On Brent Cook's genius, IKN's dark night of the soul, and the end of the GDXJ

Brent is probably reciting the famous line by Emperor Palpatine: "everything is proceeding as I have foreseen!"

After all, months ago he was saying there was a whole raft of companies with poor economics that were being valued by the market as if they could be buyout candidates when they weren't; and he said there were a whole pile of deposits being valued by the market for success when they were mostly going to fail.

Well Brent, hat tip to you! GDXJ is proving you right.

Thinking more about the in-depth analysis of GDXJ, I realize two things:

1. The GDXJ isn't coming back. It has no good reason to ever come back.
2. It doesn't mean the "gold miner" case is broken.

The GDXJ isn't coming back because a lot of the companies that make up the GDXJ aren't coming back. In some cases (ITH, SBB, etc) the shine is gone from north-of-60 projects and won't come back til a far-north mine starts showing stellar profits. In other cases (GUY), the project economics have proved failure; in other cases (KGN) people have turned their backs cos of failed moves by majors (Tasiast). AVR won't come back til we're sure Mali hasn't turned into the next Sudan. Richmont, Golden Star and Brigus were also noted in the comments as utter business failures, to which I guess you can add JAG and GPR and... help me out here, Otto, who else in the GDXJ have you always called crap?

And yet, BTO AR RIO and so on still look strong. Cos they already have mines, they have growth in the pipeline and have already proven that they can mine at a profit, and so nobody's going to turn their backs on them. Yes, AR's lost 25% from their high - it was probably in a bubble to begin with, same as SSL (which has fallen out of its uptrend). And BTO's down 10% off their high, with a failed breakout to boot; but considering how much of the GDXJ is BTO, a 10% drop should really be expected as people puke their GDXJ shares.

So I'd say the miner case isn't broken - You could still put your money into BTO with a reasonable expectation of capital appreciation. Same probably for AR. Know what? Probably FVI is a great play right now too - I'd worry about the cash costs, but if they truly have a program in place to reduce costs thru capex they should bounce back.

But at the same time, the overall junior space is broken. GDXJ is broken; why buy an ETF made up of 90% failures and 10% real businesses? (That's been my thesis on Russia ETFs for years, btw - why buy an ETF made up 90% of mafia, child-porn producers and ex-Kagebeshniki?)

So, what to do?

I think of poor Otto Rock. You guys don't know unless you subscribe to him, but he is a real analyst, with an industry-standard methodology and Excel spreadsheets and field visits and all that. He could probably get a job at Canaccord tomorrow - under an assumed name.

He stares at the screen in a daze these days, wondering "could I have been wrong all these years? Is gold doooomed? Should I really switch over to the tech sector?"

But yet, he has caught a lot of the buyouts (ANM, FRG, PEZ sort of, PGM, LCC pending, HAT, MFN more by accident) and the emerging-producer stories (FVI, BTO, RIO). And I don't really see that being broken right now. When BTO and RIO and AR and YRI's prices utterly collapse, then the emerging producer story is broken; when perfectly economical, uncontradicted, jurisdictionally safe projects collapse (and... um.. I'm drawing a blank here), then the buyout story is broken.

GDXJ in general is broken, and for good, because a lot of its constituents are crap: but this guy's been screaming at his screen for years, saying "WTF are these bozos doing buying Great Panther etc.?" Well, now the shitty companies are collapsing. (You said they were worth zero, Otto! Now the market agrees with you!) But BTO and RIO still have a bid. The companies that don't have a reason to collapse aren't collapsing.

(Yet.)

So maybe the gold miner investment case isn't dead? It's just that all the companies that suck are getting puked into the pennies. The companies that don't suck are maintaining position.

Maybe we've all gotten greedy this past 2 years, seeing all the easy money being made as shitty companies went up in price, and we have to cut back on our watchlists and only look at the true economically viable stories. Cos the easy money of the rising tide of dumb new goldbug investors is gone. Now Brent Cook can say "ha! Told you! Lydian is the only likely gold buyout candidate".