Saturday, January 18, 2014

OMG Josh Brown likes gold miners

Reformed Borker (Bork Bork Bork!) - Josh Brown loves the gold miners. Quote:

First, there’s this from Todd Shriber at ETF Trends: A Generational Opportunity in Gold Miners
Following a brutal year for bullion in 2013 and an even worse year for gold miners, those bullish on the yellow metal and the companies that extract it from the earth may have something to hang their hats on. Buying last year’s losers…was extolled as a good by some in late 2013. The advice is paying off as the $6.9 billion GDX, the largest gold mining ETF by assets, is up 4.5% in just the past week. That could be just the beginning for an ETF that plunged 54% last year, a drop that was nearly twice as bad as the losses incurred by the major ETFs backed by holdings of physical gold.

That's not even an investment thesis, by the way. That's just saying "oh look, they've gone up 4.5%, let's buy", which would have served you horribly in October last year.

On Thursday, Citigroup weighed in on the attractiveness of the mining stocks: Citi goes bullish on miners for the first time in three years
 “Investor sentiment has hit rock bottom. The mining sector has moved through five stages of grief, namely Denial, Anger, Bargaining, Depression, and now we think we are in Acceptance that the sector has moved into a new norm,” said lead analyst Heath Jansen, in a note out Thursday…Jansen foresees a flat commodity-price environment ahead and a reduction in volatility. An improvement in U.S. and European growth will help boost commodities, while weakening commodity currencies — the currencies of major exporters like Australia, New Zealand and South Africa — are boosting miners, he said. On top of all this, miners are cutting costs, improving balance sheets and aligning with shareholders’ interests. Because of this, earnings momentum has become positive.

That's not an investment thesis either. how do you get a flat commodity-price environment in a secular commodity bear market? How did Citigroup predict that gold has hit a bottom, and isn't going to trend down to $1000 where all these miners will lose money hand-over-fist?

More simply, how do they know they've picked the bottom?

And how much of a clown do you have to be to think that the miners are "cutting costs, improving balance sheets and aligning with shareholders' interests"? They're high-grading deposits, which turns future production into waste; and they've laid off all their exploration staff, so if they did manage to add to their cash pile in the next few years (which assumes gold going up, again wondering where they get that idea), they will still have no new deposits to bring into production. The DCF picture for senior miners looks glum, not good: they've killed their future cash flows.

And all us in the goldbug world are laughing at the naivete of an "analyst" suggesting that these buffoons are suddenly aligning themselves with shareholders' interests.

Finally, this morning I opened Barron’s to see Ben Levisohn quoting a Barclays analyst on how gold equities could work even if the metal itself stayed flat: Goldcorp, Yamana Gold Offer Less Risk, Barclays Says
“Given gold equities broadly sold off in 2013 and are broadly under owned to start 2014, we believe that when capital begins to flow back into the sector (due to less volatility in the gold price), some investors will favour gold companies that offer protection from lower gold prices or leverage to flat gold prices. In our opinion, companies with production growth, shrinking operating costs, declining capital obligations and conservative balance sheets will be best suited to offer that protection or leverage.”

The Barclay's opinion above is countered by Rod Stewart's "optionality of gold" argument, which seems to boil down to "why buy shitty miners that have been badly-managed and who are now high-grading their deposits when you can just buy GLD calls?"

Basically, I don't see any of these people putting forward a sensible thesis that is based on facts.

Really it's all just blather that boils down to "I dunno, they've gone down so far, they're probably going to go up". Count yourself lucky there are bottom-feeders.

And, at least now the ship is no longer tipped over to one side: finally some people are calling the goldies a buy, which is what you need to make the idiocy of the past year's selling stop. Cos nobody continues dumping a stock at a massive loss after he finds out someone wants to buy it from him.

Let's let Josh have the last word:

On January 3rd I debated as the bull on Newmont Mining for CNBC’s Halftime Report and explained why it was an easy stock to buy. People were shocked, “Haven’t you been trashing gold stocks for years, Josh?” And yes, I had been – not just toward the bottom last year, but close to the top, actually. Here’s me in November 2011 imploring David Einhorn not to buy into these names to express a bullish thesis, GDX was 60 at the time and would make its way straight down to 20 over the next two years.


As you can see from the chart above, the mining ETF seems to have found a bottom exactly where it did in 2008, which is really interesting and logical in a way. Tops and bottoms on charts tell us about areas where there is a shift between how badly people want to sell and how desirous they become to buy.

Josh obviously doesn't realize that the 2008 GDX is not today's GDX: one fuckton of a lot of paper has been emitted since then, for example.

Anyway, no big deal, since I'm in the gold miners now too; I'd like to have built my position on January 3rd, but whatever. But I'm sure a lot of newsletter writers out there are pissed that Josh picked the top and the bottom.

As for Newmont, though:

Well, I guess you could call Friday's action a breakout. What's your target, $28? Then why are you bothering?

But its weekly still looks like utter garbage. $28-$30 would be little more than a retest of the weekly SMA(50).

I'd rather buy BVN or AUY, if I wanted to own a major miner. We'll see.

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