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Will The Fed Pivot And Do Gold And Silver Care?

“[T]he Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.” – July FOMC Policy Statement

The FOMC voted unanimously in favor of the Policy Statement and related actions released last week. While the Fed indicated that “ongoing increases” will be data dependent, the key data points consistent with the alleged Fed mandate are CPI inflation and the unemployment rate. Both are phony numbers but if the Fed thinks it can attack inflation by attacking consumer demand, it will need to continue hiking rates for now and it can point to a sub-4% unemployment rate, as fictitious as that number may be, to justify continued rate hikes.

That said, the precious metals sector at this point will not care whether or not the Fed pivots. Real interest rates are still extremely negative – meaning monetary policy continues to devalue the dollar – and there are many indications that the precious metals sector may be forming a tradeable bottom.

Chris Marcus of Arcadia Economics and I discuss the implications of the Fed’s latest episode of “FOMC Kabuki Theatre” and why the current policy as well as possible pivot is bullish for gold, silver and mining stocks:

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The precious metals sector looks like it’s ready for a major move higher, especially the junior exploration stocks – you can learn about my Mining Stock Journal here: MSJ information; and my Short Seller Journal subscribers have made a small fortune on the ideas I present weekly in my short seller’s newsletter: SSJ information.

Shopify Remains Insanely Overvalued ($SHOP)

The analysis below is from the latest issue of the Short Seller’s Journal. This is a weekly subscription newsletter that offers economic commentary and short-sell ideas based on fundamental analysis, as well a ideas for using puts to express a bearish view on insanely overvalued companies. You can learn more here:  Short Seller’s Journal information

Shopify ($SHOP) posted a $1.12 billion net loss for Q2. To be sure, $1 billion of that was a non-cash write-down of the Company’s equity investments. However, once all of those crappy little companies go out of business, it will be an economic loss of the cash used to invest in them. But even adding that write-down back, SHOP lost $190 million on an operating basis vs $139 million of operating income in Q2/2021.

For the 1H of 2022, SHOP posted an operating loss of $288 million vs $258 million in operating income in 1H 2021. The surge from the pandemic in online buying died in late 2021 and now a large portion of consumers no longer have the disposable income needed to buy the garbage sold on SHOP’s platform. SHOP’s operations burned $177 million in cash in the 1H 2022 vs providing $202 million in cash in 1H 2021.

The Company said that it will generate an operating loss for the 2H of 2022 and it expects the Q3 operating loss to increase “materially” over the second quarter’s $190 million loss. It sounds like the operating loss in Q3 will be quite large as management goes on to say “we expect an adjusted operating loss in the fourth quarter that is significantly smaller than in the third quarter, but larger than in the second quarter.”

About the only positive in SHOP’s earnings report is that it has roughly $5.50/share in cash and marketable securities. However, based on the 2H guidance, the Company likely will burn around 10% of the $6.65 billion in cash plus marketable securities.

Giving SHOP the benefit of simply doubling the 1H revenues to come up with a full-year estimate, SHOP is trading at 9x revenues. We can’t gauge operating and net income valuation ratios because the Company will be losing money, and the rate of loss will increase, for at least the next two quarters.  Thus, on both a trailing four quarter and six month forward basis, SHOP loses money. To put the 9x revenues metric in perspective, AMZN trades at 2.9x sales while most other retailers – all of which have big online businesses (WMT, TGT etc) trade between 0.5-0.8x sales trailing sales.

SHOP did a 10-for-1 stock split on June 29th. Pre-split it had run up to as high as $1700 at the frenzied top of the stock bubble. It’s back down to $340 pre-split. Post-split the all-time high was $170. The current stock price is $34 and the 5-yr low is just below $12:

Assume SHOP does $6 billion in revenues in 2022 – this gives SHOP the benefit of revenue growth in the 2H though it will still lose $600-$700 million on an operating loss basis. If SHOP breaks that line of support, which extends back to the March 2020 lows. I believe SHOP could see $12 before year-end but for sure within the next 12 months.

At a share price of $12, the price/sales ratio using my 2022 estimated full-year revenues is still 2.5x. This would correct SHOP’s valuation down to AMZN’s level. But unlike AMZN, SHOP loses a lot of money. If it corrects down to the average P/S ratio for big retailers with online operations, the stock price will fall to $3/share (this is based on a PSR of 0.65 and $6 billion in revenues). By the time SHOP might fall to $3, its cash hoard – at $5.50/share now – will be well below $5/share. Maybe the cash on hand will prevent it from falling to $3 for a couple years.

When the market rolls back over, which I expect to happen anytime between now and Labor Day weekend, I think SHOP will fall to the $20-$25 range. On that basis, I think the September 16th $30 puts are quite interesting. I may buy some of those. However, for the purposes of the valuation analysis I laid out above, I like the March 2023 $20 puts (traded at $1.75 on Friday) and the January 2024 $15’s (traded at $1.80 on Thursday) or the January 2024 $12’s (lowest strike offered, traded at $1.20 on Friday). A continued rally in the market that takes SHOP higher will help make the 2024 puts less expensive.

Rising Financial And Economic Uncertainty: Watch Big Pension Funds

After a decade of deranged monetary policies that ultimately amplified speculation beyond 1929 and 2000 extremes, we are so far from “normal’ that arriving anywhere near that neighborhood will be a journey. The recent market decline has simply retraced the frothiest portion of the recent bubble, bringing the most reliable market valuation measures back toward their 1929 and 2000 extremes – John Hussman, Hussman Funds

Calpers, the California public state employee pension fund, unloaded $6 billion worth of private equity holdings at discounts to where the positions were marked at the end of Q1. The discounts ranged anywhere from the high single-digits to as much as 20%. On the surface this may not seem like a big deal, as the $6 billion represents just 1.4% of Calper’s asset base. However, private equity investments are likely somewhere between 15-20% of Calper’s holdings.

The same is true for most pension funds. When the returns available on Treasury bonds and investment grade debt went below 1%, approaching zero for short duration Treasuries, public pension funds across the country ratcheted up their fund allocations to stocks, junk bonds and private equity. I know from insiders that some public funds increased the allocation of private equity to 20%.

The valuations of private equity positions are based on theoretical “mark-to-model” pricing. The new valuation of each company increases when the successive round of capital raises place a higher valuation on the equity of these companies. And the valuation models are based on where “comparable” companies trade in the stock market. The scheme worked great for generating higher mark-to-market rates of return each quarter and boosting the overall ROR on the fund during the years when the stock market bubbled up.

As long as the stock market was pushing the publicly traded “unicorns” higher (stocks like Peleton, Teledoc, etc), the private equity fund managers could apply rising revenue multiples to the valuation of the privately held equities. See the problem? The investment strategy at its core is a Ponzi scheme. This was being done by pension boards and managers in order to justify the payouts to current-pay beneficiaries despite the fact that the current payout stream of cash exceeded the cash inflow from investment gains and capital contributions from future beneficiaries.

The returns generated for pension funds on these positions each quarter and annually continued to rise with the stock market. But it was fool’s gold. Now all of the pension funds that jumped on the private equity bandwagon are faced with the prospect of having to write-down the valuations of most if not all of their private equity holdings. Many of the companies funded by the easy money during the bubble years will disappear, in which case private investments will have to be written-off completely.

This is an issue faced by States and pension beneficiaries that is not getting any air-time. But the report about Calpers caught my attention. I would bet that the positions that were sold by Calpers were cherry-picked because those positions had the highest bids from the buyers. Remember, these private equities trade over-the-counter in the private market, which is opaque and becomes extremely illiquid during a bear market. I am certain that many of Calpers positions had bids that were well below 50% of the price mark at the end of June and some had no bids.

As the bear market progresses, it will become apparent to many that big pension funds are in serious trouble. This in turn ratchet up the degree of financial and economic uncertainty, which will put further downside pressure on the stock market.

The commentary above is from the July 17th issue of the Short Seller’s Journal. Each week I provide analysis of the weekly key economic data plus provide short sell ideas and related put option suggestions. Currently I’m focused on the housing market, which is entering a bear market that will be worse than the 2007-2010 housing bear. You can find more information on this newsletter here: Short Seller’s Journal

Daniela Cambone’s Dishonest Journalism

“Back in the day, you remember when we started in the industry, the talk of gold manipulation was really…like, you couldn’t talk about it. It was like an underground thing. You were seen as a conspiracy person if you did speak about it, and now it’s really like it’s almost out in the open. Yes, banks were spoofing the prices.” – Daniela Cambone’s interview with Mark Yaxley of Strategic Wealth Preservation

Hmmmm…”couldn’t talk about [the gold market manipulation].”  Funny thing about that – GATA , along with many of us, – have been talking about the gold market manipulation until we’re blue in the face for over twenty years. Yes, Daniela, could have talked about it like a proper journalist, helping in the cause of providing awareness, facts and truth to her slavish audience. But Daniela defied her charge as a journalist and chose to look the other way. And worse, she enabled some of her highest profile interviewees to blatantly lie about a reality of which she was clearly aware. This is dishonest journalism. No, wait – it’s not even journalism. It’s fairy-tale media.

“Disinformation for many years has kept the lid on this tinderbox and since 2018 the Financial Stability Desks at the world’s central banks have followed the Bank of International Settlements’ instruction to hide the perception of inflation by rigging the gold market.” – Peter Hambro, founder of Petropavlovsk plc gold mining, (formerly Peter Hambro Mining)

Daniela has paraded several “experts” over the years who have denied that the gold market was manipulated. And based on her comment above she knew that the “experts” either were lying or had motivated interests in the adamancy of their assertions. Yet, she chose to look the other way, cowering from her masters at Kitco.

I’m echoing the sentiment (though chose to remove the velvet hammer-cover) of GATA’s Chris Powell, whose dispatch alerted me to Cambone’s follies: GATA/Cambone.  But in addition to Chris’ suggestions for Daniela, how about, now that she’s at Stansberry and apparently has shed her Kitco muzzle, she invite the likes of Rick Rule, Doug Casey and Pierre Lassonde and grill them on the blatant gold market interventions by Central Banks and bullion banks, holding their feet to the fire with irrefutable facts that Chris Powell will be happy to assist her in sourcing.  Start with the BIS’ slide show from a  June 2008 seminar and ask them to explain this:

The COT Report For Gold And Silver Is As Bullish As I’ve Ever Seen

The Treasury curve is imploding, which means interest rates have become more negative this week, especially today. The gold/silver action is strictly in the corrupt Comex arena. Also, the action in Treasuries is an ominous warning of a big problem in the financial markets lurking right around the corner. Hold on tight to your physical gold and silver. It would be a huge mistake to believe that any metal you might “own” in ANY custodian is safe…

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The precious metals sector looks like it’s ready for a major move higher, especially the junior exploration stocks – you can learn about my Mining Stock Journal here: MSJ information; and my Short Seller Journal subscribers have made a small fortune on the ideas I present weekly in my short seller’s newsletter: SSJ information.

The Coming Collapse Will Be Worse than 2008 – Here’s Why…

The U.S. Government was hijacked by Wall Street in 2008 under Obama’s watch, likely with his complicity.  The rats in his Government were highly trained, corrupt lawyers who were inserted in key positions of enforcement because their biggest clients at their law firms were all of the Too Big To Fail Wall Street banks. Titus mentions Covington &&  Burling in his podcast. CB is the real life equivalent of Lambert & Lock in “The Firm.” Only Covington & Burling is a “cleaner” for the biggest Wall Street banks rather than the Chicago mafia. But is there any difference?

This video is a must-watch for anyone wondering why this country looks so much different that it did just 40-50 years ago (for those of us who were around and aware back then). For me the best part is the clip that shows Alan Greenspan spilling the beans on the truth about the financial system and the reaction to his statements by Ben Bernanke and the show’s moderator. If you listen carefully, you’ll understand why the financial system collapse coming at us will be much worse than the 2008 great financial crisis:

Systemic Instability And Gold & Silver

The MOVE index – which is basically the VIX indicator for the bond market – hit a high earlier this month not seen since the Great Financial Crisis. Similarly, the cost of credit default swaps – which is the cost to buy “insurance” on all forms of debt – has spiked up to its highest level since the March/April 2020 virus crisis. These are indicators of rapidly escalating instability in the credit markets domestically and worldwide.  In fact several indicators reflect a degree of risk and fear in the markets not seen since the summer of 2008.

Craig Hemke of TF Metals Report fame invited me on to his entertaining and informative Thursday Conversation podcast to discuss the growing risk of a repeat of 2008/2009, only much worse this time, and how it might affect gold, silver and the mining stocks (click on the graphic below or you can download the MP3 below the pic) :

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The precious metals sector looks like it’s ready for a major move higher, especially the junior exploration stocks – you can learn about my Mining Stock Journal here: MSJ information; and my Short Seller Journal subscribers have made a small fortune on the ideas I present weekly in my short seller’s newsletter: SSJ information. Home run short ideas include $ARKK $Z $OPEN $HOOD $DKNG etc.I have several more ideas lined up with substantial downside.

The Precious Metals Sector Is Percolating For A Monster Move Higher

I wrote the following commentary on the precious metals market for Kinesis Money:

With all of the factors in place to support a big move higher in the precious metals sector (raging inflation, escalating geopolitical tensions, recessionary economy, etc), the recent market action is frustrating to say the least. To be sure, a certain percentage of the poor performance in gold, silver and mining stocks is attributable to the ongoing decline in the general stock market. It’s a bear market.

When capital pulls out of the markets (stocks and bonds), it pulls out of everything. March 2008 to late October 2008 is a good parallel to the current market. At some point there will be a catalyst, or catalysts, which triggers a positive divergence of the precious sector from the rest of the stock market. The most likely event will be reversal by the Fed of its monetary policy.

That said, gold continues to move in a steady uptrend that extends back to March 2021:

There have been several successful tests of that uptrend/support line along way. Currently gold seems to be holding its 200 dma. While anything can happen over the short term (next couple of months), I expect a big move in the sector sometime between now and the end of October.

Also, keep in mind that the effort to prevent gold and silver from moving higher has been particularly aggressive since gold was turned back from $1975 in mid-April. But 85-90% of the time gold has been rising during the hours when the eastern hemisphere physical accumulators are trading and gets pushed lower once London and then NY open, which is primarily paper derivative gold trading. When gold shakes off the latest price control effort, it will shoot over $2000 and move higher from there. Similarly, silver is in a dog fight at $22. But once poor man’s gold prevails, it move higher toward $30 quickly.

The chart below shows the ratio of the S&P 500 to the Amex Gold Bugs Index (HUI) going back to 2001. I’m using the HUI instead of GDX because GDX did not exist until 2006. I wanted to take this chart back to the end of the 20-year bear market in gold that began in 1980.

The black line was drawn to show periods time when the mining stocks were incredibly cheap vs the rest of the stock market. The current relative value between the SPX and the mining stocks is back to where it was at the end of 2015 and the end of 2018. Big rallies in the sector followed. Prior to the end of 2015, the last time the mining stocks were as cheap vs the SPX as they are now was in late 2001. At that point, a 10-yr bull cycle – inside a longer secular bull market – was already under way.

Unless you believe that the secular bull market in the precious metals is ending, the chart above suggests that there is another substantial bull move coming. Obviously timing is unclear. What might be the catalyst?

The more I ponder the circumstances, the more I am convinced we’re watching the summer of 2008 repeat and unfold right now, only this time it will 10x worse than back then. First, the housing market is starting to head south quickly. In six to twelve months, most people will be shocked at how different the housing market looks like then compared to now.

Furthermore, the banks are in trouble. If you pull up a chart of Deutsche Bank, you’ll see that it is down nearly 50% since February 10th. DB is the most systemically dangerous bank in the world. Many of the other Too Big To Fail banks are down 25-35%. The Nasdaq, down 31% from its ATH in November 2021, is down less than the stocks of many of the worlds largest banks. We have no idea what their off-balance-sheet derivatives exposure looks like but I can guarantee it’s apocalyptic.

Finally, the stock market is in a crash cycle that is still in low gear. When the wheels were flying off the financial system and the economy in 2008, the Central Banks – led by the Fed – flooded the banking system with printed liquidity. They did the same in 2020, though the Fed began in September 2019. It is unknown is whether or not the Fed and other Central Banks will quadruple down on their money printing at some point or if they’ll let everything collapse this time. But in either scenario, at some point there will be a stampede into physical gold and silver that will translate into a large, sustained move higher in the mining stocks.

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The precious metals sector looks like it’s ready for a major move higher, especially the junior exploration stocks – you can learn about my Mining Stock Journal here: MSJ information; and my Short Seller Journal subscribers have made a small fortune on the ideas I present weekly in my short seller’s newsletter: SSJ information.

Toilet-flushing the U.S. in Three Exciting Fed Colors

“The Fed is lying about the causes of inflation. When asked about its role in causing inflation, in terms of buying assets, it says “oh no, that’s not the problem – we only create reserves and reserves – you silly rube – do not leak out into the real economy.”

John Titus has hit another grand slam home run in his Best Evidence podcast series. This time he annihilates the idea that the Fed does not print money but rather simply creates bank reserves. Using data from the Fed’s website, Titus explains the process by which the creation of bank reserves is transmitted as the equivalent of printed money into the real economy. This process causes currency devaluation that manifests as rising prices.

Titus shows how the Fed’s recent actions have caused banking system liquidity to recede, which in turn has caused the stock and housing markets tip over and has pushed the U.S. economy into recession. Unless the Fed reverses its policy, pronto, there will be a serious stock market crash and an economic depression. In this scenario, physical gold and silver will be the proverbial “last man standing.” However, more likely, sometime this fall the Fed will make every effort to reflated the financial system. This will require an unprecedented amount of new money printing, which will send gold, silver and mining stocks into a bull move that will quickly become parabolic.

Raging Inflation, A Collapsing Economy/Stock Market And Gold In Uganda

The idea that Vladimir Putin is responsible for the raging price inflation in the U.S. – as “Joe Biden” first claimed in a speech a couple of months ago, calling it “Putinflation” – is patently absurd. The Fed, along with several of the largest Central Banks around the world are directly and indirectly the cause of price inflation. Supply chain disruptions and the U.S./EU sanctions on Russia are secondary exogenous variables that have exacerbated the problem created by bankers.

With all of the factors in place to support a big move higher in the precious metals sector (raging inflation, escalating geopolitical tensions, recessionary economy, etc), the recent market action is frustrating to say the least. To be sure, a certain percentage of the poor performance in gold, silver and mining stocks is attributable to the ongoing decline in the general stock market. It’s a bear market. As I’ve discussed previously, when capital pulls out of the markets (stocks and bonds), it pulls out of everything. March 2008 to late October 2008 is a good parallel to the current market.

Rob Kienz of GoldSilverPros.com invited me on to his podcast to discuss the Fed, inflation, the precious metals sector (gold, silver, mining stocks), Cathie Wood/ARKK and the Uganda gold claim.

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The precious metals sector looks like it’s ready for a major move higher, especially the junior exploration stocks – you can learn about my Mining Stock Journal here: MSJ information; and my Short Seller Journal subscribers have made a small fortune on the ideas I present weekly in my short seller’s newsletter: SSJ information. Home run short ideas include $ARKK $Z $OPEN $HOOD $DKNG etc.I have several more ideas lined up with substantial downside.