Palpable Panic

Source: Michael Ballanger 08/12/2024

Michael Ballanger of GGM Advisory Inc. takes a look at the current state of the market, specifically copper and gold’s outlook.

As much as I detest the notion of getting older — as in, becoming an “elderly gentleman” — the aging of one’s muscle memory during periods like last Monday can prove to be extremely fortuitous. When last Friday’s jobs report came out and sent the rocket scientists on CNBC into multiple panic attacks, I sat down at my desk that morning, preparing to write an Email Alert to subscribers, and the first thing that leaped off the computer screen was that the CBOE Volatility Index (VIX) was trading at almost 65.

In a note to subscribers, I had urged them to cover all hedges “on the opening at market” because while October 2008 and March 2020 saw spikes approaching 90, moves above 30 have tended to be sold/shorted by the prop desks marking tradable lows for stocks. Now, you do not acquire that in book-learnin’ school; you get that through experiencing multiple market crashes of all shapes and sizes. You had the portfolio insurance crash of 1987 and the Asian Tiger crash of 1997. You had the Russian debt default / LTCM crash of 1998 and then the pandemic (or, more accurately, the “nasty flu bug“) crash of 2020. Crashes are all similar in one respect; they ALL should be bought. Especially when the VIX spikes above 30.

With the VIX above 60, I went through every account I owned to locate the 2x Long VIX Futures ETF (UVIX:US) that was bought at $9.25 back in May that I sort of forgot about because it was such a small holding. It had traded as low as $4.61 in mid-July, and rather than banging my head on the dented desk from which I toil, I offered it on the opening, and to my absolute astonishment, it went out at $19.90. I had a pile of the ProShares UltraPro Short QQQ (SQQQ:NASDAQ) in the GGMA 2024 Trading Account that I was holding as an insurance policy of sorts against a systemic crash in the financial system, which, of course, is never going to arrive (at least not in my lifetime) for which I was hoping to get $15.

The fill came in at $19.10. Topping it all off was a rather large, two-pronged position in the QQQ August $465 and $425 put options. I had first purchased the $425 puts back in June for around $3.35, expecting that the Mag Seven group of wonderful stocks could not defy gravity and take the Q’s much higher than $430, but as I have been since the rally began in late October of last year, I was wrong.

However, in one of my weaker moments, undoubtedly triggered by liberal doses of muscle relaxers and a vintage Pinot Grigio (I am sure), I waited for the Q’s to top $500, which they did exactly one month ago (at $503.52) and I bought more but this time grabbing the $465 puts for $4.50. These worked out a lot better as that first crack in the mega-cap tech stocks in mid-July gave me a triple in the $465, so I elected to ride the $425′s. Tapping into over forty-five years of crashes of all shapes and sizes, last Monday, I offered them “at the market on the opening” and was giggling maniacally on the floor when my fill arrived at $13.25 for a four-bagger on that second big position.

So finally, after taking a few pesos out of some Tesla shorts earlier in the year, a less-than-exciting jobs report and a few underwater hedge funds borrowing yen to lever up baskets of already-overleveraged technology issues trading at P/E multiples synonymous with Dubai’s Burj Khalifa (not to be confused with Mia Khalifa), I was able to make my year in a matter of one weekend. I write this with the utmost inhumility at the forefront, but the point of the exercise is this: Stocks are in a highly-precarious position right now despite the rally.

As most people who follow my work know, I have been a copper bull for the better part of two years, and I continue to be positive about the fundamentals, looking out to the end of the decade. However, copper for September’s delivery came down below $4.00/lb. on Monday and Wednesday, slipped back on Thursday, but is up nearly $.08/lb. this morning to $4.03. I fully expect copper to rally from the deeply oversold conditions created earlier this week and make an attempt to get back above the 200-dma at $4.11/lb.

Nonetheless, that is still a far cry from the May 20 peak at $5.199/lb. at the height of the fever-pitch narrative screaming “structural shortage” being repeatedly rhymed off by cab drivers, shoeshine boys, and aspiring fintwit blogsters. One thing about the electrification metals is glaringly obvious; they are to be rented, not owned, because lithium, uranium, and copper have all now completed bull market phases lasting less than two years, all in the span of the post-pandemic period.

The one metal being shamelessly touted by those highly esteemed and ever-bombastic bloggers is silver, but even that shiny little metal is one percentage point from entering a full-blown bear market, down 19.3% from its May top. The only metal that is maintaining its technical superiority is gold, and while it has been volatile, it bears nowhere near the volatility of the other metals, as can be seen from the chart shown below. Putting aside my bullish bias for “all things copper,” I have to look objectively at the copper chart, which is spitting directly in the eye of Bob Friedland.

Copper

I am not changing my stance towards the copper-gold baskets of securities led by copper-gold behemoth Freeport-McMoRan Inc. (FCX:NYSE) or junior explorer-developers like Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB), Fitzroy Minerals Inc. (FTZ:TSX.V; FTZFF:OTCQB), and Vortex Metals Inc. (VMSSF:OTCMKTS; VMS:TSX; DM8:FSE) because all of these names include gold as a resource or as a significant co-product of the targeted resource.

I am simply laying out the technical picture for copper and ignoring the fundamental bias that can get me into trouble. A great example of that was in mid-2023 when lithium was being touted as the “wonder metal” that would help the world transition away from ICE’s and into EV’s seamlessly while enriching the producers and all of their shareholders. That narrative has not changed, and global demand for lithium-ion batteries will indeed skyrocket as we approach the end of the decade — BUT — that has not stopped the price of lithium carbonate from plunging 85% in three years with U.S. lithium giant Albemarle Corp. (ALB:NYSE) crashing from over $330 to $80 in the same time span.

Do you remember when uranium was going to save the world from going dark by fueling all those new reactors currently in construction around the globe? Remember one silver-tongued blogster telling us that a $200/lb. price would certainly not surprise him? All of the above was in full chorus back in January when I was dumping a bunch of uranium names at or near the highs.

Similarly, the copper narrative was absolutely raging back in May, with Mr. Friedland tweeting out copper-bullish content multiple times a day while being interviewed by everyone willing to listen to his eloquent pitch on copper’s future meteoric rise that was surely going to see prices exceed $10/lb. by 2025. Agonizingly, I sold all of my beloved FCX and the June calls around the third week of May above $53 and then watched in terror as the stock price kept rising to peak eventually at $55.235 on May 20.

Well, fast forward three months and has the copper narrative shifted? Not in the slightest, as copper demand continues to surge amidst persistently declining copper supply, but that has not been able to offset the overabundance of supply over demand when it comes to price elasticity because copper is now barely above $4.00/lb. and FCX, the world’s foremost producer of copper and a substantial producer of gold, has dropped 29% in the same period.

The point I make is that in today’s world of trading and investing, I have to let the technical analysis take precedence over fundamental analysis because by the time the fundamentals catch up to the technicals, it is always too late. I have no crystal ball in the form of the copper chart, but history would prove that copper indeed has a PhD in economics, which allows it the right to bear the “Dr. Copper” moniker when it comes to forecasting global demand.

Since copper is used in literally everything, a 25% haircut since May has got to be telling us something.

Gold

For the better part of the second half, I was beating my brains out, trying to hedge my gold stock positions by maintaining a healthy dose of put options on the SPDR Gold Shares ETF (GLD:NYSE). Well, in yet another fit of medicinal overindulgence causing extreme impulsiveness and ad hoc, knee-jerk decision-making, I decided that I had enough of this absurd tap-dancing around a “mid-August low in store” for the gold market (and for GLD), so I pitched all gold and GLD hedges soundly overboard while chastising myself at every and all turns.

Unlike silver, which acts awful, gold prices are trending beautifully, and I had to ask myself how I could ever think that a chart that is so letter-perfect could ever incite me to want to short it. Not that advancing age is a prerequisite for accelerating senility, but I find myself anchored in the notion that mid-August just had to be “THE” low for gold, and as intransigence tends to be a dominant feature for most grumpy old septuagenarians, it took me about a month longer then it should have to get my thinking (and positioning) back in line.

They tried to take gold down into the “Carry-Trade Crash” on Monday but by the end of the week, it was pretty much back to where it ended July. Up 25.9% from the February lows, notice how miniscule are the corrections which are earmarked with higher highs and higher lows as it begins to take on the low-volatility features so sought after by portfolio managers the world over. I remain very long the shares of gold developers and copper-gold explorer-developers and shall remain so for the balance of the year.

Earnings for Gold and Silver Miners

It was a difficult earnings reporting week for the gold and silver miners as B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX), Orezone Gold Corp. (ORE:TSX), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), and Coeur Mining Inc. (CDE:NYSE) all reported top and bottom line “misses,” citing “rising costs” as reasons for margin compression.

Mining is a tough business, especially when you are forced to deal with the volatility of diesel fuel and currencies. It must be remembered, though, that the VanEck Junior Gold Miner ETF (GDXJ:NYSEArca) is up 38% from the February lows and is ahead 11.3% YTD.

Lithium poster child Albemarle Corp. (ALB:NYSE) is down 42.9% YTD; uranium poster child Cameco Corp. (CCO:TSX; CCJ:NYSE) is down 9.16% YTD with my beloved Freeport-McMoRan Inc. (FCX:NYSE) now down on the year (-2.96%) after being up sharply in the first half.

Gold is assuming the throne of outperformance, as it should.

While a palpable panic was evident on Monday, there is not even the slightest tinge of anxiety in gold investors, and that is fully evident in the chart and in the complete lack of commentary around the financial media.

Is there too much complacency in the gold market?

I think not. As written here since time immemorial, money moves to where it is best treated, and once the full correction in U.S. mega-cap tech arrives (which should be between now and the U.S. elections), U.S. growth stocks will cease to be the best treater. Finally, if there are any investors out there thinking that Monday was the bottom of the correction, I have a bunch of lithium-ion batteries for you, “as cheap as chips,” as they say, across the pond.

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Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Getchell Gold Corp., Fitzroy Minerals Inc., Vortex Metals Inc., Cameco Corp., and Pan American Silver Corp.
2. Michael Ballanger: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with Fitzroy Minerals Inc. I determined which companies would be included in this article based on my research and understanding of the sector.
3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Michael Ballanger Disclosures

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.