The Death Of The Equity Cult

So last week, Adrian Ash presented an article which probably took a lot of people by surprise, since it was examining how equities may actually return to their former role some 50 years ago of providing a dividend yield, or going the way of the dodo.

I am assuming that the action in GBN.V stock today means that the sell side brokers are very confident that they can continue to sell large volumes shares into the market that they have not formerly bought, since we are in the 10th year of decline in inflation adjusted returns in stocks.

http://www.zerohedge.com/article/why-end-equity-cult-means-trillions-upcoming-outflows-stocks

While Nouriel Roubini looks on gold as being less liquid than dollars, franc or yen and that it is subject to declines should deflation occur, then perhaps he means that gold mining stocks themselves are not in a bull market and that they are subject to declines even though there happens to be a bull market in bullion.

For my part, I think its time to turn cautiously bullish the stock at this point, because the price level in bullion is fast approaching where the psychological limit to critical mass may be achieved. Not only that, but should the price level in gold hold at these levels and not pull back until they have truly once and for all adjusted for inflation, then GBN.V will be looking easily at 200% IRR on their project.

Note that 'Canaccord' weighed on the stock price throughout the day on Friday. Perhaps this is a cheap way to accumulate shares in the end? The sell-side brokers in GBN.V stock are the largest players here day to day and seem to be the only game in town. But at the same time, there is a definite struggle going on between bulls and bears in this space.

Sell side brokers must be ultimately very confident that money market rates will rise in Canada, though the discount rate is set to decline in the U.S and has been doing so.

What matters in this context is that longer term bond yields in Canada, have all declined precipitously in the meantime. The exception has been short term rates. And rises in short term rates mean downward pressure on penny stocks like GBN.V.

A decline in short term rates in the U.S. has basically placed a 'put' under GBN.V stock. Should rates in Canada decline, this will also have the same effect.

Three-Month Treasury Bill Rate

A decline in the 3-month treasury bill rate will require sell-side brokers to settle their accounts in Canada. The consensus is that rates will remain the same at this point, but for the most part, higher interest rates are not in the cards. This latest wrinkle comes about due to the decline in of the loonie vs. the dollar. Perhaps it will follow the course of the Swiss Franc vs. the Euro.

source: http://www.bankofcanada.ca/en/rates/tbill.html

Snatching Defeat From The Jaws Of Victory

The daily chart for GBN.V shows how very near the stock is from breaking out of its downtrend brought about by the gold price sell off mid summer. And its only a very small consideration before testing the long-term neckline.

The downtrend failed to reach its 5-wave down, and reverted to its uptrend.

supersize: http://www.flickr.com/photos/11747277@N07/4954810619/sizes/l/in/photostream/

stockcharts.com

Large Miners Speculative Buyers Of Overvalued Stocks Using Shareholder Money

Large miners were all buyers of overvalued stocks in the last week of August. Even smaller stocks traded at ~60p/e. Very likely any overvalued stock will see their equity decline should a brutal bear market ensue. Its basic market rule of thumb that speculative overvalued buyouts happen at the top of markets.

http://af.reuters.com/article/metalsNews/idAFSGE6820GI20100903

http://www.thestarphoenix.com/

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Weekly Analogous Chart

In the weekly gold analogous chart, we saw the last rally occur 8 weeks into the retest of the 34-week EMA, so still a couple of weeks to go with the upside struggle in bullion prices, but the target is well above the historical high. GBN.V would benefit mightily and should consider a monthly dividend yield (say, 0.5¢/share per month) based on earnings. This would re-imburse the shareholders for long term holding of the stock. The gold price will ultimately reach its 40-year inflation adjusted average, according to shadowstats.com of ~$1673/oz U.S. If QE 2 is to occur, then the 40-year inflation adjusted average of the gold price will be much more:

supersize: http://www.flickr.com/photos/11747277@N07/4955448372/sizes/l/in/photostream/

stockcharts.com

-F6