TORONTO – “This is the worst I’ve seen in 30 years.”
The scene was the recent Sprott-Stansberry Natural Resource Symposium in Vancouver. The subject was mining equities. And the opinion was becoming familiar…
The price of gold is down by about 8% over the last five years. Precious metals miners, as measured by the Market Vectors Gold Miner’s ETF, are down by about 70% over the same time.
Mining execs say banks won’t return their calls. Promoters say they are thinking about taking their firms into cloud computing, video games, or Chapter 11.
“What do you know about cloud computing?” we ask.
“Nothing. But I know gold mining. And I know it’s no place to make money.”
Diehards and Last-Ditch Campaigns
In the broader markets, everything was green yesterday – almost.
The Dow was up. Oil was up. Shanghai stocks were up.
But gold fell $2.50 in New York to close at $1,096 an ounce. And it’s down another $10 in overnight electronic trading.
Here at the Diary, we are champions of the down and out. We support diehards and last-ditch campaigns.
Partly, it’s a romantic and poetic attachment to the underdog. But there’s a practical reason, too: There’s often money to be made in woebegone assets.
We favor Russian and Greek stocks… provided you have a very long time horizon for your investments (and a strong constitution to boot).
The Russian and Greek economies are said to be at death’s door.
Greece is in trouble because it has lived beyond its means for too long and because it creaks under a corrupt and sclerotic bureaucracy.
Russia, meanwhile, has been hit by a double whammy.
The first came when the price of oil got cut in half from its peak of $108 in July 2014. Roughly half of Russia’s tax revenues come from oil exports. Half-price crude oil export prices mean half-full government coffers.
That’s why Putin just slashed over 100,000 government jobs.
The second came when the U.S. and the E.U. came up with a provocative plan to impose economic sanctions for alleged misbehavior in Ukraine.
Greece and Russia may be down. But they are unlikely to be out forever.
An Avalanche of Bearish Sentiment
Nor is the mining industry…
Unloved. Unbought. Unwanted. Mining is the Greece of investment sectors.
Particularly unloved is mining for gold.
Market Insight editor Chris Lowe has begun to prepare a weekly internal memo highlighting particularly absurd trends in the popular financial trend.
It’s soon to be available to lifetime subscribers to The Bill Bonner Letter. But for now, it’s circulated exclusively among our analysts and researchers around the world.
This week’s memo focuses on the intense loathing in the gold market. Reports Chris:
What to make of all the negative sentiment toward gold in the mainstream press? Chris again:
World Trade Slows
Also unloved, but definitely not in the pet rock category, is copper.
“Copper is the most important metal in the sector,” said mining mogul Robert Friedland at the Sprott-Stansberry event on Tuesday.
“More important than gold. Because copper is in everything. Houses. Autos. Computers. Much of the Internet functions on copper. So if the price of copper goes down, it tells us that the whole world economy is soft.”
Here’s the Financial Times with more about the global slowdown:
If the global economy is slowing, as the numbers suggest, there is little reason to expect a comeback in copper any time soon.
On the other hand, there’s no way copper is going to disappear from the world economy. It’s essential. And it’s intensely cyclical. Prices go up; miners produce more. Prices go down; they cut back until supplies are tight again.
So, although the price may be down… copper is not out.
And as we explained on Monday, you can count on the Fed – and other major central banks – to exaggerate the commodities cycle with more cheap credit.
We doubt gold is out for the count either.
Excess debt set off the 2008 global financial crisis. Today, according to McKinsey, there’s about $60 trillion more debt in the world than there was back then.
It is only a matter of time before today’s counterfeit stability gives way to genuine panic.
Then the “pet rock” will turn out to be “man’s best friend.”
Further Reading: For more from the team of commodities analysts at Sprott Global, you can sign up – for FREE – to their e-letter, Sprott’s Thoughts. Edited by Bill’s son, Henry, it provides expert insights, ideas, and recommendations on natural resources sector that you won’t find anywhere else. Subscribe here now.
It’s not just commodities that are floundering. The S&P 500 is in trouble, too.
Today’s chart is of the S&P 500 Bullish Percent Index. It shows the percentage of S&P 500 stocks that are trending up and down.
It favors the bulls when it is above 50%. It favors the bears when it is below 50%.
Right now, the Bullish Percent Index is at 50.4.
In other words, just over 50% of stocks on the S&P 500 are in an uptrend. And just under 50% are in a downtrend.
This chart still favors the bulls… but only by a hair’s breadth.
Why Gold May Plunge to $350 an Ounce
One leading gold expert says “fair value” may be $850. If gold drops below fair value to the same extent it did in the mid-1970s and the late 1990s, bullion would trade around $350 an ounce.
Why Miners Have Been Hit Much Harder Than Gold
The miners are highly leveraged to the gold price. If gold bullion drops 10%, gold miner profits may drop 20% to 30%. Poor management, excess debt, and violent strikes at key mines are also to blame.
Top Economist: Why China Can’t Afford a Slowdown
The Chinese stock market crash isn’t as worrying as the slowdown in the economy, says top economist Dambisa Moyo. Moyo talks to Bloomberg columnist Barry Ritholtz about China’s fate. [AUDIO]
In today’s mailbag, reader John B. has major beef about our marketing of colleague Keith Fitz-Gerald’s High Velocity Profits investment advisory in the weekend edition of Bill Bonner’s Diary.You can review it for yourself here.
I read the article by Keith Fitz-Gerald of Money Morning in the weekend edition of Bill Bonner’s Diary. Since this article came from Bonner & Partners, I assumed this writer was not a fraud or a scam. I also checked into the advertisement listed in the body of the letter on High Velocity Profits that Keith is involved with. The idea that I found multiple listings on Google that mentioned the fact that HVP is not legit and a scam is troubling for me. I put my trust in the Bonner name and the Agora stable of services and would have never thought Agora would legitimatize someone who is questionable in the least.
– John B.
Chris comment: We don’t produce most of the products we advertise in our newsletters, but we are very careful not to associate ourselves with scammers of any sort. Furthermore, we and our advertising partners confidently offer refunds for unsatisfied customers.
We also reached out to Keith to let him respond in his own words. Here’s what he said:
Thanks for taking the time to express your concerns, John.
Like all of our services, High Velocity Profits is based on tremendous research into the proven combination of value and momentum that’s been well documented over the last 120 years of modern financial markets by independent researchers all over the world.
Value and momentum are used in various forms by some of the world’s most successful investors – including most notably the late Sir John Templeton and Warren Buffett.
They’re also at the heart of methods used by major investment management firms, like Goldman Sachs, AQR, and Dimensional Fund Advisors, as a means of stock selection for portfolios in the hundreds of billions of dollars.
And, finally, the link between value and momentum is so important that Eugene Fama won a Nobel Prize for his work in this area.
Let me give you a few examples that can help you better understand the approach:
You may also wish to read What Works on Wall Street by James O’Shaunessey, now in its fourth edition. TheFinancial Analysts Journal calls it, “a major contribution to empirical research on the behavior of common stocks in the United States.”
In other feedback, a reader responds to yesterday’s Diary about Hillary Clinton’s proposed interventions in markets and the environment…
It seems that you are not a big fan of Hillary or anyone meddling, via regulation, with the markets to reduce the amount of pollution in the form of carbon emissions attributable to modes of production.
I would assume that by taking a laissez-faire approach, it would result in mass pollution and destruction of our environment.
I am not an environmental scientist or a statistician. But I would strongly suspect – based on actual, documented instances – that without our government intervention, corporations would revert back to the cheapest means of production… even when it means dumping toxic by-products into the environment rather than incurring additional expense of proper disposal practices.
I am curious as to why you would think corporations would act in a manner contrary to profit motive, if not forced by way of common sense regulation.
I totally understand that you have an opinion against Hillary being voted into office. However, I am at a loss as I read your argument against regulating activity that is proven to absolutely destroy our fragile and dying life support system… which if left unabated, would quickly render our market economy useless.
– Eric F.
Do you think Hillary is right on the environment? Is more regulation the answer?
Write to Bill and the team at [email protected]