Gold And Gold Miners

March 17, 2018

Buy The Kudlow Krash…

This week’s appointment of former Bear Stearns’ Chief Economist Larry Kudlow as head of the National Economic Council (“NEC”) will go down in history as one of the worst appointments in U.S. economic and political history. Notwithstanding that I cannot nor ever could stand watching or listening to the this Wall Street/Washington sycophant, he has been lobbying for a place in the Trump White House of Chaos since the early days of the Trump campaign, constantly referring to “my friend, Donald Trump” in interviews and defending the current president at every turn. His opinion is that it is in the best interests of the United States for the White House to support a “strong dollar policy” for reasons that defy every rule of economics and contradict Trump’s contention that trade is a major issue. One the one hand, Trump wants to re-establish the strength of the American working class by imposing tariffs on steel and aluminum in order to offset any competitive advantage that foreigners may have due to weak currencies. On the other hand, Kudlow wants a strong dollar which makes American exports MORE expensive and weakens demand for U.S. products by further weakening import foreign prices. Kudlow says “Buy King Dollar and sell gold” whereas the rest of the world has been doing just the opposite since shortly after Trump was elected. That Kudlow is an unapologetic U.S.-dollar cheerleader and gold-hater is most certainly the antithesis of what has been a very successful trade as the chart below illustrates.

Nevertheless, the CNBC Fast Money gang are once again all “bulled-up” with the idea of one of their own now in charge of “policy” but because Kudlow is so passionately intertwined with Wall Street, it will undoubtedly have him landing squarely on the toes of the recently-appointed Fed Chairman Jerome Powell, with today’s Kudlow directive that implied that “(the Fed) should not overdo it on the rate hikes” and “Just let it rip, for heaven’s sake”. Now, the gold bulls, of which I am most certainly a card-carrying member, could quite easily get rattled at Kudlow’s apparent disdain for precious metals but it must be recalled that Mr. Kudlow has claimed to be a “free market capitalist” for as long as he had been around. Let’s watch the action in these “free” markets over the next few weeks to determine if he has any more clout with the Donald than Cohn or Tillerson had. I say the Kudlow Effect on precious metals is a tempest in the proverbial teapot and within a few weeks (or several interviews), Kudlow is standing in the same line-up as Tillerson, Scaramucci, Cohn, and Bannon.

All we have to know over the near term is that while gold and silver are in well-defined uptrends, the historical ratio of gold-to-silver has silver trading at very cheap price levels. The 80:1 level has been a top four times since 2000 and each time you bought silver when it traded at 1/80th the price of gold, you made money. Furthermore, if you bought a basket of Gold (and Silver) Miners when the ratio was over 80, you made money in the stocks as well. So putting the Kudlow jawboning aside for the remainder of this conversation, I am accumulating silver and have established a 25% position in the SLV April $14 calls at $1.60 and will wait until Monday before adding further.

As for the volatility trade, I have teed up the UVXY about a dozen times since the mini-panic of February and each time I am tempted to try and replicate that February triple (that took less than ten days to complete), I have to pinch myself because the short-term indicators that gave me the green light have now been removed. The one I offered up in late January was the Citigroup “Panic-Euphoria Model” which popped briefly into the “euphoria” zone and that combined with liberal doses of both liquid bravery and pharmaceutical hubris, allowed for five 20% entries into the UVXY under $10. However, here at the Ides of March as this is being written, I have the distinct opinion that JP Morgan’s quantitative analyst, Marco Kolanovic, is going to be correct along with my technical analyst pal David Chapman with new highs coming for the S&P500 between now and the end of May. That rally, my friends, if I am right, will be fraught with technical non-confirmations and deteriorating breadth and has a high probability of proving that the February plunge to the 200-dma was simply the first “shot across the bow” – a technical warning shot – designed to give the Millennials and the Gen-Xers, who are completely bereft of any knowledge or understanding of either bear markets or crashes, a hint that maybe their credit-card-fueled positions in quadruple-leveraged QQQ ETF’s might be somewhat “at risk”. They won’t heed it, of course, but the 20-20 hindsight will make for wonderful barstool anecdotes as they look back in awe and angst at “how the 2018-2020 Great Bear Market wiped us out”.



It is Friday at noon and the traders have determined that Larry Kudlow’s sage “investment advice” is to be heeded and they are buying “King Dollar” and they are selling gold. This is brought to you by the man that wrote the following in 2007 in the National Review:

The recession debate is over. It’s not gonna happen. Time to move on…. The Bush boom is alive and well.  It’s finishing up its sixth splendid year with many more years to come. (National Review)

Brilliant. Simply brilliant. We all know what followed was the worst recession in decades and a drop in the S&P from 1,564 in 2007 to 666 by March 2009– and this is just one example of a Kudlow forecast that was run over like a deviant squirrel. For the full rundown on the Champion of Free Market Capitalism, the full article can be found here.

Enjoy.

Disclaimer

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.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in Marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

China has only 2% of its Total Foreign Reserves in gold.