...Chicken, Egg, Chicken…

This issue contains the first part of my start of the year editorial, focused on the equity markets, with a gold kicker at the end. Wall St, barely, avoided falling into a bear market late last month. I don't think we'll get through 2019 without a drop into Bear Market territory getting completed. I'm still not sure whether that will happen early or late in the year, though bear markets that start in Q1 are admittedly pretty rare.

The delay getting lab results and engineering studies continue. There is only a short list of updates this issue because so few companies reported anything. With a couple of important conferences dead ahead, I'm still hopeful the reporting situation improves through the next couple of weeks.

While I'm negative on how the large indices will turn out this year, I'm considerably more positive about the prospects for the gold and silver resource and exploration sectors. In large part because I am negative about the bigger markets. I think odds are high we see our little corner of the market outperforming, something that hasn't happened for three years.

While I like gold's prospects, the broader markets will be treacherous and volatility will be much higher going forward. In that sort of backdrop, using gains to harvest some funds and keeping a higher cash balance wouldn't be the worst idea ever.

Eric Coffin
January 9, 2019

…Chicken, Egg, Chicken…

This is the first part of the traditional "how big an idiot can I look like" start of the year editorial. I'll go into metals and oil in the next issue but, this year, the equity market will be driving the bus so I'll look at that first, with a bit of gold tacked on.

Markets have endured incredible volatility in the past month. The S&P, pictured below, had a huge dive followed by a huge bounce in the past few sessions. Traders are getting bullish again.

I see several possible scenarios. Most of them are not positive for New York and other major bourses, at least not right away. I think Wall St goes lower in the short to medium term (over the next few months). What I'm not yet sure of is the precise order events unfold in. That is likely to determine whether Wall St and its followers close 2019 higher or lower than it started.

I feel pretty confident it's going to go below the December lows in 2019. In other words, we get a bear market this year. How bad a market we get will be largely determined by what happens with the economy in the US and, to a lesser extent, China. That, in turn, appears largely dependent on politics, sentiment, and Fed.

One of the enduring mysteries, and debates, in the stock market is centered on whether it moves, or just reacts to, the economy. I think the answer is definitely "both". Compensation, reputation and planning at large companies is so tied up with market valuation that it can't help but affect decision-making.

The market itself gets impacted by actors that are trading based on technical patterns (charts), fundamentals, and sentiment.

Technicians (most, anyway) argue that the market prices all available information, seen and unseen. The implication is that if the market moves strongly enough in one direction or another it's pricing in new information, even if that information isn't known to you. The market is telling you there is really good, or bad, news coming. You just don't know what it is yet. I think there is truth to that, though I wouldn't be as dogmatic about it as some chartists are.

Fundamentalists consider the market efficient at pricing in known information, and assumptions about future profit streams based on it. Because some fundamentalists, especially "old school" ones, underpin their views with the Efficient Market Hypothesis, they tend not to believe in "beating the market" at all.

Fundamentals can change and alter investor outlooks and hence price levels but future changes are random and unpredictable. I don't buy into this fully either, but plenty of others seem to, even if they don't admit to it. I don't see why passive investing would be as popular as it is if people don't hold to this idea.

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