For anyone who is confused by the action in precious metals and mining shares, just read this outstanding note…
This was from Bill Fleckenstein last Thursday…
PM Sector: Where It’s Always Hammer Time
(King World News) – Bill Fleckenstein: There was a little upside relief in the miners, but as I noted yesterday, I have never seen anything quite as hated as the mining sector. Perhaps I didn’t make myself clear. I meant that the loathing is so unusual given that the companies themselves (in particular, the key ones I pay attention to) are actually reporting good to better-than-good results and the gold market bottomed two years ago, yet they get pounded. I have never seen good news sold so relentlessly, absent a bear market (where there isn’t that much good news to begin with)…
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I bring this up again today because a reader pointed out that in Australia (see today’s Ask Fleck) at least a handful of companies are trading just fine. So it would appear that this pukefest is a North American phenomenon. I suspect that the general apathy means there aren’t that many natural buyers, then when the computers get involved they push the miners lower because that strategy has worked. The fact that it is mindless is exemplified by the action in Pan American Silver. Yesterday (again, this note from Fleckenstein was from last Thursday) it was hammered for 4% and today it bounced back for nearly the same amount. So computers pushed it down, they didn’t get any traction, maybe they ran into a real buyer, and it popped back up.
On Paper: Love ‘Em! On Screen: Hate ‘Em!
Whether that analysis is correct doesn’t change the fact that the action has been poor, but it is important to keep in mind that the companies aren’t expensive and they keep doing a better job running their businesses. Meanwhile, the price of the underlying asset that they mine, gold and silver, is slowly but surely creeping higher. As I have said before, I don’t know when the change in psychology will occur, but this mindless selling is a setup for a very large revaluation, although there is no timing in that statement and one still needs to manage the risks.
It is one of the more extraordinary phenomena that I’ve ever seen. In talking with smart friends with long and successful track records, they haven’t either. Occasionally a company or two will be penalized for disappointing for a long time and they will be required to produce several quarters of good results, but this is basically an industry-wide phenomenon.
The bottom line is that the computers and algos push in a certain direction, and the more that goes on the more absurd the price becomes. But at some point the trend (in either direction) does reverse and the more the absurdity beforehand the larger the reaction afterwards.
Fleckenstein added this in today’s rap…
Amazingly, Agnico Eagle, which has won at “beat the stupid number” repeatedly, has now traded lower 19 out of the last 22 days!
Pierre Lassonde weighs in…
King World News note: Mining legend Pierre Lassonde told me, “There’s a huge, huge disconnect between gold and the miners.”
Fleckenstein and Lassonde are simply echoing the sentiments of many long-time professionals in the business, including CEOs and company insiders of the high-quality mining companies, who are also saying they have never seen anything like this in their entire careers — where share prices keep getting relentlessly marked down, despite strong company fundamentals. For those who are frustrated, just focus on what Fleckenstein stated:
I don’t know when the change in psychology will occur, but this mindless selling is a setup for a very large revaluation…and the more the absurdity beforehand the larger the reaction afterwards.
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