Originally posted by eshmun
@binwood
I thought this above post of mine from Nov 2017 might be worth a read for a little post-mortem review, now that bear scenarios seems to be playing out as I expected.
https://hotcopper.com.au/threads/under-performing.3795378/page-39?post_id=28679073#.XB2Z4ho_WhB
When I posted that post Amazon was trading at US$1,135 per share with consensus from 18 analysts at the time being a strong buy. Looks like the analysts made a good call as the stock peaked at a mind dizzying price of over US$2,000 per share. It’s currently at US$1,377 per share with a long way to fall IMO.
At the time of posting that post. Bitcoin was trading at about ~US$7,000 per coin and it went on to make a peak of about US$20,000 per coin. It is now at about US$3,200 and falling IMO.
One of your favourite stocks, Pilbara Minerals, was trading at about $1.00 where now it’s below 60 cents and falling.
These are just three broad reaching examples of market exuberance blow-off highs.
I know you had previously questioned the liquidity of the gold market. Apparently
“on 20 November 2018, LBMA published for the first time weekly average trading volume data through LBMA-i – its new reporting service, which delivers greater transparency and insight into the over-the-counter (OTC) gold and silver markets. The report includes average trading volumes of the OTC Loco-London and Loco-Zurich markets.
Download our analysis
Since its first report, LBMA-i data from 12 November to 14 December 2018 indicates average daily gold trading volumes of 29 million ounces, with a value of US$35.8 billion.
Gold is a highly liquid market, with notional volumes greater than many major assets classes. And we believe that this new data, in conjunction with our revised estimates of global trade volumes, will help investors better understand the dynamics of the gold market.”
The average daily trading value of gold according to this reporting is about US$35 billion per day. I tried to explain the depth of markets principle before, but take for example the LIT X Global Lithium and Battery Tech ETF fund. On a 90 day average, LIT has a trading volume of 47,680 units. At the current price of US$27 that’s a daily value of about $1.3 million or about 35,000 times less than the value of daily gold trading. At the current level of LCE sales world wide of about 300 to 350kt/annum the total annual value of sales of LCE are about US$7 billion annually at a LCE price of US$20,000/t or about one fifth of the daily value of gold traded.
The US equity markets absolutely don’t care about lithium other than a few companies that don’t register against the scale of those markets. The Russell 3000 Index—which covers 98.5% of the country's market capitalization gives a value of about US$30 trillion for the capitalisation of these equity markets, an absolutely staggering number that only exists due to the money printing that has happened in the last decade.
The market capitalisation of the largest component of the the LIT Global X ETF, Albermarl Corp, is about US$8 billion which is insignificant when compared to the value of these grossly inflated markets. For example the biggest company in the world Apple has a market cap of about US$715 billion, it might have reach US$1 trillion at its peak.
The story of lithium doesn’t registered on US investor’s radar and is only important to possibly the Chinese as they seem to profit from it and have the most vested interest in its adoption. The lithium story has been hyped in the Australian market IMO due to some of the larger harder rock discoveries being made here but from an international market perspective it is irrelevant, unlike gold which still has a central place in the global monetary system, being held by many central banks all around the world and providing a liquid store of wealth and insurance against inflation, deflation and any number of other market disrupting events. Gold has no counter party risk and doesn’t need derivative insurance protection like credit default swaps like debt instruments do.
It’s actually amazing how unsophisticated investors are in this day and age with respect to basics like how deep and liquid markets actually are and what counter party risk is. The market for lithium stocks isn’t deep and the market for lithium is even less so when compared to traditional metals. When bear markets come you don’t want to be holding equities in illiquid sectors or companies that rely on the sale of product into illiquid commodity markets IMO. Well done however to the few who sucessfully traded the momentum on the stock market top blow-off sectors. I hope you have navigated them with success and good luck for next year with your RSG holding. Esh
I am not sure when I said gold was illiquid? I know the size of paper contracts are huge, some of the dumps of paper gold we have seen in the last couple of years have been staggering and as per your data a single day on average is bigger than the whole Li market. O&G also dwarfs something like Li by huge multiples.
Anyways I don't think you and I will ever agree on Li. Global significance in terms of market size doesn't necessarily equate to potential to make gains though. Do I wish I wasn't holding PLS over the last week. Yeah sure.
However in saying that how long did it take RSG to drop from 1.40 to 1.05ish earlier in the year? Answer - just over 2 weeks. Wasn't the excuse or a bear market then either. This is nothing against RSG. I like this stock but it shows what can happen despite commodities or ones view of fundamentals.
Another key example would be something like MOD which has halved in the past few months. Cu isn't exactly a minor metal.
I am probably rambling. Not sure what the exact point you were trying to make was or what exactly I am trying to answer
(20min delay)
