As a sexagenarian market philosopher soon to become a septuagenarian market philosopher, I am finding myself somewhat embarrassed when younger people (other than family) ask me my opinion on something. I usually try to reply to their inquiry in the manner in which my father (RCAF WWII navigator William Roland Ballanger) used to advise me in the very early days of my hockey career when some youngster would come up for an autograph or a simple “Hi Mike” to which I would always stop, bend down to his height, extend my hand, and say, “Hello to you, and what would your name be?” at which point he (or she) would look up to their parent(s) for guidance and then (almost always) tell me.
At this point in the encounter, I would offer the beaming youngster my hand and as we shook, I would say, “It is a great pleasure to meet you, and thank you for saying hello.”
That behavior came from RCAF Navigator W.R. Ballanger who recounted the story from his life that dwelled in the realm of geopolitical nonsense in the days after the Nazi's threw a historically successful and prosperous German society into total ruin and starvation.
Lieutenant Ballanger airlifted several tons of foodstuffs from London (Canadian wheat, corn, and flour) into Berlin and into the ravenous mouths of people that had truly no agenda as to world domination nor even neighborhood recognition. He told of stories of children begging him for more rations as he tossed bag after bag of flour and powdered milk into the throngs of people devoid of anything for weeks upon end.
The story grows into a graceful crescendo as he relates to how the females (always single widowed mothers thanks to the demands of “patriotism”) would worship the Allied airmen standing on the down-ramps of their aircraft as they enjoyed the adulation from the crowds. He understood the difference between “duty” and “entitlement” and every time a German woman tried to thank him in ways that only wartimes can evoke, the Canadian soldiers simply offered their hands. It was a lesson that I learned well and shall never forget.
Elon Musk is, to me, the Millennial version of the single greatest stock promoter of the past 30 years, Robert Friedland. Most people in the securities industry know Robert as a buy-side analyst; in other words, they listened to his masterful pitches which, back in the day, were nothing short of mindboggling.
He could raise more money through a 60-second rip than could a battery of geologists in 20 minutes. It did not matter whether they had the next coming of Voisey’s Bay; if you did not have Friedland to pitch it, you were cooked.
This brings me to the topic of the current market cycle.
Elon Musk was educated at Queen’s University in Kingston, Ontario, Canada which is natural because South Africa is very close in DNA to Canada due to British Colonial ancestry and due to the fact that many of the Canadian stock promoters that have risen to fame (and infamy) were Queen’s grads, names, of course, redacted.
I have never met Elon Musk and one of my rules is that unless someone has either cheated you or defamed you, you do not have the right to attack them in either the public (or more importantly) private arena.
However, when it comes to the matter of compliance with generally-accepted securities rules, one has every right to take people like Elon Musk to task and preferably, to jail. The only reason that I say this lies in the chart shown below.
In the British society from which my DNA originates, the word “cheek” refers to the tendency for a person to demonstrate total arrogance in the face of adversity. It also does not require “adverse conditions;” it might only require a mild amount of sanguinity. The extent to which Elon Musk brings “cheek” to the financial battlefield escapes all possible explanations and interpretations of rationality.
Comparing the “cheek” of an Elon Musk to the similar attributes of a certain Robert Friedland, there is simply no basis for comparison. From the aspect of monetary success, adjusted for currency debasement, Musk wins.
Adjusted for the delivery of shareholder value, Musk wins. Allowing for the integrity of markets and the sanctity of shareholder rights, Musk loses after which Friedland rides off with all of the winnings. Friedland won without the help of Wall Street shills, Musk has been winning due only to Wall Street shills.
In terms of their defining events, Friedland took everyone over the rainbow by selling his Voisey’s Bay nickel-copper-cobalt deposit to Inco Ltd. for $4.3 billion in 1997 while Elon Musk simply reported an intention to sell his own position for $16.4 billion at prices roughly 40% above where they reside today.
Friedland today runs a very successful company Ivanhoe Mines Ltd. (IVN:TSX; IVPAF:OTCQX) whose market capitalization stands at around $6 billion while Musk has Tesla and SpaceX.
As a final method of punctuating the term “cheek,” Musk went out and bought a pile of Twitter paper; then announced a takeover taking the stock (and many other investors) to $54 in a surge of excitement and greed. He then rescinded his offer; causing the share price to crash and now holds a 9% position in a company that trades 17.6% off the post-Musk-deal highs.
He is now being scrutinized by the regulators as well as a battery of class action lawyers representing investors misled by the antics of the billionaire “genius.”
This is exactly what happens when the tide rolls out; you find out who is a bonafide operator and who is not. It also hammers home an investment rule hammered home by my older mentors during the various bull markets in which I have participated: “Never confuse bull markets with brains.”
The secular bull market which ended in the late stages of 2021 was transformed into a grandaddy bear in the first month of 2022 with the vanquished bull remembered as the “EVERYTHING” bubble that swept any shell company fortunate to garner a listing on the NASDAQ into a ground swell of popularity sought after with gargantuan gusto by wave after wave of highly-skilled pitchmen whose training by the Goldman’s and the Morgan’s of the world was second-to-none.
I called the arrival of the current bear market in January of this year and built a model portfolio that factored in the possibility of an 80% drop in my junior miner positions hedged by a 15% holding in the double leverage volatility ETF (UVXY:US) designed to defray the drawdowns in the junior miners by mirroring its March 2020 performance.
Well, as they say, the best-laid plans of mice and men were all for naught as the vehicle that worked beautifully in 2020 against the pandemic drawdown has been an ineffectual hedge. While I exited the position at $18.75 back in March, I have been awaiting a re-entry point with the patience of an ADHD-afflicted schoolboy after consuming a box of red Smarties.
What we have today is a drawdown of roughly 50% in the junior miners but with my top holding (Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB) sitting at an 89% gain since inception versus a negative 37% for the entire Canadian junior market flotilla, the outlook remains relatively positive, given the drilling success at Getchell’s Nevada-based Fondaway Canyon project.
In 45 years of participation in the commodities sector, I have never seen a more rapid shift in sentiment than what we have seen in the second quarter of 2022. I pounded the table for months about the Fed’s resolve in getting a grip on prices and while everyone was talking “pivot” and holding onto positions, it was as if a pistol went off signaling the end of the commodities bull and the arrival of a disinflationary tsunami.
With the algobots running absolutely wild in a liquidity-starved trading environment, prices are being whipped around as if headless chickens were in control. My stance remains bullish on copper, uranium, gold, and silver for reasons related to electrification (copper, uranium) and profligate government spending, and unbridled credit creation (gold, silver).
My colleagues in the advisory business all seem to be piling on to the “Fed pivot” narrative which they all seem to “know” will arrive in this current quarter but I maintain that with the tide now well out to sea, the only bathers left are those with trunks and by that, I mean really solid companies either generating cash flow or, in the case of the junior miners, well-funded developers with upper tier projects under advancement.
As a senior citizen of the junior mining arena, I would welcome a return to markets that rewarded management that demonstrated the ability to advance value through discoveries, acquisitions, and superlative marketing. In the meantime, I have to suffer along with many others as we watch spectacular drill results get trashed by shareholders too inexperienced to understand how much value they are leaving on the table.
In the COVID crash of 2020, companies that I owned from 2019 at under a dime fell from half a dollar back to under a dime as the Johnny-Come-Lately crowd decided to capsulize losses by selling. I bought the Getchell Gold private placement at 10 cents with a full two-year warrant at 14 cents in what was an unbearably difficult funding to close.
It was because everyone thought that the world was coming to a screeching halt and that selling a quality junior was the “prudent move.” How many times in my four-and-a-half-decade career have I made that very critical mistake?
The answer is “often early but never now” because managing a portfolio of junior miners during a market collapse is worth 15 years at the Harvard Business School.
This week I tweeted out the following: “Difficult markets but closer to a bottom than a top...for Copper, uranium, gold, and silver...and most important are GB sunsets!”
The operative portion of that tweet was the part about equities being “closer to a bottom than a top” but you have to be very careful how you approach anything resembling a bottom. Do not expect a V-shaped, Fed-triggered bottom as in 2009 and 2020 but rather the cyclical rallies in the context of a secular bear market.
Make no mistake; I have made lots of money trading in and out of secular bear market rallies (or “mini-bulls”) and this is exactly where we were back in the post-Volcker period when nobody knew a) what a “Federal Reserve Board” was and b) who the chairman was. In my beloved mining sector, there was little movement in commodities from 1982 to 2002 as paper assets grabbed the baton from the hard assets gang and ran with it like Usain Bolt on a mission, and yet, the biggest wealth-creating deals were not linked to the underlying price of commodities but rather to the discovery of new sources of gold, silver, copper, nickel, and diamonds all during a period of sustained disinflation and paper asset dominance.
Consider this. Since the very early 1980s, the month of August has always provided optimum entry points for the junior resource sector. The old maxim held that back-to-school cash requirements such as tuitions would cause portfolio reductions within the illiquid summer market backdrop, rendering prices lower.
With that in mind, it is critical that every junior I own today has not only adequate working capital but also a unique narrative pertaining to upside potential. Those poor souls unfamiliar with my work (surely he jests) will roll their eyes and turn the page but those that have followed me know that I am not always a table-pounder. I was a rabid bull in mid-March 2020 but a very vocal seller in August of the same year so it is with a measured ferocity that I urge everyone to move to the well-funded, junior developers that have either promising discoveries or expanding resources and BUY them.
Please excuse the comingling of metaphors but when blood is running and the tide has gone out, the risk of a catastrophic drawdown has not only diminished, but with sentiment this horrid, that risk is dissipating rapidly as we approach Labor Day. I know that it feels like the summer only just began but there are only five weeks left until September arrives so if you divide your liquid capital into five equal parts and commit 20% per week, you should arrive at a suitable blend of prices by the time this bear decides to hibernate.
Three of the companies I own have assays pending but the one that commands a 46% allocation is Getchell Gold Corp. and this presentation explains why it is still trading up and within earshot of an all-time high. The beauty of owning these companies after a market bloodbath is that they are “event-driven” and, like the 1982-2002 period, can be revalued sharply higher as exploration success materializes.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
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Michael Ballanger Disclaimer
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.
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Charts are provided by the author.