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Fortuna Silver Delivers An Early Christmas Present
On Monday, December 20th, Fortuna Silver ($FSM / $FVI.TO) announced that the SEMARNAT, Mexico’s environmental authority, granted a twelve-year extension of the Environmental Impact Authorization at the San Jose mine. SEMARNAT confirmed that the mine operations are conducted in accordance with all environment obligations under the EIA, reassessed the application and thereby granted the extension.
Since the mine was put into operation by FSM, PROFEPA (Mexico’s environmental protection agency) has conducted 13 inspections. The Company has never been cited for pollution or environmental damage. In addition the Company spends the resources to go well above and beyond the environmental and community outreach requirements to remain in compliance with its operating permits and maintain a good relationship with the local stakeholders and authorities.
FSM is the biggest employer in the region of Central Valleys of Oaxaca and the biggest direct and indirect source of economic wealth output in the area. The only surprise for me was that the extension was granted before year-end. I expected that FSM would have to incur the cost of elevating this matter to the courts.
During the period between the initial denial and subsequent granting of the extension, the mine operations were never paused and the Company did not incur loss of revenue. Based on the reserves, the current assessed life of mine is three years. However, the property hosts multiple areas of possible resource expansion. While its impossible to know if the Company can extend the mineral reserves for the full twelve years of the extension, I am confident that the mine will operate for several years beyond the rated LOM. This probability, in my opinion is not yet factored into the stock price.
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The above commentary is an excerpt from the next issue of my Mining Stock Journal newsletter. I also lay out an updated valuation analysis and offer my price forecast for the next six to nine months. The valuation analysis was derived from conversations with the Company over last two days, as well as my expectations for the existing mines and for the high-grade Sequela gold mine, which is now under construction with the first gold pour expected in mid-2023.
In addition to this, I provide update opinions on several of the companies I cover, own and recommend plus a Stocking Stuffers section that includes an opinions on Pan American Silver (PAAS) and Great Bear Resources.
More information on my newsletter can found here: Mining Stock Journal subscription information. There’s no minimum required subscription term beyond the first month, though more than half of my subscribers have been subscribed for over two years. I do all of my own research and I emphatically do not take any compensation whatsoever from mining companies.
Did The Fed Turn “Hawkish?” – No
The Fed announced Wednesday that it would double its rate of taper, which means that by the end of March it will not longer be overtly dumping money into the banking system. It also implied, via its idiotic dot-plot, that there would be three interest hikes in 2022. Initially the stock market rallied hard on this news. But it was technical fool’s gold. The Nasdaq bounced up from its 100 dma while the SPX bounced up from its 21 dma and the Dow from its 50 dma. This triggered a manic short-cover rally (the index of most shorted stocks outperformed everything).
I expected a follow-through on Thursday for at least the first half of the day. Instead, the market gap’d up at the open and began selling off quickly seven minutes after the open. The Nasdaq plunged 385 points and closed on its lows. The financials had a knee-jerk reaction to the Fed’s threat of raising interest rates in 2022 and soared early on Thursday. On Friday the financials got absolutely pounded, falling below their close on Wednesday.
The intra-day volatility engulfing the market is a reflection of growing market instability. This is not surprising given that valuations by most metrics are considerably higher than at any point historically. Upon further review, the FOMC policy statement is widely acknowledged to be a sheep in wolf’s clothing. The revised policy implemented by the Fed will continue money printing and balance sheet expansion at least through March. In addition, if we assume the Fed follows through and hikes rates three times in 2022, real interest rates will still be negative. This is not how to attack inflation.
When Paul Volcker assumed the Fed Chair in 1979, the inflation problem he faced is similar to the current inflation problem (rampant money printing and increasing scarcity of energy). The money supply had tripled between 1971 and 1981. He immediately jacked up the Fed funds rate by 2% in 1979 – and a single rate hike amount that was unprecedented. The FFR was already above 9% when he started. By the time he was done hiking the effective funds rate in 1981 was over 20%. That’s “hawkish” Fed policy dedicated to dousing inflation.
The Mises Institute’s Ryan McMakin wrote a must-read commentary about propaganda vs reality with regard to the Fed’s latest monetary policy statement:
If you did any Fed watching this week, you probably heard all about how Jay Powell has turned (or perhaps returned) to hawkishness, and how the Federal Open Market Committee is all about fighting price inflation now.
A particularly cartoonish version of this claim was written by Rex Nutting at MarketWatch, who declared, “Everyone’s a hawk now. There are no doves at the Fed anymore.” He wrapped up with “This means that inflation no longer gets the benefit of the doubt. It’s been proven guilty, and even the doves will prosecute the war until victory is won. For the inflation doves at the Fed, Nov. 10, 2021, was bit of [sic] like Dec. 7, 1941: Time to go to war.”
This reads like a parody, so I’m still not 100 percent convinced this writer isn’t being sarcastic. But one will find no shortage of articles making similar claims throughout the financial media—albeit in a less over-the-top fashion.
The rest of the commentary is here: The Fed Is Hawkish Now? I’ll Believe It When I See It.
Cathie D. Woods’ $ARKK Is Sinking Fast
“Ark Investment Management is “going through soul-searching” as its growth-focused funds fall out of favor amid expectations of tighter Federal Reserve policy…” – Cathie D Wood, December 9th on Bloomberg
The chart above shows why all of Cathie Wood’s ETFs at ARK Funds have been hammered outright and relative to the Nasdaq. Since February 12, 2021, ARKK is now down 40.4% since hitting an all-time high on February 12, 2021. In comparison, the Nasdaq composite index is up 11.5%. The ARKK fund is not the worst performing fund in Wood’s ETF complex. The ARKG “Genomics” fund is down 46% since its all-time high close on January 20th this year. Anyone who invested in the fund after September 24, 2020 is now underwater – some have lost nearly half their investment.
When someone plays with fire, that person eventually get burned. Cathie should know this by now. She previously managed funds twice previously that went down in flames. In 1198 Ms. Wood co-founded Tupelo Capital. Under her co-stewardship, The Tupelo Capital hedge fund crash and burned 84% in just nine months in 2000. In 2001 Wood joined AllianceBernstein. The funds she oversaw there plunged 46% in 2008, and
she was heavily criticized for performing worse than the overall market. But, like a dog that returns to its vomit, CDW founded ARK Invest with seed funds provided by Bill Hwang. Recall Hwang and his Archegos Capital lost $20 billion in just two days last spring.
Most of the stocks Cathie Wood puts in her ETFs are the equivalent of playing with a blow-torch near puddles gasoline. Her flagship ARKK fund was down 13% for the week; it’s down 25.6% since the beginning of November; and it’s down 40.4% since its all-time high-close of $156 on February 12, 2021. Anyone who put money into the fund on November 3, 2020 is now down on their investment. It’s even worse if they added money to their ARKK investment after 11/3/2020.
When someone plays with fire, that person eventually get burned. Most of the stocks Cathie Wood puts in her ETFs are the equivalent of playing with a blow-torch near puddles of gasoline. Her flagship ARKK fund was down 13% for the week ended 12/10; it’s down 25.6% since the beginning of November. These are stunning losses in such a short period of time. Anyone who put money into the fund on November 3, 2020 is now down on their investment. It’s even worse if they added money to their ARKK investment after 11/3/2020.
ARKK’s performance would be even worse if TSLA wasn’t 10% of the ARKK NAV (now 8). Many of her reckless bubble plays have been relentlessly hammered: Z, TDOC, ROKU, DKNG and HOOD (TDOC, I stock I recommended as a short over a year ago around the $200 level is down 69% from the $300 all-time high it hit in early February) – that’s just a few of the names. Ironically, TSLA is probably one of the best performing stocks in her fund. What happens when price-discovery engulfs Tesla?
I predicted many months ago when I started pounding the table on ARKK as a short that the fund would eventually go down in flames. Several of my short ideas this year have paid off in spades. In addition to ARKK this list includes PENN, DKNG, ROKU, Z, HOOD and OPEN. To find out more about my Short Seller’s newsletter, follow this link: Short Seller’s Journal information.
Gold, Inflation, Market Manipulation and Mining Stocks
I think the Fed knows that the fundamentals support a much higher gold price. I also believe that’s part of the reason that the Fed followed through on its taper threat, thereby posturing that it would tighten monetary policy, at least for now. That would explain in the short-run – over and above the Fed’s overt market interference – why gold seems to be trapped between $1720-$1785.
The mainstream market perception is that tighter monetary policy is bearish for gold. It may be for paper gold but entities accumulating a lot of physical gold, including several Central Banks recently, don’t seem to be bothered by the Fed’s posturing. Moreover, the current prices of gold and silver do not even remotely come close to reflecting the extreme increase in the global fiat currency money supply along with idiotically high amount of debt globally.
If the Fed flinches at all on the taper – and according to the Fed policy statement it’s only a certainty through the end of December – I think gold will break sharply higher out of that chart formation.
The Korelin Economic Report invited me on to their podcast to discuss inflation, interest rates and the precious metals sector:
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Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here: Mining Stock Journal information. I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.
Gold, Silver, ARKK And Bitcoin – Systemic Risks Abound
When someone plays with fire, that person eventually get burned. Most of the stocks Cathie Wood puts in her ETFs are the equivalent of playing with a blow-torch near puddles of gasoline. In 1999 retail “daytraders” partied until 1999 ended. A year later most retail traders had lost 95% of their stock account equity. Cathy Wood invests and trades like a retail stock jockey. The flagship ARKK fund is down 40% from its all-time earlier this year. Little known is that her Tupelo Capital fund in the 1990’s was closed after an 84.8% loss. I am highly confident that this history will repeat.
The CEO of Microsoft unloaded 50% of his holdings a few weeks ago. Not 25% or 33% but half of his holdings. This is a strong statement about his view on the value of MSFT and on the stock market generally. Insiders are selling shares at a record pace and smart money is raising cash on every market rally. Once again retail and Cathie Wood have been set up as the exit strategy for insiders and professionals.
Lee Justo, formerly of Wall Street Silver, invited me onto new RISK podcast to discuss the markets, specifically gold, silver and mining stocks as well the systemic risks building up that will undermine financial assets
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Despite the ebullience of the broad stock indices, there’s has been bloodbath in many unprofitable and highly overvalued “crap” stocks. Just 43% of all Nasdaq Composite stocks are above their 50 dma’s. It’s only 40% for the S&P 500. Over the last several months I have recommended shorts in Zillow, Opendoor, Robinhood, Draftkings, Penn Gaming, Microstrategies and others. Most have been highly successful shorts – home runs if you used puts. If you are interested in capitalizing on a historically overvalued stock market with short ideas, this link will provide you with more information about my Short Seller’s Journal
You can click here for more information on my Mining Stock Journal
Bitcoin Is More Evidence Of An All-Encompassing Market Bubble
There can be no denial of the high correlation between Bitcoin and the Nasdaq. The Nasdaq stocks were the favorite gambling chips for retail daytraders and reckless fund managers in the late 1990’s tech bubble. Now that internet technology, shrouded by fairytales of a mysterious Asian creator and zero counterparty risk, has captured the imagination of the naïve or misinformed, Bitcoin joins the Nasdaq as an effigy of the biggest financial market bubble in history.
Wall Street On Parade published commentary on Bitcoin today which appropriately describes Bitcoin for the scam that it is.
“One of the most respected investors in America, Warren Buffet, summed up Bitcoin like this in May 2018: Bitcoin is “probably rat poison squared.” Also in 2018, Bill Harris, the former CEO of Intuit and PayPal, wrote a detailed critique of Bitcoin for Vox under the headline: “Bitcoin is the greatest scam in history.” Harris explained:”
“In my opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen. In a pump-and-dump game, promoters ‘pump’ up the price of a security creating a speculative frenzy, then ‘dump’ some of their holdings at artificially high prices. And some cryptocurrencies are pure frauds. Ernst & Young estimates that 10 percent of the money raised for initial coin offerings has been stolen.”
Here’s a link to the full article: Bitcoin Weekend Crash Provides a Hard Look at “Rat Poison Squared”
Sticky Fingered Fed Fanatic Omarova – the Wrong Kind of Bank Boss
Why would you nominate someone who just wrote a 70-page law review article–arguing that every checking account in the U.S. should be moved out of retail banks and into the Federal Reserve–to head up a bank regulatory agency, namely, the Office of the Comptroller of the Currency? And why would you stick with your nominee after an epically bad Senate confirmation hearing?
Who knows? But that’s not our problem–yet. What is of actionable concern is that the OCC nominee in question, Cornell law professor Saule Omarova, has not yet been confirmed by the Senate, and is thus not in a position–yet–to implement a plan that will erase any and all personal control over one’s electronic finances (at least those denominated in U.S. dollars).
Here’s the link to the Youtube post, which has links to the reports referenced by John: Best Evidence
Gold, Silver And Mining Stocks: Patience Will Be Rewarded
Note: This commentary is from the November 25th issue of the Mining Stock Journal
Without question, investing in the precious metals sector has been a pain in the ass for nearly the entire 20 years I’ve been involved. The official intervention, which has become shamelessly blatant, is the primary reason. But also, speculative capital floods into the sector when a big move looks ready to occur. The sector quickly becomes technically overbought and sentiment soars, which makes it easier for the banks to beat the metals and miners back down. What’s the motive for this? To prevent a rising price of gold from signaling the degree to which Fed and Government policies have engendered untenable systemic problems. First and foremost is the problem of uncontrollable price inflation unleashed by flooding the monetary system with printed currency.
The precious metals sector ran up sharply from the end of September. Along with it, so did the open interest in Comex paper gold. When the latest price ambush operation began on November 19th, the open interest in Comex gold had shot up to 620k contracts. The RSI and MACD momentum indicators were in “overbought” territory. And the HGNSI (Hulbert Gold Newsletter Sentiment Index) soared in a brief period of time from a negative reading to 60’s. The HGNSI is a reliable contrarian indictor. When the HGNSI moves up into the 60’s, a sell-off of some sort predictably follows.
In the chart above I’ve drawn an uptrend line which hopefully will hold. The sharp sell-off was accompanied by a 60,000 contract plunge in Comex open interest. Per the recent COT reports, most of that open interest was created by the banks, who print Comex contracts like the Fed prints money and uses the newly created paper to fill hedge fund buy orders. The banks then operate to create the sharp sell-offs like the ones in the chart above to “harvest” profits on the short positions they established during the price run-up.
With a bona fide securities market operation, the broker has to find sellers from which to source securities that can be brokered into buyers – the broker can’t simply print new shares of stock or bond certificates the way Comex banks print new gold/silver contracts. That said, per history (the London Gold Pool, the run-up in gold in the 1970’s, run-up in gold from 2000-2011) we know the banks can only hope to slow down the price rise in gold and silver. Otherwise the prices of each would still be below $300 and $5, respectively, where they were when I started getting involved in the sector in 2001.
The charts for GDX and silver look similar to the gold chart. GDX is almost identical while silver is similar but not as “clean.” I don’t know what the specific catalyst reignite the move higher in the sector that began at the end of September, but GDX ran 20% in six weeks. If the SPX ran 20% in six weeks, the hosts on CNBC would be doing naked cartwheels on air. I do believe that patience will be rewarded and the next move up will be bigger than 20%.
A new subscriber asked me about any concerns I might have holding equities in mining stocks when we seem to be at very lofty stock market valuations (tech)? He said he sees the compelling reasons to own the metals directly, but is somewhat reluctant to own the miners if the markets were to significantly correct.
I’ve addressed this issue in the past but it’s worth mentioning again given that the stock market is even more overvalued now than the last time I shared my thoughts on the subject. For sure, in a big sell-off scenario like March 2020 or 2008, the mining stocks might be proverbial babies tossed out with the bath water. But they’ll recover quickly because gold and silver will be soaring as capital floods into flight-to-safety assets. In 2008 the HUI index doubled between early Nov and year-end despite a continued sell-off in the stock market. Lately on big down days in the stock market, the miners typically have been flat to green.
Stocks are always risky. The ultimate safety is having possession of physical gold and silver. “Possession” is the key. But if you also want a shot a wealth enhancement, the mining stocks are historically cheap vs the rest of the stock market. I always recommend keeping plenty of cash on hand to take advantage times when the mining stocks sell-off in correlation with a general market downturn.
Is A Silver Supply Deficit Inevitable?
Silver is both a monetary metal and store of wealth – as such older than gold in fact – and a metal that is critical to a multitude of industrial applications. Silver is not only historically cheap relative to gold, but it is headed into a major supply deficit. For most of civilized human history, the gold silver ratio has been below 16. The ratio of ounces silver and gold pulled out of the ground currently is around 9. During the Roman Empire the ratio was 8 to 1. From the late 1600’s to 1900, the gold/silver ratio averaged just over 16. Currently the GSR is 75. The only conclusion to draw from this is that silver is one of the most undervalued hard assets in the world right now.
Kinesis Money invited me onto their podcast to discuss the impact of retail silver buying on the market; the future of gold and silver premiums and industry predictions of a severe silver supply deficit in years to come:
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The Mining Stock Journal is a bi-weekly newsletter that presents high rate of return investment ideas in junior exploration mining stocks as well as trading opportunities in large cap producing mining stocks. Currently my portfolio of recommendations includes multiple silver junior exploration ideas, some of which will be home runs (I recommended Silvercrest Metals at 16 cents in January 2016 and Discovery Silver at 30 cents in in August 2019. I’m currently working on what could be a home run opportunity in a junior looking to advance a silver-copper project that could be a company-maker. You can learn more about this newsletter here: Mining Stock Journal
Note: I do not take compensation in any form from the companies I present and recommend. I invest directly in many of them in my personal stock account and indirectly through a bullion and mining stock fund that I manage and in which I’m invested. I put my money where my mouth is.
The FOMC Statement Is Bullish For Gold And Silver
While the Fed announced the start of its long-threatened taper program, the actual policy statement says “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals” (FOMC Policy Statement). In the press conference following the meeting, Jay Powell confirmed that tapering could be limited to just November and December. This is why the Nasdaq shot up 149 points shortly after the release of the policy statement. It’s also why gold and silver spiked up sharply after enduring the customary paper gold price take-down on the Comex in the hours leading up to the release of the policy statement.
The economy is growing weaker by the day. Any kind of “growth” in the recent stream of economic reports is attributable to price inflation rather than “unit” growth. As an example, the factory orders report for September earlier this week showed a 0.2% increase over August in the total value of factory orders – $515.8 million in September vs $514.6 million in August. But using the monthly inflation rate of 0.2% in September from August per the CPI report, the real “unit” growth in factory orders was zero. Applying a real inflation rate would produce a decline in the value of factory orders in September from August.
[Today’s employment report was boosted considerably the 363,000 jobs attributed by the highly questionable, if not entirely non-credible, Birth/Death model. Real hourly earnings declined nearly 1% YoY]
The Fed is primarily concerned with keeping the banking system propped up and, secondarily, keeping the stock market from crashing. It’s a good bet that continued signs of economic weakness will give the Fed “cover” to halt its taper schedule after December. The FOMC next meets on December 14-15th. After that at the end of January so maybe the taper goes on for three months. Once the Fed stops the taper, or reverses and starts printing more money, the gold, silver and the mining stocks will do a moonshot.
Rob Kientz of Gold Silver Pros hosted me and Silver Tiger (SLVTV, SLVR.V) CEO, Glenn Jessome, to discuss the factors that lead us to believe silver will eventually hit triple-digits, which implies a gold price in the $5k-10k range:
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Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here: Mining Stock Journal information. I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.