Latest | Billionaire's Portfolio

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.

Pro Perspectives 5/11/21

May 11, 2021

One of the great macro-traders of all time, Stan Druckenmiller, wrote an op-ed in the Wall Street Journal yesterday.

When he shares his views, it's often a good idea to pay attention. He tends to understand the big picture as well or better than anyone, because 1) his view is shaped by global liquidity … and 2) he has a lot of influence.

For a guy that has made his fortune over the past forty years interpreting the impact of central bank policy, no time in his career has the environment been more in his wheelhouse. With that, he has grown his $5 billion dollar fortune by 50% over the past seventeen months.

So, what does he think now?

He thinks the Fed should be ending emergency policies, and making its first rate hike — now.

Instead, the Fed is telling us they won't raise rates for another two years.

They are still buying $40 billion worth of mortgage bonds each month, despite the fact that the housing market is booming and supply is tight.

They are still buying up $80 billion a month of Treasurys, depite the fact that the economy is growing at twice the long-term trend rate, and is on path to grow at double-digits in the second quarter.

Worse, by continuing to buy Treasurys, they are giving Congress the greenlight to continue rubber stamping yet another, and another, multi-trillion dollar spending program. As Druckenmiller says, the bond market is designed to be the arbiter of fiscal policymaking, as investors will vote with their feet (sell Treasurys), when the government is spending irresponsibly. In this case, the Fed bond buying is masking any signal of disapproval from bond market investors.

So, as Congress might be observing the bond market for any negative signals, the Fed is effectively giving them justification to be even more aggressive.

This policy stance (from the Fed and Congress), at this stage in the recovery, is toxic — and is leading to a massive debt service burden for the country, which in the view of Druckenmiller, will ultimately be resolved in a devaluation of the dollar and the loss of the world reserve currency status.

My view/summary: Unfortunately, when the line has been crossed, it has been crossed. The Fed has told us and shown us over the past 12 years that they will do 'whatever it takes' to maintain confidence and stability. With that message clear, the politicians can play them like a fiddle. On Capitol Hill, they can carry out destructive wish list spending and/or policy, knowing that the Fed will be there to keep everyone's head above water (until they can't). As Druckenmiller says, the dollar is the ultimate lynchpin. If/when foreign investors dump the dollar, that's when the real pain arrives. It won't be soon, but we are on the path.

Pro Perspectives 5/10/21

May 10, 2021

As we’ve discussed here in my daily Pro Perspectives notes, asset inflation is only a precursor for the inflation we will soon see in our day-to-day spending.

When you flood the world with money with no end in sight, the buying power of the money in your pocket gets destroyed. It’s that simple.

With the above in mind, the front page of the Wall Street Journal this morning reads “Shoppers Feel Bite As Prices Begin To Climb.”

This comes following earnings calls from major food companies the past few weeks, all singing the same tune about rising prices.

And the operating performance discussed in these calls by food companies is not including the huge spike in prices we’ve seen just in the past 40 days (since the quarter close) …

Corn futures: up 41%
Wheat futures: up 20%
Beans: up 12%

Here’s the way the CEO of Sysco (the world’s largest food distributor) describes what he’s seeing …

“Certainly, the economy is becoming more inflationary. Basic economics are at play here. We have significantly increasing demand, unfortunately, simultaneous with some supply challenges that are pretty well-known out there in the food industry.”

What’s the impact? They are passing prices along to the customers. Customers are paying a higher ticket. And in this environment, they are not getting pushback, yet.

With all of this, there is inflation data on the agenda this week. The U.S. CPI is reported Wednesday. PPI is on Thursday.

This inflation data should quickly counter the narrative that has been created out of Friday’s weak jobs report … the narrative that somehow the Fed is in a more comfortable position now, continuing with their pedal to the metal on emergency monetary policies.

As we discussed Friday, the weak jobs report is a clear outlier in the economic data, because it’s not depicting waning economic activity, rather it’s clearly demonstrating the destructive role that the government is playing in the labor market. The government is winning the competition (against employers) for labor, by paying them more to stay home, than they would make working.

Pro Perspectives 5/7/21

May 7, 2021

In this morning’s jobs report, the market was looking for nearly a million new jobs created in the month of April.

It came in at about one-quarter of that.

Was this a warning signal that the economy is actually slower and more vulnerable than is being spelled in the data and corporate earnings?

That’s precisely what the Biden administration wants us to believe. Because that justifies the additional $4 trillion in spending they have lined up to push through Congress. With that, the glide path to more, massive spending is a positive for markets. That’s why markets (stocks, commodities) were up today, across the board.

But is the jobs report really a signal that the economy isn’t so hot?

Or does the softer employment number from April simply represent the reality that the government is winning the competition for labor by paying people two to four times (depending on what state you live in) the minimum wage to stay at home?

Common sense (plus empirical and anecdotal evidence) would tell us the latter.

The president and his treasury secretary told us today that it’s the former, and moreover they told us that enhanced unemployment benefits have nothing to do with keeping people from returning to work.

But the data doesn’t lie. It’s a labor shortage issue. And it’s a labor shortage issue because employers can’t compete with the government on wages.

That’s why existing workers are having to work longer hours in attempt to satisfy hot demand, especially in the industry that was hardest hit in the pandemic (leisure and hospitality) …

And that’s why employers are desperately looking to add staff. As you can see in the chart below, job openings on Indeed, the online job board, are up 24% from the pre-pandemic levels.

Back in February 2020, the unemployment rate was 3.5%, near the tightest employment on record. The current unemployment rate is 6.1% (far higher), yet the market for talent looks even tighter than it was pre-pandemic.

This will all translate into higher wages, as employers are forced to raise wages to compete with the government. And wage inflation feeds price inflation.

The wage inflation manufactured by the government (through subsidized unemployment) has already led to record savings levels, hot consumer spending and asset inflation. Big inflation in everyday consumer prices is next.

Keep buying assets (as an inflation hedge). And as we discussed yesterday, among the options to protect buying power, gold is a relative bargain.

Pro Perspectives 5/6/21

May 6, 2021

We should expect a hot jobs report tomorrow to continue the steady creep of inflation concerns.

It's the job of Jay Powell and the Fed to manage the expectations of people about price pressures. As Bernanke once said, monetary policy is 98% talk. And Powell and company have been doing a lot of talking.

But it's not easy to talk down the price increases that are right in front of our noses everyday. And beyond the supply/demand dynamics that are putting upward pressure on prices, it's perception that can lead to behavior, and behaviors (related to inflation) are what can lead a dangerous spiral. For that reason, the Fed worries about perception.

If you’re buying today, at any prices, because you think price will be higher tomorrow, that's a recipe for an inflationary spiral. The current housing market is a perfect example.

At this stage in the game, I'm not telling you anything you don't know. We all clearly see the move in asset prices.

What hasn't participated, and has been written off as a "has been" trade, is gold. Despite being THE asset that has historically been most favored in times of inflation, gold is actually DOWN year-to-date (down 4%).

Is that a signal that we are wrong about the sustainability of the inflation we're seeing? Unlikely.

What gives with gold, then? It is believed, by many, that gold has been supplanted by cryptocurrency (namely, Bitcoin) — as the new, improved way to hedge against inflation. If that's the case, we are in for some very serious inflation. Bitcoin is up 93% year-to-date.

The people buying bitcoin as an inflation hedge clearly think "this time is different" — that a digital currency will protect their buying power better than gold in a persistently high, if not hyper-inflation scenario. In my 25 years of investing and trading experience, it's often a bad idea to position for "this time is different."

Even so, surely gold should be benefiting from at least some global capital flows on this inflation perception. Remember, it's down year-to-date.

Clearly gold has been a dislocated asset in this market and economic environment.

But that creates an opportunity to see that dislocation corrected.

And we may have seen the signal for gold to start its big catch-up move today.

Gold broke out of an trading range today, trading above $1,800 for the first time since February. This is an important day for anyone that trades gold or gold stocks.

Two observations to note in this chart above: 1) the break above $1,800 and 2) the longer-term trend is UP.

In a world where asset prices are making new highs by the day, you can buy a dip in gold.

For gold, fundamentally, the outlook is strong given the explicit devaluation of cash through unlimited Fed QE and seemingly unlimited deficit spending.

So is the longer-term technical outlook…

This is a classic C-wave (from Elliott Wave theory) here in gold. This technical pattern projects a move up to $2,700.

How do you play it? Get leveraged exposure to gold through gold miners, or track the price of gold through an ETF, like GLD.

Full disclosure, we are long (gold miner) Barrick Gold in our Billionaire's Portfolio.