| Signs of a stock-market apocalypse… | | | You are receiving this message because you have specifically subscribed to Golden Opportunities, have purchased a product or have registered for a conference with us or with one of our partners. If you'd rather not receive emails from us, please click the link at the bottom of this page to unsubscribe from our database. Remember your personal information will never be rented or sold and you may unsubscribe at any time. | |
| Signs Of A Stock Market Apocalypse | |
Yes, the market can remain irrational far longer than those betting against it can remain solvent — but things are getting really crazy now.
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I had a dream last night, or perhaps a half-awake pondering, that we were about to see a stock market crash.
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That might not seem surprising. After all, lots of gold bugs have been dreaming about that possibility, and actually hoping that it happens.
Not me, though. I’m not in the camp that believes a big correction in equities is necessary for gold to rise, or even helpful for the gold market. In a situation like we find ourselves today, in which all assets are floating higher on an ocean of central-bank liquidity, gold and stocks are no longer inversely related.
And that’s OK by me.
On the other hand, we’ve seen what happens when the stock market takes a nose-dive — there’s a liquidity vacuum that sucks money out of everything, including the metals.
Sure, the Fed and other central banks will just open the flood gates even wider and everything will rally once again, in unison, as long as the con game goes on. But I don’t necessarily want to go through the exercise for zero net gain.
Of course, some analysts I respect a lot, including Jordan Roy-Byrne as explained in our most recent Gold Newsletter Podcast, feel that a stock correction is a necessary prerequisite for gold’s next big move higher.
My feeling is that we’ll see soon enough…because the evidence is building that equity valuations have become detached from reality.
| | Golden Opportunities continues below... | | KE Report - Royalty Roundtable -
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Wednesday April 28th @ 11 am PDT (2 pm EDT)
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- Vincent Metcalf, CEO of Nomad Royalty (TSX:NSR - OTCQX:NSRXF)
- Dan O'Flaherty, CEO of Maverix Metals (TSX:MMX - NYSE:MMX)
- Fredrick Bell, President and CEO of Elemental Royalties (TSX.V:ELE - OTCQX:ELEMF)
- Alex Tsukernick, President and CEO of Nova Royalty Corp. (TSX.V:NOVR)
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Attendee questions can be submitted in advance to:
Fleck@kereport.com | | |
Of course, there are plenty of things you can point to, even outside of typical valuation metrics, to show how crazy the markets have gotten.
From Non-Fungible Tokens (NFTs) to cryptos to (until recently) Tesla’s valuation in relation to legacy automakers, there’s a wealth of bearish anecdotal ammunition.
The one that really caught my eye recently was recently detailed in the quarterly letter from David Einhorn’s Greenlight Capital:
| “Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due to COVID from March to September. HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing.
“Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious. From a traditional perspective, the market is fractured and possibly in the process of breaking completely.” |
This is crazy, right?
Well, it gets crazier. After Einhorn pointed out this obvious scam, the share price didn’t take a well-deserved nose-dive. Trading volume soared as “investors” rushed into the stock. The only reason the share price didn’t rise (it basically remained flat) is because the insiders in the scam were obviously dumping their stock.
And still, there’s more….
Bloomberg columnist Matt Levine recently dug into the Hometown phenomenon (Levine’s commentaries are fantastic, by the way, and are a highly recommended free subscription).
As Levine noted, Hometown took advantage of its newfound popularity by granting every shareholder warrants, priced at a fraction of the current share price, for as much as 20 times as many shares as they currently held!
Considering the insiders held the vast majority of the company’s stock, you can understand the motivation.
But here’s the kicker, as explained by Levine:
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| | The simple valuation math is that Hometown is worth $13.01 (yesterday’s closing price) times 7.8 million (the number of shares outstanding), or about $101 million. But ordinarily companies are valued based on their fully diluted equity value, taking into account stock options and warrants. Here, there are 7.8 million shares, but also an absurd 155.9 million warrants. That represents a fully diluted equity value of almost $1.9 billion. |
So a defunct deli, which only did $13,976 in business when it was in operation, is valued by today’s stock market at $1.9 billion on a fully diluted basis.
Gotcha.
The easy comparison for the current stock-market euphoria is the tech boom of the late ’90s, and we know how that ended. But the tough question remains, when does the music stop?
And then there’s the added question of what happens to gold when it does?
I think history tells us two things:
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1) Gold and silver are going to get hit along with every other asset class, and…
2) The metals are going to do great in the immediate aftermath.
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I don’t pretend to know the precise path that lies ahead. But I do know we’ll want to own gold and silver before, during and after the next stock market crash.
| | All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference
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