Newsletter writer Thom Calandra attempts to explain the recent sell off in gold and why he believes hyperinflation isn’t required to move the price higher. He also outlines some of the warnings signs investors should be wary of before putting money into any of these names and mentions some of the stocks he likes at this time.
Thom Calandra: Come on. This is three years and eight months into the sell-off. We’ve heard many people like Frank Holmes say, “Okay. This is the longest down cycle.” Guess what. It continues, no matter what kind of good news we have. How do we explain it? Well, you know, in real dollars, gold really hasn’t made any gains. We’ve heard people talk about the real dollar price of gold and the fact that we need hyperinflation for it to move higher. I’m not so sure that’s true. You know, I think there’s still uncertainty about the global economy. I know gold is still in demand in terms of jewelry. Plus we’re seeing some very interesting things with white gold and other gold alloys, but let’s face it. The resources market has come down from the highs we saw in 2010 and early-2011, and the resource equity have issued way too much paper. They’ve all gotten destroyed.
When it comes to natural resources or any small cap, I think this whole game where you continue to dilute your share base in order to raise money, that’s out. Unless you have a stock that’s going up to the moon, which maybe one percent of all natural resource equities are doing globally. Fewer than one percent of all natural resource equities globally have that trajectory on their equity price. You should see no dilution. Any CEO that tells you or even hints that there’s going to be an equity placement, run. Don’t walk.
So who are the companies that are doing the best? It’s the companies that are not financing through equities. They’re even selling part of their asset or they’re using debt in a creative way that doesn’t suck down equity, you know, as in swaps. They are doing partnerships, once again, asset sales, deep pocket investors from Japan or other off-take countries that might take industrial metals. Anything but equity financing, stay away from any company with a share base that’s above 70 or 80 million shares.
Okay. So right now, we’re about $1,200, $1,200 an ounce down pretty sharply from any level that you can pick in the past 4 years. I think we’re going to go back up to $1,300. That’s against what most people see, and I see the price of gold, let’s say in real dollars, going at least to $1,600 or $1,700 an ounce in the next 2 years. Now, what does that mean in real dollars? Well, it’s kind of a phrase I borrow from John Kaiser, who was here at Joe Martin’s show. Real dollars mean dollars that aren’t affected by inflation or hyperinflation. It means that you’re going to have a healthy gain in gold, and the dollars that that ounce of gold represents are dollars that you can use to buy goods without suffering price inflation, cost inflation or monetary inflation.
When we talk about under performing, of course, you know, the Blue Chips have done great. Thank goodness we have eight Blue Chips, and we’re lucky to have inherited them a year ago. Thank you for that. But everything else that we own is small cap. Ninety-percent of the small cap is in natural resources. I own 52 companies. Names. Some of them I own a lot. There are about 25 reasons why they’re getting destroyed. Low interest rates. Mean that people go toward the big Blue Chips. Issuance of paper, not just for the gold companies and the silver companies, but the biomedical companies, any small cap companies that’s main form is financing. Plus, you have a new generation. That new generation is investing in momentum. They’re investing in names and technologies that they can use. We just had a great panel, and on that panel someone said, “Well, come on. In order to get high return, you need high risk.” The fact is, right now we see a lot of people in the past 10 or 15 years getting super high returns with little or no risk in names like Apple, Tesla, SolarCity, Twitter, LinkedIn, Google, you name it. There’s a lot of competition out there for dollars. Right now, we’re on the lower end of the chart, and it keeps going this way. The young investors, especially, don’t like investing in things that are going down. Very few value investors out there.
Well, when it comes to small cap, we define small cap as anything $1 billion or less. But as we know, very few of your small cap favorites reach that level. In my day, I’ve had a few that have gone to the moon. Illumina, Tencent Holdings in Hong Kong, I no longer hold either of those two. Right now in resources, my favorites are Angkor Gold, which is in Cambodia. I love Calibre, which is CXB. That’s in Nicaragua. It’s on a tear right now. It’s got copper and gold in Nicaragua. Once again, Angkor’s symbol is ANK. Once again, in Canada. By the way, I own serious amounts of these companies. I’m in the money on those two for sure. I own Kaizen Discovery. Very creative exploration company on the Pacific Rim that uses Japanese money because they’re very, very, let’s say, intelligent, well-educated Canadian who got his schooling in Japan. For Kaizen, I believe that’s KZD and doing a good job of finding industrial metals, especially copper.
And then outside of natural resources, I have to mention this. It’s still a market cap of less than $1 billion, and I’ve been with this name forever, and it’sBioCryst Pharmaceuticals not just because of this terrible Ebola virus crisis that we’re seeing going nuts in West Africa and could travel to other places but also because it’s making headway against leukemia. It’s making headway on gout. It’s making headway on angioedema. BioCryst owns the primary treatment for severe influenza.
First of all, the people are paying for exclusives and original reporting. That’s $129 a year. It’s called the Calandra Report. It’s been around for a while. You can see how to subscribe there at thomcalandra.com. By the way, I do try to release stuff for free. I’m very active on Twitter at thomcalandra.com. I also do a lot of sharing stuff at Small Cap Power, for example. I think if you stay at those venues, you’ll see a lot of my presence.
Narrator: Keep up to date with all of your favorite small caps. Subscribe to our free newsletter and get daily investment ideas, breakout stocks, momentum gainers, expert and analyst stock picks and more. SmallCapPower.com. Investing ideas and research.
