As anyone knows who has tried in whatever way to opine on the financial markets, sometimes three of the most important words in the English language are the following, “I was wrong.” The second most important three words are “I don’t know.” There are several reasons why I say this, but the most important one is that having lived through the 2008 financial crisis I can absolutely tell you that everyone from investment bank heads, CEOs of major corporations, to popular TV financial prognosticators, on down to private speculators and broker dealers in general did not see the crisis coming and took a bath on investments. Even the brightest minds get things wrong. And don’t get me started on central planners, who often never seem to be able to see asset bubbles coming, or to even know how to safely deflate said bubbles if they could see them coming.
In short, the most important lesson of the financial crisis may have been that oftentimes there are no experts, and that sometimes no one is in charge. I don’t mean to be negative in saying this- quite the opposite. It is meant to be empowering.
Oftentimes the big boys and gals get themselves in trouble with their 8 or 9 figure accounts, they are forced to liquidate, and do so without regard to fundamentals. Or put differently, these people are human beings after all who are caught up in the cycles of greed and fear– they are not superhuman, they are not above panicking. These “professionals” seem to act just as unprofessionally as retail investors– sometimes even more so. Its just that the consequences of their actions are felt more powerfully, look larger, and seem more ominous than when John Q. Public gets in trouble with his more meager holdings. But don’t let the carnage brought about by professional liquidation lead you to believe that a sector is permanently done for. Just ask investors at the bottom in March 2009 regarding many financial service industry stocks, for example. Although bottoming is a process, we are clearly at this kind of professional liquidation stage in the precious metal miners, and regardless of the price of metals, you can do quite well with these stocks in the years ahead.
We hear many valid objections to owning mining stocks. Those who only buy gold and silver bullion don’t want the risk involved in a mere paper asset. Others who have followed the cost management (or lack thereof) in the mining industry over these past five years believe that the miners will never get their act together and will never provide meaningful profits for investors. They believe that the mining companies are incapable of learning lessons about cost overruns, or from unrealistic expectations concerning mine acquisitions. Investors think that the miners can’t adapt the way other business owners can.
Couple this with the apparent belief that the bull market for precious metals prices is over, that a new era of nationalizations is upon us and can’t be avoided globally, and you get sentiment readings like the one we see today (and also saw last month). The percent bulls for the Gold Miners ($BPGDM) is at zero. Yes, you read that correctly— zero.
We have been here before, in late 2008. And I hope you know where the miners went from there. I also hope you understand that markets always look broken at the bottom, and that, as Alexander the Great is supposed to have said, “fortune belongs to the bold.”
