wrote many times in the last several years that before the screaming, parabolic market in our favour would happen we may have to deal with downside volatility that would shake us to the core. But what we are experiencing now is beyond even what I thought could happen. This is a wipe-out that will basically eliminate at least another 35% of the junior mining companies that are currently still in business. This is after those who have already shut their doors. Many more are hanging by their fingernails right now. I thought by moving towards those companies with the best assets or near-term production stories that we would protect ourselves until the dust you spoke about settled. I have been proven wrong for now
5/ At this point I would have to agree with you that we should not be buying any junior mining stocks at this point. We have not yet hit bottom. It could get a lot worse from here. All we can do in my view is seek refuge by eliminating the weakest companies in the portfolio and holding the strongest companies for the duration. When the market snaps back, AND IT WILL, it will be a SCREAMER to the upside unlike anything we have ever seen. But how long we may have to wait for this is as you say “indefinable
Flight skills in a gold correction
The fact is anyone can take a flying lesson and depending on the flying club be given the task of landing on their first go. If you have7-10 lessons you may even be doing it solo. It’s the great thing about being able to see where you are going and just enjoying the ride. On the other hand flying by instruments is quite another level again. For a start you will find yourself being tested with only the ability to see the instruments and then the instructor puts you on an angle that tells your senses that you are level when in fact you are not and then being tasked to get the plane level again not by sight, but by instruments only. Not to put too fine a point on the obvious but it’s very clear many have ridden the gold silver plane in the clear air of visibility over the last decade. Now tasked with knowing history, understanding the fundamentals of global diminishing supply, watching markets artificially maintained by created money, witnessing financial repression as seen in the 1930’s, observing central banks continuing to buy gold despite its ridicule by the Buffets of the world and there legions of media lap dogs…..I could go on. It’s very obvious when presented with zero visibility in the opaque world of the futures markets and seeing depressed gold prices against all logic; many have the nose of their financial aircraft pointed in the wrong direction as they rely solely on VFR or the daily price of gold and silver.
The correct orientation
Many of you will have seen this recently updated graph showing the relationship between the rise in US debt, the rise in the debt ceiling to fund or create that debt and lastly the way gold has pursued both those lines. VFR will have you fixate on the price of gold. IFR will have you look at the rise of debt in the world’s reserve currency and the regular theatre that surrounds congress every time they hit a new ceiling and realise there is no escape for this fiat based currency system.
In last month’s Global insider I showed the maths of what happens when US 10 year treasury rates jump just 1%. A $1000 bond that might have sold for $1000 today will price on the following day at more like $833.00 and if rates jump 2%, then make that $710.00. If its 3% more than the 2.5% currently quoted, your bond will be worth $625.00. So who’s kidding who when they talk tough about cutting back on money printing. Any removal of the punch bowl will be met with an exit stage left faster than the pink panther from the bond market. Where will all that money go after it’s sat in a bank for a patch? Shares…….yes………….real estate…maybe………….anything of tangible value like gold- highly likely and even a slight movement of money out of the bond market will be very bad for all world economies relying on cheap finance.
We now know who the new head of the Federal Reserve will be next year and that’s already being touted as bullish for more debt creation. The fact that gold has had a correction over the last 2 years does not change the simple truth that central banks will need to create more debt to fund spending. In addition they will need to keep % rates as low as they can and they will need to keep people as VFR on gold as much as possible even while they continue to buy as much gold as they can at preferably a low price all under the radar of a dumb public.
Over the first day of the Gold Symposium in Sydney I have had opportunity to ask many questions of well-known contrarian Rick Rule,Chairman/Founder of Sprott Global Resources Investment who has been a key note speaker here. His words go something like “I love a good bear market”. He wants to buy things when they are cheap, when sentiment is awful, when valuation is way below true measure.
Looking at the Symposium here in Sydney, the number of registrations is half what they were last year and yet the handful of mining companies presenting are keeping audiences riveted in the sessions between Keynote speakers. How so? The answer is the attendees that are here are hard core seasoned people that can fly by instruments. If a company was good at 5 times the price, then does it mean the company is worthless now? In many cases not- hence the Rick Rules of the world pay attention where the fair weather flyers are gone or crashed and burned. A rep from one of Australia’s largest gold bullion sellers said to me when we were comparing notes on 2013, that when gold hit $1200.00 an ounce- the lines were out the street and 60% of them were Indian, 30% of them were Chinese and a mere 10 % of them were Caucasian/other. What does that tell you about buying low and recognising value?
In Summary, its times like this you really need to stop looking out the window of the plane and look hard at the financial instrument panel to keep your flight path safe and level.
Until next time,
AFE Senior Relationship Manager