(one part has been redacted as I am likely to start building a much larger position and wish to keep this information private for now)
Client letter of 2021.02.01 6:15 am ET
I have attached here your January report, which as you probably know is not the best of news, but in my opinion, not a bad one under the circumstances. We started January at extreme highs and then suffered a major drawdown before recovering at month’s end. As I write this on Monday morning to start February, the accounts are up an average of +4.5%.
(Because of time demands I was not able to prepare the January reports and personal cover letters until 6:30 am)
Your January report will be sent later in the day.
If you are not already aware, I have taken several steps in a direction away from 100% precious metals and Copper. So, I shall explain.
- Despite the apparent strength in the equity market, I believe two things are happening: (i) there is a rotation out of the big names that drove prices to extremely high levels and into a broader range of sectors and industries, and (ii) speculators are supporting the market as is obvious in the diverge between the NASDAQ and S&P 500 indexes as well as the recent entry by Reddit-based speculators as seen in GameStop and the like, and now Silver.
- I have moved client cash positions up to an average of 20% (some a bit more and some a bit less depending on my interactions over the past year with many clients) because the broad market is definitely showing signs of weakness. Should the condition of the market appear to further weaken this week, I shall move to 50% cash or more. This morning the US market appears quite weak, but the majority of international equity markets started on a positive note. [Edit: Before noon, I moved to 27.4% cash despite seeing the international markets get a boost earlier in the day]
- I have decided against moving to a greater cash position because (i) technical support is fairly close, and I need to see if those support levels hold, and (ii) Congress must soon approve the spending bill or the President will do this on his own because the people need the money, and as happened in 2020 a large part of the spending went to people and organizations that are not in dire straits who then invest this money into the market. I have to conclude that despite the recent market weakness, there is about a 75%-80% probability that market prices are headed higher soon.
- Because I can see that after every burst of buying in the Precious Metal stocks that there is much selling that takes these prices back down, I have been selling into the most aggressive spurts of buying as the source of cash. As you know, I believe that Gold should be trading at least 30% higher and Silver at least 60% higher, but I also know how markets work and the reasons why prices are not permitted to trade freely. So, until I see a break-out to higher levels where the public takes notice and becomes involved, I have to wait and build cash while waiting. Silver is up to $30 this morning, but Gold has not moved much higher yet.
- I believe there is a great need now to diversify the portfolio as I did with Copper in 2020. With some of the cash I recently built in your account, I bought a starter position in (withheld), a small position in uranium, and a small position in a cannabis company. Let’s review these: (i) As I believe that the second half of 2021 will see the first true signs of economic recovery and that the needed infrastructure building will require steel, I do believe parts of the steel industry will recover, particularly if it can fit into (withheld). I have built a good file on the company and will be watching the stock closely. (ii) I also believe that with the US re-entry to the Paris Agreement and the global fight against climate warming based on fossil fuels, there will be renewed interest in uranium because it leaves no carbon footprint. (iii) As cannabis is now partially or fully legal in 44 of the 50 states, there is increasing pressure on the federal government to change the law, and the new government is looking for all ways to acceptably increase taxes, which will come from legalizing cannabis. Institutional money is now flowing into what is called Cannabis 3.0. I need to explain the purchase.
- In January, I initiated a position (the December 2025 $11.50 warrants) of a new cannabis company, Clever Leaves that started trading in November. Here is some background. I am presently an assistant teacher of eight Executive MBA students at the prestigious black Howard University in Washington DC. We are intensely studying the cannabis market, particularly with respect to Colombia, Canada, and the US. This coming week, I will be doing the same with a full undergraduate business class at the Santiago University de Cali Colombia. This is a program that I initiated at Howard University in 2018 although I have been very much involved since 2015. In any case, I have a very good knowledge of the cannabis industry and its problems and have written extensively about that. Clever Leaves (CLVR) is headquartered on 5th Ave in New York and run by Kyle Detwiler, a former investment banker at Morgan Stanley and at the Blackstone Group where he managed a $1 billion portfolio of emerging companies. He was a top student at Harvard and graduated cum laude at Princeton. On his own, he has quickly built Clever Leaves on a solid business model and is starting with no debt, about $80 million in cash, and proven sales. Former Minority and Majority Leader of the US Senate, Tom Daschle is their special advisor. Clever Leaves in fact became the first to legally ship cannabis to Canada, in what became the first exporter to ever receive authorization from both Health Canada and the Colombian National Narcotics Fund. There is no US or Canadian company so brilliantly set up. There are no shares above $14 and very few in the market above $12, so when the price does break out there will be extraordinarily little resistance. I believe that in the next three years, Clever Leaves CLVR will be trading in the high 30s and in the 40s. I believe that these warrants CLVRW at $1.77 average cost will trade at least ten times higher. Moreover, this decision was to diversify the portfolio.
- Some clients have asked about a possible return to Oil & Gas. In this market environment, I believe the risks of doing to be excessive. Economic recovery as of today is not a given. Of the four O&G industry groups, Oil Equipment & Services performed best since the end of October; but that bull phase is over and has turned bearish as have the other three. By the Summer, however, the world will know better how the Covid-19 vaccines are working and if the economy is showing better prospects of renewal. Because of the lack of sustaining CAPEX over the past few years, I believe that Oil prices will go much higher in 2H2021 and 1H2022, which would be a better time to invest in Oil & Gas, and also in energy alternatives. Copper, too, will likely resume its bull market at that time. But, for now, my main concern is to preserve capital and to make purchases selectively.
- If there is any client who does not approve of these investments, or who wishes me to extend the diversification, please advise. I am always here to serve you.
All the best and, as usual, please stay safe.