Pro Perspectives 5/25/21

May 25, 2021

There have been reports going around the past couple of days that Chinese government is cracking down on commodities speculation. 

They blame speculators (like futures traders) for the soaring prices in key commodities. 

But it's the Chinese government that has a record of driving up global commodities prices in the wake of a global crisis, stockpiling and hoarding to take advantage of beaten down prices. 

We talked about this back in February. 

Both the Chinese government and Chinese companies imported record volumes of crude oil, copper, iron ore and coal in 2020.  They also imported a record amount of corn, wheat and soybeans. 

This is all a replay of the post-financial crisis playbook, as you can see in the chart of corn prices …  
 

Coming out of the financial crisis, the Chinese economy looked fairly unscathed.  The developed market world was suffering, but China's economy was still putting up double-digit growth. 

This commodities binge looked like a power play. Buy up the world's most valuable resources at a discount, drive prices higher, and further hamper the already struggling major economies of the world.  It appeared to be working, as many of the world's influencers were convinced that this period represented a passing of the torch of economic leadership — from the developed world, to China.  But it soon became clear that if China's consumers were suffering (the U.S./developed world) then China would also suffer.  Thus, with weak global growth, China's growth and power play ultimately waned. 

So, is this time different?  

Like a decade ago, China's economy is in a position of relative strength over the developed market world.  And like a decade ago, China has stockpiled key global commodities at bargain prices. And like a decade ago, this power play has resulted in soaring commodities prices. 

 

The difference?  This time, China's consumers (namely the U.S.) are awash with money, with a U.S. central bank and U.S. government that is willing to continue underwriting consumption, even at higher and higher prices.  This U.S. debt-financed consumption (which includes buying back commodities we once sold to China for cheaper prices) looks like the recipe to get China to the global economic superpower finish line. 

Pro Perspectives 5/24/21

May 24, 2021

We talked about the correction in oil prices last week, as an opportunity to buy the dip in energy.

Here's an excerpt from my Thursday note …

"This dip in the energy/oil and gas sector is a buy.

 
The globally coordinated ’Clean Energy Revolution’ promotes higher oil prices, not lower.  That's the structural driver for oil prices.  Funding for new exploration has been choked off.  So, foreign oil producers (particularly from bad acting countries) will be in the driver’s seat.  That movement is underway.  And these producers will command/demand higher prices, especially in a less competitive, lower supply world. 
 
As we discussed this dynamic back in February, I said 'get ready for $4 plus gas.'  With the monetary and fiscal backdrop that has evolved, and the inflationary pressures already bubbling up, it will probably be more like $6 gas. 
 
It will be self-fulfilling, and yet it will become the justification for the move to "clean energy" (just as high gas prices were in the Obama era)."

Today, oil prices roared back — up almost 4% on the day (the biggest mover in global markets). 

 
Last year this time, heading into Memorial Day weekend, the national average price on gas was $1.87.  Heading into this Memorial Day weekend, it's $3.04.  I suspect it will be higher by the time we get to the weekend. 

The focus in the oil market has been all about future demand — meaning less demand, driven by the fantasy of rapid change to ubiquitous electric vehicles and wind farms.  Thus, they have underestimated demand, and therefore they have underestimated the economic impact that is coming down the pike from regulating away supply (from the climate activist movement). 

Here we are, just getting to the point of a boom in economic activity, following the CDC's recent guidance changes, and oil prices are already back above pre-pandemic levels, and the estimates from the expert community on oil demand are just now being revised UP.  As we've discussed, this "energy transformation" dynamic continues to plot the path toward another $100+ oil price environment. 

 
Best,
Bryan
 

Pro Perspectives 5/21/21

May 21, 2021

As we've discussed here in my daily Pro Perspectives notes, we are entering a period where we could very well see a huge spike in inflation (maybe double-digits).  

These are the moments when wealth can be destroyed, by holding cash — and wealth can be created in key asset classes. It takes action, and I want to make sure you are acting, not watching from the sidelines.

With that, as you’re enjoying your family over the weekend, take a moment to sign up for my premium advisory service.

Sign up today and look through my entire portfolio of stocks, all of which are vetted and owned by the best billionaire investors in the world.  Listen to my recorded "Live Monthly Portfolio Reviews."  Read all of my past notes to my subscribers. Take it all in.  If you find that it doesn't suit you, just email me within 30 days and I will refund your money in full immediately.

Frankly, I know when people join this service, they don't leave.  In fact, they refer their friends.  If you can read a weekly note from me, I can help you position yourself to make money, in a good market or a tough market.  

You can get your risk-free access by signing up here.

Have a great weekend!

 
Best,
Bryan
 

Pro Perspectives 5/20/21

May 20, 2021

The Fed minutes yesterday indicated that they continue to view the risks to the economy as skewed to the downside.  That was a greenlight for stocks.  As such, stocks have roared back 2.5% from yesterday's lows.  

What's taking a breather in the past week, is commodities (excluding gold) 

The CRB Index which tracks a broad basket of commodities is down about 5% from a week ago.  Among the high flyers in commodities, copper is down 7.5% from a week ago.  And oil has been the hardest hit.  

Let's take a look at the chart on oil …

After a near double from election day, oil has been unable to break the big $67-$68 area.  But with that huge move, energy stocks have been the biggest winners on the year, from a sector perspective. 

Today, the energy sector (XLE) was the only sector in the red in the S&P 500. 

Why?  The news of the week has been negative for oil prices.  And it's been supply related.  First, there were rumors early in the week that the U.S. may lift sanctions on Iranian oil exports.  Then Biden waived sanctions on a Russian pipeline company working in Europe. 

This dip in the energy/oil and gas sector is a buy.  

The globally coordinated "Clean Energy Revolution" promotes higher oil prices, not lower.  That's the structural driver for oil prices.  Funding for new exploration has been choked off.  So, foreign oil producers (particularly from bad acting countries) will be in the driver’s seat.  That movement is underway.  And these producers will command/demand higher prices, especially in a less competitive, lower supply world. 

As we discussed this dynamic back in February, I said "get ready for $4 plus gas."  With the monetary and fiscal backdrop that has evolved, and the inflationary pressures already bubbling up, it will probably be more like $6 gas. 

It will be self-fulfilling, and yet it will become the justification for the move to "clean energy" (just as high gas prices were in the Obama era).
 

Pro Perspectives 5/19/21

May 19, 2021

We looked at three "bubble charts" yesterday (Bitcoin, Tesla and Lumber).

One of the bubble charts burst this morning. 

Bitcoin did this …
 

As we know, Bitcoin has been positioned as a potential new world reserve currency (to supplant the dollar). 

Now consider this:  It moved down more than 30%, and then up 30% within the span of about 12 hours. 

With that, it continues to look more like a tool of speculation and corruption, on the path for a typical bubble outcome (i.e. crash and irrelevance). 

This action in bitcoin today was perhaps a final blow on its perceived "inflation hedge" status.  With that, gold surged on the day — breaking out from this downtrend of the past 10 months or so.  
 
The move toward a new record high in gold appears to be underway now.

Let's talk about the Fed…

The Fed released minutes from its April meeting today. Markets reacted to a headline that just hinted toward a future discussion on tapering QE, IF the economy continued to make rapid progress toward their goals.  If we wondered how the market is calculating the Fed's stance on policy and inflation, we got an indication this afternoon.  The first move was down for stocks, but then back up (in fairly short order).  The dollar went up.  Gold went down.  And rates went up. 

My view:  The market is telling us the time is right to start removing the punch bowl. 

But the Fed is telling us, not anytime soon. In today's minutes, they told us that the economy is "still far" from the Fed's goals on employment and prices.  In fact, they still view the risks to their projection on economic activity as skewed to the downside.  

So they will will keep the party going for some time.  And that means, they will very likely be behind the curve on inflation.    

 

Pro Perspectives 5/18/21

May 18, 2021

We talked about the closing of the bitcoin and gold performance gap yesterday.
 
Bitcoin has been up as much as 134% on the year. Meanwhile, gold, the historically favored inflation hedge still remains down on the year—even as inflation is running as hot as we’ve seen in many years. It hasn’t made sense. And now this dynamic is correcting.
 
The air is coming out of bitcoin—and money is moving into gold.
 
Is this the bursting of a bubble? And if so, are there other bubbles in danger of bursting in this world of “free” money? Maybe.
 
Let’s take a look at a few charts that would suggest things can get much uglier, at least in some specific cases…
 
First, for reference: In China, back in 2014-2015, a record surge in margin debt (fueled by the Chinese government) led to a bubble in the Chinese stock market. From June 2014 to June 2015 (just one year), the Shanghai Composite rose by 160%. The bottom fell out in mid-2015 and within two months, the stock market had fallen 45%. And six years later, it remains just two-thirds of the value of the bubble peak.
 

Let’s take a look at what the chart of this Chinese stock market bubble looks like, compared to the current era high flyers …

You can see the aggressive rise in both the Shanghai and bitcoin—similar ascent angle. And the decline has already been sharp.

On a related note (given Tesla’s investment in bitcoin), Tesla’s chart looks similar …
And below, we can see the meteoric rise in the price of lumber.
 
As we discussed in recent Pro Perspectives notes, despite the hot housing market, lumber prices have been disconnected with reality. The supply of standing trees (called stumpage) is abundant. The timber growers are getting no more today for a ton of stumpage than they were decades ago.
 
This lumber market, like the two above, seems to have had a healthy dose of speculation. And all three are now experiencing sharp declines. And the declines tend to get more and more slippery as speculators try to squeeze through the exit door at the same time.

 

Pro Perspectives 5/17/21

May 17, 2021

On Friday, we looked at three key charts as we ended the week.

With the inflationary pressures becoming obvious in the data last week, we looked the well intact trend in broader stocks, the well intact trend in oil prices — both bullish.

And we looked at the ugly chart in the dollar (bearish).  

This all supports the coming inflation storm scenario we discussed on Friday. 

And we may be seeing clues in today's market behavior that suggest people are waking up to the seriousness of that scenario. 

Money is aggressively moving OUT of bitcoin (the antithesis of a "hard asset" preservation of buying power), and INTO gold (the historic battle-tested hard asset preservation of buying power). 

And these moves look like they might accelerate from here. 

First, here's a look at bitcoin…  

Bitcoin is off 32% from the highs of just one month ago. 

And simultaneously, as bitcoin is breakdown, gold is breaking out …
Gold broke out this morning above the key $1,845 level, on the back of news that the adminstration will be distributing even more direct cash handouts (disguised as child tax credits).  I say "disguised," as these payments (also called benefits by the Treasury) will also be disbursed to those that don't pay income taxes.  So, this, in addition to the first two tranches of direct payments, is looking more like another step toward universal income.

So, the government continues to up-the-ante on insane deficit spending, despite a developing boom in the economy, with retail sales back above long-term trend, household net worth at record levels, personal savings near record levels, and asset price appreciation in the double-digits. 

 
To this point, gold has been the laggard in asset class performance (still down ytd).  But with this formula, it may catch up very quickly. 
 
Join my premium service to see how we are positioned to take advantage of the inflation storm — become a member here.  

 

Pro Perspectives 5/14/21

May 14, 2021

Let’s look at some charts as we head into the weekend.

As I said, for those who are concerned about stocks because of the hot inflation data that’s rolling in, they must not be listening to the Fed. 

The Fed has told us that they see inflation as transitory.  And they have told us that they will let inflation run well above their target of 2%, until they believe it to be sustainable (key word). 

If we believe this gameplan, we should be betting on an inflation storm scenario, because the Fed will be slow to respond to inflation.  

Only after the Fed panics and gaps interest rates higher to kill inflation, will they crush economic growth and asset prices (not anytime soon). Until then, the price of almost everything will continue higher.  

With that, this quick dip in stocks was a gift to buy.  The dip looked shallow in the S&P 500 cash market, but in the futures market, the peak to trough decline was a solid 5%.  

And remember, it traded right into this big trendline that represents the Fed intervention that turned the stock market around last year.  It’s a significant trend, and it remains well intact (especially after the aggressive bounce from the lows over the past 24 hours — a 3.5% bounce). 

Another market with a significant trend, and bounce, is oil. 
 
This trend from election day remains intact after a week where oil became the global focus.  The next time we see crude oil dominate the global news might be $100 oil — could be this year.  

Lastly, let’s look at the dollar. 
 
The dollar continues to chop around near the lows of the decline that was triggered by the Fed “bazooka” response in March of last year.  When you increase the money supply by nearly 30% in one year, the value of your dollar against stuff becomes less. For some assets, that adjustment has already happened, quickly.
 
However, to this point the decline in the value of the dollar against other currencies has been orderly. When will the dollar run off of the rails against other currencies?  Probably when it becomes clear that the administration will ram through another $4 trillion in spending, in the face of clear economic strength and inflation pressures.  That could be the catalyst for the market to enforce a penalty on the excess.
 
Within this inflation price regime, value stocks are outperformers.  With that dynamic at work, our Billionaire’s Portfolio has been in the sweet spot (+20% ytd).  You can join us, and get my full portfolio of billionaire-owned value stocks — become a member here.  

 

Pro Perspectives 5/13/21

May 13, 2021

As we know, the broad expectations on the inflation outlook are shifting.

A hot CPI yesterday.  A hot PPI today.

Input prices. Output prices.  Final prices.  Everything is on the move.  It's becoming indefensible for the Fed. 

This was posted from the owner at my local sandwich shop (locally famous for his pragmatic messaging) …

This is all translating into inflation expectations, which as you can see in the chart below, is leading of commodity prices (i.e. inflation expectations are projecting a sharper move higher in commodity prices).
What does the Fed care most about?  Managing inflation expectations.  They are losing the battle.  And with the view creeping into markets that the Fed will have to move earlier on rates, rather than later, stocks have had a four-day sell off. 

But if you miss this four-day, 4% dip in stocks (to buy), you may miss your chance. 
 
As you can see, S&P futures bounced early this morning, right into this big trendline that represents the trend from the bottom marked by Fed intervention last year. That was good for a sharp 2% bounce. 

Bottom line:  Inflation is not a risk to stocks.  Inflation, inflates the nominal value of stocks. 

The risk to stocks is how quickly the Fed will kill the economic recovery to get inflation under control. 

If we believe anything the Fed says, we should probably believe them when they tell us that they will let the economy run hot, "sustainably" above their target rate of 2%).  Sustainably is the key word.  It means they won't be killing the recovery soon.  And it's looking more and more likely that they will be caught wrong-footed, chasing inflation from well behind.  That creates a scenario for a hot run in inflation (maybe/likely double-digits).  That's a recipe for continued inflation of asset prices (stocks included). 
 

Pro Perspectives 5/12/21

May 12, 2021

We had CPI this morning. The numbers were hot. 

While this was a surprise to those that have been taking their guidance from the Fed on the inflation trajectory, it should be no surprise to anyone that has been paying attention to policymaking and to soaring asset prices. 

Again, as we've discussed, what comes next is higher prices in day-to-day living.  And then wages will have to follow.

Today, we had some undeniable evidence that prices in day-to-day living are on the move.  The year-over-year change, at 4.2%, was the highest since 2008.  But by far, the most important number was the month-over-month change.  From March to April, the consumer price index rose by 0.8%.  

If we annualize this month-over-month number, we are looking at a trajectory of double-digit annual inflation. 

Sure, the Fed will keep telling us that it's supply chain and pent-up demand related, which will normalize in time.  But what the Fed and the politicians don't want to talk about, is the impact on prices from the trillions of dollars they have dumped onto the economy.  

Common sense tells us that it will play out as we are seeing it.  Hot, maybe rampant inflation.  This may not look great for stocks today, but broadly nominal prices of stocks will continue higher on this inflation scenario.  It’s the return, after inflation, that will be smaller.