Watching the HUI Gold Bugs Index of late brings to mind the saying, "if it wasn't so funny, I'd cry" or perhaps the opposite is better, "if it wasn't so sad, I'd laugh".
Either saying kinda has it correct as what we are witnessing right now is extremely emotional and irrational price behavior. This kind of nonsense kinda makes me chuckle because I view it as entirely a spoof, but admittedly the drama does make me sad as I know this experience is very painful for some people.
All along I have resolved, without wavering one iota, to hold my under water mining positions for however long is required to sell each and every one at a profit. A nice generous profit is what I have in mind.
But at a time such as now, I suppose that sounds pretty naive, right? I mean, everyone knows the sky is falling so what is my problem? And you know what, that's a very fair question. After all, no one loses their shirt and still smiles about it. That just tells you there is something not working upstairs in the guy's pee-brain.
I'll spare you a recitation of my 2008 experience. If you have not read it and are curious, just click on the link and see what you think.
This post is going to take a different tack. I'd like to show you the earnings of the individual mining companies that make up the HUI Gold Bugs Index. And to put it in some decent perspective I worked real hard to get the annual earnings for all 16 companies from 2004 right on up to the estimated earnings for each company in 2013.
What I think you will quickly see is that this take down of the HUI Gold Bugs Index is complete emotional nonsense. Yes, I agree it is not nonsense when one looks at their account value. That is real. I know. But I'd like for you to know that it is temporary and this post will aim to show you why.
HUI Gold Bugs Index 2004 – 2013E
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|||||||||||||
Symbol
|
HUI%
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
||
1
|
Goldcorp Inc
|
GG
|
16.20%
|
0.27
|
0.83
|
1
|
0.62
|
0.56
|
0.8
|
1.37
|
2.22
|
2.03
|
2.16
|
2
|
Barrick Gold Corp
|
ABX
|
15.36%
|
0.18
|
0.57
|
1.84
|
1.77
|
1.84
|
2
|
3.32
|
4.67
|
3.82
|
4.46
|
3
|
Newmont Mining
|
NEM
|
10.88%
|
1.17
|
0.91
|
1.65
|
1.42
|
1.99
|
2.79
|
3.85
|
4.39
|
3.58
|
4.37
|
4
|
Harmony Gold (ADR)
|
HMY
|
5.21%
|
-
|
-
|
-
|
--
|
-0.62
|
7.07
|
-0.46
|
1.43
|
0.64
|
0.98
|
5
|
Coeur d'Alene Mines Corp
|
CDE
|
5.11%
|
-0.03
|
0.04
|
0.27
|
0.14
|
0
|
0.11
|
0.54
|
1.37
|
0.34
|
1.99
|
6
|
Yamana Gold Inc
|
AUY
|
5.00%
|
0.04
|
0.01
|
0.1
|
0.61
|
0.45
|
0.47
|
0.61
|
0.96
|
0.93
|
1.21
|
7
|
AngloGold Ashanti Ltd
|
AU
|
4.88%
|
0.83
|
0.76
|
1.77
|
0.99
|
-2.15
|
-0.14
|
2.12
|
3.36
|
2.99
|
4.52
|
8
|
Gold Fields Ltd (ADR)
|
GFI
|
4.80%
|
-
|
-
|
-
|
0.5
|
0.63
|
0.22
|
1.33
|
1.15
|
1.57
|
|
9
|
Randgold Resources (ADR)
|
GOLD
|
4.71%
|
0.19
|
0.6
|
0.69
|
1.09
|
0.82
|
1.14
|
4.07
|
4.64
|
5.73
|
|
10
|
Iamgold Corp
|
IAG
|
4.43%
|
0.05
|
0.14
|
0.39
|
0.19
|
0.36
|
0.5
|
0.76
|
1.08
|
0.89
|
0.97
|
11
|
ElDorado Gold Corp
|
EGO
|
4.34%
|
-0.03
|
-0.12
|
0.01
|
0.1
|
0.46
|
0.26
|
0.38
|
0.58
|
0.46
|
0.59
|
12
|
Hecla Mining Co.
|
HL
|
4.14%
|
0.01
|
-0.22
|
0.14
|
0.31
|
-0.07
|
0.13
|
0.31
|
0.44
|
0.13
|
0.39
|
13
|
Buenaventura (ADR)
|
BVN
|
4.08%
|
1.58
|
2.34
|
3.33
|
1.29
|
1.67
|
2.33
|
2.61
|
3.39
|
3.07
|
3.21
|
14
|
New Gold Inc (CN)
|
NGD
|
3.90%
|
-
|
-
|
-
|
-2
|
0.01
|
0.11
|
0.24
|
0.44
|
0.42
|
0.71
|
15
|
Kinross Gold Corp
|
KGC
|
3.85%
|
0.15
|
-0.63
|
0.46
|
0.32
|
0.4
|
0.44
|
0.58
|
0.77
|
0.77
|
0.86
|
16
|
Agnico_Eagle Mines Ltd
|
AEM
|
3.11%
|
0.56
|
0.45
|
1.13
|
1.13
|
0.35
|
0.69
|
1.77
|
1.97
|
2.17
|
2.17
|
100.00
|
4.97
|
5.68
|
12.78
|
6.89
|
6.84
|
19.01
|
19.36
|
32.47
|
28.03
|
35.89
|
|||
divided by # stocks
|
13
|
13
|
13
|
13
|
16
|
16
|
16
|
16
|
16
|
16
|
|||
Avg. Earnings per Stock
|
0.38
|
0.44
|
0.98
|
0.53
|
0.43
|
1.19
|
1.21
|
2.03
|
1.75
|
2.24
|
|||
The table above lists the 16 companies that currently make up the HUI Gold Bugs Index and lists the percentage that each is weighted as a member of the index.
Three of the sixteen miners were tough to get earnings data in the 2004 - 2007 time window. I did the best I could (quickly) and provided a light green background that averaged the earnings during those years with 13, rather than the preferably complete 16 data sets.
The cumulative earnings for each year is shaded with a dark green background.
The data regarding 2013E (estimated) earnings came from today's latest Kitco data published by Bill Matlack.
Anyway, what I see in the chart is not a single miner is projected to have lower earnings in 2013.
Imagine that.
If anything, the 2013 projections suggests miners will make more money this year than in any year in the past.
And heck, we can go into all that stuff about what percent of projected earnings come true and what percent do not come true. And then we could argue that somehow this may well invalidate my conclusion.
So let me say that I have indeed seen a percentage of miner's earnings projections that did not come true. But my observation, having just looked at that question with all this data, is that it is not as significant as one may think. Certainly it is not significant to spoil the strong earnings projected for 2013 in light of the earnings of the past two years.
Anyway, I believe what we are seeing today is emotional nonsense. If these companies were impaired to the extent that this current hair cut is justified, that would be one thing. But I don't see any evidence of earnings impairment. Do you?
One chart for the conclusion of this post. Let's look at /GC - gold futures on the daily chart. The most interesting extreme on this chart is the reading on the custom money flow indicator I created. It is the top of two indicators and reading so low that I could only find about 2 other occasions that it was similar (-50+). You know, at some point the selling just gets exhausted, the negative money flow dries up, and then you know what happens, right?
 |
| Click on the chart to ENLARGE |
It always does.
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/quotes_special.gif)
John,
ReplyDeleteExcellent post, as usual!
Back when we were boys, private investors made up the bulk of stock buyer-owners, followed by such institutions as private insurance firms seeking long-term investments the proceeds from which would pay claims.
Today, institutional investors overwhelmingly predominate--a whole lot of hedge funds in the mix, many of which require positions that are so large that they must be taken through futures--and high frequency trading and trading through algorithms account for something upwards of 85% of all trades.
Berkshire Hathaway aside, buying to hold based on a company's fundamentals is out of favor, and the resulting trading decisions are, while precisely controlled by computer algorithms, not strictly "rational."
All of this is baked into the SYSTEM. This irrationality will continue until at least some parts of the system break down or are restored to rationality (and honesty!). In view of the recent refusal of regulatory authorities to enforce and restore honesty, I posit a break-down, probably with sharp, surprising results.
It is like the man who jumped out of a 15-story building who says, on passing the 10th floor, "So far, so good!"
But just as your concluding statement remings us, we do know how these things end: Swine are the most temporary and troubled of avians. Even grade-school science students know that boiling water in a sealed coffee tin will eventually blow the lid off.
Please do keep these excellent posts coming!
Thanks,
Ellsworth
John,
ReplyDeleteGood work as always.
However the $HUI is arguably a first derivative of the current/expected price of Gold which is a highly irrational
and emotional commodity.
Read about LTCM in the late 90's where their "rocket scientists"were convinced at 6 standard deviations (sigma-6) they were right
and a price reversal was about to happen. It didn't.
That said I had a target of $361.66 on $HUI but it would occur in late March.
Let's hope I am correct on the price and wrong on the date!
Steve
Hello, John. I wonder if today's action in gold has caused you to give up on trying to understand gold's price action with your knowledge of cycles. Or is the price action still within the normal cycle behavior? I'm referring to this statement of yours on the 15th:
ReplyDelete"If my theory is correct, this or the next day or two should be the
bottom. If my theory is not correct then I really do not see any way
to explain gold's behavior in terms of the cycle analysis I know.
Which is to say that in my study of gold's cycles in incredible detail,
I do not see how to explain what is presently happening - unless today
or shortly thereafter is the conclusion to an extremely bloated intermediate
cycle."
Thanks for all your help.
Joe
John,
ReplyDeleteI really appreciate your work. Today was a beast, do you think it counts as a break of a head and shoulders top in miners? I'm the biggest miners bull there is this bottom has been a beast.
Look, not even 2008 was like it. http://screencast.com/t/3sFeUjp39
I'm starting to wonder if the next move up will only be a bounce..... I would love to wrong though!
Alex
Ellsworth - thank you. Your writing and thoughts are eloquent and find much
ReplyDeleteagreement with me. I'm not inclined to think this will last much longer.
Steve - I hope you'll send me an email sometime and explain how you arrived at that HUI price and time frame. Sounds very interesting. (tsiTrader@gmail.com)
ReplyDeleteI think miners will bottom roughly when gold does. I also think odds are high that the commericals who have been so excessively net short gold and silver for some time will use this opportunity to get their direction reversed. If so, they will be like the cat with 10 lives - as I am quite sure the war mongers of their short positions will be shocked to see them not only alive, but also on the same as the rest of us.
Nobody in their right mind believes this currency debasement around the world is the solution to a monumental debt problem. My hunch is that the commercials will play this opportunity of emotion (irrational fear) to come out smelling like a rose.
OK, it is what it is....until it isn't. WHo can say more?
ReplyDeleteOn the other hand the USA is running a national debt bill of 100% of GDP, unfunded liabilities.... too big to estimate.... US market says PMs suck... Now look at the Chicoms over trillion in cash sitting around because they can find anything to buy or invest in beyond the several trillion they have invested in last decade combined with HUGE gold and PMs purchases and full endorsement of PMs as money. And the net debt is basically zero. Chicoms will be buying the dip.
India, not the best managed country but check the individuals and central bank... BUYING GOLD THE WORLD WAS COMING TO AN END!
The current western markets have to be manipulated. This no way to explain the mints shutting down for lack of product to sell, record purchases of private investors worldwide and YET we are being told Gold is overpriced. NOT
Hey John, another informative post! Glad to see you are not letting the naysayers dampen your resolve. For me, lower prices are an opportunity to add to long-term positions. Here is an interesting chart:
ReplyDeletehttp://tinyurl.com/bx77qog
With less than 10% Gold Miner bulls, we should see a bottom soon.
Gerald
Not always until 2015. Long time to wait to start that year with practically nothing left.
ReplyDeleteJohn,
ReplyDeleteI share the same dilemma... Hold until it achieves a desirable result !!!
"Emotional nonsense" ..not quite....more like irrational/distorted behaviour.
Speaking of which I am reminded of the famous quote from the legendary JMK....
" The market can stay irrational...longer than we can stay solvent". Very relevant for any analysis of the HUI/ any market that is not conforming. No amount of technical analysis will be definitive in determining the resolution to this ongoing nightmare. NATURE will in all respects, have the final say.
Justification for holding existing positions is in the finality of the cycle. Gold (that "barbarous relic") is the only asset available to resolve the debt imbalances and distorted balance sheets. It in itself, is now a slave to the financial system and is therefore hindered in achieving its rightful place and correcting the distortions.
In the long run we will see completion/
exhaustion.. may be true...but this is misleading especially when we put it into context and used as a guide for the current malaise we find ourselves/the world in.
"In the long run ...we are all dead".
Avarice, Usury and the Love of Money still to this point, drive this world. We will continue therefore to be at their mercy.
You Sir have made a brave attempt to put some sanity back into the reality we live in. Bravo.
Liquid Motion - I do appreciate your sharing your thoughts. Thank you.
ReplyDeleteBut honestly, I don't think you and I look at this exactly the same, which,
of course, makes the conversation interesting.
I tend to disagree entirely with the quote of the legendary JMK - whoever he/she
is/was. For me this statement is only relevant to those who own expiring assets
or who do not have the resolve to hold through the emotional nonsense.
Second, my view of how the markets generally work is to understand that people take
rather predictable paths with their investment decisions.....and sometimes one gets ahead
of them and then has to be patient while they process what was seemingly so obvious
to ones self in the first place.
During this period of time the person who is ahead of the crowd and waits patiently
while others seem hell bent on destroying their convictions may be thought of as brave,
I suppose. But to me I think of this person as not being fully skilled in knowing just how
slow the others will be to come around - thus they get stuck holding positions that are
under water.
And thirdly, I do believe that technical analysis, for the most part, can indeed be definitive
in identifying the resolution of changes in psychology, trend direction, sentiment and so on.
Technical analysis will not determine this resolution.....but I believe it does a fairly good
job in identifying the resolution when it appears.
Anyway, I have my battle scars, be sure of that. I simply hope that some of the things that interest
me to think about would be interesting for others to think about. And of course I hope that I do
more good for people by trying to share my thoughts than if I kept them to myself.
Thanks John.
DeleteYour thoughts are indeed welcome, challenging and thought provoking.
JMK = John Maynard Keynes...apologies for the abbrev.
The "emotional nonsense" is really only part of the equation. It needs to be kept in perspective especially when there are distorted markets, false economics and "players" with deep(endless) pockets. I don't have any prediction of when the nonsense ends....do you ? At which time we are talking about a possible market collapse (Miners included).
I used the quote to explain what I see as irrational markets. How long can we stay rational and clear of emotional nonsense whilst being fixated on "the final outcome" ?
all the while the CB's distort rates, counterfeit money, lease gold...etc...etc.
I understand the argument for buying in the first place and to some degree being contrarian with investment choices. That is in all respects the art of making money.
Correct me if I am wrong...but TA is analysing price movements. Psychology, direction/ trend and sentiment are all factors of this. Price will be definitive in determining resolution.
Love your work and enjoying the banter.
Regards
Liquid Motion - You have earned my respect, I'll say that for starters.
ReplyDeleteThe "emotional nonsense" wordage, on my part, is meant to imply that good
people make bad decisions when they are bullied by the larger players.
They are filled with the emotion of "fear" and believe the nonsense that
the value of their mining positions, as compared to the thousands of other
stocks out there that are rising, deserves to go to zero. These good people
are being played so that their pockets can be picked - pure and simple.
This stops when the last person who could sell at a tremendous loss says
"not me". That is the end of it.
In the mean time, the bullies wearing the scary Halloween masks will press
their profitable agenda for all it's worth. I imagine a couple of stupid
teenage kids with cars playing a game of "chicken". On some straight back
country road they rev up their engines, pop their clutches with manly bravura,
and begin accelerating straight towards one another - with the intent of
determining who is the "chicken". Who will be the one to veer off the road
and save a certain head-on collision from fatality? The driver with the Halloween
mask is counting on the other kid to be so scared of him that he will win the
challenge when the other kid pulls off the road long before the two meet head-on.
But suppose the kid is not scared. Now the bully has the same problem as the kid.
That is, he could get killed.
Regarding stocks, this factor is what causes the nonsense to end. When the bully
realizes he just may not win after all....and himself suffer a fatality.
As in the current situation where the Managed Money folks have extended the largest
short position on gold in many many years, their game works as long as gold continues
to fall in price, of course. But once other and larger bullies call their bluff, and
they will - be sure of that - it is game over and fatality for them the longer they
keep their car on the road.
To clarify or restate my thought on TA, TA IDENTIFIES when resolution has likely taken
place but it does not DETERMINE when resolution has likely taken place.
Lately several analysts with various newsletter groups have been advocating financial stocks as a "recovering" sector and while not disagreeing that well timed trades could be profitable, when factual information that plays to investor ignorance about the banking sector is proffered in support, I can not refrain from responding, see essay below.
ReplyDeleteI am surprised that a man of B--- ------ experience and knowledge continues to repeat the bankers lying mantra that they make their profits on what is termed the "spread" i.e. the difference between the money they pay on deposits and what they charge on loans. This is highly deceptive and deliberately misleading in that banks DO NOT loan out their depositors money as stated by B. H. Editor of The Growth Stock Wire; even though oft repeated by many other newsletter writers and journalists in general. FACT; When you deposit money in a bank it is still your ASSET and the banks liability, so how can they loan out a LIABILITY?
Further more, how could the banks set aside millions for loan losses and still make the profits they do while paying their officers obscene salaries and bonuses on such slim margins? The simple truth is it is mathematically impossible and the monopoly created by the "hocus pocus" of the Federal Reserve Act of 1913 allows them to CREATE OUT of THIN AIR, as much as 20X in NEW MONEY relative to their euphemistically labelled "RESERVES" that are mostly liabilities. How is this possible you say, the best explanation I have come across in 50+ years of research was provided by Central Banker Graham Towers, Canadian Governor of the Bank of Canada in sworn testimony before Parliament in 1939 when he stated: "every bank loan is a NEW CREATION of MONEY, and when it is paid back it ceases to exist" which explains a lot when you analyze it honestly with no preconceived opinion or bias.
It means in as simple terms as i can put it, that the fractional reserve banking system was DESIGNED to keep the masses in DEBT SLAVERY. It means in the bluntest of terms that interest long term is MATHEMATICALLY IMPOSSIBLE because the ONLY way that interest can continue to be paid is if new loans are contracted at an exponential rate to keep the currency supply liquid enough for an expanding economy to function.
It must be maintained at a level that restores the principal paid back as well as ADDING the accumulated interest since it is not otherwise created. In short; "INTEREST" can only accumulate as DEBT, so the DEBT PYRAMID continues to grow unchecked (how about SIXTEEN TRILLION IN THE U.S. alone) making the fractional reserve banking system the ultimate Ponzi scheme! This fact alone should send its creators, perpetrators and enablers, (including specifically politicians) to jail as surely as Bernie Madoff deserved that fate, and yes, there should also be restitution to the taxpayers who are progressively being robbed of their earnings by the insidious hidden tax of inflation.
This corrupt system has imposed a burden on this, and even future generations, that can never be repaid in honest money. Instead of reforming the system to restore honest and constitutional money we now have a "currency war" (read James Rickard's book by that title) that seeks to "inflate away" these accumulated debts by debasing fiat currencies that pits one countries exports against another's, a war that can have no clear winner and at best "delays" a viable and fair solution that is not biased towards the banking establishment and its crony capitalists. Perhaps I should define "HONEST MONEY" and quite simply the Constitution based on the BIBLE does that admirably. Money is defined as a specific WEIGHT of gold and silver coins of specified PURITY, as the Bible defines it, having honest "weights and measures" so that nobody gets cheated of their labour and production of goods whatever they may be.
I really appreciate your work. Today was a beast, do you think it counts as a break of a head and shoulders top in miners? I'm the biggest miners bull there is this bottom has been a beast.
ReplyDeleteIt means in as simple terms as i can put it, that the fractional reserve banking system was DESIGNED to keep the masses in DEBT SLAVERY. It means in the bluntest of terms that interest long term is MATHEMATICALLY IMPOSSIBLE because the ONLY way that interest can continue to be paid is if new loans are contracted at an exponential rate to keep the currency supply liquid enough for an expanding economy to function.
ReplyDelete...how to invest in the stock market