Shell Game: The Masterful Art Of Distraction

When I was a young boy, every summer I used to save all of my money earned while caddying for rich lawyers and doctors about fifteen miles north of my home in Malton so that I could afford to blow all my savings on the absolute best day of the year – the Canadian National Exhibition (the “Ex”). The highlight of the Ex was the Midway – a sensory bombardment of light (neon), sound (rock music), and scents (cotton candy and deep-fried foods) – that used to lure me into realms that today are indelibly etched into my memory. Whether it was rides on “the Flyer” or “The Wild Mouse” (awesome!) or the “Tilt-a-Whirl”, nothing captivated me more than the guy with the big table in the middle of the Midway that ran the “Shell Game”. He had three walnut half-shells under one of which was a tiny white marble. This fascinating artisan would move those shells around the table at breakneck speed, whirling and whizzing away, one hand pointing straight to the heavens and then in a flash be back on one of the shells as the tiny white marble shifted and spun to the masters delight until at last everything stopped. At this point, the maestro would ask the audience if they would – for $1 – like to guess under which of the half-shells the marble had come to rest. As he would only allow on person to guess, he by default was giving the guesser a 1-in-3 chance of success.

Now, anyone that knows the “shell game” knows that the key to success is never in watching the hands that whip the half-shells around the table; the secret to this brilliant scam lies in that oh-so-elusive hand that occasionally points to the heavens invariably happening just before everything just STOPS. With everyone watching the hand in the heavens, he is than able to shift the marble to another of the half-shells thanks to what can only be described as “The Masterful Art of Distraction”. As rare a talent as existed some fifty-five years ago, such mastery has resurfaced in full regalia in the form of the most-unholiest of trinities – government, central banking, and the mainstream media.

After following the events of the past two weeks in Canada and on the global stage, I was reminded of those days when I would sit back and watch the whirling hands of the shell spinner, constantly amazed at his ability to confound and confuse one and all with one singular purpose – to remove the onlookers of their wealth.

Earlier in the week, I watched a Canadian father of three removed from a chairlift by “security” guards in full view of his young children, wrestled to the ground and essentially assaulted, all because he refused to wear a mask. It was not a protest; he had a medical exemption, but the orders cascading down from upstairs – meaning the Prime Minister’s Office – are clear. Businesses that fail to adhere to edicts handed down by politicians are at risk of having bank accounts frozen and businesses shut down. Gone forever are the typical Canadian “one-on-one” encounters with someone in control where you had a conversation and simply worked it out. In my youth, there was rarely a time that I ran into an officer of the law that did not give me my two or three minutes of “air-time” to plead my case. As long as you were respectful – as in zero aggression or “attitude” - the cops had it drilled into them that their jobs were to “Serve and Protect” their fellow citizens. By that, they were not there to “Serve” the Big Pharma criminals that have been peddling phony “vaccines” to the world nor were they there to “Protect” citizens from a father on a chairlift without a mask.

I also watched the cable news clips of the standing president of the most powerful country on the planet tell the world that he “had it on solid intelligence” that Vladimir Putin was going to invade the Ukraine on Wednesday – not Monday or Tuesday and not possibly or “maybe – it was going to be WEDNESDAY!

So, Wednesday came and went with nothing remotely resembling an invasion so he doubled down on the news cycle saying with full dementia-driven gusto that it was now going to be “inevitably” – as in – “I am certain that Vlad the Impaler is inevitably going to attack the Ukraine!”

The week has now ended with oil still above USD $90/bbl. and gold is now tapping its head on the $1,900 level but magically, the news cycle is now no longer the “Fed” and “interest rates” because the Trinity of Control needed to keep traders eyes and ears OFF the “Fed tightening” narrative and instead honed into the geopolitical narrative. The pattern in undeniable. Just as Canadian Prime Minister created a false flag in the “terrorists truckers” converging on Ottawa in protest, U.S. President Biden created a similar diversion from plunging approval ratings over inflation to the “Russian Threat” looming on Ukrainian borders.

Without straying too far away from the more important topics of overbought markets in gold and oil, the only word that applies to the relationship between government, central banking, and mass media is conspiratorial. There is a reason that Mark Zuckerberg changed the name from “Facebook” to “Meta Platforms” and it lies in one’s understanding of what exactly the “metaverse” is supposed to be. What it is not is a place for people to enjoy sojourns into the world of virtual reality; what it IS lies somewhere between a thought-control petri-dish and an indoctrination centre of which the Trinity is becoming quite skilled in its application.

The media-assisted strategy of controlling the narrative is no more obvious than in the world of capital markets and Fed policy. In late 2018, with stock markets crashing amidst a disinflationary environment, Jerome Powell shifted from hawk to dove the second the S&P entered correction territory. With a mandate centred around “maximum full employment”, crashing stock markets would constitute a threat due to the elimination of the asymmetrical wealth effect on consumers. In late 2021, Jerome Powell shifted from dove to hawk the second that it became apparent that consumer price inflation was going to put into question his renomination for a second term AND put into question the whole “transitory” argument, the revelation of which would likewise affect consumer spending habits.

So, as we move into the second half of February, the price of gold went out on the week slightly above the USD $1,900 level so as to the question of whether or not this move constitutes a successful “break-out” of the eighteen-month sideways consolidation. The gold chart looks about as good as it gets with a clear assault of the $1,900 resistance now in play but it is troubling that the Commercials got very aggressive in adding to their already-substantial short positions and while a net - 238,875 number is not yet above the ominous – 300,000 numbers which typifies the top on a historical basis, the reading was from last Tuesday with gold at around USD $1,855 and before the late-week surge above USD $1,900. My guess is that the bullion banks leaned on it pretty intensely during that assault so while a big jump in the Commercial short interest is no certainty of an imminent crash, history warrants caution. The longer gold treads water above USD $1,880, the more the likelihood that the break-out will not fail but if it does fail, it could get ugly really fast. The bullion banks do not like to lose money and with gold acting as the canary in the coal mine, these newly-appointed inflation fighters in the White House and in the Eccles Building are watching it like cats staring into the aviary.

I own the Junior Gold Miners ETF (GFXJ:US) by way of the May $43 calls and while I have been constantly underwater since November, I have never wavered in my faith in the inevitability of the sector catching a bid. As I wrote about all of last year, the junior gold miners needed relief from the competition from tech and meme and crypto where generations of Millennials and Genexers have made so much money. Now that the January Barometer has registered a bonafide sell signal for stocks, it feels like the miners are in the early stages of a great rotation. In fact, if you overlay the chart of the NASDAQ onto a chart of Bitcoin, the similarity is frightening. As I told one of my portfolio manager pals last month, “You don’t hide out in crypto or tech; you hide out in gold.” So far in 2022, that has been sage advice.

Many (if not most) of the people who have followed my inane ramblings over the years know my history of total devotion to the junior resource sector which, in recent years, has been analogous to dating Annie Wilkes in “Misery” or Nurse Ratched in “One Flew Over the Cuckoo’s Nest”.

Any way one tries to cut it, no amount of lipstick can ever convince a novice investor (< 10 years investment experience) of the sex appeal of a junior miner and particularly the junior explorers. If simply does not matter that Diamondfields went from the pennies to over $160 per share in 1997 or that Diamet went from pennies to the low $80’s in 1993. Hell, you could have bought Great Bear Resources in 2018 at $.38 and ridden it to over $29 by late 2021 but it just doesn’t matter because while I was visualizing yachts and country estates and immeasurable popularity verging on idolatry, Gamestop was moon-dancing from USD $2.85 in April 2020 to almost USD $500 per share less than a year later. The all-American love affair with earnings-less “story” stocks has sucked all of the speculative air out of the playing room and while it will take time to convince the younger crowd that nothing goes up forever, it is this psychological transition that I pray will force capital flows out of “fluff” and into “stuff” that have rising earnings and staggering free cash flow numbers. Mind you, it had better be sooner rather than later lest these fuzzy-cheeked day-traders wind up with nothing out of which to rotate as they learn the art form perfected by us gold bugs on how to survive by eating out of dogfood cans and hiding month-end statements from prying spouses.

Take the example of junior developer/explorer Getchell Gold Corp. (GTCH:CSE / GGLDF:US) who put out a news release on Tuesday with assay results on hole FCG21-16 where they reported 25 metres of 10.4 g/t Au in Nevada. This was not a remote, rule-of-law-challenged, foreign jurisdiction and it was not two kilometers deep. It was, quite simply, a world-class intercept. Furthermore, a 43-101 report published in May 2017 prior to Getchell’s purchase of the asset confirmed the presence of an indicated and inferred resource of 1,069,000 ounces. So here we are in 2022, with an additional two new zones in a favourable jurisdiction with gold at $1,900 per ounce and what does the Getchell share price do? You guessed it. To say that its price drop was beyond belief is understatement.

After forty-five years in the investment battlegrounds, I can tell you that this phenomenon will not last much longer. The blessing-in-disguise that is all the new millionaires and billionaires created by the Fed as it expanded its balance sheet are now thoroughly addicted to stock trading and as evidenced by lunatic cult-like devotion to companies that cannot even make the interest payments on their own high-yield bonds floated into the pension funds of unsuspecting retirees in order to fund buybacks of stock into which insiders routinely sold. All of these financial needle-users that did the Pavlovian Dip-Buy in January are now starting to slowly get the memo that “Uncle Jerome has left the building” and that maybe – just MAYBE – that new Porsche they ordered might need to be cancelled.

It is these seminal moments that shape careers and behaviours, not unlike the cat that will only step on the heated stove once in its nine lives, never to repeat. Many of us have experienced similar watersheds like in 1980 when the gold market finally rolled over as did silver in 2011. Cannabis stocks in 2018 and even cryptocurrency deals late last year all went out not with a “BANG!” but with a barely-audible whimper. Since the mid-2021 orgiastic surge in uranium stocks, they too have rolled over and all that remains as alternative havens in which to hide appear to be copper and gold and quite possibly silver.

In my last weekly missive, I raised the possibility of gold’s move above $1,860 being a “fake-out” rather than a “break-out”. I based this not on my hopes and dreams because I am long gold and gold miners as well as the odd silver, copper, and uranium deal.

The key is going to lie in whether gold has the ability to assume the role of “safe haven” while all of this Fed jawboning tries to walk the market expectations down and allow its precious member banks on Wall Street to get liquid or hedged or both. If gold has indeed become the safe haven playground for the crypto and meme gang, then there is not enough precious metals market cap either in the physical metal or the mining shares to meet the rotational surge in demand. Therein lies the blue-sky opportunity for us all.

Let the rotation begin…

Disclaimer: This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

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