Renaissancemen.org

My life the last month has been crazy busy, so not a ton going on here and on Twitter. I have a “real job” outside of all of this that has had me pulling 10-11 hour days for weeks on end, so that has cut into my time to write 30,000 word blog posts to you. C’est la vie.

As this last month was unfolding, I was getting destroyed daily with gold/silver miners, so it was a good time to step away for a bit. Up at 4AM today, figured I’d check in and give a sort of overview of what I think is to come. I want to also talk about where I and others were wrong and what we got right.

What I got wrong…ish.

While the war premium hit and sent gold and silver up, it was, to me, merely a catalyst to launch it out of gold’s downward trend. My expectations here were that gold would start to catch a bid as other things sold.

While this pull back has been in line with others – we had two strong ones in a row. I didn’t see this second fall down coming so soon. In a “bull market” you are not expecting an RSI to get washed out at 30 either. When RSI was 40ish, I started using some margin cash to buy majors. While GDX was at $42, I was then buying some at $37 on “dip” buying and thinking I’m getting it for a steal. Ouch.

BAD idea.

This entire episode, if over, cost me about 5% of my portfolio in selling items off for margin calls. I am not alone on here, that’s for sure. The relatively good news here is that most of these purchases were only like a 10-15% loss, but recently they changed my FSM margin from 25% to 50% and then last night to 60% margin. So the banks on the back end then adjust THEIR risk and ask for more cash – FORCING you to sell items at a loss. This was a learning experience for me. I wasn’t baptized over this, but it was nevertheless annoying.

What I had right was at the peaks here I was in about 20% cash and approximately timed to the tops to get some profits out. But I bought when “catching a knife” on what might best be described as a form of “bear trap”. So my 5% or so profits on the entire portfolio were given back. I didn’t see it as catching a knife – it seemed the 8% pullback was in, and off we go for another leg up. Yeah…no.

As some like to call this, “capital preservation” is the name of the game. And I got burned getting more deployed when I should have sat on my hands. My thinking was as the markets were going down, gold would bifurcate and go up. Well – gold went down, not as hard as the markets – but miners absolutely liquidated.

I think my lesson here is…stop trying to catch falling knives. When my gut says “do nothing”…do nothing. Sit on cash. Especially in a market free fall.

The red circle area is ABOUT where I bought tranches of HL, GDX, AG, AUY, GDXJ, FNV, WPM – Remember, I was sitting in 20% cash and things looked good for the “next leg up”.

Bear trap – it seems. Not precisely, but same idea.

So what I got right was at that peak there with the green candle and RSI over 70 – in a LOT of cash there. When I bought stuff around the red circle, I still had about 5-10% cash. But I didn’t see how when the values of these go down, it amplifies the margin stuff. So…I walked away (if this is bottom) giving back about what I had banked in gains at the top. I was selling what I just bought at 5-10% losses. That adds up.

But let’s look closer…

The red downtrend line is where we breached yesterday. The purple uptrend as well was just breached. I was listening to Hemke’s podcast when putting on coffee today and I think of anyone I listen to, he’s been the closest on everything the last 4 months. I think he even called the Russian invasion a month ahead of time to the day, if I’m not mistaken, because he talked about the symbolism of certain days in Russian culture. In this business, we all try and find people who are “right”. No one has a crystal ball, but you can see some of the analysts get things a lot more right than wrong – and these are the pros you then support with your subscriptions. You have to give them credit when they are “right” but also understand they can be “wrong”. All of this is then played through the lens of risk management. How do you manage risk? It’s not about going 100% deployed because “Hunter said this”. Good way to go bankrupt. Not knocking on Hunter – but you need to understand what a lot of these guys say, and IF it resonates with you, develop a plan on how to play it and manage your downside risk IF he/she is wrong.

Another person who has been mostly right has been Dave Kranzler. I never met the guy, and maybe someday we can hit around in tennis (I had a cup of coffee in D3 college tennis, so at least I wouldn’t embarrass myself) – but in some of my side conversations with him, he has repeatedly talked about “worrying about a stock market accident” which has kept him being more deployed into things.

These guys have gotten the capital preservation thing right – but even Hemke made a boo boo recently – again – these people aren’t perfect, but they are really good at what they do.

Oliver’s arm wrestling..

To me, Michael Oliver had made the most sense on the longer term talking about an “arm wrestling” situation where it seemed money would be fleeing the markets and perhaps into gold. He also mentioned the March 2020 events are rare and the exception. I had put this against Hunter’s thesis with the melt up, then a 65-80% move down, and I didn’t see how stocks could go up more. While a pivot could happen any day or week now, I had asked what if they let it burn? Meaning – to tame inflation, I felt it is possible they sacrificed the markets to preserve the dollar. Where Powell had Trump screaming at him daily in 2018 to lower rates to save markets, you have the Dems now essentially calling to end this high inflation at any costs. And this may mean burning everything to the ground. IF you cause widespread poverty through this, it also may boost their case for UBI.

But, I digress. When you look at the markets, it does look like an arm wrestling move down.

Where I bet was that as this happened, the 10yr would go up as well (who wants to give the gov’t their money for 10 years at 2% during 17% inflation?) – leaving only gold as the true safe haven.

Problem is, I believe the algos don’t care and our financialized system is programmed in Python or C# or something to ignore gold.

If you let the above sink in, you are then potentially realizing that gold has been removed from the playbook. This is where I was very wrong. I hadn’t considered that these big financial institutions had completely removed gold. Now, is gold holding up better than just about anything in a liquidation event? Yes.

And – I’m waiting for that bifurcation again, when the markets are down 3% and gold is up 2%. Right now, it seems like everything is margin called day after day – which might explain why gold and silver continue down and ground into dirt.

This chart I made gets no love, but what it showed was that when the Fed raised rates before, it was not that action that made gold go up. When the Fed fund rates went up, you would then see profits plunge as capital becomes more expensive. This would then lead to stock market sell offs and the 10yr going down. This was a tailwind for gold. We saw a phenomena recently where gold moved up with the DXY and the 10yr as the war was starting, but now the war premium has faded as the 10yr and DXY has gone nuts.

I thought like many others that the DXY would top at 97, but wow…you have a lot more complexities going on now that the Fed has stopped back stopping things. Bond auctions are a disaster. Japan has pledge to have near zero, crushing their currency against ours. Euro and GBP have to sell to buy rubles. So while the DXY has gone up, we have seen the ruble strengthen against the USD. In fact, 4 of the top 9 currencies against the USD are BRICS countries. I had seen that chart a few weeks back – and the Yuan is going down with all of their shut downs and easy money they need to use.

But what does a rising DXY mean IF in real terms, the USD is losing ground against BRICS? This is where the dollar gang might need to at least pay attention. Russia demands rubles or gold then creates a situation where the EUR/JPY/GBP over the next year will fall hard against the USD. But the question then is…how strong do we want that currency against our allies who are printing harder than us, while we’re trying to tighten?

Gold here is also something to watch. While the gold peg didn’t last terribly long, I think it was a major shot across the bow to all fiat currencies. China and Russia have discussed gold. Central banks buy it. If you look closely, the 60/40 model of financial investment may be coming to an end – where it is possible gold makes its way back.

After all of the research I did for years, I’m a gold and silver bug for life. I see summer 2023 of having some highs in gold, then perhaps another pullback, then a strong run for the last 4-5 years of the decade. Same with silver. Silver will go much crazier based on the structural problems with the markets and getting supply. So I will rotate out of these, at some point – while still having some physical holdings – but right now is where I felt these should be shining.

They are not.

The one good thing I did was in that big leg up I had seen how majors were catching a bid and that’s where I rotated a lot out of the juniors. I still was caught with USAU and ITRG getting smashed into oblivion – and I am a bag holder on some others I’ve held for over a year LT I’m not selling – but dear god this capitulation into no bids was a dark time to watch others suffer.

I will be rebuilding from the ashes with the most undervalued majors and mid-tiers. Sometime in the next week, if I have time, I want to focus on the best value plays. I’m still stupidly overweight with FSM, and am looking forward to earnings today.

I don’t put a TON of weight on earnings, but I feel this is where the rubber meets the road.

Earnings

As mentioned above, I have interest in earnings, but sometimes the numbers are a CPA’s wet dream of confusion with write downs, ghost losses, and discounting for depreciation. What I’m interested in seeing though is how miners did during Q1 where we had a record high close with gold price. Could an FSM crush it?

I know people have talked about rising fuel costs. It is a concern. Yes. But the problem with that fear is that these guys are pulling gold out of the ground at $1000-1100 per ounce. I have heard fuel costs are 1/3 of the cost to get it out of the ground. So if fuel has gone up 50%, perhaps that might take it to $1150-$1400? It’s not nothing, but considering gold was $1900-2000 for most of Q1 and even Jordan Roy Byrne got excited (his prediction for 2022 was $1900 MAYBE $2000 at tops and we hit $2070ish) – it stands to reason that all of the gold companies had a good quarter.

Now – I want you to be a money manager for a second, and you are seeing the markets going down. You are seeing a lot of the SPAC shit and crypto bros losing 80%. Risk assets are DEAD. Cost of business is way up with energy and trying to get anything from a supply chain. Margins are down. Layoffs coming. You then see a month straight of gold companies killing it. Don’t you take a look? Would it not stand to reason that a Newmont, Barrick, or Agnico Eagle might be a good investment where everything else is going down?

So that’s where my thinking is. It was actually there in summer 2020, but when QE started and they printed $6T, it sort of hit the snooze button on everything. Right now, we are looking at the Fed not backstopping things – and I could see more general equity sell offs. Many think the pull back may be soon to over. I don’t. I cannot see David Hunter’s melt up without a Powell Pivot. But to me, it appears Powell and his goons are dug in. For once, they seem to not be lying to you and they plan to keep raising rates.

Now…could the 10yr start to catch a bid? If you are in Europe, Japan, etc – you have negative or near zero rates. Wouldn’t putting your currency into USD and 10yr help grow your wealth? While you are looking at a 3% yield – your currency is also going down against the dollar, a lot, so you may be getting much more than 3%. To me, this might be the US strategy to do a form of YCC. Continue to strengthen the dollar and force foreign entities to buy your debt due to how weak their currency gets against the USD. Even China may be tempted with their falling Yuan.

So with this, I may not necessarily need the 10yr back to 1% for gold to catch fire, but perhaps I needed to find the bottom of the bond market before they rally and gold does with it.

We are at a cross roads….and sitting right at the 200dma. Today is CPI day, and the bots are gonna do what bots do. Could we see a lower inflation? It’s hard for me to say yes here on the YoY given the much higher food costs and rents. But there’s no doubt the MoM could shrink. It might take another 2-4 months before the YoY recedes. The problem is, people think this means prices revert – they don’t – they just accelerate higher at 5% instead of 8%.

I had heard on a podcast the other day that a 3% inflation can decrease your purchasing power by 50% in 13 years. CRAZY! Now do 9%. Or, shadowstats 17%.

No one has a crystal ball, but I’d say 16 days in a row of a silver sell off isn’t “normal” when you need a ton of silver to make solar panels and be part of the green revolution. The algos will need to adjust, and soon, or these banks are all about to do a nickel in short time.

I just think earnings for gold miners may be of particular interest to industry generalists this time. Seeing a Newmont print money while all major companies are suffering could be interesting to see.