Market Manipulation – It Happens All the Time (Get Used to It)

by FI Fighter on August 17, 2016

in Lithium, Precious Metals

JL

Lately, I’ve been getting a lot of e-mails from concerned investors who are discouraged by the recent price action of basically every lithium stock that they own… As I mentioned in the last post, just a few short months ago, lithium was being touted as the “next big thing”, or “white gold”, or “white petroleum”. Short-term sentiment reached a fever pitch back in May, when everyone and probably even their grandma started piling in on the lithium trade…

And guess what happened right after that?

They pulled the plug on us!

Who is they?

Well, if you think that the retail investors (Joe Six Pack and people like me) are able to dictate market prices, you’ve got another thing coming…

No, the people who move the markets are the sophisticated investors who are ALWAYS the first ones into a story and the first ones out. They will ALWAYS be ten steps ahead of the rest of us…

Just the other day, I received a wonderful e-mail and message from a reader of this blog, Jared, who shared an article that I think is a must read for everyone.

Here it is.

Thanks again Jared, I really appreciate it and I hope readers here will too!

And I am certain that what’s going on right now in the lithium space is entirely inline and coincides with the thoughts discussed in that piece above.

  • Big money gets well situated early on in the game.
  • Big money PUMPS the story up to create MASSIVE hype.
  • Retail investors get GREEDY and chase up (buying HIGH as ALWAYS).
  • Big money cashes out at the top.
  • Big money then proceeds to go silent (if not entirely negative and bearish, wow a total 180!) on the sector, driving prices back down.
  • The stock(s) get stuck trading sideways, if not in a negative downtrend for a few months (or longer).
  • Retail investors get impatient and feel overwhelmed with FEAR so they get shaken out (selling LOW as ALWAYS).
  • Big money silently operates behind the scenes, accumulating your discarded shares.
  • Later, rinse, repeat.

As I always like to reiterate in my articles — Don’t get concerned and fixated on day-to-day price action. Focus on the fundamentals and macro picture. Short-term noise is extremely dangerous b/c it will cause you to do stupid things and make irrational decisions that are driven by fear and nothing else.

We must realize that as investors, we need to be focused on the medium/long game… That’s the only way we can hope to compete and make money, especially when it comes to playing the natural resources game (which is a sector controlled and operated by sharks).

There’s just no way in hell that we stand a chance of winning this game in the short-term…

 

So, like I keep saying over and over, again and again — Don’t sweat the technique!

 

If you are going to be an investor, find the best stories (assets, management teams, partnerships, etc.) and stick to your thesis with conviction! If you don’t have conviction, you shouldn’t even be playing in the first place!

What am I doing?

Over the last few months, in the lithium space, I’ve continued building up my positions… In particular, I’ve accumulated sizable holdings in my two best lithium ideas.

  • Birimian Limited (BGS.AX)
  • Critical Elements (CRE.V)

I really don’t give a shit if the markets don’t agree with my thesis right now… I’m just out looking for the best ideas at the most attractive prices, irregardless of price action. I think both BGS.AX and CRE.V are grossly undervalued, given that their market caps are well under $100 million and the potential Net Present Value (NPV) for their assets could be significantly higher.

For instance, here’s what the economics for Critical Elements’ Rose Lithium-Tantalum Project could look like based off the Preliminary Economic Assessment (PEA) published back in 2011.

From Critical Elements.

PEA Economics

Of course, whenever we are talking about early-stage exploration stories (BGS.AX), or development ones (CRE.V), nothing is ever fully guaranteed, and things can obviously go wrong from now until the project is put into production… But of course, if there were no risks involved, the stocks would already be priced for perfection, don’t you think?

So, yes the above PEA numbers from Critical Elements are very preliminary, but with lithium carbonate currently selling for over $10,000/t in 2016, you can see that a pre-tax NPV (8% discount rate) of C$1.444 billion is pretty appealing, no?

As of market close on August 17, 2016.

Screen Shot 2016-08-18 at 10.41.09 AM

The current market cap of CRE.V is C$65.11 million.

Risk vs. reward.

Do the math…

With Critical Elements, they are working hard on getting their Feasibility Study (FS) out later this year (a positive report is absolutely essential in de-risking the project further and needed for a drastic re-rating of the stock), and they’ve got a take-or-pay offtake agreement in place with Helm AG, a leading (private) chemical producer. And with development stage projects, when you’ve got a reputable, cash strong partner backing you, it absolutely does wonders in creating peace of mind for the retail guy like me… Critical Elements isn’t risk-free, but at this stage of the game, it’s reassuring to know that they’ve got technical experts in their corner who are working closely with them to help insure that the Rose project doesn’t go bust!

In the case of Birimian Limited, the company keeps on delivering impressive drill results, and they’ve now got what is arguably the best currently discovered high-grade undeveloped spodumene deposit on the planet.

All that progress being made has absolutely NOT been reflected in the share price at all over these last few months!

Screen Shot 2016-08-18 at 11.36.17 AM

Oh yes, and before we lose sight of things, Birimian Limited used to be called Birimian Gold… because they also own gold assets that the market has completely forgotten about!

But Randgold hasn’t forgotten about Birimian’s gold, as evident by the comment made on their most recent investor presentation from July

RG Deal

I found the above most useful “nugget of information” from a HotCopper thread. The guys on there really do great work and for the most part, these mining enthusiasts know to focus on the fundamentals, not short-term price action! Thanks guys, your efforts are much appreciated by retail investors like me!!!

But of course, this is the type of detective work that you’ll have to unearth on your own time… Nobody is ever going to fill you in on the best stories when sentiment across the board is extremely bearish.

If anything, don’t be surprised if Big Money is purposely keeping a lid on prices across the entire sector on all these stocks so that they can silently accumulate more shares in the background.

As cited in the Market Manipulation article.

“RULE NUMBER SIX: IF THIS IS A REAL DEAL, THEN YOU ARE LIKELY TO BE THE LAST PERSON TO BE NOTIFIED OR WILL BE DRIVEN OUT AT THE LOWER PRICES.”

Like Jesse Livermore wrote, “If there’s some easy money lying around, no one is going to force it into your pocket.” The same concept can be more clearly understood by watching the tape. When a market manipulator wants you into his stock, you will hear LOUD noises of stock promotion and hype. If you are “in the loop,” you will be bombarded from many directions. Similarly, if he wants you out of the stock, then there will be orchestrated rumors being circulated, rapid-fired at you again from many directions. Just as good news may come to you in waves, so will bad news.

You will see evidence of a VERY sharp drop in the share price with HUGE volume. That is you and your buddies running for the exits. If the deal is really for real, the market manipulator wants to get ALL OF YOUR SHARES or as many as he can… and at the lowest price he can. Whereas before, he wanted you IN his market, so he could dump his shares to you at a higher price, NOW when he sees that this deal IS for real, he wants to pay as little as possible for those same shares… YOUR shares which he wants to you part with, as quickly as possible.

The market manipulator will shake you out by DRIVING the price as low as he can. Just as in the “accumulation” stage, he wants to keep everything as quiet as possible so he can snap up as many of the shares for himself, he will NOW turn down, or even turn off, the volume so he can repeat the accumulation phase.

In the mining business, there seems to always be another “area play” around the corner. Just as Voisey’s Bay drifted into oblivion, during the fourth quarter of 1995 and early into 1996, the same Voisey Bay “wannabees” began striking deals in Indonesia. Some even used new corporate entities. Same crooks, different shingles. The accumulation phase was TOP SECRET. The noise level was deadingly silent. As soon as the insiders accumulated all their shares, they let YOU in on the secret.

There are large market forces at play, ones that the retail investor usually loses sight of…

In regards to clean energy and lithium, the boom has NOT topped out already! As far as I’m concerned, this game hasn’t even officially started yet! Back in March, Tesla Motors got the lithium hype train rolling by unveiling the Model 3 to the public… Well, we are now in the middle of August, and to my knowledge, the Model 3 hasn’t been cancelled, Elon Musk hasn’t quit as CEO, Tesla hasn’t gone bankrupt, and things are still proceeding as planned… And let’s not delude ourselves, although the entire world is fixated on Tesla’s every move, the real growth with clean energy is going to emanate out of Asia.

Yes, the blue sky potential is still there!

From Bloomberg.

Screen Shot 2016-08-18 at 11.54.48 AM

 

Nothing has changed…

 

Except price.

 

The lithium stocks are down 30% or more since May… Do you want to buy low or sell low?

Because you better believe that Big Money is going to be accumulating again at the Depths of Despair

Nobody can know when we bottom from here, but if you’re a buyer, you’ve got to be feeling pretty ecstatic with the buying opportunities that are presenting themselves… For instance, stocks like Pilbara Minerals (PLS.AX) and Altura Mining (AJM.AX) have been absolutely massacred these last few months…

The two Pilgangoora stocks are essentially joined at the hip… Here’s how shares of PLS.AX have been performing recently.

Screen Shot 2016-08-18 at 6.20.03 PM

PLS.AX is down -26.71% over the last 3 months.

On essentially no news…

Right now, short sellers are doing a number on Galaxy Resources (GXY.AX), a top-quality lithium stock that is currently being taken out back to the woodshed…

Screen Shot 2016-08-18 at 6.17.03 PM

GALXF_chart

The OTC-listed shares of GALXF are currently down -28.3% over the last month alone!

 

Hey, this stuff happens!

 

Ignore the noise and focus on the Big Picture… Because once Big Money is done buying, you best believe that we are going to get a countless number of articles, newsletters, interviews, press coverage, etc., and all that jazz to pump these stocks back outta the stratosphere yet again…

Don’t be duped… Don’t invest like sheep… If you want to make big money in the natural resources space, figure out what your investment thesis is and if you’re going to buy, do so when nobody else gives a shit.

Because when these stocks rip higher in Round 2 (does anyone really believe there won’t be a Round 2???), you won’t be surprised the least bit. If anything, you’ll already be well situated in the best names to ride the next wave up…

I’m throwing my neck out there, like I ALWAYS do in real-time… I could definitely be proven wrong, and who knows, maybe the entire lithium sector and all these individual stocks wind up going bust and blowing up in my face… But as you guys know, I just try and do my best to tune out all the bullshit so that I can separate the wheat from the chaff.

When it comes to lithium, quite frankly, I just see tremendous growth over the next decade, so I’m betting big on my best ideas, BGS.AX and CRE.V, particularly at a time when nobody else cares…

 

Please Note — I will NEVER offer any kind of investment advice… I can ONLY share with readers what I am doing with my own money.

 

I currently own 200,000 shares of Birimian Limited and 220,000 shares of Critical Elements.

 

I put my money where my mouth is… and I’m holding strong… You can tell the market manipulators to fuck off.

 

Fight On!

{ 6 comments… read them below or add one }

1 Midwestern LandlordNo Gravatar August 18, 2016 at 7:28 am

I think you are on target with a well thought out investment thesis. There are no guarantees but having a plan gives you as good a chance as any to make money in this market. What do you think of the sky high valuations for companies like FB, AMZN, etc? To me it is just a matter of time before these stock prices take a significant drop. They are nice companies but where is the value? The risk to value ratio seems high.

I have to agree that markets are inherently inefficient. I saw that in the dotcom bubble in 2000 / 2001. The reality is a stock market price at a given point does not necessarily reflect fair value (both to the upside and downside). This creates opportunity but it also hurts a lot of investors. To me the game is twisted and why I have been very hesitant to put my hard earned dollars into the market when I can put them in real estate and virtually guarantee profits. Not 250% plus returns, but 30% plus returns. Said that if I was investing in the market your focus seems to make the most sense. A lot of traditional stock investors probably believe that what you are doing is risky while they are invested in sky high priced tech or dividend stocks. To me, tech stocks are going to dive in value at some point and dividend stocks at the current valuations appear to have at best minimal upside.

Reply

2 FI FighterNo Gravatar August 19, 2016 at 5:44 pm

Midwestern Landlord,

Exactly. Given where the broader stock markets are and where blue chips like FB, AMZN, NFLX, etc. are trading, I want no part in that at all. I’d rather look for better opportunities elsewhere.

When investing, risk vs. reward means everything. If you are going to take risks, the potential upside had better be high enough to justify buying. I look for asymmetrical bets… If I don’t think my odds of massive success are in my favor, I don’t play.

Yup, the markets are extremely inefficient. Look at the opportunity we had in real estate back in 2009-2013 or so timeframe. Many early retirees were produced from those market distortions.

30% returns are terrific, but getting tough to find these days… In 2015, the opportunity of a lifetime was in gold/silver miners.

But like always, when opportunity comes knocking nobody is ever going to inform you. You have to do the research and homework yourself. Nothing ever looks obvious until you have the benefit of hindsight.

In time, I’m sure these dividend stocks, growth stocks, and even real estate will become a better buy… Right now? No thanks.

Cheers!

Reply

3 alexNo Gravatar August 18, 2016 at 6:29 pm

is it possible to trade these stocks on td ameritrade ? if not can you point me in the direction of the best broker to do so ?

Reply

4 FI FighterNo Gravatar August 19, 2016 at 5:49 pm

Alex,

Yes, some of the lithium stocks have OTC listing so you can trade with any brokerage account.

For instance:

Galaxy Resources (GALXF)
Nemaska Lithium (NMKEF)
Critical Elements (CRECF)

For some of the others, like Birimian Limited (EEYMF) there exists OTC listing, but it’s not liquid since nobody is trading it… You can still purchase shares, but you’ll have to call your broker are coordinate with them.

The easiest way to buy these lithium shares is to buy them directly in their native market, TSX, TSX-V, ASX. As a US investor, you can do so by opening up a global trading account.

I use Schwab Global personally, but Interactive Brokers is another one that works.

http://www.schwab.com/public/schwab/investing/accounts_products/accounts/global_trading

The fees/commissions can be kind of high, so ideally, you don’t really trade in and out of these positions too often. Just speaking for myself, I really only want to buy once and sell once… Unless I’m adding to my positions or trying to reduce my cost basis significantly… Day/swing trading this stuff will be really costly.

Take care!

Reply

5 Million EndeavourNo Gravatar August 22, 2016 at 2:57 pm

Definitely! Gotta know how to filter through the short term noise. Often these short term noises are given by the so called “financial experts” and often all they do is react to what has already happened in the market.

I had never looked into lithium before but will definitely look into it after reading this. 🙂

Reply

6 DougNo Gravatar August 25, 2016 at 6:27 pm

Yes market manipulation does happen. Across all industries and sectors.
Great article.
Central banks holding huge amounts of stocks in companies is market manipulation
Some insider trading is also

Reply

Leave a Comment

 

{ 1 trackback }

Previous post:

Next post:

Copyright © 2012 FI Fighter