Cost

Life is funny. Last year in March, gold ~1680 and I had called for a bottom. We did bottom and had a nice rally back up to 1920 by May. The move was a little steep, but I thought after a pullback, we 'd be set up nicely for a move into the 2400 region, possibly by Aug, which is the month gold makes peaks in far more than any other month. By June, after the FOMC with the Fed dropping the “taper” bomb onto markets, things took a very different turn and it was clear that 2400 target for Aug was off the table. In fact, the whole bull market was possibly “off the table” and the reaction of metals and miners afterwards turned me very bearish, as I began having flashbacks of the 2013-2015 decline.

We declined significantly all summer and fall, and when we didn’t break down after 6 months, I got bullish again in Jan, pointing out that consolidations in gold typically break out after 18 months, and Feb would be month 18. Sure enough, we began rallying strongly in Feb and by March we were retesting all time highs. 2 days after the peak, I pointed out DSI numbers on gold and silver at 95 and 93, so a top was probably in for now, but after a month or so of pulling back and shaking out some late coming bulls, we’d be setting up a nice cup and handle from a TA standpoint with a target of ~2400 that could be achieved again, in golds favorite month to make highs, Aug.

 

Here we are again in June with a very different picture, and I will now refrain from ever calling for 2400 gold by Aug ever again. (But just know, that if it happens, I was thinking it). It seemed like we were ready to go, that the gold bugs had been vindicated after watching gold go nowhere in the face of the highest inflation since the 70s. But alas, it was not to be. We had every tail wind we could ask for. We got a retest of highs, then a collapse. That is a bad sign, and very reminiscent of gold’s final rally to 1800 in 2013 before collapsing down 40% over the next 2 years. 

 

On the one hand, I’m glad I turned bullish when I did, because it was a huge move in miners from Feb to April that was definitely worth catching. In hindsight, I had written in April about the idea of this being a “false break before the real move” and dismissed it as unlikely to me, due to the extremeness of the “false move” swing higher. A 45% move higher in GDX over just 3 months that then unwinds, losses all of its gains, and then breaks to new lows seemed like a less probable scenario. But that is exactly what happened. I wish I had given this more credibility at the time, perhaps I could have rung some warning bells sooner.

 

But what’s done is done. What matters now is, “where do we go from here?”

 

I’ve seen a lot of charts and metrics thrown around recently. Things like, “Zero miners in the GDX currently above 200 day moving average”, “Gold miners Bullish precent index at 2-year lows”, “COT reports showing lowest large spec long positions in gold in 2 years”, and anyone reading the room of gold stock investors, knows that sentiment is in the toilet right now.

 

“Buy when there is blood in the streets.” So, easy answer, right? Not necessarily.  All of these factors would make gold, silver and miners a screaming buy right now IF, and ONLY if, we are in a bull market.

 

I know there are many gold bugs out there looking around at the state of the world we live in and thinking that we are absolutely, beyond a shadow of a doubt, in a bull market. I know plenty who said the same thing in 2013, and thought they were getting a free lunch buying gold stocks at 30% discounts from where they were 1 year earlier when the price of gold had been unchanged since then. But there is no free lunch on Wall Street. The “discount” they thought they were getting because the market was being “stupid” was a warning, and a trap for those who bought it.

 

I’ve never been fortunate enough to be the smartest guy in the room on anything. I have known a few who were though and not a single one of them was audacious enough to believe that they figured something out that the smartest minds in the world, running trillions of dollars all somehow missed. (I know, Michael Burry, “The Big Short”. That’s a 1 in a million shot, and you aren’t Michael Burry.)

 

The Perma-Bull gold bugs always think it’s a low, always think it’s a bull market and time to buy, but that just isn’t the case. I know plenty that tried to blame the 2013-2015 decline on manipulation, refusing to believe it was a “real” bear market. It HAD to be some evil cartel of bankers and government tamping down on gold to keep it from going to crazy, and that is the reason for its 40% decline in 2 years. (Despite the fact that this was the fate for most commodities in the same time frame. Copper also lost 40% from 2013 to 2015. Soybeans lost 45%. Wheat dropped 50%. Corn lost almost 65%. Nat gas and oil both dropped 75%. I suppose all of those moves were normal, rational, market action, while gold’s fairly tame drop in comparison was blatant manipulation.) Since then, most accept that this period was a bear market for gold, but I have not forgotten their pathetic attempts to shift the blame of their bad calls onto some invisible entity, dead set on making them look bad. But I digress…

 

Gold would be a buy here IF we were in a bull market, but as Mark Twain said, “It’s not what you don’t know that kills you, its what you know for sure that just isn’t so.” Let me show you a few examples why. We’ll start with !GT200GDX, the index showing the amount of GDX components that are currently above the 200 day Moving Avg.

 

We can see from the chart that major lows in 2018, 2019 & 2020 were all marked by the index reading at 20 or less, with 2018 and 2020 lows at 0, where we currently are now. Might seem like a no brainer, but this chart only gives data going back to 2018, during a time when gold was in a bull market. If we compared this to the 2013–2015 timeframe, I’d bet there were a lot of times we would see it at 0, and for long periods while price stubbornly kept declining.

The 200 day moving avg is kind of a cornerstone in Technical Analysis for determining if we are in a bull market or not. When you are, price typically stays above it, or has corrections that bottom at or near the 200 day MA at their worst points. In bear markets, the exact opposite. Price stays below it most of the time and rallies typically fail near it. The very nature of a study like this one ensures that readings of 0 on an indicator like !GT200GDX will happen often and stay that way in a bear market. Inversely, In bull markets, expect to see elevated levels for long periods. From July 2019 to the end of the year in 2020, (with the covid crash as the only exception) the !GT200GDX indicator stayed above 80 for 1.5 years. I’d be willing to bet, if we had the data to go back to 2013-2015, we’d see the exact opposite, multiple hits at 0 and staying below 20 for nearly 2 years as gold stocks got decimated.

 

   

Above is GDX from 2009- 2012, a period when we were in a bull market, with the 200 day MA in red. Below it is 2012-2015, a period when we were in a bear market. See what I mean? For a VERY long period in 2013 we stayed significantly below the 200 day MA. It is safe to assume during that period, there were 0 stocks in the GDX above their 200 day MA. That in itself was not a buy signal, as we can see price continued to decline, and declined a lot. About another 50% from the initial July 2013 low at ~24 all the way to 12.

 

I’ve mentioned a few of these points before in previous articles but they are worth repeating here because we are at a crucial juncture in my opinion. Many are going to go out looking at these indicators and buy, thinking they’re catching a low on the way to new highs. In reality, I believe they are catching the “middle” of a downwards move in a market transitioning from a bull, back to a bear, that could still have a ways to go.

In regards to Sentiment, we can see the same looking at DSI reads on gold as well as $BPGDM, the Gold miner’s bullish precent index. Here are charts on them. Same situation with both. Long periods of very elevated levels during bull markets, long periods of levels at or near 0 in bear markets. In 2013, $BPGDM spent 6 months never getting above 10, all while price kept declining. I talked about this in my last article in back in May. Here is a link to it. This is an important point that’s worth reading if you missed it.

Additionally, its worth adding in COT reports. Large spec longs in gold are at the lowest level in 3 years. The last time large spec longs in gold were at these levels it was Sept 2021 and gold was 1720, on it’s way to 2100. The time before that gold was 1680 in March 2021, on its way to 1920 in just 2 months. But if we zoom the chart out to include the 2005- 2011 time period, in order to reference this with the previous bull market, as well as include the 2013-2018 bear market, we saw the same thing happen right in 2013. Gold large spec long positions hit 110k, the lowest level since the 2008 crash down to 700 (which was 80k). They were quickly on their way down to 28k, then to 16k in 2015, and ultimately 1k in 2018.

 

Ok. So, I’ve made my point. It looks to me we are likely not at a low, but in the middle of a continued decline in a BEAR market now. So, when do we know when we actually ARE at a low? There is a lot of moving parts there and a lot of factors to take into consideration as it is happening, like what other markets are doing, the state of the economy, what the Fed is doing (or isn’t doing), as well as price action in gold and miners that we will analyze day to day to try and determine that when it comes. But there is one indicator that has marked every major low in metals over the past 20 years, and given multi-bagger buy opportunities on miners in 2001, 2008, 2016, 2018 and 2020. Ready for it?

 

Cost.

 

Basic economics. As the saying goes, “the cure for high prices is high prices” and “the cure for low prices is low prices.” When prices are high, everyone producing a product is going to take advantage by making as much of it as they can to cash in. The increase of supply, assuming demand is constant and not also increasing, brings prices down. The same with low prices. If you can’t mine gold profitably when the price is $1000/oz, nobody is going to. The decrease in supply ensures price will correct back higher again.

 

Every screaming buy opportunity in gold, silver and miners in the last 20 years has been marked by the price of the metals falling to levels that were near the cost to produce them. In 2001, Gold fell to a low of $250/oz after Gordon Brown decided to sell Britain’s gold reserves at the absolute low of the bear market that was about to go 8-fold higher in the next 10 years. For the year 2001, Barrick had a “total production cost” of $247/oz. Newmont’s costs that year were similar. Two of the largest gold producers in the world at the time were mining for break-even. The same was true with silver. At $4/oz in 2001, Hecla’s total production cost for silver was $3.57/oz. A mere 40c profit per ounce produced.

Could things have gone lower? Sure. Could they have stayed low for a longer period? Of course, but for the most part, this is unsustainable for a long period, or else there just isn’t going to be gold and silver mined anymore.  If you took that as a sign that metals prices need to begin turning higher from here eventually, you had some great multi-bagger opportunities in miners that gold investors love to talk about, but most never get to see. You could have bought Barrick in 2001 as low as 13. It went to 55 seven years later, a 4.5x return. NEM was as low as 12 and went to 60 by 2006, a 5x return. HL could have been bought at less than $1, on it’s way to 9 just 2 years later, and 12 if you held on till 2008. There’s the 10 bagger “white whale” gold stock investors keep looking for, and it was right under your nose in some of the biggest NYSE listed producers. No need to search for obscure, illiquid, unknown JR’s, hoping geology, management’s competence and markets all line up perfectly to get you that coveted 1000% return.

Let’s move on to 2008. Markets were crashing and no asset was immune. Gold dropped 30% from 1000/oz to 700, and silver dropped from 21 to 8. Miners got the worst of both worlds as stocks and metals dropped, with GDX tanking from 55 to 15. According to earnings reports on NEM and ABX at the time, gold mining costs were ranging around 550-575/oz, giving them still a fairly decent profit margin at 700. (It’s important to note the calculations of “costs” at the time varied, with not all producers using the same metrics. The “All-in sustaining cost” or AISC metric wasn’t adopted by the industry until 2013. Cash costs are just the straight cost to produce an oz, but is not reflective of the costs to run a mining company. AISC account for the costs associated with exploration to replace those ounces produced as well as administrative costs, etc. Basically, all the costs of SUSTAINING a mining company long term. I mention this because 550/oz for NEM in 2008 was reported as cash costs, so actual costs were likely much closer to break even at 700 gold.)

Silver though was worse. Falling to $8/oz, it was basically at cost for most silver miners. Pan American’s total cost on nearly 20m ozs mined in 2008 was 8.76/oz. Hecla’s total production costs per oz were 8.52. Coeur mining’s costs were 12.50/oz. Clearly this was unsustainable metals prices and the market was due to correct back up higher, and indeed it did, sending miners massively higher. NEM more than tripled in 3 years, from 20 to 70. PAAS went up 4.5x from a low of 9 to 42. CDE gave you a 10 bagger, from 3.60 to 36 in the same time and HL did even better, from 1 to 11.

By 2016, metals had collapsed from their highs and miners, (who, like the basic economics example, were rushing to sell as much gold as they could at 1900, even if their costs of mining were 1400.) were frantically cutting costs as their margins disappeared. Price collapsed and costs came down. By 2014, NEM’s AISC was 1002/oz with avg realized gold price for the year at 1250. Getting close but not there yet. By 2015, price had dropped to a low 1050/oz and NEM over that year managed to reduce costs by only $3 to 999/oz. That’s about as razor thin as you get. Silver at the time was $14/oz, and costs were about the same. CDE 2015 AISC was 14.62.  PAAS was 14.92, and AG was 13.43. AG rallied 9 fold in the next 9 months, from 2 to 18. CDE was 8x, 2 to 16. PAAS 4x and NEM was 3x. Higher cost miners had better returns, as most were completely written off by investors. HMY went from 50c to $5. GSS did similar, from 70c to 5.5.

By 2018, not much had changed. Costs were about as low as companies could get them, holding at near 1000 an oz for gold and 14/oz for silver. Gold tanked in Aug from 1375 down to 1150. Not as razor thin as times in the past, but very close. Silver, once again went to 14. Again, not just thin, negative in some cases. AG’s 2018 AISC were 15/oz. HL was at 11.50 and PAAS was 11. CDE stopped reporting AISC all-together, which should probably give some insight into where their costs was in relation to their peers (higher). Many silver miners slipped a bit in 2019 from 2018 lows, but the multi baggers were still there even if you didn’t catch the exact bottom. 3 years later, AG from 4 to 22, HL from 2 (to 1.50) then to 9, PAAS from 12 (to 10) then 40, CDE from 4 (to 3) then 12.

While the 2018 to 2021 period covers the covid crash, it’s important to look at that period too. Gold fell from 1700 to 1440. Costs were still around 1000/oz so this was still a very good profit margin for gold producers, but just like in 2008, gold held its profit margin and silver exceeded it, dropping to 12/oz. AISC at the time were: PAAS= 11.40, AG=14, HL=12. (CDE in 2020 was still not reporting AISC. Interestingly, the word “cost” appears only 4x in their 131pg annual report, and in none of those 4 instances, do they actually give a per oz number, cash, AISC or otherwise) If you had missed out buying in 2018, you got a 2^nd chance here with many miners dropping back to those levels or exceeding them. PAAS and AG both retested lows from ~2018. Higher cost miners like EXK exceeded them, dropping back to $1, its 2016 low. (After which it did a 5x, and then in 2020 did an 8x 1.5 yrs later.) HMY in 2020 fell to 1.7, near its 2018 low, then rocketed up over 4 fold to 7. AEM met its 2018 low at 30, then tripled. All of this in just 5 months.

Gold investors are obsessed with the idea of 5-10 bagger returns on JRs in a bull market, and they have a good reason to be, because as I’ve shown, its not only possible, its happened 5 times in 20 years even with major producers. The problem is their approach is typically to get in AFTER a massive move betting on a continued move higher and a long 10 yr bull market. Just because we had a nice decade long run in 1970s and 2000s doesn’t mean you are guaranteed one this time around.  It worked buying into gold after it ran to 700 in 2006, and again at 1000 in 2008-2009. It didn’t work at 1550 in 2013 though, and clearly it hasn’t this time either.

 

Simple fact is, as I’ve mentioned before, everything went faster this time around. Economy collapsed, Fed wasted no time printing and the govt didn’t waste time spending like drunken sailors. Gold went from “market panic crash” at 1400, to up 50% in 4 months. Silver tripled that return, from 12 to 30, a 150% return. In 2008, the Fed kept QE running with no consequences from inflation for the next 5 years. Within 1 year of starting up the bond buying this time, we were already at 5.4% inflation. For all the criticisms that the Fed waited too long to act (and they did), the time between easing and tightening didn’t give gold much to work with.

So if the way to make a killing in gold and silver stocks is to buy when we are nearing cost, what does that mean for right now? Well bad news. NEM and ABX costs as of last quarter are around 1165/oz. That’s a long way from the current price of 1730. The good news is, those costs are rising quickly, about 10% just since Q4 2021 for both Barrick and NEM. While inflation may be peaking here due to an expected economic decline, any positive number below 8.7% just means costs are increasing less fast than before. I think it’s safe to assume that unlike other recessions like 2008 and 2020, we will likely not see $20, or -$30/barrel oil like we did then. (My guess? Somewhere in the 60s. $3/gallon or less is an improvement from 5, but not the 1.xx range were used to in recessions). Being that oil is a major cost for mining, this will continue to put pressure on their bottom line.

Gold is falling apart, the lows at 1680 will likely give way so where do costs and gold begin to meet? First, there is no guarantee we’re dropping to the cost of mining, but it’s happened before so it seems possible. It’s also the best time to buy miners historically. IF we see a similar situation, I believe these roads will intersect somewhere around 1400.  If costs at 1165 for the major miners like NEM and ABX increase by another 10% over the next few quarters, they’re AISC will be about 1280/oz. At 1400 gold, that’s a pretty thin margin. (Of course, if costs rise more in a short period, that level might be closer to 1500. This is the part we kind of have to play by ear).

From a technical perspective though, we can see a lot of significance with 1400. A trendline from the lows in 2006, 2008, 2016 and 2018 line up right at 1400 currently. Additionally, 1400 was the “ceiling” of the entire bear market. From a TA standpoint, a breakout and retest of that bear market ceiling area would not be an uncommon thing to see. It’s also the 38% Fib retracement from the 250 low in 2001 to the recent highs at 2100.

The problem is that’s down 20% from here and knowing how silver and miners trade in relation to gold would spell out some devastating losses. If silver dropped inline with gold (It won’t, it’ll drop more) that would be 15/oz (13.30 if it’s a 30% drop). (As of Q1 2022, PAAS AISC is at 13.30, AG’s shot up to 20, which will likely come back in line ~15-16 soon. But that looks like a logical level for silver) If these things occur, expect miners to revisit 2018 and 2020 lows. Currently a 30% drop here in GDX sends us to 18 again. If you’ve been invested in PM miners for more than 1 day, you know that expecting a 30% drop in miners with a 20% drop in the metal is incredibly wishful thinking.

 

Right now we may be setting up for a pause in the bleeding. The only 2 times gold has been lower than it is now in this consolidation, were the 2 times it tested 1680. Silver is testing the 61% Fib retracement from the 2020 low to the high at 30/oz. Additionally, this area near 18.50 was support from 2013-2014, then resistance from 2017-2020, so it should offer some support testing it again this time.

 

GDX is testing ~25, which is the 23% retracement from the 2011 high to the 2015 low. This area was also resistance from 2017-2019, then provided support in 2019. Weekly RSI is the lowest its been since the 2018 bottom, but as we can see from that reading at 21, while we are currently at 31, we can go a lot lower. GDXJ looks similar, just worse. After already losing 50% from Aug 2020 highs, its now testing the 78% Fib retrace from the 2020 low. This level ~30 also coincides with support, as we can see many instances of lows and bounces from 2013-2019 near this level.

 

I suppose it’s worth mentioning the pitiful performance of SILJ, now closing in on the 23% retracement from all time high to low, again an area it bounced at in 2013 and not too far off now from 2018 lows at 6.84. Just another 20% down to erase all its gains for the last 4 years.

We may get a bounce here, but I wouldn’t try to play this long. It MIGHT be worth taking some liquid, in the money protection out by buying puts, but we’ll cross that bridge when we get there. Don’t try to go long a bull market.

One more point I want to note. People have said how I haven’t posted as much here or on Twitter, or done very many interviews recently. Truth is, I spent all of last summer screaming the warning signs that I thought were coming in gold. I thought what we’re seeing now would begin unfolding then. I got an incredible amount of backlash and ridicule for my opinions by permabulls (who have been largely quite recently). People who scoffed at the idea that gold would be weak due to taper fears and bottom when the fed began hiking when I said it in June, finally began accepting that as the likely blueprint by Jan, which was of course, too late. Everyone shouted the same words I heard 1000x before, the most dangerous words in investing, "It'S dIfFeReNt ThIs TiMe", only to now watch miners drop almost identically to how they did in 2013.

It was tiring. It burned me out and I kind of lost interest. Since then, been trying to focus on other things. Gardening and hiking have been nice hobbies. With the help of a friend, I’ve been stewing over some business ideas as well that I may wish to launch in the future. For now, the trend is down so if there’s nothing to do in your portfolio, do something else, and I have been.

If there’s something important to say, I’ll be there to say it. As I did in Jan right before gold turned higher. As I did in March when DSI numbers were signaling a top. When I think we reach that multi-bagger, near cost, buying opportunity in gold, believe me, I’ll be on Twitter and on here saying it. My goal has always been to help the smaller PM investors navigate a volatile market, while trying to cut through the Perma-bull crap and conspiracy theories to get to the stuff that actually matters, like how to ACTUALLY make 1000% in miners by buying when price is near cost, not because Basel 3 is a game changer that will send gold to 10k by next week. I’m not going anywhere. I’ll be there screaming when the time is right. (Perhaps it can be done on an better platform in the future?)

Remember, leverage kills. You won’t go broke picking a few bad stocks. You go broke picking 1 bad stock with leverage. If you have leverage, get out. Live, learn, move on. This is a bear market and your only goal here is to survive it.

-Jonathan Mergott

Quick Update

I'm about to head out on vacation for the next week, hiking around the Blue Ridge Mountains, and will likely have spotty service so I wanted to post a quick update on gold before I leave.

 

Gold is up almost 100 from its low 1 week ago, managing to not have a daily close below 1800. We ran right up to resistance ~1870, that we failed at in Nov last year.  It is also the 23% Fib retracement from the 2018 low and is currently right where the 30 day EMA sits. Now it appears we are weakening a bit.

 

I am not enthused about this price action. Gold chugged higher after an extreme drop and being very oversold but only managed to claw back less than 100 of the 300 its lost in the last 3 months. I would have hoped to see closer to 1900-1920 before a pause and pullback. This weak price action I think is a warning here to proceed with caution. Very oversold conditions have pared off a bit, and while this might be slowly building a low, it equally could be getting ready for another drop.

 

Although the price action in Gold is not enthusing to me, I am even less enthused about silver and miners here. For 2 years, Silver consolidated above 22. There were only 2 times it traded below that level, Sept 2021 and Dec 2021 and in each instance, it bounced back above within 24 hours.  It’s now been 2 weeks that we’ve held below 22 and have now bounced back to test that level, and we are beginning to roll over. Support becomes resistance, resistance becomes support. This is not a good look for silver right now.

We can see something similar in SILJ as well. The area around 11-12 has held as support at the worst parts of the correction that began last June, and now we have broken below and held below for a substantial period of time. We have bounced to retest that previous support area and are failing here, which is also right near the 13 Day EMA, (substantially weaker than gold which was able to claw back to the 30 day). Additionally, we have 2 big gaps down from this plunge. The nearer of the 2 is at 11.50 to 12. The last few days we have topped out near 11.50, unable to fill the first gap. There is virtually nothing on this chart that is instilling me with the confidence to buy right now.

GDXJ is similar. Although it was able to bounce back within a few days of breaking the major support it held after last summers weakness, it too has 2 gaps to fill, the first at 40-41 and is stopping dead at that level, unable to find buyers over 40.

GDX looks the best simply because it did not even flirt with breaking support near 29-30. But on the flip side, the 1^st gap in GDX at 33.50 to 34 it still has not reached unlike GDXJ and SILJ which are at least ATTEMPTING to fill them. This price action in miners is almost identical to what we experienced last summer to winter, except then it took 4 months for GDX to drop 30% from its high of 40, and this time around we had a 30% loss in just 4 weeks. If I am being honest and objective about my analysis, and following the same rules and cues that made me cautious last summer, then there is little difference in price action today to make me wildly bullish right now.

I’m not here to tell you what to do, simply to point out what I see, how I interpret that, and what I myself am doing. So from that standpoint, I don’t think this is a good time to be trying to buy producers, and I will be holding off on doing that for the time being. There are a lot of Jrs that have gotten very cheap recently that are worth nibbling on here, but I am not trying to spend all my cash reserves just yet as I have a feeling all markets will continue to get worse and it may last for a good amount of time.

Markets are overleveraged. If SPX continues to grind lower, it WILL affect PMs and miners, as well as crypto, commodities, etc.  Best case scenario is a crash. In that event, we all know what to do, we have been conditioned by it from witnessing what has happened post 2001, 2008 and 2020. That being said, the fact that everyone is waiting for a crash to buy is a major reason I think we may not see one. Instead, we may actually see a bear market for the 1^st time in 40 years, and by that I mean, grinding lower while everyone tries to pick a bottom and is forced to bail as we break to new lows over the course of maybe a few years.

Everybody has an opinion on the economy here and looking at price action in markets, I think it supports mine, and that is this: The biggest factor contributing to the weakening economy right now is inflation. I know many have expected 1970s style inflation peaking into double digits, but the fact of the matter is that since 1977, cumulative inflation is ~370%. At the same time, adjusted for inflation, median income in America is down 5% and household debt is up 35%. The middle class simply have no room in their paychecks and no room on their credit cards to continue to pay higher prices for the same goods and services. The result is a decrease in spending and a contraction in the economy.

Everyone seems to think Powell is going to rush to print again as the economy contracts because that’s what the FED does, but when the economic contraction is caused by inflation which was a result of printing, more printing now will do more harm than good. He royally screwed up by not acting fast enough and now he must maintain his course continuing to tighten while the economy takes a nosedive. The problem is we now have a similar situation to 1980. When inflation peaked at near 20%, the Fed had to hike aggressively to 20% to fight it. But it didn’t just go away because of that. 2 years later, inflation was still 6% and the Fed funds rate was 9% all while GDP was -1.8%. I think it is likely we can still see presistant inflation, a weak economy, and higher interest rates then we have been use to over the last 15 years for some time. After a decade of inflation in the 1970s that hurt the middle class and benefited the rich, we had a decade of high interest rates in the 1980s that hurt the middle class and benefited the rich. The result of which is the massive wealth gap we see today. And now we’re doing the same thing again.

I fear the policies we enacted after covid were America’s nail in the coffin. The economy will never recover fully, debt is too high, and we are now destined for a stagnant economy with little to no growth and at the very least, low but persistent inflation that we will never recover from. Essentially, we are embarking on the path Japan has been on for decades now.

But I digress. Let me wrap this up with something positive. Sentiment in Metals has taken a major turn from overly bullish, to very bearish over the last 2 months, and that is very positive from a contrarian standpoint. Additionally, COT reports on Silver and Gold have seen large specs rush to sell their longs which is something we typically see at major bottoms. The issue here with these 2 things is that sentiment and COT positions are relative to whether we are in a bull market or a bear market. I shared the chart below on twitter before, showing Gold DSI and how it differed in it’s peaks and lows when gold was trending higher and when gold was trending lower. Bearish sentiment is not always a buy. You can see that DSI levels went to near 0 bulls many times, had small bounces then right on to new lows when gold was in a bear market. Below that chart is the Gold miners bullish precent index which shows the same thing. Currently now it is ~20, which has basically marked all major lows since the bull market began in 2018. IF we are in a continued bull market, it is likely this is also a major low.

However, if we are transitioning into a bear market, it’s likely we can continue to see sentiment drop with price for long periods of time. Long term, I am a gold bug at heart and therefore bullish, but short term, price action is not encouraging. I THINK this is likely pressure being put on gold that is related to all markets which are experiencing selling across the board, due to an oncoming recession. But I would be remiss if I didn’t take into consideration the similarities in the economy right now to what we saw occur in 1980 when inflation peaked and the long and difficult battle the Fed had hiking rates to fight inflation while the economy contracted. In THAT situation, gold had already peaked and was grinding lower and would continue to for a significant period of time. (20 years actually, which I do not think will be the case this time around, but we could see a stagnant period like from late 2016-2019.  After the massive rally in gold and miners early 2016, we corrected from those highs significantly and just grinded sideways for over 2 yrs, dropping 1 more time in 2018 before we began moving higher. This also occurred during a Fed tightening cycle.)

To sum up, I’m looking here to add small amounts to cheap Jrs with good assets and good management who will be able to expand those assets and shareholder value, regardless of the direction of the metals. Producers I will not be buying till they can “show me” something good here. I’m in no rush to spend all my cash as I expect either a crash to buy heavily into, or continued grinding lower for some time where I can keep picking up small amounts over the coming months. There are some positives with metals here, mainly in sentiment after a brutal drop, but I will repeat something I said when this happened in June. Violent moves down like this are rarely isolated incidents that just reverse back and break to new highs shortly later. If the lows here do hold, we likely have a few months of back and forth range bound action till we’ve shed off every hopeful long that we can, and then we can resume moving higher.

There is a lot up in the air right now in markets and the economy. No matter what your view on a market is, it’s a good time to be skeptical about everything and consider opposing points of view. Times like these, uber bulls or bears can get wiped out, Cash is a good thing to have so don’t be too quick to dispose of all of it.

 

-Jonathan Mergott

May You Live in Interesting Times

 

It should be apparent over the last few years why this is a curse, not a blessing. Alas, things continue to get more interesting. In addition to a pandemic, a resulting economic collapse, high inflation (a result of their “solution” to the economic collapse), we can now tack on War in Europe, a declining economy, an inverted yield curve predicting yet another recession, and skyrocketing interest rates (the solution to the inflation that was the solution to the collapse that is most likely going to be a major catalyst in the next collapse). Lather, rinse, repeat.

There is so much going on regarding the economy that I could probably go on endlessly on various different things, but I won’t bore you with all that. (That I save for my friends and girlfriend. And sometimes the cat when they all stop caring). As I’ve said before, I prefer to watch price action in the market as the biggest “clue” in what is being thought and focused on, rather than focusing on the macro and developing a thesis for how the market will trade based on that.

In my view, the problem with that mentality is two-fold. First, your analysis of the data and what the data will be, may be wrong, and second, even if you're right about the data, your interpretation of how the market will trade off of that data could be very far off.  If you’ve been “watching and learning” over the last few months/years, you can probably think of at least a couple “marco” focused guys who’ve had rigid interpretations of how the market should be trading, that have been terribly wrong. As Mark Twain said, “It’s not what you don’t know that kills you, it’s what you know for sure that just ain’t so.”

Let’s dive into gold, silver and miners.

I’ve shared the gold “cup and handle” chart a few times before, and from the big picture aspect of this chart formation, there is nothing unusual here even after this sell off. In fact, I think we could stand to see further declines without doing too much longer-term technical damage. There is an 18-month downtrend line of declining highs we broke strongly above back in February. Currently, its sitting nicely aligned with the 61% Fibonacci retracement from the 1680 lows in March and August, to our recent highs at 2100, right at about 1830.

This area at 1830 also makes up the “ceiling” that gold had from June to when we broke above in February. (With an exception in Nov when we pushed above by about $50 to 1880. That rally proved to be short lived, but we were able to nail the turning point in early Oct beforehand and made a pretty nice profit on it.) It would be perfectly normal from a technical analysis standpoint, if gold were to retest that broken trendline level, so we still have a good amount of room here before needing to worry.

That being said, we are VERY oversold short term right now. RSI on 4 hr gold hit 19 this morning, the lowest level since mid-November. (After that decline, gold slouched for about a month, then began drifting higher. 2 months later, it ripped up 17%, or $300 to retest all-time highs in just 5 weeks.  A similar situation now still leaves us setup well for a summer rally and Aug peak. A 17% gain from 2100 is 2450, pretty close to the projected target of this cup and handle).  

This decline has been very harsh and very fast and its likely time for a pause here. Gold is sitting at support near 1890-1900 that it’s tested and held at twice before. Daily RSI is right at 40, a level that has held on every pullback since December, and is a level we typically see readings above during upwards trending markets, which I’ve talked about before. (Inversely, downwards trending markets often see highs on RSI around 60.) In hindsight, we can see that a little over a week ago, when gold tested the 2000 level, RSI peaked and reversed at exactly 60 as price reversed and also closed below that 23% Fib level. That may have been a warning sign a correction was forthcoming.

    If you’ve been focusing on Silver, you might be a bit more pessimistic. While it’s important to take into account how silver is acting, GOLD is always the one in the driver’s seat for the metals that should be given more attention. And if you’ve followed me for any period of time, you’ve probably heard me say “watch the miners”, as I give a higher weighting to their performance than either silver or gold, and here’s a perfect example why:

I had called for a low March 2, 2021.  A major factor in that call was a reversal higher in GDX (the same thing that occurred on the low on Nov 30^th 2020, which we also nailed for a nice $200 rally). Gold kept slumping for a few more days after that and GDX marked a few cents lower the next day then began moving higher. By the end of March, Gold had retested that low at 1680, double bottoming. Silver though, as highlighted by those 2 circles, made a lower low later in March. One looked like it could be bullish, the other looked certainly bearish. The tie breaker, and the one that gave you the best hint of what was to come next was the GDX, which bottomed 4% higher than it’s low earlier that month.

Once again, we have a similar setup. Gold has tested these lows near 1900 a few times now and held, while we see silver making a lower low. I think much like 1 year ago, silver is painting a more bearish picture that may not necessarily be true. On the upside, we stopped and reversed from the lows early in the day today on silver and then gold and miners followed, so we may indeed be seeing a bit of a pause here in these declines. There is very strong support below these levels, here at 23.50 as well as 23, 22 and the final lows at 21.50 hit last fall and winter. Granted, on the lowest side of that range around 21.50, that is still down almost 8% from where we are now, but we’ve already dropped 12% in about 1 week.  Precious metals are volatile assets. Best get used to that kind of volatility sooner rather than later.

Another point on silver, we reversed and headed lower right at resistance at the 23% retracement from the 2016 lows to the 2020 highs. RSI also stopped and reversed lower at 60, the same as it did in gold. This again, was a SMALL warning, but it was a warning. Reversals like these are usually not a bad sign to maybe bail on the last of the “dip” buys you made on the way up. Perhaps overly cautious, but when you’re dealing with assets that can drop 10-15% in a week, it’s not a bad idea to be a little extra cautious with additional money you put in to “trade” or dip buy to leverage profits on the way up.

Moving on to miners, GDX has had a horrid few days here, declining 16% in 1 week. But we are now approaching an area of support in the 33-35 level that was the ceiling for GDX all through the summer and into the winter. Just like Gold and Silver, GDX is also very oversold in the short term. Additionally, we had a pretty significant bounce off of today’s lows. At the worst point, GDX was down about 5.5% and bounced 2% off that level. In comparison, gold bounced $8 from its lows and silver bounced 20c, or about 1%. So this relative outperformance at the end of the day for miners when at major support may be solidifying that idea that we’re making at least a short term bottom here.

Not to digress too much but I want to make a point here.  I've said "watch the miners" so many times they should put it on my gravestone. But if you've been employing that mentality over the course of the last year, I hope you understand now why I say that. We saw gold peak on March 8th at 2100. GDX hit 40 then reversed hard, down about 10%. As gold consolidated at a level almost $200 from the high, GDX continued higher. Countless down days in gold the last couple of months saw GDX open down 1-2% then end the day green again. Miners shrugged off all weakness in gold and kept chugging along.

This is the EXACT opposite of how they acted all through the summer till about Jan this year. Every time gold was up, miners didn't care and kept heading lower. Consequently, that entire time period when they were acting this way was not a great time to be holding them. When I turned bearish in June last year, this was a major reason why. A lot of people dismissed the relative weakness as manipulation, or the market being "stupid", saying my claim that miners lead metals was completely untrue.

The fact is, we've called several major lows in gold and miners over the last couple of years, most of which were to the day or within a day or 2 of the lows and all of those were preceded by miners reversing losses and exhibiting relative strength to the metals. Inversely, I was one of few bears in June citing this as a reason for concern and repeatedly had my analysis dismissed. For the next 8 months, PMs and miners proved to be a terrible asset to be holding.

Miners leading metals isn't always the case. As many have been quick to point out, 2 or 3 major lows over the last decade or longer this was not the case for. The last article I wrote, "Bull State of Mind" I pointed this out. In 2016, there was no warning at the lows, gold and miners just took off like a rocket, and I warned we will likely see similar when gold finally bottoms this time, but I believed after an 18 month consolidation, if gold was going to break down, it would have done so by now.  This was a major reason why I turned bullish again. Another major reason was hearing many of the people who criticized my analysis in June, that there is risk in PMs until the fed begins hiking rates, begin to finally throw in the towel and accept that that was likely going to be the case. 

   I'm an introvert. When the room gets too crowded, I start worrying. I'm glad so many finally figured it out, but it was 6 months too late and it was time to be planning for the bottom, not planning for risk. I said this bottom will likely give no hints when it arrives and will be difficult to catch by the methods I typically use and that was exactly the case. The rally ripped out of nowhere catching many off guard. Despite getting no clear "signals" that I usually go off of, it's worth mentioning we still caught that low nearly perfectly. After 8 months of being bearish, I turned bullish again and posted that article on Jan 27th citing my reasons why. On Jan 28th GDX retested lows at 28.67, then turned and took off, gaining 45% in 2.5 months.  The point is, more often than not, watching the miners gave you the best clues for turning points in the metals, and whether or not it was safe to come out and play. For 8 months since June, it was not. The last few months have been very noticeably different.

After any type of move, be it long term or shorter term, I pay a lot of attention to the counter trend reaction. Looking longer term, GDX is now testing the 50% retracement of the entire move up from the lows around 29 in late Jan, to the high just 1 week ago at 41. Two steps forward and one step back is completely normal, healthy price action here, (even though it took us 2 and a half months to take the 2 steps forward, and 1 week to take the 1 step back). We have some elasticity here for further declines just like gold and silver, but I think we should start firming up here now.

In the shorter-term aspect of looking at the “corrective” move, we just suffered a fast 6-point drop. One step back would be a 3-point rally. If price were to rally to near 38 and begin to falter, that may be a cause for concern, signaling further declines but we need more time to analyze how we are reacting here. Worth noting, 38 is right where the moving avgs currently sit, that are both turning down sharply and about to give a bearish cross lower. A rally up to near that level that can not hold for a long enough time to turn them higher and give us a bullish signal would also back the theory that a concern about further declines is warranted.

I want now to talk about what my concerns here are, and even though I am still bullish, there are a few of them. The first is a bit unusual and is highlighted by the purple lines in the GDX chart. Today’s gap down was at the EXACT same level as the gap lower after the June FOMC. For those that remember, it was the pitiful performance of miners relative to metals and the Fed hinting at a tightening cycle beginning soon that was the reason I turned bearish on PMs and miners after that happened. (And it was the right call. GDX dropped 20% from there and did basically nothing for the next 8 months) The similarities in this drop and that gap are a bit too much to ignore. 

The reason we pay attention to charts is because a chart is simply a visualization of price action. Price action is the result of the human emotions of fear and greed that drive buying and selling. These emotions and behaviors have never changed throughout history, which is why we can look at charts of tulip bulbs from the 1600s, railroads from the 1800s and tech stocks from the 2000s and see the exact same pattern play out over the course of those 400 years.

That being said, there is no “fear of taper” anymore or anything else regarding this tightening cycle. Fed is talking about 50bp hikes now and the 10 yr is an inch away from 3%, the highest level in almost 4 yrs. (Since fall 2018, as gold was making its final bottom and the fed was making it’s final rate hike. They started cutting a few months later). The Fed can go ahead and hike, it doesn’t matter, the market has made the hikes for them already. If there’s an underlying fear in gold right now, I don’t think further tightening by the Fed is the reason.

I don’t particularly see a reason right now for extreme fear in gold, so I do not think this is a similar situation to June. I of course, could be wrong. In a few months, we could be looking back and see the reason quite clearly, as is the case with the majority of investors in the market. By the time you catch on, everyone knows, and you’ve missed the chance to act. A major difference I’m seeing between now and June is this: In June, gold was getting killed and miners were getting killed even deader. Right now, miners are getting killed (AFTER a 45% run higher in GDX) but gold’s action is not at all bad, in my opinion.

Additionally, it’s not just a factor of price action, but of price action over a period of time. Last summer, as gold and miners got killed, the was no relief bounces. Every very oversold time when it was logical that we SHOULD see a bit of a bounce, we didn’t. This went on for WAY longer than is healthy in a market that should have been trending higher. Multiple times we saw gold up $20 only to see GDX open up a dismal 1%, then lose it all and close down 2.5%, despite metals holding their gains. It’s possible we can get that, it’s only been 1 week so we need to give this time to see if price action repeats as it did then, and caution may be warranted. Or, if things begin to firm up here, as I think they should.

Moving back to the gold chart I do see another concern. Again, we pay attention to similarities in patterns because they are depictions of human behavior that have a tendency to repeat again and again. What concerns me here is the striking similarities in the 2 runs up to 2100 in Aug 2020 and just recently, highlighted in the black boxes.  Not only is the price action identical in both instances, but price itself is as well. Both these tight consolidation patterns happened after a straight up move to 2100 and are consolidating at the exact same levels. The concern is what happened next, a dive down to 1760, rally of $200 then a decline of $300 to 1680 over a period of 6 months. Obviously, we will have some waiting to do before new highs if this plays out the same and begins breaking down much more from here, and I don’t think that’s what any of us want (unless you’ve been severely underinvested).  

There are differences though. In Aug 2020, gold was hitting a new all time high up 50% from where it was just 6 months earlier. Today, after a tiring, 20% down 18-month correction, we have retested those highs beginning from a higher starting point over a shorter period of time. This reminds me more of the final few months as gold tested 1000 in 2009, before breaking out and doubling over the next 2.5 years.

In Feb last year, weekly moving avgs gave a sell signal on gold that was followed by a steep decline to 1680.  MACD crossed below the 0 line and RSI broke below 40, both are levels we want to see hold on a weekly chart if there is to be a long-continued bull move higher. (2009 to 2011, weekly gold RSI stayed above 50 and MACD decently above the 0 line on every correction for over 2 years.) After that correction, gold moved strongly higher and every correction after saw RSI hold above 40 while MACD stayed neutral, completely flat at the 0 line. Weekly moving avgs gave a bullish cross higher in Feb and soon after we’re retesting all-time highs.

2009 was nearly identical action. A moving avg bearish cross in Aug 2008 saw gold decline sharply to 700, the 2006 highs. RSI broke below 40 and MACD crossed below the 0 line. A few months later, gold had rallied, MACD crossed back above the 0 line and stayed above it while RSI stayed above 40 as well. Moving avgs gave a bullish cross higher and soon after we were testing the all time highs at 1000/oz. We took a few more months to breakout entirely, but we got there. After that, RSI never went below 50 on any correction. MACD stayed above 0 line as well. Corrections in gold came down to the 30 week moving avg then resumed moving higher while the moving avgs themselves also trended higher and did not give another bearish cross “sell signal” for 3 years, all while gold doubled in price.

These were the key signs to be long and stay long for the long term, and I think we will see something similar again. Moving avgs have crossed higher and weekly gold is now testing right in that area. MACD is comfortably above the 0 line and can still afford some cooling off here. RSI has held above 40 since last June and is currently 52, so it can also cool off a bit still. Longer term, things look good, and I have no reason to believe this is anything but just a correction for now, but we do need some more time to hash things out and make sure this doesn’t continue to bleed and repeat price action like we saw over the summer. The extreme drop in miners, is still a little concerning.

Another concern here is something in technical analysis people like to call the "false break before the real move", and it's exactly that. It's when a market is consolidating and breaks lower or higher initially, only to reverse that move and break in the opposite direction for a longer term, trending move. If that is the case here for gold, then this false break moved up 25% from our lows at 1680, and that has to be one for the record books in terms of a "false" break. While it is certainly possible with this ever increasing volatility, I think it's unlikely and refer back to the 2009 analogy, that this is likely a retest of highs and final coiling that will eventually breakout and give us a long term trending move to new all time highs.

There is one more obvious risk to address here and it’s the “Master Key” in terms of market risks across all asset classes, and that is a recession. Gold likes to run up ahead of recessions, as it did from 700/oz to 1000/oz leading into the financial crisis, and as it did from 1150/oz to 1700/oz as it did leading into Covid and the 2020 market crash. 1 month ago, the 10 and 2 yr yield curve inverted. In 50 yrs, there has never been a time this hasn’t resulted in a recession and there has been no recessions since then where the yield curve inversion didn’t proceed them. So, it’s been 100% accurate with 0 false signals. That’s a far better record than any economist or analyst I’ve ever seen. I’m siding with the yield curve that a recession is coming and is likely the culprit of “higher costs” through both inflation and rising rates. It seems very likely at this juncture that the Fed has made a critical error in not tightening fast enough and will now push rates to a breaking point in the face of a struggling economy.

On average, a recession typically follows around 12 months after an inversion. In 2008, the yield curve inverted 16 months before the recession. In 2020, it was only 9 months. 12 is the average, but in this overleveraged, highly indebted, increasingly volatile world we live in, there is no reason it can’t happen much sooner. The market has resumed tanking and has lost over 7% in just 3 days, approaching back to the lows of this corrective move, and doing so alarmingly fast. My thinking was that gold will have time to run leading into a recession within 12 months, and there will be an opportunity for profit taking and cash raising on gold positions BEFORE a market crash, which in both 2008 and 2020 led to a slew of margin calls that took everything down with it, including gold. But we very well can be a lot closer to a recession and a major crash than I think. 12 months is just the average. There’s no reason it can’t be 4 months, or 6 months. (And make no mistake, leverage and volatility have done nothing but increase. This affects all asset classes. In a massive crash, everything gets sold. To most investors, gold is simply a hedge, not a position. Apple is their position and when Apple is down 30% and their “hedge” is up 20%, which do you think they’re going to sell?)

Now keep a few things in mind. If a recession and crash is closer than we think, this doesn’t mean cash out on your retirement account. When the yield curve inverted in May 2019, the market went up 20% after that. When the crash came, it was down 20% from that level when the inversion happened… for about 2 weeks. If you nailed buying EVERYTHING back at the low, you got a nice discount. But most didn’t and missed a 100% rally in the SPX over the next 2 yrs. In reality, most looked at 50% declines in the SPX in 2009 and 2001 and assumed similar, so when the SPX was down 25% in March 2020 they sold expecting another 25% down and that of course, was the bottom.

With that being said, it was a great time to have SOME cash. I bought HL for $1.60 in March 2020 and that is the type of opportunity that is terrible to miss, so if you have not reached the point in your investing career where you have realized having at least a small cash position available at all times is wise, you might want to think about that. If a recession is on our horizon, we know how they will “fix” it. We’ve seen this movie before. 0% interest rates, quantitative easing (ever expanding, likely to include outright stock purchases next time around) and govt spending. And the beneficiaries of these policies will be gold and stocks, so having some cash to buy at panic prices would be ideal.

One final note regarding Jr miners. Many have been frustrated regarding small Jrs not really moving on this last rally in gold. As a few have correctly pointed out, investing in Jrs is investing in what typically is the most profitable, but final stage of a gold bull market. Chances are you’ve seen the “bubble model” chart below and while it is meant to represent a bubble, in reality it’s a fair representation of any bull market, as by nature the final stage and highs of a bull market will be typically bid up in speculative euphoria to levels far beyond any realistic valuation. We just suffered a long, painful 18 month correction in gold, and in that time nearly everyone proclaimed, “gold is dead” and that it’s “on it’s way out as an asset class”. This quick spike back to all time highs has not convinced any of them that they were wrong. If anything, they’re likely shrugging it off as a double top, panic reaction to Ukraine invasion, etc. We are far from the speculative euphoria that comes from a rush of money flowing into small gold and silver stocks.

Let’s look at the bull market cycle of tech stocks for example. Around 2010, smart big money institutions were buying stocks like Apple. While that move seems obvious now, back then we had the European debt crisis and there were many concerns of a double dip recession. Tech wasn’t as clear a buy then as it may seem now. In 2010, AAPL was about $8-10 (adjusted for split). Over the next 5 yrs it went to 32 and by 2015, it was all CNBC could talk about, and every retail investor in the world was in it drooling all over every earnings report. By that time, the smart, big money had made their profit and were looking for what’s next. Who is going to grow into the NEXT Apple?

In 2014 when it debuted, no one was talking about ARKK. A fund consisting of “innovative” small tech companies, most of which with little assets and revenues, and almost all of it with no earnings whatsoever. While the whole world is laughing at Cathie Wood right now, after ARKK has lost 66% from its highs, that ETF went from $15 in 2015 to $150 in early 2021. A 10-fold return in about 5 years. 

Now, we have likely seen the peak in tech, so we have an entire picture of beginning to end to analyze here in this bull market cycle. What started with big institutional money buying large tech companies, ended with retail investors yoloing call options on unprofitable small tech companies based solely on hope. The themes of the last few years have been retail investors pumping up things like ARKK, TSLA and GME. I personally can’t think of a better depiction of the end (perhaps an exaggeration though) of a bull market cycle than that.

The moral of this story is, as a Jr mining investor, you’re buying ARKK in 2015. A basket of companies with no earnings and little in assets all hoping to be the next Apple. Some will have fantastic gains, some will do ok, some will go under. Jr mining is the same. They all are money pits throwing cash into the ground in the hope of increasing their assets. Some will succeed in increasing their values and do fantastically well and become the next Newmont. Some will do ok, some will go under. (And ultimately, like all bull markets, many that don’t do a good job increasing the value of their assets will still do ok, as market speculation will send them way higher than is justified by logical valuations, same as with ARKK).

There’s reason why NEM hit new all-time highs and most Jrs haven’t budged, outside of individual good news stories that have driven a few higher.  NEM is the largest gold miner in the world. They have the best assets and the best management. It’s got a 57 billion market cap, they pay a 3% dividend, and they’re the only gold miner on the S&P 500 (and many big funds are limited by market cap size, credit rating etc in stocks they can buy, making NEM one of the few they can invest in). In other words, to the smart big money buying into the beginning stage of a bull market, they’re Apple. When the big money has made their profits and retail is foaming at the mouth over NEM’s gains, you are already positioned in what they are going to look towards next in the euphoric speculative end phase of the bull market, that is usually the most profitable.

To sum everything up, we do need a little time to see how things play out. Violent price swings one way or another don’t mean much if they can’t hold over a significant period of time. But I do think we are due to find some support here and pause a bit. More correction can certainly come, but until I see any significant reason otherwise, I am remaining bullish longer term with the obvious caution that a recession can be headed to us sooner than we think.

 I’ve said it before and I’ll repeat it, volatility will only increase over time so be VERY careful using leverage, and ideally stay away from it all together with the headwinds we have right now. Make a plan to build some cash if you don’t have some, but don’t panic sell your retirement account. Most importantly, do what you must to ensure your portfolio SURVIVES until payday comes.

-Jonathan Mergott