Ouch!

I suspect many of my readers have been scanning the financial internet wondering what Monday will bring to the cratering markets. As I write, gold is down to USD $2997, silver to USD $28.28 on the Asian markets. Oh Dear!

Depending on your politics, the Trump tariffs are going to crash the American or, indeed, the world, economy, or they are part of an elaborate Trump plan to usher in a Golden Age of free trade and re-industrialization of the United States. The VIX hit 45, 8 lower than with the COVID hysteria and 10 lower than the crash of 2008. Still roughly tied for third highest implied volatility on record.

I will leave it to the big brain pundits to figure out what it all means at a global macro level. (I cannot help but note that the great Jim Cramer was on TV “Jim Cramer said on CNBC’s Mad Money Friday evening that if Trump “doesn't try to reach out and reward these countries and companies that play by the rules then the 1987 scenario... The one where we went down three days and then down 22% on Monday has the most cogency." Cramer is famed for getting things wrong so, perhaps, Monday will go green.)

The one thing which is clear is that the uncertainty level in the markets and around board tables is through the roof. What effect tariffs will have on individual companies, industries, commodities, funding, interest rates, and supply chains is, for the moment, unknown. Even the direction is unknown. Generally, business hates uncertainty, investors all the more so.

In my little part of the world, junior resource stocks, the main worry is that funding will dry up the same way it did in 2008. The great “hunkering down” of 2008 wiped out investors and its effects are felt to this day. A CEO in the middle of a raise or knowing he’ll need to do one in the next few months will be more than a little worried. Companies which are cashed up, looking at you Hercules Metals (BIG.V), despite seeing their share price drop, are in pretty much the same position they were before the tariff trauma sell off.

Critically, the geo stories which drive junior resource stocks are unaffected by the tariff trauma. Obviously, the fall in precious and base metals prices changes the economics of any given project, however, many projects have done Mineral Resource Estimates and Preliminary Economic Assessments based on very, very conservative assumptions as to gold, silver and copper prices. For example, Cartier Resources (ECR.V) assumed a gold price of USD $1750 in its 2023 PEA. Gold would have to drop $1250 to invalidated ECR’s calculations. (I also note those calculations assumed a $0.77 Canadian dollar, the CDN $ is trading around $0.70.)

While general market conditions do affect juniors, often quite dramatically, the junior market has been bumping along the bottom for a few years. A very different situation from the 2008 crash. Here’s 20 years of the Venture:

At a guess, the general markets are in for several days of see-sawing. That’s what the VIX is signalling. The Venture has probably absorbed the bulk of its punishment. Probably the worst thing which will happen is that the juniors will be ignored as the big boards try to figure out if Trump is a genius or a dangerous chump.

Time to go bottom fishing? Maybe, if you have any spare cash. If you are lucky enough to have some, one useful strategy may be to open modest share positions in companies you are interested in and which are going to need to raise funds. The “existing shareholder” exemption means that ordinary investors can get in on private placements if they hold even a modest number of shares. At a guess, companies are going to have to make rather generous offerings in order to raise the funds they need. A share and a warrant will likely be the lower bound, but with capital skittish, even better terms may be on offer.

When people talk about the crash of 2008, they rarely mention the run back up in 2009 and 2010. Dead cat bounce? Perhaps. But the junior market was so battered going into the tariff trauma, it really has nowhere to go but up. It might take a while, but as normalcy returns to the major markets, the juniors are going to look tempting.

Of course, it is worthwhile to remember how the story of Chicken Little ends…The sky is not actually falling, but there are hungry foxes waiting for not very bright chickens.

(Disclaimer: I hold shares in BIG and ECR. I may buy or sell at any time. This is not investment advice. Do your own due diligence. Call the CEO.)