The Federal Reserve decided to leave benchmark interest rates at 0 to 0.25%, where they have sat since December 2008.
They kicked the can down the road, hoping I can only assume that things will be better in December. I disagree.
I see an economy that just doesn’t support a big bull market and a bull market that is set up to become a victim of its own success.
The Fed said economic activity is expanding at a moderate pace, household spending and business fixed investment are rising moderately, housing is improving moderately – see the pattern? Things are ok.
Well, Yellen acknowledged that exports are ‘soft’ and inflation weak (though the reality of inflation is another whole debate, which I’ll touch in in a minute), but described the labour market are solid.
Yup. Things are good. Just not good enough to raise rates.
I agree. As I’ve pointed out in recent articles, the US economy is doing ok. Not great, but ok. OK does not support monetary tightening. On the contrary, OK still relies on supportive policies. Tightening now could easily have sparked a market correction and Yellen sure doesn’t want to get blamed for that.
The problem
…
Yesterday was a holiday in British Columbia – Family Day, a day off invented three years ago to put a long weekend in the long spell between Christmas and Easter. With family in town and two close friends having had babies in recent weeks, I was very happy to celebrate!
While I played, gold hit US$1,200. Wow. It came off slightly but continues to trade just below that mark, proving itself worth the 11% gain it has managed in the last month.
Analysis abounds. Gold is even making the covers of mainstream news for its ability to gain amidst the mess. And the gains are now enough that miners are enjoying a lift as well. Newmont Mining is up 51% in two weeks, Goldcorp has risen 45%, Kinross is up a whopping 72%, and Barrick has added 41%.
All the while, the US boards are stumbling along. Fourth quarters earnings are rolling in; whether they ‘hit’ or ‘miss’, most have been causing share price losses. Confidence is ebbing.
The debate over whether America is heading for a recession or not goes on, but I have come to think it doesn’t much matter, at least in the moment. What matters
…
Orex Hits High Grade
Everyone loves to ask: What is it going to take to bring the junior resource sector back to life? I always have the same answer: investors need to make some money.
I think there is good potential for that this year. Select stocks will advance. Certain discoveries will make waves. And we saw one example this week.
Orex Minerals’ (TSXV: REX) share price nearly doubled on news it drilled into 61 metres grading 359 g/t silver, essentially from surface, at a new target on its Sandra Escobar project in Mexico. Orex is optioning the property from Canasil Resources (TSXV: CLZ), which saw its share price triple.
Orex has sampled the target, work that outlined a zone 150 metres wide and some 750 metres long. It was narrow, high-grade veinlets that drew the team to the area, but it’s hard to cobble together a viable deposit from scattered sets of narrow veins.
Deposits take volume, which means either lots of veins or mineralized host rock.
So Orex tested the host rock. Expectations were low as it did not look great, but samples returned significant silver, in the 100 to 200 g/t range.
…
Interested Investors Versus Mainstream Malaise
When gold bars grace the covers of mainstream business magazines, the top is in and it’s time to sell. So when the Wall Street Journal titles one of its top stories For Mining Chiefs, Doomsday Scenarios Could Become Reality – does that mean the bottom is in?
The article says nothing new. It highlights how prices considered doomsday or impossible just a few months ago, like US$30-a-tonne iron ore or US$4,000-per-tonne copper, are now in sight. It goes through the China quandary – how uncertainty over Chinese growth and demand overhangs the commodity sector like a black cloud. It touches on output cutbacks to stem oversupply in copper.
It ends with a quote on copper: “I don’t think the market is going to let this rest until it sees blood.”
We have seen blood, thank you very much. The mainstream might have missed it, happily distracted by a six-year US bull market, but those of us in the sector have bled.
And if mainstream attention creates the final ‘leg down’ that we have all been awaiting – sounds good to me.
Given what I experienced at this week’s three conferences, I think that
…
What a start to the year. I am far from alone in noting it, but wow.
I do get to say that things are playing out as I expected. I never pretended to know when or how the US would turn down, but I have been calling the US bull market tired and overdone for months already. But even though I saw markets with narrow breadth and earnings misses that had been relying on financial engineering and were starting to show topping patterns, it was impossible to know how the downturn would actually develop.
Well, if 2016 continues the way it has started the downturn will be a crash. We are already in official correction territory: the S&P 500 is down 12% from its August high and the Dow Jones is down 13%. Small caps are faring far worse: the Russell 200 index of small caps is down 22%.
You don’t have to look back very far to see the last time this happened. In August US markets tumbled more than 10%. They recovered most of those losses, but the current slide means we’ve had two corrections in six months.
That has only happen three times in the last
…
It is never easy getting back to work after the holidays, but this year has been particularly tough for traders. In the first five trading days of 2016 the S&P 500 lost 6% while the Dow fell 6.2%. That represents one of the worst starts to a year ever.
The US isn’t alone. The STOXX Europe 600 is down, Japan’s Nikkei is off, and China has had to halt trading twice because of sudden market drops of 7% or more.
My general takeaway is: I’ll take it! The US markets have looked thin (in terms of breadth) and overvalued to me for some time. And any US market downturn would encourage investors to start looking elsewhere for value, a rotation that would almost certainly bring interest to gold.
I talked through the situation in more depth in my last Maven Letter, sent to subscribers on Wednesday. Below, a snippet from that discussion. This week I will get back to commenting on industry news – there was simply little news on which to comment over the holidays!
From the Maven Letter: January 6th, 2016
Why the drops? Because economic numbers out of China disappointed. Because the end-of-year market rally
…
The Maven Letter goes out every Wednesday, which meant that last week I published the day Janet Yellen announced the decision to raise interest rates. It has been an interesting few days since.
After gaining in anticipation of the news, US markets spent two days falling. Gold lost US$25 an ounce in a day, then regained more than that. The US dollar climbed for a day, then declined for two.
Is it volatility? Is it real reaction to the impact of a 0.25% rise in rates? Was the rate raise already priced in, minimizing the reaction? Does it matter?
A little of each, I would say. As for whether it matters…yes and no. Yes in that it adds more reason for US dollar strength, which works against commodity prices. No in that 0.25% does not actually have an impact on its own. What will matter is whether the Fed continues to raise rates through 2016, as its outlook chart suggests it will.
In the short term, I think the rate raise will help gold’s seasonal gains. The price was overly depressed in anticipation and now gets to recoup, while also rising on seasonal strength. Since seasonality and specific
…
Everything is harder in a bear market.
Explorers have to work incredibly hard to raise money. It takes immense effort to attract attention for good results. With everyone lacking cash, it takes forever to negotiate a deal. Most companies are down to a fraction of their former workforce; each employee has far more to do so any one task takes far longer.
I hear it from everyone. For me, my main task is finding opportunities to profit in the mining sector and that is definitely far easier in a bull market.
But there are opportunities out there, both in the short term and in the long run.
In my newsletter I have recommended three stocks in the last six weeks. One is already up 30%. Another is an arbitrage opportunity where – provided you have confidence that deal will close, which I do – you can spend $0.25 today to be paid out between $0.35 and $0.40 in cash in a few months, a gain of 40 to 60%. The third is up only a touch so far, but it put into the portfolio the most best exploration project in the world for the mined commodity
…
December is traditionally a quiet month for mining. Investors and bankers head off of holidays and companies hold off on releasing news.
But this year is a bit different.
Wednesday is the big day: the day we find out if the Federal Reserve is raising interest rates. Why would it do so? Ostensibly because the data says it should.
Well, one data point lines up with what Yellen said she needed to see before tightening, which is unemployment down to 5%. GDP growth is debatable: the analyst average is just shy of 2.5% but GDP Now, the real time forecast published by the Atlanta Fed, has it at 1.4%. Yellen said she wanted 4% GDP growth.
Then there’s inflation, which fell to 0.2% as of the mid-November Fed reading. Yellen wanted 2%.
So the data doesn’t really say rates should go up, but the Fed’s (1) need to retain some credibility after promising a rate hike for so long and (2) need to create some breathing room should easing become necessary mean it will happen. At least, that’s what I think.
Is it a good idea? No. The strong dollar is crimping US exports. Retailers are
…
For metals and miners December is a long, quiet slog. Between the distraction of the approaching holidays and the negativity of tax loss selling, companies with news hold onto it until January.
Thankfully this year we have the Federal Reserve’s decision on interest rates to keep us busy!
Yippee. I, like many others, think Yellen will raise rates on December 16. I, unlike many others, think that will soon result in a top for the US dollar.
I also think a rate raise will be good for gold. Yes, the conventional argument is that higher rates increase returns on bonds and dividends and cash, thus increasing the ‘opportunity cost’ of gold and that should mean gold declines when rates rise. But that just isn’t what has happened.
As this chart shows, there is little correlation between interest rates and gold. Through the 1970s gold gained with rates, mostly. Then gold moved mostly sideways for two decades while rates kept stepping down. In 2001 gold started its 11-year run, at first alongside rising rates and then in opposition to them.
Were we to zoom in closer, gold prices generally fall in the month leading up to a
…
