Stocks Mentioned: Alphamin (AFM.V), Endeavour Mining (EDV.TO), Gold Fields (GFI), Sibanye-Stillwater (SBSW), B&G Foods (BGS), Seatrium Ltd (S51.SI), Nvidia (NVDA), Sprott Physical Uranium Trust (U-UN.TO, SRUUF), Kazatomprom (KAP.L), Cameco (CCJ, CCO.TO), TETRA Technologies (TTI), BlackRock Bitcoin ETF (IBIT), Amazon (AMZN)
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Highlights
January 04 2024
I dislike niche metals because the market doesn't value them except during brief spikes, but this is a good intro to the tin market. I have Alphamin (AFM.V) on my watchlist but the stock is in consolidation mode.
Buy Endeavour Mining (EDV.TO)
Endeavour is a gold miner with strong support from the La Mancha group, an investment vehicle of an Egyptian billionaire family. The company did a great job today by ousting its CEO for cause - something Boards are very loath to do. The stock is down 7% on the news. I expect the company to rectify this situation, and this scare to be a buying opportunity rather than a sign of more troubles to come. I base my expectation on my long years of following this company during my 5 years as a gold mining analyst at The Dollar Vigilante. Endeavour was one of our portfolio companies for most of my tenure, and while I have had misgivings about their financials and valuation, I have seen no serious corporate governance issues. I could be wrong, so I will conduct my due diligence this week.
I rate it as a Buy, but you know the risks. If this is the tip of the iceberg, there's more pain to come. If this is one off, we get a great entry on a stock I've been eyeing.
January 05 2024
I've converted my Telegram page into a closed group. DM me if you'd like to invite people in.
I'm working on a soft launch of my subscription based newsletter this quarter. I will be sharing small cap ideas exclusively with paid subscribers, and over time move most of my content to subscriber-only. This decision has been in the works for the past month, ever since a friend (and former subscriber) took me aside and told me bluntly that I should be writing my own letter by now. When I was with The Dollar Vigilante, we scaled up heavily, especially since 2018 when I revamped the site, peaking out at 8k subscribers for the flagship newsletter and 5k subscribers for the crypto newsletter by the time I left. It was a great journey, but I ended up spending a lot of time on marketing and operations, which took time away from doing what I love - researching and writing up trade ideas.
With my current newsletter, my focus will be 100% on researching and writing up trade ideas. It's a labor of love, just that it adds another stream of cash flows to supplement my trading profits. As thanks for sticking with me and encouraging me to continue writing, current subscribers will get a discounted rate. More details to follow.
The first week of the new year is off to a fantastic start. Here's to a great 2024!
Endeavour Mining (EDV.LN) is down 13% in London as I write this. The company is now officially in play.
Pair the long position in EDV with a short position in Gold Fields (GFI, GFI.JO).
Last year, Gold Fields made an unsuccessful bid for Yamana Gold, valuing the company at $6.7 billion. Yamana produced 885,000 gold ounces at an all-in sustaining cost of $1030/oz in 2021.
In 2023, Endeavour Mining is expected to have produced 1.06-1.135 million gold ounces at an AISC of $895-$950/oz. The stock has a market cap of $4.56 billion and an enterprise value of ~$5.1 billion. Gold Fields is in a position to pounce, taking advantage of this sell-off to add a crown jewel to its African asset portfolio. At a much cheaper valuation than it would have paid for Yamana, with the gold price at ~$2040/oz today vs ~$1850/oz when the Yamana deal was announced.
This should be a no brainer for GFI, and likely several other gold majors too. We may see a bidding war between GFI and Barrick Gold, which I vote as the top 2 candidates in that order. So maybe you'd prefer to short Barrick instead. My gut tells me to go with GFI.
I'm now long EDV on both the TSX and LSE, and adding aggressively today while it is a screaming bargain. I'll short GFI once US opens, and/or Barrick Gold.
The recommended pair trade is equal weight long EDV/short GFI.
January 10 2024
Africa Oil (AOI.TO, AOIFF) Venus update
Impact's stake in the discovery is being diluted from 18.9% to 9.5%, for an upfront payout of US$99M, plus a carry loan through to production. Africa Oil will not have to inject capital into Impact, freeing up the balance sheet for buybacks. The stock has been weak since my entry. I suspect that's about to change now as the buybacks begin in earnest.
Per this deal, the implied valuation on Venus is $1.05B. If this discovery proves up, AOI's 31% stake in Impact could end up being worth 25-30% of its market cap.
Not bad for a value stock.
January 11 2024
Nvidia (NVDA)
The Nvidia (NVDA) CoreWeave story keeps bringing to mind WireCard's India acquisition. WireCard bought an obscure ticketing company based in my hometown, one that almost no one has heard of, for a ridiculous headline price tag of EUR 300 million. Why? No one knows. The conjecture is they wanted a conduit for money laundering and this obscure company served that purpose, since they had a money transmitter license.
Nvidia invested in an obscure company named CoreWeave, run by guys who don't appear to know anything about IT. CW reciprocated by taking on debt to buy Nvidia's chips, Nvidia conveniently left out related party disclosures and booked a revenue beat. Both Nvidia and CW insiders cashed out on the hype.
CW has gone on radio silence ever since insiders dumped their equity on unsuspecting Fidelity and JPM wealth clients. For a supposed $7 billion company, they don't even have a real social media presence.
When this unravels (when, not if) this is going to become a major scandal for Nvidia. The story practically writes itself.
January 13 2024
Where does oil open next week?
January 16 2024
Sibanye-Stillwater (SBSW)
Sibanye-Stillwater (SBSW) is down 5% pre-market and is currently trading at $4.84 after trading up all the way to $5.82 since our entry. Palladium futures have given back most of their gains since the initial pop. Set a sell stop at $4.73. While not ideal, I don't want to give this trade any more room - I'd rather lock in the gains and move on.
Palladium futures
January 17 2024
Uranium
You run a few factories that produce and sell widgets. Your production cost is $40 while the market (few buyers, multiple sellers) is willing to pay only $16.
Luckily, you have forward sold a few years of production at $38-$40 and can manage the downturn. Your competitors go bust, shrinking the pool of future sellers when the market rebounds.
A couple of other factory owners seek a political solution to low prices: ban those pesky foreigners from selling to your customers. But your customers have a lot more clout than you, and the political measures fail.
Your entire industry is now in deep funk. Along comes a financial player with deep pockets intent on shaking things up. He buys up a public listed company, then proceeds to print shares like the Fed prints money. Stock market participants are eager to purchase the shares; the company uses the cash to buy up all the widgets it can find in the market.
The widget price goes up to $40.
Instead of getting back to business, your competitors decide to stop producing widgets and instead start imitating the financial player. After all, if he can move the price up, so can they.
Widget prices go up even further as these producers have cut supply and raised demand.
Seeing everyone making easy money just sitting on their ass and speculating on widget prices, you decide to get in on the game. You announce you're shutting down a factory and your share price goes up.
This is too good, so you shut down another. And watch as your share price goes up some more.
Since you have to fulfill those pesky long-term contracts, you keep one factory open but shutter all the others.
An upstart firm raises money from shareholders to build a widget factory, then uses the money to buy widgets instead. They tell their shareholders this is easy money - they'll use the profits to build the factory eventually. Maybe.
Meanwhile, the financial players are busy outbidding each other and sending the widget price into the stratosphere.
The price is now $100.
The biggest manufacturer of these widgets has had enough. He decides to stop producing widgets and start buying them in the market.
The entire industry has now gone from producing widgets to trading them like baseball cards. Everyone is happy as long as the widget price prints higher with each trade.
What about the consumers of these widgets?
They continue business as usual, paying the market price to purchase only as much as they need. They try engaging the producers-turned-traders and ask for long-term supply at reasonable prices, but the traders are too giddy playing 'pass the parcel' to care about transacting business.
Besides, why bother with long-term arrangements at fixed prices when you're 100% sure widget prices only go up. Not to mention all the hassles that come with employing people and running the factory. This trading game is so easy, just buy high, sell higher, keep booking profits and have your share price go up as the widget price goes up.
They have a lot of fancy charts to convince themselves as to why widget prices will go up forever. There's a widget deficit since the producers have stopped producing and started gambling. That's got to be good for business, d-uh!
Greed is good, as their hero Gordon Gekko says.
The technical traders are now buying at insane prices on the logic that since prices are insane, they can only get more insane. The technical term for this is "breakaway gap".
This is the sad state of the uranium mining industry. In my analogy, the financial player that destroyed the industry's work ethic is the Sprott Physical Uranium Trust (U-UN.TO, SRUUF). The biggest manufacturer is Kazatomprom (KAP.L), which recently decided to curtail production and get in on this game of buying spot uranium. "You" refers to Cameco (CCJ, CCO.TO)
TETRA Technologies (TTI)
TETRA Technologies TTI (Market cap: $526.8 million) has raised $265 million in debt to fund the construction of a bromine processing plant in Arkansas.
Its partner in the project is Exxon Mobile (XOM). I have a starter position and am watching this keenly for a bigger trade.
January 18 2024
Sell B&G Foods (BGS)
We caught the pop in the share price but it is now drifting sideways. The stock hasn't rallied as much as I expected, especially given how other small caps have performed. Time to take profits.
Still waiting for Sibanye-Stillwater (SBSW) to hit my sell stop (note the limit order). There's no reason to panic. Just wait for the up day.
Value Investing will come back in style
Value investors take heart. While it may seem like the algos rule markets, I suspect we are very close to The Great Unwinding.
Leading up to the GFC, the Quant funds dominated the markets. They all had a similar model, similar positioning, yet kept attracting AUM and growing like nobody's business.
Then came August 2007, when one of them decided to liquidate. The selling pressure quickly led to double digit losses at the big quant firms (Medallion, AQR, DE Shaw, etc). 2008 was worse, with the average Quant fund losing 37.3%.
All of a sudden, the quants were dead and active stock pickers were back.
The market may seem nuts right now, but that can change in a heartbeat. It has happened before, it can happen again.
The key question is: when?
I have two balls but neither are crystal. But to venture a guess, I think the value factor will make a comeback (which implies momentum fades) sometime in Q1 2024.
It has been a long winter for value investors who wasted their time reading SEC filings instead of just buying the Mag 7, call options on the Mag 7, and spending the rest of the year at the beach.
But I suspect active stock picking is soon going to make a comeback, in a big way.
January 19 2024
BlackRock Bitcoin ETF (IBIT)
The BlackRock Bitcoin ETF (IBIT) has a gating provision. Anyone remember last year's fiasco where Blackstone employed its gating provision to prevent a run on its REIT?
Picture a 20% intra-day drop in bitcoin on a Friday, which would be considered normal volatility by OG bitcoiners. IBIT halts cash creation and redemption. Investors panic and dump shares, taking it below its rapidly dropping NAV. On an ETF like SPY, futures traders would be all over the arb. On a gated, new ETF? Not so much.
The price recovers over the weekend. APs who bought shares below NAV get to redeem at par (which also went up with the btc price), a form of seignorage paid for by long-term holders.
The same works in reverse on a price pump.
It works even better when big traders buy/sell the close, move prices over the weekend on thin volume, then cash out at the expense of other ETF holders. No gating necessary.
Cash creation/redemption plus gating provisions = perpetual money machine for Wall Street. The more assets these ETFs gather, and the higher the trading volume, the greater the potential for abuse.
The bitcoin maxis who are cheering this are smoking crack. BlackRock is not pumping your bags. The ETFs are a trojan horse.
January 23 2024
Sell Seatrium Ltd (S51.SI)
The company announced a S$400 million loan and the stock tanked right back below the 50 DMA. Shipbuilders aren't reflecting the strength in the shipping sector. Sell and move on.
Gasoline
Gasoline looks to be headed higher. The cold snap in the US has taken 15% of US Gulf refining capacity offline (1.5 mbpd). The shipping delays couldn't come at a worse time.
January 24 2024
Endeavour Mining (EDV.TO, EDV.L, EDVMF) spiked higher today. Other miners in the FTSE are looking great as well. Time to peel off the GFI short and let this one ride. Takeover offer or not, I think we're past the lows in EDV.
SBSW moved up to $4.88 pre-market. Looks like we'll get an even better exit than expected.
January 25 2024
AI bubble
FTC finally waking up to the fact that the AI bubble cos are buying revenue through equity investments. Amazon (AMZN) was round tripping revenues by investing in Anthropic and having Anthropic spend the money on AWS. Nvidia(NVDA) is doing the same with CoreWeave; matter of time before the FTC catches up. It's all fun and games until the lawsuits fly.
January 26 2024
3 years ago, the Fed said inflation was transitory. I wrote an article for my former employer arguing that it was anything but
In August 2022, I wrote about how deflation had taken hold
In December last year, I wrote a macro outlook that called for a second wave of inflation. With core PCE now back at 2021 levels, I think this is the last "low" inflation print we'll see for a long time to come.
It took a Fed funds rate of 5.4% to move inflation from 3% to 3%. Six rate cuts and QE is going to move it all the way up to 10%.
January 29 2024
"You want to be reducing rates well before inflation gets to 2% so you do not overshoot". - Chair Powell in December, explaining how the Fed is firmly focused on the arsonist part of its dual mandate as arsonist-firefighter.
Keep this in mind going into this week's FOMC. The elitists think inflation is your fault, not the Fed's.
January 30 2024
Good Trading!
Kashyap