I look out my window and see that the streets below remain silent. Shops and cafés remain closed. Only essential businesses are open, and even those are curtailed to core functions. This is obviously devastating for the economy—and for the resource sector that provides it with raw materials. But there’s less obvious damage that goes far wider and deeper than that.
For instance, it seemed at first that gold and silver companies might be immune to the downturn. With monetary metals expected to surge as a result of all the panic-induced money-printing, related companies should do well this year and spectacularly well for years to come. But higher gold and silver prices don’t do a miner much good if it’s forced to shut its mines down by decree. That would be a temporary setback… but still a lot of pain for producers, which are usually seen as the safer bets in the mining space. Next quarter could become a very unusual period of lower share prices among the miners, even as gold and silver make new multi-year highs.
Then it seemed that exploration companies might be largely spared. They have no revenue to interrupt. They often work in remote places where “social distancing” is the normal work environment. But just because some could operate safely, that doesn’t make them immune from governments shutting them down with blanket orders that cover all nonessential businesses.
It gets worse. Suppose an exploration company works in a remote area in a province with no government-mandated shutdown. Suppose senior management can work from home. Great. Where do they send their samples? I doubt assay labs will be considered essential in a pandemic. What about other support services that operate out of urban areas? And what happens when they can’t just fly the usual stream of experts, investors, analysts, and consultants who need to see the project in person?
It’s now clear that no company of any kind is immune to disruption during the present crisis.
I, of course, think mostly of resource sector companies. But the entire global economy is in such distress, problems are breaking out everywhere. You might think Amazon (AMZN) should be immune, for example, since everyone staying home needs stuff delivered more than ever. But Amazon has already been hit by work stoppages and protests. The stock fell almost 23% during the March 2020 meltdown on Wall Street.
What about companies working directly on COVID-19 vaccines? Even they may or may not do well, given all the bad news on the horizon. Johnson and Johnson (JNJ) is one of these companies, and it was hit just as hard in the market meltdown last month. It’s up in recent trading, but the company has said it will develop its vaccine on a nonprofit basis. That’s great for humanity—thank you JNJ—but it’s not a reason to expect shares to go higher.
All of this reinforces my “Go to cash, wait for the smash” guidance.
One concern some folks have about this is that while many of us see gold as real money—cash—it too sold off with Wall Street this month. It could easily do so again if general equities step off another cliff. So even gold is not immune to a serious price decline in the nearest term.
Some even argue that if what we’re facing is like 2008, gold “should” go much lower before it heads higher, because it hasn’t corrected anywhere close to as much as it did in 2008. A 2008-scale gold correction would take gold below $1,200 per ounce.
That’s a logical-sounding argument. But while some things today are like 2008, others are very different. Some are much worse and some are much better. Others are just different. I expect history to rhyme this year, not repeat 2008.
This time, governments didn’t wait until the crisis became acute before they started printing money like there’s no tomorrow. They jumped on it fast and furious, making the unprecedented actions taken in 2008 look like a mere warmup. Indeed, it seems they were. This is a powerful and obvious boost for gold—and everyone knows it.
Remember that in 2008 the financial mainstream had been ignoring gold as a barbarous relic. It had seemed to serve no useful purpose for more than a generation. That all changed in the wake of 2008. Today, it’s common to see gold included—almost as a matter of course—in discussions of what to do when fear dominates financial markets.
Nothing is immune, but monetary metals, at least, are obvious winners that will rebound with speed and energy that I think will shock most investors.
This raises the obvious question of how we’ll know when the bottom is in. I’ve already addressed that, in terms of what would prompt me to start buying again.
My updated take now is that I’m skeptical that even the truly phenomenal amount of money the US and other governments are throwing at the economy will be enough to prevent more market meltdowns. The body blows of bad news will keep coming and coming—for months.
I have sent—and will continue sending—as much cash as I can to my brokers. I want to be ready when I see opportunities I worth pouncing on.
But all of this begs another critical question for gold and silver bugs…
If I’m so sure markets are going lower and that even gold and silver could fall with them, why not sell everything now and buy back in at lower prices?
As I wrote in last weekend’s free Speculator’s Digest, the problem with selling to buy back in at lower prices is that no one knows the future for certain. People can realize unnecessary losses and then be left short if prices go up instead of down. They can miss out on what turn out to be big wins because they don’t want to buy back in at higher prices.
Last week is a case in point. I expected Thursday’s terrible employment report. I tweeted that it would be at least three million before the number came out. But I expected that to knock markets much lower—and the opposite happened. If I’d sold, I’d have done so just before everything went up again.
Since no one knows the future, it’s better to average down than to trade in and out of stocks or commodities—as long as we’re sure they will head higher.
Staying long in something that may not recover is an entirely different thing. Stubbornly refusing to take a loss when the odds favor lower prices for the long term, or permanently, is wealth destruction. Such assets are best sold in order to build up cash to buy into more likely winners.
In short, it’s better not to try to time the market, but to buy grossly discounted value when irresistible opportunity presents itself. “Blood in the streets.” That sort of thing. As I’m not the only one to say, we don’t have to know where the bottom is, only that we’re getting a great deal.
For those who are interested in what I consider a great deal, you can see my Market Meltdown Shopping List by subscribing to The Independent Speculator. If you’re not sure if this service is for you, you can try it on a monthly basis and then upgrade to the lower, yearly rate once you’re sure of the value delivered.
Regardless, I do see historic opportunities shaping up, and I encourage everyone to prepare to make the most of them.
That’s my take,
P.S. If you’d like to see what it’s like to get my take on your stock shopping list, or stocks you’re worried about, please try out My Take before the price increase goes into effect on April 5.