Gold prices have risen and remain above previous nominal all-time-highs. Silver prices remain near seven-year highs. Related stocks are up, naturally, with many of the best hitting all-time-highs as well. This makes many investors and speculators reluctant to buy.
Understandably so; I too find myself reluctant to buy shares that look expensive.
It’s a mistake, however, to look at gold stock prices in nominal terms.
I recently wrote about the mistake of looking at gold in nominal terms. Here’s the key chart from that article, showing that gold and silver still have to rise much higher in order to reach all-time highs in real terms.
If it’s more realistic to look at gold in inflation-adjusted dollars, the same is true for gold and silver stocks.
Since the stocks derive their value from their underlying commodities, however, it’s better to look at gold stocks in terms of gold—not dollars.
In the same way some investors like to look at the Dow-gold ratio, I like to look at the major gold stock indices as a ratio to gold. Whether gold itself is up or down, I want to know if the stocks are cheap or dear, relative to gold.
Here’s how that looks now…
The data clearly show that, priced in gold, gold stocks are starting to recover, but remain quite cheap.
Gold stocks priced in gold are roughly twice as cheap as they were during the 2011 peak.
It’s interesting to ask why this might be, though I’d be skeptical of anyone who claimed to be able to explain it all. Being the aggregation of actions decided by millions of minds, Mr. Market has very complex psychology.
In my view, the more important question is what to do.
I don’t want to chase stocks that have just hit all-time highs without adding any value on the ground.
But I do think gold and silver prices will go much higher, lighting a fire under these stocks.
Given their relative bargain status, I want to buy the best gold and silver stocks when I can do so at good prices.
Fortunately, markets fluctuate. Commodity prices do so with gusto. And gold and silver stocks with a vengeance.
This has brought the market to me on two great stocks I really wanted in my portfolio—so far this month.
This does not, however, mean that I’m going all in.
I’m building my cash position because I see good odds for a larger correction, possibly on the back of another market meltdown ahead. I’d love to have a shot at averaging down on my stocks—or to buy ones that got away from me earlier. Another meltdown could provide the last great buying opportunity before the final manic peak I still see ahead for gold and silver stocks.
Seventeen years after it was born with the help of the CIA seed money, data-mining outfit Palantir Technologies is finally going public in the biggest Wall Street tech offering since last year’s debut of Slack and Uber.
Never profitable and dogged by ethical objections for assisting in the Trump administration’s deportation crackdown, Palantir has forged ahead with a direct listing of its stock, which is set to begin trading on Wednesday. In its stock offering, the company is not selling newly minted shares to raise money; it is simply listing existing shares for public trading.
The low-key strategy may not generate the enthusiasm many technology offerings do. But it is in character for a secretive company long reliant on spies, police and the military as customers – and whose founders are holding onto voting control of the company.
The big question for both investors and company management: Can Palantir successfully transition from a business built on the costly handholding of government customers to serving corporate customers at scale? The company is a hybrid provider of software and consulting services that often embeds its own engineers with clients.
Analysts say its future depends on selling multinationals its tools for gathering disparate data from an ever-expanding data universe and using artificial intelligence technology to find previously undetectable patterns. Those can theoretically guide strategic decisions and identify new markets much as they have aided in tracking rebel fighters and sorting military intelligence.
The company sets itself apart from most US technology providers, and just moved its headquarters to Denver from Silicon Valley. Palantir colours itself patriotic and belittles other tech firms that would not unquestionably support US dominance in war-fighting and intelligence.
“Our software is used to target terrorists and to keep soldiers safe,” CEO Alex Karp wrote in a letter accompanying Palantir’s offering prospectus. While Karp acknowledged the ethical challenge of building software that “enables more effective surveillance by the state”, Palantir’s prospectus touts its work helping US soldiers counter roadside bombings and fight the ISIL (ISIS) group.
But investors also have to reckon with the Peter Thiel factor.
The iconoclastic entrepreneur and PayPal co-founder endorsed President Donald Trump in 2016, worked on his transition team and holds the largest chunk of Palantir stock. Thiel already exerts tremendous power from the board of Facebook, which dominates global media and seeks to create a digital currency.
In its IPO prospectus, Palantir paints a dark picture of faltering government agencies and institutions in danger of collapse and ripe for rescue by a “central operating system” forged under Thiel’s auspices. As the offering is structured, Thiel will be the dominant voice among the Palantir co-founders who will retain voting control.
“Is that someone who you want deciding how a component of the [national] security apparatus is designed?” asked New York University business professor Scott Galloway. “If you believe that power corrupts and checks and balances are a good idea, this is just from the get-go a really bad idea.”
Earlier in September, BuzzFeed reported that Thiel hosted a known white nationalist, Kevin DeAnna, at a 2016 dinner party, citing emails it obtained and published whose authors refused to talk to the online news outlet. Thiel declined through a spokesman to discuss the report with The Associated Press news agency. Critics say he shares the blame for Facebook’s incomplete removal of toxic disinformation disseminated by the pro-Trump far-right fringe.
Then there are Palantir’s fundamentals, which Galloway considers lousy. The company has just 125 customers in 150 countries, including Airbus, Merck, Credit Suisse and the Danish National Police. Slightly less than half its 2019 revenues were from government agencies, and three clients – which Palantir did not name – accounted for almost a third of revenues.
“They’re massively unprofitable and they’ve never been able to figure it out,” Galloway said, noting that it took Google three years to earn a profit, and Amazon seven. Over a much longer span, Palantir has accumulated $3.8bn in losses, raised about $3bn and listed $200m in outstanding debt as of July 31.
Palantir, named for the mystical all-seeing stones from Tolkien’s “Lord of The Rings”, has recently been deepening its relationship with Uncle Sam, including winning a modest contract early in the COVID-19 pandemic for helping the White House gather data on the coronavirus’s impact.
Senior emerging technology analyst Brendan Burke of Pitchbook says he is not worried that Thiel’s association with Trump will hurt the company if Trump loses the election.
“The political connections don’t appear to be the main driver of their recent substantial contract wins,” he said, although he noted that government contracts can be more volatile than corporate ones, where Palantir’s foothold is less firm.
Palantir offers two software platforms. Foundry is designed to link disparate and largely incompatible data sources into a central operating system. It is the company’s primary hope for broadening its business.
An earlier product, Gotham, has been used by defence and intelligence analysts and police departments to identify patterns deep within datasets. But the value of “predictive policing” tools developed with the platform have been questioned for their potential to unfairly target people of colour. The New Orleans and New York City police departments, once customers, have used it.
A 2017 research paper by University of Texas sociologist Sarah Brayne, who studied the Los Angeles Police Department’s use of Gotham, found the software could lead to a proliferation of unregulated personal data collected by police from commercial and law enforcement databases.
On Monday, Amnesty International issued a briefing that says Palantir is failing to conduct human rights due diligence around its contracts with Immigration and Customs Enforcement, calling it “deeply ironic” that the company crows about its determination not to work with regimes like China that abuse human rights.
Palantir’s ICE contracts involve the maintenance and improvement of two products used in deportation raids. One of them, its web-based Falcon tool, has enhanced data accessible to investigators “involving the illegal movement of people into, within, and out of the United States”, according to documents obtained by the AP, including court records, and by the nonprofit Electronic Privacy Information Center in a freedom-of-information request.
Palantir has acknowledged in its SEC filing that “unfavorable coverage in the media” and from social activists could hurt its business. It also says its contractual obligations might prevent it from being able to defend its actions publicly, although it recently named a former Wall Street Journal reporter to its board.
Negative publicity over ICE contracts may also have hurt company recruitment on college campuses.
Restructuring at Calgary-based TC Energy Corporation has resulted in the loss of jobs.
The move comes after the company, formerly known as TransCanada Corporation, signed a memorandum of understanding with Natural Law Energy which represents four First Nations in Alberta and one in Saskatchewan.
The deal, which is expected to be finalized later this year, will see Natural Law Energy purchase an equity stake in the Keystone XL pipeline.
“Our Canada Gas Operations & Projects team is implementing a new structure to ensure the optimal skill sets to navigate the next tranche of our expansion and operations,” said TC Energy in a statement released Tuesday afternoon. “TC Energy continually reviews our organizational structure and processes to ensure we continue to deliver safe and reliable services while meeting the needs of our customers. As ordinary course of operating our business, staffing changes are made as required to remain competitive and optimize our operations.”
TC Energy has not disclosed how many positions were cut as a result of the staffing changes.
Alberta’s opposition NDP says the layoffs are a direct result of missteps by the provincial government and are calling on the UCP to release how many TC Energy employees lost their jobs.
“Jason Kenney and the UCP gave TC Energy $7.5 billion dollars [sic] with no strings attached,” said NDP MLAs Irfan Sabir and Deron Bilous in a statement released Tuesday afternoon. “The layoffs today are a devastating example of Jason Kenney’s failure to create jobs and spur economic growth. Jason Kenney and the UCP lost 50,000 jobs before the pandemic. Now even more people are wondering how they’re going to pay their bills, put food on their table, and support their families.”
“Albertans deserve to know where their $7.5 billions [sic] went, what will happen if this project fails completely, and how many more jobs will be lost while rich shareholders and profitable corporations fill their pockets at the expense of Albertans,” said Irfan.
According to the NDP, the cuts at TC Energy included layoffs in management.
Oil prices stabilized today after the Energy Information Administration reported a crude oil inventory draw of 2 million barrels for the week to September 25.
At 492.4 million barrels, inventories are still above the five-year average for the season, the EIA said. Analysts had expected a build of 1.4 million barrels.
The EIA also reported an increase in gasoline stocks a day after the API depressed the market, with an estimated 2.325-million build in gasoline inventories.
According to the EIA, gasoline inventories shed 700,000 barrels last week, which came after a draw of 4 million barrels estimated for the previous week. Gasoline production in the week to September 25 averaged 8.9 million bpd. This compares with an average of 9.3 million bpd a week earlier.
In distillate fuels, the EIA reported an inventory decline of 3.2 million barrels. Distillates have been a major headache for refiners due to subdued demand. Total inventories are now close to 180 million barrels—almost a record high—and refiners don’t really have an incentive to increase production. Last week, they produced an average of 4.4 million bpd of distillates. This compares with 4.5 million bpd, also an increase on the previous week.
Refineries processed some 13.7 million bpd of crude oil last week, compared with 13.4 million bpd a week earlier.
Meanwhile, Total has become the latest industry major to cast a shadow over hopes for oil demand recovery. In its Energy Outlook, the French supermajor said that while it projected growth in global energy demand, this did not apply to oil demand, which would plateau by 2030.
This added to more pandemic-induced fears as infections continued to rise in number in many key oil markets, including the United States and India, but also in a good chunk of Europe.
At the time of writing, Brent crude was trading at $40.76 a barrel with West Texas Intermediate at $39.54 a barrel.
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