by Greg Klein | January 25, 2016
Rick’s best-known rule maintains that bear markets beget bulls. But the stockbroker guru who says “I’m party to numerous conflicts of interest and actively soliciting more” offered a Vancouver Resource Investment Conference audience his prediction on when the horned beast might return. Emphasizing his forecast is based not on hard data but on anecdotal evidence, he suggested late 2017 or early 2018. That indication, again anecdotal, comes from issuer capitulation.
Rule defines issuer capitulation as the time when equity issuers realize they can no longer defer financings while waiting for more favourable circumstances.
At such a time they lose the high expectations caused by the previous bull. “From a cheque-writer’s point of view, bear market capitulation is what performance is made of,” Rule said.
His observations span the last three market declines. For example in July 2000, after about 30 very bearish months, people like the Lundin family, Robert Friedland, Bob Quartermain and Ross Beaty decided the only way they could find and develop deposits was “to acquire capital on whatever terms are necessary.”
Expensive the capital might have been, but it allowed their companies to generate news during a news vacuum, Rule argued. He said those companies “doubled in 12 months” and doubled again the following year.
“I would argue that it was the performance exhibited by those companies in conjunction with the rolling over of the U.S. dollar that gave us that wonderful lift-off market that we enjoyed in the second part of 2002…. I believe we’re starting to see that today.”
Such issuers “understand they need to move forward, and to move forward they need to price equity at a level that attracts equity. They get to go back to work, they get to drill, they get to explore, they get to stake.”
He believes recovery takes place about 18 to 24 months after the first quarter of issuer capitulation. If that holds true, he said, late 2017 or early 2018 “should begin to show the market we enjoyed in 2002 and 2003.”
Rule acknowledged a longer timeframe might be necessary for the juniors. But any improvement in larger companies could benefit active small-caps, he pointed out.