HUI represents unhedged miners. In January 2016, the HUI dipped to $99.13 then rose 2.84 xs to $286 when the $BPGDM, Bullish Percentage Index, was less than 15%. Then in mid-July the bullish percentage was 100%! Prices dipped, but then made a marginal new high. Sentiment is not an EXACT timing device. Now, the index is near 7% bullish after a 37% decline and four months. Talk about swings in sentiment. Buy high and sell low. Interest rates are rising, gold is falling, the dollar rising, so who would be in the stupid 7%?
Update: Nov. 27th, 2016
As of Nov. 27th, not every data point shows a turn in the gold market, but bearishness quite high. https://monetary-metals.com/good-news-and-bad-news-report-27-november-2016/
gold-stocks-bullish-sentiment-nov-16th-2016Assuming you have found cheap, well-capitalized miners, developers and/or explorers, there is a time to buy and a time to sell. I think this is a time to be greedy when others are fearful. Also, if this was a sell-off after a long bull market (not a six month rally) where large amounts of capital investment entered mining, then bullishness might be less warranted. ey-m-a-exchange-performance-comparison Place information into context. A good read: commodity-resource-stocks An investment only a mother could love.
HUI in relation to the Dow Jones. Be careful, though, the starting and ending periods are deceptive. The point is that miners have been scorned despite or even because the recent rally/sell-off.
Positive Signs: Juniors holding better than Senior Producers
As deep value contrarians, we aren’t able to have absolute certainty, but we can put probability on our side along with the laws of supply and demand. If you don’t feel ill when buying your resource stocks, then don’t do it. Forcing yourself through the fear (assuming you have done your homework) to ACT, is the key.
Investors fleeing the miners over the past few weeks
Update Nov. 30th 2016
If we are in a bull market, then a healthy position, but more to go if we are in a bear market. But base metals continue to show strength.
Recent headlines imply near total bearishness:
Battered Gold Looks at Risk of Further Thumping
ABN Amro, OCBC see bullion dropping to $1,100 by end of 2017
Higher interest rates, stronger dollar seen pressuring gold
The worst is yet to come. At least that’s the opinion of the top two gold forecasters who say bullion will suffer further losses in 2017 as interest rates climb and the dollar strengthens.
Oversea-Chinese Banking Corp. and ABN Amro Group NV see gold sliding to $1,100 an ounce by the end of next year as the Federal Reserve tightens monetary policy, real Treasury yields increase and the U.S. currency rises. Prices were at $1,185.77 Wednesday. The banks were ranked first and second as forecasters in the third quarter, according to data compiled by Bloomberg.
After briefly soaring to $1,337.38 as it became clear that Donald Trump was about to pull off a shock victory in the U.S. presidential election, gold slumped to a nine-month low of $1,171.18 last week on speculation that his pledges to increase spending and revitalize the economy would boost interest rates and augment the attraction of other investments such as stocks and bonds.
“From an investor point of view there is little reason to hold gold,” said Georgette Boele, a currency and commodity strategist at ABN Amro. “Rising inflation expectations are more than countered by the rise in U.S. Treasury yields and expectations about upcoming rate hikes by the Fed. As long as real yields rise and there are no major inflation fears, prices will go lower.”
Global bond yields have climbed to 1.58 percent from a record low 1.07 percent in July, according to the Bloomberg Barclays Global Aggregate Index. The odds of the Federal Reserve hiking in December are 100 percent, up from 69 percent a month ago, before the election, and a gauge of the dollar against its major peers surged to the highest level since at least 2005 last week.
Gold is set for its worst month in more than three years, with investors dumping bullion at the fastest pace since 2013. Assets in bullion-backed exchange-traded funds have shrunk 5.3 percent in November, the biggest monthly drop since June of that year. Billionaire Stan Druckenmiller sold all his gold on election night. “All the reasons I owned it for the last couple of years seem to be ending,” he said in a CNBC interview shortly after the vote.
In the month through Monday, investors pulled $4.4 billion from exchange-traded funds backed by precious metals, the biggest redemption among all asset classes offered in such funds globally that are tracked by Bloomberg. Money is moving out of gold and other precious metals as U.S. equities rally to a record and traders boost bets on further rate increases.
Boele from ABN Amro sees the negative environment for gold continuing into next year, with a recovery for prices expected in 2018. The bank cut its prediction for the end of 2017 from $1,150. Before the U.S. election, Boele was already bearish, lowering her outlook in October.
Barnabas Gan, an economist at OCBC in Singapore, was predicting $1,100 by the end of next year before the U.S. election. He kept to that view in a note on Monday and cut his call for the end of this year to $1,200 from $1,300. He’s factoring in three rates hikes — one in December and two in 2017 — which will drag bullion down to his target by the end of next year.
“Political uncertainties continue to persist,” Gan said. “Note the upcoming Italian referendum as well as next year’s French election. Contrast this with the relative certainty over U.S. economic growth under President-elect Trump’s proposed fiscal plans which gives rise to reflationary and higher U.S. rates expectations into 2017.”
While Gan and Boele already saw lower prices for next year before the U.S. election, a Trump win was interpreted as bullish in a Bloomberg survey of more than 20 traders and analysts published before the vote. A victory for the Republican was seen pushing Comex gold futures to $1,395 within a week. Instead, the reverse happened.
Not everyone is bearish going into 2017. Bullion may average $1,300 next year, says Robin Bhar, head of metals research at Societe Generale SA in London, the third-best gold forecaster in the data compiled by Bloomberg.
“All in all, gold prices are at the mercy of risk appetite. Buying on dips is likely to provide support given a view that gold is a good portfolio diversifier, hedge, insurance policy,” Bhar said in an e-mail last week. At the same time, he acknowledged the downside risks because changes in fiscal policy could push real interest rates higher, offsetting haven demand.
Ignore the analysis but note the concept. The advice to NOT buy the miners was the perfect situation to do the opposite:
See the lows put in Jan. 11th in both the HUI Goldbugs index and Freeport McM (FCX). Only six days after the publishing of this article.
Five years ago, the FTSE 350 Mining index reached a post-financial crisis peak at just over 28,000. It currently sits at 7,134, down 75% at an 11-year low, and share prices remain vulnerable.Global commodities markets remain massively oversupplied and Chinese demand is waning, but there will come a point at which mining shares are a ‘buy’ again. (You always want to buy commodities and/or commodity stocks at the point of MAXIMUM PESSIMISM or when supply is greatest and demand lowest!).
Investec Securities has built a “Mining Clock”, which brilliantly illustrates the mining cycle, including when to buy and when to sell. It’s a real “cut-out-and-keep” for every investor.
“Please see the updated Mining Clock below where we indicate that it appears still too early to be buying the mining sector. This is despite five straight years of underperformance from mining equities globally, in every sector, save Australian listed gold equities which outperformed the ASX in 2014 and 2015.” (Where is the article that told you WHEN, exactly, to buy?). Rearview investing doesn’t work.
The above article proves once again that no one can time a sector–except when (like in this article) there is no hope for a rebound.
And now over the next few days and weeks, a time to rebuy at the margin. But if you are in a bull market Sentry__Com_BullishGold_MacLean___E then sitting tight is what you must do. At most, I think we are in six to seven on the mining clock. So far, the public is not yet participating except perhaps in the last month.
Note the information they give investors. How management communicates is important. Do they provide sufficient detail for you to assess their capital allocation skills and operational performance. Note page 5.
I am not suggesting this as an investment for YOU, but seek out disconnects like this. Despite rising earnings, the market may be worried about lower oil prices because lower oil prices may affect the demand for the products that NVGS ships and/or the capex that NVGS is bearing with delivery of new ships. The question for an investor would be: “Has the market over-discounted the fears of low oil prices or over-supply of ships?” This company is VERY different than a standard dry-bulk shipper. These are highly-specialized/expensive ships. Knowledge reduces risk, so really understand the management and its goals.
From 1975-2001: ROI for T-Bills was 6.6%, S&P 500 14.1% with a 15% std. dev., Bulk Shipping 7.2 with a 40% std. dev., and Tanker Shipping 4.9% with a 70.4% std. dev! (Source: Maritime Economics, 3rd Edition)
Who in their right mind would invest in the shipping business? Well, if you can buy low, then fortunes can be made. Recently, the Baltic Dry Index (BDI) hit a thirty-year low of 291, BDI Index and note the long-term chart below. Always look at MANY years of past data. The boom of 2007/08 will probably not be seen again for many years.
“Dry bulk is a screaming buy; one of the best entry points in the cycle in the last thirty years. But be prepared to sustain a prolonged period of poor freight market conditions and have plenty of cash reserves and low leverage. In other words, you have to have a longer-term perspective than most investors–three to five years at least.
Isaac sowed seeds into the land during a drought. –Leon Patitasas
“That’s the funny thing about ships. They are actually more attractive to buy at 20xs EBITDA, or even negative cash flow, than they are at 4xs EBITDA,” Coco said.
“So you are telling me that investors should seek out money losing shipping deals?” she asked incredulously.
“Correct. And sell the ones that are making lots of money. Itis like that little Napoleon said….”Buy on the sound of cannons and sell on the soundsof trumpets.” (Source: The Shipping Man by Matthew McCleery).
John Chew: Here is where I wonder if this post helps readers’ understanding of investing because is this investing or speculating? Note as much as what Warren Buffett does NOT do. He doesn’t invest in mining or shipping stocks. He has already had poor results with the airline industry. So why even mention an industry in massive distress with historically sub par returns and huge volatility? I would prefer businesses with great reinvestment opportunities or great capital allocators at the helm like Markel (MKL), but a horrific business going from a distress price to a bad price may give much better returns depending upon the price paid. Also, the worst bear market in freight rates in the past 30 years for dry bulkers means unusual opportunity just as the worst bear market in gold miners in the past 100 years offered bargains galore.
Readers know that I ventured into the miners in mid-to-late 2013, subsequently suffering back-to-back declines of about 25% before seeing the portfolio rally about 100%. So I still do not have a great return (12% after three years), but I bought miners with a five-year-to-seven year outlook and I am only three years into the investment. With Junior miners you can expect to see a 50% decline before they rally five to 10 times (assuming you chose the ones that survive! –Rick Rule). In a land of negative-to-low interest rates, I have to look further for bargains.
Readers can pipe in what they would like to learn in future posts–let me know.
Five years of declines in gold mining stocks and then…..
Are you investing or speculating by dry-bulk shipping stocks? These are stub stocks where the equity is a small fraction of the enterprise values due to the shrunken market cap and the large debt taken on to finance ship purchases. But if you buy a few well-managed and relatively well-financed shipping companies that can survive the trough of the cycle–two to four more years?– you can tolerate a few going to zero if the ones remaining multiply many-fold. Not for the weak-kneed. Scorpio Bulkers (SALT) has ALREADY diluted shareholders and has taken drastic action to survive. Note management buying shares at $3.00 Scorpio Bulkers Inc. Announces Financial Results for the First Quarter of 2016. An ugly past, but we invest for the future in terms of mean reversion. I have not yet invested in any shipping stocks!
Here is what I love about the shipping business. 10 ships and 11 cargoes, then a BOOM. 11 ships and 10 cargoes, then a BUST. You are also on the SAME footing as the most experienced ship owners in the world. NO ONE knows when the cycle will turn. This is like a poker game where the investor that has the ships when others have thrown in the towel takes a lot of the marbles. The worse the freight rates and the outlook, the better IF you can carry the costs until the cycle turns, and it WILL turn due to the laws of supply and demand.
I view this as intelligent speculation. I allocate five tranches of investment into five shipping companies. Say $5 units each. One unit goes to zero (ouch!), the next to $2 (Boo!), the next to $1 (Damn!), the next to $3 and the next to $50 (Homerun!) and it takes three years. There is a 31% compouned return. Though I have no idea if this is realistic because I must study the shipping industry thoroughly. I am just formulating a possible strategy IF I find the right companies at the right prices. But I am drawn to the shipping companies because some companies are trading below depressed net asset values. As Mr. Templeton suggests, look where the outlook is most dire.
Novagold Annual Report 2015 This annual report’s shareholder letter including the links provides an excellent example of how several investors view the capital cycle for an asset. History does provides a guide.
The above article should be a sobering reminder of how difficult it is to choose exceptional stocks. Remember when reading about great compounding machines like Wal-Mart in its early days (1970 to 1999) that you must take into account survivorship and hindsight bias.