Picking Off Ducks in a Down Market- Bizarro World 174

Jerome Powell doesn’t see any signs that the consumer is struggling. He’s either dumb, blind or lying. We cover several signs. Stocks can go lower and volatility remains high. Gold has held up well amid broader market selling. We discuss why gold is different than gold stocks, and how to position. Plus: Why liquidity is so important in this bearish environment. It’s all in episode 174 of Bizarro World. 

Gerardo Del Real: Jerome, Jerome, Jerome. This might get Jerome on the phone. Jerome has spoken and the market is yelling back. Gold is yelling back. Stocks are yelling back. The dollar is yelling back. Jim Kramer's yelling back. It's been an interesting week. Cryptos are yelling back. Bonds are yelling back.

Nick Hodge: Maybe we want Yellen back?

Gerardo Del Real: Will there be anybody to yell back? I am Gerardo Del Real along with Mr. Nick Hodge. This is episode 174 in Bizarro World. We're going to get right into it, everybody. Because, it's been a wonky week, to say the least. Mr. Hodge how are you first and foremost? How is your health? How is your beautiful family? How are you, sir?

Nick Hodge: Everybody's doing great. I'm in great health. Kids are happy, healthy, and ready to get to summer vacation. How about you and your family, Gerardo?

Gerardo Del Real: Wife is healthy. We just celebrated our 20th anniversary. So, that was fantastic.

Nick Hodge: That’s a big one, congrats. 

Gerardo Del Real: Thank you. A solid start there. The kids are healthy. Our middle child is home from college. Our other two boys are enjoying the summer, about to take a trip for a couple of days. So, no look, fighting the good fight and getting at it. I joked off-air that I is half as smart as I was last week, but I is still here. Right. And I was referencing just the walloping that the market has given us. Right. It's been a week. And look, we've been foreshadowing that the volatility was going to increase. You've done a brilliant job of doing that for the past 14 months or so. Preparing people outside of the resource space, people in the overall indices, people dabbling in 401ks and ETFs and IRAs, because you yourself had managed IRA, I believe is what it was.

And so I know that about four to five months ago, you decided that capital was better allocated by yourself. And I think your timing was absolutely brilliant. We always eat our own cooking. So I think it's been enlightening to see that the advice that you took for yourself and gave to others has definitely paid dividends, pun intended. You're now sitting on a healthy cash position and being the hunting man that you are, you get to pick off ducks when nobody else is hunting and the ducks are plentiful, right?

Nick Hodge: Yeah. I continue to say that I've gotten the bond call wrong and Mr. Powell's not helping me out there in the least.

Gerardo Del Real: Same.

Nick Hodge: But many other things were right. Getting out of tech stocks, positioning in about a third cash. And then, getting out of basically broad-based indices. No small caps on the retirement side and holding gold and gold related stocks, which have held up well. And so that was the right decision and the market continues to now crash, right? We were saying that a bear market was coming and that officially came right this week when the S&P went down 20%. And now it's down almost 25%, like in a straight line. And if you look at a chart, I'll continue to say, I don't see a lot of support until you get to the levels that we were at in March 2020 around COVID time.

It looks really bad out there. Bond yields are screaming higher, the people can't afford houses even less than they could before. I don't want to just jump around, but concerning Powell, specifically, I wrote behind me “Powell Lies” on the board today. Maybe I'll start writing stuff on the whiteboard every week about what we're talking about. But, he was up on the podium saying that there's no clear sign to him of an economic slowdown and that the consumer is strong. And literally, if you pay any amount of attention you know that that's patently false. Consumer confidence index is at the lowest it's ever been. Retail sales fell off a cliff in May. Stock markets down 25%. Confidence in small business owners is down. Confidence to buy durable goods is down. The signs are fucking everywhere.

To stand up there and say that there's no sign of a slowing economy is disingenuous. I said today he's either blind, dumb or lying. Maybe it's some combination of all three. But there's a lot of signs out there that all is not well, including from Mr. Powell's own institution. If you look at the Atlanta Fed Nowcast GDP, they've got Q2 GDP growth at precisely this much, 0.0%. So, that's an obvious sign that there's an economic slowdown upon us. And so he's being completely disingenuous. And I guess he's trying to crash the economy to get this inflation rate down. And moreover, you've got the media supporting him, right? I read in Bloomberg, “Mr. Powell is intent on raising rates to slow down this inflation.” And it's like, "Well, who the fuck caused the inflation?"

I was tweeting yesterday. I know you saw it because you re-posted it. This is the fox that just came in the henhouse and ate a bunch of chickens telling the farmer that he's going to protect the chickens. Or a drunk driver at the scene of a crash he caused is going to drive the victims to the hospital. It doesn't make any sense. It's nonsensical. And so you got to see through that. And if you haven't already like I say, I don't know what to tell you. But it's going to get worse, I think is something that you should prepare for. And so that market psychology is slowly turning, right? I've been saying for a couple of months, "It's no longer time to buy the dips. It's time to sell the rips.” And people are selling now boy. 

Gerardo Del Real: Let's talk about what held up well, and then I want to get to... When do you think it turns around? Because look, we're going to be working off a baseline in Q1 of 2023 that's going to be pretty favorable. Right? All of the horrible numbers and prints that are coming out now are going to start looking favorable on a year-to-year comp basis early next year, which is when I personally think the overall indices actually turn in bullish fashion. And I think if I'm right, and again, I've also been wrong about the bond call. Again, broken clock. But I think eventually we’ll both be proven very, very right. 

Nick Hodge: Yeah, but irrationality and insolvency.

Gerardo Del Real: That's where I wanted to segue you. You got that brilliantly. So that's my question to you, Nick, where do you think that point and that turn happens where Jerome has enough data to say, "Hey, I've looked at the data and inflation is cooling. We now have low sentiment. It's time to pivot." Because then when it's time to pivot, be clear, everybody, it's going to be a rip-roaring rally. That may take a couple of quarters. And it also may only last for a little bit before the whole thing implodes. I want to make sure everybody's absolutely clear that we are in what I believe are the last few years of this monetary MMT end game, right?

This's the theory where we're just going to print our way out of every problem and have a bunch of guys and a few girls behind them deciding what monetary policy in this country and around the world is going to be. I don't think they're any longer in control. I don't think they're no longer in control. I think the bond market is getting ahead of them and that's a whole lot, but when does it turn? When do you see a soft landing? That's the phrase they keep using. It's not going to be a soft landing.

Nick Hodge: It's already been a crash. If you look at the trillions of dollars that have been erased from call it the global financial world, you got some people comparing it to 2008 already. You've got in the crypto space exchanges going away, coins going away, companies are going to shut their doors. We're already seeing layoffs, et cetera. And so that takes a while to course correct. Inertia's a real thing. And I'm with you. I think we get to Q1 or Q2 next year, putting the Fed aside, that's how long this downturn is going to last. And so you need to be able to weather the storm for that long. As far as capitulation in the Fed, I'm not sure people were calling for a 1% rate hike this week. And Powell doesn't seem like he's going to back off.

So I'm not sure I want to get into the business of Fed forecasting. What I will say is that their actions aren't having an effect, or aren't having an immediate effect, right. This raising the rates hasn't slowed inflation. It came in at 8.6% in May. It's going to be likely an 8% number again in June. What they're doing is not working. And so, when do they learn their lesson? I'm not sure, but I do think that by springtime next year, that's what I was writing in the June issue of Foundational Profits, that it might take that long for this market winter to end.

Gerardo Del Real: What did hold up well was gold, right? Gold is rallied to the $1850 level. Granted it sat between $1800 and $1900 for the better part of the last couple of quarters. But is gold front-running the eventual pivot? We know the pivot happens. I don't have a crystal ball. I can't tell you if it happens in Q3, Q4 or Q1 of next year, but we know the pivot happens. We know that with the debt levels the United States has, they can only raise rates so high before something breaks. What can break? The bond market can break. Junk corporate credit can break. All sorts of things can break. What will break? I can't tell you that folks, but I can tell you that you want to maintain some sense of liquidity here between now and the end of the year. 

My two largest personal holdings, a week ago, each up over 100%. Or two weeks ago. They'd been up over 100% in a matter of weeks. And in a matter of a week, 50% of that has been given back. Hence my joke about me being half as smart as I was last week. Right. And so, is that something that's consequential to me? Not really other than I'd like to write checks in financings for bigger amounts because I like to be aggressive in my positioning. And even I am tempering a little bit of that aggression because one, I already have significant exposure to where if I'm proven right, and this lithium trend continues forward and the companies that are discovering and exploring for and developing the materials that we need to make this pivot towards the electrification of everything.

If I'm right about all of that, I'm going to do really well whether or not I double my position or cut my position in half or just keep the position where it's at. So at this point, there's no need for me to take additional risk. However, I would say for those of you that are like-minded and aggressive, if you have capital that you can afford to let sit or work for you for the next 12 months, man, the next few months is going to be some bargain shopping.

Nick Hodge: Yeah. A lot there. Lithium continues to be okay. We talked about the Goldman Sachs short report a couple of weeks ago, which is sort of like Powell standing up there, right? Just flies completely in the face of what's actually happening in the market. They're saying lithium prices are going to go down to below a thousand dollars and meanwhile Orocobre’s selling it in the market for $5,000. And so just baseless, I would say, projections about how much mines can produce we all know are different from reality when it comes to getting assets into production and getting CapEx that's needed to expand in the permits and all of that. So lithium relatively, and then that's important is "relatively safe" because now I got to talk about gold and the VIX.

So yeah. Gold held up really well. Went right to down around $1800 and held there. People are worried that it's going to break this support, but it continues to wedge itself there. It held up very nicely, I would say. You would say, beautifully it held up in the face of the rates rising like they are. And so that's a very important thing. Another very important thing and I said this before, so sorry for being a broken record, is that gold stocks are not gold, especially when the broader indices are going down like they are and the VIX is going up like it is. You had the VIX well above 30 today. You're starting to get to levels that were... It's popped there a couple of times over the past year or so, but that's where it was during the COVID crash.

And so volatility is very high. And in that environment, I look at stocks like, I don't know, Hecla or Agnico Eagle or Sibanye — they're back down around 52-week lows while gold continues to hold up. And so gold is not gold stocks. I bought some more GLD this week. I told subscribers I was going to do that if it hit $170, it went to $168. Picking my spots, like you say, deployed some of that capital where I think it's advantageous, but mostly in highly liquid stuff, right. Because you need to be able to get out. And this isn't part of your question, but it might be worth noting that we are in a little bit of a liquidity crunch.

People need cash as prices rise and some of the equities that you and I dabble in on the speculative side aren't necessarily liquid. I was talking to one of my brokers yesterday about selling some positions that I wanted to get out of that I don't cover in any letters just to narrow down my portfolio to the quality positions that I want. And I've got hundreds of thousands of shares in some of these companies that trade a thousand shares a day. You know what I mean by appointment. Call me next week-

Gerardo Del Real: Be here for 10 years, get a call in 10 years: “We finally liquidated that position for you, Mr. Hodge.”

Nick Hodge: Exactly right. So just a word of caution there that if you do need liquidity over the summer and you haven't sold already to get on it, and it is a good time, I think, to reevaluate the positions that you want to hold on for the rest of the year as what we're talking about unfolds. And in doing that, you identify quality. We talked about some quality gold stocks on this podcast last week. Revival Gold, which I'm going to visit, or will have just visited by the time this podcast comes out. Last week we were talking about Anacortes at 80 some cents and it went to 78 cents today. It’s around a C$30 million cap with C$10 million in the bank and a high-grade oxide resource. And so of course-

Gerardo Del Real: And drilling.

Nick Hodge: And drilling with results that it'll be out this summer. And so when you talk about picking off-sitting ducks, that's at least for me what I think you're referring to, right?

Gerardo Del Real: Absolutely. Got to talk energy. Oil is one of the few commodities that I just don't feel competent and well-versed enough to actually provide guidance on allocating capital in that space. You again have nailed that beautifully here over the past 16 months at the very least, where do you see oil prices going? I'll let you opine because I just said I'm not qualified to. But where do you see them going, Nick? I don't see them going much lower.

Nick Hodge: Yeah, I haven't spent a lot of time looking at it because we did sell oil stocks. And so we missed the last part of the move here. It's been curious that oil went as high as it did, given everything else that's going on in the market. And you can point to geopolitical factors or you can point to refinery capacities and things like that. And there's some wonkiness going on in the natural gas market with fires at facilities that are causing imbalances in the US and the European market. Gosh, I think oil stays relatively as high as it can without tipping the US economy faster than it would be going into a recession. I haven't recommended any energy stocks, but I've been personally dipping around here and there and some of the pipeline ones that have high dividends. 

But we've had a pullback to be clear. Oil was up around $120 a week ago. It was down to $108 today and then natural gas at least here in the US has had a rough week. So I'm giving you a non-answer because I guess I don't feel confident in giving you a real answer either. History would say that oil prices at this level cause recession quickly. I've got a diesel truck and my wife's got the Yukon mom-mobile and we're up to about $130 each to fill those things up. And so, imagine that for the average family, that's going to eat in very quickly and cause them not to spend money in other places, which is why you're seeing consumer confidence where it is.

There's your sign Jerome, which is retail sales fall off. They are another sign for you, Jerome. And so, a non-answer there. Oil's been an anomaly in that it has stayed so high. So while it is high, I would say a decent place to maybe get in some stocks that are in that production side of it, that have good balance sheets and are able to pay the dividends.

Gerardo Del Real: It's interesting to me that the Secretary of Energy is going to meet with oil refiners and producers to beg them to lower their prices while Jerome Powell stands in front of the American public and lies to you — talks to you as if you were a child. Speaks to us as if we are all stupid-

Nick Hodge: That's right.

Gerardo Del Real: ... and tells us that there are zero signs of a slowing economy. It is absolutely egregious to me. It's egregious to me that he is allowed to get away with that and not be pressed by "journalists" that are there to cover what are clearly some of the most important policy decisions in our country. So because my brain is weird, I then read a Fox News poll that tells me that 56% of Americans are in favor of gun laws that would go ahead and restrict the way that we own guns in this country. And we've talked about Uvalde, we've talked about the mass shooting crisis that we've had in America for a very long time now for the last couple of decades.

And look, when we get into specific proposals, I want everyone out there to watch what your politicians tell you and watch what your central bankers tell you, because that should inform you as to the level of respect that they have for you, which at this point is very little. This is a Fox News poll. So for those of you watching from outside the country, or those that just don't tend to dabble in political commentary or political news outlets, which is what Fox News is much like CNN, much like all of them nowadays, right? CNBC, MSNBC, but Fox news tends to be very conservative in its views.

So when they do a poll that says that 82% of their viewers are in favor of raising the legal age to buy assault weapons to 21. And in favor of passing red flag laws that allow police to take guns from people shown to be a danger. And that 81% are in favor of background checks on buying ammunition. And that 78% are in favor of mental health checks and raising the legal age to buy any gun to 21, that's probably the bottom of the barrel as far as support goes, right? That's probably the least amount of support. The lowest amount of support is right around 80%. That's according to Fox News.

So, if you see any politician... We can have a debate another day about what's appropriate and what's not. Everybody knows that Nick and I are very pro-Second Amendment, but we also believe in intelligent ownership of weapons, be that firearms, be that whatever it is. There's a right and a wrong way to do everything folks. And so when I look at a poll from Fox News and then I still see that politicians are going to go on vacation for a couple of weeks here soon and not get much done, there's some proposals floating around, but I see that getting quieter by the day. That should inform all of us, that the respect and the dignity that politicians hold for the citizenry read about them in. It's appalling to me.

Nick Hodge: Yeah. I should have spent more time reading about the bipartisan legislation that was k. But some decent ideas, not an outright ban on 18-year-olds owning assault rifles, but a delayed and enhanced review process, which is probably a smart policy to put into place. So we'll see how much traction they can get. But you mentioned them thinking we're dumb. And this is a theme we've talked about before. What they stand up and say, and then what they do and just what they expect us to not see through. So a couple of things. I'll start with the conservative side of the tribe.

They're out there talking about Biden-flation, and then Biden’s gas prices and Biden this and Biden that, but... And sure he's partially responsible. He's the president. He sent out stimulus as well. But I distinctly remember the former president, Trump, wanting his name on the checks that people got sent out. Printing money and sending out checks is the definition of inflation. And so we've talked about the Cantillon effect before — it takes time for that to work its way out. It's not like Biden showed up in office and the inflation came on. At least half the checks had already been mailed out. Right? So people don't understand, right? They just need someone to blame. And then now I talk about the Democrats, they need someone to blame, right? And now they got their... They've gone to all the refineries talking about windfall profits. Go ahead. What do you want to say?

Gerardo Del Real: Vladimir. They also blame Vladimir. It's the refineries and Vladimir, right? They're the boogeymen.

Nick Hodge: "It's not us who made the money printer go brrrr and sent out all the checks, right? No, it's not us. It couldn't be." And then, so I just have to laugh when we've talked about how dumb they think we are because Biden was saying this week he's going to consult with Senator Schumer and Congresswoman Pelosi about how to lower this inflation. Like they have a fucking clue how to do that. Or they even have the capacity to do that. Back to my foxin the henhouse thing from earlier. I saw a meme that said consulting with Schumer and Pelosi about how to lower inflation is like asking Vin Diesel to solve a quantum physics problem. What the fuck are they going to do? They're powerless. And so it's just lip service, right? "Oh, we're doing the best we can. We're on it. We're going to try to lower it." You can't lower it. You fucking caused it.

Gerardo Del Real: I agree with you 100% on everything you just said, Nick. What are you watching in the markets here, this coming week?

Nick Hodge: Oh man.

Gerardo Del Real: Crash landings?

Nick Hodge: Yeah. What I was going to say is you don't have to do anything. Right? I've had some success shorting the market recently. I’ve gone leveraged short NASDAQ a couple of times. You're not going to see me writing about that in any newsletter. It's not appropriate for most of the newsletter audience. And I think of our newsletters or at least mine as long newsletters. We don't get into shorting or options. And so when you don't get into shorting or options, the best thing you can do is just say, "Hey, let me sit on this cash so we can evaluate, see what's happening." And then if you really have conviction, is what I was writing today. First at the metals. Like I said, I bought a little bit of GLD and I've got some bids in to buy a bit more Revival. Hasn't been filled yet.

And then some of the uranium stocks that I've been... I mentioned Denison last week, it's gone from $1.18 to a $1.00 a week. I got a bid in below a dollar to buy a little bit of Denison. But I'm not doing much if I'm being honest. I am watching, waiting, seeing. I look at that S&P chart, and there's a lot of space underneath the most recent candles. And so I think the smartest thing you can do is wait, again with the volatility of this high. So I guess what I would be watching is the volatility to come back down and probably a bit of capitulation on my part in the bond call.

We're down around 15% on the TLT and that's about maximum pain when you're long. You don't want to sit and ride that out any further. And so I'll probably put a sell on, especially because these Dines readers are starting to get in my ear about how I'm not Mr. Dines, and he declared the end of the bond market. And so other than that, waiting and watching, and I'll be in Idaho until Tuesday. So I'll be watching from over there.

Gerardo Del Real: Excellent. I think it's interesting to note that the dollar index had its worst day after the Powell announcement the following day. Had its worst day since March of 2020. Right? Granted it's coming off highs. It's coming off a high of over 105. And so, it being 103, 104 is still a robust dollar, but that was really interesting to me, coupled with the VIX. I would say there's a couple of uranium names that you could buy at pretty attractive entry points. Skyharbour looks really cheap to me here. Labrador had a pullback the last few days. Looks cheap to me here. If I'm right about what Patriot had, and you still haven't established a position — this 50% pullback here recently in Patriot shares looks cheap to me here. And so that doesn't mean things can't get cheaper.

It just means that our bond call, if we're proven right, that's going to be consequential for us and dollars and percentage gains. And so those are the things that I'll be watching out for. Patriot actually had some great news on Monday. And I think it's a combination of people being panicky 25-cent warrants being in exercise and people selling into heightened volatility. And look, I think the speculative names are always going to be the first to get sold if you don't really know what you have. You mentioned conviction. Again, let me be clear. I think there's at least a hundred million tons, I think, of 1% lithium there. I think there's a potential for 150 million within that two-kilometer trend. And then they have 48 other kilometers of trend to go follow and chase.

So if I'm doing the comps, I do think that could be a C$10 to C$20 stock year by year-end. So at C$2.20, it looks pretty attractive. Doesn't mean it can't go to  C$1.50… doesn't mean it can't go to C$2.00. It just means if my target is right for what's there, I don't see lithium demand waning anytime soon. So Patriot's interesting. Labrador is interesting. Skyharbour’s interesting. I love those sectors, uranium and lithium. Uranium's going to be a lot more volatile than the lithium space will be. Although right now I'll caution: Everything's volatile right now, right? Lithium Americas looks incredible at the $20 level. It just had a pretty rapid pull back here of 20%, 30% over the past week. So I suspect funds are getting hit with margin calls and you have a lot of young traders that have never traded a bear market, and baby you got one.

Nick Hodge: Oh, that is for sure. I don't want to give the house away. But, I re-recommended a lithium stock last week that happened to be very fortunate timing because two days later it was halted with the feasibility study that came out talking about 82% IRR, which is good. And the $2 billion net present value. And that's a small, relatively low-grade project compared to what you're talking about. But it is near the finish line, right at the feasibility study level with hopefully provincial permitting right around the corner. 

One of the last things I wanted to mention was crypto in multiple capacities. You just mentioned people that haven't seen a bear market. Some of these crypto folks thought Bitcoin was going to $100,000 relatively soon. And that clearly hasn't panned out. I heard this morning that there was some survey out there that asked people that just lost 50% of their money on Bitcoin, if they plan on buying more. And something like 80% of them plan on buying more Bitcoin within the next 12 months. So tread carefully. That said, I bought a tiny bit more Bitcoin this week when it was below $21,000, just a tiny bit. Told you I was going to do so if it got to that level and start working my way to a full coin. Buyer beware, it needs to hold at this level. If it goes below $20,600, it could easily go to $14,000 per Bitcoin. And that could happen in a hurry. And I'd probably be buying a bit more there. But this crypto reinforcing has been one for the record books. Right? I know you have Celsius on the list. And I don't know much about that, but that was another exchange that froze accounts this week, right? If you had money in Celsius, you were not able to withdraw it.

And so you talk about needing to have liquidity and the need to raise cash. Well, when the place where you're storing your coins doesn’t let you take out money, that's the definition of no liquidity, right? And so be careful with the institutions that you dabble with as well, I guess I would say. I try to keep things in the most robust and liquid institutions who hopefully aren't going to send my money to heaven or keep it locked up where I can't get it out. And then there was a question on crypto I wanted to answer as a follow-up to the ‘ask me anything’ you and I did a couple of weeks ago on this podcast. And the question was, "Do you buy the actual coins, or do you buy the companies?"

And at least right now, that's a pretty easy question to answer. It's just like gold. You buy the actual gold first. You buy the actual Bitcoin first, especially because... And leverage is an important point. Some of these companies like MicroStrategy and others have bought these coins levered, and you're seeing de-leveraging in a big way. And so for me, it's just the coins and really just Bitcoin right now in a very big way. Ethereum is at a very rough go of it lately. And so Bitcoin is emerging as the one true coin for walking around with your Bible down the aisle. It's the Bitcoin Bible as it were. And so I just wanted to get that out there to answer that question.

Gerardo Del Real: Well said. I encourage everybody to either ask questions in the comment section or just write in. We're more than happy to do more of the Ask Me Anything segments. We got some great feedback the last couple of weeks on the episodes about the specificity of the actionable advice that we've been trying to guide. And so hopefully, it's been helpful. Hopefully, it's been informative. We're going to keep this one short this week, Mr. Hodge. This is Gerardo Del Real along with Nick Hodge. This was episode number 174 of our therapy session otherwise known as Bizarro World. Say something insightful to the people. Nick.

Nick Hodge: I'm looking for signs of a slowing economy. I can't see any.

Gerardo Del Real: Jerooooome.