Q: You talk about New Gold and that it is trading below book value.
1) Isn’t a more important indicator their cost per ounce of mining gold?
2) Maybe it is trading above book value because they have not written down the cost of mines yet (like others have)?
J: Good questions. As for the way the company values the mines they are using prices very close to market. Regarding mining costs, New Gold’s are pretty good but I’m more concerned with the fact that the company is cash flow positive even with today’s depressed metals prices. Basically the trade is a bet on higher metals prices. Should gold find a bottom, New Gold has lots of leverage to the upside.
Q: What is happening with NGD? It has fallen out of bed. Does it look more attractive to you as it falls? Can you talk a little about gold—-I know you are looking for a puke to buy more but is there a price that it hits going through resistance that you would look to buy?
J: It looks like it’s really trying to form a bottom right here/right now. I’m watching it closely to see if it can manage it.
Q: I would like to hear your thoughts on areas of the stock market that you will pursue after the correction. We will have all this cash and will need to judiciously put back to work eventually!
J: It’s really hard to know where the opportunities will be beforehand. I’m always keeping my eyes open for them but we’ll just have to cross that bridge when we get there.
Q: I hope all is well. Just wanted to check in on a couple things:
1. What do you make of the big drop in stock allocation according to AAII? Does this change your current view at all (even short to mid-term)?
2. I know this might be a bit much to ask, but I figured I’d ask as I think it would help guys like me that like to fully understand a trade before diving in head first. Would it be possible to add a bit more detail on the trade alerts so that we can weigh the evidence a bit more in real time. For example, on ZROZ, the chart provided didn’t do a ton to help and you had mentioned the risk reward in TLT wasn’t all that great in your market comments. What changed for you to jump in to ZROZ? Were you also looking at a rates chart? Any additional relevant info would be appreciated so I can make educated trade decisions.
Keep up the great work and have a good weekend!
J: As for the AAII, it’s not a very good contrarian indicator. If you look back over the last decade or so you’ll see that bulls dropped fairly dramatically BEFORE significant corrections in the stock market. At times like those guys can actually be smart money so I don’t really watch this one as a contrarian indicator much at all.
I honestly struggle with trying to balance the detail I provide in the alerts with getting them out in a timely fashion. If you go back and read the chart book that week (https://thefelderreport.com/2015/06/06/chart-book-a-little-love-for-the-long-bond/) you’ll see I started to make a very compelling case for getting long. So I try to use the weekend comments and chart book to make a detailed case for possible trades I’m looking at and then the alerts for timing the trade ideas. Getting these out to you all at the same time I’m trading makes it hard to add detail at the time.
Q: Jesse, Maybe you can talk about how you read sentiment reports like jason’s versus technical and fundamentals. Sentiment for gold is so bad and has been for so long while for stocks so good for so long. how do you weigh one versus the other?
J: This is a great question but requires a longer answer than I can easily give here. I may try to tackle it as part of this weekend’s report. Basically, it comes down to time frames. Long-term indicators that have suggested there’s too much bullishness have long-term results. Shorter-term indicators swing much more frequently and are better for short-term trading. It’s really about marrying your indicators to your time frame.
Q: What do you think of trading FXP (ProShares UltraShort FTSE China 50) as opposed to this trade [long ASHR puts]?
J: It tracks a different index that’s not quite as bubbly as the one I’m using. Still, if Chinese stocks continue to fall it will likely be profitable. I would use a stop loss, though.