Why Gold Stocks Fell! A Money Maker Better Than Worthless Subprime Mortgages
Yesterday, we introduced Part I of this explanation of what really happened to the junior resource commodity markets over the last two months, which saw a precipitous fall in listed stock values. We gave some history of the stock markets and how current rules came into being. We described how rules and regulations designed by bureaucrats to protect investors were mostly irrelevant to today’s stock market trading environment, and how the “pros” wanted a payday, so they decided that the price of gold was going to fall.
The beginning of this very profitable payday for traders was April 12, 2013 when massive amounts of gold were offered for sale on the commodity market. More gold was offered for sale than buyers wanted. More gold was offered for sale than the market could absorb. So naturally gold fell in price – the gold price fell quickly and dramatically, and Wall Street really ‘cleaned up’ by shorting this commodities market.
The Opportunity Was Created, and the Pros Jumped on the Bandwagon
Wall Street stock market traders know a good thing when they see it. Just like everyone jumped on the bandwagon in 2005 -7 to sell worthless mortgage backed securities to the unsuspecting, in 2013 stock market traders and manipulators jumped on this bandwagon to short the commodities sector starting with the junior gold explorers and producers. It didn’t take much to see the opportunity, and Wall Street’s License to Harvest Money from the Average Investor, jumped into high gear.
Why Spoil a Party – Wall Street Sowed the Seeds, Now the Crop was Ready to Harvest
The start was the warning that gold would be weak from a major Wall St firm, then the massive dump of the commodity gold on April 12, 2013, which created weakness for all companies connected to the precious metal, following by weakness in the entire commodities sector. Now the market gurus seized the opportunity, and shorted every gold stock, then they shorted every silver stock, then they shorted every commodity stock; they shorted every company that didn’t have enough resources to fight back,, and eventually no company could resist the onslaught. The rest of April 2013 and May 2013 saw massive sell orders flooding the market since that day to now – for a month and a half now. The market traders knew that all they had to do was to short every commodity stock. The TREND was established. The TREND WAS DOWN. Commodity stocks were hit hard and as investors saw their stocks fall, they flooded to the exits. Since the sellers far outweighed the buyers, commodity stocks fell harder and harder.
The more the gold stocks, the silver stocks and the commodity stocks fell, the more investors fled the market, and the more money fled the commodities sector and this sector of the stock market. Investors increasingly sought redemptions from the Mutual Funds and ETF’s, the Gold Bullion Funds, and the Commodity Index Funds who then had to sell more and more of their holdings in the commodity stocks to raise cash to meet the demand from investors to take their money out of the stock market.
It created a vicious downward spiral that was self sustaining, and the pros loved it. It was like finding gold in the streets.
The Law of Supply and Demand was Heavily Weighted to a Lack of Demand
There was no demand for commodity stocks – only a continuous search for anyone willing to buy these mining stocks so that money could be raised by the investment community to pay investors back – to fund the redemptions. A vicious circle, that got worse every day. As sellers outnumbered buyers, the short sellers reaped more and more money from the suckers – the country hicks. What a wonderful event for Wall Street.
The New Reality – Good News is a Liquidation Event – Stocks Fall Rather Than Rise When Good News is Released
Companies fought back. Great press releases were made by companies trumpeting wonderful news. Press releases with good news should make stocks rise. Announcing an increased commodity deposit should make that stock zoom up. Yet every positive press release was now a LIQUIDATION EVENT. People and Funds trying to get their money out of the market, immediately sold into the positive news. The short sellers pounced on every positive press release, shorting that company. Why? Because that stock that had a positive press release was attracting attention, and there were more suckers there trying to buy that stock and willing to put their money out to do so. It was a field day for the traders who were shorting the commodities market.
Rather than rising, the stock of a company with a positive press release found their stock trading lower as the day progressed, and the next day, yet lower still.
But CEO’s have been trying since time began, to boost their stocks, and the way to boost their stocks was to issue a positive press release. So they redoubled their efforts, much to the delight of the short sellers on Wall Street. More liquidation events meant more money to be made.
It was like finding gold lying in the streets. Fleecing the suckers was so easy. It didn’t matter that the sector was beaten down to valueless levels, or that people’s losses were extreme. The more the suckers lost, the more the stock market traders made, the happier Wall Street was. And the more the regulators thought this was normal market activity and turned the other cheek.
Better Than Selling Valueless Mortgage Securities to the Hicks
Nothing was so sweet to Wall Street since the days they made fortunes selling worthless Subprime mortgages in 2002-2006. When the freezing of Money Market accounts occurred in 2007, that scam was finished. Now here was a new and wonderful opportunity for traders to make money. Harvesting money from the naive and those foolish enough to believe that they should invest in commodity stocks that had value. A basic rule of investing was violated by these purchasers of commodity stocks – the timing of purchases.
As usual, the SEC and the regulators stood by with blinders on. After all, the stock markets were the stock markets. They were busy writing rules to cost the public companies more money, to enrich the lawyers and accountants more, and to ignore the reality of the poor investors being taken to the cleaners.
This charade continued until commodity stocks were so low, and investors so discouraged, that commodity stocks had fallen to pennies. Companies could not raise money and a feeling of gloom and doom pervaded the market, and that feeling is universal among investors, producers, explorers, bankers, brokers and everyone else involved in the commodities sector.
What Should Investors Do?
The solution is as simple as taking a vacation. So longer as the short sellers and the massive capital of Wall Street is watching, this process will continue. When a stock raises its head, the shorters will pounce.
But as this easy source of profit slowly dries up, Wall Street will look for greener fields, and as they lose interest in this sector because the easy money has already been made, the commodity sector will slowly recover. It will be like the world economy after Wall Street destroyed the value of everyone’s homes, and destroyed many of America’s jobs through the Sub-Prime valueless mortgage scam. It has taken years and the world economy is only now slowly pulling itself out of the mire.
It will be similar in the resource sector. It will take years to recover. The destructive power of Wall Street is indeed something to behold. Why this outrage repeats itself over and over is beyond me, but I guess everyone follows the money, and money is needed to be re-elected.
Where We Are Now
Selling a stock when it has hit rock bottom is generally not a wise thing to do. Some of these resource companies will never recover as money is too hard to raise now, but the good ones will recover – slowly but surely. Patience is the key. If a stock meets all the good criteria except that its price is depressed, be patient.
A good stock, with lots of upward potential is hard to find. If you already own one of these, do nothing but wait.
Bargains Abound
The stock market is predictable in a way. When a trend starts, it always goes too far and stocks rise or fall depending on that particular trend. When the trend exhausts itself, the recovery is usually also exaggerated, so the recovery of the resource sector is sure to happen, just when is the unknown.
There are amazing bargains available right now, that people are fearful of buying. When fear rules a sector, bargains abound.
Sign up for CymorFund’s Stock Pick investor newsletter at www.cymorfund.com. Articles on specific stocks as well as commentary and explanation of the stock markets and stock trends.
We may or may not have positions in securities we name. In making an investment decision consider numerous factors such as portfolio balancing, timing, cash and capital reserves, asset allocation and other. Do your own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.
Views expressed are opinions and not investment advice. You should retain a licensed professional to guide you and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.
