(upbeat music) Welcome to the Corwin Economics Report, a weekly look at financial and political topics relating to asset-based investing. Guests on this program pay no fees to appear and guests and hosts disclose any equity interest in company's profile. Now the Corwin Economics Report. Hey everyone, welcome in to the weekend edition of the K.E. Rupp Report. I thank you all for joining us on this weekend show. I also hope that you all go back through our website and podcast, K.E.Rupport.com, or search the K.E. Rupport in your podcast provider to find all of our daily editorials and company updates, which we post throughout the week covering market moves, company news and anything else that we consider important for investors to know, especially when it comes to investing in resources and resource companies. On this weekend show we're going to start off by talking a lot about the junior sector in terms of resource stocks. We follow a lot of junior companies and quite frankly we get most of our questions on junior companies. A lot of these questions asking, what's it gonna take to get some of these companies moving and for some of the standout companies, just how much higher can these run and lead the market on the back half of the show? We'll go a bit more into some of the charts for broad markets and metals. We are kicking off the show with Matt Geiger, managing partner at MJG Capital. We'll post a link in the show notes to the MJG Capital website. Matt, I really want to focus on this one topic you sent over to us. One that we debated and have debated for probably the last couple of years, the bull and bear case for junior minors. In the resource sector, before we break down the bull case, the bear case and all the other questions around that, let's just start off with what you consider a junior. Is there a market cap? Is there a certain style of work program? Give us your more definition of what a junior stock is in the resource sector please. Sure thing and good to be joining you, Corey. Hope all is well on your end. Yes, just more definitionally, you'll see juniors from a market cap perspective described as companies that are less than 500 million in market cap. I'll usually use a more liberal definition, so I think anything sub-abillion. So if you're looking at it from a market cap perspective, I would say sub-abillion. And then really any company that's pre-production or pre-revenue, even if it's a larger development stage company that's valued in the multiple billions of dollars, like we see with Philo Mining, as they're in the midst of their take-up process here, I would also classify that in the junior space. So one way to look at it is for market cap, sub-abillion and other is just whether they're pre-production or not. And if they are pre-production, then I also would lump them into that junior category. Well, Matt, between the developers and the explorers, a little bit different ballgame in that the developers have already established a resource. They've got some economic studies in place, possibly. And they're moving down that pipeline of de-risking, whereas on the expiration side, it's really more about durable results. How do you ferret those two out in your own portfolio? Sure, so I think of the MJG portfolio, primarily in five different buckets. The first is prospect generation. We have very heavy weighting towards prospect generation, probably an order of magnitude more. If not, multiple order of magnitude is more than your average investor. That's close to 30% of our portfolio right there. And then I look at expiration stage companies. And I would kind of break that category down into two. There's the pre-discovery explorers, and then there's the post-discovery explorers. And the dividing line there is whether there is an economic or potentially economic discovery hole of merit that can make one think, okay, they could be onto something new there. The line blurs a little bit between late stage expiration and early stage development. I would say one could look to the LaSonde curve. And once you kind of hit that first peak in the LaSonde curve or the initial euphoria surrounding the discovery has already played out, you then move into the development phase, which is much more about permitting, obtaining social license, engineering studies, and convincing to the market over the course of a PEA, a pre-fease and ultimately a feasibility study if you make it that far, that this project has economic merit and is ultimately worth building. Then you move to the production stage, could be a single asset or multi-asset producer. We have very little production stage exposure. We only have one name in the portfolio that I would consider a producer. And then that fifth category would be the royalty names. And so in terms of our portfolio, roughly 25% of our weighted portfolio is cash flowing companies, but all of them but one are using the royalty business model. So I think if you have your timing down perfectly on the later stages of bull markets, you can get more leverage with the producers. But if you're investing over multiple cycles and a little less comfortable trying to predict market timing perfectly, I think the royalty business model is a phenomenal way to get exposure to mining production stories. - All right, let's break down the bull and bear cases, but more tied to the stage of company because in all fairness, look sub $1 billion market cap, that's probably 90 plus percent of the resource sector, but you can really break it down, I think under 500 million and then under even 100 million right now, when it comes to exploration and early stage resources, no economics around it, but a company that has done some drilling, let's say they have made a discovery, they've even come out with the resource, but quite frankly, their whole focus is still to grow that resource. What's the bull and bear case for these type of companies? - Well, sure, I think it's important to note that the further you go down the food chain here, the more company and project and management specific, the situation becomes. And I think it's important to note, even though the exploration stage, juniors, the earlier younger names, will generally perform well in a rising metal price environment, that actually doesn't make logical sense. Many of these companies haven't found anything at the end of the day, and they may be searching for gold, but if you don't have an ounce of gold on hand, then the price of gold going from $1,800 an ounce to $2,500 an ounce, in principle, makes no impact on your actual business. Now, in practice, you do see the valuations of these companies usually get bit up when you do see metal prices run, at least over the medium and long term, but if you actually drill down on the business case, if you have no gold on hand or no copper or no nickel, depending on the given situation, moves and metal prices really shouldn't impact investors' views of these companies. Taking a step back, I would say there's a few data points here that make me more bullish on the juniors more broadly. The first is some data that came out from the TMX Group, the exchange that oversees the TSX Venture and the TSX. They announced this data earlier this month, and they said that in the first half of 2024, we saw $6.8 billion raised by mining issuers of all stripes. So this goes from the very smallest explorers up to the major miners that are listed on these exchanges. And this is the most money raised in the first half of a year for at least a decade, if not ever, according to the TMX Group. And as a point of comparison, the number was $4.2 billion in the first half of 2023, and only $4 billion for all of 2022, compared to the $6.8 that we saw in the first half of this year. So this tells me that the industry is more cashed up than it's been in at least a decade, which means all else equal, less financing and more news flow in the months ahead. And I would argue that this augers well for share prices. Again, all else equal. Another point, and it doesn't take a genius to understand this, gold is at all-time highs. And even with the point I said, the gold price really shouldn't affect the business case for an expiration stage junior pre-discovery. And in practice, it does. And it helps raise the share price, lower the cost of capital for even the earliest stage of companies. And you guys will know, even though gold is only 15%, I guess at the higher gold price, maybe closer to 20% now, of the value of all the metal pulled out of the ground globally in a given year, just under 50% of juniors on the TSXV are gold-fokenest. So if there's one metal that's most impactful for the health of the exchange, it's certainly gold. And then I'd also note that gold will typically serve as a bellwether for the rest of the commodity space. This of course is not an immutable law of nature. It could very well be different this time. But just look back to 2016, where a massive run in the gold price over the first nine months of that year, signaled the end of what was a incredibly painful and drawn out bear market between 2011 and 2015. And then we saw the same thing repeat post-COVID, where gold and gold equities went on a tear, really from the spring of 2020 through the fall of 2020, which was then followed by a broader-based metals rally throughout 2021 and through the first half of 2022. So gold price is another thing to keep in mind. And then the third, when we discussed this on our last call to feel a acquisition, that's gonna result in $2.8 billion in cash trading hands when that deal closes in the first quarter of 2025. And then since then we've had the somewhat surprising, I would say take out of a Cisco mining by gold fields at a really impressive premium, that's gonna result in $2.1 billion in cash trading hands when that acquisition closes in Q4 of this year. So between these two deals, we have a cash transfer taking place of just under $5 billion. And that's gonna be occurring over the next 180 days. And this is money going in the hands of investors that are positively predisposed to investments in pre-cash-flowing mining equities. I should note that both the Cisco mining and Filo had market caps north of that $1 billion metric discussed earlier, but they're both pre-production. So I would still lump them into the junior category myself. And I would argue this is bullish for the space more generally. It's fair to say that most of this capital will go to later stage development companies like the Skina's and the Rupert's and the Artemis Golds of the world. We saw each of those names spike on the back of the Cisco deal in particular. But there doesn't need to be much of a trickle down into the earlier stage names, the expiration juniors that you mentioned for it to be highly significant for the space. So I think the confluence of these factors, companies being cashed up, gold price at all time highs, and these massive acquisitions with cash and not shares trading hands. It augers well for the short term here. - Yeah, Matt, it's going to be nice to see some of that M&A money start to circulate through the sector and maybe find its way into other earlier stage explorers. But to the point you made about the metals price really not affecting the underlying expiration companies because they don't really have a lot of ounces in the ground yet defined. It doesn't really matter if it's gold or silver or copper or nickel, as you say. It's true for all explorers. It really seems to come down to sentiment because we've had so many companies on the show that said, if this news release was released in better sentiment, we'd have gone up double digits, but instead we sold off on the news. So how much does sentiment play into the bullish or bearish thesis in these expiration companies? - I think it plays a huge role. Yeah, and just 'cause I said, it doesn't make logical sense. It doesn't mean that it does not have an impact. Ultimately, this is an extremely capital intensive business. Whether you're exploring, whether you're drilling out or deposit, whether you're developing it, if you don't have cashflow from other means, you're gonna be raising money every step of the way. So cost of capital is crucial. And whether it's logical or not, when metal prices are ripping and investors see that happening, share prices rise and the cost of capital decrease for these companies. So unless in the instance of a very well cashed up company that has multiple years of runway and can answer a few unanswered questions over that period, sentiment's extremely important. And it's up to management to either raise enough money to kind of get off that dilution treadmill every six month or to have some luck and also be very savvy with when they decide to raise capital. - So on this point with raising capital, one thing that we have definitely seen companies separate themselves from the pack in terms of these junior even microcap companies is if they are tied in with some group of companies that have some key wealthy backer. Quite frankly, there's less than probably five that I can think of that have been successful recently, raising money and moving projects forward. How important one do you find it is to be part of one of these groups that is having current success? And when you look at management, what about advisors? Everyone has advisors that are well known. Do you give them credit for those on their advisory board? - Good, good questions. I would say from a general sense, it is important to be part of a larger group. I think that bestows credibility on the venture at hand and also reassures the market that there will be a first check into each financing. One of the hardest steps when you raise money is to get that lead order, is to get that first step. And if you have a London backing or the backing of the discovery group, you can be sure that for most, if not all of your raises, the terms will be set and 40 or 50% of the round will be filled by the time the company actually comes to market and announces that financing. So I think that can be a huge advantage, understanding that there is the potential for groups to be stretched too thin. And it's important to keep your eye on these groups and make sure that they're not taking too many companies into their stable. 'Cause that's one risk of success. You'll see these groups get a little over their skis, take too much under their plate, then they can actually support. In terms of advisors, it's very case specific. I would actually argue, if you see more than five advisors associated with a given company, that should actually cause one pause. It's not necessarily a red flag or a true deal breaker right off the bat, but it could indicate that this company's more into promotion than anything. And then you have to look at the specific advisors, like there's some really smart, accomplished, geological professionals and financial professionals in this industry that frankly advise far too many companies. And if I see their name associated with a company, I view that as a modest negative, because I know there's just not enough hours in the day for said advisor to add any value to the company. And they're more just being used as a name to provide credibility, but just don't have the bandwidth to actually do anything to further the company's cause. And furthermore, see seven or eight advisors, even if some of them have pretty decent names, that makes clear that there's a lot of advisor shares handed out, like likely for free. So you want to see who the advisors are, how many other companies that they're involved with, whether they're expertise from their previous ventures are relevant to the task at hand. And also whether said advisors are putting their own money into the company, or whether they've just, handed out their name and received advisory shares to their account and then they're on to the next one. So I think all of these are important and it's combed upon investors to either go directly to that advisor and grill them on what their level of involvement is and how busy they are with other obligations. And if they don't have access to that advisor, then demand that manage provide those answers. - Yeah, some great points there Matt. I think you nailed it because a lot of companies don't have enough advisors, but there are some that have a handful of advisors and the question is why are there so many and how involved are these advisors in the first place? So definitely need to go through and case by case, dissect what the role of these teams are and what they're being compensated. I guess to that point, you brought up some great topics at the Rick Rule Private Placement Bootcamp that you just joined and you were talking to investors about some of the red flags you look for before you'll participate in a private placement. So would you mind sharing a couple of the key red flags you look for where maybe you say no and move on to the next order? - I'd be happy to. I first say that was a lot of fun and it was a very comprehensive discussion over the course of the day of investing in private placements. And there's over six hours of content. The material is accessible on replay. So to my understanding, even those that have not signed up can Google Rick Rule Private Placement Bootcamp and can easily sign up and access that content which is available on demand. My talk was entitled, Buy or Beware, One to Pass on a Private Placement. And as you note, it highlighted 15 concrete circumstances that should cause an investor to say no or at the very least seriously reconsider a deal. Even if other aspects of that deal look good otherwise. On a high level, the points I covered fall under four different categories. The first is people. Who else is coming into this deal? Are board and management participating? Are the major shareholders, whether they're institutions or strategics, are they taking their pro-rata amount or increasing their stake in the company or are they holding off and not putting another check into the company? Are there groups known for warrant clipping coming into the deal? And is there any evidence of check swaps taking place? These are all things to look at in terms of who else is coming into the deal. The second category is in regards to pricing. It is the pricing of this placement fair and reasonable. And the things to look for there include how does the pricing of this deal compare to previous financings? Is it at a significant premium to where the company's raised previously? And if there hasn't been a significant catalyst to justify that premium, then why would you put money in at that higher valuation? Was there a big promotional push ahead of the deal? Oftentimes you'll see companies spend a lot of money on marketing right before they announce a financing. And investors that come in are putting their money in at an artificially inflated share price because unless that promotion is coupled with a real positive fundamental development, the gains are just temporary. We're options granted ahead of the financing at a lower price than where the company's raising money. Are the warrant terms, assuming that warrants are included, are the warrant terms comparable to what investors received in previous deals? These are all different things to consider in terms of the pricing. Third category has to do with timing. Was there a recent financing that occurred within the last four months? I.e., are you gonna put money into the company only for a month later, for a four month hold from a previous financing to lift and further to be selling pressure, driving the share price below the level that you put money in? Is there a big escrow release coming in the coming months or the expiration date for a large number of deeply in the money warrants? Are there signs that the company is raising before bad news? This is maybe the most important point. If you're looking at a company and they've raised enough money to accomplish a key catalyst or a key unanswered question, whether that's an economic study or a maiden resource or a drill program. And you're expecting the release of this company changing information and a month before the expected release, they're raising money, you have to wonder, why is the company raising money at this juncture? They're just three weeks away from putting out good news. They would clearly wait to put up that good news, have the share price re-rate and then raise on the back of that. So that's a really important point to keep in mind. And then kind of the fourth bucket is the use of proceeds. Is this a keep the lights on financing? Or is the company actually raising enough money to answer at least one key unanswered question? Will the proceeds go to paying off liabilities? Whether that's money due to management or consultants or a big property payment or whether is it gonna go into the ground properly in a drill program or permitting or funding engineering? And the final point would be, will the proceeds go to promotion? I want the company's results to speak for themselves. A little bit of promotion if it's appropriately timed is okay, but I couldn't tell you the number of times a CEO has told me, well, just a little promotion here, we're gonna be able to get the share price up two or three ex from current levels and we'll raise and you'll be deeply in the money. That rarely works when not coupled with the significant catalyst. So those are the points I covered. Obviously I covered each of them in far more detail. And for those that are interested, I recommend that they look up the private placement bootcamp online and they can access that information. So Matt, what are your thoughts on these life financing? So they become much more popular. They open up the door for a lot of other type of investors, non-accredited investors to take part, shares a free trading right away. Do you like this structure? Do you avoid it? What's your thought on life financing? - Yeah, well, as a US-based fund, we haven't done, we haven't done life financing. I like in principle, the idea of taking out the four month hold and making markets more efficient and quickly moving, similar to what we have in Australia, which I would argue is a more efficient structure for juniors raising capital. Of course, the problem with life financing is there's a culture of warrants being included in financings. So much greater degree than what we see in Australia. So the concern that I have with life financings is when there are warrants included, it gives investors that much easier of an opportunity to just clip the warrants and run. So I think life financing is coupled with moving away from this culture of warrants is a good combination for Canadian markets. But if warrants continue to be included to the degree that they are, just makes life easier for the warrant clippers out there. And I should argue, I'm not making a moral judgment on warrant clippers. I think that's actually a good strategy to make money, at least over short time periods. But the risk there is once you get a reputation of clipping warrants, it sticks. And you will no longer be invited to participate in the most attractive deals that are out there. So I make a point of when we're investing to look at the company and think to myself, where this company fully cashed up, is this a management team, a project, a company structure and evaluation at which I would invest? And if that answers yes, then it's nice to have a little discount to market. It's nice to have a warrant included. But if the answers know, then I want no part of that deal, even if it looks very attractive from a warrant or pricing perspective. - Well, Matt, just thinking of warrants, it seems like a lot of the problems companies have building momentum is that they've done at financing previously, that has warrants at a certain price. And then when it hits those levels, there are warrant clippers, regardless of what kind of financing it is. And so it really truncates any upside move. And it doesn't seem like other industries do this as much as particular Canadian mining companies. Like if you look at tech companies or if you look at retail companies, they're not doing financings, giving away the farm and the use warrants. And it seems like that creates a lot of the problems in this industry. What's the healthy way a company can use warrants or maybe have warrants or use a discount to market instead of warrants? Where's the balance there? - Yeah, I think that's the answer. Look, if you're invested in a company and they're raising money, you want that management's goal to be to not include warrants in the financing. And if there has to be a discount to market, then make that discount as minimal as possible. I think that's the way to go. There just is a culture of warrants in Canada. And as warrants aren't unheard of in other early stage industries, but they're used to a degree in Canadian resource financings that is greater than any other industry I've seen around the world. But there are companies out there that are able to raise large sums of money without warrants. Those are the groups with the reputation and the access to capital that you generally want to back. So in fact, our last financing that we participated in May was a group that raised basically at market with no warrant. But I thought the opportunity was so compelling between the asset and the management team that was stepping in there, that it was an easy decision for me to decide to participate, even though the terms weren't screaming by Canadian junior standards. - All right, Matt, let's move on then. Final couple of topic that we'll talk about here is Beaver Creek Conference. It's coming up. It's a conference that we all go to a lot of one-on-one meetings that happen with companies. You're gonna be at Beaver Creek. We're gonna be at Beaver Creek. What are you looking to accomplish there? - We'll be good to see you there, Corey. Yeah, and I would just say more, more generally for conferences, I look to accomplish a few things while I'm there. And I won't know if this will be a pretty truncated conference due to other obligations. I'm getting in on a Tuesday. I have dinner obligations to jam-packed days on Wednesday and Thursday, and then I'm out on the Fridays. I'm trying to make the most of the limited time that I have. But the different things I try to accomplish kind of an order of significance. First and foremost is to catch up with our existing investments, get a feel of how things are going, how the company's doing on the working capital front, whether there are any financings that are on the horizon here. And Beaver Creek's gonna be excellent in this regard. We have seven of our 19 positions there. So anytime on one trip, you can catch up with 40% of your portfolio that that's definitely a trip worth taking. Second thing I look to accomplish is to sit down with like-minded investors, whether that's over dinner, over coffee, over beer, on trading notes, on shared investments, industry trends that we're seeing, industry gossip, which can actually be quite useful. I think the more scuttlebutt you pick up the better and it can help inform decision-making going forward. So that'd be the second point, catching up with like-minded investors that I trust and respect. Third point would be to keep tabs on names that are on my watch list. So these are names that we don't own at the moment, but that I could see being added to the portfolio given the right circumstances. And when I sit down with these groups, getting an update on progress, of course, but also getting a keen sense of whether there's a financing in the near future. And if so, whether this could be a deal where we set aside some cash in anticipation of that raise, fourth point would be, I try to leave with at least one really compelling new idea from each conference. I know that sounds like a low bar, but even a single compelling idea can make a conference worthwhile. I mean, as mentioned, we only have 19 positions in the portfolio. I'll go to eight to nine conferences per year. So that's plenty of new names. If we were to invest in each and one to every one of those compelling ideas, that's more than the turnover we have on an annual basis right there. And then the final point, probably the least significant, something that looks accomplished nonetheless is promote the fund a little bit. This helps to attract inbound investment opportunities by getting the good word out there. And also has the potential to get the fund in front of new limited partners. We are an open-ended partnership, so we continue to raise money from new investors. So it's good to get out there. And at Beaver Creek, I have a couple interviews scheduled that will be disseminated post-conference. So that will go towards that goal of promoting the fund. - All right, Matt Geiger, managing partner at MJG Capital. You want to learn more about his fund, click that link in the show notes. And also feel free to listen to all of our other conversations with Matt that we do on pretty much a monthly basis. Matt, we're looking forward to seeing you in Beaver Creek. Thank you very much for your time on this weekend. Joe, we'll see you soon. Everyone, stick around, we're going to be right back. - Al Corland's firm, AB Corland & Associates Incorporated, provides consulting services to public companies on matters of regulatory compliance. To find out more, follow the link from www.kereport.com. The Corland Economics Report will be back after this brief time out. (upbeat music) - All right, welcome back, continuing to listen to the weekend edition of the K-E-ROP awards. Now, stepping away from what Matt Geiger had to say about more of the medal's equities, we are chatting with Michael Oliver for Momentum Structural Analysis. We will post a link to his website in the show notes so you can follow along with what Michael does. And it's always very interesting to bring Michael on the show because rather than focusing on price, he tracks more momentum and the trends in a medium to long-term nature for medals and also markets. So Michael, let's get right into it and let's start off with kind of the big picture concept of a Fed rate cut. We all know it's coming. We don't know if it's 25 basis points or 50 basis points, but we know a rate cut is coming and there will probably be a series of rate cuts carry this over to the markets. Broadly, Michael, what do you think is priced in in terms of market moves already for this upcoming Fed rate cut? - Well, certainly the Fed rate cut is priced in. It wasn't, you know, a few months ago. It was like everybody was thinking December, but when you listened to Powell last month, he made it bleeding clear that they're gonna cut rates soon that he argued that, well, our mandate of inflation is one issue, but it's come down, we're happy with its trend and therefore the focus is on staying high too long could do damage, meaning I'm not gonna wait for negative data points before I realize I've done damage. We're gonna cut rates ahead of then. So they're gonna cut rates in September. Now, the issue is 50 or 25. I'm kind of betting on 50. I think a lot of people are and I don't think it matters. In 2001, January, you know, not far off the high of 2000 in the S&P, the dot com top, the Fed cut rates twice in January of 2001. The very beginning of the month and the end of the month. Market collapsed anyway for the next couple of years despite rate cuts all the way down. 2007, about three weeks before the traded high, which was in October of 2007, the Fed surprisingly cut rates. They had ambushed Wall Street. They weren't expecting it. And therefore they rallied sharply. This time around, it's different. Rate cut is not likely to create, you know, a sharp upside surprise 'cause it's priced in. The question is, when they cut rates, will there be a yawn and then starting some decline? We suspect that will happen. I think maybe you get modest decline in September, but you're really vulnerable getting into the fourth quarter for the stock market despite rate cuts. - Well, Michael, within the markets themselves, there's different sectors you follow. I know you just put out an update on the financial sector, for example, or if you look at retail, you look at some of the value and growth sectors or the tech stocks. Are there any sectors that you think are more at risk of turning over here? Or are there any that are in strong momentum? - Well, the ones that are at most risk, and we don't think they'll break up and go the different ways. So there's a lot of people talking now about, well, let's go into small caps. Well, on a spread basis, meaning relative performance, yeah, the small caps might be less risky, but if the market goes down, they're going down too, okay. Just on a lesser basis. The tech sector did lead the advance this time. It wasn't on its lonesome, but it was, you know, NASDAQ 100, for example, went up twice as many multiples since it's 2009 low as did the S&P. S&P went up seven to eight fold, NASDAQ went up about twice that. So it's definitely the monster, it's the leader, and therefore we're focused on the NASDAQ 100. And to put it bluntly, when we look at quarterly momentum, which is a fairly long-term metric, that's when we measure monthly price action relative to a 3/4 average, the momentum chart, forget the price chart and the overlay of the average. That's not important. It's the way the oscillator looks. You have set up a floor from hell, and we put it this way. You go back down, right now, the 3/4 average, the discordor, we projected, did it, we bounced from it, with 17,500. Where do we stop? Just barely below there last month, it rallied strongly. The problem is you can't go back to that 3/4 average again. Now next quarter, meaning in 20-some odd trading days, that average is gonna jump up to about 18,600, which is like about 4% below the current market. So we suspect that you might see some deterioration in September, nothing dramatic necessarily. But if you get down to that price level, as I specified, 18,600 NASDAQ, and you do that during the fourth quarter, you've got a real problem. You could speed up the downside dramatically, and tech will lead the move. - Michael, what does your momentum show you with this kind of rotation trade that we have seen though? Two-shads point, look, that there are other sectors that are doing well right now, markets have rebounded, but momentum-wise, if tech falls, but there is that rotation, where do we stand? - Well, there won't be any strong sectors in the stock market, other than probably commodity-related sectors, which if you go back and look at the last 10, 15 years, they really don't correlate well to the S&P. They drop down a chart of XLE, for example, the oil stock sector, and look at the S&P. The correlation is nickel bind, it's not there. There were years in which the stock market went up and XLE went down, so there's no correlation there. But in generally, other than the commodity-related and gold and silver mining-related, the market's going down. The issue is what speed and what percent drop, and I think the leadership will be, downside leaders will be the prior upside leaders. But one vulnerable sector, they got to watch very closely, and it had its little crash last year, it's a bank, so it went dropped 35% in about three or four weeks, March of 2023. They look vulnerable for a major quack again, and so don't just focus on tech breaking. The other components of the market will join it. The only issue is to a lesser extent. Still, not a good place to be, but to a lesser extent, they'll go down. - Well, Mike, you mentioned that the precious metals may diverge from the markets. Let's kick it off with gold, then gold has been strong. It's been on a strong uptrend. Do you think it'll stay in a strong uptrend? Yes, you're in the, we think in March, we defined it upturn in gold, the gold miners, and silver that suggested that an acceleration phase of the bull market was commencing. What do I mean? The bull market's been going on since December 2015, low in 1,050 gold. MSA got bullish in February of 2016 at 1,140 gold, and frankly, based on annual momentum, there's nothing's changed in our mind. A lot of gold bull trends lasted a decade or so. Go back and look at them. From mid-1970s to 1980, for example, gold went up like pinfold. And 2000 to 2011, it went up from $260 to 1920, but it took it 11 years. Right now, we're in the ninth year. Okay, so we're not that old, but we are in an aged bull market. We think the phase that we're entering now is a more accelerated phase, versus the arm wrestling we've seen over the last couple of years, where you get some ups, you get some downs and net up, but still it's wrestling. I think the wrestling process is about to end, we're about to go into it, a noticeable acceleration. And I think that the laggards over the last few years, silver and the miners, will now outpace gold on the upside, on a percentage basis, during the next several months, especially. The one difference we have this time with the acceleration phase, back in 1979, you had acceleration in gold and silver, where they went ballistic on a percentage basis, in the final year of the bull trend. We think that this acceleration phase, while it might see drama in the next several months, is not going to top at that point. It might stall, it might level off, you might have corrections. But I think we're headed into a new reality globally, where the monetary metals, particularly gold, are not going to be just another market that goes up, and then goes down again. I think they're going to be institutionalized, is the monetary backing of the world. And I think that's already underway in certain parts of the world right now, and we'll get more so, particularly as certain paper assets start to collapse, and the central bank's panic, hence destroy the underlying value of their money units, by inflating them. - So Michael, back to some of your research then, in terms of momentum, you're right, gold has been trending higher for about nine years, just short in nine years now, it's more than doubled in that timeframe. It's also interesting to see that gold versus something like the S&P, the S&P's actually narrowly outperformed gold during that massive run higher, but historically looking at gold's momentum, I assume it must be a fairly strong momentum metric that you're looking at here with how strong gold has run, just in the last, let's say four to five months, but what's the historical reference to where gold is momentum wise? - Well, it's again, we've done in March, after three years of sideways in gold, and three years of downside stair casing and silver in the miners, we had annual momentum signals, meaning when we measure price versus a 36 month average, for example, we had a clear ceiling on these markets, where they were capped off during that three years. Now, on price of silver in miners, it was decaying, it was down, but on momentum, it was actually a flat structure. All three, gold, silver, and the miners broke out above flat structures on annual momentum in March. At that point, silver was getting between 25 and 26 dollars. Gold was crossing 2000 again for the fourth time in price. And GDX, the gold miners, which are now trading at 39, were trading at 31 and a half when they broke out. This is back in March. So they've gained a lot since then, but they've leveled off in the last four or five months, since the April high in gold and the May high in silver. And I think they're resting for the next surge up, there was a cooling off a bit. And I think the next surge up is even gonna be more dramatic, far more dramatic, than what we saw between March and the present. And I think that a lot of that will occur before the election. - Michael, when you use your system, you often talk about a line of momentum that you wanna see it above or below, but does your system put any price targets out there as far as upside targets or downside targets? - I strongly suspect if silver goes back to its highs, let's call that $32, twice we traded over 32 in May, I think in again in early July or June. And then we'll repel there, back down to 26.50, now we're trading 29 to 30 again. You go back up to 32, that's a triple top and you're gonna blow through it. That'll be what's called a triple top breakout if you go through that hit 33. That's when the price guys are gonna suddenly say, hey, golly, this was just congestion. This thing's still hot, you know. And you'll have a lot of people rejoining silver again at that point. We think that breakout, not just on price, but there's some momentum factors here, is likely to carry us through the $50 highs that we've seen over the last couple of decades. Think about it, gold's already done that. Even copper, which made a high in 2011 and made a high in 2020 traded above those highs this year, is backed off some sense, but I think it's ready to go again. So silver's really lagged in a sense of, you know, where is it versus those prior multi-decade highs? I wouldn't be shocked to see silver surge past 50 very quickly, you get somewhere well up into the 50s before you even pause again. So I think it could be quite dramatic. So what's happening right now, this twisting and turning we've had for several months, I think is just congestion, prior to that next leg of acceleration. And it could be dramatic and with speed. - So do the gold stocks follow silver then? Because those are also off of their all-time highs, but they are testing some important resistance zones from just a couple of years back and back in 2020, do silver and the gold stocks simply just move together? - Yeah, when we've run spread analysis of the gold miners like GDX versus gold, in other words, what's GDX look like this month versus gold on a relative performance basis? It's broken out. Now it's not back to certain levels that will engage it even more so, but I think GDX, we've got a trigger number just above 40 and it's paused just short of 40 in this recent rally, right now we're above 39. You get just above 40, I've got a trigger number up there that says you could really engage and I suspect if you see that, the number is 40, 24 to be precise, anytime this quarter, and you're likely to take out those highs of 2020, which was at 45 and a half area and blow credibly past that very quickly. And during that process, even if you just measure, for example, from the February lows of this year, which was a pullback low in gold, silver and the miners, where we are now, silver's up as much, if not a little more than gold, but GDX is a lot more up on a percentage basis than gold is from that low. So yes, it's below the 2020 high, but it's recent surge has outperformed gold and I think that will continue. And they are very, very undervalued on a long-term basis relative to gold and GDX relative to the stock market in general. - Well, Michael, you'd also mentioned copper in a previous statement. What's your outlook on the red metal? - We're bullish on commodities in general. Copper behaves in tune with the Bloomberg commodity index, basically. Recently, it got a lot stronger than Bloomberg when it made a new high where Bloomberg is not, but basically its big swings are correlated, not so much to gold and silver, but to the Bloomberg commodity index in general. And I think the Bloomberg is basing and ready for its next significant up move. In fact, if you look at a price chart of Bloomberg, you're trading right in '96 and '97 right now. You can go back about a year and see it was there. Okay, so it's really not going down. It's just wobbling in a 50% pullback from it's 2020 low to it's 2022 high. You pull back 50% and go on bed for the last year, year and a half sideways. So there is support there. And I think Bloomberg this time will join in with gold. It wasn't in sync from 2020 to 2022. During that period, gold had already had its move by mid 2020. Commodities didn't turn up until late 2020. So they're totally out of sync. But I think they're getting back in sync now where it's going to resemble somewhat the late 1970s. When after gold started into its last leg of advance, '77, '78, '79, Bloomberg joined in at that point. And I think you're going to see commodities do the same thing, hence copper firm back up as well. But I don't see a stellar event there. Does that mean energy, oil, natural gas will also take part in this? I see the technical dynamics for most of the components of the Bloomberg commodity index to participate. And I still have a suspicion that grains are likely to be the outperformer. So far, that's not the case. In this basing process, they've actually been weaker. But it looks to me like the grains when they snap to the upside could snap at a bigger percent basis than perhaps energy this time around. Well, Michael, diving into the grains, do you have a favorite corn bean wheat sugar? No, I'd say the corn bean and wheat treat them as a group and they're likely to go together. Wheat tried to come up out of here recently, but beans and corn didn't agree at that time, so wheat pulled back. So I don't have a preference on which of those three, but I think they'll move as a group. And my bet is they'll outperform percent wise of talking now. What energy is likely to do in, let's say, copper, for example. I mean, sugar is likely to reassert, too. But they all generally, those commodities are pretty well linked, technically speaking, to what the Bloomberg does. And it's not been in sync with gold, though I think now Bloomberg is ready to join gold and be somewhat in sync with gold. So is this a general reflation or major inflation trade that you're seeing? Yeah, I think that the central banks are about to accommodate in a big way, because their main concern is they think they've beaten inflation down. Actually, Bloomberg dropped down a year and a half ago and has gone dead. So all their, quote, lower inflation numbers really occurred in the Bloomberg a year, year and a half ago, dropping from the 2022 price size to 2023, early 2024, already had come down and has gone sideways for the last year. And so finally, all their lagged, quote, inflation numbers have now come down, too. But I think the real shock for them is gonna be that they shift over now to their other mandate, which is defending the debt markets, the stock market and so forth, and quote, economic data points, which is we know have gone sour anyway, like the unemployment numbers. And the Fed goes to that mandate, in which case, what do they do? They expand the money supply again, they artificially take rates lower than what otherwise market forces might have them at, and they go back to their inflation mode, which is gonna do what? It's gonna help fuel gold, silver, and underpriced commodities. And commodities, when you go back historically, look at Bloomberg, in no way is it high priced. We're trading around 100 right now. Back in 2008 and 2011, it was 200 plus and high 100s. So we're less than half of where we were then, in commodity price level, generally. So there's plenty of room for them to run. And I think the Fed's about to add more fuel to that tank. - With that in consideration, Michael, how are you looking at the US dollar and interest rates? - Interest rates, we've got to look differently here. Over the last couple of years, especially since COVID, the muni bonds and high-yield corporate debt have performed better on the upside, meaning dropping yields, than the T-bond market. That has totally reversed now. The place to look if you're an interest rates is, I think the T-bonds are now an alternative to the stock market. They weren't in 2022, but I think they have technically become an alternative. And I think a lot of large asset managers are starting to move money out of high-risk stocks into what they perceive to be lower-risk T-bonds. And I think they're correct, technically. I think T-bonds are likely to lead on the upside and also participate with gold here, as they did in 2007 and 2008, or as they did in 2001 and 2002, while the market went down, T-bonds and gold went up. But the muni bonds and the high-yield corporate debt do not look like they're in sync with T-bonds. It looks like they could actually go down in price, meaning be vulnerable as an asset category. So if I were in a long debt, I would not be in corporate or muni, so I would be in T-bonds. As far as the dollar, dollar has been dull as hell for the last two years almost, since it collapsed from its 2022 price high, it won $15 index, drop down around $100. And since early 2023, it has gone and they basically a dull sideways mode, oscillating probably on either side of about 103, 104, very narrow percentage range, almost trendless. Not going back to a tie, not dropping, just going dull. So what we call the quiet one. We broke dollar index, long-term momentum numbers, breaking through 104.40 a month or so ago. We're now down to close to 100. Everybody thinks the dollar is gonna have to have a big rally, we see, eh, maybe, maybe not. But the long-term momentum of the dollar says, no, it has shifted, it's now into a downtrend again. The dullness of the last year and a half is over, it's woken up, but the wake up is taking it down. And I think it's gonna continue down. So as a major asset category, I think the dollar is about to become a weak factor. And therefore, hence, once again, be wind at the back of gold. - All right, well, Michael, a lot going in gold's favor than it sounds like in commodities broadly. Boy, oh boy, I think we've all seen that chart of just how commodities have underperformed broad markets over many years, a decade plus, maybe that will all change. That could be a huge opportunity for investors, but man, oh man, it's been very interesting to see that underperformance in commodities broadly. Hey, you've laid out many times how you think this could change. So again, Michael Oliver from Momentum Structural Analysis. Always great having you on the show, Michael. And everyone, thank you very much for tuning in to this weekend show. Be sure to go back through our website, keroport.com, our podcast and YouTube channel just search the keroport. Listen to all our daily editorials and company updates from throughout the week and be sure to tune back in next week as we continue to talk market moves and key economic data. Michael, everyone listening in, I hope you all have a great rest of your weekend. - Thank you. For our upcoming appearance schedule, visit keroport.com. The Corland Economics Report will be back in just a moment. (upbeat music) (upbeat music)
