Paradigm Capital

We are looking forward to spending this week with friends, colleagues, and clients at the 2024 Precious Metals Summit Conferences, LLC Beaver Creek. We have been partnering with early-stage exploration, development, and emerging producers in gold and precious metals for over 20 years and are proud to continue supporting this event. Come find members of our research (Lauren McConnell, Don Blyth, and Don MacLean), sales (Craig Mills, Matt Doty, and John Bellamy) and banking (Alex MacIsaac) teams throughout the conference.

Technical Analysis: We have launched a new bi-weekly technical/quant deep dive of commodities and natural resource equities to further help our clients, both generalists and resource specialists, navigate commodity cycles. The current technical structure suggests a transition phase between the 2008-2020 primary bear market and a new primary bull, which could begin in the coming months with gold leading the way. Historically, commodity benchmarks have retraced back to their 4-year moving averages after the bull run from the 2020 lows to the 2022 highs. We maintain the view that 2020 saw a climax bottom in the primary commodity bear market that started with the 2008 financial crisis, but we still need to see further confirmation that a new bull market is truly underway.    Contents in the first issue of the report include: Asset Allocation Trends, ETF Fund Flows and Futures Positioning, Sharpe Ratio Models, Resource Sector Equities, Intermarket Indicators, Energy (WTI, Brent, WCS, NYMEX, AECO, Heating Oil), Metals (Gold, Silver, Platinum, Palladium, Copper, Iron Ore, Steel, Nickel, Cobalt, Zinc, Aluminum, Lithium, Uranium, Neodymium), Ags/Softs (Lumber, Corn, Wheat, Soybeans). Reach out to Aazan Habib, CFA, CMT or your Paradigm sales rep to get on the distribution list and discuss our views and trade ideas in depth.

Gold Research: Our team recently published a review of the gold producers Q2 earnings and the key takeaway is that we are seeing a significant, non-budgeted, boost to free cash flow. Based on the median of the 20 producers, YTD FCF has increased 82%. Total YTD FCF is just over $3.1B versus $1.2B in H1/23. We believe budgets at the end of 2023 were prepared using US$1,800-US$2,000/oz; therefore, this adds an additional $1.9B in FCF that wasn’t budgeted for. Annualized, that would be an impressive non-budgeted FCF surplus of $3.8B. That surplus could acquire all but the 7 largest Developers of the 50 that we that we track, or all but the largest 2 Explorers out of the 91 that we monitor. We believe that this non-budgeted surplus will support an uptick in M&A as major producers look to boost their reserves.

Technical Analysis: Bears had the chance to take control last week but fumbled their opportunity with the major benchmarks closing the week well off the Monday lows. What is most notable is the lack of breadth deterioration, which can be seen in the new 4-week highs/lows ratio on the Russell 3000. We are seeing a lot of beach balls being held under water (stocks that want to break out but are being held back by the broader market) and tennis balls (stocks that correct with the broader market but bounce back quickly).   Seasonality remains a headwind for the next few weeks, so we would not rule out some further choppiness and would embrace a continued corrective phase to set the stage for the next leg of the bull market. We remain focused on identifying the most promising areas of the market, as these corrective periods are the breeding ground for new opportunities.

Technical Analysis: The unwinding of the Yen carry trade has become the dominant story in recent weeks. There were rumblings of this becoming an issue back in April, but now we have seen a major acceleration in volatility due to this positioning unwind. The VIX tested an intraday high of 65 on Monday morning, a level it has only exceeded twice before – the 2020 COVID crash and the 2008 financial crisis. It has since mean-reverted back below the 30 level while the major benchmarks are still holding above their rising 200-day moving averages.   We tested the forward performance of equities when the VIX moves above the 30 level over the past 25 years. Looking out 90 days from the event, there were 48 instances where the S&P 500 moved higher and 21 instances when the market moved lower. The average move to the upside was +10.30% while the average downside move was -5.42%, resulting in an expected value of +5.51% from this signal.   The market environment remains tricky in the near-term, but it is from these periods of volatility that major opportunities arise.   Reach out to Aazan Habib, CFA, CMT or your Paradigm sales representative to get a copy of our latest reports and to discuss where we see long/short opportunities. 

Technical Analysis: We are approaching an actionable signal to increase micro cap exposure. Micro caps have been in a relative downtrend against large caps since 2021. The IWC/SPY ratio has attempted to recapture its falling 200-day a handful of times over the past few years but was never able to stick the landing. We are seeing another attempt at micro cap leadership as the ratio recaptures the 2023 lows and 200-day moving average. The next major pivot point is around the 2020 lows (dashed red line in the chart). We would view a weekly close above this line as an actionable signal to increase micro cap exposure. Reach out to receive our latest research and discuss long/short ideas with our technician/quant Aazan Habib, CFA, CMT. 

Technical Analysis: Paradigm has published our Q3 technical/quant report. A key topic is breadth and the underlying health of the equity market. We make the case that we remain in a bull market with our risk appetite models holding in positive territory while breadth looks poised to expand in the second half of 2024. We also do a deep dive into macro conditions, asset allocation trends, intermarket relationships, sector and industry rotation, equity benchmarks, fixed-income, currencies, commodities, quant models and long/short trade ideas. Please reach out to Aazan Habib, CFA, CMT or your Paradigm sales representative to request a meeting. 

Gold Research: Our team is looking forward to a banner quarter and year for gold producers. Q2/24 set a record average gold price of US$2,338/oz, 13% higher than the previous record in Q1 and 18% higher than Q2/23. Even with cost inflation resulting in our 2024 all-in sustaining cost estimate of US$1,420/oz for the 25 major producers that we track, this would represent more than a 20% all-in sustaining margin expansion in 2024 and a huge budget surplus. Budgets were likely set late 2023 using a US$1,800–US$2,000/oz gold price, potentially resulting in US$8-US$13B of unbudgeted surplus available for M&A or to return to shareholders.

At Paradigm Capital, we strive to support people and organizations infused with the ambition to make a positive and lasting impact on people. One of our principal community connections over the years has been Farms For Change, a partnership between The New Farm and Community Food Centres Canada. We are immensely proud that we again have the privilege to support a magical night in the barnyard at The New Farm in support of Farms For Change. The New Farm will host the 15th annual Farms for Change fundraiser on June 15th (headlined by The Strumbellas!). Paradigm Capital has been a supporter of the innovative and dedicated change making efforts of Gillian Flies and Brent Preston from the beginning! The Farms For Change collaboration is building a healthy, sustainable food system by promoting regenerative agriculture and providing fresh, premium-quality produce to low-income communities. How fantastic is that! #giveback #regenerativefarming #regenerativeagriculture #foodinsecurity #farmsforchange #bethechange #beyondhunger

We are proud to support Hackergal in their mission to inspire girls to change the gender gap in tech across Canada! Be part of the largest national movement of girls in #tech. Register for the Hackergal Hackathon 2024! https://lnkd.in/e_gtcR99 #IAmAHackergal