Precious metals go crazy over Fed rumors, Trump speech

Our selling program seems to have gotten ahead of itself, as politics and interest rate rumors juice stocks like a heavy hit of steroids.

President Donald Trump greets Speaker of the House Paul Ryan prior to his initial address to Congress, February 28, 2017. (Screen grab of live YouTube image)

WASHINGTON, March 1, 2017 – As we note in our companion column Wednesday, the double-whammy of a Pulitzer Prize-winning address to Congress by President Donald Trump, combined with the odds of a Federal Reserve interest rate hike in March leaping from 18 to 80 percent overnight have exploded like festive fireworks over Wall Street, where traders have resumed the Trump Rally. Big time.

Read also: Trump speech sets stock markets on fire in Wednesday trading action

The over all message to traders and investors today: Dump bonds and high-yielding investments and go for speculation and growth. Secondary message: Dump precious metals, too, for a likely interest rate increase means potentially less inflation which means that gold and silver in particular will have to leave their happy place. (Maybe.)

Nothing is forever, of course, when it comes to Mr. Market. But that sideways-to-down correction we’ve been anticipating may be a bit further off than we thought. Time to rethink that game plan, at least a little.

Trading Diary

Readers of this column are aware that we’ve been paring back anemic but still profitable positions mainly in indexed ETFs. Looks like what we should have peeled off is our modest position in Canadian precious metals miner Silver Wheaton (symbol: SLW).

Precious metals, while still strong, are getting a little wobbly in anticipation of a sooner-rather-than-later Fed interest rate increase. But this perception seems to have affected miners much more than the metals themselves thus far. A heavily-leveraged producer, Silver Wheaton looked good to us, chart-wise, when we bought it early in February, but it’s looking pretty sick right now, as we find our position down over 12 percent as of noon Wednesday.

Our usual rule up until January 1 of this year was to exit a stock if the position sustained a loss greater than 5-6 percent. With the market ramping up, however, we moved that stop-loss trigger back to 8 percent where we’d traditionally held it prior to the onset of the Great Recession. Given our apparent return to economic normalcy (thank you, President Harding), we decided this year to return to that traditional 8 percent stop-loss point—something we clearly violated with Silver Wheaton.

The rationale for the move is this: Silver and gold are as volatile as heck, and you don’t want yourself automatically blown out of a precious metals position only to find the stock or ETF reclaiming that big down-move a day or two later.

We’ll see where SLW goes here in the near-term to avoid getting the old precious metals whipsaw screwing. But, on the other hand, we won’t sustain this kind of negativity forever, because taking a bigger and bigger loss can really damage your annual rate of return.

Given Wednesday’s apparent shift in sentiment, however, we may look to get back into a couple of different issues, but not today. We need for things to back off a bit to better prices before we toss in a bid. No point in paying full price for Wall Street merchandise if you know it will be marked back down shortly. We never chase a stock, even if we really want it. In tech, this practice has sometimes hurt us. But in general, it’s a pretty good stance to take.

More specifics incoming, as soon as this current Trump Rally bout of irrational exuberance cools off a bit.

Bulletin: Even though we detest the fact that shares in the upcoming IPO of Snap (proposed symbol: SNAP), the parent of Snapchat, are all nonvoting—asinine and un-American in our opinion—we’ve put in for some shares anyway. The IPO will be priced tonight and start trading on the NYSE tomorrow. But traders, at least publicly, are scoffing at that non-voting thing, which could influence whether this issue become a hot one or not.

Since we’re not big, rich investors who routinely get shares of issues like this as “presents” from brokerages grateful for their business, we’ve by no means certain that we’ll actually get any of these shares. Furthermore, if we don’t like the final pricing (currently estimated in a range from $14-16 per share), we might back out our request.

If little guys like this guy can, in fact, get all the shares of an IPO they want, that generally means the issue is going to bomb. On the other hand, if the stock issue prices up considerably over its initial expected range, that can be a positive sign of demand vs. scarcity of shares. Meaning that you’d best get ‘em if you can because they’ll likely go higher.

We don’t particularly like SNAP’s business model. But then, we’re getting on in years and maybe something with zero value on the books will have great potential value in the years ahead. Statistically, this is a dumb bet. But than again, an comes along and blows investing wisdom to smithereens.

See you tomorrow.

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