This report abandons regimented format and gets right to the points it wants to make. There are important ones gathering and I want to make sure I am not flying on autopilot when I should be focused.
Crypto: Becoming “Real”?
As you probably know, I have dismissed Bitcoin and other crypto as another speculation in tow with a world full of other speculations during the monetary “policy bubble” (circa 2001-2020). However, thanks to friend Rich K, who does not miss opportunities to try to tune me up in certain areas, I’ve been made aware of another area; a Crypto/Gold combo.
“Our investment in Elemental Altus reflects Tether’s expanding commitment to real-world assets that offer stability, scalability and long-term value.”
That line says it all: Backing. Gold-backed BRICS currencies, you say? Well, why not gold-backed crypto-currencies? This as the United States and much of the developed world increase rather than decrease their dependence on debt-for-growth (decrease the perceived value of paper currencies).
This backing, if/as it becomes a “thing”, would not only legitimize crypto (to the stodgy likes of me), it would probably “tether” gold demand to its growth (and benefit quality Au mining and royalty operations). This could spell the end of that cartoon show that pits Peter Schiff (gold guy) vs. what’s his name, the crypto promoter? That guy. The name escapes me. The respective black and white arguments in their little social media theater will have become grey.
I am going to leave this subject as the brief intro that it is. It is an intro to a new line of thinking on my part. A new consideration that I’ll take more seriously now that it appears adults are in the room with the legions of kiddie klowns all over X and Reddit pumping crypto.
Silver
Another item that I am probably known for giving relative short shrift to is silver (relative to gold, at least). Silver put on a show on Friday and is now less than 2 bucks from the target (measured off of the shaded pattern).
But it is time for some balance. Typically, I do things fairly systematically. Like, “the current objective is 40”. But the big picture technical implication is for a new high. That could come this year, or perhaps next year. But this 45 year view, including a massive Cup (1980 to 2011, and then a Handle that was not so much a handle as a terrible bear market) implies that the old “Hunt Brothers high” will be taken out.
If that were to happen, how about the new Cup (2011 and still in progress today) making a new high just as gold did in 2020 before starting its long consolidation? Just taking a read of a chart, folks. I always like to see a Cup form a higher right side than left. So beyond the 40 target, the next objective is a higher right side to the historical highs around 50.
On a related matter, might a new high above 2011 for silver also imply similar potential for the HUI Gold Bugs index? It might. But there again, for now our operating target is 500 (+/-). Systematic, baby.
Silver and TSX-V as Market Indications
I will continue to not obsess on silver, but I will continue to be bullish on the big picture. I will also continue to value the “metallic credit spread” (Hoye) for its instructive value for other markets. The Silver/Gold ratio (SGR) at bottom is still on its rally that we have interpreted would be positive for commodities and resources.
Let’s also realize that another ratio has led the SGR. Last week in NFTRH 870:
With TSX-V/TSX at a new high point in its stair-step rally either there will be a pullback shortly or the trend will accelerate higher. Both scenarios are valid, in my opinion.
Well, “accelerate higher” it is. At least to close a pretty dynamic week.
This is all in line with our view of another leg up in the SGR. But we still have a difficult question of whether this is the real Crack-up-booming deal now… or whether the acceleration in TSX-V and the renewed rise in SGR are signs of ending stages of the rally, which historically they often have been?
History May Be Obsolete
If we accept that a historical trend lasting from the 1980s to 2022 has changed, then might we also accept the possibility that rules of that era have also changed? A rule like the one illustrated in the paragraph above, where the TSX-V and silver tend to be late stage signalers when they put on a show?
Yup, it’s back to the Continuum. When I mention a Crack-Up-Boom,* I think of the Continuum specifically. The crux of von Mises’ Crack-Up-Boom is out of control debt, which drives panic about paper currency, which drives people into assets.
I believe that tangible assets would be bid best, but it may not be a good idea to be shorting stocks either. In my interpretation, the coming of hyperinflationary pressure could first be seen as bullish because assets are going up in price. But I think the bullishness would be lumpy rather than uniform across asset classes. For example, real estate is intimately tied to long-term Treasury yields. Well, the 30yr yield Continuum is a natural drag on that sector. The bonds used to finance housing are – in my gold buggish opinion – not tangible. They are part of the problem >>> DEBT.
Hence the case for real things like outright owned property, stakes in real companies providing real 21st century solutions to other companies producing real things, from Energy/alt Energy to Materials (especially critical materials) to real monetary stability (gold). Here I also want to give another nod to silver. It is a much paler monetary asset than gold. But it is a more industrially strategic metal than gold as well. In a crack-up inflation, it could be a star.
* It should be pointed out that I am using the term “Crack-Up-Boom” because I think it is a powerful and colorful term. But we should be careful about literally interpreting von Mises’ theories and teachings from another era. We should think about echoes and similarities rather than literal extrapolation. It’s similar to how I have presented Dow Theory in a humorous way, rather than take it seriously over the last 20 years. Eh, Clark? A different era with analysis provided by distinguished ascot-adorned men of distinction.
A Question Remains, Strategy is the Same
Pardon me, if you would like to go whole hog bullish on commodities and materials now please be my guest. I write what I write to keep myself on the rails and hopefully by extension, many of you. But I reserve the right to be wrong. In this case it could be wrong to retain a level of caution about the question “crack-up now or crack-up after an interim liquidity event?”, which I view as a very valid question.
The reason for my caution is that one way or another, it looks like the Fed will cut rates in the coming few months. But they will not cut rates because Trump is losing his mind over it in the White House. They will cut rates if something goes too far wrong in the economy and/or if there is a precipitous decline in inflation signals. These things open the door for a potential liquidity event in pumped-up markets. Right now we are all heroes, making money in precious metals, commodities and stonks. The environment is ripe for a clean-out prior to the main (inflationary) event. But again, I’ll take it week-to-week.
The way I am approaching it is as you know already, I am watching silver and its relationship to gold. Secondarily, I am watching the TSX-V/TSX ratio and the nominal TSX-V’s next upside target (800-850 zone). So I am week-to-week, still on the “SGR trades”, adding on pullbacks. More on individual positions a bit later.
Under the new macro trend illustrated by the Continuum, it can be argued that the Fed is less relevant now, and government – with the battering ram known as Trump at its front bumper – is now driving the bus. They just approved a new debt package because… they WANTED to. Government can do whatever the hell it wants, especially when it is governing a late-stage, hubris-addled, compliant and sycophantic society like ours.
Are there operations already in the works to inflate away the debt? We are in a new macro and new rules are in play. We need to correctly interpret what they are. The more I ponder this, the more I question my favored view that it could all be subject to an interim liquidity event.
That said, I have tried to operate in a way where I don’t need to know the answer just yet. Using the internal market guides like the SGR and TSX-V among others, it’s week-to-week and things are going well. Just as we were early to anticipate the SGR trades, I’d like to stay on track with them because I think it may be the new macro trend, but also remain vigilant for any changes in the SGR and TSX-V/TSX. Whether a classic upside blow out and flame out, or a roll-over.
As noted in an update last week, in my opinion it would be preferable for a continued grind upward rather than upside fireworks that would drop our jaws. Those kinds of things tend to precede flame-outs. Reference silver in spring, 2011 (under the old macro regime, though it was).
Market Indicators
Along with the SGR, TSX-V and other commodity-based indications, I am keeping an eye on broad market liquidity indicators like Junk bond spreads. This shows risk ‘on’ ‘and thus liquidity still ‘on’. There are many ways that casino patrons evaluate market liquidity, but this is one that I prefer for its sensitivity.
A less sensitive indicator is the 10yr-2yr yield curve, currently steepening, which is a negative indication, either for an oncoming bust and liquidity crisis or a new inflation problem. The curve can steepen and has steepened under both conditions.
Look no further than the still-bullish and elevated state of the Continuum chart above to see the situation in nominal long-term yields. When the curve steepens and nominal yields are rising, the indication is inflationary. Any wonder the Fed is stalling and Trump is trying to find ways to axe Jerome Powell?
Whether he knows it (or cares about it) or not, this president is trying to summon a massive inflation problem that would be indicated by a declining Fed Funds rate while long-term yields are so elevated. What that bull-headed force of nature wants, he often gets. Our macro analysis has to factor the potential of the government getting what it wants, which is new debt piled on top of old debt with the intention of inflating it away.
The “SGR Trades” Continue
Long depressed commodity and resource stocks and assets are popping off. As one example, Palladium, appears to be looking at its bro, Platinum and its cousin, Silver and thinking ‘why not me too?’ A classic double test of long-term support could target as high as 1800 even if this is not yet the real hyperinflationary macro deal.
Shifting to random daily charts, I added Oil & Gas Exploration & Production (XOP) to existing Energy (XLE) positioning. All due caveats about chart pattern failure rates, the nest above the 200 day average looks constructive. The job here is to change the trend to up. When enough trends like this start to change we will have a good signal that we’re already in a longer inflationary macro.
I’ve been adding to TLO.TO (TLOFF) positions on pullbacks. If geologist MC is correct in his estimation of the Tamarack Nickel project, the valuation could be orders of magnitude higher one day. He’s thinking the market cap (CAD) will begin with ‘B’, as in billion (currently around 380m CAD). A reminder that I have trust in MC through experience. You should not blindly trust him or me. What you should do if interested is confirm with your own research.
In a perfect world I would accumulate enough TLO to be able to take profits on some while letting a big bag of it ride, long-term. I do not consider current holdings to be enough yet.
From the same geo source comes AE.V (AMEGF), which is gold and copper exploration. While AE started out like superstars in their drilling, a more recent (January) drill came up relatively lame. That is show-biz in mineral exploration.
I can’t remember if I took my fat tax loss before or after the post-drill tank job, and it doesn’t matter. What matters now is that I don’t believe the story has changed, management has apparently learned a lesson in market expectations, AE has significant investment from South 32 and a new drill campaign is getting underway. After watching a video at their website of a positive review by an independent geologist, I am still firm (as one can be on an inherently risky hole driller) and have been buying on the shaded basing pattern.
Moving on, I would chart MP but its big upside explosion renders that less important now. I’m just holding it. Also, the supposed Rare Minerals fund REMX holds REE and other supposedly critical materials, like Lithium, which has dragged it heavily to under-performance (I did bottom-feed Li stock LAC because Li has to bottom sometime, doesn’t it?). Back on theme, a couple other REE items I hold have less extended charts than MP.
MP got the big time bid for reasons we originally conceived of a couple years ago, its strategic US mining and production in an ever more adversarial global environment. Last week it was announced that Uncle Sam had put a large investment into MP. So it had a particular reason for its explosion.
LYSDY is an Aussie REE and can’t really be thought of as a “me too!” play for that reason. But globally strategic it is. Whatever it is, its chart has based and is in a young uptrend.
IDR on the other hand is American, and thus could be strategic. It controls a large REE land package. It is also a Thorium story which, if you think certain analysis is valid, may be a cleaner, more efficient alternative to the uranium story (ah, stories… they go hand in hand with markets). Oh, and they’ve got a small gold mine from which they derive some of their financial resources. The REE and Th projects are “recognized as three of the top ten Rare Earth prospects in our country” according to the company.
Okay, well I consider it speculative and will go by the chart. US-based IDR is saying a hearty “me too!” after the MP news. But it’s obviously much more speculative. The stock held its 1.5 year long uptrend by the hair of its chinny chin chin before the upside jolt. Perhaps a test of 14.50 to 15 area could provide a buy opportunity. I chased it on MP day, but for future buyers that could be the spot. As for the gap through the moving averages, it may be a breakaway, not needing to fill any time soon.
Over in the copper patch SCCO is testing initial support. I originally bought it for the shaded pattern and see no reason to sell it at this time. This could be a buy/add opportunity, but a better one would be a 3’fer with a gap fill, support test at the pattern top, and converged moving average test in the 95 area.
Over in the silver patch, I got miserly on VZLA (a Jordan Roy Byrne reco), waiting for a post-financing decline to support (2.40) that never happened. So I chased it a bit on Friday, to positive effect thus far.
Fellow Jordan silver (w/ gold) pick GGD.TO (GLGDF) tested the SMA 50 and rammed upward, holding the 50 day average trend perfectly.
Bull Stonks
The report above gives examples of some ongoing “SGR trades”, but what of the bull stocks held (my term for broader, often Tech oriented stocks)? Well, many other areas continue to bull, although they will have to lug around an unhealthy sentiment profile, much like gold has done for much of the last couple of years. Dumb money indicators continue to eat, and Smart ones fade.
Greed is still dinging Extreme.
Now for some stock charts. First of all, I trimmed any stock that was looking at me sideways. You don’t stick to the original chart-based reason I bought you, you GTF out.
I also forced myself to take a profit on ANET. I looked at it and several others and decided this one would take the axe. It’s a good AI play but, see ya. It dinged resistance and that’s all I needed. If the market continue to hold up and/or bull, this could see new highs.
Still holding preferred (but richly valued) AI play, ALAB. I am looking for at least a gap fill at 113, but if the markets (including the Semi sector) remain bullish I think this can go well higher than that.
Old war horse GOOGL is sticking to the parameters of the trade after trying to shake me out on a dive-bomb to the SMA 50. It is looking upward at that gap below 204.
AAPL was added as it held support in the 195 area after dive-bombing on fundamental news (iPhone sales off, tardy AI initiatives if I recall correctly). My goal is to fill the gap and/or test the SMA 200 in the 220 area.
Global Semi Equipment maker ASML is still grinding along above support. Keep it that way, sir.
US Dollar
If, as pondered above, the Fed will be less relevant in the current macro/political environment might also the currency it pretends to steward be less relevant? The Silver/Gold ratio and scores of SGR trades don’t seem to think USD’s current bounce is much of anything. Technically so far, that is all it is, a bounce.
However, USD would be another liquidity indicator to watch if we were to have the interim liquidity event scenario play out rather than ongoing SGR/inflation trades. So let’s also continue to keep an eye on old Uncle Buck, eh? Right now it’s bounce on, trend hard down.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. This regular “savings” account will want to get in the game oh so slowly over the coarse of what I expect to be an inflationary macro, which may or may not have an interim liquidity event “trigger” first.
The taxable account carries very high cash levels as long as cash and equivalents are paying out. This is considered a savings account of sorts, rather than a speculation or even investment vehicle. The goal is to speculate around the periphery of that. In another market phase (e.g. post-crash), the account may get much more in the game.
Trading Account
No positions.
Roth IRA (non-taxable, no contributions)
The chart shows a robo-uptrend, a sideways consolidation, a shot upward and now a little grind. Its nature is more impulsive than the former uptrend. That has been helped by keeping a balance of bull stocks and precious metals/commodity stocks. Still heavy cash, which is usual for me with cash paying income.
If the Fed were to start cutting in September (as currently projected) the value of that funny munny would decrease and if an interim liquidity “trigger” were in play I could see myself being much less cash-heavy on a would-be buying opportunity like that.
Cash/equiv. is at 77%, so there is some good headroom to continue levering into the “SGR trades”, if applicable. I’ll continue to be Mr. Conservative (my nature) and take it day by day, week by week until I can confirm what macro is ahead (inflationary or inflationary subject to interim liquidity event). Regardless, at the moment it’s SGR/inflation trades.
Cash & income-generating Equivalents are at levels that are right for me and my real-world situation. Your situation is different. Cash will be adjusted as needed.
Refer to the Trade Log under the NFTRH Premium menu at nftrh.com for trade info, if interested (not that you necessarily should be). Also, you can follow on X @NFTRHgt for notice of updates.
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Notes From the Rabbit Hole (NFTRH) is a weekly market report in which we provide analysis on financial markets. We make every effort to provide accurate and high quality content, but this analysis ultimately represents our opinions and these opinions are provided without warranty or guarantee of any kind. See full terms & conditions of service under the ‘About’ heading in the main menu.
