On the heels of the US Dollar Index threatening to break major support at 90, and precious metals as well as the mining shares rallying, real world inflation is ramping higher along with gold and silver prices.
Sentiment: Nearly As Lopsided As Possible
By Bill Fleckenstein President Of Fleckenstein Capital
January 23 (King World News) – Once again the market was out of the starting gate quite fast, led by the Nasdaq, which gained over 0.5% in 90 minutes and was itself led by the big tech momentum favorites, while the Dow and the S&P were just kind of limping along higher.
After the initial surge, the rate of change slowed down as the indices only made a bit more upside progress. For what it is worth, sentiment for the SPOOs (based on the DSI) is at 96, a world record. Sentiment is wildly lopsided, but that will only matter once the bubble bursts…
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Away from stocks, green paper was weak again, oil gained 2%, while Treasuries rallied. The metals were weak early, with silver seeing a 2% “line job” to the downside, but they then recovered with gold gaining 0.5% to silver’s 0.2 %.
Reasonable Numbers Get Unreasonable Reception
The miners were strong for the most part, with the exception of Pretium, which announced production guidance for 2018 and was hit for 25%. I hesitate to say it was purely because of that data, because we have seen stocks hammered on data ranging from in-line to better-than-expected, even as some of the mining stocks have done better.
The production guidance was most likely conservative, but essentially in line (it should be noted that there hadn’t been a whole lot of guidance given because the nature of the ore body is quite lumpy, as I have noted many times in the past). The main angst seemed to stem from the fact that the ore grades netted out to over eight grams per ton, which is tremendous, but less than the 10 to 12 grams one could potentially expect.
Metals Mentality: Sell First, Think Later
On the other hand, had Pretium reported 16 grams per ton, I would have been the first one to say you can’t extrapolate that, no matter much I would have liked to. And for all I know, in this environment the stock might have been sold anyway because people wouldn’t have believed it. In any case, although it is speculative in nature, due to the ore body, I think Pretium represents tremendous value in the mining arena, and even more so compared against most stocks generically.
A reasonable earnings estimate might be about $0.50 and about $1 in free cash flow, which seems like not a huge price to pay for the amount of upside that could easily exist in this asset.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
Real World Inflation Ramping Higher
Question: Hi Bill, it is important to note that even thought there is “no inflation”, the U.S. Post Office has fired the first shot for inflation with an 8% increase. I noticed last week UPS and FedEx rates had creped up without warning. Can’t be good for on-line sales. The paycheck to paycheck folks might start doing without, and then……well, who knows.
Answer from Fleck: “It is amazing how insensitive people seem to be to price hikes and inflation psychology.”
Question: Most used CNBC headline: “Investors shrug off…(you fill in the blank)”
Answer from Fleck: “Why watch that garbage?”
Question: Because this is the reality we are living in. Why bury your head and pretend it isn’t?
Answer from Fleck: “There is a huge difference between not “burying your head,” and watching Bubblevision. I never watch that garbage, and I’m not burying my head either.”
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