Ask The Expert - Michael Oliver - October 2023

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Craig: Welcome back to the Sprott Money and sprottmoney.com "Ask the Expert" segment, for October of 2023. Again, great content flows from Sprott Money all month long, and you can find it wherever you get your podcasts, wherever get your videos. "Ask the Expert" is just one of the segments you get for free from Sprott Money. And we're ready to get rolling here in October. I'm your host, Craig Hemke, and joining me this month is Michael Oliver, from Momentum Structural Analysis. And he is one of Eric Sprott's favorite market analysts. He's told me on multiple occasions that he's somebody we should all follow, so it's great to have him join us and give us his current perspective. Michael, good to see you.

Michael: Good to see you, Craig.

Craig: As we get started, again, just a reminder, this is all courtesy of Sprott Money, so you wanna make sure you thank them. It can be as simple as a like or a subscribe on whatever channel you're watching. But, gosh, for all intents and purposes, we're always in the market, looking for physical metal, at least most of us are. Check out multiple dealers whenever you're buying, look for the best price, you're always gonna find one of the best prices available at Sprott Money and sprottmoney.com. Go there every time you're in the market, or just simply give them a call at 888-861-0775.

All right, Michael. Let's start with your business. Here at Sprott Money, I write a lot using technical analysis. David Brady writes often here at Sprott Money, once a week, and he often uses straight-up technical analysis. Explain to everybody what you do, and how it can be valuable in an individual's investing plan.

Michael: Well, I started in 1975. It was in my mid-20s that got hired by EF Hutton in New York, commodity division, their headquarters. And the head of the department was also the chairman of the COMEX. And they didn't have an official school to educate you, because I knew nothing about markets. So, I was, philosophy background, okay. And he was a routine, David Johnson, was a routine technician, you know, a bar chart technician. Showed me how to plot charts and so forth. They even had a charting room in the back, where they'd have a woman every day would plot all the charts of all the markets, by hand, but very meticulously, and then you could go and get a photocopy of it and work with that. That's how it was, just, but pre-electronic, okay.

Anyway. I evolved away from regular bar chart analysis in the '80s. I became a broker in the system at that point, and left New York and so forth. And I happened to catch the crash in '87, as I was still a broker at that time. And I caught it using momentum analysis, meaning, what I did, if you saw a chart of the S&P back then, you'd see this upward curving bars, you know, and you could hardly draw a line, because it, they wouldn't connect. It was sort of curving. It was very strong. But when you plotted a quarterly momentum chart, where you take each month, high, low, close of price, and measure it in relation to the changing three-quarter moving average... Every quarter, you'd change that average, based on the last quarter, you know, etc. And you'd get a different chart than you would on the price chart. It would show... You'd be above the zero line or below it, and you'd build structures, just like on a price chart. You know, you draw trend lines or floors.

Well, in this case, in '87, there was a floor, on the momentum chart, you kept coming down to, and holding, and happened to be around the three-quarter average itself. Whereas price was just curving up. You couldn't draw a valid line. You're...very subjective. But with momentum, a blind person could see this banging on the same floor. And so, you knew if you ever broke that floor, something's wrong, okay? Well, we broke it in, like, the first or second week of October 1987. This is before the crash. The market literally crashed in the next two weeks. Okay, it went down 35%. And I caught that, not in a big way, but in a way that impressed myself, and I said, "Gee, I gotta develop this methodology more."

And so, by 1992, we started MSA, Momentum Structural Analysis, at the request of a major bank back then. They wanted to use our research. And we get paid through soft dollars. That's, you pay through a, they generate commissions, managing their trust account. They can use some of that commission to pay for research, okay. And we took on only institutional clients through about 2015. And we analyzed all the major asset categories, the bond market, stock markets, commodities, emphasis on gold and silver, and the foreign exchange markets. And we still do that. Except we're now open to retail subscribers. And anyway, so, we look at the full world of markets, because especially in this day and age, in my opinion, I've never seen such huge tectonic plates that are either inverse to each other or it's in synchronous orbit, you know. Major events are gonna unfold. And I can see it in the momentum charts, and I can see it in the fundamentals.

And to give you an idea of what we think is the context of today, go back and look at all the bull markets in stock market history, '23 to '29. Monetary expansion period, okay? Then you had the big bust through 1932. Early 1970s, and a big bust into '74, and the stock market went dead for, like, 10 years, okay. Then the 2000 high, .com. Look at all those bull markets that preceded those major bear markets, and look at the dimensionality of the bull market, terms of how many-fold gain was it, and over what span of time? Usually, it's a matter of a handful of years at most. And it's a double or a triple. And then you have a horrendous bear market. Like, even 2007 top was, like, basically a double from the 2002 low. So, it was a double over a span of five years, and, but it was a disaster when it came apart. We all know that. Even the guy in the street felt it.

This time, we have something different. We've had a dozen years, 2009 through 2021, of central bank money-printing like we've never seen. Monetary expansion. Free money. Effectively free money. Fed funds rate just laying there on the floor. That creates error, and it creates it over a period of time, and was the boom-bust in monetary policy creates a boom-bust in the markets, okay. What do I mean by that? Well, if you make a decision, financial decision, whether you're a family, gonna build a home, buy some property, or you're a farmer, gonna expand your farming capacity, or you're a company building another factory, hiring more employees, a lot of the underlying decision that you rely on, what are the factors you rely on, is the cost of money. Okay? It's a huge brick in your thought process.

If that's delusional, falsely priced by the central bank, to generate the boom they wanted to generate, and boy they did, seven-fold move in the S&P, 16 in NASDAQ, bonds went up big through 2020. But then when they pulled the plug, the cadaver, it's not a cadaver yet, but it will be soon, started to kick, because you cut off its supply of free money. So, 12 years of addiction, of a false concept built into your decision-making processes and your financial commitments, and suddenly it's ripped away. Reality hits you.

So, we strongly suspect you're gonna see an exposure of events, developments that nobody's, they're not the data points you look at. These are the things that are gonna happen because of what has happened, not because what's going to happen. Okay. So, what the Fed does today or doesn't do, they're chasing reality. And right now, we think that with the crash in the bond market... Remember, last October, the bond market came down hard along with the stock market and so forth, T-bond market. Price went down, yield went up, okay. Then bonds had a big rally. Now, they rolled over, in recent months, and blew out the low of last October, meaning yields went to a higher high. Everybody's bearish, long-term rates going up forever. No. We're talking about U.S. government debt market here. We're talking about something the Fed cannot allow to get out of hand. It got out of hand. Okay, so any talk of further Fed tightening, looking at data points to justify that baloney, it's their bond market crashed. I'm sure Yellen has talked to Powell about this, that she is disturbed by the illiquidity in the bond market.

So, Fed policy's gonna change. What market knows this? Why has it behaved as it has behaved for the last several years? The gold market. The bond market collapsed 32% last year, just year over year. S&P down 22%, NASDAQ 100 down, like, 30-something percent. Gold had an unchanged year last year, 2022 close versus 2021. And gold is now back up hovering around its highs. Okay, why? If the Fed's gonna "kill inflation," you think, well, gold would be a victim, right? No. Because gold knows what we just talked about. There's a major hangover coming. Major regurgitation of error.

Craig: There's, you mentioned it. I'm thinking of, like, a Whac-A-Mole kind of game. You know, all of these accumulation, from all of these policy, going all the way back to 2009. You really don't know where the leak is gonna spring first. Maybe it's more of a, you know, sticking your fingers in the dike metaphor. Is there, just from your analysis, or just from your experience, Michael, is there something you think we should be watching most closely?

Michael: The interrelationships. One, stock market. Okay, we know it's been a bubble, seven-fold in the S&P for 11 years, 2000, no, 12 years, 2009-2021, when it basically peaked. We turned bearish on the S&P in February 2022. We remain long-term bearish. That was when the S&P got up to 4800 and started the drop, okay. Got bearish on NASDAQ 100 in January of 2022. About six weeks off its high. We remain bearish, okay. We thought that the first leg down would be arm-wrestling, meaning confusing. You know, up, down, up, down, "Oh, we're okay," and, you know, good little things happen, like, you know, NVIDIA takes off, and Apple goes and makes a marginal new high and then doesn't do anything and so forth and so on. Teasers.

While the real core of the market, what we would look at, is the financial sector. And, you know, you look at bank stocks, for example. Last January, January of this year, the banks were looking quite good. In fact, they were performing better than the S&P on a relative performance basis. Since the 2021-'22 highs, the banks hadn't dropped as much as the S&P had. And in the rally that occurred into early this year, the banks were looking great still. We saw enough momentum technicals that told us, "Uh-oh, there's a bank ambush coming." We had no fundamental knowledge of which bank or any of that story. And sure enough, in March, about six weeks after we put out the report, there was the ambush, and we had a crash in the bank sector. And now, the Fed liked to blame it on regionals, a couple badly-managed regionals, you know. Not their policy causing infrastructure problems in terms of the stability of the financial system, but a badly-managed bank, so place the blame over there on the market, right. Not us.

Well, if you look at the charts of, like, Bank of America or Citicorp, they don't look good at all. They're below the 2022 lows, okay. So, like the regionals, they got clobbered too. So, you can't have the top ten too-big-to-fails behaving like Citicorp, Bank of America. Citicorp, this, close of last month, was the lowest monthly close in seven years. Now, it's had some intra-month lows lower than that, but it was the lowest monthly closing price since 2016, early 2016. Nobody's talking about that. They're all looking at NVIDIA, you know.

Okay. So, we argue, watch the financials, because this will impact the Fed. They don't care about NVIDIA, but they care about the big banks, okay? And the big banks act like hell. Punch up a chart, your listeners, punch up a chart of XLF. This is an ETF of the broad financial sector. It includes some banks, but also American Express, VISA, insurance companies, broker-dealers and so forth. So, it's a broad financial ETF. It's hovering above its 2022 lows, like, in a lame manner. Whereas the S&P had this impressive rally, narrowly-defined rally, you know, four or five stocks could explain the whole thing. But you look at XLF, and it looks comatose. And we're not talking banks now. We're talking the broad financial sector. Watch it. Because in our view, it's gonna assault those lows, the 2022 lows.

Now, right now it's trading around $33. Basically, it's been to $31 repeatedly since 2020. You don't wanna go back to $31 again. Any price chart technician at that point's gonna say, "Ooh. Something's wrong here." And there is something wrong. If you wanna know what the Fed's gonna do, watch the financial sector. I think gold is watching the financial sector.

Craig: Can the Fed, I don't wanna say "save it," or fix it. Maybe that's a better term. I mean, everybody, you know, when you got the last FOMC, we went from four possible rate cuts next year to two. And I think everybody, though, thinks that as soon as things head south, or, you know, war gets really bad in Middle East or whatever, you start getting emergency rate cuts and stuff like that. Can they forestall, do you think? Can they manage?

Michael: I think it's over. There's a few commentators have said that. I think it's over. The reason is, look at the bond market. Look at TLT, for example. It's an ETF of the 20-year-plus bonds, okay. They crashed recently. I mean, they took out last year's low, and they did it in a manner where it looked like a commodity market. It was gapping down. You know, like, no limit-down moves, but just, it looked like something, just, had no support whatsoever. The Fed did not do that. This is not part of their incremental program, where they control the shorter end of the market. The longer end of the market is beyond their control. But they cannot have it behave the way it's done. They cannot have it drive yields that choke too many sectors. I understand the home-building industry has put out a collective letter to the Fed, said, "Please stop," okay.

Well, I almost guarantee you that behind the scenes, some major CEOs of major top-ten banks have said, "Stop." Okay? I'm sure Yellen, last year, she said she was very concerned about the "illiquidity" in the T-bond market. This is last year now, okay. We've since crashed, and she hasn't opened her mouth about illiquidity. Why not? It's far worse than it was then. Because if she opens her mouth about it, it admits panic. And she can't admit panic, but I guarantee that behind the scenes... I would love to have a view of the nighttime trading desk of the Treasury Department and Fed, in terms of what they're doing in the T-bond market, in terms of supporting it. And I guarantee they've been intervening. Okay. So, I can't prove that. I just look at the chart and I know. They cannot allow that market to do what it's done, or continue to do what it's done.

Craig: Yeah. Someone's gotta [crosstalk 00:16:03]

Michael: And you know what? It's not gonna. [crosstalk 00:16:05]

Craig: Right. Right. Well, all right. So, Michael, then, in this environment, you know, we've had, gee, more than five months of downtrend in gold and silver prices, going back to the beginning of May. Some hints now that it's beginning to turn, the internal positioning's you know, gotten a lot better, obviously, and everything else is going on geopolitically, and with this change of rate hike expectations. For all the gold and silver investors out there listening to us, as we wrap up, where do you see those markets, from a technical perspective, but from a momentum perspective, going into the end of the year, and into next?

Michael: They've turned. Last week turned, okay. A lot of people think, "Oh my god. It did it only because of war," and we know in back in March of 2022, when anybody bought gold then, of course, it had been going up for a long time, March of 2022, technically, gold was ripe for an intermediate decline. It turned out to be a sharp decline, to the September 2022 low. You took out all the previous price lows of the last two years, and immediately exploded again. This time, it's different. We have a war event, but we're in a different situation in terms of the Fed. Back then, they were starting their rate policy increase. It's March 2022. Gold was technically ripe for a pullback, and it did, okay. So, did T-bonds. They turned down then too.

We think there's a good technical linkage now, and this is not always true over history. In fact, it's quite often the opposite. Between T-bond prices and gold prices, they're moving the same. Now, recently, T-bonds have crashed to the downside, since highs when? Like you said, earlier this year. So has gold. Gold's come down but not crashed. It didn't even get back in the middle of its range chart the past couple years. Now it ran back up into the $1900s again. Technically, you can almost overlay a momentum chart of weekly action of gold and a weekly action of TLT, and they're almost the same market. TLT right now, I think is about one week behind gold. Gold last week broke out, by our metrics, monthly momentum, of its process, corrective process, that's been underway since March, April. Quite a few months of corrective process, most of it overlapping with that stinger we had a couple weeks ago, went down to the low $1800s. But then we [vocalization 00:18:31] right back up, mid-$1900s, okay. That was a fake-out. That last drop was the end.

Last Monday's close, which was, like, $1860, we said, "That's it. You've aborted the momentum decline. You're now headed up, and you'll probably zap through the mid-$1900s quickly." Well, we did. Now, some people would say it's only because of the Israel situation. Wars don't determine gold, but wars do influence the Fed at this particular position in time, where they can't afford to have government funding be a problem. Okay? March of 2022 wasn't a problem. Now it's a problem, because high yields on bonds. So, that war event now, compared to the Russia war, which, again, started late February of 2022, okay, commodities peaked a couple weeks later. So did gold. Okay. This time, it's different. This time, the war event has correlated to a point of pain for government debt, one that is an emergency status. And I think the Fed is now positioned to, one, stop, though they won't admit it, and act behind the scenes to defend their market at all costs. And I think you're gonna see that evidence. I suspect you'll see T-bonds start to rally now, probably sharply. A short-covering rally. You know, this could be very painful for the late shorts. You know, it could skewer them very well. Anybody who got late short bonds, like in this recent drop, is getting in very late, as far as we're concerned. And they're likely to be skewered. And I think that will be coincident with gold surging back to and through its highs.

Craig: It's funny you mention that. I, before we recorded this call, we're talking here on Monday the 16th, I'm in the process of writing my article that I write every week for Sprott Money, assessing the, basically, the same thing, so you see me sitting here nodding and smiling as you're talking, about whether or not this downtrend has changed, and it's not so much the geopolitics. It's the geopolitics forcing a different direction of monetary policy. And is gold recognizing that? And so I'm smiling and kind of chuckling to myself, because it's like, "I'm seeing the same things as Michael Oliver." That's awesome.

Michael: Well, you don't have to give me credit. You came up with the idea too, so...

Craig: It just, that just makes me happy that I'm looking at this kind of the same way. So, Michael, this is, it's always fascinating visit with you, and there's obviously great reason why Eric Sprott respects your work so much. As we wrap up, just tell everybody, again, about your service and where they can find it.

Michael: Well, our website is olivermsa, for Momentum Structural Analysis, olivermsa.com. Go there, and there's, you could find who we are, there's my picture, and under is an email address. You can click on it and request some sample copies. We're happy to send them to you. We put out about, our main subscription, we put out about five, six reports a week, including the weekend report, which is usually a dozen pages. We cover all the major asset categories. And we think that's essential, even if you're just focused on gold, you better be watching what the bonds do, because they're correlated to gold right now, for now. Stock market, watch it. It starts to go into its next leg down, and that's gonna panic the Fed even more. Not just the Fed, but the ECB and the BOJ and so forth. So, monetary policy's gonna go back [inaudible 00:21:50] Watch with all the major asset categories. They're linked.

Craig: Great stuff. Great stuff, Michael. And I very much appreciate your time, and hopefully we can do this again soon. I have a suspicion that we're probably going to need to, given all the things that are going on in the world.

Michael: Yeah.

Craig: Well, thank you so much. And thank you, everybody, for watching. Again, on your way out, please be sure to thank Sprott Money for putting this content out free of charge, with a like or a subscribe on whatever channel you're watching. And of course, keep Sprott Money in mind every time you're in the market for physical precious metal. Keep an eye on this channel. We'll have more content as we go through October, but for now, we'll wrap up "Ask the Expert." Thanks again to Michael Oliver for his time, and we just wish you all a great day. And again, please keep an eye on this channel as we go through the month of October.