Gold: What's the same and what's different this time...
I still absolutely believe with near 90% certainty, that gold and mining shares will sell off hard,
when, not if, the GBOAT (Greatest Bubble of All Time) collapses.
I also believe than mining shares will once again break down before the broad market, just
like they did in 2008 - which is why we can't be afraid of taking some money off the table and
tightening stops given the present "death cross" (50 DMA crossing below the 200 DMA) in gold.
People keep saying you can't compare today's market to the one in 2008 where the banks and
real estate led the collapse.
I disagree, because it's not the market catalyst that matters (markets always change),
it's human behavior - which never changes.
I think the trigger for the broad market sell off will be when the markets realize how destructive
the radical left's political and economic agenda is...
And when people begin to realize what the "Great Reset" really is about, and that the political
weaponization of Covid, the lockdowns and the continued roll out of an authoritarian surveillance
state is not going to stop
I think this coming correction is going to give us the last and final opportunity to buy physical gold,
silver and PMs at reasonable prices and premiums.
And once the collapse bottoms, I think physical not mining shares will be the smartest initial buy.
Why over-weight physical to mining shares?
Because I believe the demand and price of physical will explode and do so almost immediately,
while I think the recovery in mining shares will NOT be a "V-bounce" like we saw after the March
2020 Covid selloff.
I think people will realize that the world is going to be going through a historic and violent period
of change. And while markets will survive, there won't be the rush back in as there was in the past.
I think PE's and valuation multiples with stay much lower for longer and the key for PMs will
be that THEY will become THE cash flow and earnings rich sector of the entire market.
And what will be different - is that the mining stocks will become THE NEW DIVIDEND KINGS.
Because of a rebound in physical pm prices, the mining companies will be printing cash.
And just like in the 1970s, in the days of James Dines and Howard Ruff, when South African mining
shares were paying 10-15% even 20% dividends...
It will be that dividend payout that will be the primary reason for owning mining shares.
NOW, is the time to make a list of companies who are in the financial position and who are starting
to raise dividends and who already embrace this policy...
Newmont is already paying like 3.81% forward dividend yield.
Kirkland Lake doubled its dividend twice and is paying near 2% now, and has ZERO DEBT
and $800 million cash in the bank.
Thats just two examples of companies who are already committed to returning cash to investors
via rapidly increasing dividends. Not only do they have the desire, they also have the ability
via super strong balance sheets.
Two other major producers AU/Anglo Gold Ashanti and GOLD/Barrick Gold have dramatically
reduced debt and restructured their balance sheets and are poised to become cash machines
as well (AU is already incredibly cheap, nearing a single digit PE) while churning out cash.
Here's something else to look for...
Sleepers.
Everyone said Newmont bought a pig in a poke with Goldcrop.
Well, they're not saying that any longer.
They said the same thing about Pan American with its purchase of Tahoe and the Escobal mine.
I think it's a when, not if proposition for Pan American as well, with two huge silver resources
Escobal and Navidad that will be game changers when they come online.
Even if the Fed bails out Wall Street on the GBOAT, I think investors will be much slower
to move money back into stocks and it may be decades before we see the price multiples
and speculative froth that we see today.
Cash flow, earnings and dividends will be the primary drivers of the next bull market and
select mining shares are perfectly positioned to lead the way.
Don't be afraid of sitting on too much cash and patience will pay off.
My .02 cents,
SOTB |
