MICKEY FULP – Tax Loss Selling, Base Metals, and Precious Metals

Mickey Fulp the Mercenary Geologist sits down with Maurice Jackson of Proven and Probable to revisit the virtues of a proven methodology that he has employed with regards to tax loss selling.  Mickey shares how to be selective in buying particular issuers within a specific date range that have produced fairly consistent returns rangin from 10% up to 50%!  Mickey also shares the best value proposition he sees in 2018 in base metals as he discusses Copper, Lead, Zinc, and Uranium.  Finally, Mr. Fulp shares what precious metals he is buying right now and why.

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Maurice Jackson:

Welcome to Proven and Probable, where we focus on metals, mining, and more. I’m your host, Maurice Jackson.

Joining us for our conversation is Mickey Fulp, the Mercenary Geologist, to discuss tax loss selling, base metals and precious metals. Mr. Fulp, welcome to the show, sir.

Mickey Fulp:

Thanks for the opportunity once again, Maurice.

Maurice Jackson:

Mickey, in our last interview, you and I were at the New Orleans Investment Conference, and we discussed the tax loss selling and the buying strategy that you like to employ during this time of year. Let’s revisit this conversation for those that missed our last interview. Can you share the strategy that you have found to be effective over the years with regards to tax loss selling?

Mickey Fulp:

Yes, let’s discuss the methodology that we’ve used to determine the best days to do this.

What we’ve done over the course of the venture exchange history, which started in basically the beginning of 2002, so what would that be? 16 years of trading records now, we’ve gone in and we normalized every year to 0%, and then, we take those and we average the returns over the course of the year. Or for tax loss selling, we looked at the patterns from November 1st to the end of the January of the following year. What we’ve discovered is sometime generally between, let’s say, right around December 15th plus or minus two to three days, that is the peak of tax loss selling, and that’s when the venture exchange normally has a seasonal low.

So the strategy is you pick good companies that have had significant highs and trading at the end of the year much less and you go in and pick those off. What we discovered is you can make really good returns on short-term trades from mid-December, and you flip those stocks in the first week of January. Generally, you’re going to return something on the order if you just did the entire venture exchange, about 10% on your money. But with specific stocks, you can turn profits of 50% or more.

Maurice Jackson:

Which kind of leads into a question I was about to ask you. You’ve already answered it, which is, when you purchase these, do you ever plan to hold any of these? Or is the strategy just to buy low, sell high?

Mickey Fulp:

Well, my strategy would generally be to buy low and sell high, unless you’re trying to accumulate a larger position. A lot of companies I hold on, say, core holdings, I will oftentimes have a position that I do not trade, and then, a position that I will trade in and out of. So you can average down using this strategy, you can flip, you can accumulate, just really depends on your plan, and what you decide to do for each particular stock.

Maurice Jackson:

If you don’t mind me asking, this is somewhat of a personal question, but were you able to identify some quality names that were selling for a discount, compared to October?

Mickey Fulp:

Well, I certainly was. Unfortunately, I have to be honest. This year was an anomaly. What we saw was the tax loss selling, which normally strongly peaks with both volumes and downturn in the index, right in that mid-December, it was really spread out and it was muted in 2017. It basically went from the last week of November to the third week of December.

There’s some reasons for that, but we saw the highest volumes and the seasonal low from the last week of November, and then, the year’s highest volumes and total was over the last five days of trading. So the last week of December here, we’re going to average something about 120 million shares a day, which is quite anomalous, and opposed to the major markets, which have very low volumes this week.

There’s some reasons for that. One thing that kind of upset the applecart is Canadians can carry back three years their losses, but basically they had no profits. Few of us did of any amount in 2014 and 2015, so what we saw was there weren’t a lot of tax loss selling moves this year.

The other thing that happened, I think, is because they were not accumulated losses flow-through financings, which is for Canadians only, and really punish Americans in my estimation, near-record highs for flow-through financings the month of November and carrying into December, so those people aren’t really speculators. They’re people looking for tax losses and they can do that up to the last day of December.

So all that said, the strategy did not work as well this year as it normally would have. I had a couple of stocks on my list, and I basically missed them for the most part because they hit their seasonal lows in the last week in November or first week of December.

Maurice Jackson:

Now, just to reiterate here, the sweet spot to buy was really the December 15th couple trade days before and a couple trade days thereafter. Is that correct?

Mickey Fulp:

Normally that’s the way it works, and I would say that about four out of five years, it works very well that way. 2017 didn’t really pan out.

Maurice Jackson:

But the selling timing is January … Give us the dates that you usually like to sell, offload some of these positions?

Mickey Fulp:

First week of January.

Maurice Jackson:

First week of January.

Mickey Fulp:

Yeah, yeah. I showed one way around New Orleans a couple of stocks that you could have traded last year, gold. Advanced gold explorers returned 50 to 65% over that, and it’s basically a seven, eight, nine-day trading period because you got to take the holidays into account.

Maurice Jackson:

I recall your presentation. I looked around at the audience and they were amazed at your success.

Mickey Fulp:

Well, unfortunately it didn’t work that well this year, but I just didn’t participate to the degree that I normally would’ve because I missed a couple of things. Now, I did make a buyer, too, and I will likely flip those stocks as they go on a bit of a run normally in the first week of January.

The other thing I should mention that kind of upset the applecart again this year, and I can’t remember when it came in, but sometime in the last couple of months, if memory serves, is we’ve now gone to two-day settlements versus three-day settlements. What that has done for Canadians is it’s given them a couple more days to trade.

In a normal three-day settlement year, their last day of trading would have been last Friday, December 22nd, because they record on the settlement date, whereas Americans record on the trade day. So with the two-day settlement, they were able to trade on the 27th, which was, what, Wednesday, bearing in mind that the 26th of December is always a holiday for the British Empire, Boxing Day.

Maurice Jackson:

Very interesting to note. Thank you for sharing that with us. Switching gears to base metals, can you share with us where you see the best value propositions right now?

Mickey Fulp:

Well, base metals had a very good year across the board. The three major base metals, of course, are copper, lead and zinc. Aluminum is not really a market that I follow because there’s no companies worthwhile on junior resource sector. But copper returned over 30% this year. It hit a plus-three year high yesterday at $3.29, backed off a couple of cents today, or it’s trading at $3.26 right now. Zinc had returned, so about the same amount, a 10-year-high for zinc. It’s at $1.50 right now, about a 30% return, and so did lead.

Of all those metals, I am very bullish on copper for 2018. They contain all the forward contago. It’s very strong. It has continued to make higher highs and higher lows since the yearly low, which was in early May at $2.48, and Chinese smelters have been shuttered for wintertime pollution. So going forward with 3.4% annual demand increase since 1900 for copper, it is the electric metal, so I’m very bullish on copper going forward.

Maurice Jackson:

With regards to copper, let me stop you there for a second. Do you prefer the best issuers, or are you talking about purchasing physical copper?

Mickey Fulp:

Oh, no. This is stocks you’re playing so, no, I’m not a Chinese big farmer. I don’t hoard copper on my farm. Playing in the futures and options market is for the big boys, and it’s not practical to accumulate physical copper. I look at the commodities, and then, I go and try to find stocks that meet my criteria, share structured people and projects.

Maurice Jackson:

Can I also get your thoughts on uranium?

Mickey Fulp:

Well, uranium has had the first positive year in quite some time. It’s up about 16%, started the year at less than $21. It’s at $24 and change now. That really has to do with supply destruction with Cameco shutting down McArthur River and the Key Lake Metal Athabasca Basin. Kazakhstan cut production 10% in the first quarter of 2017, and announced about three weeks ago further cuts, 20% cuts in production over the next three years. But that market still remains out of balance. There is a short-term supply surplus.

But it’s coming because utilities have not been contracting, especially US utilities. What we know from previous experience in this market, the uranium spot price can go up very quickly. Utilities wait till the last minute, and then, they all pile in to get their two to three years of yellowcake ahead of themselves to keep power plants running. So based on that, a longer mid-term to long-term bull on uranium with 60 plants under construction and something like 160 in the planning and financing stage right now.

But no one seems to know when it’s going to happen. There is a catalyst on the horizon. Supposedly there will be another 9 reactors operating, restarts in Japan by the mid-second quarter of this year.

Maurice Jackson:

Your thoughts with regards to Cameco in Kazakhstan making these moves here, what is that telling you about uranium?

Mickey Fulp:

Oh, no one can money at $20 a uranium, or no one can make money at $24 uranium, so they’re losing money. There is no reason to produce pounds of yellowcake when every pound you produce, you lose money on.

 

Now, Kazakhstan is a country that’s not strictly a market economy. It’s more important to them to keep people employed than it is to make money on their uranium product. But that said, the fact that they’ve shut down and especially Cameco, McArthur River was one of the lowest-cost mines in the world. This largest uranium mine, it’s the highest grade uranium mine. Cigar Lake also owned by Cameco, but they’re losing money, so no reason to keep production going.

Maurice Jackson:

Mickey, what are you sharing with your subscribers regarding precious metals?

Mickey Fulp:

Well, gold had a very nice year. A lot of that has come in the last week or so. It’s at $1303 as we speak here for about a 13% gain on the year. I am looking very strongly, and I’ve covered over the last six weeks or so, three startup gold companies operating in the US. The Trump administration has very much helped the industrial and precious metal industries with removal of regulations.

So that’s kind of my sweet spot over, say, the last year or so, and I anticipate it being a sweet spot in the year coming. Doesn’t mean that I’m especially bullish on the price of gold, but what we found in 2017 is that the metals across the board have generally outperformed the equity market so, at some point, they’ll catch up.

Maurice Jackson:

Now, what are you buying right now regarding precious metals? Physical, that is.

Mickey Fulp:

Platinum. I bought platinum and I hid it at just at the right spot and it was just pure luck. I bought platinum on December 14th, and that’s when it’s hit its yearly low, much more than a yearly low. I’m looking at a chart right now. It looks like about a two-year low for platinum at $880 an ounce. That has to do with the fact its platinum-to-gold ratio is at an historic high since gold was floated on world markets in 1970, ’71.

 

Also, it is completely undervalued to the price of palladium, only less than 4% of the time does the platinum price go below palladium. We’re looking at ratio of platinum and palladium right now, historic low is something around .88, .87 something like that, so platinum is undervalued. It will come back, so that’s been my choice for buying precious metals for quite some time now, at least over the last couple years.

Maurice Jackson:

Talk about anomalies and distortions now. I think there’s some telepathy going on between you and I where I’ve been purchasing platinum the entire year, but I believe I also purchased I believe it was on the 14th of December.

Mickey Fulp:

Well, we both got lucky, then, because that was the low. I just looked at it and I go, well, that looks like a price that I want to buy at, and fortuitously enough, it was the yearly low. I think also something around December 8th or something through 11th and also was at that price. But it’s gone up and up and up since then. We’re looking at a platinum price of $927 this morning, so we both bought at very nice times.

Maurice Jackson:

We certainly did. We didn’t cover silver. Is silver a good buying opportunity right now?

Mickey Fulp:

Well, silver has significantly underperformed this year, up something on the order of, oh, 6 or 7% this year, or something like that, so it’s half-performed half as well as gold. What we generally find is that silver is more volatile. I’m not much of a silver bug, but there is kind of a magical number for me, and that’s when the gold-silver ratio gets above 80. For me, that’s a buy signal for silver where the idea that you will trade it for gold when that ratio normalizes a bit.

Hang on a minute, I’m calculating the ratio as we speak …

Maurice Jackson:

I believe it’s in the 70s.

Mickey Fulp:

… and it’s about 77 right now.

Maurice Jackson:

Yeah.

Mickey Fulp:

So over the last month or two, it’s buried in this upper 70, from 76 to 78, so it hasn’t quite reached my sweet spot yet.

Maurice Jackson:

Now, Mickey, we’re not here to give investment advice, but if you were beginning your investment portfolio today, which would you purchase first, the best mining companies, or physical precious metals, and why?

Mickey Fulp:

Well, that’s a tough question because I own both. I think that anybody with net assets, significant net assets, should own at least 10% of their assets, keep them in physical gold and their physical possession. You should not conflate gold with any gold stock. A lot of people try to do that, but playing in this market, gold market, gold stocks, miners, or explorers is strictly speculation.

I don’t like gold miners because, historically, they have underperformed even in the bull market for gold from 2003 to 2014. None of the gold miners returned significant dividends or share price returns to their shareholders so I prefer to play the advanced gold explorers.

Maurice Jackson:

Mr. Fulp, you are a world-renowned speaker. Where can we see your next presentation?

Mickey Fulp:

Well, I think that’s probably a bit overstated. Thanks for the kind words. I will be speaking at the Vancouver Resource Investment Conference here in about two and a half weeks. I hope to see a bunch of friends and make new friends and lend some advice on speculating in the junior resource market.

Maurice Jackson:

Last question for you, sir. What did I forget to ask?

Mickey Fulp:

I don’t know. Can’t really think of anything, to tell you the truth. Let’s all have a happy new year, and may all your trades in 2018 be to the upside.

Maurice Jackson:

All right. Mickey, for someone listening that wants to get more information on your work, please share the contact details.

Mickey Fulp:

You can find me at mercenarygeologist.com. I run a free subscription newsletter, but to get my stock picks, you must be a free email subscriber. I also have a robust Twitter feed at Mercenary Geo. We have about well over 63,000 Twitter followers. Go to my website. Below my mugshot, you’ll see my banner. Click on that, become a free email subscriber with around another 66,000 people who follow what I do.

Maurice Jackson:

Last, but not least, please visit our website www.provenandprobable.com, where we interview the most respected names in the natural resource space. You may reach us at contact@provenandprobable.com.

Mickey Fulp, the Mercenary Geologist, thank you for joining us today on Proven and Probable.

Mickey Fulp:

Thank you, Maurice.

Proven & Probable

Maurice Jackson

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