Author Archives: Pater Tenebrarum




Opportunities in the Junior Mining Sector

Maurice Jackson of Proven and Probable has recently interviewed Jayant Bandari, the publisher of Capitalism and Morality and a frequent contributor to this site. The topics discussed include currencies, bitcoin, gold and above all junior gold stocks (i.e., small producers and explorers). Jayant shares some of his best ideas in the segment, including arbitrage opportunities currently offered by pending takeovers – which is an area that generally doesn’t receive much attention, but seems to harbor quite a bit of potential.


Jayant Bandari at the at the Sprott Natural Resource Symposium in Vancouver in 2017.


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It’s Just a Flesh Wound – But a Sad Day for Vol Sellers

On January 31 we wrote about the unprecedented levels – for a stock market index that is – the weekly and monthly RSI of the DJIA had reached (see: “Too Much Bubble Love, Likely to Bring Regret” for the astonishing details – provided you still have some capacity for stock market-related astonishment). We will take the opportunity to toot our horn by reminding readers that we highlighted VIX calls of all things as a worthwhile tail risk play. Not only were we right, we were actually kind of double-plus right, with near perfect timing to boot. That doesn’t happen very often, so forgive us for enjoying this brief moment of Zoltar glory.


Sometimes it just works… Zoltar has happy news for that exceedingly rare species, the “long vol” speculator (lately seen to be recovering – the endangered species, we mean).


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Unprecedented Extremes in Overbought Readings

Readers may recall our recent articles on the blow-off move in the stock market, entitled Punch-Drunk Investors and Extinct Bears (see Part 1 & Part 2 for the details). Bears remained firmly extinct as of last week – in fact, some of the sentiment indicators we are keeping tabs on have become even more stretched, as incredible as that may sound. For instance, assets in bullish Rydex funds exceeded bear assets by a factor of more than 37 at one point last week.


Bullish investors had every reason to feel smug in recent months. And while there are a number of bears of varying degrees of prominence who have become cautious much too early (many of whom have fallen silent over the past year or so, but that is how it always works…), there are very few traders who are actively betting on a downturn. And yet, we know that the main bubble fuel – namely, broad true money supply growth – is faltering.


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Relative Scarcity and Bubble Dynamics

There is widespread awareness about the relative scarcity of BTC compared to the ever-expanding fiat money supply, but it seems to us that the dynamics underlying their relationship are largely ignored. The scarcity argument underpins a lot of speculative activity in BTC and other cryptocurrencies – hence ignoring the related dynamics is probably not a very good idea.


One of the features of bitcoin people find enticing  – by no means the only one to be sure – is the fact that its supply is strictly limited (well, sort of – see our comment on “forks” further below). We have highlighted the currently circulating and the eventual total supply above. Keep in mind that the “free float” of BTC is even smaller: there are a number of very large wallets which apparently never trade, and quite few BTC have been lost forever – we are pretty sure that the UK resident who famously threw away an old hard disk drive that held his BTC wallet is not the only person who has disposed of his bitcoin in such a decidedly painful and unprofessional manner.


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The Wingsuit Test of 1912

Late last year press reports informed us that by October, the number of active accounts at US cryptocurrency exchange Coinbase* had exceeded the number of accounts at Charles Schwab, one of the oldest US discount brokers, by 1.1 million. The report was dated November 27, by which time the number of accounts had just soared by another 1.6 million. We felt reminded of the final few weeks of China’s stock market bubble, which saw similarly stunning growth in retail brokerage accounts. We felt that these Johnnie-come-latelies would soon experience the financial equivalent of the infamous wingsuit test of 1912. Witness the sacrifice of a man ahead of his time:


Wingsuit pioneer Franz Reichelt fails to get past the proof of concept stage.


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Rydex Ratios Go Bonkers, Bears Are Dying Off

For many years we have heard that the poor polar bears were in danger of dying out due to global warming. A fake photograph of one of the magnificent creatures drifting aimlessly in the ocean on a break-away ice floe was reproduced thousands of times all over the internet. In the meantime it has turned out that polar bears are doing so well, they are considered a quite dangerous plague in some regions in Alaska. Alas, there is one species of bear that really is in danger of going extinct – only this one lives on Wall Street, or let us rather say, it vegetates on Wall Street these days.

Similar levels of complacency as were evident in  the AAII data were reflected in Rydex ratios, which streaked to fresh extremes in recent weeks. The bull/bear asset ratio reached an astonishing new all time high of nearly 36 at one point (i.e., bullish assets were 36 times larger than bearish assets), with bear assets crumbling to a new record low.

The leveraged Rydex ratio streaked to a new all time high of 18.70 right at the turn of the year (note: from 2001 to 2012 a leveraged ratio above 2 was actually considered “extreme”).


The pure Rydex bull/bear ratio and total Rydex bear assets. We have left our annotations unchanged since the last time we showed this chart, since we have nothing new to add to this. What is new is only that the ratio actually surged to 36 – which was more than double the level it hit at the peak of the tech mania in February/March 2000. That is quite incredible.


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The Mother of All Blow-Offs

We didn’t really plan on writing about investor sentiment again so soon, but last week a few articles in the financial press caught our eye and after reviewing the data, we thought it would be a good idea to post a brief update. When positioning and sentiment reach levels that were never seen before after the market has gone through a blow-off move for more than a year, it may well be that it means something for once.


Sloshed as we are…   a group of professional investors prepares for a day of hard work on Wall Street. The tedium of a market that goes up a little bit every day, day in day out, is taking its toll.


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Cycles and Sentiment

Another recurring pattern consists of the seasonally strong period in gold around the turn of the year, which is bisected by a mid to late December interim low in the gold price. An additional boost can be expected in January and Feburary from the strong seasonal uptrend in silver and platinum group metals as well (to see the seasonal PGM charts, scroll down to our addendum to this recent article by Dimitri Speck).


10 tola cast bar made in Switzerland for Asian markets.


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Repeating Patterns and Positioning

A noteworthy confluence of patterns in gold and gold stocks is in evidence this year. At the close of trading on December 26, the HUI Index has given a (tentative) buy signal by completing a unique chart pattern, which is why we decided to briefly discuss the situation. As usual, things are not as straightforward and simple as they would ideally be, but there is always an element of uncertainty – one has to accept that as a given. Let us look at a chart illustrating one of said patterns:


This chart shows the gold price, the weekly net hedger position in gold futures (the inverse of the net speculative position), with the Fed’s December rate hikes in 2015, 2016 and 2017 highlighted by red vertical lines. Keep in mind that the December 2015 hike was the start of the current rate hike campaign. In the weeks leading up to it, the gold market was in the grip of a bearish hysteria, just as it approached a major lateral support level. Nearly every day Bloomberg, Reuters and other mainstream financial media published articles by “experts” no-one had ever heard of before (or since!), along with reports from analysts working for various well-known investment banks, all of whom stridently insisted that the beginning rate hike cycle was going to be the most bearish thing that could possibly befall the gold market, and that a further collapse in prices was nearly certain to coincide with it. Not surprisingly, the exact opposite has happened. You were definitely not surprised if you were reading this blog at the time – see for instance “Gold and the Federal Funds Rate”. As we pointed out therein: “[The] guessers at SocGen might actually have improved their statistical odds a bit if they had said “now that the Fed is hiking rates, gold prices should rise”. As noted in the chart annotation, in all three years gold prices declined into a December low, seemingly driven by fear of the coming rate hike and then proceeded to rally in a typical “buy the news” scenario. The declines tended to lower net speculative long positions to levels conducive to a renewed advance. So far the gold price lows coinciding with these rate hikes are increasing by approximately $100 per year. We expect this uptrend to accelerate noticeably once the rate hike campaign is unceremoniously thrown overboard. ETA: sometime next year, the precise timing depends on when the asset bubble peaks and reverses – the clock is ticking on that – click to enlarge.


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A Difficult, but Also Exciting Year…

Dear Readers,

Another year is coming to a close, and the team at Acting Man wishes you and your loved ones a Merry Christmas / Happy Holidays and all the best for the new year.

You have probably noticed that your main scribe was a lot less prolific this year than he normally tends to be; unfortunately, we were held back by health-related issues. We remain among the quick though and will try to increase our posting frequency again. After all, it is not as though nothing interesting were happening.


We felt a bit like Santa feels in this picture this year, but we are recovering. Santa recovered too, just look at the stock market at the end of the year for evidence.


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Contradictory Signals


Special antennae that help traders catch upcoming opportunities. Available from the same outfit that sells the soup-cooling spoon (Acme Inc).


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Another Shoeshine Boy Moment

We recently pondered the markets while trying out our brand-new electric soup-cooling spoon (see below). We are pondering the markets quite often lately, because we believe tail risk has grown by leaps and bounds and we may be quite close to an important juncture, i.e.,  the kind of pivot that can generate both a lot of excitement and a lot of regret all around. Provided one manages to grasp the nettle with the proper combination of preparation and luck, the emphasis may be on excitement rather than regret.


Modern soup-cooling spoon for the sophisticated gourmet. We are not the gentleman in the picture, we don’t even know him, we just wanted to show this nifty spoon in operation. Once you have one, you will wonder how civilized life was even possible before it.

Photo credit: Hans Reinhart / Getty Images


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