Back from vacation, here are some quick charts

I didn’t trade much this last week, basically only adding a couple more SPY puts as the rally continues. I’m still convinced we’re in a bear rally, and my views of the charts above all reflect that. I actually did try a couple of times to sell out-of-the-money covered calls on some of my gold and silver mining stocks, but my prices never hit. I’d rather keep the upside in case we see a significant rally here than sell covered calls too cheap. Uranium doesn’t have that problem because a lot of the investors in the sector are crazy bullish, and for good reason, but there’s simply a lot more fear than excitement when it comes to precious metals at the moment.

Anyway, that’s all for now. I had a great time exploring Minneapolis and Duluth with some family – a solid group of 7 – so I didn’t follow much finance stuff this week. It’s good to take a break from time to time, and usually you don’t miss much; investing is a patience game the majority of the time.

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Basic technical analysis and where we are today

The very basics of technical analysis is trend-following, with the idea of holding during the bulk of an up-trend and getting out for the bulk of the down-trend. Here’s where we are for the S&P 500:

Many investors like to use this perspective within different market sectors, adding exposure to sectors in upward trends and reducing exposure to sectors in downward trends. In general, money tends to flow from one sector to another. Here are the basic sectors that a lot of investors look at:

Some people like to use relative rotation graphs, but I could never figure out how to get anything out of those so I prefer simple 6-month candleglance charts. I put the best looking 6-month trends in the top row – which is energy, health care, utilities, and consumer staples. Below that, everything looks terrible. I put financials at the bottom left because they looked the weakest, and then I put technology right next to the overall S&P 500 index so that you can see how similar they look. The top 5 names in the S&P 500 are all considered tech (AAPL, MSFT, AMZN, FB, GOOG) and they comprise 21.82% of the value when you add them together!

Its amazing how top-heavy our stocks really are, but that is the modern world of popularized “passive” index funds. When the bulk of new money is allocated purely by current market cap weighting, the more expensive it is the more money is allocated there, you can get some crazy results. Who would’ve thought that Tesla would be the same weighting as Berkshire Hathaway, lol.

Regardless of what you think of the popular methods of asset allocation though, these large passive money flows greatly strengthens prevailing trends within stocks and sectors simply by investing more in larger weightings and less in smaller weightings, making trend-following and basic technical analysis more important than ever.

If I actually ran a fund, I would certainly do it very differently than I run my personal portfolio. I’m loaded up in cheap moonshots with hopes that it will launch me into financial independence someday. Rather than straight trend following, I’m crammed into tiny sectors that I think have intermediate-term favorable catalysts to grow.

US Cannabis: The coming federal legalization which will enable big investment firms to buy into the sector. I still believe that both Republicans and Democrats want to legalize, regulate, and tax this sector and that their current approach of turning a blind eye while states do their own thing can’t last forever. This has been a falling knife since I started investing, and I’m just holding at this point; I haven’t added here in probably over 6 months. The story isn’t dead, I just think its best to sit and wait for now.

Precious metals miners: I see an extremely unloved sector that has had very little investment and expansion. The metals themselves tend to be defensive in nature, and I believe they’ll do better in coming years as more countries centralize around a Chinese & Russian trade sphere where they trust bullion as backing more than each other’s currencies. For now, I see the downtrend as a side effect of an extremely strong US dollar, and I believe this will be an early sector to recover once the Fed switches from tightening to easing again.

Battery metals miners, particularly copper and nickel: I see a lot of temporary pressure as the demand destruction from the recession we’re in filters through the system. Meanwhile, the under-supply of these critical materials will have to be fixed in coming years, and this can only happen through massive investment which will have a side effect of shooting these mining stocks higher.

Uranium miners: This sector is the most bullish right now. It is a tiny sector which can shoot much higher, ESG funds can now allocate to this sector, and governments around the world are once again looking here as a means of energy security. This is the only sector I’m selling covered calls on right now, because the bullish sentiment is strong enough to get me some great prices on them while leaving me significant room for near-term price gains. I don’t think we’ll see the moonshot everyone is hoping for while the Fed is tightening, the world is in recession, and liquidity is draining from the markets. We’ll see some wild swings though, and prices will be much higher in coming years after this recession works through.

So what do I use basic technical analysis for right now? A couple things. I finally bought some SPY puts this week as it looks to me like we’re fairly close to topping before another down-leg. I also used it in the past to expand or contract leverage in certain sectors – like my gold miners – by buying long calls when I feel a significant short-term rise is coming, selling them off for shares to reduce risk as momentum seems to be shifting, and selling covered calls on those shares to reduce risk further if I want to stay long but I’m concerned about possible downside.

Anyway, I hope this leaves you with some food for thought – I’m betting many of you are sick of the debates on recession along with the federal reserve’s thought process and possible action going forward. There’s really only so much you can say about that. Here’s where my portfolio left off. Good luck and happy trading!

  • HEDGES (13.7%)
    • 12.6% TLT Calls
    • 1.1% SPY Puts
  • PRECIOUS METALS (34.1%)
    • 4.2% AG
    • 3.9% MTA
    • 4.0% SILV
    • 2.3% LGDTF
    • 2.6% EQX
    • 3.3% SLVRF
    • 2.3% SAND
    • 2.1% MGMLF
    • 2.0% SSVFF
    • 1.8% RSNVF
    • 1.3% BKRRF
    • 1.4% HAMRF
    • 1.7% MMNGF
    • 1.2% DSVSF
  • URANIUM (26.3%)
    • 4.7% CCJ (covered calls)
    • 3.5% DNN shares & calls
    • 3.3% UEC (covered calls)
    • 3.4% UUUU (covered calls)
    • 3.7% BQSSF
    • 3.4% UROY
    • 2.2% ENCUF
    • 2.2% LTBR (covered calls)
  • US CANNABIS (13.8%)
    • 1.7% AYRWF
    • 1.7% CCHWF
    • 1.6% CRLBF
    • 2.2% CURLF
    • 1.6% GTBIF
    • 2.2% TCNNF
    • 1.1% TRSSF
    • 1.7% VRNOF
  • BATTERY METALS (11.2%)
    • 4.9% NOVRF
    • 4.7% SBSW
    • 1.6% PGEZF
    • 0.6% EMX
  • CRYPTO (2.5%)
    • 2.5% XRP
  • OTHER (2.5%)
    • 2.5% DOCN (covered calls)
    • 0.0% OGZPY (my account finally marked this to zero)
    • 0.0% ATCO calls (will expire worthless soon)
  • CASH (-4.8%)
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Recession becomes more mainstream

As the official data plugged in a 2nd quarter of negative real GDP growth, recession calls are becoming more mainstream. Note that the NBER uses a number of metrics, particularly with layoffs and such, to confirm a recession before they date it. Layoffs happen very late in a typical recession cycle, so this usually means we’re already into the next recovery cycle by the time they call it and date it.

Fed chair Powell knows that we’re in recession, but he is not allowed to give any negative economic news because the prevailing theory is that psychology plays a big role so you have to make everything sound better than it is. It sounds dumb, but I’m not kidding at all here – important metrics like inflation and GDP growth are believed to be heavily influenced by psychological effects, and big part of the job of the Federal Reserve is to spin these positive.

In my opinion this does much more harm than good because a lot of people and politicians believe this garbage and they come up with explanations like “Americans don’t want these jobs anymore” or “people are too lazy to work nowadays” to explain away real problems without addressing them. The first step to solving a problem is to recognize it, and we are more divided than ever on whether there are any economic problems and if so what they are, which traps us in this fake polarization where most people feel none of the politicians understand their concerns.

Anyway, Powell tries to be somewhat honest about what’s coming which is why he continually brings up Paul Volcker who was known for tightening policy into a recession in order to bring down CPI inflation by crushing demand. Real Vision had a great interview with Rauol Pal and Dave Rosenberg, where they mention the requirement for mainstream economists to always paint a rosy picture of the economy if they want to stay employed.

Here are a few things I gleaned from Dave Rosenberg’s view:

  1. The recession will likely last about 2 years, beginning early this year or late last year.
  2. Recessions need a catalyst to end, which usually involves stimulus from the government and/or the federal reserve. With divided government after the midterm elections and a federal reserve focused on beating inflation Volcker-style, this will take longer than normal to play out and it will be deeper than normal. CPI is a lagging indicator and rate hikes have a lagging effect, so we will be tighening policy much longer than necessary.
  3. We’re in the early stages where the unemployment hasn’t quite ratcheted up yet.
  4. The stock market multiple is receding but earnings calls haven’t been revised downward yet.
  5. If the June lows were the bottom for the SPY, that would be consistent with a regular 20% market correction if there is no recession involved. A recession call means there’s at least another 20% down to go.
  6. Dave says that the stock market will likely bottom a few months before the recession is over, likely around fall of 2023.
  7. Dave and Rauol are both bullish long-dated bonds, saying that these rates have never failed to come down in a recession.

I certainly agree with the bulk of the above, and I wish Rosenberg’s work was more accessible to retail investors because he has an interesting perspective. I’m still betting that the NBER waits until next summer – well after the midterm elections – to make it’s recession call, and that they date it back from October 2021 where GDP tops out in the chart here:

This last week has been a fantastic rally for all of my mining stocks, particularly in Uranium. There have been a number of bullish developments in the Uranium front. Here’s a quick summary:

  1. There is the big shift from underfeeding to overfeeding which will require a lot more mined Uranium. For years after the Fukishima disaster followed by massive numbers of reactors coming offline due to negative political sentiment, big Uranium enrichers would underfeed, meaning they would increase the time in the centrifuge to pull more of the fissile U-235 uranium out of the mix. This takes a lot more time to get the enrichment needed to fuel conventional plants, but would use far less mined Uranium. Much of this enrichment capacity is in Russia, which is becoming more and more cut off from the west, while sentiment has been changing rapidly with the LNG spikes of recent years. This puts a lot of demand on the enrichment facilities, which have to produce a lot more reactor fuel in less time, and they do that by overfeeding, or pulling a lot less enriched Uranium from the mined stock. This switch is huge, as in many cases they need to go through around 3 times as much mined Uranium to get the same amount of fuel.
  2. Governments are getting much more supportive of nuclear power. The EU and US have finally started to identify nuclear energy as green energy and qualifying as ESG. The Japanese government is putting more pressure on local governments and regulators to get more of their nuclear plants back online, many European countries are extending the lives of very old reactors, and even the anti-nuclear Germany is under fast-growing pressure to keep their last 3 reactors running (current plans are to shut them down in December) and even try to restart some of the reactors they shut down last year. Both France and the UK have aggressive plans to build new nuclear capacity, and the US has been discussing buying up Uranium for a stragetic reserve to incentivize more mining.

This type of news is very bullish, but in absolutely the wrong time of the investing cycle. The federal reserve is determined to tighten financial conditions, and market rallies like we saw this last week only encourage them to do more. This will put pressure down on prices of all assets, and I expect to see some serious drops in the normally weaker periods of the market such as September/October and March. As such, I really need to get my cash balance back to positive – but I don’t want to do it by selling stuff way too cheap.

So how did I play this?

Basically, what I did is sell a lot of out-of-the-money calls on my Uranium miners – focusing on that sector mainly because those calls have some pricing power whereas my precious metals and battery metals miners don’t pay enough to get me interested in selling calls. As I wanted both decent money for selling the calls and enough upside left to enjoy a spike, I pushed out the timeframe a bit so some of my covered calls expire as late as January 2023.

An example here is UEC – a US-based Uranium miner that can swiftly ramp up production and is well set to benefit from this bull story. I had an average buy-in around $3.50/share the price spiked to around $4.10 last week, and I got paid $0.70/share for Jan 2023 calls at a $5 strike price. At the $4.10 price this is a payment of 17% to cap my potential 5-month gains at an additional 22%. If it spikes big time and expires in the money, I’ll sit on a gain of 39% from the $4.10 price at the time I sold those calls, or a 63% gain from my $3.50 average buy-in. You can’t be disappointed with those types of gains in the midst of a raging bear market.

Anyway, now is not the time to swing for the fences – that will come after the market bottoms and the federal reserve is set on easing like crazy again. Until then, its best to play somewhat defensive.

Here’s where my portfolio ended up this week. It booked a solid 6.6% gain after a 5.7% gain the prior week, which always feels good even though I’m down a lot on the year like pretty much everyone else. Good luck and happy trading, and make sure in your own way to take something off the table in on each of these steep bear market rallies.

  • HEDGES (13.4%)
    • 13.4% TLT Calls
  • PRECIOUS METALS (34.0%)
    • 3.9% AG
    • 3.7% MTA
    • 3.9% SILV
    • 2.4% LGDTF
    • 2.9% EQX
    • 3.1% SLVRF
    • 2.3% SAND
    • 1.8% MGMLF
    • 1.9% SSVFF
    • 2.1% RSNVF
    • 1.4% BKRRF
    • 1.4% HAMRF
    • 1.8% MMNGF
    • 1.2% DSVSF
  • URANIUM (25.6%)
    • 4.6% CCJ (covered calls)
    • 3.5% DNN shares & calls
    • 3.1% UEC (covered calls)
    • 3.2% UUUU (covered calls)
    • 3.6% BQSSF
    • 3.4% UROY
    • 2.0% ENCUF
    • 2.2% LTBR (covered calls)
  • US CANNABIS (13.5%)
    • 1.7% AYRWF
    • 1.7% CCHWF
    • 1.5% CRLBF
    • 2.1% CURLF
    • 1.5% GTBIF
    • 2.1% TCNNF
    • 1.1% TRSSF
    • 1.9% VRNOF
  • BATTERY METALS (10.9%)
    • 4.8% NOVRF
    • 4.5% SBSW
    • 1.6% PGEZF
    • 0.6% EMX
  • CRYPTO (2.4%)
    • 2.4% XRP
  • OTHER (3.0%)
    • 2.3% DOCN (covered calls)
    • 0.6% OGZPY
    • 0.1% TWTR call
    • 0.0% ATCO calls
  • CASH (-3.4%)
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Too early for mining? Not for me.

We saw a decent rally in uranium miners this week. I sold some out of the money covered calls on a couple of my positions and used the proceeds to buy more SBSW.

The big Fed meeting is coming next week and everyone expects a 75bps hike with an outside shot at 100. Expectations are for a big market drop, as institutional investors have unusually big short positions in place. While that could easily happen, I don’t like bets that seem crowded.

I’m still absolutely amazed at how cheap mining shares have become. I have no illusions that they won’t get cheaper, but I’m not selling into weakness here. With out of the money covered calls though, you can take some money off the table while still booking a gain if the shares run up and get called. It seems too early for a sustainable rally so I like selling these if the price is right.

One thing I’m still confident on is that we need a lot more investment in natural resources in order to sustain any real economic growth, and that the relatively small mining sector is set to soar when this investment starts coming in. Without this investment, the CPI will shoot up and destroy any attempt at economic recovery, so I really think it’s the best sector to be in and I don’t mind being early here.

That’s all for now, good luck and happy trading. Here’s where my positions ended up.

  • HEDGES (16.2%)
    • 16.2% TLT Calls
  • PRECIOUS METALS (32.9%)
    • 3.7% AG
    • 3.8% MTA
    • 3.7% SILV
    • 2.7% LGDTF
    • 2.8% EQX
    • 2.7% SLVRF
    • 2.3% SAND
    • 1.8% MGMLF
    • 1.8% SSVFF
    • 1.7% RSNVF
    • 1.7% BKRRF
    • 1.3% HAMRF
    • 1.9% MMNGF
    • 1.1% DSVSF
  • URANIUM (23.9%)
    • 4.5% CCJ (covered calls)
    • 3.4% DNN shares & calls
    • 3.2% UEC
    • 3.0% UUUU
    • 3.2% BQSSF
    • 2.8% UROY
    • 1.8% ENCUF
    • 2.1% LTBR (covered calls)
  • US CANNABIS (15.8%)
    • 2.0% AYRWF
    • 1.8% CCHWF
    • 1.7% CRLBF
    • 2.6% CURLF
    • 1.8% GTBIF
    • 2.3% TCNNF
    • 1.3% TRSSF
    • 2.3% VRNOF
  • BATTERY METALS (10.7%)
    • 4.5% NOVRF
    • 4.5% SBSW
    • 1.7% PGEZF
  • CRYPTO (2.5%)
    • 2.5% XRP
  • OTHER (3.1%)
    • 2.4% DOCN (w/ covered calls)
    • 0.6% OGZPY
    • 0.1% TWTR call
    • 0.0% ATCO calls
  • CASH (-5.1%)
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Things are breaking

My junior gold and silver mining stocks fell to lows I could never imagine, closing at $30.02 vs a 5-year low of $26.81. They were higher back in 2018, when gold was ranging around $1,280/oz vs $1,700 today. It’s like that in much of the commodity space right now as the underlying companies are getting sold like crazy.

Here’s something even more crazy, to take a page from Jeff Snider’s work (literally):

*If you want to see amazing, professional research like the charts above for free, look up Atlas Financial and subscribe to their newsletter, which is where Jeff Snider’s work currently resides. I get this from email links in my inbox from Markets Insider Pro

While everyone complains about the price of gas at the pump, the US supply of gasoline is down below 2020 lockdown levels! Meanwhile, the energy sector ETF XLE is down over 34% from its recent highs on June 8th while oil remains stubbornly close to $100/barrel.

Back in 2008, I remember investing in the darling stocks like Petrobras (PBR) and CNOOC which were up like crazy, building out offshore rigs to produce oil. Infrastructure was being built like crazy. Now, we see none of that! We’re all being told that we won’t need oil anymore in 10 years, and that the federal reserve will squeeze the demand out of the economy, all while government attacks local production with threats of capital seizure, sabotaged oil leases, and a regulatory framework designed to block as much investment as possible … all amid a growing food and energy crisis and a proxy war with one of the biggest food and energy producers! It’s almost like they’re trying to sabotage the world economy and create a food and energy crisis in some Thanos-like way of reducing the human population! To make matters worse, we’re hitting a major drought cycle in a few years as Lake Meade sinks to the lowest levels recorded and the colorado system dries out, all while California blocks permits for desalination plants as if they want to cause a human and environmental catastrophe.

Anyway, all we can do is go forward and hope for the best. If we ever get leaders who decide to continue the upkeep (and hopefully expansion) of the critical infrastructure that humanity needs to survive, then we’ll need to do a lot of mining. We’ll need plenty of other things like oil to be sure, but I see the tiny mining sector as the highest risk part of this trend with the biggest potential upside, so I’m piled in there.

Here’s where my portfolio ended up:

  • HEDGES (15.7%)
    • 15.7% TLT Calls
  • PRECIOUS METALS (33.0%)
    • 4.0% AG
    • 3.9% MTA
    • 3.7% SILV
    • 2.7% LGDTF
    • 2.8% EQX
    • 2.4% SLVRF
    • 2.4% SAND
    • 1.9% MGMLF
    • 1.7% SSVFF
    • 1.6% RSNVF
    • 1.6% BKRRF
    • 1.4% HAMRF
    • 1.8% MMNGF
    • 1.1% DSVSF
  • URANIUM (25.3%)
    • 4.9% CCJ
    • 3.5% DNN shares & calls
    • 3.4% UEC
    • 3.2% UUUU
    • 3.2% BQSSF
    • 3.0% UROY
    • 1.8% ENCUF
    • 2.3% LTBR
  • US CANNABIS (14.9%)
    • 1.8% AYRWF
    • 1.7% CCHWF
    • 1.6% CRLBF
    • 2.3% CURLF
    • 1.7% GTBIF
    • 2.2% TCNNF
    • 1.3% TRSSF
    • 2.3% VRNOF
  • BATTERY METALS (10.8%)
    • 5.1% NOVRF
    • 3.9% SBSW
    • 1.8% PGEZF
  • CRYPTO (2.6%)
    • 2.6% XRP
  • OTHER (3.1%)
    • 2.3% DOCN (w/ covered calls)
    • 0.6% OGZPY
    • 0.1% TWTR call
    • 0.0% ATCO calls
  • CASH (-5.2%)

My hedge in TLT calls actually worked this week, as my portfolio was only down 1% despite the smackdown in all my mining stocks. I managed to add a bit into the deluge, picking up more UROY, PGEZF, MMNGF and EQX. I’ve also been pushing as much money into my trading account as I can, including changing my credit card to minimum payments rather than paying the full balance so that I could still reduce my margin. Credit card balances can be expensive, but they can’t suddenly force you to liquidate and pay them when your portfolio dumps.

Meanwhile, work is busier than ever (construction in the Los Angeles area). I have 22 active projects and an endless stream of bids which I’m hopelessly behind on, and one of our estimators is retiring in 3 weeks. It’s like the polar opposite of 2008 where all my work dried up, so its better to be busy, but I’m still earning the same amount in nominal terms – much less in real terms – which is really frustrating. That’s why I run such a high risk portfolio, I need to get ahead somehow and we’re in a world that only rewards asset holders while endlessly punishing labor. Everyone needs to hope and dream, its part of human nature.

So best of luck riding out this part of the cycle. It’s one heck of a rollercoaster, but it’s also a chance to get some top quality assets at bargain basement prices. Things will improve considerably when the Fed finally pivots and real investment can start, but we are in a resource-constrained decade.

In the 2000-2010 decade, investments in natural resource companies soared while other sectors such as Tech, consumer staples, and consumer discretionary struggled. Be ready to see that again after this bear market finally bottoms out.

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Waiting for the next Fed hike

The most important thing in markets right now is the next fed hike. Here’s what the latest expectations are:

  • July 26-27: 75 bps hike
  • Sept 20-21: 50 bps hike
  • Nov 1-2: possible 25 bps hike
  • Dec 13-14: possible 25 bps hike

The rate that the fed most directly controls, which has the biggest effect on markets, is the reverse repo rate. This is the overnight rate that large institutions can get by parking money at the federal reserve. The current amount of money sitting there is near all-time highs around $2.15 Trillion.

Here’s what those Reverse Repo Rates look like recently:

  • 3/16/2020: 0% set after pandemic start
  • 6/17/2021: 0.05% set to prevent t-bills from going negative
  • 3/17/2022: 0.30%
  • 5/5/2022: 0.8%
  • 6/16/2022: 1.55%
  • *7/27/2022: 2.3%
  • *9/21/2022: 2.8%
  • *11/2/2022: 3.05%
  • *12/14/2022: 3.3%

As you can see, it’s quite a fast hiking cycle. The rate levels may not seem like much compared to rates before the global financial crisis, but we have a lot more debt since then – government debt and more importantly corporate debt, much of which has been crowding between the last peg of “investment grade” and the first peg of “junk”, a level which has enormous implications for how much of this debt large institutions and banks are allowed to hold.

Here are some examples of how fast this hiking cycle has been:

  • Mortgage rates (30 year fixed) have gone from a low of 2.77% to a high of 5.81% in the past year. That means anyone using a mortgage to buy a home must pay more than double in mortgage payments. Investors also have to pay more when they borrow against their portfolios, and they tend to back off when they expect a downturn in housing anyway. In addition to a housing slowdown, homebuilders who pre-sold incomplete homes a year ago may see these sales fall through when the buyers can no longer qualify for the loans once their projected payments are doubled.
  • Bond portfolios and US stocks have lost a significant amount of value, as you can see in the chart below. I still wonder how many large “shadow banks” are struggling with these losses and may be forced to liquidate their portfolios. There’s no way of knowing until it happens, just like nobody heard of Archegos Capital until it blew up last year. Basically, these entities borrow on short-term markets, often overnight duration, so they can be forced to sell their holdings to reduce this debt when their portfolio values fall. When these entities are stressed and need to sell, they tend to sell their most liquid holdings first like US Treasuries and government guaranteed mortgage-backed securites. If they are forced to sell their junk bonds, those prices can really plummet.
  • The US Dollar has been strengthening worldwide. Moves YTD:
    • -2.2% CAD: Canadian Dollar to USD
    • -4.3% Gold to USD
    • -4.7% AUD: Australian Dollar to USD
    • -4.7% RMB: Chinese Yuan to USD
    • -6.9% SIR: Indian Rupee to USD
    • -10.1% EUR: Euro to USD
    • -11.4% GBP: British Pound to USD
    • -18.0% JPY: Japanese Yen to USD

A strengthening US Dollar is a wrecking ball to worldwide growth, as offshore US Dollar denominated debt is enormous.

What will end the fed hiking cycle?

  1. A major disruption in the financial system, as large shadow banks are forced to liquidate their holdings quickly and prices plummet. This is what I expect to happen at some point, it will be similar to Bear Sterns and then Lehman Brothers collapsing in 2008. My best guess is that it happens this fall when liquidity conditions are seasonally tighter (Sept/Oct).
  2. A large drop in the CPI (year over year percentage change). This may seem impossible given the recent hype around the high year-on-year numbers, but many commodities have come down substantially from their peaks this year including oil, copper, lumber, agricultural products, steel, and many others. Inventories have been building at retailers as well.
    1. The consumer price index has been rising over 5% for a full year now, so prices only need to stop moving for a few months to bring that annual rate down quickly.
    2. This is a lagging economic indicator, so it can take a few more months to slow the fed, but a number of leading indicators, like new orders and consumer sentiment, have been dropping.
  3. A spike in layoffs. This is also a lagging indicator, so it can take a few months to slow the fed.
  4. A plunge in job openings. The federal reserve has talked a lot about the high number of job openings per unemployed worker, so a large drop here would get them to slow or pause (but not reverse) their hiking schedule.
    1. Note that a number of indicators don’t look good for the labor market. Real wages have been substantially negative for over a year, the labor force participation rate has been dropping, and average working hours have been dropping. These are important indicators of the health, or lack thereof, of the labor market. Don’t expect these to move the federal reserve though, they are under enormous pressure to get that CPI down before the midterm elections in fall, and that’s what they plan to do.

I didn’t make any trades this week. I’ve basically been focusing on moving as much money as I can into my stock account and resisting the urge to buy any dips – which was especially hard with those dips in Uranium miners last Thursday – but I need to get my margin level down so that my cash levels are closer to zero. I will buy some more Jan 2024 TLT calls after the fed hikes rates late July, but until then I’m going to be very careful about buying anything.

Here’s where my portfolio allocations ended up. Basically another -3.8% overall as my gold and silver mining stocks got slammed particularly hard, along with my TLT calls.

  • HEDGES (13.9%)
    • 13.9% TLT Calls
  • PRECIOUS METALS (34.0%)
    • 4.2% AG
    • 4.1% MTA
    • 3.8% SILV
    • 3.0% LGDTF
    • 2.6% EQX
    • 2.4% SLVRF
    • 2.6% SAND
    • 2.0% MGMLF
    • 1.9% SSVFF
    • 1.7% RSNVF
    • 1.6% BKRRF
    • 1.5% HAMRF
    • 1.7% MMNGF
    • 1.2% DSVSF
  • URANIUM (25.7%)
    • 4.9% CCJ
    • 3.6% DNN shares & calls
    • 3.5% UEC
    • 3.2% UUUU
    • 3.3% BQSSF
    • 2.9% UROY
    • 2.0% ENCUF
    • 2.3% LTBR
  • US CANNABIS (14.7%)
    • 1.9% AYRWF
    • 1.7% CCHWF
    • 1.6% CRLBF
    • 2.3% CURLF
    • 1.7% GTBIF
    • 2.2% TCNNF
    • 1.2% TRSSF
    • 2.3% VRNOF
  • BATTERY METALS (11.5%)
    • 5.1% NOVRF
    • 4.6% SBSW
    • 1.8% PGEZF
  • CRYPTO (2.5%)
    • 2.5% XRP
  • OTHER (3.6%)
    • 2.8% DOCN (w/ covered calls)
    • 0.7% OGZPY
    • 0.1% TWTR call
    • 0.0% ATCO calls
  • CASH (-5.9%)
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Liquidity Drain

My portfolio’s down another 3.7% this week. Its actually even in value though because I put in more cash. One of the good things about having a margin account is that you can use it to buy up crazy dips, which I’ve done a bit these past couple weeks, particularly with Uranium miners. The downside is that a market built on high margin can just keep draining liquidity and dropping lower. In this case, those mining stocks didn’t bounce back, they just kept dipping. If you overdo it with margin, you end up being forced to sell at the worst possible time, and I’m a bit too risk averse to want to get close. Last week I was around 1/3 of the way towards my limit, now that’s closer to 1/4, so if all my stocks were cut in half from here I still wouldn’t trigger a margin call quite yet.

Right now we’re in a world of highly aggressive central bank tightening. The Fed is tightening because they’re under tremendous pressure to bring the CPI down, which has sent the US Dollar roaring higher, and other central banks have been tightening to shore up their own currencies in response.

The Federal Reserve was supposed to start shrinking their balance sheet last month, and they have talked about selling mortgage-backed securities (MBS) on the market. So far, that balance sheet has clearly topped and looks to be trickling down, but the data is choppy. I really doubt that they’ll end up selling much MBS.

This video has a number of important things from the standpoint of the mortgage market: Mortgage Lenders are going BANKRUPT (2022 Housing Crash Just Got Worse): https://youtu.be/KYF6lTbxx6U

Nick does a great presentation here where he shows that “shadow banks,” which are not backstopped by the federal reserve, have been funding 2/3 of the mortgage loans. Mortgage rates more than doubled since the beginning of the year, putting steep losses on anyone holding mortgage-backed securities, and pushing a number of these companies into bankruptcy. Big banks like JP Morgan and Wells Fargo are tightening lending standards further in response.

Back in 2008, bear sterns went under when mortgage-backed securities became illiquid and they had to post a lot more collateral to fund their operations off the repo market. There are a lot of shadow banks like that who are going to need to sell these morgages, and a number of house-flipping companies who are going to need to sell homes, just as buyers are vanishing. I think we’re very close to seeing a number of debt markets seize up here.

Meanwhile we have people comparing the CPI with the 1970’s and talking about raising rates past the CPI as the only way to beat it down, as if the enormous difference in debt levels and demographics don’t matter. Here’s a chart I put together for Twitter showing how different our situation is here:

Note that the CPI (blue) has come down despite much lower interest rates (green) in every instance before 1960 and after 2007. Why? Debt levels matter. If interest rates sharply rise, then in becomes very difficult for banks (and shadow banks) to conduct lending activities as their balance sheets begin to look like trash. Meanwhile, the debt-fueled asset bubble starts to reverse leading to different forms of margin calls in the stock and repo (interbank lending) markets as the collateral backing those loans loses value. All lending markets face these pressures as home loans become higher than property values, auto loans start seeing sharp credit risk increases as used car values fall, corporate loans are based on shrinking earnings, etc.

The latest in GDP estimates has shot down to -2.4% for Q2, after a -1.6% drop for Q1. For most people, this fits the definition of recession.

Right now, the big debate is still about inflation. This is not only the hot-button political issue, but an important issue for investors, even though everyone has a slightly different idea of what it is. As I have strong ideas on the topic, I might as well lay out my views.

  1. Everyone has a different idea of what “inflation” means.
    1. The news media and politicians define inflation as the latest CPI reading.
    2. Most people define inflation as cost of living going up.
    3. Economists like Milton Friedman and Jeff Snider, define inflation as costs going up due to a reduction of purchasing power in the currency.
  2. Milton Friedman’s famous line “inflation is always and everywhere a monetary phenomenon” is one of the most mis-understood quotes of all time.
    1. The CPI = inflation crowd interprets this as “every time the CPI goes up it means the value of the US dollar has dropped”
    2. The “cost of living” crowd interprets this as “every time stuff I buy and bills I pay cost more it means the value of the US Dollar has dropped”
    3. Economists try to divide the CPI hike into supply shocks, demand shocks, and currency devaluation with the general idea that only currency devaluation has lasting power because supply and demand shocks will shift spending patterns, production patterns, and work through the system.
    4. The Federal Reserve calls supply and demand shocks “transitory” for this reason. But they also believe that inflation and the economy are driven by psychological factors they term “animal spirits”, that consumers strapped for cash will spend more just because they expect prices to rise leading to a cycle of price hikes, and that misleading the general public on the state of the economy is the best way to manage this phenomenon. This is why their predictions are generally dead wrong, why they never predict recessions, and why investors comb through their speeches for hidden meanings.
  3. The actions of the Federal Reserve definitely affect markets. In fact, the easiest and smartest market-timing strategy is to take a 401k, send it into money market funds at the beginning of every Fed hiking cycle, and move it back to 100% stocks at the beginning of every Fed easing cycle. The fed is charged with reacting to “employment” and “CPI” which both heavily lag the economic cycle, and their actions tend to be pro-cyclical feeding the frenzy of the cycle peak and draining liquidity after the cycle has clearly turned. Stocks follow market liquidity much more than fundamentals like earnings, and that follows the movements of the federal reserve.
  4. “Costs of Living” have been soaring for decades as housing bubbles have driven rents higher, especially post GFC with money flooding into the housing boom. Food, fuel, mandatory health insurance costs, healthcare costs, tuitions, and cars have also become much more expensive during this time. This effect has been hidden by things like globalization flooding the world with cheap consumer goods, hedonic adjustments from new cars requiring more things considered higher tech, televisions getting bigger, computer chips getting faster, etc. At the same time, the average person has lived with the feel of a being on a treadmill with the speed set ever faster as he still gets nowhere. The idea circulating that “inflation hasn’t been a problem for decades” is misleading and ludicrous in cost of living terms.
  5. “CPIs” have been driven higher as the lockdowns produced some of the biggest supply and demand shocks ever seen when people shifted almost all their spending from services to goods, and a flood of workers moved out of expensive cities and fixed up home offices for remote work. The disasterous energy policies of the G7 have made the situation critically bad, as they consider “environmentally friendly” to mean “block all infrastructure investment.”
    1. We produce much less oil in that US than we did pre-pandemic, we cancelled most new pipeline projects and have seen the supply of “drilled-but-uncompleted wells” drop precipitously as no one is investing in drilling new fracking wells.
    2. We have seen desalination projects blocked in California as Lake Mead dries up and our water from the Colorado River is about to be cut off.
    3. We have seen a number of nuclear plants shut down permanently this year alone, 2 of them after Putin’s invasion of Ukraine.
    4. We have seen the diversion of farmland to biofuels despite a food crisis raging through emerging markets and critical shortages in fertilizer.
    5. We have seen coal-dependent countries like Australia push big “windfall profits” taxes on producers causing prices of energy to soar.
    6. Unfortunately we’re stuck with these problems getting worse as our leaders continue to make it so. These policies will drive CPI higher by reducing supply despite the demand destruction that is also happening.
  6. “US Dollar Devaluation” is not happening, even though most people believe it is. The enormous “money printing” of the fed balance sheet is merely taking one form of money – treasury bills – and turning into a more restricted form of money – bank reserves. The enormous stimulus that went out in some part to people and in large part to big corporations was a big one-off, not leading to a virtuous cycle of increased incomes.
    1. People are not flush with cash and spending like crazy, hence the enormous inventory buildups in stores like Target and Walmart and the negative GDP growth.
    2. The US Dollar has been the best-performing asset of the year (aside from oil) as almost all asset classes have been dropping in dollar terms including most foreign currencies, gold, silver, and Cryptocurrencies.
  7. The labor market is broken in many ways. The job losses from the pandemic have still not been recovered – we still have LESS jobs than Feb 2020 despite working-age population growth!
    1. After the lockdowns & layoffs, prices of rents and real estate soared 30% in many areas, and people have been leaving in droves. Many of these workers will never return to the overpriced cities from whence they came, and those places will struggle to find new low-end workers with no places they can afford to live.
    2. Many of the workers displaced in the pandemic had job skills that take years to acquire. Nurses, longshoremen, construction workers, mechanics, pilots, etc. They will not be easy to replace, especially as high costs of gasoline make commuting expensive while high rents prevent people from moving back to those areas.
    3. Most people are NOT getting huge wage hikes and bonuses like the unionized workers of the 1970’s. Many people are paid in more variable terms with things like bonuses that can easily disappear, and the wages that have moved have been tiny in comparison to the cost of living and stilll fairly small compared to the increases in CPI.

Right now, a financial crisis like 2008 is much more likely than any kind of sustained inflation. Fiscal intervention in the US is unlikely, as the Democrats believe that higher energy costs will be better in the long run and the Republicans believe that workers are lazy and flush with cash that we need to drain from their hands so that they’ll get back off their butts and work. They’ll fight and have government shutdowns and budget battles even as the cracks in our economy become more obvious.

So, what can I say. My strategy remains the same really …

  1. If the economy tanks like I expect, and the Federal Reserve is the only game in town to act, and their only real tool is the interest rates set by their Reverser-Repo-Rate window, then rates will collapse in the next year and my TLT call hedges should soar.
  2. If the federal reserve manages to re-kindle the asset bubble, finding new ways to get more money to rich investors, then my precious metals miners should soar as these investors will again crowd into limited resources rather than investing in long-term infrastructure or production for a shrinking economy.
  3. Uranium demand is absolutely set to increase like clockwork, and the tiny but volatile mining sector will soar over the next decade. Who knows when exactly, but I’ll be there.
  4. US Cannabis is still a sector that big investors are blocked from due to federal law, so many of these investors go to Canadian cannabis companies instead. The Republicans and Democrats both want to make it federally legal in some way so they can get that sweet tax revenue, but Senator Schumer has been blocking it so far in hopes of a big comprehensive reform. I believe that they will end up with some kind of bipartisan compromise here that does the trick, allowing these companies to operate as federally legal enterprises with access to the banking sector, and allowing major investors to participate in the sector. It’s a falling knife until then, and the bleeding is so bad I’ve stopped adding to my holdings here back in February, but I plan to hold what I’ve got.
  5. Battery metals – mainly copper and nickel – are so undersupplied it’s insane, especially with the extremely wasteful use of them that our ESG-infected politicians are pushing. I expect downward pressure until we get to massive infrastructure spending in earnest, but I’d rather have something in too early than miss the move.
  6. Crypto I rarely talk about, but I’m in XRP with some buddies who are crazy bullish and I’ll leave it at that. Many coins will die off, but the sector will remain as long as its legal and it will have wild swings to the upside as well as the downside.

If I had new money to add, I would probably put the bulk of it in Uranium Miners because the long-term story is the most bullish by far. If you wonder why, start here: Uranium Market Minute: https://youtu.be/qkEhOYl9nCg

Here’s where my portfolio ended up.

  • HEDGES (16.4%)
    • 16.4% TLT Calls
  • PRECIOUS METALS (35.8%)
    • 4.3% AG
    • 4.2% MTA
    • 4.2% SILV
    • 3.2% LGDTF
    • 2.7% EQX
    • 2.8% SLVRF
    • 2.7% SAND
    • 2.1% MGMLF
    • 1.9% SSVFF
    • 1.8% RSNVF
    • 1.7% BKRRF
    • 1.6% HAMRF
    • 1.6% MMNGF
    • 1.3% DSVSF
  • URANIUM (24.1%)
    • 4.7% CCJ
    • 3.5% DNN shares & calls
    • 3.3% UEC
    • 3.0% UUUU
    • 3.1% BQSSF
    • 2.7% UROY
    • 1.9% ENCUF
    • 2.0% LTBR
  • US CANNABIS (13.4%)
    • 1.8% AYRWF
    • 1.5% CCHWF
    • 1.3% CRLBF
    • 2.2% CURLF
    • 1.4% GTBIF
    • 2.1% TCNNF
    • 1.2% TRSSF
    • 2.0% VRNOF
  • BATTERY METALS (11.4%)
    • 5.4% NOVRF
    • 4.4% SBSW
    • 1.6% PGEZF
  • CRYPTO (2.3%)
    • 2.3% XRP
  • OTHER (3.3%)
    • 2.5% DOCN (w/ covered calls)
    • 0.6% OGZPY
    • 0.1% TWTR call
    • 0.0% ATCO calls
  • CASH (-6.7%)

Keep a cool head during this cycle. The overall market losses and coming crisis are scary, but money will be moving like crazy. Lots of risk to take on the upside as well as the downside if you’re keen to take it. If you like my TLT calls play, please don’t get into calls dated before November (you’ll want the seasonal TLT bull market in Sept-Oct) and consider the high duration Jan 2024 calls if the premium isn’t too high because the move in rates might take longer than you expect. Be extremely careful with margin accounts here, and good luck!

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The Crazy Trades of a Bearish Leaning Gold Bug

It was nice to end the week with a rally, which brought my portfolio back up for a 0% gain on the week. In order to have a shot at life-changing returns, you need to concentrate on a sector and take in some risk, so that is what I’ve been doing. Needless to say, that can lead to big drawdowns. My portfolio returns right now are:

  • 0% on the week
  • -14.5% on the month
  • -42.7% on the quarter
  • -37.7% on the year

Note that the above returns are corrected for deposits. If I deposit $1000 into my trading account, then I subtract it off the ending balance before dividing it by the balance the prior week and subtracting 1. I simply add the column of weekly returns to get my returns going back. Because of this, my total balance is simply near the low end of the range that it has been stuck in since I started recording it in 2019. Between my relatively low net worth and relatively high savings rate, my losses over time balance out.

What do I get for these regular losses? The chance to have a big win. My net worth was around zero when I bankrupted out of my LED Lighting venture in 2014, and it wasn’t until 2015 that I managed to land a job with that new-grad starting income again. I piled what savings I could into precious metals, then precious metals miners and hit that beautiful $100k savings mark for the first time ever in that amazing gold rally of 2019. I managed to stay well above that range ever since, and I’m patiently waiting for the next big breakout. It will happen, and when it does junior mining stocks can pack quite a punch.

Here’s a quick rundown of my performance in various sectors with charts.

Hedges: This is where I lose the bulk of my money. I bet on individual stocks going down (airlines, cruise lines, etc) in March and April 2020 after the lockdowns and they rallied like crazy. Then I abandoned that approach and bet on the S&P 500 going down with SPY puts and that rallied like crazy. In the fall I thought … okay, people are cramming into the top bunch of tech stocks so the S&P is untouchable, perhaps I should switch to IWM puts (the Russell 2000), and that rallied like crazy. Then I figured that going short anything wasn’t going to work, so I decided to hedge with TLT calls in March of 2021 and they have been dropping ever since. I’m still stubbornly sticking to this trade, thinking that TLT will rally in the big crash to come, and that I’m probably better off sticking to one hedge rather than rotating because my previous rotations were all just before major market moves against me. I like TLT calls better than straight TLT because whatever hedge I invest in needs to have some serious outsized punch if it actually works.

Precious Metals:

  • April 28, 2020: 37% of my portfolio was jammed into long-dated call options on gold miners such as EQX and silver, using SLV.
  • May 14, 2020: 35% of my portfolio was in the above calls as I was taking profits.
  • May 30, 2020: 42.5% my portfolio was in gold mining stocks, almost all with covered calls sold on them.
  • June 21, 2020: 50% of my portfolio was in gold mining stocks. All the covered calls expired worthless. I continued selling at-the-money covered calls on these relentlessly through Nov 6.
  • Nov 7, 2020: 53.6% of my portfolio was in gold mining stocks and SLV. Some long calls, no covered calls.
  • Nov 28, 2020: I piled into precious metals like crazy into the Thankgiving selloff. It was 81% of my portfolio, 26% was in long dated calls. I happily rode this through the december rally,
  • Feb 5, 2021: After the SLV silversqueeze was a dud, I sold off all of my long dated calls and was down to 42.7% of my portfolio in mining stocks and SLV shares, most of which was in SLV shares which I was crammed into with 1-week covered calls sold at a hefty premium. I did lose money in the silversqueeze, basically giving back all the gains that I had from a short-term AMC play a couple weeks prior. A couple weeks later I was back to 35% portfolio in gold and silver miners, and I never messed with SLV as a trading vehicle again.
  • March 1, 2021: I was down to 20.7% of my portfolio in precious metals miners, and was selling weekly covered calls on AG. By mid-March I was back up to 31% into precious metals miners with some long call positions. By the end of March, this was up to 38% of my portfolio. Early April it was 42%.
  • August 2021: I pretty much waited on precious metals up through August, with a 42% allocation including a decent chunk of long-dated calls. I increased the allocation to 47% late August as I was buying into the dip. A lot of articles followed on the smackdown of gold miners, but I pretty much held there.
  • Jan 8, 2022: Mining stocks were really getting hammered and I was adding into dips. I was at a 49% precious metals miner allocation with quite a bit more calls, including a big chunk of long-dated calls in AG. By Jan 22, this was up to 52%. I was starting to get nervous about building up margin.
  • Feb 20,2022: I reduced my precious metals down to 44%, pushing my cash balance positive again. This was mainly by selling shares of AG which I was double-long as I bought a bunch of long dated calls in it to replace the shares, but was waiting for a rally to sell the shares into. I continued to reduce into the rally, going down to a 38.5% precious metals allocation by March 26.
  • April 17, 2022: I got spooked on precious metals when they showed signs of topping, and I sold all of my long dated calls early in the week. Allocation ended up at 29.2% by the end of the week. In addition, a lot of the out-of-the-money covered calls I sold on Uranium miners had expired in the money and were called, so I was sitting on a 28% cash position. Over the next couple weeks, I was trying to be patient and wait for the big fed meeting before buying anything.
  • May 7, 2022: I finally put my money back in, bringing my precious metals allocation up to 35.5%. The following week I got a bonus check and piled into more gold, silver & uranium miners while keeping my cash balance close to zero.
  • June 2022: My discipline has been breaking down a bit this last month as my mining stocks continue to take a beating. I had a bunch of covered calls on Uranium miners expire out of the money on Fed hike week, and continued to add shares using margin. My cash balance went from -2.2% on June 11 to -6.6% on June 18.

As you can see above, my precious metals trading has gone through quite a ride. As for my other trades, I’ll go through a quick summary:

Uranium Miners:

I had been following CCJ ever since Justin Hugn explained his thesis on Real Vision back in 2019, but I was reluctant to pile in figuring it needed a catalyst. I eased into the trade in 2020 with a small position in CCJ. By 2021, CCJ had broken out and I started getting more shares, selling 1-month at-the-money covered calls on them, then buying them back and repeating. I starting getting really bullish around Aug 2021 with the bullish wedge formation and got long a bunch of 1-month calls which made me a bit over $5k in following weeks. I found out after the fact about the Sprott Physical trust as a catalyst, then started really increasing my exposure to the sector and selling out-of-the-money 1-month covered calls on rallies. April was an amazing month for me as all of my crazy high out-of-the-money covered calls, like a $30.50 strike in CCJ, expired in-the-money and my exposure reduced from 22% of my portfolio to 11% after April 8th. I’ve been adding back as it fell, and the covered calls I sold into the last rally expired worthless on Friday June 17th.

US Cannabis:

I started getting interested in this sector when Tony Greer spoke about it in a Real Vision Daily Briefing around the summer of 2021. I put token amounts into 3 of the tickers he mentioned that I happened to catch without bothering to rewind, and just tracked the sector for a while. It was an intriguing story – the idea that big US investors can’t touch it until the federal government passes some kind of “safe banking” bill allowing them to access the US banking system and potentially list on the NYSE. For now they’re still limited to reaching out to private investors from the junior canadian exchange because Cannabis is still in the murky designation of being federally illegal yet legal in many states.

Anyway, the story was intriguing and I liked the idea of having something diversified from my mining portfolio, but the chart was a falling knife. I went from a 5.7% allocation to cannabis in Aug 28, 2021 to 8% in September, to 10% in October which fell back to 8.5% again in October. Then I started increasing allocation after it fell late November up to 11% on Nov 27 then 12.7% the following week, then 13.7% by Dec 24, then 16.5% in Jan 8th. I held the allocation fairly steady for a few weeks by purchasing more shares whenever the valuations dipped below a certain threshold, then I just stopped adding and let them float. That’s where I’m at with it today. I don’t think they’re going to zero, but I’m not planning to add further as they keep falling.

Crypto:

This sector was interesting as I had to figure out what to think about it and how to treat it. I still have physical gold and silver coins that I picked up between 2016-2018 and I don’t bother counting them with my portfolio because they sit in a safe and I don’t trade them. I initially thought of crypto this way, especially since I can’t trade it in my stock account, so I’d mainly been using coinbase. As a result, I never included them in my portfolio return calculations.

I really wasn’t interested in the sector until Rauol Pal got me interested with his narrative about institutional investors coming in and some really bullish looking charts in the summer of 2020. Before that, I had thought of the whole sector as a somewhat legalized scam where pump-and-dump operators ripped of retail traders. I had originally planned on easing into 2 full bitcoins on coinbase when it was trending between $9-$10k. I bought in incrementally and fully expected a buyable dip in the fall. I was close to 1 BTC before it broke out in October 2020, so I just chased into it to complete the 1. I never got the dip, so I eased into ETH getting 10 coins at around $450 each. I ended up dumping ETH entirely once it broke $1000. With BTC, I dumped 1/3 at the end of the year at $27,500 then decided to try trading it by selling into rallies and buying into dips to keep a roughly steady portfolio value of $20k. Once it hit $37,500 though I sold all the rest of it. Over the next few months I dabbled in some small coins, selling them for gains around 20% or so just prior to the big rally in March. Then I abandoned crypto entirely for a number of months.

A friend of mine kept bugging me to get into XRP. He’s really excited about it for a number of reasons, but the main one I found intriguing was that it was difficult to buy due to a court case which would determine how Crypto was regulated but not kill off the token. He found out how to buy it first, then showed me it held in a crypto wallet. I finally got my own crypto wallet and found out that I could buy Bitcoin in Coinbase, then transfer it to my wallet, then exchange it for XRP. I originally tried this with USDT, but settled on BTC because tether used the etherium network and the fees on moving anything linked to etherium are a total ripoff. Anyway, I made my first buy around $0.75 and added a bit at a few points, so I’m only down about 50% on the trade. Not a bad drawdown at all considering what I’m getting used to with the rest of my portfolio. I still don’t trust crypto much, but the sector has been a big winner for me, and it will remain a waxing and waning market force unless it is ever made illegal, which doesn’t seem likely.

Battery Metals:

I subscribe to a mining newsletter called Silver Chartist Report, and I slowly added into a few of these. I really started to get bullish on them more recently, getting it over a 10% allocation after they were gutted in May. It just seems to me like we’ve got a serious shortage of metals like Nickel and Copper, and I want a bit of exposure to this sector over the coming years. I’m actually amazed how well copper’s been holding up with the lockdowns in China and the year-long slowdown in their property sector, and every ESG politician wants to waste tremendous amounts of these critical metals in dubious projects. I’ll probably add significantly more in coming years, but it’s too early as short-term pain is most likely ahead here.

Other trades:

I tried a few things here and there, often moving on. This includes trading high yield dividend stocks and selling covered calls on them in early to mid 2020, playing around with meme stonks a bit when the options interest was high, buying OSTK when I could sell a 1-month covered call for a hefty return, and so on. I loaded up on 10 out-of-the-money XOM calls when it was at $65 and got a decent win, but had other calls that went to zero (looks like ATCO will do just that). I got a DOCN call after a RealVision interview making it sound like an amazing growth story, then sold it at a significant gain a month later, then bought 100 shares this year after it was cut to the low 50’s, figuring I could sell covered calls on it. Its good to try things a bit.

I managed to avoid trading for the most part this last week. Here’s where my portfolio eneded up:

  • HEDGES (13.3%)
    • 13.3% TLT Calls
  • PRECIOUS METALS (36.8%)
    • 4.5% AG
    • 4.4% MTA
    • 4.3% SILV
    • 3.2% LGDTF
    • 2.9% EQX
    • 2.8% SLVRF
    • 2.6% SAND
    • 2.2% SSVFF
    • 2.3% MGMLF
    • 1.9% RSNVF
    • 1.6% MMNGF
    • 1.5% DSVSF
    • 1.3% HAMRF
    • 1.3% BKRRF
  • URANIUM (24.2%)
    • 4.7% CCJ
    • 3.2% DNN shares & calls
    • 3.5% UEC
    • 3.2% UUUU
    • 3.1% BQSSF
    • 2.9% UROY
    • 2.0% ENCUF
    • 1.7% LTBR
  • US CANNABIS (14.3%)
    • 1.8% AYRWF
    • 1.4% CCHWF
    • 1.4% CRLBF
    • 2.2% CURLF
    • 1.5% GTBIF
    • 2.3% TCNNF
    • 1.3% TRSSF
    • 2.4% VRNOF
  • BATTERY METALS (12.0%)
    • 5.8% NOVRF
    • 4.5% SBSW
    • 1.8% PGEZF
  • CRYPTO (2.5%)
    • 2.5% XRP
  • OTHER (3.5%)
    • 2.7% DOCN (w/ covered calls)
    • 0.6% OGZPY
    • 0.2% TWTR call
    • 0.0% ATCO calls
  • CASH (-6.6%)

I really hope that the mining stock rally we finally saw on Friday will carry on a bit. It won’t take much of a jump for me to start selling covered calls into because I’d like to get my cash balance back to positive in this high-risk part of the market cycle. My margin should be at zero when we hit the real liquidity crunch, I’m thinking this fall. I plan to be fully invested at the time though, as those minings stocks are absolute bargains in my opinion, and I wouldn’t mind adding into my Jan 2024 TLT calls again after the fed rate hike next month.

That’s all for today, good luck and happy trading!

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The Fed takes a big hike

Well, the Federal Reserve certainly acted quickly to that CPI report. The headline number rose by 8.6% year-on-year, when they expected it to top out at 8.3% in April. They swiftly put out an article in the Wall St Journal suggesting a 75bps rate hike, as they like the market to price in rates before they set policy, and then they announced the 75bps hike on Wednesday. There was a bit of a rally on Wednesday as the uncertainty left on the announcement, but it quickly reversed in the days to follow.

The CPI number was released after trading on Friday, June 10th, and the market reacted significantly the following week:

Here’s basic commodities for that same timeframe. I had to expand the chart a bit here to get the same date range, because commodities exchanges are always open.

Wow, gold is barely down at all and siver is only down 2.2%. Surely my mining stocks…

That toilet flush sound is the liquidity draining from the system. Gold and Silver are big worldwide markets with currency characteristics, so they moved down a lot less – though everything lost against king dollar this week. Mining stocks on the other hand are small, illiquid, and volatile. A big fund or central bank can sell gold in an emergency, but mining stocks don’t share that property at all.

I actually bought a decent amount of stuff this week, as the prices of all my holdings are so much cheaper right now. Here’s where my allocations ended up:

  • HEDGES (14.0%)
    • 14.0% TLT Calls
  • PRECIOUS METALS (37.3%)
    • 4.4% AG
    • 4.3% MTA
    • 4.1% SILV
    • 3.6% LGDTF
    • 3.0% EQX
    • 2.8% SLVRF
    • 2.7% SAND
    • 2.2% SSVFF
    • 2.1% MGMLF
    • 2.0% RSNVF
    • 1.7% MMNGF
    • 1.7% DSVSF
    • 1.5% HAMRF
    • 1.3% BKRRF
  • URANIUM (22.5%)
    • 4.3% CCJ
    • 3.0% DNN shares & calls
    • 3.3% UEC
    • 3.0% UUUU
    • 2.9% BQSSF
    • 2.8% UROY
    • 1.8% ENCUF
    • 1.6% LTBR
  • US CANNABIS (14.6%)
    • 1.8% AYRWF
    • 1.5% CCHWF
    • 1.5% CRLBF
    • 2.2% CURLF
    • 1.6% GTBIF
    • 2.3% TCNNF
    • 1.3% TRSSF
    • 2.5% VRNOF
  • BATTERY METALS (12.2%)
    • 5.9% NOVRF
    • 4.6% SBSW
    • 1.7% PGEZF
  • CRYPTO (2.3%)
    • 2.3% XRP
  • OTHER (3.7%)
    • 2.9% DOCN (cloud computing)
    • 0.6% OGZPY
    • 0.2% TWTR call
    • 0.0% ATCO calls
  • CASH (-6.6%)

My portfolio value dropped 10.2% from last week to this week. All of my uranium miner covered calls expired out-of-the-money after being in the money or close to it at the end of last week. The good news there is I get to keep all my shares, the bad news is they are down considerably.

As for buying this week, you can see that my cash balance is now at -6.6% vs -2.2% just a week ago. It is dangerous to build up too much margin debt in a raging bear market like we have, but the prices are so compelling at the same time. Also, the negative percent is a little bit misleading in that it factors in my holdings in my regular account, IRA, Roth, crypto wallet, and bank balance whereas the margin lies 100% in my regular stock trading account so I am actually just over a third of the way to my limit. Needless to say, I’ll be looking for a bounce to sell into here, at least with a bunch of covered calls.

As for what I’ve been buying … I looked at all my mining stocks with the lowest percent holdings and added to those. Those were things like BKRRF, MMNGF & PGEZF. I also added to NOVRF and SBSW in battery metals, UEC and UUUU for uranium miners, and MTA which I consider a top-tier gold & silver royalty company. I left the pot stocks alone. I’m not planning to add to those any more in the near term, just holding what I have. They’re kind of an afterthought at this point.

Buying cheap is always exciting, so you really have to keep discipline and not overdo it or you’ll get hit by a margin call on a nasty drop. I did add a decent chunk of Jan 2024 TLT calls this week too, as I expect the fed to break something sooner than ever now causing a liquidity event, a scramble for USD collateral, and a nasty recession made worse by persistent shortages in energy and food. The stupid thing is that the environment I’m calling for is not one you want to hold margin debt in. If those TLT calls soar, it will likely be after the liquidity event which could easily shave my portfolio down enough to make that margin debt matter.

Anyway, we’re deeply oversold so I’ll be looking for a bounce, and I’ll be aggressive on selling out-of-the-money covered calls at the very least at the first sign of momentum petering out.

As far as the markets go, we definitely live in exciting times. Good luck, and be careful out there!

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What’s wrong with these inflation charts?

This is a serious question actually. I just typed in a google search for “St Louis Fed CPI”, brought up the consumer price which looked like a hockey-stick inflecting around 1973, then changed it to % change year over year. Here’s the result:

It figured it must be screwy because it dwarfs every YOY change from the past. Here it is with the fed’s favored PCE index:

As you can see, it still dwarfs any prior measures. Here’s a chart which excludes food and energy:

Now we’re beginning to see the charts we’re used to. No meaningful inflation since the 1970’s if you exclude food and energy I suppose.

Here’s the latest consumer sentiment chart, which was also kind of a surprise considering all of the lowest reading ever articles I saw on it:

The chart low is 51.7 in May 1980. The latest here is Apr 2022 at 65.2, which is indeed low, but on par with 1990 and 2008-2009 readings. Apparently ycharts.com includes two more data points though – 58.4 in May and 50.2 in June which would beat 1980 for an all-time low. I’m not sure how they get a monthly reading for June when we’re barely over a week into the month so far though.

Well, what can I say. I just pulled up CPI and consumer sentiment charts because they’re the big numbers this week, and I’m actually quite surprised by what I saw here. I’m going to rewrite my overall narrative and see what I think about it.

My overall narrative is as follows:

  1. People are struggling with the rising costs of food and energy while wages go nowhere
  2. QE is not money-printing, but psychological operations to encourage a bullish investor bias
  3. The money that went out to ordinary people in the 2020 and 2021 stimulus packages was a pittance compared to the total spent.
  4. The demand shock had a big effect in late 2020 and 2021 was mainly driven by a big shift from services spending to goods spending, that the demand shock has already worked through as evidenced by the rapidly rising inventories in consumer goods which started in October 2021.
  5. The supply shock is very real, as the world economy is coming close to the levels of early 2020 yet the US produces a lot less oil, the US and EU have shuttered nuclear plants with no replacements since then, we are desperately short a number of critical metals as well, and we are coming into a major man-made food shortage which our leaders are ignoring or making worse.
  6. The supply shortages are so bad that we will be stuck at depressionary levels of economic activity unless we start to invest in natural resources as well as food and energy production, and we still aren’t doing that.

I am clearly biased to the side that the inflation we’re seeing is driven much more to the side of supply shortages than to the side of monetary excess, and I believe that is why Gold and Silver aren’t just rocketing higher. At the same time, I believe the sentiment has been lousy and the gold and silver mining stocks provide compelling values. I also like to acknowledge the idea that perhaps the inflation is partly monetary, even though that money mainly went to the top and not the average consumer, and clearly any monetary inflation would end up being good for precious metals.

Here’s the commitment of traders chart for gold, where I put circles showing where the Large Spec long interest has bottomed, where the corresponding low in commercial shorts have bottomed, and where they fit in the price chart of gold below. The latest readings are on par with the levels at those previous lows, but I put a ? instead of a circle because I don’t know if they’ve bottomed yet.

Here’s the same exercise for silver. It doesn’t seem as effective, except to say that when large speculators turn bullish price goes up. Still, they’re not very bullish now so they have plenty of room to rise.

My ending portfolio:

  • HEDGES (10.7%)
    • 10.2% TLT Calls
    • 0.5% XOM Puts
  • PRECIOUS METALS (36.4%)
    • 4.5% AG
    • 4.4% SILV
    • 3.6% MTA
    • 2.7% SLVRF
    • 3.1% EQX
    • 3.2% LGDTF
    • 2.6% SAND
    • 2.0% RSNVF
    • 2.2% SSVFF
    • 2.5% MGMLF
    • 1.8% HAMRF
    • 1.4% DSVSF
    • 1.4% MMNGF
    • 1.0% BKRRF
  • URANIUM (23.5%)
    • 4.7% CCJ
    • 3.4% DNN shares & calls
    • 3.2% BQSSF
    • 3.0% UROY
    • 2.8% UUUU
    • 2.9% UEC
    • 1.9% ENCUF
    • 1.6% LTBR
  • US CANNABIS (15.4%)
    • 1.9% AYRWF
    • 1.6% CCHWF
    • 1.5% CRLBF
    • 2.3% CURLF
    • 1.7% GTBIF
    • 2.2% TCNNF
    • 1.6% TRSSF
    • 2.5% VRNOF
  • BATTERY METALS (10.6%)
    • 5.3% NOVRF
    • 3.7% SBSW
    • 1.6% PGEZF
  • CRYPTO (2.0%)
    • 2.0% XRP
  • OTHER (3.5%)
    • 2.6% DOCN (cloud computing)
    • 0.6% OGZPY
    • 0.2% TWTR call
    • 0.1% ATCO calls
  • CASH (-2.2%)

My cash is down as I couldn’t resist making a couple of plays. I bought a bit more UEC of Friday’s dip because there’s still a decent chance all of my $4 covered calls on it expire in the money at the end of next week. I also entered some 1-month puts in XOM on Tuesday, as I looked at this chart and figured it’s due for a pullback to the 50 DMA, and the week of June options expirations and the fed hike meeting seemed as good a catalyst as any.

I still think it’s a pretty decent bet that the chart above pulls back to at least the 20-day moving average at 96 if not the 50 day. Its clearly a bullish chart, but also clearly over-extended as everyone frets over the Federal Reserve withdrawing liquidity from the system and crashing the economy.

The Twitter call was a reaction to an article suggesting that Elon Musk will likely have to complete his transaction to purchase Twitter at a cash value of $54.20 per share, as he signed an iron-clad deal to just that, which acknowledged all of the concerns with bots and such. The jurisdiction would be in business-friendly Deleware which is known for quick judgements on such contracts. TWTR trades at $39/share so I have until August to at least see a jump that will allow me a profitable exit.

Anyway, good luck with your trading. Next week should be interesting, and it will be especially interesting for me as I see where my covered calls land. Last week I was hoping my DOCN would be called, but now it looks like it will expire out of the money. Next week I’ll know for sure on that and on all those out-of-the-money calls I sold on Uranium mining shares a couple weeks back.

Afterward:

I just posted my blog and started messing around with the St Louis Fed charts again, and I found the problem. When I clicked on the index, and clicked “Edit Graph,” I was choosing “Change from a Year Ago, Index 1982-1984=100” with the results you saw above.

Apparently that is the wrong choice. If you choose “Percent Change from a Year Ago,” then you get the correct CPI chart like this:

Now that looks correct. I’m not re-writing by blog though.

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